Snapple 2011 Annual Report Download - page 81

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
61
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.
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, excluding contract manufacturing
customers, were approximately $3,733 million, $3,686 million and $3,419 million during the years ended December 31, 2011,
2010 and 2009, respectively. During 2009, the Company upgraded its SAP platform in the Direct Store Delivery system ("DSD").
As part of the upgrade, DPS harmonized its gross list price structure across locations. The impact of the change increased gross
sales and related discounts by equal amounts on customer invoices. Net sales to the customers were not affected. 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 $794 million, $754 million and $706 million of transportation and warehousing costs during the years
ended December 31, 2011, 2010 and 2009, respectively. These amounts, which primarily relate to shipping and handling costs,
are recorded in selling, general and administrative expenses in the Consolidated Statements of Income.