Goodwill and Intangible Assets
Goodwill
The following table shows the changes in the carrying amount of goodwill by business segment:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Simple Meals | | Global Baking and Snacking | | International Simple Meals and Beverages | | U.S. Beverages | | Bolthouse and Foodservice | | Total |
Balance at July 31, 2011 | $ | 322 |
| | $ | 914 |
| | $ | 639 |
| | $ | 112 |
| | $ | 146 |
| | $ | 2,133 |
|
Foreign currency translation adjustment | — |
| | (42 | ) | | (78 | ) | | — |
| | — |
| | (120 | ) |
Balance at July 29, 2012 | $ | 322 |
| | $ | 872 |
| | $ | 561 |
| | $ | 112 |
| | $ | 146 |
| | $ | 2,013 |
|
Acquisitions | 128 |
| | — |
| | — |
| | — |
| | 692 |
| | 820 |
|
Impairment | — |
| | — |
| | (360 | ) | | — |
| | — |
| | (360 | ) |
Reclassification to assets held for sale | — |
| | — |
| | (110 | ) | | — |
| | — |
| | (110 | ) |
Foreign currency translation adjustment | — |
| | (97 | ) | | 31 |
| | — |
| | — |
| | (66 | ) |
Balance at July 28, 2013 | $ | 450 |
| | $ | 775 |
| | $ | 122 |
| | $ | 112 |
| | $ | 838 |
| | $ | 2,297 |
|
In 2013, the company acquired Bolthouse Farms for $1,561 and Plum for $249. As of July 28, 2013, goodwill related to the acquisition of Bolthouse Farms and Plum was $692 and $128, respectively. See Note 3.
On August 12, 2013, the company announced that it was in final and exclusive negotiations for the potential sale of its simple meals business in Europe. The assets and liabilities of the European business have been reflected in assets and liabilities held for sale in the Consolidated Balance Sheet as of July 28, 2013. The company has reflected the results of the business as discontinued operations in the Consolidated Statements of Earnings for all years presented. The business was historically included in the International Simple Meals and Beverages segment.
In the fourth quarter of 2013, as part of the company's annual review of intangible assets, an impairment charge of $360 was recorded on goodwill for the simple meals business in Europe to reduce the carrying value to the implied fair value of $110. The impairment was attributable to a combination of factors, including the existence of a firm offer to purchase the business; a revised future outlook for the business, with reduced expectations for future sales and discounted cash flows, given the economic uncertainty in the region; future investments required to maintain performance; and management's assumptions on the weighted average cost of capital. Fair value was determined based on discounted cash flow analyses. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions.
Intangible Assets
The following table sets forth balance sheet information for intangible assets, excluding goodwill, subject to amortization and intangible assets not subject to amortization:
|
| | | | | | | |
Intangible Assets: | 2013 | | 2012 |
Non-amortizable intangible assets | | | |
Trademarks | $ | 810 |
| | $ | 485 |
|
Amortizable intangible assets | | | |
Customer relationships | $ | 156 |
| | $ | 7 |
|
Technology | 40 |
| | — |
|
Other | 32 |
| | 8 |
|
Total gross amortizable intangible assets | $ | 228 |
| | $ | 15 |
|
Accumulated amortization | (17 | ) | | (4 | ) |
Total net intangible assets | $ | 1,021 |
| | $ | 496 |
|
Non-amortizable intangible assets consist of trademarks, which include Bolthouse Farms, Pace, and Plum Organics. Trademarks of $150 used in the European simple meals business have been included in assets held for sale in the Consolidated Balance Sheet as of July 28, 2013. Other amortizable intangible assets consist of recipes, patents and distributor relationships.
Amortization of intangible assets of continuing operations was $14 for 2013, and $1 for 2012 and 2011. Amortization expense for the following 5 years is estimated to be $15 in each of the fiscal periods in 2014 through 2017 and $11 in 2018. Asset useful lives range from 5 to 20 years.
In 2013, as part of the company's annual review of intangible assets, an impairment charge of $36 was recognized related to certain trademarks of the European business held for sale, including Royco, Isomitta and Heisse Tasse. The trademarks were determined to be impaired as a result of a decrease in the fair value of the brands, resulting from reduced expectations for future sales and discounted cash flows as previously discussed. In 2012 and 2011, as part of the company's annual review of intangible assets, an impairment charge of $3 was recognized related to trademarks of the European simple meals business. The trademarks were determined to be impaired as a result of a decrease in the fair value of the brands, resulting from reduced expectations for future sales and discounted cash flows. The impairment charges were recorded in earnings from discontinued operations in the Consolidated Statements of Earnings.
The discounted estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions, and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond the company’s control, such as changes in capital markets. The actual cash flows could differ materially from management’s estimates due to changes in business conditions, operating performance, and economic conditions.
