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DR PEPPER SNAPPLE GROUP, INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
68
In accordance with U.S. GAAP, the Company conducts impairment tests of goodwill and indefinite-lived intangible assets
annually, as of October 1, 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 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 analysis must be performed.
2013 Impairment Analysis
Fair value is measured based on what each intangible asset or reporting unit would be worth to a third party market participant.
For the annual impairment analysis performed as of October 1, 2013, methodologies used to determine the fair values of the assets
included an income based approach, as well as an overall consideration of market capitalization and the Company's enterprise
value. Management's estimates of fair value, which fall under Level 3, are based on historical and projected operating performance.
Discount rates were based on a weighted average cost of equity and cost of debt and were adjusted with various risk premiums.
As of October 1, 2013, the results of the annual impairment tests indicated no impairment was required. The estimated fair
value of each reporting unit exceeded the carrying value for all of the Company's goodwill by at least 50% except for DSD, which
was 7%. The results of the impairment test for brands are as follows (in millions):
Headroom Percentage Fair Value Carrying Value
0 - 10% $ — $ —
11 - 20% — —
21 - 50% 918 655
> 50% 11,034 1,997
11,952 2,652
2012 Impairment Analysis
For the annual impairment analysis performed as of December 31, 2012, methodologies used to determine the fair values of
the assets included an income based approach, as well as an overall consideration of market capitalization and the Company's
enterprise value. Management's estimates of fair value, which fall under Level 3, are based on historical and projected operating
performance. 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, 2012, the results of the annual impairment tests indicated no impairment was required. The estimated
fair value of each reporting unit exceeded the carrying value for all of the Company's goodwill by at least 50%. The results of the
impairment test for brands are as follows (in millions):
Headroom Percentage Fair Value Carrying Value
0 - 10% $ — $ —
11 - 20% — —
21 - 50% 9 8
> 50% 10,558 2,644
$ 10,567 $ 2,652