Snapple 2012 Annual Report Download - page 61

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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Income Taxes
We establish income tax liabilities to remove some
or all of the income tax benefit of any of our income
tax positions based upon one of the following: (1)
the tax position is not “more likely than not” to be
sustained, (2) the tax position is “more likely than
not” to be sustained, but for a lesser amount, or (3)
the tax position is “more likely than not” to be
sustained , but not in the financial period in which
the tax position was originally taken.
We assess the likelihood of realizing our deferred
tax assets. Valuation allowances reduce deferred tax
assets to the amount more likely than not to be
realized.
Our liability for uncertain tax positions contains
uncertainties because management is required to
make assumptions and to apply judgment to
estimate the exposures associated with our various
tax positions.
We base our judgment of the recoverability of our
deferred tax asset primarily on historical earnings,
our estimate of current and expected future earnings
and prudent and feasible tax planning strategies.
Our income tax returns, like those of most
companies, are periodically audited by domestic
and foreign tax authorities. These audits include
questions regarding our tax positions, including the
timing and amount of deductions and the allocation
of income among various tax jurisdictions. As these
audits progress, events may occur that cause us to
change our liability for uncertain tax positions.
To the extent we prevail in matters for which a
liability for uncertain tax positions has been
established, or are required to pay amounts in excess
of our established liability, our effective tax rate in
a given financial statement period could be
materially affected. An unfavorable tax settlement
generally would require use of our cash and may
result in an increase in our effective tax rate in the
period of resolution. A favorable tax settlement may
be recognized as a reduction in our effective tax rate
in the period of resolution.
If results differ from our assumptions, a valuation
allowance against deferred tax assets may be
increased or decreased which would impact our
effective tax rate.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 2 of the Notes to our Audited Consolidated Financial Statements in Item 8, "Financial Statements and
Supplementary Data" of this Annual Report on Form 10-K for a discussion of recent accounting standards and pronouncements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks arising from changes in market rates and prices, including movements in foreign currency
exchange rates, interest rates and commodity prices. From time to time, we may enter into derivatives or other financial instruments
to manage such risks.
Foreign Exchange Risk
The majority of our net sales, expenses and capital purchases are transacted in U.S. dollars. However, we have some exposure
with respect to foreign exchange rate fluctuations. Our primary exposure to foreign exchange rates is the Canadian dollar and
Mexican peso against the U.S. dollar. Exchange rate gains or losses related to foreign currency transactions are recognized as
transaction gains or losses in our income statement as incurred. As of December 31, 2012, the impact to our income from operations
of a 10% change (up or down) in exchange rates is estimated to be an increase or decrease of approximately $21 million on an
annual basis.
We use derivative instruments such as foreign exchange forward contracts to manage a portion of our exposure to changes
in foreign exchange rates. For the year ended December 31, 2012, we had derivative contracts outstanding with a notional value
of $90 million maturing at various dates through December 15, 2014.
Interest Rate Risk
We centrally manage our debt portfolio through the use of interest rate swaps and monitor our mix of fixed-rate and variable
rate debt. At December 31, 2012, the carrying value of our debt, excluding capital leases, was $2,748 million, $470 million of
which is designated as fair value hedges and exposed to variability in interest rates.