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Goodwill and Intangible Assets
 9 Months Ended
Sep. 30, 2016
Goodwill and Intangible Assets

Note 5.   Goodwill and Intangible Assets

Goodwill by reportable segment was:

 

                                     
     As of September 30,      As of December 31,  
     2016      2015  
     (in millions)  

Latin America

    $ 917       $ 858   

Asia Pacific

      2,489         2,520   

EEMEA

      1,337         1,304   

Europe

      7,107         7,117   

North America

      8,901         8,865   
  

 

 

     

 

 

  

Goodwill

    $ 20,751       $ 20,664   
  

 

 

     

 

 

  

 

Intangible assets consisted of the following:

 

  
     As of September 30,      As of December 31,  
     2016      2015  
     (in millions)  

Non-amortizable intangible assets

    $ 17,603       $ 17,527   

Amortizable intangible assets

      2,340         2,320   
  

 

 

     

 

 

  
     19,943         19,847   

Accumulated amortization

      (1,222 )       (1,079 ) 
  

 

 

     

 

 

  

Intangible assets, net

    $ 18,721       $ 18,768   
  

 

 

     

 

 

  

 

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 September 30, 2016, the weighted-average life of our amortizable intangible assets was 13.6 years.

 

Amortization expense for intangible assets was $44 million in the three months and $132 million in the nine months ended September 30, 2016 and $45 million in the three months and $137 million in the nine months ended September 30, 2015. We currently estimate annual amortization expense for each of the next five years to be approximately $185 million, estimated using September 30, 2016 exchange rates.

 

Changes in goodwill and intangible assets consisted of:

 

      

     

  
            Intangible  
     Goodwill      Assets, at cost  
     (in millions)  

Balance at January 1, 2016

    $ 20,664       $ 19,847   

Changes due to:

      

Currency

      163         48   

Acquisition

      (76 )       86   

Asset impairments

      –         (30 ) 

Sale of business and assets

      –         (8 ) 
  

 

 

     

 

 

  

Balance at September 30, 2016

    $ 20,751       $ 19,943   
  

 

 

     

 

 

  

Changes to goodwill and intangibles were:

  •   Acquisition – During the first nine months of 2016, in connection with the acquisition of a biscuit operation in Vietnam, we recorded a final allocation of the consideration paid including $25 million of amortizable intangible assets and $61 million of non-amortizable intangible assets. Intangible assets acquired included trademarks and customer-related intangibles with definite and indefinite lives. A preliminary goodwill balance recorded in the third quarter of 2015 was adjusted during the first nine months of 2016 to reflect intangible asset and other asset fair valuations. See Note 2, Divestitures and Acquisitions – Other Divestitures and Acquisitions, for additional information.

 

  •   Asset impairments – During the nine months ended September 30, 2016, in connection with our global supply chain reinvention initiatives, we made a determination to discontinue manufacturing a candy product that resulted in a $7 million impairment charge in our North America segment, we discontinued one biscuit product that resulted in a $4 million intangible asset impairment charge in our EEMEA segment and we recorded $19 million of impairment charges related to two gum & candy trademarks in our Europe segment, both related to the planned sale of a confectionery business in France (see Note 2, Divestitures and Acquisitions – Other Divestitures and Acquisitions, for additional information).
  •   Sale of business and assets – During the first nine months of 2016, we sold $8 million of non-amortizable intangible assets in Finland. See Note 2, Divestitures and Acquisitions, for additional information.

During our 2015 annual testing of non-amortizable intangible assets, we recorded $71 million of impairment charges in the three months ended December 31, 2015 related to four trademarks in Asia Pacific, Europe and Latin America. We also 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.