Snapple 2012 Annual Report Download - page 60

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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Customer Marketing Programs and Incentives
Accruals for customer marketing programs and
incentives are established for the expected payout
based on contractual terms, volume-based metrics
and/or historical trends.
Our customer marketing programs and incentives
accrual methodology contains uncertainties
because it requires management to make
assumptions and to apply judgment to estimate the
customer participation and performance levels
which impact the expense recognition. Our estimate
of the amount and timing of customer participation
and performance levels is based primarily on a
combination of historical transaction experience
and forecasted volumes.
Further judgment is required to ensure the
classification of the spend is correctly recorded as
either a deduction from gross sales or advertising
and marketing expense.
We have not made any material changes in the
accounting methodology we used to measure our
customer marketing programs and incentives.
A 10% change in the accrual for our customer
marketing programs and incentives as of December
31, 2012, would have affected net income by $15
million for the year ended December 31, 2012.
Revenue Recognition
We recognize revenue, net of the costs of our
customer marketing programs and incentives, at the
time risk of loss has been transferred to our
customer.
See the discussion above under Customer
Marketing Programs and Incentives for further
information.
Our revenue recognition accounting methodology
contains uncertainties because it requires
management to make assumptions and to apply
judgment to estimate the amount of shipments
where risk of loss has not yet transferred. Our
estimates are based primarily on historical
transactional experience, which is reviewed
annually.
We have not made any material changes in the
accounting methodology we used to measure our
estimate for shipments where risk of loss has not yet
transferred.
A 10% change in the estimate for shipment where
the risk of loss has not yet transferred as of
December 31, 2012, would have affected net income
by less than $1 million for the year ended December
31, 2012.
Pension and Postretirement Benefits
We have several pension and postretirement plans
covering employees who satisfy age and length of
service requirements. Depending on the plan,
pension and postretirement benefits are based on a
combination of factors, which may include salary,
age and years of service.
The Company's largest U.S. defined benefit pension
plan, which is a cash balance plan, was suspended
and the accrued benefit was frozen effective
December 31, 2008. Participants in this plan no
longer earn additional benefits for future services or
salary increases.
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 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 the actuarial
methods to determine the plan obligations and
related expenses include: (1) the discount 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.
Refer to Note 13 of the Notes to our Audited
Consolidated Financial Statements for further
information about the key assumptions.
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,
2012, by approximately $29 million and $34
million, respectively.
The effect of a 1% increase or decrease in the
weighted-average discount rate used to determine
the net periodic pension costs would change the
costs for the year ended December 31, 2012, by
approximately $1 million.
The effect of a 1% increase or decrease in the
expected return on plan assets used to determine the
net periodic pension costs would change the costs
for the year ended December 31, 2012 by
approximately $2 million.
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.
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.
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.
We do not believe there is a reasonable likelihood
that there will be a material change in the estimates
or assumptions we use to calculate our self-insured
liabilities. 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.
A 10% change in our accrued liabilities related to
the retained risks as of December 31, 2012, would
have affected net income by approximately $7
million for the year ended December 31, 2012.