Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012, by reporting unit, are as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| Beverage Concentrates | | WD Reporting Unit(1) | | DSD Reporting Unit(1) | | Latin America Beverages | | Total |
Balance as of January 1, 2012 | | | | | | | | | |
Goodwill | $ | 1,732 |
| | $ | 1,220 |
| | $ | 180 |
| | $ | 28 |
| | $ | 3,160 |
|
Accumulated impairment losses | — |
| | — |
| | (180 | ) | | — |
| | (180 | ) |
| 1,732 |
| | 1,220 |
| | — |
| | 28 |
| | 2,980 |
|
Foreign currency impact | — |
| | — |
| | — |
| | 3 |
| | 3 |
|
Balance as of December 31, 2012 | | | | | | | | | |
Goodwill | 1,732 |
| | 1,220 |
| | 180 |
| | 31 |
| | 3,163 |
|
Accumulated impairment losses | — |
| | — |
| | (180 | ) | | — |
| | (180 | ) |
| 1,732 |
| | 1,220 |
| | — |
| | 31 |
| | 2,983 |
|
Foreign currency impact | — |
| | — |
| | — |
| | — |
| | — |
|
Acquisition activity (2) | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Balance as of December 31, 2013 | | | | | | | | | |
Goodwill | 1,732 |
| | 1,220 |
| | 185 |
| | 31 |
| | 3,168 |
|
Accumulated impairment losses | — |
| | — |
| | (180 | ) | | — |
| | (180 | ) |
| $ | 1,732 |
| | $ | 1,220 |
| | $ | 5 |
| | $ | 31 |
| | $ | 2,988 |
|
| |
(1) | The Packaged Beverages segment is comprised of two reporting units, the Direct Store Delivery ("DSD") system and the Warehouse Direct ("WD") system. |
| |
(2) | The acquisition activity represents the goodwill associated with the purchase of DP/7UP West. See Note 3 for further information related to the acquisition. |
The net carrying amounts of intangible assets other than goodwill as of December 31, 2013 and 2012 are as follows (in millions): |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | December 31, 2012 |
| Gross | | Accumulated | | Net | | Gross | | Accumulated | | Net |
| Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount |
Intangible assets with indefinite lives: | | | | | | | | | | | |
Brands | $ | 2,652 |
| | $ | — |
| | $ | 2,652 |
| | $ | 2,652 |
| | $ | — |
| | $ | 2,652 |
|
Distribution rights(1) | 24 |
| | — |
| | 24 |
| | 14 |
| | — |
| | 14 |
|
Intangible assets with finite lives: | | | | | | | | | | | |
Brands | 29 |
| | (27 | ) | | 2 |
| | 29 |
| | (25 | ) | | 4 |
|
Distribution rights(1)(2) | 12 |
| | (3 | ) | | 9 |
| | 5 |
| | (1 | ) | | 4 |
|
Customer relationships | 76 |
| | (69 | ) | | 7 |
| | 76 |
| | (67 | ) | | 9 |
|
Bottler agreements | 19 |
| | (19 | ) | | — |
| | 19 |
| | (18 | ) | | 1 |
|
Total | $ | 2,812 |
| | $ | (118 | ) | | $ | 2,694 |
| | $ | 2,795 |
| | $ | (111 | ) | | $ | 2,684 |
|
| |
(1) | In 2013, distribution rights included $10 million and $2 million in indefinite-lived and finite-lived distribution rights, respectively, associated with the purchase of DP/7UP West. See Note 3 for further information related to the acquisition. |
| |
(2) | In 2013, distribution rights also included the reacquired distribution rights for Snapple and several other NCB brands in parts of the Asia-Pacific region from Mondelēz. |
As of December 31, 2013, the weighted average useful life of intangible assets with finite lives was 10 years for distribution rights, brands, customer relationships and in total. Amortization expense for intangible assets was $7 million, $5 million and $9 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Amortization expense of these intangible assets over the next five years is expected to be the following (in millions):
|
| | | |
Year | Aggregate Amortization Expense |
2014 | $ | 6 |
|
2015 | 6 |
|
2016 | 3 |
|
2017 | 1 |
|
2018 | 1 |
|
On October 1, 2013, DPS changed the date of its annual impairment tests for goodwill and indefinite-lived intangible assets from December 31 to October 1. The change in date for the goodwill impairment test is a change in accounting principle, which management believes is preferable as the new measurement date, while remaining in the fourth quarter, will lessen resource constraints in connection with the year-end close and financial reporting process. The change in accounting principle does not delay, accelerate or avoid an impairment charge. DPS determined it was impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of each October 1 for periods prior to October 1, 2013 without the use of hindsight. As such, the Company has prospectively applied the change in annual impairment testing date from October 1, 2013.
There is no material impact of this accounting principle change on the previous periods and, therefore, there is no need to retrospectively adjust prior period information.
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 |
|
