Snapple 2010 Annual Report Download - page 83

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
component of the Consolidated Statements of Operations. For derivative instruments that are designated and qualify as fair value
hedges, the effective change in the fair value of the instrument as well as the offsetting gain or loss on the hedged item attributable
to the hedged risk, are recognized immediately in current-period earnings. For derivatives that are not designated or de-designated
as a hedging instrument, the gain or loss on the instrument is recognized in earnings in the period of change.
Certain interest rate swap agreements qualify for the shortcut method of accounting for hedges under U.S. GAAP. Under the
shortcut method, the hedges are assumed to be perfectly effective and no ineffectiveness is recorded in earnings. For all other
designated hedges, the Company assesses at the time the derivative contract is entered into, and at least quarterly thereafter, whether
the derivative instrument is effective in offsetting the changes in fair value or cash flows. DPS also measures hedge ineffectiveness
on a quarterly basis throughout the designated period. Changes in the fair value of the derivative instrument that do not effectively
offset changes in the fair value of the underlying hedged item throughout the designated hedge period are recorded in earnings
each period.
If a fair value or cash flow hedge were to cease to qualify for hedge accounting, or were terminated, it would continue to be
carried on the balance sheet at fair value until settled, but hedge accounting would be discontinued prospectively. If the underlying
hedged transaction ceases to exist, any associated amounts reported in AOCL are reclassified to earnings at that time.
Fair Value of Financial Instruments
The carrying amounts reflected in the Consolidated Balance Sheets of cash and cash equivalents, accounts receivable, net,
and accounts payable and accrued expenses approximate their fair values due to their short-term nature. The fair value of long
term debt as of December 31, 2010 and 2009, is based on quoted market prices for publicly traded securities.
The Company estimates fair values of financial instruments measured at fair value in the financial statements on a recurring
basis to ensure they are calculated based on market rates to settle the instruments. These values represent the estimated amounts
DPS would pay or receive to terminate agreements, taking into consideration current market rates and creditworthiness. The fair
value for financial instruments categorized as Level 1 is based on quoted prices in active markets for identical assets or liabilities.
The fair value of financial instruments categorized as Level 2 is determined using valuation techniques based on inputs derived
from observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow
techniques. Refer to Note 14 for additional information.
Pension and Postretirement Benefits
The Company has U.S. and foreign pension and postretirement benefit plans which provide benefits to a defined group of
employees who satisfy age and length of service requirements at the discretion of the Company. As of December 31, 2010, the
Company has several stand-alone non-contributory defined benefit plans and postretirement medical plans. Depending on the
plan, pension and postretirement benefits are based on a combination of factors, which may include salary, age and years of service.
Pension expense has been determined in accordance with the principles of U.S. GAAP. The Company’s policy is to fund
pension plans in accordance with the requirements of the Employee Retirement Income Security Actof 1974, as amended. Employee
benefit plan obligations and expenses included in the Consolidated Financial Statements are determined from actuarial analyses
based on plan assumptions, employee demographic data, years of service, compensation, benefits and claims paid and employer
contributions.
The expense related to the postretirement plans has been determined in accordance with U.S. GAAP and the Company accrues
the cost of these benefits during the years that employees render service. Refer to Note 15 for additional information.
Risk Management Programs
The Company retains 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. 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 external insurance brokers and actuaries. As of December 31, 2010 and 2009, the Company had accrued liabilities related to
the retained risks of $80 million and $68 million, respectively, including both current and long-term liabilities.
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