Diageo PLC (DEO) | Goodwill and Intangible Assets

Goodwill and Intangible Assets Accounting Policy

When the cost of an acquisition exceeds the fair values attributable to Diageo's share of the net assets acquired, the difference is treated as purchased goodwill. Goodwill arising on acquisitions prior to 1 July 1998 was eliminated against reserves, and this goodwill has not been restated. Goodwill arising subsequent to 1 July 1998 has been capitalised.

Acquired brands and other intangible assets are recognised when they are controlled through contractual or other legal rights, or are separable from the rest of the business, and the fair value can be reliably measured.

Intangible assets that are regarded as having limited useful economic lives are amortised on a straight-line basis over those lives and reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Goodwill and intangible assets that are regarded as having indefinite useful economic lives are not amortised. These assets are reviewed for impairment at least annually or when there is an indication that the assets may be impaired. To ensure that assets are not carried at above their recoverable amounts, the impairment reviews compare the net carrying value with the recoverable amount, where the recoverable amount is the value in use. Amortisation and any impairment writedowns are charged to other operating expenses in the income statement.

Computer software is amortised on a straight-line basis to estimated residual value over its expected useful life. Residual values and useful lives are reviewed each year. Subject to these reviews, the estimated useful lives are up to five years.

Source: Diageo PLC, Annual Report

Goodwill and Intangible Assets Disclosure

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Diageo PLC, Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions, translated from GBP £

		Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
	Brands
	Other intangibles
	Computer software
	Intangible assets (excluding goodwill), cost
	Amortisation and impairment loss
	Intangible assets (excluding goodwill), carrying amount
	Goodwill
	Intangible assets

Source: Based on data from Diageo PLC Annual Reports

Item	Description	The company
Intangible assets (excluding goodwill), carrying amount	Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	Diageo PLC's intangible assets (excluding goodwill), carrying amount increased from 2009 to 2010 but then slightly declined from 2010 to 2011 not reaching 2009 level.
Goodwill	Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions.	Diageo PLC's goodwill increased from 2009 to 2010 and from 2010 to 2011.
Intangible assets	Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	Diageo PLC's intangible assets increased from 2009 to 2010 but then slightly declined from 2010 to 2011 not reaching 2009 level.

Analyst Adjustments: Removal of Goodwill

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Diageo PLC, adjustments to financial data

USD $ in millions, translated from GBP £

		Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Equity Attributable To Equity Shareholders Of The Parent Company
	Equity attributable to equity shareholders of the parent company (as reported)
	Less: Goodwill
	Equity attributable to equity shareholders of the parent company (adjusted)

Adjusted Ratios: Removal of Goodwill (Summary)

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Diageo PLC, adjusted ratios

	Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE	%	%	%	%	%	%
Adjusted ROE	%	%	%	%	%	%
Return on Assets (ROA)
Reported ROA	%	%	%	%	%	%
Adjusted ROA	%	%	%	%	%	%

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Diageo PLC's adjusted total asset turnover deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Diageo PLC's adjusted financial leverage declined from 2009 to 2010 and from 2010 to 2011.
Adjusted ROE	A profitability ratio calculated as net income divided by adjusted shareholders' equity.	Diageo PLC's adjusted ROE deteriorated from 2009 to 2010 and from 2010 to 2011.
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Diageo PLC's adjusted ROA deteriorated from 2009 to 2010 but then improved from 2010 to 2011 exceeding 2009 level.

Adjusted Total Asset Turnover

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		Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
	As Reported
	Sales (USD $ in millions, translated from GBP £)
	Total assets (USD $ in millions, translated from GBP £)

	Total asset turnover¹
	Adjusted for Goodwill
	Sales (USD $ in millions, translated from GBP £)
	Adjusted total assets (USD $ in millions, translated from GBP £)

	Adjusted total asset turnover²

2011 Calculations

¹ Total asset turnover = Sales ÷ Total assets
= ÷ =

² Adjusted total asset turnover = Sales ÷ Adjusted total assets
= ÷ =

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Diageo PLC's adjusted total asset turnover deteriorated from 2009 to 2010 but then slightly improved from 2010 to 2011.

Adjusted Financial Leverage

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		Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
	As Reported
	Total assets (USD $ in millions, translated from GBP £)
	Equity attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)

	Financial leverage¹
	Adjusted for Goodwill
	Adjusted total assets (USD $ in millions, translated from GBP £)
	Adjusted equity attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)

	Adjusted financial leverage²

2011 Calculations

¹ Financial leverage = Total assets ÷ Equity attributable to equity shareholders of the parent company
= ÷ =

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted equity attributable to equity shareholders of the parent company
= ÷ =

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Diageo PLC's adjusted financial leverage declined from 2009 to 2010 and from 2010 to 2011.

Adjusted Return On Equity (ROE)

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	Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
As Reported
Profit for the year attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)
Equity attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)

ROE¹	%	%	%	%	%	%
Adjusted for Goodwill
Profit for the year attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)
Adjusted equity attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)

Adjusted ROE²	%	%	%	%	%	%

2011 Calculations

¹ ROE = 100 × Profit for the year attributable to equity shareholders of the parent company ÷ Equity attributable to equity shareholders of the parent company
= 100 × ÷ = %

² Adjusted ROE = 100 × Profit for the year attributable to equity shareholders of the parent company ÷ Adjusted equity attributable to equity shareholders of the parent company
= 100 × ÷ = %

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as net income divided by adjusted shareholders' equity.	Diageo PLC's adjusted ROE deteriorated from 2009 to 2010 and from 2010 to 2011.

Adjusted Return On Assets (ROA)

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	Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
As Reported
Profit for the year attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)
Total assets (USD $ in millions, translated from GBP £)

ROA¹	%	%	%	%	%	%
Adjusted for Goodwill
Profit for the year attributable to equity shareholders of the parent company (USD $ in millions, translated from GBP £)
Adjusted total assets (USD $ in millions, translated from GBP £)

Adjusted ROA²	%	%	%	%	%	%

2011 Calculations

¹ ROA = 100 × Profit for the year attributable to equity shareholders of the parent company ÷ Total assets
= 100 × ÷ = %

² Adjusted ROA = 100 × Profit for the year attributable to equity shareholders of the parent company ÷ Adjusted total assets
= 100 × ÷ = %

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Diageo PLC's adjusted ROA deteriorated from 2009 to 2010 but then improved from 2010 to 2011 exceeding 2009 level.

Diageo PLC (DEO) | Analysis of Goodwill and Intangible Assets

Goodwill and Intangible Assets Accounting Policy

Goodwill and Intangible Assets Disclosure

Analyst Adjustments: Removal of Goodwill

Adjusted Ratios: Removal of Goodwill (Summary)

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return On Equity (ROE)

Adjusted Return On Assets (ROA)

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