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Goodwill and Intangible Assets
 12 Months Ended
Dec. 31, 2015
Goodwill and Intangible Assets

Note 5. Goodwill and Intangible Assets

Goodwill by reportable segment was:

 

                                     
     As of December 31,  
     2015      2014  
     (in millions)  

Latin America

    $ 858       $ 1,127   

Asia Pacific

      2,520         2,395   

EEMEA

      1,304         1,942   

Europe

      7,117         8,952   

North America

      8,865         8,973   
  

 

 

     

 

 

  

Goodwill

    $ 20,664       $ 23,389   
  

 

 

     

 

 

  

Intangible assets consisted of the following:

 

                                     
     As of December 31,  
     2015      2014  
     (in millions)  

Non-amortizable intangible assets

    $ 17,527       $ 18,810   

Amortizable intangible assets

      2,320         2,525   
  

 

 

     

 

 

  
     19,847         21,335   

Accumulated amortization

      (1,079 )       (1,000 ) 
  

 

 

     

 

 

  

Intangible assets, net

    $ 18,768       $ 20,335   
  

 

 

     

 

 

  

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, 2015, the weighted-average life of our amortizable intangible assets was 13.6 years.

Amortization expense for intangible assets was $181 million in 2015, $206 million in 2014 and $217 million in 2013. We currently estimate annual amortization expense for each of the next five years to be approximately $180 million, estimated using December 31, 2015 exchange rates.

 

Changes in goodwill and intangible assets consisted of:

 

                                                                           
     2015      2014  
     Goodwill      Intangible
Assets, at cost		      Goodwill      Intangible
Assets, at cost		  
     (in millions)  

Balance at January 1

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

Changes due to:

            

Currency

      (1,477 )       (1,462 )       (2,256 )       (1,528 ) 

Coffee business transactions
and divestiture

      (1,729 )       –         –         –   

Acquisitions

      481         58         –         –   

Asset impairments

      –         (83 )       –         (57 ) 

Other

      –         (1 )       48         1   
  

 

 

     

 

 

     

 

 

     

 

 

  

Balance at December 31

    $ 20,664       $ 19,847       $ 23,389       $ 21,335   
  

 

 

     

 

 

     

 

 

     

 

 

  

Changes to goodwill and intangibles were:

  •   Coffee business transactions and divestiture – On July 2, 2015, we deconsolidated $1,664 million of goodwill and less than $1 million of intangible assets in connection with the coffee business transactions. On April 23, 2015, we completed the divestiture of our 50% equity interest in AGF, which resulted in divesting $65 million of goodwill.
  •   Acquisitions – On July 15, 2015, we acquired an 80% interest in a biscuit operation in Vietnam and recorded a preliminary allocation of $461 million of goodwill as we complete the final valuation work for the acquisition. On February 16, 2015, we acquired Enjoy Life Foods and recorded $20 million of goodwill and $58 million in identifiable intangible assets.
  •   Asset Impairments – On December 31, 2015, in connection with the deconsolidation of Venezuela, we recorded $12 million of impairment charges as described below. We recorded $71 million of charges related to four trademarks in 2015 and $57 million of charges related to two trademarks in 2014 as described below.

In 2015, 2014 and 2013, there were no impairments of goodwill. In connection with our 2015 annual impairment testing, each of our reporting units had sufficient fair value in excess of carrying value. In connection with the deconsolidation of our Venezuelan operations on December 31, 2015, we tested our Latin America reporting unit and determined the remaining businesses excluding Venezuela had sufficient fair value in excess of carrying value, such that there were no impairments of goodwill. 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 2015 annual testing of non-amortizable intangible assets, we recorded $71 million of impairment charges related to four trademarks. The impairments arose due to lower than expected product growth partly driven by decisions made in the fourth quarter to redirect support for the products to other regional and global brands and slowdowns in local economies. We recorded charges related to candy and biscuit trademarks of $44 million in Asia Pacific, $22 million in Europe and $5 million in Latin America. 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 2015 intangible asset impairment review, we noted seven brands, including the four impaired trademarks, with $598 million of aggregate book value as of December 31, 2015 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. In 2014, 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. Additionally, in connection with the deconsolidation of our Venezuelan operations on December 31, 2015, we recorded $12 million of impairment charges within the loss on deconsolidation of Venezuela related to a biscuit trademark.