Snapple 2014 Annual Report Download - page 48

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Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
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.
Our 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) 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 14 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, 2014 by approximately $27 million
and $33 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, 2014 by
approximately $1 million and $2 million,
respectively.
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, 2014 by
approximately $2 million.
Multi-employer Pension Plan Withdrawal Liability
We contribute to a number of multi-employer
defined benefit plans under the terms of collective
bargaining agreements that cover its union-
represented employees. We record liabilities to exit
a participating plan when an exit becomes both
probable and estimable. The estimated withdrawal
liability is determined from actuarial analyses
based on historical and anticipated employer
contributions.
The calculation of the multi-employer pension
plan withdrawal liability and related expense is
dependent on several assumptions used to estimate
the present value of the estimated withdrawal
liability.
The key assumptions we use in the actuarial
methods to determine the estimated withdrawal
liability and related expenses include: (1) the
amount of the anticipated contributions, which is
based upon the timing of the withdrawal liability
assessment provided by the trustee; (2) the discount
rate used to calculate the present value of the
estimated withdrawal liability; and (3) the
expected return on plan assets. Our assumptions
reflect our best judgment regarding the outcome of
the assessment.
The effect of a 10% increase or decrease in the
anticipated contributions used by the trustee to
assess the withdrawal liability would change the
withdrawal liability as of December 31, 2014 by
approximately $6 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 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, 2014 would
have affected income from operations by
approximately $14 million for the year ended
December 31, 2014.