Proctor and Gamble 2013 Annual Report Download - page 58

56 The Procter & Gamble Company
Amounts in millions of dollars except per share amounts or as otherwise specified.
In October 2012, the Company acquired our partner's
interest in a joint venture in Iberia that operates in our Baby
Care and Family Care and Health Care reportable segments.
We paid $1.1 billion for our partner's interest and the
transaction was accounted for as a business combination.
The total enterprise value of $1.9 billion was allocated to
indefinite-lived intangible assets of $0.2 billion, defined-life
intangible assets of $0.9 billion and goodwill of $1.1 billion.
These were partially offset by $0.3 billion of deferred tax
liabilities on the intangible assets. The Company recognized
a $0.6 billion holding gain on its previously held investment,
which was included in other non-operating income, net in
the Consolidated Statement of Earnings in fiscal 2013. In
addition to these items and the impairment discussed below,
the remaining net increase in goodwill since June 30, 2012
was primarily due to currency translation across all
reportable segments.
During the fourth quarter of fiscal 2013, the estimated fair
value of our Appliances reporting unit declined below its
carrying amount. As a result, we recorded a non-cash before
and after-tax impairment charge of $259 in fiscal 2013 to
reduce the carrying amount of goodwill to estimated fair
value.
The same factors that led to the decline in the fair value of
the reporting unit led to a decline in the fair value of our
Braun trade name intangible asset below its respective
carrying value. This resulted in a non-cash before-tax
impairment charge of $49 ($31 after-tax) to reduce the
carrying amount of this asset to its fair value.
The results of our goodwill impairment testing during fiscal
2012 determined that the estimated fair values of our
Appliances and Salon Professional reporting units were less
than their respective carrying amounts. As a result, we
recorded a non-cash before and after-tax impairment charge
of $1.3 billion in fiscal 2012 to reduce the carrying amount
of goodwill to estimated fair value; $899 of the impairment
related to Appliances and $431 related to Salon Professional.
Our impairment testing for indefinite-lived intangible assets
during fiscal 2012 also 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 ($173
after-tax) to reduce the carrying amounts of these assets to
their respective fair values.
All of the fiscal 2013 and 2012 goodwill and indefinite-lived
intangible asset impairment charges are included in
Corporate for segment reporting.
The goodwill and intangible asset valuations are dependent
on a number of significant estimates and assumptions,
including macroeconomic conditions, overall category
growth rates, competitive activities, cost containment and
margin expansion and Company business plans. We believe
these estimates and assumptions are reasonable. However,
actual events and results could differ substantially from
those used in our valuations. To the extent such factors
result in a failure to achieve the level of projected cash flows
used to estimate fair value, we may need to record additional
non-cash impairment charges in the future.
The fiscal 2013 declines in fair values of the Appliances
reporting unit and the Braun trade name intangible asset
were primarily driven by currency impacts. Specifically,
currency in Japan, a country that generates a significant
portion of the Appliances earnings, devalued approximately
20% in the second half of fiscal 2013 relative to the
currencies in which the underlying net assets are recorded.
This sustained reduction in the yen reduced the underlying
category market size and the projected future cash flows of
the business, which in turn triggered the impairment.
The fiscal 2012 declines in the fair values of the Appliances
and Salon Professional reporting units and the underlying
Koleston Perfect and Wella trade name intangible assets
were driven by a combination of similar competitive and
economic factors, which resulted in a reduction in the
forecasted growth rates and cash flows used to estimate fair
value. The factors included: (1) a more prolonged and
deeper deterioration of the macroeconomic environment
than was previously expected which, due to the more
discretionary nature of the Appliances and Salon
Professional businesses, led to a reduction in the overall
market size in the short term and a more significant and
prolonged reduction in the expected underlying market
growth rates and resulting sales levels in the longer term.
This was particularly evident in Europe, where we have
historically generated a majority of the Appliances and Salon
Professional sales; (2) increasing competitive levels of
innovation in Salon Professional, which negatively impacted
our current and nearer-term projected market share progress;
and, (3) an increasing level of competitive pricing activities,
which negatively impacted overall category profitability. As
a result of these factors, we reduced our current and long-
term sales and earnings forecasts for these businesses.
In addition to the impairment charges discussed above,
goodwill also decreased in fiscal 2012 due to currency
translation across all reporting segments partially offset by
the establishment of goodwill related to the business
combination with Teva Pharmaceuticals Ltd. in our Health
Care reportable segment.