Snapple 2012 Annual Report Download - page 59

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Acquisitions
We may make future acquisitions. For example, we may make acquisitions of regional bottling companies, distributors and
distribution rights to further extend our geographic coverage. Any acquisitions may require additional funding for future capital
expenditures and possibly restructuring expenses.
Potential Canadian Tax Law Change
As of December 31, 2012, our Canadian deferred tax assets included a separation related balance of $117 million that was
offset by a liability due to of $105 million driven by the Tax Indemnity Agreement. A bill was introduced in the Canadian
Parliament in late 2012 which will reduce amounts amortized for income tax purposes. Should this bill be enacted, we anticipate
a write-down of our tax assets, primarily non-current deferred tax assets, which will increase our provision for income taxes by
approximately $51 million. Additionally, we anticipate a reduction of our long-term liability to which will increase our
other income by approximately $40 million. In total, these adjustments are expected to increase our effective tax rate and reduce
net income by approximately $11 million.
CRITICAL ACCOUNTING ESTIMATES
The process of preparing our consolidated financial statements in conformity with U.S. GAAP requires the use of estimates
and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. Critical accounting estimates are both
fundamental to the portrayal of a company’s financial condition and results and require difficult, subjective or complex estimates
and assessments. These estimates and judgments are based on historical experience, future expectations and other factors and
assumptions we believe to be reasonable under the circumstances. The most significant estimates and judgments are reviewed on
an ongoing basis and revised when necessary. We have identified the items described below as our critical accounting estimates.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we
use in our critical accounting estimates. However, if actual results are not consistent with our estimates or assumptions, we may
be exposed to gains or losses that could be material to our consolidated financial statements. See Note 2 of the Notes to our Audited
Consolidated Financial Statements for a discussion of these and other accounting policies.
Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions
Goodwill and Other Indefinite Lived Intangible Assets
For goodwill and other indefinite lived intangible
assets, 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.
For our detailed impairment analysis, we used an
income based approach to determine the fair value
of our assets, as well as an overall consideration of
market capitalization and our enterprise value.
These types of analyses contain uncertainties
because they require management to make
assumptions and to apply judgment to estimate
industry economic factors and the profitability of
future business strategies. These assumptions could
be negatively impacted by various risks discussed
in "Risk Factors" in this Annual Report on Form
10-K.
Critical assumptions include revenue growth and
profit performance, as well as an appropriate
discount rate. Discount rates are based on a weighted
average cost of equity and cost of debt, adjusted with
various risk premiums. For 2012, such discount
rates ranged from 7.50% to 12.75%.
In 2011, we carried forward the detailed
determination of the fair value of a reporting units
and indefinite lived intangible assets based upon the
following factors: (1) the fair value of our goodwill,
brands and distribution rights exceeded their
carrying amounts by a substantial margin in the
2010 annual impairment analysis performed;
(2) our business performance during 2011 was in
line with our forecast used to estimate fair value in
the impairment analysis performed during 2010; (3)
our outlook for 2012 and beyond was in line with
the forecast used to estimate fair value in the
impairment analysis performed during 2010;
(4) other significant assumptions used in estimating
fair value, such as our weighted average cost of
capital, improved since the 2010 impairment
analysis performed; (5) the assets and liabilities that
made up the reporting units did not change
significantly since the 2010 fair value
determination; and (6) we experienced significant
appreciation in our market capitalization.
We have not made any material changes in the
accounting methodology we use to assess
impairment loss on goodwill and other indefinite
lived intangible assets during the past three years.
The carrying values of goodwill and indefinite lived
intangible assets as of December 31, 2012, were
$2,983 million and $2,684 million, respectively.
We have not identified any impairments in goodwill
or other indefinite lived intangible assets during the
past three years. The effect of a 1% increase or
decrease in the discount rate used to determine the
fair value of the reporting unit or the indefinite lived
intangible asset does not change our conclusion
regarding the identification of any impairments in
goodwill or other indefinite lived intangible assets.