Snapple 2014 Annual Report Download - page 65

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
62
Research and Development Costs
Research and development costs are expensed when incurred and amounted to $18 million, $21 million and $21 million for
the years ended December 31, 2014, 2013 and 2012, respectively. These expenses are recorded when incurred in SG&A expenses
in the Consolidated Statements of Income.
Stock-Based Compensation Expense
The Company accounts for its stock-based compensation plans in accordance with U.S. GAAP, which requires the recognition
of compensation expense in the Consolidated Statements of Income related to the fair value of employee stock-based awards.
Compensation cost is based on the grant-date fair value, which is estimated using the Black-Scholes option pricing model for stock
options. The fair value of restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs") is determined
based on the number of units granted and the grant date price of common stock. Stock-based compensation expense is recognized
ratably, less estimated forfeitures, over the vesting period in the Consolidated Statements of Income. Stock-based compensation
expense for PSUs is adjusted quarterly based on the current estimate of performance compared to the target metric. Refer to Note 16
for additional information .
Deferred Compensation Plan
Employee and employer matching contributions under the supplemental savings plan ("SPP") are maintained in a rabbi trust
and are not readily available to us. Participants can direct the investment of their deferred compensation plan accounts in the same
investments funds offered by the DPS' Savings Incentive Plan (the "SIP"). Although participants direct the investment of these
funds, they are classified as trading securities and are included in other non-current assets. The corresponding liability related to
the deferred compensation plan is recorded in other non-current liabilities. Gains and losses in connection with these trading
securities are recorded in other expense (income), net, with an offset for the same amount recorded in SG&A expenses. We had
deferred compensation plan assets of $25 million and $21 million as of December 31, 2014 and 2013, respectively. Gains associated
with these trading securities were $1 million and $2 million for the years ended December 31, 2014 and 2013, respectively.
Foreign Currency Translation
The functional currency of the Company's operations outside the U.S. is generally the local currency of the country where the
operations are located. The balance sheets of operations outside the U.S. are translated into U.S. Dollars at the end of year rates.
The results of operations are translated into U.S. dollars at a monthly average rate, calculated using daily exchange rates.
The following table sets forth exchange rate information for the periods and currencies indicated:
Mexican Peso to U.S. Dollar Exchange Rate End of Year
Rates Annual Average Rates
2014 14.74 13.31
2013 13.08 12.77
2012 12.97 13.15
Canadian Dollar to U.S. Dollar Exchange Rate End of Year
Rates Annual Average Rates
2014 1.16 1.10
2013 1.06 1.03
2012 0.99 1.00
Differences arising from the translation of opening balance sheets of these entities to the rate ruling at the end of the financial
year are recognized in AOCL. The differences arising from the translation of foreign results at the average rate are also recognized
in AOCL. Such translation differences are recognized as income or expense in the period in which the Company disposes of the
operations.
Transactions in foreign currencies are recorded at the approximate rate of exchange at the transaction date. Assets and liabilities
resulting from these transactions are translated at the rate of exchange in effect at the balance sheet date. All such differences are
recorded in results of operations.