Procter & Gamble Co. (PG) | Goodwill and Intangible Assets

Goodwill and Intangible Assets Accounting Policy

Goodwill and indefinite-lived brands are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Procter & Gamble's impairment testing of goodwill is performed separately from impairment testing of indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. Procter & Gamble believes such assumptions are also comparable to those that would be used by other marketplace participants.

Procter & Gamble has acquired brands that have been determined to have indefinite lives due to the nature of business. Procter & Gamble evaluates a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. When certain events or changes in operating conditions occur, an impairment assessment is performed and indefinite-lived brands may be adjusted to a determinable life.

The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over periods generally ranging from 5 to 30 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

Source: Procter & Gamble Co., Annual Report

Goodwill and Intangible Assets Disclosure

Procter & Gamble Co., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

	Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
Brands	3,392	3,284	3,580	3,564	3,317	3,135
Patents and technology	3,195	3,140	3,168	3,188	3,135	3,098
Customer relationships	2,121	1,947	1,853	1,947	1,738	1,695
Other	335	304	320	333	377	333
Intangible assets with determinable lives, gross carrying amount	9,043	8,675	8,921	9,032	8,567	8,261
Accumulated amortization	(4,212)	(3,558)	(3,206)	(2,671)	(1,911)	(1,283)
Intangible assets with determinable lives, net carrying amount	4,831	5,117	5,715	6,361	6,656	6,978
Brands with indefinite lives	27,789	26,519	26,891	27,872	26,970	26,743
Identifiable intangible assets	32,620	31,636	32,606	34,233	33,626	33,721
Goodwill	57,562	54,012	56,512	59,767	56,552	55,306
Goodwill and intangible assets	90,182	85,648	89,118	94,000	90,178	89,027

Source: Based on data from Procter & Gamble Co. Annual Reports

Item	Description	The company
Identifiable intangible assets	Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.	Procter & Gamble Co.'s identifiable intangible assets declined from 2009 to 2010 but then increased from 2010 to 2011 exceeding 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.	Procter & Gamble Co.'s goodwill declined from 2009 to 2010 but then increased from 2010 to 2011 exceeding 2009 level.
Goodwill and 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.	Procter & Gamble Co.'s goodwill and intangible assets declined from 2009 to 2010 but then increased from 2010 to 2011 exceeding 2009 level.

Analyst Adjustments: Removal of Goodwill

Procter & Gamble Co., adjustments to financial data

USD $ in millions

	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)	138,354	128,172	134,833	143,992	138,014	135,695
Less: Goodwill	57,562	54,012	56,512	59,767	56,552	55,306
Total assets (adjusted)	80,792	74,160	78,321	84,225	81,462	80,389
Adjustment to Stockholders' Equity Attributable To Parent
Stockholders' equity attributable to parent (as reported)	67,640	61,115	63,099	69,494	66,760	62,908
Less: Goodwill	57,562	54,012	56,512	59,767	56,552	55,306
Stockholders' equity attributable to parent (adjusted)	10,078	7,103	6,587	9,727	10,208	7,602

Adjusted Ratios: Removal of Goodwill (Summary)

Procter & Gamble Co., 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	0.60	0.62	0.59	0.58	0.55	0.50
Adjusted total asset turnover	1.02	1.06	1.01	0.99	0.94	0.85
Financial Leverage
Reported financial leverage	2.05	2.10	2.14	2.07	2.07	2.16
Adjusted financial leverage	8.02	10.44	11.89	8.66	7.98	10.57
Return on Equity (ROE)
Reported ROE	17.44%	20.84%	21.29%	17.38%	15.49%	13.80%
Adjusted ROE	117.06%	179.30%	203.98%	124.14%	101.29%	114.23%
Return on Assets (ROA)
Reported ROA	8.53%	9.94%	9.96%	8.39%	7.49%	6.40%
Adjusted ROA	14.60%	17.17%	17.16%	14.34%	12.69%	10.80%

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Procter & Gamble Co.'s adjusted total asset turnover improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011 not reaching 2009 level.
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.	Procter & Gamble Co.'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.	Procter & Gamble Co.'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.	Procter & Gamble Co.'s adjusted ROA improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.

Adjusted Total Asset Turnover

	Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
As Reported
Net sales (USD $ in millions)	82,559	78,938	79,029	83,503	76,476	68,222
Total assets (USD $ in millions)	138,354	128,172	134,833	143,992	138,014	135,695

Total asset turnover¹	0.60	0.62	0.59	0.58	0.55	0.50
Adjusted for Goodwill
Net sales (USD $ in millions)	82,559	78,938	79,029	83,503	76,476	68,222
Adjusted total assets (USD $ in millions)	80,792	74,160	78,321	84,225	81,462	80,389

Adjusted total asset turnover²	1.02	1.06	1.01	0.99	0.94	0.85

2011 Calculations

¹ Total asset turnover = Net sales ÷ Total assets
= 82,559 ÷ 138,354 = 0.60

² Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 82,559 ÷ 80,792 = 1.02

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Procter & Gamble Co.'s adjusted total asset turnover improved from 2009 to 2010 but then slightly deteriorated from 2010 to 2011 not reaching 2009 level.

Adjusted Financial Leverage

	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)	138,354	128,172	134,833	143,992	138,014	135,695
Stockholders' equity attributable to parent (USD $ in millions)	67,640	61,115	63,099	69,494	66,760	62,908

Financial leverage¹	2.05	2.10	2.14	2.07	2.07	2.16
Adjusted for Goodwill
Adjusted total assets (USD $ in millions)	80,792	74,160	78,321	84,225	81,462	80,389
Adjusted stockholders' equity attributable to parent (USD $ in millions)	10,078	7,103	6,587	9,727	10,208	7,602

Adjusted financial leverage²	8.02	10.44	11.89	8.66	7.98	10.57

2011 Calculations

¹ Financial leverage = Total assets ÷ Stockholders' equity attributable to parent
= 138,354 ÷ 67,640 = 2.05

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' equity attributable to parent
= 80,792 ÷ 10,078 = 8.02

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.	Procter & Gamble Co.'s adjusted financial leverage declined from 2009 to 2010 and from 2010 to 2011.

Adjusted Return On Equity (ROE)

	Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
As Reported
Net earnings (USD $ in millions)	11,797	12,736	13,436	12,075	10,340	8,684
Stockholders' equity attributable to parent (USD $ in millions)	67,640	61,115	63,099	69,494	66,760	62,908

ROE¹	17.44%	20.84%	21.29%	17.38%	15.49%	13.80%
Adjusted for Goodwill
Net earnings (USD $ in millions)	11,797	12,736	13,436	12,075	10,340	8,684
Adjusted stockholders' equity attributable to parent (USD $ in millions)	10,078	7,103	6,587	9,727	10,208	7,602

Adjusted ROE²	117.06%	179.30%	203.98%	124.14%	101.29%	114.23%

2011 Calculations

¹ ROE = 100 × Net earnings ÷ Stockholders' equity attributable to parent
= 100 × 11,797 ÷ 67,640 = 17.44%

² Adjusted ROE = 100 × Net earnings ÷ Adjusted stockholders' equity attributable to parent
= 100 × 11,797 ÷ 10,078 = 117.06%

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

Adjusted Return On Assets (ROA)

	Jun 30, 2011	Jun 30, 2010	Jun 30, 2009	Jun 30, 2008	Jun 30, 2007	Jun 30, 2006
As Reported
Net earnings (USD $ in millions)	11,797	12,736	13,436	12,075	10,340	8,684
Total assets (USD $ in millions)	138,354	128,172	134,833	143,992	138,014	135,695

ROA¹	8.53%	9.94%	9.96%	8.39%	7.49%	6.40%
Adjusted for Goodwill
Net earnings (USD $ in millions)	11,797	12,736	13,436	12,075	10,340	8,684
Adjusted total assets (USD $ in millions)	80,792	74,160	78,321	84,225	81,462	80,389

Adjusted ROA²	14.60%	17.17%	17.16%	14.34%	12.69%	10.80%

2011 Calculations

¹ ROA = 100 × Net earnings ÷ Total assets
= 100 × 11,797 ÷ 138,354 = 8.53%

² Adjusted ROA = 100 × Net earnings ÷ Adjusted total assets
= 100 × 11,797 ÷ 80,792 = 14.60%

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Procter & Gamble Co.'s adjusted ROA improved from 2009 to 2010 but then deteriorated significantly from 2010 to 2011.

Procter & Gamble Co. (PG) | 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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