Proctor and Gamble 2005 Annual Report Download - page 53

Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 49
the฀integration฀of฀Wella.฀Accordingly,฀such฀amounts฀are฀not฀necessarily฀
indicative฀of฀the฀results฀that฀would฀have฀occurred฀if฀the฀acquisition฀had฀
occurred฀on฀the฀dates฀indicated.
The฀following฀table฀presents฀the฀allocation฀of฀purchase฀price฀related฀to฀
the฀Wella฀business฀as฀of฀the฀date฀of฀acquisition.
The฀Wella฀acquisition฀resulted฀in฀$5.94฀billion฀in฀goodwill,฀all฀of฀which฀
was฀allocated฀to฀the฀P&G฀Beauty฀Global฀Business฀Unit.฀The฀following฀
table฀presents฀the฀intangible฀assets฀acquired.
China฀Venture฀
On฀June฀18,฀2004,฀we฀purchased฀the฀remaining฀20%฀stake฀in฀our฀China฀
venture฀from฀our฀partner,฀Hutchison฀Whampoa฀China฀Ltd.฀(Hutchison),฀
giving฀us฀full฀ownership฀in฀our฀operations฀in฀China.฀The฀net฀purchase฀
price฀was฀$1.85฀billion,฀which฀is฀the฀purchase฀price฀of฀$2.00฀billion฀
net฀of฀minority฀interest฀and฀related฀obligations฀that฀were฀eliminated฀
as฀a฀result฀of฀the฀transaction.฀The฀acquisition฀was฀funded฀by฀debt.฀The฀
fair฀value฀of฀the฀incremental฀individual฀assets฀and฀liabilities฀acquired฀
approximates฀current฀book฀value.฀Accordingly,฀the฀purchase฀price฀was฀
recorded฀as฀goodwill,฀which฀was฀allocated฀to฀multiple฀businesses.฀
Notes฀to฀Consolidated฀Financial฀Statements The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
facility฀carries฀a฀variable฀interest฀rate.฀Interest฀on฀the฀facility฀will฀be฀
managed฀within฀our฀overall฀interest฀rate฀management฀policies฀described฀
in฀Note฀6.
Wella฀Acquisition฀
On฀September฀2,฀2003,฀we฀acquired฀a฀controlling฀interest฀in฀Wella.฀
Through฀a฀stock฀purchase฀agreement฀with฀the฀majority฀shareholders฀฀
of฀Wella฀and฀a฀tender฀offer฀made฀on฀the฀remaining฀shares,฀we฀฀
acquired฀a฀total฀of฀81%฀of฀Wella’s฀outstanding฀shares,฀including฀99%฀
of฀Wella’s฀outstanding฀voting฀class฀shares.฀In฀June฀2004,฀the฀Company฀
and฀Wella฀entered฀into฀a฀Domination฀and฀Profit฀Transfer฀Agreement฀
(the฀Domination฀Agreement)฀pursuant฀to฀which฀we฀are฀entitled฀to฀฀
exercise฀full฀operating฀control฀and฀receive฀100%฀of฀the฀future฀earnings฀
of฀Wella.฀As฀consideration฀for฀the฀Domination฀Agreement,฀we฀will฀pay฀
the฀holders฀of฀the฀remaining฀outstanding฀shares฀of฀Wella฀a฀guaranteed฀
perpetual฀annual฀dividend฀payment.฀Alternatively,฀the฀remaining฀Wella฀
shareholders฀may฀elect฀to฀tender฀their฀shares฀to฀us฀for฀an฀agreed฀price.฀
The฀fair฀value฀of฀the฀total฀guaranteed฀annual฀dividend฀payments฀was฀
$1.11฀billion,฀which฀approximates฀the฀cost฀if฀all฀remaining฀shares฀were฀
tendered.฀Because฀the฀Domination฀Agreement฀transfers฀operational฀and฀
economic฀control฀of฀the฀remaining฀outstanding฀shares฀to฀the฀Company,฀
it฀has฀been฀accounted฀for฀as฀an฀acquisition฀of฀the฀remaining฀shares,฀
with฀a฀liability฀recorded฀equal฀to฀the฀fair฀value฀of฀the฀guaranteed฀฀
payments.฀Because฀of฀the฀tender฀feature,฀the฀liability฀is฀recorded฀as฀a฀฀
current฀liability฀in฀the฀accrued฀and฀ other฀liabilities฀ line฀of฀the฀฀
Consolidated฀Balance฀Sheets.฀Payments฀made฀under฀the฀guaranteed฀฀
annual฀dividend฀and฀tender฀provisions฀are฀allocated฀between฀interest฀฀
expense฀and฀a฀reduction฀of฀the฀liability,฀as฀appropriate.฀The฀total฀฀
purchase฀price฀for฀Wella,฀including฀acquisition฀costs,฀was฀$6.27฀billion฀
based฀on฀exchange฀rates฀at฀the฀acquisition฀dates.฀It฀was฀funded฀with฀฀
a฀combination฀of฀cash,฀debt฀and฀the฀liability฀recorded฀under฀the฀฀
Domination฀Agreement.฀
The฀acquisition฀of฀Wella,฀with฀over฀$3฀billion฀in฀annual฀net฀sales,฀gives฀
us฀access฀to฀the฀professional฀hair฀care฀category฀plus฀greater฀scale฀and฀
scope฀in฀hair฀care,฀hair฀colorants,฀cosmetics฀and฀fragrance฀products,฀
while฀providing฀potential฀for฀significant฀synergies.฀The฀operating฀results฀
of฀the฀Wella฀business฀are฀reported฀in฀our฀P&G฀Beauty฀Global฀Business฀
Unit฀beginning฀September฀2,฀2003.฀
The฀following฀table฀provides฀pro฀forma฀results฀of฀operations฀for฀the฀฀
years฀ended฀June฀30,฀2004฀and฀2003,฀as฀if฀Wella฀had฀been฀acquired฀as฀฀
of฀the฀beginning฀of฀each฀fiscal฀year฀presented.฀Pro฀forma฀information฀
for฀2005฀is฀not฀provided฀as฀the฀results฀of฀Wella฀are฀included฀in฀our฀
results฀for฀the฀entire฀year.฀The฀pro฀forma฀results฀include฀certain฀฀
adjustments,฀including฀adjustments฀to฀convert฀Wella’s฀historical฀financial฀฀
information฀from฀International฀Financial฀Reporting฀Standards฀(IFRS)฀into฀
U.S.฀GAAP,฀estimated฀interest฀impacts฀from฀funding฀of฀the฀acquisition฀
and฀estimated฀amortization฀of฀definite-lived฀intangible฀assets.฀However,฀
pro฀forma฀results฀do฀not฀include฀any฀cost฀savings฀or฀other฀effects฀of฀
฀ Millions฀of฀dollars฀except฀per฀share฀amounts฀or฀otherwise฀specified.฀
฀ Years฀ended฀June฀30
Pro฀forma฀results฀ ฀ 2004฀ 2003
Net฀Sales฀฀ $51,958฀ $46,751
Net฀Earnings฀฀ 6,402฀ 5,222
Diluted฀Net฀Earnings฀per฀Common฀Share฀ ฀ $2.29฀ $1.86฀ ฀
฀ ฀ ฀ ฀ ฀ ฀ Weighted฀
฀ ฀ ฀ ฀ ฀ ฀ average฀life
Intangible฀Assets฀with
฀ Determinable฀Lives
Trademarks ฀฀฀ $267฀ 9
Professional฀customer฀relationships฀ ฀ 196฀ 15
Patents฀and฀technology ฀฀฀ 10฀ 5
Other฀ ฀฀ 46฀ 23
฀ ฀ ฀ ฀ 519
Trademarks฀with
฀ Indefinite฀Lives฀ ฀฀฀ 1,152฀ ฀
฀ ฀฀ ฀1,671฀ ฀
฀
Current฀assets฀ ฀ ฀ $1,797฀
Property,฀plant฀and฀equipment฀ ฀ ฀ 407฀
Goodwill฀ ฀ ฀ 5,941฀
Intangible฀assets฀ ฀ ฀ 1,671฀
Other฀non-current฀assets฀ ฀ ฀ 157฀
฀ ฀ ฀ 9,973฀
Current฀liabilities฀ ฀ ฀ 2,099฀
Non-current฀liabilities฀ ฀ ฀ 1,601฀
฀ ฀ ฀ 3,700฀
฀ ฀ ฀ 6,273฀