GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the first nine months of 2017 were as follows:



(in thousands)	Carrying Amount
Balance as of December 31, 2016	$	1,318,362
Business acquisition and measurement period adjustments	2,876
Changes in foreign currency exchange rates	6,191
Goodwill reclassified to assets held for sale	(160		)
Impairments	(46,335		)
Balance as of September 30, 2017	$	1,280,934

As of the date of our 2016 annual impairment analysis, the fair value of our European reporting unit was estimated to be approximately 15% above the carrying value. The net sales and operating income of our businesses in the U.K. continued to be adversely impacted by macroeconomic challenges and changing consumer shopping behavior through the third quarter of 2017, and as a result, the actual and forecasted net revenue and operating income are below the amounts contemplated in the 2016 annual impairment analysis. Based on the declining performance levels and the relatively small difference between the fair value and carrying value of the reporting unit in the 2016 annual impairment analysis, we performed an interim impairment analysis of our European reporting unit as of September 30, 2017. The goodwill impairment analysis is performed by computing the fair value of the reporting unit and comparing it to the carrying value, including goodwill. If the carrying amount exceeds the fair value, an impairment charge is recognized for the difference. In accordance with the applicable guidance, we tested other assets for impairment before goodwill. As described in Note 2, New Accounting Standards, the Company adopted ASU 2017-04 in the second quarter of 2017, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The Company determined the fair value of the European reporting unit using a discounted cash flow method (income approach). Significant assumptions used in that assessment included our updated long-range cash flow projections for the European business, discount rate, and tax rate. As a result of this analysis, we recognized a $46.3 million impairment charge related to the goodwill in our European reporting unit. After considering the impairment, the $50.6 million of goodwill associated with this reporting unit remains susceptible to future impairment charges as the carrying value approximates estimated fair value at September 30, 2017.

Other intangible assets, except those classified as held for sale consisted of the following:



(in thousands)	Gross Carrying Amount		Cumulative Impairments			Accumulated Amortization			Net Carrying Amount
As of September 30, 2017:
Customer and contractual relationships⁽¹⁾ – amortized	$	501,218	$	—		$	(78,417	)	$	422,801
Non-compete agreement – amortized	710		—			(507		)	203
Developed technology – amortized	2,700		—			(595		)	2,105
Reacquired rights – amortized	3,100		—			(2,392		)	708
Patents – amortized	8,600		—			(3,894		)	4,706
Routes – unamortized	10,425		(45		)	—			10,380
Trademarks⁽²⁾– unamortized	931,137		(65,085		)	—			866,052
Balance as of September 30, 2017	$	1,457,890	$	(65,130	)	$	(85,805	)	$	1,306,955

As of December 31, 2016:
Customer and contractual relationships – amortized	$	493,026	$	—		$	(58,314	)	$	434,712
Non-compete agreement – amortized	710		—			(417		)	293
Developed technology – amortized	2,700		—			(460		)	2,240
Reacquired rights – amortized	3,100		—			(2,101		)	999
Patents – amortized	8,600		—			(3,308		)	5,292
Routes – unamortized	10,869		(45		)	—			10,824
Trademarks – unamortized	926,140		(6,700		)	—			919,440
Balance as of December 31, 2016	$	1,445,145	$	(6,745	)	$	(64,600	)	$	1,373,800

⁽¹⁾ The translation impact on customer relationships for the first nine months of 2017 was an increase of $8.2 million.

⁽²⁾ The translation impact on trademarks for the first nine months of 2017 was an increase of $5.0 million.

Amortization expense related to intangibles was $6.9 million and $5.5 million for the third quarters of 2017 and 2016, respectively. For the first nine months of 2017 and 2016, amortization expense related to intangibles was $20.7 million and $17.1 million, respectively.

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. For the third quarter and first nine months of 2017, impairment expense related to trademarks was $58.4 million. There were no impairments during the third quarter or first nine months of 2016.

As disclosed in previous quarters, the book value of the trademarks acquired in the Diamond Foods acquisition has approximated the fair value of these trademarks since the time of the acquisition. In the third quarter of 2017, the net revenue performance of certain brands and the impact on future projections were triggering events prompting us to perform interim impairment analyses over Pop Secret, Emerald, and KETTLE Chips (U.K.). The net revenue declines in the current quarter and long-term projections for Pop Secret branded products are a result of category declines from shifts in consumer preferences. The net revenue declines in the current year for Emerald branded products relate to our inability to meet customer demand due to delays incurred as the result of the move of production to our Charlotte, NC plant. For our KETTLE^® Chips branded products in the U.K., the challenges noted above for the European reporting unit also apply. The fair value of these trade names were determined using a relief from royalty method (income approach). Significant assumptions used in this assessment included our updated long-range net revenue projections, royalty rate, discount rate, and tax rate. Based on the analysis performed over our Pop Secret trademark, we recognized a $46.6 million impairment charge as we believe the decline in current year net revenue is symptomatic of a declining subcategory and have updated our long-term net revenue projections accordingly. We recognized no impairment charges as a result of our interim analysis of the Emerald trademark as we do not believe that the current quarter decline in net revenue is indicative of a long-term trend and we expect to recover the short-falls following the completion of the move of production to the Charlotte, NC facility. As a result of the analysis performed over the KETTLE^® Chips U.K. trademark, we recognized an $11.8 million impairment charge. After considering these impairment charges, we have $484.3 million carrying value in trademarks acquired in the Diamond Foods acquisition. These trademarks have carrying value that approximates fair value. We have additional trademarks with a total carrying value of $12.9 million as of September 30, 2017 whose carrying value approximates their fair value. Any adverse changes in the use of these trademarks or declines in the net revenue volumes of the associated products from the projected amounts, or changes in the royalty rates or discount rates, could result in an impairment charge in the future.

As discussed in Note 5, an initiative of our Transformation Plan is SKU rationalization to reduce complexity within the organization. If this process results in significant elimination of SKUs or a strategic shift away from investing in the brands for which the trademarks' book value approximates their fair value, the reduction in future cash flow may result in an impairment of these trademarks. As of September 30, 2017, no such strategic decisions have been finalized which will impact the brands with at-risk trademarks, as such, there were no triggering events for these intangible assets.

The impairment charges resulted in intangible assets and goodwill for European reporting unit being measured at fair value on a non-recurring basis at September 30, 2017, which utilized a significant number of unobservable Level 3 inputs, such as future revenue and cash flow assumptions. See Note 13, Fair Value Measurements, for a definition of Level 3 inputs. The conclusion of the initiatives under the Transformation Plan may result in additional charges being recognized in a future quarter.

The changes in the carrying amount of route intangibles for the first nine months of 2017 were as follows:



(in thousands)	Carrying Amount
Balance as of December 31, 2016	$	10,824
Routes reclassified to assets held for sale	(444		)
Balance as of September 30, 2017	$	10,380

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 nine months of 2017 were as follows:



(in thousands)	Carrying Amount
Balance as of December 31, 2016	$	19,502
Purchases of route businesses held for sale	43,977
Sales of route businesses held for sale	(43,327		)
Reclassifications from route intangibles and goodwill	604
Balance as of September 30, 2017	$	20,756

For the third quarter of 2017, net gains on the sale of route businesses consisted of $4.8 million in gains and $3.7 million in losses, and are included within other operating income on the Condensed Consolidated Statements of Income/(Loss). Net gains on the sale of route businesses for the first nine months of 2017 consisted of $7.3 million in gains and $5.5 million of losses. For the third quarter of 2016, net losses on the sale of route businesses consisted of $0.1 million in gains and $0.2 million in losses. Net gains on the sale of route businesses for the first nine months of 2016 consisted of $1.4 million in gains and $0.8 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 IBOs. See Note 15 for further information related to IBOs.