Proctor and Gamble 2012 Annual Report Download - page 44
Download and view the complete annual report
Please find page 44 of the 2012 Proctor and Gamble annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.42 The Procter & Gamble Company
discounted basis, the discount rate impacts our plan
obligations and expenses. Discount rates used for our U.S.
defined benefit pension and OPEB plans are based on a yield
curve constructed from a portfolio of high quality bonds for
which the timing and amount of cash outflows approximate
the estimated payouts of the plan. For our international
plans, the discount rates are set by benchmarking against
investment grade corporate bonds rated AA or better. The
average discount rate on the defined benefit pension plans
and OPEB plans of 4.2% and 4.3% respectively, represents a
weighted average of local rates in countries where such
plans exist. A 100-basis point change in the pension discount
rate would impact annual after-tax defined benefit pension
expense by approximately $160 million. A change in the
OPEB discount rate of 100 basis points would impact annual
after-tax OPEB expense by approximately $70 million. For
additional details on our defined benefit pension and OPEB
plans, see Note 8 to the Consolidated Financial Statements.
Acquisitions, Goodwill and Intangible Assets
We account for acquired businesses using the acquisition
method of accounting. Under the purchase method, our
Consolidated Financial Statements reflect the operations of
an acquired business starting from the completion of the
acquisition. In addition, the assets acquired and liabilities
assumed are recorded at the date of acquisition at their
respective estimated fair values, with any excess of the
purchase price over the estimated fair values of the net assets
acquired recorded as goodwill.
Significant judgment is required in estimating the fair value
of intangible assets and in assigning their respective useful
lives. Accordingly, we typically obtain the assistance of
third-party valuation specialists for significant tangible and
intangible assets. The fair value estimates are based on
available historical information and on future expectations
and assumptions deemed reasonable by management, but are
inherently uncertain.
We typically use an income method to estimate the fair value
of intangible assets, which is based on forecasts of the
expected future cash flows attributable to the respective
assets. Significant estimates and assumptions inherent in the
valuations reflect a consideration of other marketplace
participants, and include the amount and timing of future
cash flows (including expected growth rates and
profitability), the underlying product or technology life
cycles, economic barriers to entry, a brand's relative market
position and the discount rate applied to the cash flows.
Unanticipated market or macroeconomic events and
circumstances may occur, which could affect the accuracy or
validity of the estimates and assumptions.
Determining the useful life of an intangible asset also
requires judgment. Certain brand intangibles are expected to
have indefinite lives based on their history and our plans to
continue to support and build the acquired brands. Other
acquired intangible assets (e.g., certain trademarks or brands,
customer relationships, patents and technologies) are
expected to have determinable useful lives. Our assessment
as to brands that have an indefinite 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 are primarily based on these
same factors. All of our acquired technology and customer-
related intangibles are expected to have determinable useful
lives.
The costs of determinable-lived intangibles are amortized to
expense over their estimated life. The value of indefinite-
lived intangible assets and residual goodwill is not
amortized, but is tested at least annually for impairment. Our
impairment testing for goodwill is performed separately
from our impairment testing of indefinite-lived intangibles.
We test goodwill for impairment by reviewing the book
value compared to the fair value at the reportable unit level.
We test individual indefinite-lived intangibles by reviewing
the individual book values compared to the fair value. We
determine the fair value of our reporting units and indefinite-
lived intangible assets based on the income approach. Under
the income approach, we calculate the fair value of our
reporting units and indefinite-lived intangible assets based
on the present value of estimated future cash flows.
Considerable management judgment is necessary to evaluate
the impact of operating and macroeconomic changes and to
estimate future cash flows to measure fair value.
Assumptions used in our 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,
indefinite-lived intangible assets may be reclassified to a
determinable life asset and an additional impairment
assessment may be performed.
During the second quarter of fiscal 2012, we changed our
annual goodwill impairment testing date from July 1 to
October 1 of each year. This change was made to better align
the timing of our annual impairment testing with the timing
of the Company's annual strategic planning process. We
tested goodwill for impairment as of July 1, 2011 (the testing
date under our previous policy) and no impairments were
indicated. The results of our impairment testing during the
quarter ended December 31, 2011, indicated that the
estimated fair values of our Appliances and Salon
Professional reporting units were less than their respective
carrying amount therefore we recorded a non-cash before
and after tax impairment charge of $1.3 billion.
Additionally, our impairment testing for indefinite lived
intangible assets during the quarter ended December 31,
2011 indicated a decline in the fair value of our Koleston
Perfect and Wella trade name intangible assets below their
respective carrying values. This resulted in a non-cash
before tax impairment charge of $246 million ($173 million