Snapple 2009 Annual Report Download - page 97

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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 (“Step 2”) 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. For our annual impairment analysis performed as of December 31, 2009 and 2008, method-
ologies 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. 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, 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.
2008 Impairment of Goodwill and Intangible Assets
The results of the Step 1 analysis 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, the
Company impaired the entire DSD reporting unit’s goodwill.
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 Statements 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
Goodwill(3) ..................................... 180 (11) 169
Total ......................................... $ 1,039 $ (343) $ 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.
77
DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)