8.	GOODWILL

Goodwill results from the Company’s acquisitions of Bols, Polmos Bialystok, Parliament, Russian Alcohol, Whitehall and Bols Hungary.


Goodwill, as at December 31, 2010 (restated)	$	1,452,986
Impairment charges during the period		(546,930	)
Acquisitions during the period		270,631
Foreign exchange impact		(108,309	)

Goodwill, as at September 30, 2011 (restated)	$	1,068,378

Goodwill is tested by the Company annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances that indicate goodwill is more likely than not impaired, which could result from significant adverse changes in the business climate and declines in the value of our business. Such indicators may include a sustained, decline in our stock price; a decline in our expected future cash flows; adverse change in the economic or business environment; the testing for recoverability of a significant asset group, among others. The occurrence of these indicators could have a significant impact on the recoverability of goodwill and could have a material impact on our consolidated financial statements.

Subsequently to the Company’s earnings release for the year ended December 31, 2010, the market value of the shares in CEDC dropped significantly. The Company considered the significant decrease in market value to be a triggering event of potential goodwill impairment. The Company performed impairment testing at March 31, 2011 and the fair value of reporting units was above the carrying amount and no impairment charge was recognized. During the third quarter of 2011, the Company was closely monitoring events or changes in circumstances that might impact the assumptions used in the four year business model and identified certain impairment indicators that would trigger the need for an impairment test, including sustained difference in enterprise market capitalization and book value and performance of reporting units below expectations, changing of sales channel and product mix, declining vodka markets in Poland and Russia and market disruptions from relicensing in Russia. Based on these events, the Company determined that it was more likely than not that the fair value of our reporting units was less than its carrying amount and accordingly, the Company performed a goodwill impairment test as of September 30, 2011.

As of September 30, 2011, in order to support the value of goodwill, the Company calculated the fair value of the reporting units using a discounted cash flow approach based on the following assumptions:

•

Risk free rates for Poland and Russia used for calculation of discount rate were based upon current market rates of long term Polish Government Bonds rates and long-term Russian Government Bonds rates. When estimating discount rates to be used for the calculation we have taken into account current market conditions in Poland and Russia separately. As a result of our assumptions and calculations, the following discount rates of 9.09% and 11.03% for Poland and Russia, respectively have been determined,

•

The Company has identified impairment indicators for the following reporting units and tested their fair value: Poland Core Business Unit and Russia Core Business Unit. In respect of the Poland Fine Wines Unit, Russia Import Unit and Hungary Unit there were no impairment indicators identified.

•

The Company estimated the growth rates in projecting cash flows for each of our reporting group separately, based on a detailed four year plan related to each reporting unit,

•

The Company estimated the terminal value growth rates for goodwill from 2.5% for Polish unit and 3.0% for Russian reporting unit.

Based on goodwill impairment test as of September 30, 2011, it was determined that the carrying value of our Core Business unit in Russia and Poland exceeded its fair value. The primary reasons for this was the continuous decline in spirits market in Poland and Russia, the cannibalization of premium brands by mainstream brands resulting in lower margins in Poland, as well as, relicensing process in Russia for wholesalers in the second and third quarter of current year that resulted in decrease in number of active wholesalers in the market. As a result, the Company completed step two of the impairment test, and compared the implied fair value of the reporting unit’s goodwill to the carrying amount of the reporting unit’s goodwill. As the carrying amount of the reporting unit’s goodwill for Core Business unit in Russia and Poland was greater than the implied fair value of a the underlying reporting units’ goodwill values, an impairment loss was recognized for the excess amounting to $546.9 million.