Snapple 2010 Annual Report Download - page 66

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.
Multiple deliverables were included in the arrangements entered into with PepsiCo and Coca-Cola during 2010. In this case,
we first determined whether each deliverable met the separation criteria under U.S. GAAP.The primary requirement for a deliverable
to meet the separation criteria is if the deliverable has standalone value to the customer. Each deliverable that meets the separation
criteria is considered a separate "unit of accounting". As the sale of the manufacturing and distribution rights and the ongoing
sales of concentrate would not have standalone value to the customer, both deliverables represent a single element of accounting
for purposes of revenue recognition. The one-time nonrefundable cash receipts from PepsiCo and Coca-Cola were therefore
recorded as deferred revenue and will be recognized as net sales ratably over the estimated 25-year life of the customer relationship.
Customer Marketing Programs and Incentives
The Company offers a variety of incentives and discounts to bottlers, customers and consumers through various programs
to support the distribution of its 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 $3,686
million, $3,419 million and $3,057 million for the years ended December 31, 2010, 2009 and 2008, respectively. During 2009,
the Company upgraded its SAP platform in DSD. As part of the upgrade, DPS harmonized its gross list price structure across
locations. The impact of the change increased gross sales and related discounts by equal amounts on customer invoices. Net
sales were not affected. The amounts of trade spend are larger in our Packaged Beverages segment than those related to other
parts of our business. 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 U.S. GAAP 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 U.S. GAAP. 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 Beverage Concentrates, Latin America Beverages, and Packaged Beverages’ two reporting units,
DSD and WD.
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 asset impairment charges (“Step 1”). If
the carrying value exceeds the estimated fair value, impairment is indicated and a second step (“Step 2”) analysis must be
performed.
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