Snapple 2008 Annual Report Download - page 71

Download and view the complete annual report

Please find page 71 of the 2008 Snapple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 150

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150

(3) Represents a charge as a percent of revenues to the estimated future cash flows attributable to our distribution
rights for the estimated required economic returns on investments in property, plant, and equipment, net
working capital, customer relationships, and assembled workforce.
For the Bottling Group goodwill, keeping the residual operating income growth rate constant but changing the
discount rate downward by 0.50% would indicate less of an impairment charge of approximately $60 million.
Keeping the discount rate constant and increasing the residual operating income growth rate by 0.50% would
indicate less of an impairment charge of approximately $10 million. An increase of 0.50% in the estimated
operating income growth rate would reduce the goodwill impairment charge by approximately $75 million.
For the Snapple brand, keeping the residual operating income growth rate constant but changing the discount
rate by 0.50% would result in a $45 million to $50 million change in the impairment charge. Keeping the discount
rate constant but changing the residual operating income growth rate by 0.50% would result in a $30 million to
$35 million change in the impairment charge of the Snapple brand. A change of 0.25% in the estimated operating
income growth rate would change the impairment charge by approximately $25 million.
A change in the critical assumptions detailed above would not result in a change to the impairment charge
related to distribution rights.
The results of our annual impairment tests indicated that the fair value of our indefinite lived intangible assets
and goodwill not discussed above exceeded their carrying values and, therefore, are not impaired.
Based on triggering events in the second and third quarters of 2008, we performed interim impairment analyses
of the Snapple Brand and the Bottling Group goodwill and concluded there was no impairment as of June 30 and
September 30, 2008, respectively. However, deteriorating economic and market conditions in the fourth quarter
triggered higher discount rates as well as lower volume and growth projections which drove the impairments of the
Bottling Group goodwill, Snapple brand and the Bottling Group’s distribution rights recorded in the fourth quarter.
Indicative of the economic and market conditions, our average stock price declined 19% in the fourth quarter as
compared to the average stock price from May 7, 2008, the date of our separation from Cadbury, through
September 30, 2008. The impairment of the distribution rights was attributed to insufficient net economic returns
above working capital, fixed assets and assembled workforce.
In 2007, we recorded impairment charges of $6 million, of which $4 million was related to the Accelerade
brand.
Definite Lived Intangible Assets
Definite lived intangible assets are those assets deemed by the management to have determinable finite useful
lives. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful
lives as follows:
Intangible Asset Useful Life
Brands . . ......................................................... 5to15years
Bottler agreements .................................................. 5to15years
Customer relationships and contracts ..................................... 5to10years
Stock-Based Compensation
We account for our stock-based compensation plans under SFAS No. 123(R), Share-Based Payment
(“SFAS 123(R)”). SFAS 123(R) requires the recognition of compensation expense in our consolidated statement
of operations related to the fair value of employee share-based awards. Determining the amount of expense for
stock-based compensation, as well as the associated impact to our balance sheets and statements of cash flows,
requires us to develop estimates of the fair value of stock-based compensation expense. The most significant factors
of that expense that require estimates or projections include the expected volatility, expected lives and estimated
forfeiture rates of stock-based awards. As we lack a meaningful set of historical data upon which to develop
valuation assumptions, we have elected to develop certain valuation assumptions based on information disclosed by
47