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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
76
The Company recorded a significant U.S. deferred tax asset of $568 million during 2011 with respect to the PepsiCo and
Coca-Cola deferred revenue balance as of December 31, 2011. This deferred revenue was recognized in total in 2011 for income
tax purposes, while it is being amortized into revenue over the remaining estimated life of the customer relationship under U.S.
GAAP. Conversely, the income tax recognition of this deferred revenue significantly increased our current tax expense and taxes
payable in 2011. For the years ended December 31, 2012 and 2011, the Company made income tax payments of $531 million and
$54 million, respectively, related to the licensing agreements with PepsiCo and Coca-Cola.
As of December 31, 2012, the Company had $22 million in tax effected credit carryforwards and net operating loss
carryforwards. Net operating loss and credit carryforwards will expire in periods beyond the next five years.
The Company had a deferred tax valuation allowance of $32 million as of December 31, 2012 and 2011. A valuation allowance
of $14 million relates to a foreign operation and was established as part of the separation transaction. The remaining $18 million
valuation allowance relates to foreign tax credits generated in 2011. The Company provided a full valuation allowance on the
deferred tax asset related to the foreign tax credits as the Company does not believe that the benefits will be realized in future
years.
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.
The Company files income tax returns for U.S. federal purposes and in various state jurisdictions. The Company also files
income tax returns in various foreign jurisdictions, principally Canada and Mexico. The U.S. and most state income tax returns
for years prior to 2006 are considered closed to examination by applicable tax authorities. Federal income tax returns for 2006,
2007 and 2008 are currently under examination by the Internal Revenue Service. Canadian income tax returns are open for audit
for tax years 2008 and forward and Mexican income tax returns are generally open for tax years 2000 and forward.
Under the Tax Indemnity Agreement, will indemnify DPS for net unrecognized tax benefits and other tax related
items of $439 million. This balance increased by $9 million during the year ended December 31, 2012, and was offset by indemnity
income recorded as a component of other income in the Consolidated Statements of Income. In addition, pursuant to the terms of
the Tax Indemnity Agreement, if DPS breaches certain covenants or other obligations or is involved in certain change-in-control
transactions, may not be required to indemnify the Company.
The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits for the three years ended
December 31, 2012, 2011 and 2010 (in millions):
December 31, December 31, December 31,
2012 2011 2010
Beginning balance $ 480 $ 490 $ 483
Increases related to tax positions taken during the current year —— 3
Increases related to tax positions taken during the prior year 31 18
Decreases related to tax positions taken during the prior year (4)(7)(6)
Decreases related to settlements with taxing authorities (4)— —
Decreases related to lapse of applicable statute of limitations (6)(4)(8)
Ending balance $ 469 $ 480 $ 490
The gross balance of unrecognized tax benefits of $469 million excluded $33 million of offsetting state tax benefits and
temporary difference adjustments. Depending on how associated issues are resolved, the net unrecognized tax benefits of $436
million, if recognized, may reduce the effective income tax rate. It is reasonably possible that the unrecognized tax benefits will
be impacted by the resolution of some matters audited by various taxing authorities within the next twelve months, but a reasonable
estimate of such impact can not be made at this time.