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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 29, 2013

Acquisitions, Goodwill and Other Intangible Assets [Abstract]

Acquisitions, Goodwill and Other Intangibles [Text Block]

Note 2 Goodwill and other intangible assets

On May 31, 2012, the Company completed its acquisition of the Pringles® business (Pringles) from The Procter & Gamble Company (P&G) for $2.695 billion, or $2.683 billion net of cash and cash equivalents, subject to certain purchase price adjustments. The net purchase price adjustments have resulted in a reduction of the purchase price by approximately $15 million. The purchase price, net of cash and cash equivalents, totals $2.668 billion. The acquisition was accounted for under the purchase method and was financed through a combination of cash on hand and short-term and long-term debt. The assets and liabilities of Pringles are included in the Consolidated Balance Sheet as of June 29, 2013 and the results of the Pringles operations subsequent to the acquisition date are included in the Consolidated Statement of Income.

The purchase price allocation, including the allocation to reportable segments, was completed in the second quarter of 2013 when the valuations of fixed assets and intangible assets were finalized resulting in a reallocation of goodwill between the Company's reportable segments. Prior year amounts have been revised to reflect these changes as of the date of the acquisition, resulting in reductions to goodwill and the foreign currency translation component of other comprehensive income (OCI) of $15 million for 2012 and an increase to goodwill and OCI in the year-to-date period ended June 30, 2012 of $2 million.

In order to comply with the requirement that all goodwill and indefinite-lived intangible assets are tested for impairment within one year of acquisition, the Company performed an impairment evaluation of the goodwill and indefinite-lived intangible assets recognized as part of the Pringles acquisition during the quarter ended June 29, 2013. The Company determined the fair value of our goodwill and other intangible assets exceeds their carrying value and those intangibles so classified will contribute indefinitely to the cash flows of the Company.

As part of the Pringles acquisition, we incurred $16 million of integration-related costs in the second quarter of 2013 of which $13 million are recorded in selling, general and administrative (SGA) expense, $1 million are recorded in cost of goods sold (COGS), and $2 million are recorded in net sales. Integration-related costs in the year-to-date period ended June 29, 2013 were $36 million of which $27 million are recorded in SGA expense, $6 million are recorded in COGS and $3 million are recorded in net sales.

Pringles contributed net revenues of $424 million and net earnings of $34 million for the second quarter of 2013 and contributed net revenues of $794 million and net earnings of $48 million for the year-to-date period ended June 29, 2013, including the integration-related costs discussed above. The unaudited pro forma combined historical second quarter results, as if Pringles had been acquired at the beginning of fiscal 2011, are estimated to be:

		Quarter ended		Year-to-date period ended
		June 30,		June 30,
(millions, except per share data)		2012		2012
Net sales	$	3,792	$	7,579

Net income	$	341	$	705
Net income attributable to Kellogg Company	$	341	$	705

Net earnings per share	$	0.95	$	1.96

The pro forma results include interest expense on the debt issued to finance the acquisition, amortization of the definite lived intangible assets, and depreciation based on estimated fair value and useful lives. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of 2012, nor are they necessarily indicative of future consolidated results.

Changes in the carrying amount of goodwill for the year-to-date period ended June 29, 2013, are presented in the following table.

Carrying amount of goodwill


	U.S.							North
		Morning		U.S.		U.S.	America					Latin		Asia		Consoli-
(millions)		Foods	Snacks			Specialty		Other		Europe	America			Pacific		dated
December 29, 2012	$	133	$	3,767	$	82	$	280	$	438	$	92	$	246	$	5,038
Additions		-		11		-		-		-		-		-		11
Currency translation adjustment		-		-		-		(2)		(16)		(3)		(9)		(30)
June 29, 2013	$	133	$	3,778	$	82	$	278	$	422	$	89	$	237	$	5,019

Intangible assets subject to amortization
(millions)

		U.S.						North
		Morning		U.S.		U.S.		America				Latin		Asia		Consoli-
Gross carrying amount		Foods		Snacks		Specialty		Other		Europe		America		Pacific		dated
December 29, 2012	$	28	$	70	$	-	$	5	$	43	$	7	$	10	$	163
Currency translation adjustment		-		-		-		-		(1)		-		-		(1)
June 29, 2013	$	28	$	70	$	-	$	5	$	42	$	7	$	10	$	162

Accumulated Amortization
December 29, 2012	$	28	$	12	$	-	$	3	$	3	$	7	$	-	$	53
Amortization		-		2		-		-		1		-		-		3
June 29, 2013	$	28	$	14	$	-	$	3	$	4	$	7	$	-	$	56

Intangible assets subject to amortization, net
December 29, 2012	$	-	$	58	$	-	$	2	$	40	$	-	$	10	$	110
Currency translation adjustment		-		-		-		-		(1)		-		-		(1)
Amortization		-		(2)		-		-		(1)		-		-		(3)
June 29, 2013	$	-	$	56	$	-	$	2	$	38	$	-	$	10	$	106

For intangible assets in the preceding table, amortization was $3 million for the current year-to-date period ended June 29, 2013, compared to less than $1 million for the prior year-to-date period ended June 30, 2012. The currently estimated aggregate annual amortization expense for full-year 2013 and each of the four succeeding fiscal years is approximately $7 million.

Intangible assets not subject to amortization


	U.S.							North
	Morning			U.S.		U.S.	America					Latin		Asia		Consoli-
(millions)	Foods		Snacks			Specialty		Other		Europe	America			Pacific		dated
December 29, 2012	$	63	$	1,625	$	-	$	95	$	466	$	-	$	-	$	2,249
Currency translation adjustment		-		-		-		-		(8)		-		-		(8)
June 29, 2013	$	63	$	1,625	$	-	$	95	$	458	$	-	$	-	$	2,241

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities.The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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