Proctor and Gamble 2016 Annual Report Download - page 59

The Procter & Gamble Company 45
Amounts in millions of dollars except per share amounts or as otherwise specified.
On July 9, 2015, the Company announced the signing of a
definitive agreement to divest four product categories, initially
comprised of 43 of its beauty brands ("Beauty Brands"), which
will be merged with Coty. The transaction includes the global
salon professional hair care and color, retail hair color and
cosmetics businesses and a majority of the fine fragrances
business, along with select hair styling brands (see Note 13).
The Beauty Brands have historically been part of the
Company's Beauty reportable segment. In accordance with
applicable accounting guidance for the disposal of long-lived
assets, the results of the Beauty Brands are presented as
discontinued operations. As a result, the goodwill attributable
to the Beauty Brands as of June 30, 2016, 2015 and 2014 is
excluded from the preceding table and is reported as Current
assets held for sale in the Consolidated Balance Sheets.
During early fiscal 2015, we determined that the estimated fair
value of our Batteries reporting unit was less than its carrying
amount, resulting in a series of impairment charges. The
underlying fair value assessment was initially triggered by an
agreement in September 2014 to sell the China-based battery
joint venture and a related decision to pursue options to exit
the remainder of the Batteries business. The agreement to sell
the China-based battery joint venture was at a transaction value
that was below the earnings multiple implied from the prior
valuation of our Batteries business, which effectively
eliminated our fair value cushion. As a result, the remaining
business unit cash flows no longer supported the remaining
carrying amount of the Batteries business. Due largely to these
factors, we recorded an initial non-cash, before and after-tax
impairment charge of $863 to reduce the carrying amount of
goodwill for the Batteries business unit to its estimated fair
value. These same factors resulted in a decline in the fair value
of our Duracell trade name intangible asset below its carrying
value. This resulted in a non-cash, before-tax impairment
charge of $110 ($69 after tax) to reduce the carrying amount
of this asset to its estimated fair value.
Later in fiscal 2015, the Company reached an agreement to
divest the Batteries business via a split transaction in which
the Company agreed to exchange a recapitalized Duracell
Company for Berkshire Hathaway's (BH) shares of P&G stock.
Based on the terms of the agreement and the value of BH's
shares of P&G stock as of the transaction date and changes
thereto through June 30, 2015, the Company recorded
additional non-cash, before and after-tax impairment charges
totaling $1.2 billion.
In February 2016, the Company completed the divestiture of
its Batteries business to BH. Pursuant to the recapitalization
provisions of the agreement, the Company infused additional
cash into the Duracell Company to enable it to repurchase all
52.5 million shares of P&G stock owned by BH. Prior to the
transaction, the Company recorded a non-cash, before-tax
impairment charge of $402 ($350 after tax) during fiscal 2016,
which reflected the value of BH's shares in P&G stock as of
the date of the impairment charges (see Note 13).
All of the fiscal 2016 and 2015 impairment charges in the
Batteries business are included as part of discontinued
operations. The Batteries goodwill is included in Corporate in
the preceding table as of June 30, 2014. The remaining
Batteries goodwill at June 30, 2015 is reported in Current assets
held for sale in the Consolidated Balance Sheet.
The remaining change in goodwill during fiscal 2016 and 2015
was primarily due to currency translation across all reportable
segments.
All of the goodwill and indefinite-lived intangible asset
impairment charges that are not reflected in discontinued
operations 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 and are comparable to those that
would be used by other marketplace participants. 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.
Identifiable intangible assets were comprised of:
2016 2015
Years ended
June 30
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands $ 3,409 $ (2,032) $ 3,039 $ (1,721)
Patents and
technology
2,624 (2,164) 2,619 (2,028)
Customer
relationships
1,382 (514) 1,395 (464)
Other 246 (130) 252 (123)
TOTAL $ 7,661 $ (4,840) $ 7,305 $ (4,336)
INTANGIBLE ASSETS WITH INDEFINITE LIVES
Brands 21,706 — 22,041 —
TOTAL $ 29,367 $ (4,840) $ 29,346 $ (4,336)
Due to the divestiture of the Beauty Brands and Batteries
businesses, intangible assets specific to these businesses are
reported in Current assets held for sale in accordance with the
accounting principles for assets held for sale as of June 30,
2016 and 2015.
Amortization expense of intangible assets was as follows:
Years ended June 30 2016 2015 2014
Intangible asset amortization $ 388 $ 457 $ 514
Estimated amortization expense over the next five fiscal years
is as follows:
Years ending June 30 2017 2018 2019 2020 2021
Estimated
amortization expense $ 326 $ 298 $ 281 $ 255 $ 206