Goodwill and Other Intangible Assets

6 Months Ended

Jul. 02, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the first six months of 2016 were as follows:



(in thousands)	Carrying Amount
Balance as of January 2, 2016	$	539,119
Business acquisitions	871,824
Changes in foreign currency exchange rates	(9,114		)
Goodwill reclassified to assets held for sale	(259		)
Balance as of July 2, 2016	$	1,401,570

Other intangible assets consisted of the following:



(in thousands)	Gross Carrying Amount		Cumulative Impairments			Accumulated Amortization			Net Carrying Amount
As of July 2, 2016:
Customer and contractual relationships⁽¹⁾ – amortized	$	551,952	$	—		$	(46,678	)	$	505,274
Non-compete agreement – amortized	710		—			(357		)	353
Developed technology – amortized	2,700		—			(370		)	2,330
Reacquired rights – amortized	3,100		—			(1,908		)	1,192
Patents – amortized	8,600		—			(2,917		)	5,683
Routes – unamortized	10,446		—			—			10,446
Trademarks⁽²⁾– unamortized	904,167		(6,700		)	—			897,467
Balance as of July 2, 2016	$	1,481,675	$	(6,700	)	$	(52,230	)	$	1,422,745

As of January 2, 2016:
Customer and contractual relationships – amortized	$	166,756	$	—		$	(35,415	)	$	131,341
Non-compete agreement – amortized	710		—			(297		)	413
Developed technology – amortized	2,700		—			(280		)	2,420
Reacquired rights – amortized	3,100		—			(1,714		)	1,386
Patents – amortized	8,600		—			(2,526		)	6,074
Routes – unamortized	11,063		—			—			11,063
Trademarks – unamortized	382,661		(6,700		)	—			375,961
Balance as of January 2, 2016	$	575,590	$	(6,700	)	$	(40,232	)	$	528,658

⁽¹⁾ Since the acquisition of Diamond on February 29, 2016 the translation impact on customer relationships was a reduction of $5.3 million.

⁽²⁾ Since the acquisition of Diamond on February 29, 2016 the translation impact on trademarks was a reduction of $2.5 million.

The increase in goodwill, customer relationships and trademarks during the first six months of 2016 is related to the acquisition of Diamond. These intangible asset values are preliminary and may require adjustment once the purchase price allocation is finalized. The newly acquired customer relationships are expected to have a useful life of 20 years, while the trademarks are deemed to have an indefinite useful life.

Amortization expense related to intangibles was $7.8 million and $2.7 million for the second quarter of 2016 and 2015, respectively. For the first six months of 2016 and 2015, amortization expense related to intangibles was $12.1 million and $5.4 million, respectively. The increase in amortization expense in 2016 was due to additional intangible assets obtained through the acquisition of Diamond.

Routes and trademarks are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. Although not amortized, they are reviewed for impairment as conditions change or at least on an annual basis. There were no impairments during the second quarters or first six months of 2016 and 2015.

Certain trademarks, in addition to those acquired in the Diamond acquisition, with a total book value of $25.4 million as of July 2, 2016, currently have a fair value which exceeds the book value by less than 15%. Any adverse changes in the use of these trademarks or the sales volumes of the associated products could result in an impairment charge in the future. No triggering events occurred between the most recent annual impairment assessment and July 2, 2016.

The changes in the carrying amount of route intangibles for the first six months of 2016 were as follows:



(in thousands)	Carrying Amount
Balance as of January 2, 2016	$	11,063
Routes reclassified to assets held for sale	(617		)
Balance as of July 2, 2016	$	10,446

Route businesses, including route intangibles and associated goodwill, allocated to assets held for sale represent assets available for sale in their present condition and for which actions to complete a sale have been initiated. The changes in the carrying amount of route businesses held for sale for the first six months of 2016 were as follows:



(in thousands)	Carrying Amount
Balance as of January 2, 2016	$	15,590
Purchases of route businesses held for sale	14,863
Sales of route businesses held for sale	(13,139		)
Reclassifications from route intangibles and goodwill	876
Balance as of July 2, 2016	$	18,190

Net gains on the sale of route businesses for the second quarter of 2016 consisted of $0.3 million in gains and $0.1 million in losses. Net gains on the sale of route businesses for the first six months of 2016 consisted of $1.3 million in gains and $0.6 million of losses. The majority of the route business purchases and sales were due to route reengineering projects that were initiated in order to maximize the efficiency of route territories for the independent business owners ("IBO").

For the second quarter of 2015, net gains on the sale of route businesses consisted of $0.4 million in gains and $0.3 million in losses. For the first six months of 2015, net gains on the sale of route businesses consisted of $1.5 million in gains and $0.6 million in losses. The majority of the route business purchases and sales were due to the reengineering of route businesses to accommodate new customers and additional Partner brand business obtained in the impacted markets as well as the decision to sell certain route businesses that were previously owned by us. See Note 15 for further information related to IBOs.

- Definition

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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