Proctor and Gamble 2012 Annual Report Download - page 45
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after tax) to reduce the carrying amounts of these assets to
their respective fair values.
The Appliances business was acquired as part of the Gillette
acquisition and is a stand-alone goodwill reporting unit. The
Salon Professional business consists primarily of operations
acquired in the Wella acquisition in 2004. These businesses
represent some of our more discretionary consumer spending
categories. As of June 30, 2012, the Appliances business has
remaining goodwill of $586 million, while the Salon
Professional business has remaining goodwill of $397
million. As a result of the current year impairments, the
estimated fair values of our Appliances and Salon
Professional businesses approximate their carrying values.
Because purchases in these categories are more discretionary
in nature, their operations and underlying fair values were
disproportionately impacted by the economic downturn that
began in fiscal 2009, which led to a reduction in home and
personal grooming appliance purchases and in visits to hair
salons. Our valuation of the Appliances and Salon
Professional businesses has them returning to sales and
earnings growth rates consistent with our long-term business
plans. Failure to achieve these business plans or a further
deterioration of the macroeconomic conditions could result
in a valuation that would trigger an additional impairment of
the goodwill and intangible assets of these businesses. For
additional details on the timing and results of our goodwill
impairment testing, see Note 2 to the Consolidated Financial
Statements.
Other than as discussed in the preceding paragraphs, our
annual impairment testing for both goodwill and indefinite-
lived intangible assets indicated that all other reporting unit
and indefinite-lived intangible asset fair values significantly
exceeded their respective recorded values. However, future
changes in the judgments, assumptions and estimates that are
used in our impairment testing for goodwill and indefinite-
lived intangible assets, including discount and tax rates or
future cash flow projections, could result in significantly
different estimates of the fair values. A significant reduction
in the estimated fair values could result in additional
impairment charges that could materially affect the financial
statements in any given year. The recorded value of goodwill
and intangible assets from recently impaired businesses and
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 impairment charge.
For example, the Gillette intangible and goodwill amounts
represent values as of a relatively more recent acquisition
date and, as such, the amounts are more susceptible to an
impairment risk if business operating results or
macroeconomic conditions deteriorate. Gillette indefinite-
lived intangible assets represent approximately 90% of the
$26.7 billion of indefinite-lived intangible assets at June 30,
2012. Goodwill allocated to stand-alone reporting units
consisting primarily of businesses purchased as part of the
Gillette acquisition represents 43% of the $53.8 billion of
goodwill at June 30, 2012. This includes the Shave Care and
Appliance businesses, which are components of the
Grooming segment, and the Batteries business, which is part
of the Fabric Care and Home Care segment.
New Accounting Pronouncements
There are no new accounting pronouncements issued or
effective that will have a material impact on our
Consolidated Financial Statements. However, we will be
presenting Comprehensive Income in a new format
beginning with the first quarter of fiscal year 2013, in
accordance with new accounting guidance that will eliminate
the option of presenting components of other comprehensive
earnings as part of the statement of shareholders' equity. For
additional details, see Note 1 to the Consolidated Financial
Statements.
OTHER INFORMATION
Hedging and Derivative Financial Instruments
As a multinational company with diverse product offerings,
we are exposed to market risks, such as changes in interest
rates, currency exchange rates and commodity prices. We
evaluate exposures on a centralized basis to take advantage
of natural exposure correlation and netting. Except within
financing operations, we leverage the Company's broadly
diversified portfolio of exposures as a natural hedge and
prioritize operational hedging activities over financial
market instruments. To the extent we choose to further
manage volatility associated with the net exposures, we enter
into various financial transactions which we account for
using the applicable accounting guidance for derivative
instruments and hedging activities. These financial
transactions are governed by our policies covering
acceptable counterparty exposure, instrument types and
other hedging practices. Note 5 to the Consolidated
Financial Statements includes a detailed discussion of our
accounting policies for financial instruments.
Derivative positions can be monitored using techniques
including market valuation, sensitivity analysis and value-at-
risk modeling. The tests for interest rate, currency rate and
commodity derivative positions discussed below are based
on the CorporateManager™ value-at-risk model using a one-
year horizon and a 95% confidence level. The model
incorporates the impact of correlation (the degree to which
exposures move together over time) and diversification
(from holding multiple currency, commodity and interest
rate instruments) and assumes that financial returns are
normally distributed. Estimates of volatility and correlations
of market factors are drawn from the RiskMetrics™ dataset
as of June 30, 2012. In cases where data is unavailable in
RiskMetrics™, a reasonable proxy is included.
Our market risk exposures relative to interest rates, currency
rates and commodity prices, as discussed below, have not
changed materially versus the previous reporting period. In
addition, we are not aware of any facts or circumstances that