Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Note 6. Goodwill and Intangible Assets

Goodwill by operating segment was:



	As of December 31,
	2019		2018
	(in millions)
Latin America	$	818	$	823
AMEA	3,151		3,210
Europe	7,523		7,519
North America	9,356		9,173
Goodwill	$	20,848	$	20,725

Intangible assets consisted of the following:



	As of December 31,
	2019			2018
	(in millions)
Non-amortizable intangible assets	$	17,296		$	17,201
Amortizable intangible assets	2,374			2,328
	19,670			19,529
Accumulated amortization	(1,713		)	(1,527		)
Intangible assets, net	$	17,957		$	18,002

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 $174 million in 2019, $176 million in 2018 and $178 million in 2017. For the next five years, we estimate annual amortization expense of approximately $175 million next year, approximately $90 million in year two and approximately $85 million in years three to five, reflecting December 31, 2019 exchange rates.

Changes in goodwill and intangible assets consisted of:



	2019						2018
	Goodwill			Intangible Assets, at cost			Goodwill			Intangible Assets, at cost
	(in millions)
Balance at January 1	$	20,725		$	19,529		$	21,085		$	20,057
Changes due to:
Currency	17			60			(658		)	(710		)
Divestitures	(43		)	—			—			—
Acquisitions	149			138			298			250
Asset impairments	—			(57		)	—			(68		)
Balance at December 31	$	20,848		$	19,670		$	20,725		$	19,529

Changes to goodwill and intangibles were:


•	Divestitures – During the second quarter of 2019, we divested the net assets of most of our cheese business in the Middle East and Africa to Arla Foods of Denmark resulting in a goodwill decrease of $43 million. See Note 2, Divestitures and Acquisitions, for additional information.

•

Acquisitions – In connection with the acquisition of a majority interest in Perfect Snacks during the third quarter of 2019, we recorded a preliminary purchase price allocation of $150 million to goodwill and $138 million to intangible assets. In the second quarter of 2019, we also finalized the purchase price allocation for the 2018 acquisition of Tate's Bake Shop, resulting in a $1 million adjustment to goodwill. During 2018, we recorded a preliminary purchase price allocation of $298 million to goodwill and $250 million to intangible assets related to the acquisition of Tate's Bake Shop in the second quarter of 2018. See Note 2, Divestitures and Acquisitions, for additional information.


•	Asset impairments – As further discussed below, we recorded $57 million of intangible asset impairments in 2019 and $68 million in 2018.

In 2019, 2018 and 2017, 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 2019 annual testing of non-amortizable intangible assets, we recorded $57 million of impairment charges in the third quarter related to nine brands. We recorded charges related to gum, chocolate, biscuits and candy brands of $39 million in Europe, $15 million in AMEA and $3 million in Latin America. We also identified fourteen brands, including the nine impaired trademarks, with $635 million of aggregate book value as of December 31, 2019 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 not be impaired, but if the brand earnings 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 2018, we recorded $68 million of impairment charges for gum, chocolate, biscuits and candy brands of $45 million in Europe, $14 million in North America and $9 million in AMEA. In 2017, we recorded $109 million of impairment charges, of which $70 million related to annual testing impairment charges for candy and gum brands 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 brand in our North America segment and a $1 million intangible asset impairment charge related to a transaction.