Snapple 2011 Annual Report Download - page 80

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
60
Fair Value of Financial Instruments
The carrying amounts reflected in the Consolidated Balance Sheets of cash and cash equivalents, accounts receivable, net,
accounts payable and other current liabilities approximate their fair values due to their short-term nature. The fair value of long
term debt as of December 31, 2011 and 2010, 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 Notes 12 and 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, 2011, 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 13 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, 2011 and 2010, the Company had accrued liabilities related to
the retained risks of $89 million and $80 million, respectively, including both current and long-term liabilities.
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 11 for additional information.
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.