Proctor and Gamble 2005 Annual Report Download - page 52
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Please find page 52 of the 2005 Proctor and Gamble annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Management’sDiscussionandAnalysisTheProcter&GambleCompanyandSubsidiaries
48
considerablejudgmentininterpretingmarketdataandchangesin
assumptionsorestimationmethodscouldsignificantlyaffectthe
fairvalueestimates.However,wedonotbelieveanysuchchanges
wouldhaveamaterialimpactonourfinancialconditionorresultsof
operations.Otherfinancialinstruments,includingcashequivalents,
otherinvestmentsandshort-termdebt,arerecordedatcost,which
approximatesfairvalue.Thefairvaluesoflong-termdebtandderivative
instrumentsaredisclosedinNote5andNote6,respectively.
Stock-BasedCompensation
TheCompanyhasemployeestockoptionplans,whicharedescribed
morefullyinNote7.Weaccountforemployeestockoptionplans
undertheintrinsicvaluerecognitionandmeasurementprovisions
ofAccountingPrinciplesBoard(APB)OpinionNo.25,“Accounting
forStockIssuedtoEmployees,”andrelatedinterpretations.Asstock
optionshavebeenissuedwithexercisepricesequaltothemarket
valueoftheunderlyingsharesonthegrantdate,nocompensationcost
wasrecognized.
Hadcompensationexpensefortheplansbeendeterminedbasedon
thefairvalueoftheoptionsonthegrantdate,consistentwithSFAS
No.123,“AccountingforStock-BasedCompensation,”ournetearnings
andearningspercommonsharewouldhavebeenasfollows:
NewPronouncementsandReclassifications
InDecember2004,theFinancialAccountingStandardsBoard(FASB)
issuedSFASNo.123(Revised2004),“Share-BasedPayment”(SFAS
123(R)).ThisStatementrevisesSFASNo.123byeliminatingtheoption
toaccountforemployeestockoptionsunderAPBNo.25andgenerally
requirescompaniestorecognizethecostofemployeeservicesreceivedin
exchangeforawardsofequityinstrumentsbasedonthegrant-datefair
valueofthoseawards(the“fair-value-based”method).Weareadopting
SFAS123(R)effectiveJuly1,2005usingthemodifiedretrospective
method.Allpriorperiodswillbeadjustedtogiveeffecttothe
fair-value-basedmethodofaccountingforawardsgrantedinfiscal
yearsbeginningonorafterJuly1,1995.TheimpactofadoptingSFAS
123(R)willbeconsistentwiththeimpactintheproformadisclosure
presentedabove.
Noothernewaccountingpronouncementissuedoreffectiveduring
thefiscalyearhashadorisexpectedtohaveamaterialimpacton
theconsolidatedfinancialstatements.Certainreclassifications
ofprioryears’amountshavebeenmadetoconformtothecurrent
yearpresentation.
Note2Acquisitions
GilletteAcquisition
OnJanuary27,2005,weenteredintoanagreementtoacquireThe
GilletteCompany.Theagreement,whichhasbeenapprovedbythe
boardsofdirectorsandtheshareholdersofbothcompanies,provides
forastock-for-stockexchangeinwhich0.975sharesofTheProcter
&GambleCompanycommonstockwouldbeissuedandexchanged,
onatax-freebasis,foreachshareofTheGilletteCompany.Under
thepurchasemethodofaccounting,thetotalconsiderationwouldbe
approximately$54billion,determinedusingtheaverageCompany
stockpricesbeginningtwodaysbeforeandendingtwodaysafter
January28,2005,thedatetheacquisitionwasannounced.
TheGilletteCompanyisaleaderinseveralglobalproductcategories
includingbladesandrazors,oralcareandbatteries.Totalsalesfor
GilletteduringitsmostrecentyearendedDecember31,2004were
$10.5billion.
Theacquisitionissubjecttoapprovalbycertainregulatoryauthorities.
WebelievethatthetransactionwillcloseinFall2005.
Inconnectionwiththisacquisition,wealsoannouncedasharebuyback
planunderwhichwewillacquireupto$22billionofCompanycommon
shares.ThroughJune30,2005,werepurchased$3.00billionunder
thisplan,financedbyabridgecreditfacility.OnJuly27,2005,we
enteredintoa$24billionthree-yearcreditfacilitywithasyndicate
ofbanks.Thisfacilityreplacedthebridgecreditfacility.Proceedswill
beusedforgeneralcorporatepurposeswiththeexpectationthatthe
majorityofthefundswillbeusedaspartofthesharerepurchase
program.Aspartofthesharerepurchaseprogram,wemayalso
purchasesharesofTheGilletteCompanypriortoclosetofacilitate
completionofthetransaction(dependentonmarketconditionsand
regulatoryapproval).Thisfacilityisinitiallysecuredbyapledgeofcertain
oftheCompanysharesacquiredunderthesharebuybackplan.Thiscredit
NotestoConsolidatedFinancialStatementsTheProcter&GambleCompanyandSubsidiaries
Millionsofdollarsexceptpershareamountsorotherwisespecified.
YearsendedJune30
20041 2003
NetEarnings
Asreported $6,481 $5,186
Proformaadjustments (325) (398)
6,156 4,788
NetEarningsPerCommonShare
Basic
Asreported $2.46 $1.95
Proformaadjustments (0.12) (0.15)
2.34 1.80
Diluted
Asreported 2.32 1.85
Proformaadjustments (0.12) (0.15)
2.20 1.70
1During2004,thetimingoftheannualgrantwasmovedfromSeptembertoFebruaryresult-
inginlowerexpense,astheassociatedproformaexpenseisamortizedoverthethree-year
vestingperiod.