XML 32 R16.htm IDEA: XBRL DOCUMENT v3.24.2
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS
12 Months Ended
May 26, 2024
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS  
GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

8. GOODWILL AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The change in the carrying amount of goodwill for fiscal 2024 and 2023, excluding amounts classified as held for sale (see Note 6), was as follows:

Grocery &

Refrigerated &

    

Snacks

    

Frozen

    

International

    

Foodservice

    

Total

Balance as of May 29, 2022

$

4,692.4

$

5,611.2

$

218.8

$

732.8

$

11,255.2

Currency translation

(4.1)

(4.1)

Impairment

(141.7)

(141.7)

Balance as of May 28, 2023

$

4,692.4

$

5,469.5

$

214.7

$

732.8

$

11,109.4

Currency translation

(0.2)

(0.2)

Impairment

(526.5)

(526.5)

Balance as of May 26, 2024

$

4,692.4

$

4,943.0

$

214.5

$

732.8

$

10,582.7

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

2024

    

2023

Gross Carrying

Accumulated

Gross Carrying

Accumulated

    

Amount

    

Amortization

    

Amount

    

Amortization

Non-amortizing intangible assets

Brands and trademarks

$

2,026.8

$

$

2,457.0

$

Amortizing intangible assets

Customer relationships and intellectual property

1,232.1

550.5

1,232.0

496.7

$

3,258.9

$

550.5

$

3,689.0

$

496.7

The fair value of our reporting units is typically estimated using a discounted cash flow method, and in certain circumstances, we also use a guideline public company method. The fair value of our indefinite-lived intangibles is determined using the “relief from royalty” methodology. Both the “relief from royalty” methodology and the discounted cash flow method require 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. The guideline public company method is based on our actual and estimated EBITDA and considers public companies that are comparable to our reporting units. When determining future cash flow estimates, we consider historical results adjusted to reflect current and anticipated operating conditions. Under our discounted cash flow method, 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). Estimating the fair value of individual reporting units and our indefinite-lived intangible assets requires us to make assumptions and estimates in areas such as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for selected EBITDA multiples, future cash flows, discount rates, or terminal growth rates could produce substantially different estimates of the fair value.

In the fourth quarter of fiscal 2024, we performed our annual goodwill impairment assessment on all of our reporting units. We completed a qualitative assessment on all of our reporting units with the exception of our Sides, Components, Enhancers reporting unit. Our qualitative assessment found no indicators of impairment and considered, among other things, our previous cushion from our last quantitative test, moderating inflation, and improved operating margins due in part to our productivity initiatives. We will continue to evaluate the impact of any significant changes in consumer purchasing behaviors, government restrictions, input cost inflation, or other macroeconomic conditions that could change certain assumptions and result in future impairments.

We completed a quantitative impairment test for our Sides, Components, Enhancers reporting unit with the assistance of a third-party valuation specialist using both a discounted cash flow method and guideline public company method in the current year as a result of lower market multiples in our industry as of our testing date. In estimating the fair value of this reporting unit, we selected a market multiple of 9.0- 9.5x using actual and estimated EBITDA for our guideline public company method. We used a discount rate of 8.50% and a terminal growth rate that approximated 1% for our discounted cash flow approach. As a result of our impairment test, we recognized goodwill impairment charges within SG&A expenses of $526.5 million. The impairments were largely due to the 75-basis point increase in the discount rate as a result of current economic conditions (higher interest rates and a slightly higher company specific risk premium), a decline in market capitalization, lower market multiples in our industry as of our testing date, as well as a downward revision to our sales forecasts for this specific reporting unit. After these impairments, the goodwill carrying amount of our Sides, Components, Enhancers reporting unit is approximately $1.4 billion. Accumulated impairment losses to goodwill associated with this reporting unit were $668.2 million as of May 26, 2024 and $141.7 million as of May 28, 2023.

During the first quarter of fiscal 2023, management reorganized its reporting structure for certain brands within two reporting units in our Refrigerated & Frozen segment. The change in management reporting required us to reassign assets and liabilities, including goodwill, between the reporting units, complete a goodwill impairment test both prior to and subsequent to the change, and evaluate other assets in the reporting units for impairment, including indefinite-lived intangibles (brand names and trademarks). The fair value of our indefinite-lived intangibles was determined using the "relief from royalty" methodology. As a result of our impairment tests, we recognized goodwill impairment charges within SG&A expenses of $141.7 million within our Sides, Components, Enhancers reporting unit in the first quarter of fiscal 2023. In addition, we recognized an impairment charge within SG&A expenses of $244.0 million related to our Birds Eye® brand name in the first quarter of fiscal 2023.

Amortizing intangible assets, carrying a remaining weighted-average life of approximately 17 years, are principally composed of customer relationships and acquired intellectual property. For fiscal 2024, 2023, and 2022, we recognized amortization expense of $53.6 million, $56.8 million, and $59.3 million, respectively. Based on amortizing assets recognized in our Consolidated Balance Sheet as of May 26, 2024, amortization expense for the next five years is estimated to be as follows:

2025

$

53.5

2026

43.5

2027

43.3

2028

40.8

2029

39.6

For our non-amortizing intangible assets, which are comprised of brands and trademarks, we use a “relief from royalty” methodology in estimating fair value. In the fourth quarter of fiscal 2024, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $430.2 million within our Grocery & Snacks and Refrigerated & Frozen segments. All brands were negatively impacted by an increase in our discount rate in response to the current economic environment (higher interest rates including an increase in certain brand specific risk premiums) since our last annual impairment test. Our two largest impairments were related to Birds Eye® and Earth Balance® in the amount of $255.4 million and $72.1 million, respectively. Both of these brands were negatively impacted by volume declines in the current fiscal year given recent consumption trends, which also resulted in revised sales growth expectations. Birds Eye® was also negatively impacted by lower than expected profit margins which resulted in a slight reduction to our assumed royalty rate.

During fiscal 2023, as a result of our annual impairment test for indefinite lived intangibles, we recognized impairment charges in SG&A expenses of $345.2 million, primarily within our Grocery & Snacks and Refrigerated & Frozen segments. The most notable brands with impairments included Gardein®, Birds Eye®, Hungry Man®, Vlasic®, Van De Kamps®, Earth Balance®, and Comstock®. These brands were negatively impacted by an increase in our discount rate in response to the current economic environment

(including an increase in interest rates) since our last annual impairment test. Our two largest impairments were related to Gardein® and Birds Eye® in the amount of $91.5 million and $78.3 million, respectively. Both of these brands were negatively impacted by lower than expected profit margins which resulted in a reduction to our assumed royalty rates in addition to revised sales growth expectations to be consistent with recent industry trends. Including the Birds Eye® brand impairment recognized in the first quarter of fiscal 2023, discussed above, our total brand impairment charges recognized in fiscal 2023 were $589.2 million.

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.