Snapple 2009 Annual Report Download - page 74

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, 2009 and 2008, undistributed earnings considered to be permanently reinvested in
non-U.S. subsidiaries totaled approximately $115 million and $124 million, respectively. 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, “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 inflation,
movements in foreign currency exchange rates, interest rates, and commodity prices. The Company does not
enter into derivatives or other financial instruments for trading purposes.
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, 2009, the impact to net income of a 10% change in exchange
rates is estimated to be approximately $14 million.
Interest Rate Risk
We centrally manage our debt portfolio and monitor our mix of fixed-rate and variable rate debt.
We are subject to floating interest rate risk with respect to amounts borrowed under our unsecured Revolver.
We incurred $405 million of debt with floating interest rates under this facility. A change in the estimated interest
rate on the outstanding balance of borrowings under the unsecured Revolver up or down by 1% will increase or
decrease our earnings before provision for income taxes by approximately $4 million, respectively, on an annual
basis. We will also have interest rate exposure for any additional amounts we may borrow in the future under the
Revolver.
Interest Rate Fair Value Hedges
DPS enters into interest rate swaps to convert fixed-rate, long-term debt to floating-rate debt. These swaps are
accounted for as fair value hedges under U.S. GAAP. These fair value hedges qualify for the short-cut method of
recognition; therefore, no portion of these swaps is treated as ineffective.
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