Snapple 2010 Annual Report Download - page 69

Stock-Based Compensation
We account for our stock-based compensation plans under U.S. GAAP, which requires the recognition of compensation
expense in our Consolidated Statements of Operations related to the fair value of employee share-based awards. Determining
the amount of expense for stock-based compensation, as well as the associated impact to our balance sheets and statements of
cash flows, requires us to develop estimates of the fair value of stock-based compensation expense. The most significant factors
of that expense that require estimates or projections include the expected volatility, expected lives and estimated forfeiture rates
of stock-based awards. As we lack a meaningful set of historical data upon which to develop valuation assumptions, we have
elected to develop certain valuation assumptions based on information disclosed by 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 U.S. GAAP, 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.
Pension and Postretirement Benefits
We have several pension and postretirement plans covering employees who satisfy age and length of service requirements.
There are five 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 U.S. GAAP. 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 U.S. GAAP. We accrue the cost of
these benefits during the years that employees render service to us in accordance with U.S. GAAP.
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, 2010, by approximately $23 million and $26
million, respectively. The effect of a 1% increase or decrease in the weighted-average assumptions used to determine the net
periodic pension costs would change the costs for the year ended December 31, 2010, by approximately $1 million each.
Risk Management Programs
We retain 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. At December 31, 2010 and 2009, we had accrued liabilities related to the
retained risks of $80 million and $68 million, respectively, including both current and long-term liabilities.
We believe the use of actuarial methods to estimate our future losses provides a consistent and effective way to measure
our self-insured liabilities. However, the estimation of our liability is judgmental and uncertain given the nature of claims
involved and length of time until their ultimate cost is known. The final settlement amount of claims can differ materially from
our estimate as a result of changes in factors such as the frequency and severity of accidents, medical cost inflation, legislative
actions, uncertainty around jury verdicts and awards and other factors outside of our control.
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