Snapple 2012 Annual Report Download - page 75

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
57
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 13 for additional information.
Transfers between levels are recognized at the end of each reporting period.
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, 2012, 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 Act of 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 12 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. As of December 31, 2012 and 2011, the Company had accrued
liabilities related to the retained risks of $120 million and $89 million, respectively, including both current and long-term liabilities.
As of December 31, 2012, the Company recorded receivables of $21 million for insurance recoveries related to these retained
risks.
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, the deferred tax expense or benefit and the impact of uncertain tax positions 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 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, and prudent and feasible tax planning strategies.
Refer to Note 11 for additional information.
As of December 31, 2012 and 2011, undistributed earnings in non-U.S. subsidiaries for which no deferred taxes have been
provided totaled approximately $293 million and $244 million, respectively. Deferred income taxes have not been provided on
these earnings because the Company has either asserted indefinite reinvestment or outside tax basis exceeds book basis. 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.