Snapple 2013 Annual Report Download - page 55

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Description Judgments and Uncertainties
Effect if Actual Results Differ from
Assumptions
Risk Management Programs
We retain selected levels of property, casualty,
workers' compensation, health and other business
risks. Many of these risks are covered under
conventional insurance programs with high
deductibles or self-insured retentions.
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.
Accrued liabilities related to the retained casualty
and health risks are calculated based on loss
experience and development factors, which
contemplate a number of variables including claim
history and expected trends. These loss
development factors are established in consultation
with actuaries.
We do not believe there is a reasonable likelihood
that there will be a material change in the estimates
or assumptions we use to calculate our self-insured
liabilities. 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.
A 10% change in our accrued liabilities related to
the retained risks as of December 31, 2013, would
have affected net income by approximately $8
million for the year ended December 31, 2013.
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 recently issued accounting standards and recently
adopted provisions of U.S. GAAP.
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 hedge or mitigate commercial risks. We do not enter into derivative instruments for speculation, investing or trading.
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, 2013, 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 $19 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. As of December 31, 2013, we had derivative contracts outstanding with a notional value of $45 million
maturing at various dates through December 15, 2014.