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Goodwill and Intangible Assets
 12 Months Ended
Dec. 31, 2014
Goodwill and Intangible Assets

Note 5. Goodwill and Intangible Assets

Goodwill by reportable segment was:

 

                                     
     As of December 31,  
     2014      2013  
     (in millions)  

Latin America

    $ 1,127       $ 1,262   

Asia Pacific

      2,395         2,504   

EEMEA

      1,942         2,764   

Europe

      8,952         10,026   

North America

      8,973         9,041   
  

 

 

     

 

 

  

Goodwill

 $ 23,389    $ 25,597   
  

 

 

     

 

 

  

Intangible assets consisted of the following:

 

                                     
     As of December 31,  
     2014      2013  
     (in millions)  

Non-amortizable intangible assets

    $ 18,810       $ 20,067   

Amortizable intangible assets

      2,525         2,852   
  

 

 

     

 

 

  
  21,335      22,919   

Accumulated amortization

   (1,000 )    (925 ) 
  

 

 

     

 

 

  

Intangible assets, net

 $ 20,335    $ 21,994   
  

 

 

     

 

 

  

Non-amortizable intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the global LU biscuit business of Groupe Danone S.A. and Cadbury Limited. Amortizable intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements. At December 31, 2014, the weighted-average life of our amortizable intangible assets was 13.5 years.

Amortization expense for intangible assets was $206 million in 2014, $217 million in 2013 and $217 million in 2012. We currently estimate annual amortization expense for each of the next five years to be approximately $200 million.

Changes in goodwill and intangible assets consisted of:

 

                                                                           
     2014      2013  
            Intangible             Intangible  
     Goodwill      Assets, at cost      Goodwill      Assets, at cost  
     (in millions)  

Balance at January 1

    $ 25,597       $ 22,919       $ 25,740       $ 23,269   

Changes due to:

            

Currency

      (2,256 )       (1,528 )       (336 )       (390 ) 

Divestitures

      –         –         (13 )       (7 ) 

Acquisition

      –         –         209         48   

Asset impairments

      –         (57 )       –         –   

Other

      48         1         (3 )       (1 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Balance at December 31

 $ 23,389    $ 21,335    $ 25,597    $ 22,919   
  

 

 

     

 

 

     

 

 

     

 

 

  

Changes to goodwill and intangible assets were:

  •   Divestitures – In 2013, we reduced goodwill by $13 million and intangible assets by $7 million due to the divestitures of a chocolate business in Spain, a salty snacks business in Turkey and a confectionery business in South Africa.
  •   Acquisitions – In 2013, we increased goodwill by $209 million and intangible assets by $48 million due to the acquisition of our remaining interest in a biscuit operation in Morocco.
  •   Asset Impairments – In 2014, we recorded $57 million of charges related to two trademarks as described below.

 

On January 1, 2014, an organizational change occurred within our North America region from a country and product category structure to a regional product category structure. As a result, our North America region now has two instead of four reporting units. For any reporting units that were reorganized, the goodwill was allocated to the new reporting unit structure based on relative fair values of the related business units.

In 2014, 2013 and 2012, there were no impairments of goodwill. In connection with our 2014 annual impairment testing, each of our reporting units had sufficient fair value in excess of carrying value. While all reporting units passed our annual impairment testing, if expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then the estimated fair values of a reporting unit or reporting units might decline and lead to a goodwill impairment in the future.

During our 2014 review of non-amortizable intangible assets, we recorded $57 million of impairment charges related to two trademarks. In both cases, the impairments arose due to lower than expected product growth and decisions made in the fourth quarter to redirect support for the products to other regional brands. We recorded a $48 million charge related to a biscuit trademark in our Asia Pacific segment and a $9 million charge related to a candy trademark in our Europe segment. The impairment charges were calculated as the excess of the carrying value over the estimated fair value of the intangible assets on a global basis and were recorded within asset impairment and exit costs. We primarily use a relief of royalty valuation method, which utilizes estimates of future sales, growth rates, royalty rates and discount rates in determining a brand’s global fair value. During our 2014 intangible asset impairment review, we also noted three brands with $341 million of aggregate book value as of December 31, 2014 that each had a fair value in excess of book value of 10% or less. While these intangible assets passed our annual impairment testing and we believe our current plans for each of these brands will allow them to continue to not be impaired, if expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future.