Snapple 2010 Annual Report Download - page 82

DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goodwill and Other Intangible Assets
In accordance with U.S. GAAP, the Company classifies 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 the Company’s intangible asset balance is made up of brands which the Company has 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. The Company also considers factors such as its 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.
Identifiable intangible assets deemed by the Company to have determinable finite useful lives are amortized on a straight-
line basis over their estimated useful lives as follows:
Type of Intangible Asset
Brands
Bottler agreements
Customer relationships and contracts
Useful Life
10 to 15 years
5 to 15 years
5 to 10 years
DPS conducts tests for impairment in accordance with U.S. GAAP.For intangible assets with definite lives, tests for impairment
must be performed if conditions exist that indicate the carrying value may not be recoverable. For goodwill and indefinite lived
intangible assets, the Company conducts 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.
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. Management’s estimates of fair value, which fall under Level 3, are based on historical and projected operating
performance. Impairment charges are recorded in the line item impairment of goodwill and intangible assets in the Consolidated
Statements of Operations. Refer to Note 7 for additional information.
Other Assets
The Company provides support to certain customers to cover various programs and initiatives to increase net sales, including
contributions to customers or vendors for cold drink equipment used to market and sell the Company’s products. These programs
and initiatives generally directly benefit the Company over a period of time. Accordingly, costs of these programs and initiatives
are recorded in prepaid expenses and other current assets and other non-current assets in the Consolidated Balance Sheets. The
costs for these programs are amortized over the period to be directly benefited based upon a methodology consistent with the
Company’s contractual rights under these arrangements.
The long-term portion of these programs and initiatives recorded in the Consolidated Balance Sheets was $84 million, net of
accumulated amortization, as of December 31, 2010 and 2009. The amortization charge for the cost of contributions to customers
or vendors for cold drink equipment was $7 million, $8 million and $8 million during the years ended December 31, 2010, 2009
and 2008, respectively, and was recorded in selling, general and administrative expenses in the Consolidated Statements of
Operations. The amortization charge for the cost of other programs and incentives was $11 million, $10 million and $14 million
during the years ended December 31, 2010, 2009 and 2008, respectively, and was recorded as a deduction from gross sales.
Derivatives
The Company formally designates and accounts for certain interest rate swaps and foreign exchange forward contracts that
meet established accounting criteria under U.S. GAAP as either fair value or cash flow hedges. For derivative instruments that
are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instruments is recorded,
net of applicable taxes, in Accumulated Other Comprehensive Loss (“AOCL”), a component of Stockholders’ Equity in the
Consolidated Balance Sheets. When net income is affected by the variability of the underlying transaction, the applicable offsetting
amount of the gain or loss from the derivative instrument deferred in AOCL is reclassified to net income and is reported as a
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