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Goodwill and Intangible Assets
 12 Months Ended
Dec. 31, 2016
Goodwill and Intangible Assets

Note 5. Goodwill and Intangible Assets

Goodwill by segment below reflects our latest segment structure for both periods presented:

 

                                     
     As of December 31,  
     2016      2015  
     (in millions)  

Latin America

    $ 897       $ 858   

AMEA

      3,324         3,537   

Europe

      7,170         7,404   

North America

      8,885         8,865   
  

 

 

     

 

 

  

Goodwill

    $ 20,276       $ 20,664   
  

 

 

     

 

 

  

Intangible assets consisted of the following:

 

                                     
     As of December 31,  
     2016      2015  
     (in millions)  

Non-amortizable intangible assets

    $ 17,004       $ 17,527   

Amortizable intangible assets

      2,315         2,320   
  

 

 

     

 

 

  
     19,319         19,847   

Accumulated amortization

      (1,218 )       (1,079 ) 
  

 

 

     

 

 

  

Intangible assets, net

    $ 18,101       $ 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 December 31, 2016, the weighted-average life of our amortizable intangible assets was 13.5 years.

Amortization expense for intangible assets was $176 million in 2016, $181 million in 2015 and $206 million in 2014. We currently estimate annual amortization expense for each of the next five years to be approximately $171 million, estimated using December 31, 2016 exchange rates.

Changes in goodwill and intangible assets consisted of:

 

                                                                           
     2016      2015  
     Goodwill      Intangible
Assets, at cost		      Goodwill      Intangible
Assets, at cost		  
     (in millions)  

Balance at January 1

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

Changes due to:

            

Currency

      (464 )       (540 )       (1,477 )       (1,462 ) 

Coffee business transactions
and divestitures

      (4 )       (8 )       (1,729 )       –   

Acquisitions

      80         158         481         58   

Asset impairments

      –         (137 )       –         (83 ) 

Other

      –         (1 )       –         (1 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

Balance at December 31

    $ 20,276       $ 19,319       $ 20,664       $ 19,847   
  

 

 

     

 

 

     

 

 

     

 

 

  

Changes to goodwill and intangibles were:

  •   Coffee business transactions and divestitures – On December 1, 2016, we divested $4 million of goodwill related to the sale of a confectionery business in Costa Rica. On May 2, 2016, we sold $8 million of non-amortizable intangible assets in Finland. 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. See Note 2, Divestitures and Acquisitions, for additional information on these transactions.
  •   Acquisitions – On November 2, 2016, we purchased from Burton’s Biscuit Company certain intangibles, which include a license to manufacture, market and sell Cadbury-branded biscuits in additional key markets. As a result of the acquisition, we recorded a preliminary purchase price allocation of $156 million to goodwill and $72 million to amortizable intangible assets. In connection with the completion of the Vietnam biscuit operation in 2016, we finalized the purchase price allocation of the consideration paid to the net assets acquired and recorded $25 million of amortizable intangible assets and $61 million of non-amortizable intangible assets related to acquired trademarks and customer-related intangible assets. A preliminary goodwill balance was recorded in the third quarter of 2015 and subsequently adjusted by $76 million to $385 million during the first nine months of 2016 to reflect finalized intangible asset and other asset fair valuations. On February 16, 2015, we also acquired Enjoy Life Foods and recorded $20 million of goodwill and $58 million in identifiable intangible assets. See Note 2, Divestitures and Acquisitions – Other Divestitures and Acquisitions, for additional information.
  •   Asset impairments – We recorded $137 million of intangible asset impairments in 2016, $83 million in 2015 and $57 million in 2014. Charges related to our annual testing of non-amortizable intangible assets are described further below. Additionally, during 2016, $20 million of impairments recorded in our Europe segment related to the planned sale of a confectionery business in France (see Note 2, Divestitures and Acquisitions – Other Divestitures and Acquisitions, for additional information). In 2016, we also recorded $19 million of charges in our Europe, North America and AMEA segments resulting from the discontinuation of four biscuit products and one candy product. Additionally, in 2015, 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.

 

In 2016, 2015 and 2014, there were no impairments of goodwill. In connection with our 2016 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 planned business performance 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 2016 annual testing of non-amortizable intangible assets, we recorded $98 million of impairment charges related to five trademarks. The impairments arose due to lower than expected product growth in part driven by decisions to redirect support from these trademarks to other regional and global brands, as well as slowdowns in local economies. We recorded charges related to biscuits, candy and gum trademarks of $41 million in AMEA, $32 million in North America, $22 million in Europe, and $3 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 2016 intangible asset impairment review, we noted nine brands, including the five impaired trademarks, with $630 million of aggregate book value as of December 31, 2016 that each had a fair value in excess of book value of 10% or less. While the other four 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 the product line 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 2015, we recorded a $44 million charge related to candy and biscuit trademarks in our AMEA segment, $22 million in Europe and $5 million in Latin America. In 2014, we recorded a $48 million charge related to a biscuit trademark in our AMEA segment and a $9 million charge related to a candy trademark in our Europe segment.