Snapple 2008 Annual Report Download - page 73

self-insured liabilities for our Bottling Group prior to participation in the Cadbury placed insurance programs. Prior
to our separation from Cadbury, we participated in insurance programs placed by Cadbury. Prior to and upon
separation, Cadbury retained the risk and accrued liabilities for the exposures insured under these insurance
programs.
We believe the use of actuarial methods to estimate our future losses provides a consistent and effective way to
measure our self-insured liabilities. However, the estimation of our liability is judgmental and uncertain given the
nature of claims involved and length of time until their ultimate cost is known. The final settlement amount of
claims can differ materially from our estimate as a result of changes in factors such as the frequency and severity of
accidents, medical cost inflation, legislative actions, uncertainty around jury verdicts and awards and other factors
outside of our control.
Income Taxes
Income taxes are computed and reported on a separate return basis and accounted for using the asset and
liability approach under SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). This method involves
determining the temporary differences between combined assets and liabilities recognized for financial reporting
and the corresponding combined amounts recognized for tax purposes and computing the tax-related carryforwards
at the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The resulting amounts are deferred tax assets or liabilities and the net changes
represent the deferred tax expense or benefit for the year. The total of taxes currently payable per the tax return and
the deferred tax expense or benefit represents the income tax expense or benefit for the year for financial reporting
purposes.
We periodically assess the likelihood of realizing our deferred tax assets based on the amount of deferred tax
assets that we believe is more likely than not to be realized. We base our judgment of the recoverability of our
deferred tax asset primarily on historical earnings, our estimate of current and expected future earnings, prudent and
feasible tax planning strategies, and current and future ownership changes.
As of December 31, 2008, undistributed earnings considered to be permanently reinvested in
non-U.S. subsidiaries totaled approximately $124 million. Deferred income taxes have not been provided on this
income as the Company believes these earnings to be permanently reinvested. It is not practicable to estimate the
amount of additional tax that might be payable on these undistributed foreign earnings.
Our effective income tax rate may fluctuate on a quarterly basis due to various factors, including, but not
limited to, total earnings and the mix of earnings by jurisdiction, the timing of changes in tax laws, and the amount
of tax provided for uncertain tax positions.
Effect of Recent Accounting Pronouncements
Refer to Note 2 of the Notes to our Audited Consolidated Financial Statements in Item 8 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 inflation,
movements in foreign currency exchange rates, interest rates, and commodity prices.
Foreign Exchange Risk
The majority of our net sales, expenses, and capital purchases are transacted in United States dollars. However,
we do 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. We use derivative instruments such as foreign exchange forward contracts to manage our exposure to
changes in foreign exchange rates. As of December 31, 2008, the impact to net income of a 10% change in exchange
rates is estimated to be approximately $17 million.
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