Note 5. Goodwill and Intangible Assets
At December 31, 2013 and 2012, goodwill by reportable segment, revised to reflect our new segment structure, was:
| 2013 | 2012 | |||||||
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Latin America |
$ | 1,262 | $ | 1,381 | ||||
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Asia Pacific |
2,504 | 2,729 | ||||||
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EEMEA |
2,764 | 2,763 | ||||||
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Europe |
10,026 | 9,767 | ||||||
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North America |
9,041 | 9,100 | ||||||
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Goodwill |
$ | 25,597 | $ | 25,740 | ||||
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Intangible assets at December 31, 2013 and 2012 were:
| 2013 | 2012 | |||||||
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Non-amortizable intangible assets |
$ | 20,067 | $ | 20,408 | ||||
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Amortizable intangible assets |
2,852 | 2,861 | ||||||
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| 22,919 | 23,269 | |||||||
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Accumulated amortization |
(925 | ) | (717 | ) | ||||
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Intangible assets, net |
$ | 21,994 | $ | 22,552 | ||||
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Non-amortizable intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the global LU Biscuit business of Groupe Danone S.A. and Cadbury Limited. Amortizable intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements. At December 31, 2013, the weighted-average life of our amortizable intangible assets was 13.3 years.
Amortization expense for intangible assets was $217 million in 2013, $217 million in 2012 and $225 million in 2011. We currently estimate amortization expense for each of the next five years to be approximately $217 million.
Changes in goodwill and intangible assets consisted of:
| 2013 | 2012 | |||||||||||||||
| Intangible | Intangible | |||||||||||||||
| Goodwill | Assets, at cost | Goodwill | Assets, at cost | |||||||||||||
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Balance at January 1 |
$ | 25,740 | $ | 23,269 | $ | 37,234 | $ | 25,712 | ||||||||
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Changes due to: |
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Foreign currency |
(336 | ) | (390 | ) | 438 | 262 | ||||||||||
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Divestitures |
(13 | ) | (7 | ) | (11,932 | ) | (2,669 | ) | ||||||||
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Asset impairments |
– | – | – | (52 | ) | |||||||||||
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Acquisitions |
209 | 48 | – | 14 | ||||||||||||
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Other |
(3 | ) | (1 | ) | – | 2 | ||||||||||
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Balance at December 31 |
$ | 25,597 | $ | 22,919 | $ | 25,740 | $ | 23,269 | ||||||||
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Changes to goodwill and intangible assets were:
| • | Divestitures - In 2013, we reduced goodwill by $13 million and intangible assets by $7 million due to the divestitures of a chocolate business in Spain, a salty snacks business in Turkey and a confectionery business in South Africa. In 2012, we reduced goodwill by $11,911 million and intangible assets by $2,666 million due to the divestiture of Kraft Foods Group. In 2012, we also reduced goodwill by $21 million and intangible assets by $3 million primarily related to the divestitures in Germany, Belgium and Italy. |
| • | Asset Impairments - In 2013, we did not record any goodwill or intangible asset impairment charges. In 2012, we recorded $52 million of charges related to a trademark on a Japanese chewing gum product within our Asia Pacific segment which had significantly lower revenue. The fair value of the intangible asset was determined under a relief of royalty valuation, which models the cash flows from the trademark assuming royalties were received under a licensing arrangement. The charges were calculated as the excess of the carrying value of the intangible asset over its estimated fair value and were recorded within asset impairment and exit costs. |
| • | Acquisitions - In 2013, we increased goodwill by $209 million and intangible assets by $48 million due to the acquisition of our remaining interest in a biscuit operation in Morocco. In 2012, we increased intangible assets by $14 million related to an acquisition of a license in Pakistan and an acquisition of a trademark in Europe. |
In 2013, 2012 and 2011, there were no impairments of goodwill. In connection with our 2013 annual impairment testing, we noted one reporting unit which was more sensitive to near-term changes in discounted cash flow assumptions: U.S. Confections with $2,177 million of goodwill as of December 31, 2013 and fair value in excess of its carrying value of net assets of 12%. While the reporting unit passed the first step of the impairment test, if the segment operating income or another valuation assumption were to deteriorate significantly in the future, it could adversely affect the estimated fair value of the reporting unit. If we are unsuccessful in our plans to increase the profitability of this business, the estimated fair value could decline and lead to a potential goodwill impairment in the future.
During our 2013 and 2011 reviews of non-amortizable intangible assets, there were no impairments identified. During our 2013 impairment testing, we noted 7 brands with $511 million of aggregate book value as of December 31, 2013 and fair value in excess of book value of 10% or less. While these intangible assets passed our annual impairment testing and though we believe that our current plans for each of these brands will allow them to continue to not be impaired, if expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands might become impaired in the future. In 2012, we recorded $52 million of charges related to a trademark on a Japanese chewing gum product within our Asia Pacific segment.