Snapple 2009 Annual Report Download - page 70

in 2009, 2008 and 2007, 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.
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, 2009 and 2008, methodologies used to
determine the fair values of the assets included a combination of the income based approach and market based
approach, as well as an overall consideration of market capitalization and our enterprise value. Management’s
estimates, which fall under Level 3, are based on historical and projected operating performance, recent market
transactions and current industry trading multiples.
As of December 31, 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
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