Proctor and Gamble 2006 Annual Report Download - page 52

Millions of dollars except per share amounts or otherwise specified.
Notes to Consolidated Financial Statements
The Procter &Gamble Company and Subsidiaries
50
The preliminary purchase price allocation to the identifiable intangible
assets included in these financial statements is as follows:
Weighted
Average Life
INTANGIBLE ASSETS WITH
DETERMINABLE LIVES
Brands $ 1,607 20
Patents and technology 2,716 17
Customer relationships 1,445 27
BRANDS WITH INDEFINITE LIVES 23,968 Indefinite
TOTAL INTANGIBLE ASSETS 29,736
The majority of the intangible asset valuation relates to brands. Our
preliminary assessment as to brands that have an indefinite life and
those that have a determinable life was based on a number of factors,
including the competitive environment, market share, brand history,
product life cycles, operating plan and macroeconomic environment
of the countries in which the brands are sold. The indefinite-lived
brands include Gillette, Venus, Duracell, Oral-B and Braun. The
determinable-lived brands include certain brand sub-names, such as
MACH3 and Sensor in the Blades and Razors business, and other
regional or local brands. The determinable-lived brands have asset
lives ranging from 10 to 40 years. The patents and technology
intangibles are concentrated in the Blades and Razors and Oral Care
businesses and have asset lives ranging from 5 to 20 years. The estimated
customer relationship intangible asset useful lives ranging from 20 to
30 years reflect the very low historical and projected customer attrition
rates among Gillette’s major retailer and distributor customers.
We are in the process of completing our analysis of integration plans,
pursuant to which we will incur costs primarily related to the elimination
of selling, general and administrative overlap between the two
companies in areas like Global Business Services, corporate staff and
go-to-market support, as well as redundant manufacturing capacity.
Our preliminary estimate of Gillette exit costs that have been recognized
as an assumed liability as of the acquisition date is $1.14 billion,
including $819 in separations related to approximately 5,600 people,
$57 in employee relocation costs and $264 in other exit costs. We
expect such activities to be substantially complete by June 30, 2008.
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 initially
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 agreed
to pay the holders of the remaining outstanding Wella shares 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 approximated 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
remaining 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. During
the year ended June 30, 2006, a portion of the remaining shares
was tendered, resulting in a $944 reduction in our liability under the
Domination Agreement. As a result of the tender, we now own
96.9% of all Wella outstanding shares.
The acquisition of Wella, with over $3 billion in annual net sales, gave
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 Beauty beginning September 2, 2003.
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.
Other minor business purchases and intangible asset acquisitions
totaled $395, $572 and $384 in 2006, 2005 and 2004, respectively.