capital, are consistent with internal projections and operating plans. We believe these estimates and assumptions are reasonable and comparable to those that would be used by other marketplace participants. Unanticipated market or macroeconomic events and circumstances may occur, which coul d affect the accuracy or validity of the estimates and assumptions. For example, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite - lived intangible assets, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values. In addition, changes to or a failure to achieve business plans or deterioration of macroeconomic conditions could result in reduced cash flow s or higher discount rates, leading to a lower valuation that would trigger an impairment of the goodwill and intangible assets of these businesses. We test individual indefinite - lived intangible assets by comparing the book value of each asset to the esti mated fair value. Our impairment testing for goodwill is performed separately from our impairment testing of indefinite - lived intangible assets. If the fair value of the reporting unit or indefinite - lived intangible is less than its carrying value, that difference represents an impairment. Determining the useful life of an intangible asset also requires judgment. Certain brand intangible assets are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands. Other acquired int angible assets (e.g., certain brands, all customer relationships, patents and technologies) are expected to have determinable useful lives. Our assessment as to brands that have an indefinite life and those that have a determinable life is based on a numb er of factors including competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. Determinable - lived intangible assets are amortiz ed to expense over their estimated lives. An impairment assessment for determinable - lived intangibles is only required when an event or change in circumstances indicates that the carrying amount of the asset may not be recoverable. Most of our goodwill r eporting units are comprised of a combination of legacy and acquired businesses and as a result have fair value cushions that, at a minimum, exceed three times their underlying carrying values. Certain of our goodwill reporting units, in particular Shave Care and Appliances, are comprised entirely of acquired businesses and as a result have fair value cushions that are not as high as our legacy businesses. The Appliances reporting unit has a fair value that significantly exceeds the underlying carrying va lue. Based on our annual impairment testing during the three months ended December 31, 2021, the Shave Care reporting unit's fair value exceeded its carrying value by more than 30% and the Gillette indefinite - lived intangible asset's fair value exceeded its carrying value by approximately 5%. The most significant assumptions utilized in the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite - lived intangible asset are the net sales and earnings growth rates (includin g residual growth rates) and discount rate. The residual growth rate represents the expected rate at which the reporting unit and Gillette brand are expected to grow beyond the shorter - term business planning period. The residual growth rate utilized in o ur fair value estimates is consistent with the reporting unit and brand operating plans and approximates expected long - term category market growth rates. The residual growth rate is dependent on overall market growth rates, the competitive environment, in flation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rate could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies against the U.S. dollar or an increased competitive environment. The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, includ ing consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by adverse changes in the macroeconomic environment, volatility in the equity and debt markets or other country specific factors, such as furt her devaluation of currencies against the U.S. dollar. Spot rates as of the fair value measurement date are utilized in our fair value estimates for cash flows outside the U.S. Another key assumption in our fair value determination of the Gillette indefi nite - lived intangible asset is the royalty rate, which is driven by historical and estimated future profitability of the underlying Gillette business. The royalty rate may be impacted by significant adverse changes in long - term operating margins. While management can and has implemented strategies to address these events in the past, changes in operating plans or adverse changes in the business or in the macroeconomic environment in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the Shave Care reporting unit's goodwill and indefinite - lived intangible assets. The duration and severity of the pandemic and the Russia - Ukraine War c ould result in a slow - down or a recession or drive inflationary pressures or foreign currency devaluations in the general economy. These could trigger additional future impairment charges for the Shave Care reporting unit goodwill and the Gillette indefin ite - lived intangible asset. While we have concluded that a triggering event did not occur during the quarter ended June 30, 2022, the Gillette indefinite - lived intangible asset is most susceptible to future impairment risk. Our assessment of the Gillette intangible asset assumes the net sales growth rates will continue to recover from the impact of the pandemic. There continues to be a high level of uncertainty relating to geopolitical and macroeconomic factors as a result of the Russia - Ukraine War and t he COVID - 19 pandemic. Accordingly, there The Procter & Gamble Company 29