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Goodwill and Other Intangible Assets
We sell products under a number of brand names, many of which were developed by us. Brand development
costs are expensed as incurred. We also purchase brands and other intangible assets in acquisitions. In a
business combination, the consideration is first assigned to identifiable assets and liabilities, including brands
and other intangible assets, based on estimated fair values, with any excess recorded as goodwill. Determining
fair value requires significant estimates and assumptions based on an evaluation of a number of factors, such
as marketplace participants, product life cycles, market share, consumer awareness, brand history and future
expansion expectations, amount and timing of future cash flows and the discount rate applied to the cash
flows.
We believe that a brand has an indefinite life if it has a history of strong revenue and cash flow performance
and we have the intent and ability to support the brand with marketplace spending for the foreseeable future.
If these indefinite-lived brand criteria are not met, brands are amortized over their expected useful lives,
which generally range from 20 to 40 years. Determining the expected life of a brand requires management
judgment and is based on an evaluation of a number of factors, including market share, consumer awareness,
brand history, future expansion expectations and regulatory restrictions, as well as the macroeconomic
environment of the countries in which the brand is sold.
In connection with previous acquisitions, we reacquired certain franchise rights which provided the exclusive
and perpetual rights to manufacture and/or distribute beverages for sale in specified territories. In determining
the useful life of these franchise rights, many factors were considered, including the pre-existing perpetual
bottling arrangements, the indefinite period expected for these franchise rights to contribute to our future
cash flows, as well as the lack of any factors that would limit the useful life of these franchise rights to us,
including legal, regulatory, contractual, competitive, economic or other factors. Therefore, certain of these
franchise rights are considered as indefinite-lived. Franchise rights that are not considered indefinite-lived
are amortized over the remaining contractual period of the contract in which the right was granted.
Indefinite-lived intangible assets and goodwill are not amortized and, as a result, 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. Factors considered include macroeconomic, industry and
competitive conditions, legal and regulatory environment, historical financial performance and significant
changes in the brand or reporting unit. 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 and goodwill, 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 to estimate future levels of sales,
operating profit or cash flows. All assumptions used in our impairment evaluations for indefinite-lived
intangible assets and goodwill, such as forecasted growth rates and weighted-average cost of capital, are
based on the best available market information and are consistent with our internal forecasts and operating
plans. These assumptions could be adversely impacted by certain of the risks described in “Item 1A. Risk
Factors” and “Our Business Risks.”
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Amortizable intangible assets are only evaluated for impairment upon a significant change in the operating
or macroeconomic environment. If an evaluation of the undiscounted future cash flows indicates impairment,
the asset is written down to its estimated fair value, which is based on its discounted future cash flows.
See Note 2 and Note 4 to our consolidated financial statements for further information.
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