Intangible Assets

8 Months Ended

Sep. 03, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Indefinite-lived intangible assets are not amortized and are assessed for impairment at least annually, using either a qualitative or quantitative approach. We perform this annual assessment during our third quarter, or more frequently if circumstances indicate that the carrying value may not be recoverable. Where we use the qualitative assessment, first we determine if, based on qualitative factors, it is more likely than not that an impairment exists. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed. In the quantitative assessment for indefinite-lived intangible assets, an assessment is performed to determine the fair value of the indefinite-lived intangible asset. Estimated fair value is determined using discounted cash flows and requires an analysis of several estimates including future cash flows or income consistent with management’s strategic business plans, annual sales growth rates, perpetuity growth assumptions and the selection of assumptions underlying a discount rate (weighted-average cost of capital) based on market data available at the time. Significant management judgment is necessary to estimate the impact of competitive operating, macroeconomic and other factors (including those related to the Russia-Ukraine conflict) to estimate future levels of sales, operating profit or cash flows. All assumptions used in our impairment evaluations for indefinite-lived intangible assets, such as forecasted growth rates (including perpetuity growth assumptions) and weighted-average cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. A deterioration in these assumptions could adversely impact our results.

In the second quarter of 2022, macroeconomic factors, sanctions and other regulations as a result of the Russia-Ukraine conflict indicated a material deterioration of the significant inputs used to determine the fair value of our indefinite-lived intangible assets in Russia, primarily assumptions underlying the weighted-average cost of capital. These factors required us to perform a quantitative assessment, despite the absence of a material adverse impact on these assets’ financial performance (e.g., sales, operating profit, cash flows).

The fair value of our indefinite-lived intangible assets in Russia was estimated using discounted cash flows under the income approach, which we consider to be a Level 3 measurement. We determined that the carrying value exceeds the fair value, with the decrease in the fair value primarily attributable to a significant increase in the weighted-average cost of capital, which reflects the macroeconomic uncertainty in Russia. As a result of the quantitative assessment, in the 36 weeks ended September 3, 2022, we recorded pre-tax impairment charges of $1.2 billion ($958 million after-tax or $0.69 per share) in impairment of intangible assets, related to our juice and dairy brands in Russia in our Europe division. See Note 1 for further information.

During the 36 weeks ended September 3, 2022, we discontinued or repositioned certain juice and dairy brands in Russia in our Europe division. As a result, we recognized pre-tax impairment charges (Brand Portfolio Impairment Charges) of $241 million ($193 million after-tax or $0.14 per share) in impairment of intangible assets, primarily related to indefinite-lived intangible assets. In light of the current political and economic environment, we will continue to review and analyze our brand portfolio worldwide. See Note 1 for further information.

The annual impairment assessment on indefinite-lived intangible assets performed in the third quarter of 2022 resulted in no impairment. The estimated fair values of certain beverage businesses and brands in Europe exceeded their carrying values. However, there could be impairments of the carrying values of goodwill and brands associated with these businesses if future performance does not achieve our expected future cash flows or if macroeconomic conditions result in a future increase in the weighted average cost of capital used to estimate fair value.

For further information on our policies for indefinite-lived intangible assets, refer to Note 2 to our consolidated financial statements in our 2021 Form 10-K.

A summary of our amortizable intangible assets is as follows:


	9/3/2022						12/25/2021
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Acquired franchise rights (a)	$	844	$	(197)	$	647	$	976	$	(187)	$	789
Customer relationships	596		(243)		353		623		(227)		396
Brands	1,102		(971)		131		1,151		(989)		162
Other identifiable intangibles	448		(265)		183		451		(260)		191
Total	$	2,990	$	(1,676)	$	1,314	$	3,201	$	(1,663)	$	1,538

(a)Decrease is primarily due to the write-off of our distribution rights for Bang energy drinks. See Note 1 for further information.

The change in the book value of indefinite-lived intangible assets is as follows:


	Balance 12/25/2021		Acquisitions		Impairment		Translation and Other		Balance 9/3/2022

FLNA
Goodwill	$	458	$	—	$	—	$	(3)	$	455
Brands	340		—		—		(1)		339
Total	798		—		—		(4)		794
QFNA
Goodwill	189		—		—		—		189
Total	189		—		—		—		189
PBNA			—
Goodwill	11,974		—		—		(14)		11,960
Reacquired franchise rights	7,107		—		—		(22)		7,085
Acquired franchise rights (a)	1,538		177		—		(5)		1,710
Brands	2,508		—		—		—		2,508
Total	23,127		177		—		(41)		23,263
LatAm
Goodwill	433		—		—		8		441
Brands (b)	100		—		(29)		6		77
Total	533		—		(29)		14		518
Europe (c)
Goodwill	3,700		—		—		103		3,803
Reacquired franchise rights	441		—		—		(18)		423
Acquired franchise rights	158		—		(1)		(18)		139
Brands (d)	4,254		—		(1,420)		90		2,924
Total	8,553		—		(1,421)		157		7,289
AMESA
Goodwill	1,063		14		—		(56)		1,021
Brands	205		—		—		(14)		191
Total	1,268		14		—		(70)		1,212
APAC
Goodwill	564		—		—		(45)		519
Brands	476		—		—		(34)		442
Total	1,040		—		—		(79)		961

Total goodwill	18,381		14		—		(7)		18,388
Total reacquired franchise rights	7,548		—		—		(40)		7,508
Total acquired franchise rights	1,696		177		(1)		(23)		1,849
Total brands	7,883		—		(1,449)		47		6,481
Total	$	35,508	$	191	$	(1,450)	$	(23)	$	34,226

(a)Acquisitions reflects our agreement with Celsius Holdings, Inc. (Celsius), entered into in the third quarter of 2022, to distribute Celsius energy drinks in the United States. See Note 8 for further information.

(b)Impairment reflects our decision to sell or discontinue certain non-strategic brands. See Note 1 for further information.

(c)Translation and other primarily represents the appreciation of the Russian ruble.

(d)Impairment represents the decrease in fair value as a result of the Russia-Ukraine conflict and the discontinuation or repositioning of certain juice and dairy brands in Russia.