Snapple 2008 Annual Report Download - page 87

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.
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 $3,057 million, $3,159 million and $2,440 million
in 2008, 2007 and 2006, respectively. Trade spend for 2008 and 2007 reflect a full year of trade spend costs from the
Company’s Bottling Group while 2006 includes the effect of the Bottling Group’s trade spend only from the date of
the acquisition of the remaining 55% of Dr Pepper/Seven Up Bottling Group, Inc. (“DPSUBG”). The amounts of
trade spend are larger in the Bottling Group than those related to other parts of its 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, $736 million and $582 million of transportation and warehousing costs
in 2008, 2007 and 2006, respectively. These amounts, which primarily relate to shipping and handling costs, are
recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.
Advertising and Marketing Expense
Advertising and marketing costs are expensed as incurred and amounted to approximately $356 million,
$387 million and $374 million for 2008, 2007 and 2006, respectively. These expenses are recorded in selling,
general and administrative expenses in the Consolidated Statements of Operations.
Research and Development
Research and development costs are expensed when incurred and amounted to $17 million in 2008. Research
and development costs totaled $14 million for each of 2007 and 2006, net of allocations to Cadbury. Additionally,
the Company incurred packaging engineering costs of $4 million, $5 million, and $3 million for 2008, 2007 and
2006, respectively. These expenses are recorded in selling, general and administrative expenses in the Consolidated
Statements of Operations.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under SFAS No. 123(R), Share-Based Payment
(“SFAS 123(R)”). SFAS 123(R) requires the recognition of compensation expense in the Consolidated Statement of
Operations related to the fair value of employee share-based awards.
Under SFAS 123(R), the Company recognizes 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 the separation from
Cadbury, the Company 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 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.
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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)