Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Note 5. Goodwill and Intangible Assets

Goodwill by segment was:


	As of September 30, 2021		As of December 31, 2020
	(in millions)
Latin America	$	681	$	706
AMEA	3,368		3,250
Europe	7,874		8,038
North America	10,106		9,901
Goodwill	$	22,029	$	21,895

Intangible assets consisted of the following:


	As of September 30, 2021		As of December 31, 2020
	(in millions)
Indefinite-life intangible assets	$	17,379	$	17,492
Definite-life intangible assets	3,018		2,907
	20,397		20,399
Accumulated amortization	(1,984)		(1,917)
Intangible assets, net	$	18,413	$	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 $102 million for the nine months ended September 30, 2021 and $50 million for the three months and $143 million for the nine months ended September 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 September 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	(425)		(375)

Acquisitions	559		405
Asset impairments	—		(32)
Balance at September 30, 2021	$	22,029	$	20,397

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 nine 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.

We evaluate our goodwill and intangible asset impairment risk quarterly using qualitative analysis. In light of the ongoing COVID-19 global pandemic, we performed further quantitative analysis over indefinite-life intangible assets and recorded approximately $32 million of intangible asset charges in the second quarter of 2021 and $90 million in the second quarter of 2020.

During the third quarter of 2021, we performed our annual impairment assessment test for goodwill and indefinite-life intangible assets as of July 1, 2021.

Our 2021 annual testing of goodwill resulted in no impairments as each reporting unit had sufficient fair value in excess of its carrying value. As part of our goodwill quantitative annual impairment testing, we compare a reporting unit's estimated fair value with its carrying value. If the carrying value of a reporting unit's net assets exceeds its fair value, we would record an impairment based on the difference between the carrying value and fair value of the reporting unit. We estimate a reporting unit's fair value using a discounted cash flow method that incorporates planned growth rates, market-based discount rates and estimates of residual value. This year, for our Europe and North America reporting units, we used a market based, weighted-average cost of capital of 6.4% to discount the projected cash flows of those operations. For our Latin America and AMEA reporting units, we used a risk-rated discount rate of 9.4%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans and industry and economic conditions based on available information. Given the uncertainty of the global economic environment and the continued impact of COVID-19, those estimates could be significantly different than future performance. 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 2021 annual testing of indefinite-life intangible assets, there were no impairments noted. We identified eight brands that each had a fair value in excess of book value of 10% or less. The aggregate book value of the eight brands was $1,156 million as of September 30, 2021. During our annual testing, we use several accepted valuation methods, including relief of royalty, excess earnings and excess margin, that utilize estimates of future sales, earnings growth rates, royalty rates and discount rates in determining a brand's global fair value. 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 a brand's 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. During our prior-year testing, we recorded approximately $54 million of impairment charges in the third quarter of 2020 related to three gum and chocolate brands. In 2020, the ongoing impact of the pandemic resulted in greater declines in the sales and earnings for certain brands, particularly our gum brands. We incorporated the latest results, projections and expected recovery for these brands in our annual 2020 impairment testing. 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.