Proctor and Gamble 2008 Annual Report Download - page 55

Management’sDiscussionandAnalysis TheProcter&GambleCompany 53
Determiningtheusefullifeofanintangibleassetalsorequiresjudg-
ment.Certainbrandintangiblesareexpectedtohaveindenitelives
basedontheirhistoryandourplanstocontinuetosupportandbuild
theacquiredbrands.Otheracquiredbrandsareexpectedtohave
determinableusefullives.Ourassessmentastobrandsthathavean
indenitelifeandthosethathaveadeterminablelifeisbasedona
numberoffactorsincludingcompetitiveenvironment,marketshare,
brandhistory,underlyingproductlifecycles,operatingplansandthe
macroeconomicenvironmentofthecountriesinwhichthebrandsare
sold.Ourestimatesoftheusefullivesofdeterminable-livedintangibles,
primarilyincludingbrands,technologiesandcustomerrelationships,are
primarilybasedonthesesamefactors.Allofouracquiredtechnology
andcustomer-relatedintangiblesareexpectedtohavedeterminable
usefullives.
Othersignicantestimatesassociatedwiththeaccountingforacqui-
sitionsincludeexitcosts.Providedcertaincriteriaaremet,exitcosts
relatedtoacquiredoperationsaretreatedasassumedliabilities.If
thosecriteriaarenotmet,thecostsaretreatedasoperatingexpenses
ofthecombinedcompanyasincurred.Exitcosts,consistingprimarily
ofseverancecosts,facilityclosureandotherexitcostsrelatedto
redundantmanufacturing,selling,generalandadministrativefunctions,
arebaseduponplansthathavebeencommittedtobymanagement
butwhicharesubjecttorenement.Signicantestimatesandassump-
tionsinherentinthecalculationofexitcostsrelatetothenumber
ofemployeesthatwillbeterminated,futurecoststooperateand
eventuallyvacateduplicatefacilitiesandcoststoterminateagreements.
Theseestimatesandassumptionsmaychangeasweexecuteapproved
plans.Decreasestotheestimatedcostsaregenerallyrecordedas
anadjustmenttogoodwill.Increasestotheestimatesaregenerally
recordedasanadjustmenttogoodwillduringthepurchaseprice
allocationperiod(generallywithinoneyearoftheacquisitiondate)
andasoperatingexpensesthereafter.

Acquiredintangibleassetsmayrepresentindenite-livedassets
(e.g.,certaintrademarksorbrands),determinable-livedintangibles(e.g.,
certaintrademarksorbrands,customerrelationships,patentsand
technologies)orresidualgoodwill.Ofthese,onlythecostsof
determinable-livedintangiblesareamortizedtoexpenseovertheir
estimatedlife.Thevalueofindenite-livedintangibleassetsand
residualgoodwillisnotamortized,butistestedatleastannuallyfor
impairment.Ourimpairmenttestingforgoodwillisperformedsepa-
ratelyfromourimpairmenttestingofindenite-livedintangibles.We
testgoodwillforimpairment,atleastannually,byreviewingthebook
valuecomparedtothefairvalueatthereportableunitlevel.Wetest
individualindenite-livedintangiblesatleastannuallybyreviewing
theindividualbookvaluescomparedtothefairvalue.Considerable
managementjudgmentisnecessarytoevaluatetheimpactofoperating
andmacroeconomicchangesandtoestimatefuturecashowsto
measurefairvalue.AssumptionsusedintheCompany’simpairment
evaluations,suchasforecastedgrowthratesandcostofcapital,are
consistentwithinternalprojectionsandoperatingplans.Webelieve
suchassumptionsandestimatesarealsocomparabletothosethat
wouldbeusedbyothermarketplaceparticipants.Whencertainevents
orchangesinoperatingconditionsoccur,indenite-livedintangible
assetsmaybereclassiedtoadeterminablelifeassetandanadditional
impairmentassessmentmaybeperformed.Wedidnotrecognizeany
materialimpairmentchargesforgoodwillorintangibleassetsduring
theyearspresented.
Therecordedvalueofgoodwillandintangibleassetsfromrecently
acquiredbusinessesarederivedfrommorerecentbusinessoperating
plansandmacroeconomicenvironmentalconditionsandthereforeare
moresusceptibletoanadversechangethatcouldrequireanimpair-
mentcharge.Indenite-livedintangibleassetstotaled$27.9billion
atJune30,2008,ofwhich$24.7billionrepresentrecentlyacquired
Gilletteintangibleassets.TheGilletteindenite-livedintangibleassets
wererecordedatestimatedfairvaluesasoftheacquisitiondate.Total
goodwillis$59.8billionatJune30,2008,ofwhich$38.0billion
resultsfromtheGilletteacquisition.Suchgoodwillreectstheresidual
amountfromapurchasepriceallocationasoftheacquisitiondate.
BecausetheGilletteintangibleandgoodwillamountsrepresentcurrent
valuesasoftherelativelyrecentacquisitiondate,suchamountsare
moresusceptibletoanimpairmentriskifbusinessoperatingresults
ormacroeconomicconditionsdeteriorate.

AsmorefullydiscussedinNotes1and10totheConsolidatedFinancial
Statements,onJuly1,2007,weadoptedFASBInterpretationNo.48,
“AccountingforUncertaintyinIncomeTaxes—aninterpretationof
FASBStatementNo.109”(FIN48).FIN48addressestheaccounting
anddisclosureofuncertaintaxpositions.FIN48prescribesarecognition
thresholdandmeasurementattributeforthenancialstatement
recognitionandmeasurementofataxpositiontakenorexpected
tobetakeninataxreturn.Thedifferencebetweenthetaxbenet
recognizedinthenancialstatementsforapositioninaccordancewith
FIN48andthetaxbenetclaimedinthetaxreturnisreferredtoas
anunrecognizedtaxbenet.
AsmorefullydiscussedinNotes1and9totheConsolidatedFinancial
Statements,weadoptedSFASNo.158,“Employers’Accountingfor
DenedBenetPensionandOtherPostretirementPlans—anamend-
mentofFASBStatementsNo.87,88,106,and132(R),”(SFAS158)at
June30,2007.SFAS158requirescompaniestorecognizetheover-
fundedandunder-fundedstatusofdenedbenetpensionandother
postretirementplansasassetsorliabilitiesontheirbalancesheetsand
torecognizepreviouslyunrecognizedchangesinthatfundedstatus,
intheyearinwhichchangesoccur,throughothercomprehensive
incomeinshareholders’equity.
InSeptember2006theFASBissuedSFASNo.157,“FairValue
Measurements”(SFAS157).Thisstandarddenesfairvalue,establishes
aframeworkformeasuringfairvalueingenerallyacceptedaccounting
principles,andexpandsdisclosuresaboutfairvaluemeasurements.
Thestandard,asamended,iseffectivefortheCompanybeginning
July1,2008,forcertainnancialassetsandliabilitiesandbeginning
July1,2009,fornon-nancialassetsandliabilitiesrecognizedor
disclosedatfairvalueonanonrecurringbasis.Webelievethatthe
adoptionofSFAS157willnothaveamaterialeffectonournancial
position,resultsofoperationsorcashows.