UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended March 26, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from __________ to __________
Commission File Number: 001-37482
The Kraft Heinz Co mpany
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(412 ) 456-5700
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 23, 2022, there were 1,223,951,939 shares of the registrant’s common stock outstanding.
Table of Contents
Unless the context otherwise requires, the terms “we,” “us,” “our,” “Kraft Heinz,” and the “Company” each refer to The Kraft Heinz Company and all of its consolidated subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains a number of forward-looking statements. Words such as “anticipate,” “reflect,” “invest,” “see,” “make,” “expect,” “give,” “deliver,” “drive,” “believe,” “improve,” “assess,” “reassess,” “remain,” “evaluate,” “grow,” “will,” “plan,” “intend,” and variations of such words and similar future or conditional expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our plans, impacts of accounting standards and guidance, growth, legal matters, taxes, costs and cost savings, impairments, and dividends. These forward-looking statements reflect management’s current expectations and are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond our control.
Important factors that may affect our business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the impacts of COVID-19 and government and consumer responses; operating in a highly competitive industry; our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers; changes in our relationships with significant customers or suppliers, or in other business relationships; our ability to maintain, extend, and expand our reputation and brand image; our ability to leverage our brand value to compete against private label products; our ability to drive revenue growth in our key product categories or platforms, increase our market share, or add products that are in faster-growing and more profitable categories; product recalls or other product liability claims; climate change and legal or regulatory responses; our ability to identify, complete, or realize the benefits from strategic acquisitions, alliances, divestitures, joint ventures, or other investments; our ability to successfully execute our strategic initiatives; the impacts of our international operations; our ability to protect intellectual property rights; our ownership structure; our ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes, and improve our competitiveness; our level of indebtedness, as well as our ability to comply with covenants under our debt instruments; additional impairments of the carrying amounts of goodwill or other indefinite-lived intangible assets; foreign exchange rate fluctuations; volatility in commodity, energy, and other input costs; volatility in the market value of all or a portion of the commodity derivatives we use; compliance with laws and regulations and related legal claims or regulatory enforcement actions; failure to maintain an effective system of internal controls; a downgrade in our credit rating; the impact of future sales of our common stock in the public market; our ability to continue to pay a regular dividend and the amounts of any such dividends; unanticipated business disruptions and natural events in the locations in which we or our customers, suppliers, distributors, or regulators operate; economic and political conditions in the United States and in various other nations where we do business (including the Russia and Ukraine conflict and its regional and global ramifications); changes in our management team or other key personnel and our ability to hire or retain key personnel or a highly skilled and diverse global workforce; risks associated with information technology and systems, including service interruptions, misappropriation of data, or breaches of security; increased pension, labor, and people-related expenses; changes in tax laws and interpretations; volatility of capital markets and other macroeconomic factors; and other factors. For additional information on these and other factors that could affect our forward-looking statements, see Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 25, 2021. We disclaim and do not undertake any obligation to update, revise, or withdraw any forward-looking statement in this report, except as required by applicable law or regulation.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Kraft Heinz Company
Condensed Consolidated Statements of Income
(in millions, except per share data)
(Unaudited)
| For the Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Net sales | $ | $ | |||||||||
| Cost of products sold | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses, excluding impairment losses | |||||||||||
| Goodwill impairment losses | ( | ||||||||||
| Selling, general and administrative expenses | |||||||||||
| Operating income/(loss) | |||||||||||
| Interest expense | |||||||||||
| Other expense/(income) | ( | ( | |||||||||
| Income/(loss) before income taxes | |||||||||||
| Provision for/(benefit from) income taxes | |||||||||||
| Net income/(loss) | |||||||||||
| Net income/(loss) attributable to noncontrolling interest | |||||||||||
| Net income/(loss) attributable to common shareholders | $ | $ | |||||||||
| Per share data applicable to common shareholders: | |||||||||||
| Basic earnings/(loss) | $ | $ | |||||||||
| Diluted earnings/(loss) | |||||||||||
See accompanying notes to the condensed consolidated financial statements.
1
The Kraft Heinz Company
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(Unaudited)
| For the Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Net income/(loss) | $ | $ | |||||||||
| Other comprehensive income/(loss), net of tax: | |||||||||||
| Foreign currency translation adjustments | ( | ||||||||||
| Net deferred gains/(losses) on net investment hedges | |||||||||||
| Amounts excluded from the effectiveness assessment of net investment hedges | |||||||||||
| Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss) | ( | ( | |||||||||
| Net deferred gains/(losses) on cash flow hedges | ( | ( | |||||||||
| Amounts excluded from the effectiveness assessment of cash flow hedges | |||||||||||
| Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss) | |||||||||||
| Net actuarial gains/(losses) arising during the period | |||||||||||
| Net postemployment benefit losses/(gains) reclassified to net income/(loss) | ( | ( | |||||||||
| Total other comprehensive income/(loss) | |||||||||||
| Total comprehensive income/(loss) | |||||||||||
| Comprehensive income/(loss) attributable to noncontrolling interest | |||||||||||
| Comprehensive income/(loss) attributable to common shareholders | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
2
The Kraft Heinz Company
Condensed Consolidated Balance Sheets
(in millions, except per share data)
(Unaudited)
| March 26, 2022 | December 25, 2021 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Trade receivables (net of allowances of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses | |||||||||||
| Other current assets | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other non-current assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Commercial paper and other short-term debt | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Trade payables | |||||||||||
| Accrued marketing | |||||||||||
| Interest payable | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income taxes | |||||||||||
| Accrued postemployment costs | |||||||||||
| Long-term deferred income | |||||||||||
| Other non-current liabilities | |||||||||||
| TOTAL LIABILITIES | |||||||||||
| Commitments and Contingencies (Note 15) | |||||||||||
| Redeemable noncontrolling interest | |||||||||||
| Equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings/(deficit) | ( | ( | |||||||||
| Accumulated other comprehensive income/(losses) | ( | ( | |||||||||
Treasury stock, at cost ( | ( | ( | |||||||||
| Total shareholders' equity | |||||||||||
| Noncontrolling interest | |||||||||||
| TOTAL EQUITY | |||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
3
The Kraft Heinz Company
Condensed Consolidated Statements of Equity
(in millions)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Retained Earnings/(Deficit) | Accumulated Other Comprehensive Income/(Losses) | Treasury Stock, at Cost | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||
| Balance at December 25, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
| Net income/(loss) excluding redeemable noncontrolling interest | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
Dividends declared-common stock ($ | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Exercise of stock options, issuance of other stock awards, and other | — | — | ( | — | |||||||||||||||||||||||||||||||||||||
| Balance at March 26, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings/(Deficit) | Accumulated Other Comprehensive Income/(Losses) | Treasury Stock, at Cost | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||||||||||||
| Balance at December 26, 2020 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
| Net income/(loss) | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Other comprehensive income/(loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
Dividends declared-common stock ($ | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Exercise of stock options, issuance of other stock awards, and other | — | — | ( | — | |||||||||||||||||||||||||||||||||||||
| Balance at March 27, 2021 | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
The Kraft Heinz Company
Condensed Consolidated Statements of Cash Flows
(in millions)
(Unaudited)
| For the Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income/(loss) | $ | $ | |||||||||
| Adjustments to reconcile net income/(loss) to operating cash flows: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of postemployment benefit plans prior service costs/(credits) | ( | ( | |||||||||
| Divestiture-related license income | ( | ||||||||||
| Equity award compensation expense | |||||||||||
| Deferred income tax provision/(benefit) | |||||||||||
| Postemployment benefit plan contributions | ( | ( | |||||||||
| Goodwill and intangible asset impairment losses | ( | ||||||||||
| Nonmonetary currency devaluation | |||||||||||
| Loss/(gain) on sale of business | |||||||||||
| Other items, net | ( | ||||||||||
| Changes in current assets and liabilities: | |||||||||||
| Trade receivables | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Other current assets | ( | ( | |||||||||
| Other current liabilities | ( | ||||||||||
| Net cash provided by/(used for) operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Payments to acquire business, net of cash acquired | ( | ||||||||||
| Proceeds from sale of business, net of cash disposed and working capital adjustments | ( | ||||||||||
| Other investing activities, net | |||||||||||
| Net cash provided by/(used for) investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Repayments of long-term debt | ( | ( | |||||||||
| Debt prepayment and extinguishment costs | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Other financing activities, net | ( | ||||||||||
| Net cash provided by/(used for) financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash | |||||||||||
| Net increase/(decrease) | ( | ( | |||||||||
| Balance at beginning of period | |||||||||||
| Balance at end of period | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
5
The Kraft Heinz Company
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”). In management’s opinion, these interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary to fairly state our results for the periods presented.
The condensed consolidated balance sheet data at December 25, 2021 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. These statements should be read in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 25, 2021. The results for interim periods are not necessarily indicative of future or annual results.
Principles of Consolidation
The condensed consolidated financial statements include The Kraft Heinz Company and all of our controlled subsidiaries. All intercompany transactions are eliminated.
Reportable Segments
We manage and report our operating results through three reportable segments defined by geographic region: United States, International, and Canada.
During the fourth quarter of 2021, certain organizational changes were announced that will impact our future internal reporting and reportable segments. As a result of these changes, we plan to combine our United States and Canada zones to form the North America zone and expect to have two reportable segments, North America and International. We expect that any change to our reportable segments will be effective in the second quarter of 2022.
Considerations Related to COVID-19
The ongoing spread of COVID-19 throughout the United States and internationally, as well as measures implemented by governmental authorities and private businesses in an attempt to minimize transmission of the virus (including social distancing mandates, shelter-in-place orders, vaccine mandates, and business restrictions and shutdowns) and consumer responses to such measures and the pandemic have had and continue to have negative and positive implications for portions of our business. Though many areas have relaxed restrictions, varying levels remain throughout the world, are continuously evolving, and may be increased, including as a result of further outbreaks, resurgences, or the emergence of new variants.
In the preparation of these financial statements and related disclosures we have assessed the impact that COVID-19 has had on our estimates, assumptions, forecasts, and accounting policies and made additional disclosures, as necessary. As COVID-19 and its impacts are unprecedented and ever evolving, future events and effects related to the pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts.
See Note 8, Goodwill and Intangible Assets, for further discussion of COVID-19 considerations.
6
Use of Estimates
We prepare our condensed consolidated financial statements in accordance with U.S. GAAP, which requires us to make accounting policy elections, estimates, and assumptions that affect the reported amount of assets, liabilities, reserves, and expenses. These accounting policy elections, estimates, and assumptions are based on our best estimates and judgments. We evaluate our policy elections, estimates, and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We believe these estimates to be reasonable given the current facts available. We adjust our policy elections, estimates, and assumptions when facts and circumstances dictate. Market volatility, including foreign currency exchange rates, increases the uncertainty inherent in our estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from estimates. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our condensed consolidated financial statements.
Reclassifications
We made reclassifications and adjustments to certain previously reported financial information to conform to our current period presentation.
Held for Sale
At March 26, 2022, we classified certain assets as held for sale in our condensed consolidated balance sheet, including certain property, plant and equipment, net in our United States segment related to the sale of a manufacturing facility, inventory in our International segment, and certain manufacturing equipment and land use rights across the globe. At December 25, 2021, we classified certain assets as held for sale in our condensed consolidated balance sheet, including inventory in our International segment and certain manufacturing equipment and land use rights across the globe. See Note 4, Acquisitions and Divestitures, for additional information.
Note 2. Significant Accounting Policies
Note 3. New Accounting Standards
Accounting Standards Not Yet Adopted
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers:
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08 to amend the accounting for contract assets and contract liabilities acquired in a business combination under Accounting Standards Codification (“ASC”) 805, Business Combinations. The guidance requires entities engaged in a business combination to recognize and measure contract assets acquired and contract liabilities assumed in accordance with ASC 606, Revenue from Contracts with Customers, rather than at fair value on the acquisition date. The amendments also apply to other contracts such as contract liabilities arising from nonfinancial assets under ASC 610-20, Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets. The ASU will be effective beginning in the first quarter of 2023. Early adoption is permitted, including in an interim period. We currently expect to adopt ASU 2021-08 in the first quarter of 2023 on a prospective basis. While the impact of these amendments is dependent on the nature of any future transactions, we currently do not expect this ASU to have a significant impact on our financial statements and related disclosures.
Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting:
In March 2020, the FASB issued ASU 2020-04 to provide temporary optional expedients and exceptions to the U.S. GAAP guidance for accounting for contracts, hedging relationships, and other transactions affected by the transition from discontinued reference rates, such as the London Interbank Offered Rate (LIBOR), to alternative reference rates. The new accounting requirements can be applied from March 12, 2020 through December 31, 2022. While we currently do not expect this new guidance to have a significant impact on our financial statements or related disclosures, we continue to evaluate our contracts and the optional expedients provided by the new standard.
7
Note 4. Acquisitions and Divestitures
Acquisitions
Just Spices Acquisition:
On January 18, 2022 (the “Just Spices Acquisition Date”), we acquired 85 % of the shares of Just Spices GmbH (“Just Spices”), a German-based company focused on direct-to-consumer sales of premium spice blends, from certain third-party shareholders (the “Just Spices Acquisition”).
The Just Spices Acquisition was accounted for under the acquisition method of accounting for business combinations. Total cash consideration related to the Just Spices Acquisition was approximately 214 million euros (approximately $243 million at the Just Spices Acquisition Date). A noncontrolling interest was recognized at fair value, which was determined to be the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets, as of the Just Spices Acquisition Date. Under the terms of certain transaction agreements, Just Spices’ other equity holders each have a put option to require us to purchase the remaining equity interests beginning three years after the Just Spices Acquisition Date. If the put option is not exercised, we have a call option to acquire the remaining equity interests of Just Spices. Considering the contractual terms related to the noncontrolling interest, it is classified as redeemable noncontrolling interest on our condensed consolidated balance sheet.
Subsequent to the Just Spices Acquisition, the redeemable noncontrolling interest will be measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for the net income/(loss) attributable to the noncontrolling interest.
We utilized fair values at the Just Spices Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Just Spices Acquisition is preliminary and subject to adjustment.
The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the Just Spices Acquisition Date). The primary areas of accounting for the Just Spices Acquisition that are not yet finalized relate to the fair value of certain intangible assets and tangible net assets acquired, residual goodwill, and any related tax impact. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, we will evaluate any additional information prior to finalization of the fair value. During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the Just Spices Acquisition Date, that, if known, would have resulted in revised values for these items as of that date. The impact of all changes, if any, that do not qualify as measurement period adjustments will be included in current period earnings.
The preliminary purchase price allocation to assets acquired and liabilities assumed in the Just Spices Acquisition was (in millions):
| Initial Allocation | |||||
| Cash | $ | ||||
| Trade receivables | |||||
| Inventories | |||||
| Other current assets | |||||
| Property, plant and equipment, net | |||||
| Identifiable intangible assets | |||||
| Trade payables | ( | ||||
| Other current liabilities | ( | ||||
| Other non-current liabilities | ( | ||||
| Net assets acquired | |||||
| Redeemable noncontrolling interest | ( | ||||
| Goodwill on acquisition | |||||
| Total consideration | $ | ||||
8
The Just Spices Acquisition preliminarily resulted in $167 million of non-tax deductible goodwill relating principally to Just Spices’ social media presence. This goodwill was assigned to the Continental Europe reporting unit within our International segment. See Note 8, Goodwill and Intangible Assets, for additional information.
The preliminary purchase price allocation to identifiable intangible assets acquired in the Just Spices Acquisition was:
| Fair Value (in millions of dollars) | Weighted Average Life (in years) | ||||||||||
| Definite-lived trademarks | $ | ||||||||||
| Customer-related assets | |||||||||||
| Total | $ | ||||||||||
We valued trademarks using the relief from royalty method and customer-related assets using the distributor method. Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each definite-lived intangible asset (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), the discount rate that appropriately reflects the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends, as well as other factors. We determined the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management’s plans, and market comparables.
We used carrying values as of the Just Spices Acquisition Date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at such date.
Assan Foods Acquisition:
On October 1, 2021 (the “Assan Foods Acquisition Date”), we acquired all of the outstanding equity interests in Assan Gıda Sanayi ve Ticaret A.Ş. (“Assan Foods”), a condiments and sauces manufacturer based in Turkey, from third parties Kibar Holding Anonim Şirketi and a holder of registered shares of Assan Foods (the “Assan Foods Acquisition”).
The Assan Foods Acquisition was accounted for under the acquisition method of accounting for business combinations. Total consideration related to the Assan Foods Acquisition was approximately $79 million, including cash consideration of $70 million and contingent consideration of approximately $9 million. We utilized fair values at the Assan Foods Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Assan Foods Acquisition is preliminary and subject to adjustment.
The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the Assan Foods Acquisition Date). The primary areas of accounting for the Assan Foods Acquisition that are not yet finalized relate to the fair value of certain tangible net assets acquired and the related impact on residual goodwill. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, we will evaluate any additional information prior to finalization of the fair value. During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the Assan Foods Acquisition Date, that, if known, would have resulted in revised values for these items as of that date. The impact of all changes, if any, that do not qualify as measurement period adjustments will be included in current period earnings.
9
The preliminary purchase price allocation to assets acquired and liabilities assumed in the Assan Foods Acquisition was (in millions):
Initial Allocation(a) | Adjustments | Updated Allocation | |||||||||||||||
| Cash | $ | $ | $ | ||||||||||||||
| Trade receivables | |||||||||||||||||
| Inventories | |||||||||||||||||
| Other current assets | |||||||||||||||||
| Property, plant and equipment, net | |||||||||||||||||
| Identifiable intangible assets | |||||||||||||||||
| Other non-current assets | |||||||||||||||||
| Short-term debt | ( | ( | |||||||||||||||
| Current portion of long-term debt | ( | ( | |||||||||||||||
| Trade payables | ( | ( | |||||||||||||||
| Other current liabilities | ( | ( | |||||||||||||||
| Long-term debt | ( | ( | |||||||||||||||
| Other non-current liabilities | ( | ( | |||||||||||||||
| Net assets acquired | |||||||||||||||||
| Goodwill on acquisition | ( | ||||||||||||||||
| Total consideration | $ | $ | $ | ||||||||||||||
(a) As reported in Note 4, Acquisitions and Divestitures, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021.
The measurement period adjustments to the initial allocation are based on more detailed information obtained about the specific assets acquired.
In the fourth quarter of 2021, the Assan Foods Acquisition preliminarily resulted in $64 million of non-tax deductible goodwill relating principally to additional capacity that the Assan Foods manufacturing facilities will provide for our brands in the EMEA East region. This goodwill was assigned to the EMEA East reporting unit within our International segment. Following the measurement period adjustments made in the first quarter of 2022, the preliminarily amount of goodwill has been adjusted to $51 million as of March 26, 2022. See Note 8, Goodwill and Intangible Assets, in this Quarterly Report on Form 10-Q as well as Note 9, Goodwill and Intangible Assets, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021 for additional information.
The preliminary purchase price allocation to identifiable intangible assets acquired in the Assan Foods Acquisition was:
| Fair Value (in millions of dollars) | Weighted Average Life (in years) | ||||||||||
| Definite-lived trademarks | $ | ||||||||||
| Customer-related assets | |||||||||||
| Total | |||||||||||
We valued trademarks using the relief from royalty method and customer-related assets using the distributor method. Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each definite-lived intangible asset (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), the discount rate that appropriately reflects the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends, as well as other factors. We determined the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management’s plans, and market comparables.
We used carrying values as of the Assan Foods Acquisition Date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at such date.
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Hemmer Acquisition:
In September 2021, we entered into a definitive agreement with certain third-party shareholders of Companhia Hemmer Indústria e Comércio (“Hemmer”) to acquire a majority of the outstanding equity interests of Hemmer, a Brazilian food and beverage manufacturing company focused on the condiments and sauces category (the “Hemmer Acquisition”). The Hemmer Acquisition closed on March 31, 2022 (the “Hemmer Acquisition Date”), in the second quarter of 2022, for preliminary cash consideration of approximately 1.2 billion Brazilian reais (approximately $252 million at the Hemmer Acquisition Date). The initial accounting for the transaction is incomplete as of the date of this Quarterly Report on Form 10-Q, as the information necessary to complete such evaluation is in the process of being obtained and more thoroughly evaluated. We have not yet determined the purchase price allocation, including the fair value of the acquired assets and assumed liabilities.
We entered into foreign exchange derivative contracts to economically hedge the foreign currency exposure related to the cash consideration for the Hemmer Acquisition. See Note 12, Financial Instruments, for additional information.
Deal Costs:
Related to our acquisitions, we incurred insignificant deal costs for the three months ended March 26, 2022. We recognized these deal costs in selling, general and administrative expenses (“SG&A”). There were no deal costs related to acquisitions for the three months ended March 27, 2021.
Divestitures
Cheese Transaction:
In September 2020, we entered into a definitive agreement with a third party, an affiliate of Groupe Lactalis (“Lactalis”), to sell certain assets in our global cheese business, as well as to license certain trademarks, for total consideration of approximately $3.3 billion, including approximately $3.2 billion of cash consideration and approximately $141 million related to a perpetual license for the Cracker Barrel brand that Lactalis granted to us for certain products (the “Cheese Transaction”). The Cheese Transaction had two primary components. The first component related to the perpetual licenses for the Kraft and Velveeta brands that we granted to Lactalis for certain cheese products (the “Kraft and Velveeta Licenses”), along with a three-year transitional license that we granted to Lactalis for the Philadelphia brand (the “Philadelphia License” and collectively, the “Cheese Divestiture Licenses”). The second component related to the net assets transferred to Lactalis. The Cheese Transaction closed on November 29, 2021 (the “Cheese Transaction Closing Date”).
Of the $3.3 billion total consideration, approximately $1.6 billion was attributed to the Cheese Divestiture Licenses based on the estimated fair value of the licensed portion of each brand. As of the Cheese Transaction Closing Date, the license income related to the Kraft and Velveeta Licenses will be recognized over approximately 30 years, and the license income related to the Philadelphia License will be recognized over approximately three years . Related to the Cheese Divestiture Licenses, we recognized approximately $14 million of license income for the three months ended March 26, 2022, which was recorded as a reduction to SG&A and classified as divestiture-related license income. Additionally, at March 26, 2022, we have recorded approximately $1.5 billion in long-term deferred income and $56 million in other current liabilities on the condensed consolidated balance sheet related to the Cheese Divestiture Licenses.
In the first quarter of 2022, we reimbursed Lactalis approximately $20 million following a final inventory count performed after the Cheese Transaction closed. This amount reflects the difference between the estimated and actual value of inventory transferred, which was primarily driven by seasonal fluctuations in finished goods. The payment to Lactalis was recognized in our condensed consolidated statement of cash flows for the three months ended March 26, 2022 as a cash outflow from investing activities in proceeds from sale of business, net of cash disposed and working capital adjustments.
See Note 4, Acquisitions and Divestitures, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021 for additional information related to the Cheese Transaction.
Nuts Transaction:
In February 2021, we entered into a definitive agreement with a third party, Hormel Foods Corporation, to sell certain assets in our global nuts business for total consideration of approximately $3.4 billion (the “Nuts Transaction”). The net assets transferred in the Nuts Transaction included, among other things, our intellectual property rights to the Planters brand and to the Corn Nuts brand, three manufacturing facilities in the U.S., and the associated inventories (collectively, the “Nuts Disposal Group”).
As of February 10, 2021, the date the Nuts Disposal Group was determined to be held for sale, we tested the individual assets included within the Nuts Disposal Group for impairment. The net assets of the Nuts Disposal Group had an aggregate carrying amount above their $3.4 billion estimated fair value. We determined that the goodwill within the Nuts Disposal Group was partially impaired. As a result, we recorded a non-cash goodwill impairment loss of $230 million, which was recognized in SG&A, in the first quarter of 2021. Additionally, we recorded an estimated pre-tax loss on sale of business of $19 million in the first quarter of 2021 primarily related to estimated costs to sell, which was recognized in other expense/(income).
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The Nuts Transaction closed in the second quarter of 2021. See Note 4, Acquisitions and Divestitures, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021 for additional information related to the Nuts Transaction.
Heinz India Transaction:
On January 30, 2019 (the “Heinz India Closing Date”), we sold 100 % of our equity interests in Heinz India Private Limited (“Heinz India”) to two third-parties, Zydus Wellness Limited and Cadila Healthcare Limited (collectively, the “Buyers”) for approximately 46 billion Indian rupees (approximately $655 million at the Heinz India Closing Date) (the “Heinz India Transaction”). In connection with the Heinz India Transaction, we agreed to indemnify the Buyers from and against any tax losses for any taxable period prior to the Heinz India Closing Date, including taxes for which we are liable as a result of any transaction that occurred on or before such date. To determine the fair value of our tax indemnity we made various assumptions, including the range of potential dates the tax matters will be resolved, the range of potential future cash flows, the probabilities associated with potential resolution dates and potential future cash flows, and the discount rate. We recorded tax indemnity liabilities related to the Heinz India Transaction totaling approximately $48 million at the Heinz India Closing Date. We also recorded a corresponding $48 million reduction of the pre-tax gain on the Heinz India Transaction within other expense/(income) in our condensed consolidated statement of income in the first quarter of 2019. Future changes to the fair value of these tax indemnity liabilities will continue to impact other expense/(income) throughout the life of the exposures as a component of the gain on sale of business for the Heinz India Transaction. As of March 26, 2022, the tax indemnity liabilities were $41 million, including $14 million included within other current liabilities and $27 million in other non-current liabilities on our condensed consolidated balance sheet. There was no impact to the gain/(loss) on sale of business related to the tax indemnity liabilities for the three months ended March 26, 2022 or the three months ended March 27, 2021. We recognized an insignificant pre-tax loss on sale of business related to the Heinz India Transaction for the three months ended March 26, 2022.
Deal Costs:
Related to our divestitures, we incurred insignificant deal costs for the three months ended March 26, 2022 and the three months ended March 27, 2021. We recognized these deal costs in SG&A.
Held for Sale
Our assets held for sale, by major class, were (in millions):
| March 26, 2022 | December 25, 2021 | ||||||||||
| ASSETS | |||||||||||
| Inventories | $ | $ | |||||||||
| Property, plant and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Total assets held for sale | $ | $ | |||||||||
The balances held for sale at March 26, 2022 primarily included certain property, plant and equipment, net in our United States segment related to the sale of a manufacturing facility, as well as inventory in our International segment related to the Cheese Transaction and certain manufacturing equipment and land use rights across the globe. At December 25, 2021, balances held for sale included inventory in our International segment related to the Cheese Transaction and certain manufacturing equipment and land use rights across the globe.
For the three months ended March 26, 2022, related to the manufacturing facility held for sale in the United States segment, we recorded an impairment loss of approximately $66 million to cost of products sold on our condensed consolidated statement of income. This impairment loss, which was recorded at the time the assets were determined to be held for sale, reflects the difference between the fair value and carrying value of the related asset disposal group, which primarily includes buildings and improvements, machinery and equipment, and land. The fair value of the asset disposal group was determined using the cost and market approaches.
Note 5. Restructuring Activities
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Restructuring Activities:
We have restructuring programs globally, which are focused primarily on workforce reduction and factory closure and consolidation. For the three months ended March 26, 2022, we eliminated approximately 330 positions related to these programs. As of March 26, 2022, we expect to eliminate approximately 200 additional positions during the remainder of 2022. For the three months ended March 26, 2022, restructuring activities resulted in expenses of $19 million and included $10 million of severance and employee benefit costs, $4 million of asset-related costs, and $5 million of other implementation costs. Restructuring activities resulted in expenses of $18 million for the three months ended March 27, 2021.
Our net liability balance for restructuring project costs that qualify as exit and disposal costs under U.S. GAAP was (in millions):
| Severance and Employee Benefit Costs | Other Exit Costs | Total | |||||||||||||||
| Balance at December 25, 2021 | $ | $ | $ | ||||||||||||||
| Charges/(credits) | |||||||||||||||||
| Cash payments | ( | ( | ( | ||||||||||||||
| Balance at March 26, 2022 | $ | $ | $ | ||||||||||||||
We expect the majority of the liability for severance and employee benefit costs as of March 26, 2022 to be paid by the end of 2022. The liability for other exit costs primarily relates to lease obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2022 and 2026.
Total Expenses/(Income):
Total expense/(income) related to restructuring activities, by income statement caption, were (in millions):
| For the Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| Severance and employee benefit costs - Cost of products sold | $ | ( | $ | ||||||||
| Severance and employee benefit costs - SG&A | |||||||||||
| Asset-related costs - Cost of products sold | |||||||||||
| Other costs - Cost of products sold | |||||||||||
| Other costs - SG&A | |||||||||||
| $ | $ | ||||||||||
We do not include our restructuring activities within Segment Adjusted EBITDA (as defined in Note 17, Segment Reporting). The pre-tax impact of allocating such expenses/(income) to our segments would have been (in millions):
| For the Three Months Ended | |||||||||||
| March 26, 2022 | March 27, 2021 | ||||||||||
| United States | $ | $ | |||||||||
| International | ( | ||||||||||
| Canada | |||||||||||
| General corporate expenses | |||||||||||
| $ | $ | ||||||||||
Note 6. Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, as reported on our condensed consolidated balance sheets, to cash, cash equivalents, and restricted cash, as reported on our condensed consolidated statements of cash flows (in millions):
| March 26, 2022 | December 25, 2021 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Restricted cash included in other non-current assets | |||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | |||||||||
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Note 7. Inventories
Inventories consisted of the following (in millions):
| March 26, 2022 | December 25, 2021 | ||||||||||
| Packaging and ingredients | $ | $ | |||||||||
| Spare parts | |||||||||||
| Work in process | |||||||||||
| Finished products | |||||||||||
| Inventories | $ | $ | |||||||||
At March 26, 2022 and December 25, 2021, inventories excluded amounts classified as held for sale. See Note 4, Acquisitions and Divestitures, for additional information.
Note 8. Goodwill and Intangible Assets
Goodwill:
Changes in the carrying amount of goodwill, by segment, were (in millions):
| United States | International | Canada | Total | ||||||||||||||||||||
| Balance at December 25, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Acquisitions | |||||||||||||||||||||||
| Measurement period adjustments | ( | ( | |||||||||||||||||||||
| Translation adjustments and other | ( | ( | |||||||||||||||||||||
| Balance at March 26, 2022 | $ | $ | $ | $ | |||||||||||||||||||
In the first quarter of 2022, we closed the Just Spices Acquisition in our International segment, which resulted in preliminary goodwill of $167 million. Additionally, we recorded measurement period adjustments primarily related to the Assan Foods Acquisition that impacted goodwill. The Assan Foods Acquisition closed in the fourth quarter of 2021 and was in our International segment. These measurement period adjustments resulted in a net decrease to goodwill on acquisitions of approximately $15 million in the first quarter of 2022. However, as each of the affected reporting units (EMEA East and Latin America) have no goodwill balance remaining, we recorded a reduction of the $53 million non-cash impairment loss recorded to SG&A in the fourth quarter of 2021 that fully impaired the goodwill related to each of these acquisitions and their respective reporting units. The impairment reduction of $11 million, which reflects the measurement period adjustment of $15 million adjusted for the impact of foreign currency, was recorded in SG&A in our International segment in the first quarter of 2022. Following these measurement period adjustments, there continues to be no goodwill in the EMEA East or Latin America reporting units. See Note 9, Goodwill and Intangible Assets, to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 25, 2021 for additional information related to the impairment losses recorded in the fourth quarter of 2021. See Note 4, Acquisitions and Divestitures, for additional information related to these transactions and the related financial statement impacts.
As of March 26, 2022, we maintain 14 reporting units, nine of which comprise our goodwill balance. These nine reporting units had an aggregate goodwill carrying amount of $31.4 billion at March 26, 2022. As of their latest 2021 impairment testing date, six reporting units had 20 % or less fair value over carrying amount and an aggregate goodwill carrying amount of $28.3 billion, two reporting units had between 20 -50 % fair value over carrying amount and a goodwill carrying amount of $2.2 billion, and one reporting unit had over 50 % fair value over carrying amount and a goodwill carrying amount of $961 million.
Accumulated impairment losses to goodwill were $10.9 billion as of March 26, 2022 and $10.9 billion at December 25, 2021.
2022 Year-to-Date Goodwill Impairment Testing
We test our reporting units for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount. No events occurred during the period ended March 26, 2022 that indicated it was more likely than not that our goodwill was impaired.
As discussed in Note 1, Basis of Presentation, during the fourth quarter of 2021, certain organizational changes were announced that will impact our future internal reporting and reportable segments. As a result of these changes, we plan to combine our United States and Canada zones to form the North America zone and expect to have two reportable segments, North America and International. We expect that any change to our reportable segments will be effective in the second quarter of 2022. These changes are also expected to affect our reporting unit structure and will require an interim impairment test (or transition test) in the second quarter of 2022.
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2021 Year-to-Date Goodwill Impairment Testing
In the first quarter of 2021, we announced the Nuts Transaction and determined that the Nuts Disposal Group was held for sale. Accordingly, based on a relative fair value allocation, we reclassified $1.7 billion of goodwill to assets held for sale, which included a portion of goodwill from four of our reporting units. The Nuts Transaction primarily affected our Kids, Snacks, and Beverages (KSB) reporting unit but also affected, to a lesser extent, our Enhancers, Specialty, and Away From Home (ESA), Canada Foodservice, and Puerto Rico reporting units. These reporting units were evaluated for impairment prior to their representative inclusion in the Nuts Disposal Group as well as on a post-reclassification basis. The fair value of all reporting units was determined to be in excess of their carrying amounts in both scenarios and, therefore, no impairment was recorded.
Additional Goodwill Considerations
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or any factors that could be affected by COVID-19, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to goodwill impairments.
Since its onset in early 2020, the COVID-19 pandemic has produced a beneficial financial impact to our consolidated results. Retail sales have increased compared to pre-pandemic periods due to higher than anticipated consumer demand for our products. The foodservice channel, however, has experienced a negative impact from prolonged social distancing mandates limiting access to and capacity at away-from-home establishments for a longer period of time than was expected when they were originally put in place. Our Canada Foodservice reporting unit, which maintains an aggregate goodwill carrying amount of approximately $158 million as of March 26, 2022, is the most exposed of our reporting units to the impacts to away-from-home establishments as it is our only standalone foodservice reporting unit. While our other reporting units have varying levels of exposure to the foodservice channel, they also have exposure to the retail channel, which offsets some of the risk associated with the potential long-term impacts of shifts in net sales between retail and away-from-home establishments. Our Canada Foodservice reporting unit was impaired during our 2020 annual impairment test, reflecting our best estimate at that time of the future outlook and risks of this business. A number of factors could result in further future impairments of our foodservice (or away-from-home) businesses, including but not limited to: mandates around closures of dining rooms in restaurants, distancing of people within establishments resulting in fewer customers, the total number of restaurant closures, changes in consumer preferences or regulatory requirements over product formats (e.g., table top packaging vs. single serve packaging), and consumer trends of dining-in versus dining-out. Given the evolving nature of, and uncertainty driven by, the COVID-19 pandemic, we will continue to evaluate the impact on our reporting units as adverse changes to these assumptions could result in future impairments.
Our reporting units that were impaired in 2021 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other reporting units that have 20 % or less excess fair value over carrying amount as of their latest 2021 impairment testing date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining reporting units have more than 20 % excess fair value over carrying amount as of their latest 2021 impairment testing date, these amounts are also primarily associated with the acquisition of H. J. Heinz Company in 2013 by Berkshire Hathaway Inc. and 3G Global Food Holdings, LP (the “2013 Heinz Acquisition”) and the merger of Kraft Foods Group, Inc. with and into H.J. Heinz Holding Corporation in 2015 (the “2015 Merger”) and are recorded on our condensed consolidated balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments.
Indefinite-lived intangible assets:
Changes in the carrying amount of indefinite-lived intangible assets, which primarily consisted of trademarks, were (in millions):
| Balance at December 25, 2021 | $ | ||||
| Translation adjustments | ( | ||||
| Balance at March 26, 2022 | $ | ||||
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Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of $39.4 billion at March 26, 2022. As of their latest 2021 impairment testing date, brands with 20 % or less fair value over carrying amount had an aggregate carrying amount after impairment of $21.3 billion, brands with between 20 -50 % fair value over carrying amount had an aggregate carrying amount of $6.5 billion, and brands that had over 50 % fair value over carrying amount had an aggregate carrying amount of $11.8 billion.
We test our brands for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a brand is less than its carrying amount. No events occurred during the period ended March 26, 2022 that indicated it was more likely than not that any brand was impaired.
Additional Indefinite-Lived Intangible Asset Considerations
Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual brands requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, income tax rates, foreign currency exchange rates, or any factors that could be affected by COVID-19, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our brands might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to intangible asset impairments.
Our brands that were impaired in 2021 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other individual brands that have 20 % or less excess fair value over carrying amount as of their latest 2021 impairment testing date have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining brands have more than 20 % excess fair value over carrying amount as of their latest 2021 impairment testing date, these amounts are also associated with the 2013 Heinz Acquisition and the 2015 Merger and are recorded on our condensed consolidated balance sheet at their estimated acquisition date fair values. Therefore, if any assumptions, estimates, or market factors change in the future, these amounts are also susceptible to impairments.
Definite-lived intangible assets:
Definite-lived intangible assets were (in millions):
| March 26, 2022 | December 25, 2021 | ||||||||||||||||||||||||||||||||||
| Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Trademarks | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Customer-related assets | ( | ( | |||||||||||||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
At March 26, 2022 and December 25, 2021, definite-lived intangible assets excluded amounts classified as held for sale. See Note 4, Acquisitions and Divestitures, for additional information on amounts held for sale.
Amortization expense for definite-lived intangible assets was $64 million for the three months ended March 26, 2022 and $61 million for the three months ended March 27, 2021. Aside from amortization expense, the change in definite-lived intangible assets from December 25, 2021 to March 26, 2022 primarily reflects $193 million of additions, which are largely related to the Just Spices Acquisition and the Assan Foods Acquisition, and the impact of foreign currency. See Note 4, Acquisitions and Divestitures, for additional information on these acquisitions.
We estimate that amortization expense related to definite-lived intangible assets will be approximately $260 250
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Note 9. Income Taxes
The provision for income taxes consists of provisions for federal, state, and foreign income taxes. We operate in an international environment; accordingly, the consolidated effective tax rate is a composite rate reflecting the earnings in various locations and the applicable tax rates. Additionally, the calculation of the percentage point impact of goodwill impairment and other items on the effective tax rate are affected by income/(loss) before income taxes. Further, small movements in tax rates due to a change in tax law or a change in tax rates that causes us to revalue our deferred tax balances produces volatility in our effective tax rate. Our quarterly income tax provision is determined based on our estimated full year effective tax rate, adjusted for tax attributable to infrequent or unusual items, which are recognized on a discrete period basis in the income tax provision for the period in which they occur.
Our effective tax rate for the three months ended March 26, 2022 was an expense of 19.6 % on pre-tax income. Our effective tax rate was favorably impacted by the geographic mix of pre-tax income in various non-U.S. jurisdictions and the impact of certain net discrete items, primarily the reversal of uncertain tax position reserves in certain foreign jurisdictions.
Our effective tax rate for the three months ended March 27, 2021 was an expense of