Snapple 2010 Annual Report Download - page 67

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The tests for impairment include significant judgment in estimating the fair value of intangible assets primarily by
analyzing forecasts of future revenues and profit performance. Fair value is based on what the intangible asset would be worth
to a third party market participant. Discount rates are based on a weighted average cost of equity and cost of debt, adjusted with
various risk premiums. These assumptions could be negatively impacted by various of the risks discussed in “Risk Factors” in
this Annual Report on Form 10-K.
For our annual impairment analysis performed as of December 31, 2010 and 2009, methodologies used to determine the
fair values of the assets included an income based approach, as well as an overall consideration of market capitalization and our
enterprise value. Management’s estimates of fair value, which fall under Level 3, are based on historical and projected
operating performance. Discount rates were based on a weighted average cost of equity and cost of debt and were adjusted with
various risk premiums.
As of December 31, 2010 and 2009, the results of the Step 1 analysis indicated that the estimated fair value of our
indefinite lived intangible assets and goodwill substantially exceeded their carrying values and, therefore, are not impaired.
The results of the Step 1 analyses performed as of December 31, 2008, indicated there was a potential impairment of
goodwill in the DSD reporting unit as the book value exceeded the estimated fair value. As a result, Step 2 of the goodwill
impairment test was performed for the reporting unit. The implied fair value of goodwill determined in the Step 2 analysis was
determined by allocating the fair value of the reporting unit to all the assets and liabilities of the applicable reporting unit
(including any unrecognized intangible assets and related deferred taxes) as if the reporting unit had been acquired in a business
combination. As a result of the Step 2 analysis, we impaired the entire DSD reporting unit’s goodwill.
The Step 2 analysis in 2008 resulted in non-cash charges of $1,039 million, which are reported in the line item impairment
of goodwill and intangible assets in our Consolidated Statements of Operations. A summary of the impairment charges for 2008
is provided below (in millions):
Snapple brand(1)
Distribution rights(2)
Goodwill(3)
Total
For the Year Ended December 31, 2008
Impairment
Charge
$ 278
581
180
$ 1,039
Income Tax
Benefit
$(112)
(220)
(11)
$(343)
Impact on Net
Income
$ 166
361
169
$ 696
____________________________
(1) Included within the WD reporting unit.
(2) Includes the DSD reporting unit’s distribution rights, brand franchise rights, and bottler agreements which convey certain
rights to DPS, including the rights to manufacture, distribute and sell products of the licensor within specified territories.
(3) Includes all goodwill recorded in the DSD reporting unit which related to our bottler acquisitions in 2006 and 2007.
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