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16. Stock-Based Compensation and Cash Incentive Plans
Stock-Based Compensation
Stock-based compensation expense for years ended December 31, 2008, 2007 and 2006, has been determined
based on SFAS 123(R), which requires the recognition of compensation expense in the Consolidated Statements of
Operations related to the fair value of employee share-based awards and recognition of compensation cost over the
service period, net of estimated forfeitures.
The components of stock-based compensation expense for the years ended December 31, 2008, 2007 and
2006, are presented below (in millions):
2008 2007 2006
For the Year Ended
December 31,
Plans sponsored by Cadbury ...................................... $3 $21 $17
DPS stock options and restricted stock units ........................... 6 — —
Total stock-based compensation expense ............................ 9 21 17
Income tax benefit recognized in the income statement ................... (2) (8) (7)
Net stock-based compensation expense ............................. $7 $13 $10
In connection with the separation from Cadbury, on May 5, 2008, Cadbury Schweppes Limited, the
Company’s sole stockholder, approved (a) the Company’s Omnibus Stock Incentive Plan of 2008 (the “Stock
Plan”) and authorized up to 9 million shares of the Company’s common stock to be issued under the Stock Plan and
(b) the Company’s Employee Stock Purchase Plan (“ESPP”) and authorized up to 2,250,000 shares of the
Company’s common stock to be issued under the ESPP. Subsequent to May 7, 2008, the Compensation Committee
granted under the Stock Plan (a) options to purchase shares of the Company’s common stock, which vest ratably
over three years commencing with the first anniversary date of the option grant, and (b) restricted stock units
(“RSUs”), with the substantial portion of such restricted stock units vesting on the third anniversary date of the
grant, with each restricted stock unit to be settled for one share of the Company’s common stock on the respective
vesting date of the restricted stock unit. The stock options issued under the Stock plan provides for a maximum
option term of 10 years. The ESPP has not been implemented and no shares have been issued under that plan.
Stock Options
The tables below summarize information about the Company’s stock options granted during the year ended
December 31, 2008.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton
option-pricing model with the weighted average assumptions as detailed below:
Fair value of options at grant date .......................................... $7.37
Risk free interest rate . . . ................................................ 3.27%
Expected term of options ................................................ 5.8years
Dividend yield ........................................................ —%
Expected volatility ..................................................... 22.26%
As the Company lacks a meaningful set of historical data upon which to develop valuation assumptions, DPS
has 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.
89
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)