Goodwill and Other Intangible Assets

12 Months Ended

Dec. 28, 2013

Acquisitions, Goodwill and Other Intangible Assets [Abstract]

Acquisitions, Goodwill and Other Intangible Assets [Text Block]

NOTE 2

GOODWILL AND OTHER INTANGIBLE ASSETS

Pringles® acquisition

On May 31, 2012, the Company completed its acquisition of the Pringles® business (Pringles) from The Procter & Gamble Company (P&G) for $2.695 billion, or $2.683 billion net of cash and cash equivalents, subject to certain purchase price adjustments, which resulted in a reduction of the purchase price by approximately $15 million to $2.668 billion net of cash and cash equivalents. The acquisition was accounted for under the purchase method and was financed through a combination of cash on hand, and short-term and long-term debt. The assets and liabilities of Pringles are included in the Consolidated Balance Sheet as of December 28, 2013 and December 29, 2012 and the results of the Pringles operations subsequent to the acquisition date are included in the Consolidated Statement of Income.

The purchase price allocation, including the allocation to reportable segments, was completed during the quarter ended June 29, 2013 when the valuations of fixed assets and intangible assets were finalized resulting in a reallocation from that reported as of December 29, 2012 of goodwill between the Company's reportable segments. Prior year amounts were revised to reflect these changes as of the date of the acquisition, resulting in reductions to goodwill and the foreign currency translation component of other comprehensive income (OCI) of $15 million as of December 29, 2012.

During the quarter ended September 28, 2013, the Company recorded an immaterial correction of an error to the purchase price allocation for Pringles that was outside of the measurement period, which resulted in an increase to other non-current liabilities, goodwill and non-current deferred tax assets of $15 million, $13 million and $2 million, respectively. The goodwill of $13 million was allocated to our operating segments as follows: Europe, $10 million and Asia Pacific, $3 million.

The final acquired assets and assumed liabilities include the following:

(millions)			May 31, 2012
Accounts receivable, net		$	128
Inventories			103
Other prepaid assets			18
Property			317
Goodwill			1,319
Other intangibles:
	Definite-lived intangible assets		79
	Brand		776
Other assets:
	Deferred income taxes		23
	Other		16
Notes payable			(3)
Accounts payable			(9)
Other current liabilities			(24)
Other liabilities			(75)
		$	2,668

Goodwill of $645 million is expected to be deductible for statutory tax purposes.

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets recognized. The goodwill recorded as part of the acquisition primarily reflects the value of providing an established platform to leverage the Company's existing brands in the international snacks category, synergies expected to arise from the combined brand portfolios, as well as any intangible assets that do not qualify for separate recognition.

For the year ended December 28, 2013, the Company incurred integration-related costs as part of the Pringles acquisition as follows: $46 million recorded in SGA, $15 million recorded in COGS and $5 million in net sales. Transaction fees and other integration-related costs incurred through December 29, 2012 were as follows: $73 million recorded in SGA, $3 million recorded in COGS and $5 million in fees for a bridge financing facility which are recorded in OIE.

For the year ended December 28, 2013, Pringles contributed net revenues of $1,658 million and net earnings of $132 million, including the integration-related costs discussed above. Through December 29, 2012, Pringles contributed net revenues of $887 million and net earnings of $31 million, including the transaction fees and other integration-related costs discussed above. The unaudited pro forma combined historical results, as if Pringles had been acquired at the beginning of fiscal 2011 are estimated to be:

(millions, except per share data)		2012		2011
Net sales	$	14,862	$	14,722

Net income	$	1,001	$	954
Net income (loss) attributable to noncontrolling interests		-		(2)
Net income attributable to Kellogg Company	$	1,001	$	956

Net earnings per share	$	2.78	$	2.63

The pro forma results include transaction and bridge financing costs, interest expense on the debt issued to finance the acquisition, amortization of the definite lived intangible assets, and depreciation based on estimated fair value and useful lives. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of 2011, nor are they necessarily indicative of future consolidated results.

In December 2012, the Company also entered into a series of agreements with a third party including a loan of $44 million which is convertible into approximately 85% of the equity of the entity. Due to this convertible loan and other agreements, the Company determined that the entity is a VIE and the Company is the primary beneficiary. Accordingly, the Company has consolidated the financial statements of the VIE in 2012 and treated the consolidation as a business acquisition within the U.S. Snacks reportable segment, which resulted in the following as of December 29, 2012: current assets, $14 million; property, $36 million; amortizable intangibles and other non-current assets, $26 million; goodwill, $76 million; current liabilities, $2 million; notes payable and long-term debt, $39 million; non-current deferred tax liabilities, $8 million; and noncontrolling interests, $59 million. During 2013, the allocation was completed resulting in increases to goodwill and non-current deferred tax liabilities of $12 million.

This entity had property and equipment with a carrying value of $35 million and notes payable and current and long-term debt of $30 million as of December 28, 2013. The liabilities recognized as a result of consolidating this entity do not represent additional claims on the Company's general assets. Conversely, general creditors would not have claims against the assets of the VIE.

Changes in the carrying amount of goodwill are presented in the following table.

Changes in the carrying amount of goodwill

		U.S.						North
		Morning		U.S.		U.S.		America				Latin		Asia		Consoli-
(millions)		Foods		Snacks		Specialty		Other		Europe		America		Pacific		dated
December 31, 2011	$	80	$	3,257	$	-	$	202	$	57	$	-	$	27	$	3,623
Pringles goodwill		53		434		82		77		356		88		216		1,306
Other goodwill		-		76		-		-		-		-		-		76
Currency translation adjustment		-		-		-		1		25		4		3		33
December 29, 2012	$	133	$	3,767	$	82	$	280	$	438	$	92	$	246	$	5,038
Pringles goodwill		-		-		-		-		10		-		3		13
Other goodwill		-		12		-		-		-		-		-		12
Currency translation adjustment		-		-		-		(2)		4		(3)		(11)		(12)
December 28, 2013	$	133	$	3,779	$	82	$	278	$	452	$	89	$	238	$	5,051

Intangible assets subject to amortization
(millions)

		U.S.						North
		Morning		U.S.		U.S.		America				Latin		Asia		Consoli-
Gross carrying amount		Foods		Snacks		Specialty		Other		Europe		America		Pacific		dated
December 31, 2011	$	28	$	18	$	-	$	5	$	2	$	7	$	-	$	60
Pringles customer relationships		-		30		-		-		39		-		10		79
Other intangible assets		-		22		-		-		-		-		-		22
Currency translation adjustment		-		-		-		-		2		-		-		2
December 29, 2012	$	28	$	70	$	-	$	5	$	43	$	7	$	10	$	163
Currency translation adjustment		-		-		-		-		1		-		-		1
December 28, 2013	$	28	$	70	$	-	$	5	$	44	$	7	$	10	$	164

Accumulated Amortization
December 31, 2011	$	28	$	9	$	-	$	3	$	2	$	7	$	-	$	49
Amortization		-		3		-		-		1		-		-		4
December 29, 2012	$	28	$	12	$	-	$	3	$	3	$	7	$	-	$	53
Amortization		-		4		-		1		3		-		1		9
December 28, 2013	$	28	$	16	$	-	$	4	$	6	$	7	$	1	$	62

Intangible assets subject to amortization, net
December 31, 2011	$	-	$	9	$	-	$	2	$	-	$	-	$	-	$	11
Pringles customer relationships		-		30		-		-		39		-		10		79
Other intangible assets		-		22		-		-		-		-		-		22
Amortization		-		(3)		-		-		(1)		-		-		(4)
Currency translation adjustment		-		-		-		-		2		-		-		2
December 29, 2012	$	-	$	58	$	-	$	2	$	40	$	-	$	10	$	110
Amortization (a)		-		(4)		-		(1)		(3)		-		(1)		(9)
Currency translation adjustment		-		-		-		-		1		-		-		1
December 28, 2013	$	-	$	54	$	-	$	1	$	38	$	-	$	9	$	102
(a) The currently estimated aggregate amortization expense for each of the next five succeeding fiscal periods is approximately $9 million per year.

Intangible assets not subject to amortization


		U.S.						North
		Morning		U.S.		U.S.	America					Latin		Asia		Consoli-
(millions)		Foods	Snacks			Specialty		Other		Europe	America			Pacific		dated
December 31, 2011	$	63	$	1,285	$	-	$	95	$	-	$	-	$	-	$	1,443
Pringles brand		-		340		-		-		436		-		-		776
Currency translation adjustment		-		-		-		-		30		-		-		30
December 29, 2012	$	63	$	1,625	$	-	$	95	$	466	$	-	$	-	$	2,249
Currency translation adjustment		-		-		-		-		16		-		-		16
December 28, 2013	$	63	$	1,625	$	-	$	95	$	482	$	-	$	-	$	2,265

- 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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