Note 7 - Goodwill and Other Identifiable Intangible Assets

12 Months Ended

May 29, 2022

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

7. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The change in the carrying amount of goodwill for fiscal 2022 and 2021, excluding amounts classified as held for sale (see Note 5), was as follows:

	Grocery & Snacks		Refrigerated & Frozen		International			Foodservice		Total
Balance as of May 31, 2020	$	4,692.4	$	5,611.2	$	290.5		$	732.8	$	11,326.9
Currency translation		—		—		12.0			—		12.0
Balance as of May 30, 2021	$	4,692.4	$	5,611.2	$	302.5		$	732.8	$	11,338.9
Currency translation		—		—		(9.7	)		—		(9.7	)
Balance as of May 29, 2022	$	4,692.4	$	5,611.2	$	292.8		$	732.8	$	11,329.2

Other identifiable intangible assets, excluding amounts classified as held for sale, were as follows:

	2022				2021
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Non-amortizing intangible assets
Brands and trademarks	$	3,061.6	$	—	$	3,273.1	$	—
Amortizing intangible assets
Customer relationships and intellectual property		1,228.0		436.5		1,228.8		377.3
	$	4,289.6	$	436.5	$	4,501.9	$	377.3

In the fourth quarter of fiscal 2022, we performed our annual goodwill impairment assessment on all of our reporting units and found no indicators of impairment. We completed a qualitative assessment on all of our reporting units with the exception of our Sides, Components, Enhancers reporting unit which considered, among other things, an increase in our market capitalization from our previous testing date and continued sales growth which has had a positive impact on our financial results. While operating profits have been negatively impacted by recent input cost inflation in fiscal 2022, we believe that subsequent price increases and other productivity initiatives will eventually result in more normalized operating margins over time. However, we will continue to evaluate the impact of any significant changes in consumer purchasing behaviors, government restrictions, input cost inflation, or other macroeconomic conditions which could change certain assumptions that result in future impairments. For the Sides, Components, Enhancers reporting unit, based upon a quantitative impairment test, the excess fair value over the carrying value was approximately 20%, which remained relatively consistent with our prior year quantitative impairment test.

Fair value is typically estimated using a discounted cash flow analysis which requires us to estimate the future cash flows as well as to select a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. We estimate cash flows for a reporting unit over a discrete period (typically five years) and a terminal period (considering expected long-term growth rates and trends). We used a discount rate for our Sides, Components, Enhancers reporting unit of 6.50% and a terminal growth rate of 1%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows, discount rates, or terminal growth rates could produce substantially different estimates of the fair value of the reporting units.

Amortizing intangible assets, carrying a remaining weighted-average life of approximately 18 years, are principally composed of customer relationships and acquired intellectual property. For fiscal 2022, 2021, and 2020, we recognized amortization expense of $59.3 million, $59.7 million, and $59.8 million, respectively. Based on amortizing assets recognized in our Consolidated Balance Sheet as of May 29, 2022, amortization expense for the next five years is estimated to be as follows:

2023	$	56.9
2024		53.6
2025		53.5
2026		43.5
2027		43.3

For our non-amortizing intangible assets, which are comprised of brands and trademarks, we use a "relief from royalty" methodology in estimating fair value. During fiscal 2022, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $209.0 million, primarily within our Grocery & Snacks and Refrigerated & Frozen segments. Duncan Hines^® and Gardein^® were the most notable brands with impairments largely due to lower than expected profit margins which resulted in a reduction to our assumed royalty rates along with increases in our discount rate in response to the current economic environment, including an increase in interest rates.

During fiscal 2021, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $90.9 million, primarily within our Grocery & Snacks and Refrigerated & Frozen segments. Udi’s® was the most notable brand with impairment in fiscal 2021 largely due to lower than expected sales and profit margins which resulted in a reduction to our assumed royalty rate.

During the first quarter of fiscal 2020, we recorded impairment charges totaling $19.3 million within our Refrigerated & Frozen segment and Grocery & Snacks segment for certain brands for which management changed its business strategy and that continued to have lower than expected sales and profit margins. This impairment was included within SG&A expenses.

During fiscal 2020, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $146.2 million, primarily within our Grocery & Snacks and Refrigerated & Frozen segments, largely associated with brands that were recorded at fair value in recent acquisitions. The more notable brands with impairments included Frontera^®, Gardein^®, Glutino^®, Hungry Man^®, and Udi’s^®.