Annual report pursuant to Section 13 and 15(d)

GOODWILL AND OTHER INTANGIBLE ASSETS

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GOODWILL AND OTHER INTANGIBLE ASSETS
 12 Months Ended
Dec. 31, 2022
Goodwill and Intangible Assets Disclosure [Abstract]  
GOODWILL AND OTHER INTANGIBLE ASSETS
NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following (in thousands):
December 31, 2022 December 31, 2021
Gross
Accumulated
Amortization
 Net Gross
Accumulated
Amortization
 Net
Other intangible assets subject to amortization
Customer relationships (useful life of 5 to 10 years)
 $ 105,298  $ (26,137) $ 79,161  $ 106,013  $ (14,478) $ 91,535 
Tradenames (useful life of 25 years)
 171,013  (15,498) 155,515  173,522  (8,818) 164,704 
Total $ 276,311  $ (41,635) $ 234,676  $ 279,535  $ (23,296) $ 256,239 
Other intangible assets not subject to amortization
Product formulations 10,700  10,700 
Total other intangible assets, net 245,376  266,939 
Goodwill 193,139  242,661 
Total goodwill and other intangible assets $ 438,515  $ 509,600 
The Company amortizes its intangible assets subject to amortization on a straight-line basis over their respective useful lives. The remaining intangible assets subject to amortization as of December 31, 2022 have a weighted-average remaining useful life of approximately 17.6 years, including weighted-average remaining useful lives of approximately 7.2 years for customer relationships and approximately 22.8 years for tradenames. The Successor’s amortization expense for intangible assets was $18.6 million and $18.3 million for the years ended December 31, 2022 and 2021, respectively, and $6.0 million for the period from June 26, 2020 through December 31, 2020. The Predecessor’s amortization expense for intangible assets was $4.9 million for the period from January 1, 2020 to June 25, 2020.
Amortization expense relating to amortizable intangible assets as of December 31, 2022 for the next five years is expected to be as follows (in thousands):
2023 $ 18,612 
2024 18,612 
2025 18,373 
2026 18,147 
2027 16,924 
The changes in the carrying amounts of goodwill during the years ended December 31, 2022 and December 31, 2021 were as follows (in thousands):
Branded CPG Flavors & Ingredients Total
Balance at December 31, 2020 $ 150,323  $ 3,214  $ 153,537 
Purchase accounting adjustments 2,301  —  2,301 
Acquisition of Wholesome 80,763  —  80,763 
Currency translation adjustment 5,470  590  6,060 
Balance at December 31, 2021 $ 238,857  $ 3,804  $ 242,661 
Impairment (46,500) —  (46,500)
Currency translation adjustment (2,870) (152) (3,022)
Balance at December 31, 2022 $ 189,487  $ 3,652  $ 193,139 
Impairment of Goodwill and Other Indefinite-Lived Intangible Assets—As disclosed in Note 1, the Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in circumstances indicate that an asset may be impaired, in accordance with ASC Topic 350.
The Company performs its annual impairment procedures for all of its reporting units and indefinite-lived intangible assets during the fourth quarter of each year. In 2022, the Company performed a quantitative impairment test and estimated the fair values of the reporting units utilizing both the income and market approach to determine the fair values of the Company’s reporting units.
As a result of the 2022 impairment test, the Company determined that the carrying values of the North America and LATAM reporting units within the Branded CPG segment exceeded their respective fair values and as a result, the Company recognized a non-cash impairment charge of $46.5 million in the fourth quarter of 2022, which included $42.5 million related to the North America reporting unit and $4.0 million related to the LATAM reporting unit. The impairment was primarily due to current macroeconomic conditions, including rising interest rates and continued currency devaluation in LATAM, and higher supply chain costs and other inflationary pressures which contributed to lower earnings forecasts for our North America and LATAM reporting units. The income approach incorporated estimated future cash flows and a terminal value discounted to present value using an appropriate risk-adjusted discount rate. The estimated future cash flows reflected management’s best estimate of economic and market conditions over the projected period including forecasted revenue, gross margins, tax rates, capital expenditures, depreciation and amortization, changes in working capital requirements and terminal growth rates. The market approach estimated the fair value of the North America reporting unit using Company specific and guideline company valuation metrics and was equally weighted with the income approach to determine the fair value of the North America reporting unit. The Company used the income approach to determine the fair value of the LATAM reporting unit. After the impairments, the goodwill carrying amount of the North America and LATAM reporting units was approximately $80.5 million and $0 million, respectively.
In the fourth quarter of 2021, the Company performed a quantitative impairment test and concluded that their fair values exceeded their respective carrying values and therefore, there was no impairment. In the fourth quarter of 2020, the Company used a qualitative assessment for its impairment tests and concluded that it was more likely than not that their fair values exceeded their respective carrying values and therefore, did not result in an impairment. In the first quarter of 2020, the Predecessor performed an interim impairment assessment at March 31, 2020 as the on-going macroeconomic disruption and uncertainty caused by the COVID-19 pandemic, including the impact on enterprise valuations across sectors, represented events that indicated the carrying value of goodwill and indefinite-lived intangible assets of the Predecessor may not be recoverable. For the interim impairment assessment of indefinite-lived intangible assets, the Predecessor used the income approach to determine fair values. The income approach used the discounted cash flow method which requires assumptions related to projected operating results and a discount rate using a market-based weighted-average cost of capital. The financial projections reflected management’s best estimate of economic and market conditions over the projected period including forecasted revenue growth, gross margins, tax rate, capital expenditures, depreciation and amortization, changes in working capital requirements and the terminal growth rates. It was determined that the carrying value of the indefinite-lived intangible assets at Flavors & Ingredients exceeded their fair value and a non-cash impairment charge of $22.9 million was recorded in the first quarter of 2020. For the interim impairment assessment of goodwill as of March 31, 2020, the Predecessor utilized a market approach to estimate fair value based upon the then proposed purchase price of the Business Combination from a willing buyer in an active open market transaction. As a result of the interim quantitative impairment assessment, the carrying value of the Mafco Worldwide and Merisant reporting units exceeded their fair value by $6.6 million and $11.1 million, respectively, and a non-cash goodwill impairment charge of $17.7 million was recorded in the first quarter of 2020.