Snapple 2011 Annual Report Download - page 64

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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. Actual amounts may differ from these estimates and judgments. We have identified
the policies described below as our critical accounting estimates. See Note 2 of the Notes to our Audited Consolidated Financial
Statements for a discussion of these and other accounting policies.
Revenue Recognition
We recognize sales revenue when all of the following have occurred: (1) delivery; (2) persuasive evidence of an agreement
exists; (3) pricing is fixed or determinable; and (4) collection is reasonably assured. Delivery is not considered to have occurred
until the title and the risk of loss passes to the customer according to the terms of the contract between the customer and us. The
timing of revenue recognition is largely dependent on contract terms. For sales to customers that are designated in the contract as
free-on-board destination, revenue is recognized when the product is delivered to and accepted at the customer’s delivery site.
Net sales are reported net of costs associated with customer marketing programs and incentives, as described below, as well as
sales taxes and other similar taxes.
Multiple deliverables were included in the arrangements entered into with PepsiCo and Coca-Cola during 2010. In this case,
we first determined whether each deliverable met the separation criteria under U.S. GAAP. The primary requirement for a deliverable
to meet the separation criteria is if the deliverable has standalone value to the customer. Each deliverable that meets the separation
criteria is considered a separate "unit of accounting". As the sale of the manufacturing and distribution rights and the ongoing
sales of concentrate would not have standalone value to the customer, both deliverables represent a single element of accounting
for purposes of revenue recognition. The one-time nonrefundable cash receipts from PepsiCo and Coca-Cola were therefore
recorded as deferred revenue and will be recognized as net sales ratably over the estimated 25-year life of the customer relationship.
Customer Marketing Programs and Incentives
The Company offers a variety of incentives and discounts to bottlers, customers and consumers through various programs to
support the distribution of its products. These incentives and discounts include cash discounts, price allowances, volume based
rebates, product placement fees and other financial support for items such as trade promotions, displays, new products, consumer
incentives and advertising assistance. These incentives and discounts are reflected as a reduction of gross sales to arrive at net
sales. The aggregate deductions from gross sales recorded in relation to these programs were approximately $3,733 million, $3,686
million and $3,419 million for the years ended December 31, 2011, 2010 and 2009, 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