Snapple 2010 Annual Report Download - page 84

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes
Income taxes are accounted for using the asset and liability approach under U.S. GAAP. This method involves determining
the temporary differences between assets and liabilities recognized for financial reporting and the corresponding 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.
The Company periodically assesses the likelihood of realizing its deferred tax assets based on the amount of deferred tax
assets that the Company believes is more likely than not to be realized. The Company bases its judgment of the recoverability of
its deferred tax asset primarily on historical earnings, its estimate of current and expected future earnings, prudent and feasible
tax planning strategies, and current and future ownership changes. Refer to Note 12 for additional information.
As of December 31, 2010 and 2009, undistributed earnings considered to be permanently reinvested in non-U.S. subsidiaries
totaled approximately $203 million and $115 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.
DPS’ 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.
The Company establishes income tax reserves to remove some or all of the income tax benefit of any of the Company's
income tax positions at the time DPS determines that the positions become uncertain 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. The Company's evaluation of whether or not a tax position is uncertain is based on the following:
(1) DPS presumes the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant
information, (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative
intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position, and (3) each
tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. The
Company adjusts these income tax reserves when the Company's judgment changes as a result of new information. Any change
will impact income tax expense in the period in which such determination is made.
Revenue Recognition
The Company recognizes sales revenue when all of the following have occurred: (1) delivery; (2) persuasive evidence of an
agreement exists; (3) pricing is fixed or determinable; and (4) collection is reasonably assured. Delivery is not considered to have
occurred until the title and the risk of loss passes to the customer according to the terms of the contract between the Company and
the customer. The timing of revenue recognition is largely dependent on contract terms. For sales to other customers that are
designated in the contract as free-on-board destination, revenue is recognized when the product is delivered to and accepted at the
customer’s delivery site. Net sales are reported net of costs associated with customer marketing programs and incentives, as
described below, as well as sales taxes and other similar taxes.
Multiple deliverables were included in the arrangements entered into with PepsiCo, Inc. ("PepsiCo") and The Coca-Cola
Company ("Coca-Cola") during 2010. In these cases, we first determined whether each deliverable met the separation criteria
under U.S. GAAP. The primary requirement for a deliverable to meet the separation criteria is if the deliverable has standalone
value to the customer. Each deliverable that meets the separation criteria is considered a separate "unit of accounting". As the sale
of the manufacturing and distribution rights and the ongoing sales of concentrate would not have standalone value to the customer,
both deliverables were determined to represent a single element of accounting for purposes of revenue recognition. The one-time
nonrefundable cash receipts from PepsiCo and Coca-Cola were therefore recorded as deferred revenue and will be recognized as
net sales ratably over the estimated 25-year life of the customer relationship.
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