Snapple 2008 Annual Report Download - page 69

Revenue Recognition
We recognize sales revenue when all of the following have occurred: (1) delivery; (2) persuasive evidence of an
agreement exists; (3) pricing is fixed or determinable; and (4) collection is reasonably assured. Delivery is not
considered to have occurred until the title and the risk of loss passes to the customer according to the terms of the
contract between the customer and us. The timing of revenue recognition is largely dependent on contract terms. For
sales to customers that are designated in the contract as free-on-board destination, revenue is recognized when the
product is delivered to and accepted at the customer’s delivery site. Net sales are reported net of costs associated
with customer marketing programs and incentives, as described below, as well as sales taxes and other similar taxes.
Customer Marketing Programs and Incentives
We offer a variety of incentives and discounts to bottlers, customers and consumers through various programs
to support the distribution of our products. These incentives and discounts include cash discounts, price allowances,
volume based rebates, product placement fees and other financial support for items such as trade promotions,
displays, new products, consumer incentives and advertising assistance. These incentives and discounts are
reflected as a reduction of gross sales to arrive at net sales. The aggregate deductions from gross sales recorded
in relation to these programs were approximately $3,057 million, $3,159 million and $2,440 million in 2008, 2007
and 2006, respectively. Trade spend for 2008 and 2007 reflect a full year of trade spend costs from our Bottling
Group while 2006 includes the effect of our Bottling Group’s trade spend only from the date of the acquisition of the
remaining 55% of DPSUBG. The amounts of trade spend are larger in our Bottling Group than those related to other
parts of our business. Our customer incentive programs are generally based on annual targets. Accruals are
established for the expected payout based on contractual terms, volume-based metrics and/or historical trends and
require management judgment with respect to estimating customer participation and performance levels.
Goodwill and Other Indefinite Lived Intangible Assets
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other
Intangible Assets, (“SFAS 142”) we classify intangible assets into three categories: (1) intangible assets with
definite lives subject to amortization; (2) intangible assets with indefinite lives not subject to amortization; and
(3) goodwill. The majority of our intangible asset balance is made up of brands which we have determined to have
indefinite useful lives. In arriving at the conclusion that a brand has an indefinite useful life, management reviews
factors such as size, diversification and market share of each brand. Management expects to acquire, hold and
support brands for an indefinite period through consumer marketing and promotional support. We also consider
factors such as our ability to continue to protect the legal rights that arise from these brand names indefinitely or the
absence of any regulatory, economic or competitive factors that could truncate the life of the brand name. If the
criteria are not met to assign an indefinite life, the brand is amortized over its expected useful life.
We conduct tests for impairment in accordance with SFAS 142. For intangible assets with definite lives, we
conduct tests for impairment if conditions indicate the carrying value may not be recoverable. For goodwill and
intangible assets with indefinite lives, we conduct tests for impairment annually, as of December 31, or more
frequently if events or circumstances indicate the carrying amount may not be recoverable. We use present value
and other valuation techniques to make this assessment. If the carrying amount of goodwill or an intangible asset
exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For purposes of
impairment testing we assign goodwill to the reporting unit that benefits from the synergies arising from each
business combination and also assign indefinite lived intangible assets to our reporting units. We define reporting
units as our business segments. Our equity method investees also perform such tests for impairment for intangible
assets and/or goodwill. If an impairment charge was recorded by our equity method investee, we would record our
proportionate share of such charge.
The impairment test for indefinite lived intangible assets encompasses calculating a fair value of an indefinite
lived intangible asset and comparing the fair value to its carrying value. If the carrying value exceeds the estimated
fair value, impairment is recorded. The impairment tests for goodwill include comparing a fair value of the
respective reporting unit with its carrying value, including goodwill and considering any indefinite lived intangible
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