Snapple 2008 Annual Report Download - page 90

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Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”), which delayed the effective date of SFAS 157 for all
non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). The adoption of SFAS 157 for the Company’s financial
assets and liabilities did not have a material impact on its consolidated financial statements. The Company does not
believe the adoption of SFAS 157 for its non-financial assets and liabilities, effective January 1, 2009, will have a
material impact on its consolidated financial statements.
3. Impairment of Goodwill and Intangible Assets
DPS’ annual impairment analysis, performed as of December 31, 2008, resulted in non-cash charges of
$1,039 million for the year ended December 31, 2008, which are reported in the line item impairment of goodwill
and intangible assets in the Consolidated Statement of Operations. A summary of the impairment charges is
provided below (in millions):
Impairment
Charge
Income Tax
Benefit
Impact on Net
Income
For the Year Ended December 31, 2008
Snapple brand(1) ................................ $ 278 $(112) $166
Distribution rights(2) ............................. 581 (220) 361
Bottling Group goodwill .......................... 180 (11) 169
Total ....................................... $1,039 $(343) $696
(1) The Snapple brand related to the Finished Goods segment.
(2) Includes the Bottling Group’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.
In accordance with SFAS No. 142, the Company conducts impairment tests of goodwill and indefinite lived
intangible assets annually, as of December 31, or more frequently if circumstances indicate that the carrying amount
of an asset may not be recoverable. For purposes of impairment testing DPS assigns goodwill to the reporting unit
that benefits from the synergies arising from each business combination and also assigns indefinite lived intangible
assets to its reporting units. The Company defines reporting units as its operating segments.
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 analysis must be performed.
Fair value is measured based on what each intangible asset or reporting unit would be worth to a third party
market participant. Methodologies included a combination of the income based approach and market based
approach, as well as an overall consideration of market capitalization and the enterprise value of the Company.
Discount rates were based on a weighted average cost of equity and cost of debt and were adjusted with various risk
premiums.
The results of the Step 1 analyses performed as of December 31, 2008, indicated there was a potential
impairment of goodwill in the Bottling Group reporting unit as the book value exceeded the estimated fair value. As
a result, the second step (“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
66
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)