Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2017

Acquisitions, Goodwill and Other Intangible Assets [Abstract]

Goodwill and other intangible assets

Parati acquisition

In December 2016, the Company acquired Ritmo Investimentos, controlling shareholder of Parati S/A, Afical Ltda and Padua Ltda ("Parati Group"), a leading Brazilian food group for approximately BRL 1.38 billion ($381 million) or $379 million, net of cash and cash equivalents. The purchase price was subject to certain working capital and net debt adjustments based on the actual working capital and net debt existing on the acquisition date compared to targeted amounts. These adjustments were finalized during the quarter ended July 1, 2017 and resulted in a purchase price reduction of BRL 14 million ($4 million). The acquisition was accounted for under the purchase price method and was financed with cash on hand and short-term borrowings.

In our Latin America reportable segment, for the quarter ended September 30, 2017 the acquisition added $48 million in net sales and $3 million of operating profit. For the year-to-date period ended September 30, 2017 the acquisition added $141 million in net sales and $15 million of operating profit.

The assets and liabilities of the Parati Group are included in the Consolidated Balance Sheet as of September 30, 2017 within the Latin America segment. The acquired assets and assumed liabilities include the following:



(millions)		December 1, 2016
Current assets		$	44
Property	72
Goodwill	165
Intangible assets	148
Current liabilities	(48			)
Non-current deferred tax liability and other	(6			)
		$	375

During the year-to-date period ended September 30, 2017, the value of intangible assets subject to amortization increased $38 million and intangible assets not subject to amortization decreased $11 million with an offsetting $27 million adjustment to goodwill in conjunction with an updated allocation of the purchase price.

A portion of the acquisition price aggregating $67 million was placed in escrow in favor of the seller for general representations and warranties, as well as pending resolution of certain contingencies arising from the business prior to the acquisition. During the quarter and year-to-date periods ended September 30, 2017, the Company recognized $3 million and $7 million, respectively, for certain pre-acquisition contingencies which are considered to be probable of being incurred, which increased goodwill.

During the quarter ended April 1, 2017, the Company finalized plans to merge the acquired and pre-existing Brazilian legal entities, which resulted in tax basis of the acquired intangible assets. Accordingly, deferred tax liabilities and goodwill were both reduced by $41 million during the first quarter of 2017. In addition, deferred tax liabilities related to basis differences were reduced by $15 million with a corresponding reduction in goodwill, for the quarter ended September 30, 2017.

The amounts in the above table represent the allocation of purchase price as of September 30, 2017 and represent the finalization of the appraisals for intangible assets and the Company's evaluation of pre-acquisition contingencies. The purchase price allocation remains subject to the Company’s finalization of the merger and the resulting income tax effects, which is expected to occur in November 2017. The goodwill from this acquisition is expected to be deductible for income tax purposes.

Changes in the carrying amount of goodwill, intangible assets subject to amortization, consisting primarily of customer lists, and indefinite-lived intangible assets, consisting of brands, are presented in the following tables:

Carrying amount of goodwill



(millions)	U.S. Morning Foods		U.S. Snacks		U.S. Specialty		North America Other		Europe		Latin America			Asia Pacific		Consoli- dated
December 31, 2016	$	131	$	3,568	$	82	$	457	$	376	$	328		$	224	$	5,166
Purchase price allocation adjustment	—		—		—		—		—		(79		)	—		(79		)
Purchase price adjustment	—		—		—		—		—		(4		)	—		(4		)
Currency translation adjustment	—		—		—		4		35		9			4		52
September 30, 2017	$	131	$	3,568	$	82	$	461	$	411	$	254		$	228	$	5,135

Intangible assets subject to amortization



Gross carrying amount
(millions)	U.S. Morning Foods		U.S. Snacks			U.S. Specialty		North America Other		Europe			Latin America			Asia Pacific			Consoli- dated
December 31, 2016	$	8	$	42		$	—	$	5	$	40		$	36		$	10		$	141
Purchase price allocation adjustment	—		—			—		—		—			39			—			39
Currency translation adjustment	—		—			—		—		3			2			—			5
September 30, 2017	$	8	$	42		$	—	$	5	$	43		$	77		$	10		$	185

Accumulated Amortization
December 31, 2016	$	8	$	19		$	—	$	4	$	14		$	6		$	3		$	54
Amortization	—		2			—		—		2			3			1			8
September 30, 2017	$	8	$	21		$	—	$	4	$	16		$	9		$	4		$	62

Intangible assets subject to amortization, net
December 31, 2016	$	—	$	23		$	—	$	1	$	26		$	30		$	7		$	87
Purchase price allocation adjustment	—		—			—		—		—			39			—			39
Currency translation adjustment	—		—			—		—		3			2			—			5
Amortization	—		(2		)	—		—		(2		)	(3		)	(1		)	(8		)
September 30, 2017	$	—	$	21		$	—	$	1	$	27		$	68		$	6		$	123

For intangible assets in the preceding table, amortization was $8 million and $5 million for the year-to-date periods ended September 30, 2017 and October 1, 2016, respectively. The currently estimated aggregate annual amortization expense for full-year 2017 is approximately $11 million.

Intangible assets not subject to amortization



(millions)	U.S. Morning Foods		U.S. Snacks		U.S. Specialty		North America Other		Europe		Latin America			Asia Pacific		Consoli- dated
December 31, 2016	$	—	$	1,625	$	—	$	176	$	383	$	98		$	—	$	2,282
Purchase price allocation adjustment	—		—		—		—		—		(11		)	—		(11		)
Currency translation adjustment	—		—		—		—		45		3			—		48
September 30, 2017	$	—	$	1,625	$	—	$	176	$	428	$	90		$	—	$	2,319

- 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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