Pepsi Bottling Group (PBG)

 

Intangible assets that are determined to have a finite life are amortized on a straight-line basis over the period in which we expect to receive economic benefit, which generally ranges from five to twenty years, and are evaluated for impairment only if facts and circumstances indicate that the carrying value of the asset may not be recoverable.

 

The determination of the expected life depends upon the use and the underlying characteristics of the intangible asset. In our evaluation of the expected life of these intangible assets, we consider the nature and terms of the underlying agreements; our intent and ability to use the specific asset; the age and market position of the products within the territories in which we are entitled to sell; the historical and projected growth of those products; and costs, if any, to renew the related agreement.

 

If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its fair value. Initial fair value is generally based on either appraised value or other valuation techniques.

 

See Note 6 for further discussion on our goodwill and other intangible assets.

 

 

Our intangible assets consist primarily of franchise rights, distribution rights, licensing rights, brands and goodwill and principally arise from the allocation of the purchase price of businesses acquired. These intangible assets, other than goodwill, are classified as either finite-lived intangibles or indefinite-lived intangibles.

 

The classification of intangibles and the determination of the appropriate useful life require substantial judgment. The determination of the expected life depends upon the use and underlying characteristics of the intangible asset. In our evaluation of the expected life of these intangible assets, we consider the nature and terms of the underlying agreements; our intent and ability to use the specific asset; the age and market position of the products within the territories in which we are entitled to sell; the historical and projected growth of those products; and costs, if any, to renew the related agreement.

 

Intangible assets that are determined to have a finite life are amortized over their expected useful life, which generally ranges from five to twenty years. For intangible assets with finite lives, evaluations for impairment are performed only if facts and circumstances indicate that the carrying value may not be recoverable.

 

Goodwill and other intangible assets with indefinite lives are not amortized; however, they are evaluated for impairment at least annually or more frequently if facts and circumstances indicate that the assets may be impaired. Prior to 2008, the Company completed this test in the fourth quarter. During 2008, the Company changed its impairment testing of goodwill and intangible assets with indefinite useful lives to the third quarter, with the exception of Mexico’s intangible assets. Impairment testing of Mexico’s intangible assets with indefinite useful lives was completed in the fourth quarter to coincide with the completion of our strategic review of the business.

 

We evaluate goodwill for impairment at the reporting unit level, which we determined to be the countries in which we operate. We evaluate goodwill for impairment by comparing the fair value of the reporting unit, as determined by its discounted cash flows, with its carrying value. If the carrying value of a reporting unit exceeds its fair value, we compare the implied fair value of the reporting unit’s goodwill with its carrying amount to measure the amount of impairment loss.

 

We evaluate other intangible assets with indefinite useful lives for impairment by comparing the fair values of the assets with their carrying values. The fair value of our franchise rights, distribution rights and licensing rights is measured using a multi-period excess earnings method that is based upon estimated discounted future cash flows. The fair value of our brands is measured using a multi-period royalty savings method, which reflects the savings realized by owning the brand and, therefore, not requiring payment of third party royalty fees.

 

Considerable management judgment is necessary to estimate discounted future cash flows in conducting an impairment analysis for goodwill and other intangible assets. The cash flows may be impacted by future actions taken by us and our competitors and the volatility of macroeconomic conditions in the markets in which we conduct business. Assumptions used in our impairment analysis, such as forecasted growth rates, cost of capital and additional risk premiums used in the valuations, are based on the best available market information and are consistent with our long-term strategic plans. An inability to achieve strategic business plan targets in a reporting unit, a change in our discount rate or other assumptions could have a significant impact on the fair value of our reporting units and other intangible assets, which could then result in a material non-cash impairment charge to our results of operations. The recent volatility in the global macroeconomic conditions has had a negative impact on our business results. If this volatility continues to persist into the future, the fair value of our intangible assets could be adversely impacted.

 

As a result of the 2008 impairment test for goodwill and other intangible assets with indefinite lives, the Company recorded a $412 million non-cash impairment charge relating primarily to distribution rights and brands for the Electropura water business in Mexico. The impairment charge relating to these intangible assets was based upon the findings of an extensive strategic review and the finalization of restructuring plans for our Mexican business. In light of the weakening macroeconomic conditions and our outlook for the business in Mexico, we lowered our expectation of the future performance, which reduced the value of these intangible assets and triggered the impairment charge. After recording the above mentioned impairment charge, Mexico’s remaining net book value of goodwill and other intangible assets is approximately $367 million.

 

For further information about our goodwill and other intangible assets see Note 6 in the Notes to Consolidated Financial Statements.

 

 

Our intangible assets consist primarily of franchise rights,
distribution rights, licensing rights, brands and goodwill and
principally arise from the allocation of the purchase price of
businesses acquired. These intangible assets, other than
goodwill, are classified as either finite-lived intangibles or
indefinite-lived intangibles.

 

The classification of intangibles and the determination of the
appropriate useful life require substantial judgment. The
determination of the expected life depends upon the use and
underlying characteristics of the intangible asset. In our
evaluation of the expected life of these intangible assets, we
consider the nature and terms of the underlying agreements; our
intent and ability to use the specific asset; the age and market
position of the products within the territories in which we are
entitled to sell; the historical and projected growth of those
products; and costs, if any, to renew the related agreement.

 

Intangible assets that are determined to have a finite life are
amortized over their expected useful life, which generally
ranges from five to twenty years. For intangible assets with
finite lives, evaluations for impairment are performed only if
facts and circumstances indicate that the carrying value may not
be recoverable.

 

Goodwill and other intangible assets with indefinite lives are
not amortized; however, they are evaluated for impairment at
least annually or more frequently if facts and circumstances
indicate that the assets may be impaired. Prior to 2008, the
Company completed this test in the fourth quarter. During 2008,
the Company changed its impairment testing of goodwill and
intangible assets with indefinite useful lives to the third
quarter, with the exception of Mexico’s intangible assets.
Impairment testing of Mexico’s intangible assets with
indefinite useful lives was completed in the fourth quarter to
coincide with the completion of our strategic review of the
business.

 

We evaluate goodwill for impairment at the reporting unit level,
which we determined to be the countries in which we operate. We
evaluate goodwill for impairment by comparing the fair value of
the reporting unit, as determined by its discounted cash flows,
with its carrying value. If the carrying value of a reporting
unit exceeds its fair value, we compare the implied fair value
of the reporting unit’s goodwill with its carrying amount
to measure the amount of impairment loss.

 

We evaluate other intangible assets with indefinite useful lives
for impairment by comparing the fair values of the assets with
their carrying values. The fair value of our franchise rights,
distribution rights and licensing rights is measured using a
multi-period excess earnings method that is based upon estimated
discounted future cash flows. The fair value of our brands is
measured using a multi-period royalty savings method, which
reflects the savings realized by owning the brand and,
therefore, not requiring payment of third party royalty fees.

 

Considerable management judgment is necessary to estimate
discounted future cash flows in conducting an impairment
analysis for goodwill and other intangible assets. The cash
flows may be impacted by future actions taken by us and our
competitors and the volatility of macroeconomic conditions in
the markets in which we conduct business. Assumptions used in
our impairment analysis, such as forecasted growth rates, cost
of capital and additional risk premiums used in the valuations,
are based on the best available market information and are
consistent with our long-term strategic plans. An inability to
achieve strategic business plan targets in a reporting unit, a
change in our discount rate or other assumptions could have a
significant impact on the fair value of our reporting units and
other intangible assets, which could then result in a material
non-cash impairment charge to our results of operations. The
recent volatility in the global macroeconomic conditions has had
a negative impact on our business results. If this volatility
continues to persist into the future, the fair value of our
intangible assets could be adversely impacted.

 

As a result of the 2008 impairment test for goodwill and other
intangible assets with indefinite lives, the Company recorded a
$412 million non-cash impairment charge relating primarily
to distribution rights and brands for the Electropura water
business in Mexico. The impairment charge relating to these
intangible assets was based upon the findings of an extensive
strategic review and the finalization of restructuring plans for
our Mexican business. In light of the weakening macroeconomic
conditions and our outlook for the business in Mexico, we
lowered our expectation of the future performance, which reduced
the value of these intangible assets and triggered the
impairment charge. After recording the above mentioned
impairment charge, Mexico’s remaining net book value of
goodwill and other intangible assets is approximately
$367 million.

 

For further information about our goodwill and other intangible
assets see Note 6 in the Notes to Consolidated Financial
Statements.

 

 

Intangible assets that are determined to have a finite life are amortized on a straight-line basis over the period in which we expect to receive economic benefit, which generally ranges from five to twenty years, and are evaluated for impairment only if facts and circumstances indicate that the carrying value of the asset may not be recoverable.

 

The determination of the expected life depends upon the use and the underlying characteristics of the intangible asset. In our evaluation of the expected life of these intangible assets, we consider the nature and terms of the underlying agreements; our intent and ability to use the specific asset; the age and market position of the products within the territories in which we are entitled to sell; the historical and projected growth of those products; and costs, if any, to renew the related agreement.

 

If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its fair value. Initial fair value is generally based on either appraised value or other valuation techniques.

 

See Note 6 for further discussion on our goodwill and other intangible assets.

 

 

Intangible assets that are determined to have a finite life are
amortized on a straight-line basis over the period in which we
expect to receive economic benefit, which generally ranges from
five to twenty years, and are evaluated for impairment only if
facts and circumstances indicate that the carrying value of the
asset may not be recoverable.

 

The determination of the expected life depends upon the use and
the underlying characteristics of the intangible asset. In our
evaluation of the expected life of these intangible assets, we
consider the nature and terms of the underlying agreements; our
intent and ability to use the specific asset; the age and market
position of the products within the territories in which we are
entitled to sell; the historical and projected growth of those
products; and costs, if any, to renew the related agreement.

 

If the carrying value is not recoverable, impairment is measured
as the amount by which the carrying value exceeds its fair
value. Initial fair value is generally based on either appraised
value or other valuation techniques.

 

See Note 6 for further discussion on our goodwill and other
intangible assets.

 

 

Other intangible assets that are subject to amortization are amortized on a straight-line basis over the period in which we expect to receive economic benefit, which generally ranges from five to twenty years, and are reviewed for impairment when facts and circumstances indicate that the carrying value of the asset may not be recoverable.

 

The determination of the expected life will be dependent upon the use and underlying characteristics of the intangible asset. In our evaluation of these intangible assets, we consider the nature and terms of the underlying agreements; our intent and ability to use the specific asset; the age and market position of the products within the territories we are entitled to sell; the historical and projected growth of those products; and costs, if any, to renew the agreement.

 

If the carrying value is not recoverable, impairment is measured as the amount by which the carrying value exceeds its estimated fair value. Fair value is generally estimated based on either appraised value or other valuation techniques.

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