Snapple 2012 Annual Report Download - page 76

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
58
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, the Company 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.
Customer Marketing Programs and Incentives
The Company offers a variety of incentives and discounts to bottlers, customers and consumers through various programs to
support the distribution of its products. These incentives and discounts include cash discounts, price allowances, volume based
rebates, product placement fees and other financial support for items such as trade promotions, displays, new products, consumer
incentives and advertising assistance. These incentives and discounts are reflected as a reduction of gross sales to arrive at net
sales. The aggregate deductions from gross sales recorded in relation to these programs were approximately $3,751 million, $3,733
million and $3,686 million during the years ended December 31, 2012, 2011 and 2010, respectively. The amounts of trade spend
are larger in the Packaged Beverages segment than those related to other parts of our business. Accruals are established for the
expected payout based on contractual terms, volume-based metrics and/or historical trends and require management judgment
with respect to estimating customer participation and performance levels.
Transportation and Warehousing Costs
The Company incurred $775 million, $794 million and $754 million of transportation and warehousing costs during the years
ended December 31, 2012, 2011 and 2010, respectively. These amounts, which primarily relate to shipping and handling costs,
are recorded in SG&A expenses in the Consolidated Statements of Income.
Advertising and Marketing Expense
Advertising and marketing production costs related to television, print, radio and other marketing investments are expensed
as of the first date the advertisement takes place and amounted to approximately $481 million, $460 million and $445 million
during the years ended December 31, 2012, 2011 and 2010, respectively. These expenses are recorded in SG&A expenses in the
Consolidated Statements of Income. As of December 31, 2012 and 2011, advertising and marketing costs of approximately $28
million and $35 million, respectively, were recorded as other current and non-current assets in the Consolidated Balance Sheets.