Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Note 5. Goodwill and Intangible Assets

Goodwill by segment was:


	As of June 30, 2021		As of December 31, 2020
	(in millions)
Latin America	$	720	$	706
AMEA	3,400		3,250
Europe	8,027		8,038
North America	10,123		9,901
Goodwill	$	22,270	$	21,895

Intangible assets consisted of the following:


	As of June 30, 2021		As of December 31, 2020
	(in millions)
Indefinite-life intangible assets	$	17,615	$	17,492
Definite-life intangible assets	3,059		2,907
	20,674		20,399
Accumulated amortization	(1,983)		(1,917)
Intangible assets, net	$	18,691	$	18,482

Indefinite-life 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. Definite-life intangible assets consist primarily of brands, customer-related intangibles, process technology, licenses and non-compete agreements.

Amortization expense for intangible assets was $32 million for the three months and $70 million for the six months ended June 30, 2021 and $50 million for the three months and $93 million for the six months ended June 30, 2020. For the next five years, we currently estimate annual amortization expense of approximately $135 million in 2021, approximately $130 million in 2022-2024 and approximately $105 million in 2025 (reflecting June 30, 2021 exchange rates).

Changes in goodwill and intangible assets consisted of:


	Goodwill		Intangible Assets, at cost
	(in millions)
Balance at January 1, 2021	$	21,895	$	20,399
Currency	(184)		(98)

Acquisitions	559		405
Asset impairments	—		(32)
Balance at June 30, 2021	$	22,270	$	20,674

Changes to goodwill and intangibles were:

•Acquisitions - In connection with our acquisitions of Gourmet Food, Grenade and the remaining interest in Hu during the first six months of 2021, we recorded preliminary purchase price allocations totaling $559 million of goodwill and $405 million of intangible assets. See Note 2, Acquisitions and Divestitures, for additional information.

•Asset impairments - As further described below, during the second quarter of 2021, we recorded $32 million of intangible asset impairments resulting primarily from lower than expected sales growth for one brand across our North America segment.

Each quarter, we evaluate our goodwill and intangible asset impairment risk through an assessment of potential triggering events. In light of the ongoing COVID-19 global pandemic, we considered qualitative and quantitative information in our assessment over goodwill and indefinite-life intangible assets.

•During the first six months of 2021 and 2020, we concluded no goodwill impairment indicators were present that would require additional goodwill impairment evaluation and that our goodwill as of June 30, 2021 and June 30, 2020 were fairly stated.

•With the ongoing COVID-19 global pandemic, we continue to monitor intangible asset impairment risk. During the second quarters of 2021 and 2020, we identified declines in demand for certain of our brands, that prompted additional evaluation of our indefinite-life intangible assets. We estimated the fair value of the brands using several acceptable valuation methods, including relief of royalty, excess earnings and excess margin models. Those models required us to make assumptions related to the future sales and earnings growth rates for the brands, as well as royalty rates and discount rates. We made our best estimate of those assumptions using the information available; however, given the uncertainty of the global economic environment and the impact of COVID-19, those estimates could be significantly different than future performance. In certain instances, the estimated fair value of the brand was below the carrying value, which

resulted in impairment charges. Primarily due to lower than original expected sales growth, during the second quarter of 2021, we recorded a $32 million impairment charge in North America related to a small biscuit brand, and during the second quarter of 2020, we recorded $90 million of impairment charges related to four gum brands, a small biscuit brand and a small candy brand, with $50 million recorded in Europe, $36 million in North America and $4 million in AMEA. 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 will continue to monitor the potential for asset impairment risk over coming quarters.In 2020, we recorded a total of $144 million of intangible asset impairment charges related to eight brands. The ongoing impact of the COVID-19 pandemic resulted in declines in the sales and earnings for certain brands, particularly our gum brands. During our annual impairment testing as of July 1, 2020, we identified nine brands, including the eight impaired brands, that each had a fair value in excess of book value of 10% or less. The aggregate book value of the nine brands was $721 million as of June 30, 2021. We continue to monitor our brand performance, particularly in light of the significant uncertainty due to the COVID-19 pandemic and related impacts to our business. If the brand earnings expectations, including the timing of the expected recovery from the COVID-19 pandemic impacts, 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.