Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Note 5. Goodwill and Intangible Assets

Goodwill by operating segment was:



	As of December 31,
	2018		2017
	(in millions)
Latin America	$	823	$	901
AMEA	3,210		3,371
Europe	7,519		7,880
North America	9,173		8,933
Goodwill	$	20,725	$	21,085

Intangible assets consisted of the following:



	As of December 31,
	2018			2017
	(in millions)
Non-amortizable intangible assets	$	17,201		$	17,671
Amortizable intangible assets	2,328			2,386
	19,529			20,057
Accumulated amortization	(1,527		)	(1,418		)
Intangible assets, net	$	18,002		$	18,639

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.

Amortization expense for intangible assets was $176 million in 2018, $178 million in 2017 and $176 million in 2016. For the next five years, we estimate annual amortization expense of approximately $170 million for the next two years and approximately $85 million in years three to five, reflecting December 31, 2018 exchange rates.

Changes in goodwill and intangible assets consisted of:



	2018						2017
	Goodwill			Intangible Assets, at cost			Goodwill			Intangible Assets, at cost
	(in millions)
Balance at January 1	$	21,085		$	20,057		$	20,276		$	19,319
Changes due to:
Currency	(658		)	(710		)	909			954
Divestitures	—			—			(114		)	(100		)
Acquisitions	298			250			15			(7		)
Asset impairments	—			(68		)	—			(109		)
Other	—			—			(1		)	—
Balance at December 31	$	20,725		$	19,529		$	21,085		$	20,057

Changes to goodwill and intangibles were:

•

Divestitures – During 2017, in connection with the divestiture of several manufacturing facilities, primarily in France, we divested $23 million of goodwill and $62 million of amortizable and non-amortizable intangible assets. In 2017, we also completed a sale of most of our grocery business in Australia and New Zealand and divested $86 million of related goodwill. Furthermore, we completed a sale of a confectionery business in Japan and divested $5 million of goodwill and $24 million of definite lived intangible assets. Finally, we divested $14 million of definite lived intangible asset as part of our sale of one of our equity method investments. See Note 2, Divestitures and Acquisitions, for additional information.

•

Acquisitions – In connection with the acquisition of Tate's Bake Shop in the second quarter of 2018, we recorded a preliminary purchase price allocation of $298 million to goodwill and $250 million to intangible assets. During 2017, we recorded a $15 million adjustment to goodwill and a $7 million adjustment to indefinite lived assets in connection with finalizing the valuation and purchase price allocation for the Burton’s Biscuit Company purchase completed in the fourth quarter of 2016. See Note 2, Divestitures and Acquisitions, for additional information.


•	Asset impairments – As further discussed below, we recorded $68 million of intangible asset impairments in 2018 and $109 million in 2017.

In 2018, 2017 and 2016, there were no goodwill impairments and each of our reporting units had sufficient fair value in excess of its 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 2018 annual testing of non-amortizable intangible assets, we recorded $68 million of impairment charges in the third quarter related to five trademarks. We recorded charges related to gum, chocolate, biscuits and candy trademarks of $45 million in Europe, $14 million in North America and $9 million in AMEA. We also identified seven brands, including the five impaired trademarks, with $538 million of aggregate book value as of December 31, 2018 that each had a fair value in excess of book value of 10% or less. We believe our current plans for each of these brands will allow them to continue to not be impaired, but 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 2017, we recorded $109 million of impairment charges, of which $70 million related to annual testing impairment charges for candy and gum trademarks of $52 million in AMEA, $11 million in Europe, $5 million in Latin America and $2 million in North America. During 2017, we also recorded a $38 million intangible asset impairment charge resulting from a category decline and lower than expected product growth related to a gum trademark in our North America segment and a $1 million intangible asset impairment charge related to a transaction. In 2016, we recorded $137 million of impairment charges, of which $98 million related to annual testing impairment 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. During 2016, we also recorded $20 million of impairments related to the planned sale of a confectionery business in France and 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.