Goodwill and Other Intangible Assets

9 Months Ended

Oct. 03, 2015

Acquisitions, Goodwill and Other Intangible Assets [Abstract]

Goodwill and other intangible assets

Bisco Misr acquisition

In January 2015, the Company completed its acquisition of a majority interest in Bisco Misr, the number one packaged biscuits company in Egypt, for $125 million, or $117 million net of cash and cash equivalents acquired. The acquisition was accounted for under the purchase method and was financed through cash on hand. The assets and liabilities of Bisco Misr are included in the Consolidated Balance Sheet as of October 3, 2015 and the results of its operations subsequent to the acquisition date, which are immaterial, are included in the Consolidated Statement of Income within the Europe operating segment. In addition, the pro-forma effect of this acquisition, if the acquisition had been completed at the beginning of 2014, would have been immaterial.

The acquired assets and assumed liabilities include the following:



(millions)	January 18, 2015
Current assets	$	11
Property	79
Goodwill	59
Intangible assets and other	30
Current liabilities	(15		)
Other non current liabilities, primarily deferred taxes	(27		)
Non-controlling interests	(20		)
	$	117

Goodwill, which is not expected to be deductible for statutory tax purposes, is calculated as the excess of the purchase price over the fair value of the net assets recognized. The goodwill recorded primarily reflects the value of providing an established platform to leverage the Company’s existing brands in the markets served by Bisco Misr as well as any intangible assets that do not qualify for separate recognition. The above amounts represent the preliminary allocation of purchase price and are subject to revision when appraisals are finalized, which is expected to occur by the end of 2015.

During the quarter ended October 3, 2015, the Company acquired additional ownership in Bisco Misr through payment of $13 million to non-controlling interests, which is reported as financing activity on the consolidated statement of cash flows. As of October 3, 2015, the Company owns greater than 95% of Bisco Misr outstanding shares.

Mass Foods Acquisition

In September 2015, the Company completed the acquisition of Mass Foods, Egypt’s leading cereal company, for $46 million, or $44 million net of cash and cash equivalents acquired. The acquisition was accounted for under the purchase method and financed through cash on hand. The assets and liabilities of Mass Foods are included in the Consolidated Balance Sheet as of October 3, 2015 within the European reportable segment. The pro-forma effect of this acquisition, if the acquisition had been completed at the beginning of 2014, would have been immaterial. The acquired assets and liabilities assumed include the following: Current assets - $10 million, Property, intangible assets and goodwill - $46 million , Current and non-current liabilities - $12 million. Goodwill, which is not expected to be deductible for statutory tax purposes, is calculated as the excess of the purchase price over the fair value of the net assets recognized. The goodwill recorded primarily reflects the value of providing an established platform to leverage the Company’s existing brands in the markets served by Mass Foods as well as any intangibles that do not qualify for separate recognition. The above amounts represent the preliminary allocation of purchase price and are subject to revision when appraisals are finalized, which is expected to occur no later than the third quarter of 2016.

Carrying amount of goodwill



(millions)	U.S. Morning Foods		U.S. Snacks			U.S. Specialty		North America Other			Europe			Latin America			Asia Pacific			Consoli- dated
January 3, 2015*	$	131	$	3,589		$	82	$	465		$	389		$	83		$	232		$	4,971
Additions	—		—			—		—			85			—			—			85
VIE deconsolidation**	—		(21		)	—		—			—			—			—			(21		)
Currency translation adjustment	—		—			—		(7		)	(25		)	(6		)	(9		)	(47		)
October 3, 2015	$	131	$	3,568		$	82	$	458		$	449		$	77		$	223		$	4,988

* In conjunction with the establishment of the Kashi operating segment, included within the North America Other reportable segment, goodwill was reallocated on a relative fair value basis. All prior period balances were updated to conform with current presentation. See Note 13 for further discussion.

** See discussion regarding VIE deconsolidation in the Noncontrolling interest section of Note 5.

Intangible assets subject to amortization

(millions)



Gross carrying amount	U.S. Morning Foods		U.S. Snacks			U.S. Specialty		North America Other		Europe			Latin America		Asia Pacific		Consoli- dated
January 3, 2015	$	8	$	65		$	—	$	5	$	38		$	6	$	10	$	132
Additions	—		—			—		—		6			—		—		6
VIE deconsolidation**	—		(23		)	—		—		—			—		—		(23		)
Currency translation adjustment	—		—			—		—		(1		)	—		—		(1		)
October 3, 2015	$	8	$	42		$	—	$	5	$	43		$	6	$	10	$	114

Accumulated Amortization
January 3, 2015	$	8	$	16		$	—	$	4	$	7		$	6	$	2	$	43
VIE deconsolidation**	—		(4		)	—		—		—			—		—		(4		)
Amortization	—		3			—		—		3			—		—		6
October 3, 2015	$	8	$	15		$	—	$	4	$	10		$	6	$	2	$	45

Intangible assets subject to amortization, net
January 3, 2015	$	—	$	49		$	—	$	1	$	31		$	—	$	8	$	89
Additions	—		—			—		—		6			—		—		6
VIE deconsolidation**	—		(19		)	—		—		—			—		—		(19		)
Currency translation adjustment	—		—			—		—		(1		)	—		—		(1		)
Amortization	—		(3		)	—		—		(3		)	—		—		(6		)
October 3, 2015	$	—	$	27		$	—	$	1	$	33		$	—	$	8	$	69

**See discussion regarding VIE deconsolidation in the Noncontrolling interest section of Note 5.

For intangible assets in the preceding table, amortization was $6 million for the year-to-date periods ended October 3, 2015 and September 27, 2014. The currently estimated aggregate annual amortization expense for full-year 2015 is approximately $8 million.

Intangible assets not subject to amortization



(millions)	U.S. Morning Foods		U.S. Snacks		U.S. Specialty		North America Other		Europe			Latin America		Asia Pacific		Consoli- dated
January 3, 2015*	$	—	$	1,625	$	—	$	158	$	423		$	—	$	—	$	2,206
Additions	—		—		—		—		36			—		—		36
Currency translation adjustment	—		—		—		—		(30		)	—		—		(30		)
October 3, 2015	$	—	$	1,625	$	—	$	158	$	429		$	—	$	—	$	2,212

* In conjunction with the establishment of the Kashi operating segment, included within the North America Other reportable segment, certain intangible assets were reallocated. All prior period balances were updated to conform with current presentation. See Note 13 for further discussion.

- 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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