Proctor and Gamble 2006 Annual Report Download - page 51

Millions of dollars except per share amounts or otherwise specified.
Notes to Consolidated Financial Statements The Procter &Gamble Company and Subsidiaries 49
We are evaluating the impact, if any, that FIN 48 will have on our
financial statements.
No other new accounting pronouncement issued or effective during
the fiscal year has had or is expected to have a material impact on the
consolidated financial statements. Certain reclassifications of prior years‘
amounts have been made to conform to the current year presentation.
NOTE 2
ACQUISITIONS
Gillette Acquisition
On October 1, 2005, we completed our acquisition of The Gillette
Company. Pursuant to the acquisition agreement, which provided for
the exchange of 0.975 shares of The Procter &Gamble Company
common stock, on a tax-free basis, for each share of The Gillette
Company, we issued 962 million shares of The Procter &Gamble
Company common stock, net of shares exchanged for retained Gillette
treasury shares. The value of these shares was determined using the
average Company stock prices beginning two days before and ending
two days after January 28, 2005, the date the acquisition was
announced. We also issued 79 million stock options in exchange for
Gillette’s outstanding stock options. Under the purchase method of
accounting, the total consideration was approximately $53.43 billion
including common stock, the fair value of vested stock options and
acquisition costs. This acquisition resulted in two new reportable
segments: Blades and Razors, and Duracell and Braun. The Gillette oral
care and personal care businesses were subsumed within the Health
Care and Beauty reportable segments, respectively. The operating
results of the Gillette businesses are reported in our financial
statements beginning October 1, 2005.
The Gillette Company is a market leader in several global product
categories including blades and razors, oral care and batteries. Total
sales for Gillette during its most recent pre-acquisition year ended
December 31, 2004 were $10.48 billion.
In order to obtain regulatory approval of the transaction, we were
required to divest certain overlapping businesses. We completed the
divestiture of the Spinbrush toothbrush business, Rembrandt (a Gillette
oral care product line), Right Guard and other Gillette deodorant brands
during the fiscal year ended June 30, 2006.
In connection with this acquisition, we also announced a share
buyback plan under which we planned to acquire up to $22 billion of
Company common shares through the open market or from private
transactions. We completed this share buyback plan in July 2006 with
cumulative purchases of $20.10 billion, of which $19.82 billion was
acquired through June 30, 2006. The repurchases were financed by
borrowings under a $24 billion three-year credit facility with a
syndicate of banks. This credit facility carries a variable interest rate.
Interest on the facility is managed within our overall interest rate
management policies described in Note 6.
The following table provides pro forma results of operations for the
years ended June 30, 2006, 2005 and 2004, as if Gillette had been
acquired as of the beginning of each fiscal year presented. The pro
forma results include certain purchase accounting adjustments such
as the estimated changes in depreciation and amortization expense
on acquired tangible and intangible assets. However, pro forma
results do not include any anticipated cost savings or other effects of
the planned integration of Gillette. Accordingly, such amounts are not
necessarily indicative of the results if the acquisition had occurred on
the dates indicated or that may result in the future.
Pro forma results; Years ended June 30 2006 2005 2004
Net Sales $71,005 $67,920 $61,112
Net Earnings 8,871 8,522 7,504
Diluted Net Earnings
per Common Share $2.51 $ 2.29 $ 1.98
We are in the process of finalizing the allocation of the purchase price
to the individual assets acquired and liabilities assumed. The preliminary
allocation of the purchase price included in the current period balance
sheet is based on the best estimates of management. To assist
management in the allocation, we engaged valuation specialists to
prepare independent appraisals. The completion of the purchase price
allocation may result in adjustments to the carrying value of Gillette’s
recorded assets and liabilities, revisions of the useful lives of intangible
assets and the determination of any residual amount that will be
allocated to goodwill. The related depreciation and amortization
expense from the acquired assets is also subject to revision based on
the final allocation.
The following table presents the preliminary allocation of purchase
price related to the Gillette business as of the date of the acquisition.
Current assets $ 5,553
Property, plant and equipment 3,673
Goodwill 34,943
Intangible assets 29,736
Other noncurrent assets 771
TOTAL ASSETS ACQUIRED 74,676
Current liabilities 5,009
Noncurrent liabilities 16,241
TOTAL LIABILITIES ASSUMED 21,250
NET ASSETS ACQUIRED 53,426
The Gillette acquisition resulted in $34.94 billion in goodwill, preliminarily
allocated primarily to the segments comprising the Gillette businesses
(Blades and Razors, Duracell and Braun, Health Care and Beauty).
A portion of the goodwill has also been preliminarily allocated to the
other segments on the basis that certain cost synergies will benefit these
businesses. See Note 3 for the allocation of goodwill to the segments.