FRANCHISE LICENSE INTANGIBLE ASSETS AND GOODWILL
The following table summarizes the changes in our net franchise license intangible assets and goodwill for the periods presented (in millions):
|
| | | | | | | |
| Franchise License Intangible Assets, net | | Goodwill |
Balance as of January 1, 2011 | $ | 3,828 |
| | $ | 131 |
|
Acquisition of the bottling operations in Norway and Sweden | (57 | ) | | (2 | ) |
Currency translation adjustments | — |
| | (5 | ) |
Balance as of December 31, 2011 | 3,771 |
| | 124 |
|
Currency translation adjustments | 152 |
| | 8 |
|
Balance as of December 31, 2012 | 3,923 |
| | 132 |
|
Currency translation adjustments | 81 |
| | (8 | ) |
Balance as of December 31, 2013 | $ | 4,004 |
| | $ | 124 |
|
Our franchise license agreements contain performance requirements and convey to us the rights to distribute and sell products of the licensor within specified territories. Our license agreements with TCCC for each of our territories have terms of 10 years each and expire on October 2, 2020, with each containing the right for us to request a 10-year renewal. While these agreements contain no automatic right of renewal beyond that date, we believe that our interdependent relationship with TCCC and the substantial cost and disruption to TCCC that would be caused by nonrenewals ensure that these agreements will continue to be renewed and, therefore, are essentially perpetual. We have never had a franchise license agreement with TCCC terminated due to nonperformance of the terms of the agreement or due to a decision by TCCC to terminate an agreement at the expiration of a term. After evaluating the contractual provisions of our franchise license agreements, our mutually beneficial relationship with TCCC, and our history of renewals, we have assigned indefinite lives to all of our franchise license intangible assets.
We do not amortize our franchise license intangible assets and goodwill. Instead, we test these assets for impairment annually, or more frequently if facts or circumstances indicate they may be impaired. Our annual testing date for impairment purposes is the last reporting day of October.
During 2012, we adopted Accounting Standard Update No. 2011-08, "Testing Goodwill for Impairment," and early adopted Accounting Standard Update No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment." As a result, beginning in 2012, the first step of the impairment tests for our franchise license intangible assets and goodwill is a thorough assessment of qualitative factors to determine the existence of events or circumstances that would indicate that it is not more likely than not that the fair value of these assets is less than their carrying amounts. If the qualitative test indicates it is not more likely than not that the fair value of these assets is less than their carrying amounts, a quantitative assessment is not required.
Any subsequent recoveries in the estimated fair values of our franchise license intangible assets or goodwill are not recorded. The fair values calculated in these impairment tests are determined using discounted cash flow or other models involving assumptions that are based upon what we believe a hypothetical marketplace participant would use in estimating fair value on the measurement date. In developing these assumptions, we compare the resulting estimated enterprise value to our observable market enterprise value.
2013 and 2012 Impairment Analysis
We performed our 2013 and 2012 annual impairment tests of our franchise license intangible assets and goodwill as of the last reporting day of October of each respective year. The results of the qualitative impairment review of these assets indicated it was not more likely than not that the estimated fair value of these assets was less than their respective carrying values at each testing date. As a result, no impairment charges were recorded.
2011 Impairment Analysis
We performed our 2011 annual impairment test of our franchise license intangible assets and goodwill as of the last reporting day of October. The results of this impairment test indicated that the estimated fair value of these assets exceeded their carrying values by a substantial margin at the testing date. As a result, no impairment charges were recorded.
