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similarly-situated companies, including multi-national consumer goods companies of similar market capitalization
and large food and beverage industry companies which have experienced an initial public offering since June 2001.
In accordance with SFAS 123(R), we recognize the cost of all unvested employee stock options on a straight-
line attribution basis over their respective vesting periods, net of estimated forfeitures. Prior to our separation from
Cadbury, we participated in certain employee share plans that contained inflation indexed earnings growth
performance conditions. These plans were accounted for under the liability method of SFAS 123(R). In accordance
with SFAS 123(R), a liability was recorded on the balance sheet until and, in calculating the income statement
charge for share awards, the fair value of each award was remeasured at each reporting date until awards vested. We
no longer participate in employee share plans that contain inflation indexed earnings growth performance
conditions.
Pension and Postretirement Benefits
We have several pension and postretirement plans covering employees who satisfy age and length of service
requirements. There are twelve stand-alone non-contributory defined benefit pension plans and six stand-alone
postretirement 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 SFAS No. 87, Employers’
Accounting for Pensions, as amended by SFAS No. 158, Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans — An amendment of Financial Accounting Standards Board Statements No. 87, 88,
106, and 132(R) (“SFAS 158”). Our policy is to fund pension plans in accordance with the requirements of the
Employee Retirement Income Security Act. Employee benefit plan obligations and expenses included in our
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 SFAS No. 106,
Employers’ Accounting for Postretirement Benefits Other Than Pensions (“SFAS 106”), as amended by
SFAS No. 158. As stated in SFAS 106, we accrue the cost of these benefits during the years that employees
render service to us.
The calculation of pension and postretirement plan obligations and related expenses is dependent on several
assumptions used to estimate the present value of the benefits earned while the employee is eligible to participate in
the plans. The key assumptions we use in determining the plan obligations and related expenses include: (1) the
interest rate used to calculate the present value of the plan liabilities; (2) employee turnover, retirement age and
mortality; and (3) the expected return on plan assets. Our assumptions reflect our historical experience and our best
judgment regarding future performance. Due to the significant judgment required, our assumptions could have a
material impact on the measurement of our pension and postretirement obligations and expenses. Refer to Note 15
of the Notes to our Audited Consolidated Financial Statements for further information.
The effect of a 1% increase or decrease in the weighted-average discount rate used to determine the pension
benefit obligations for U.S. plans would change the benefit obligation as of December 31, 2008, by approximately
$26 million and $29 million, respectively. The effect of a 1% change in the weighted-average assumptions used to
determine the net periodic costs would change the costs for the year ended December 31, 2008, by approximately
$3 million.
Risk Management Programs
We retain selected levels of property, casualty, workers’ compensation 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 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. At December 31, 2008, we had
accrued liabilities related to the retained risks of $60 million, including both current and long-term liabilities. At
December 31, 2007, we had accrued liabilities of $49 million primarily related to retained risks to cover long-term,
48