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.
Identifiable intangible assets were comprised of: |
| | | | | | | | | | | | | |
| 2013 | | 2012 |
June 30 | Gross Carrying Amount | Accumulated Amortization | | Gross Carrying Amount | Accumulated Amortization |
INTANGIBLE ASSETS WITH DETERMINABLE LIVES |
Brands | $ | 4,251 |
| $ | 2,020 |
| | $ | 3,297 |
| $ | 1,687 |
|
Patents and technology | 2,976 |
| 2,032 |
| | 3,164 |
| 2,021 |
|
Customer relationships | 2,118 |
| 703 |
| | 2,048 |
| 642 |
|
Other | 348 |
| 168 |
| | 352 |
| 218 |
|
TOTAL | 9,693 |
| 4,923 |
| | 8,861 |
| 4,568 |
|
| | | | | |
INTANGIBLE ASSETS WITH INDEFINITE LIVES |
Brands | 26,802 |
| — |
| | 26,695 |
| — |
|
TOTAL | 36,495 |
| 4,923 |
| | 35,556 |
| 4,568 |
|
Amortization expense of intangible assets was as follows:
|
| | | | | | | | | | | |
Years ended June 30 | 2013 | | 2012 | | 2011 |
Intangible asset amortization | $ | 528 |
| | $ | 500 |
| | $ | 546 |
|
Estimated amortization expense over the next five fiscal years is as follows:
|
| | | | | | | | | | | | | | | | | | | |
Years ended June 30 | 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
Estimated amortization expense | $ | 504 |
| | $ | 485 |
| | $ | 442 |
| | $ | 405 |
| | $ | 380 |
|
Such estimates do not reflect the impact of future foreign exchange rate changes.
