Exhibit 99.1: UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Selected Financial Data
SELECTED FINANCIAL DATA
PROCTER & GAMBLE AND GILLETTE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Statement of Earnings combines
the historical consolidated statements of earnings of The Procter & Gamble
Company ("Procter & Gamble") and The Gillette Company ("Gillette"), giving
effect to the merger as if it had occurred on July 1, 2004. The Unaudited Pro
Forma Condensed Combined Balance Sheet combines the historical consolidated
balance sheet of Procter & Gamble and the historical consolidated balance sheet
of Gillette, giving effect to the merger as if it had been consummated on June
30, 2005. You should read this information in conjunction with the:
o accompanying notes to the Unaudited Pro Forma Condensed Combined
Financial Statements;
o separate historical financial statements of Procter & Gamble as
of and for the fiscal year ended June 30, 2005, included in the Procter
& Gamble annual report on Form 10-K for the fiscal year ended June 30,
2005;
o separate unaudited historical financial statements of Gillette as of and
for the three- and six-month periods ended June 30, 2005, included in
the Gillette quarterly report on Form 10-Q for the three months ended
June 30, 2005; and
o separate historical financial statements of Gillette as of and
for the year ended December 31, 2004, included in the Gillette annual
report on Form 10-K for the year ended December 31, 2004, which is
incorporated by reference into this document.
The unaudited pro forma condensed combined financial information is
provided for informational purposes only. The pro forma information is not
necessarily indicative of what the companies' financial position or results of
operations actually would have been had the merger been completed at the dates
indicated. In addition, the unaudited pro forma condensed combined financial
information does not purport to project the future financial position or
operating results of the combined company.
The unaudited pro forma condensed combined financial information was
prepared using the purchase method of accounting with Procter & Gamble treated
as the acquirer. Accordingly, we have adjusted the historical consolidated
financial information to give effect to the impact of the consideration issued
in connection with the merger. In the Unaudited Pro Forma Condensed Combined
Balance Sheet, Procter & Gamble's cost to acquire Gillette has been allocated to
the assets acquired and liabilities assumed based upon management's preliminary
estimate of their respective fair values as of the date of acquisition. Any
differences between the fair value of the consideration issued and the fair
value of the assets and liabilities acquired will be recorded as goodwill. The
amounts allocated to acquired assets and liabilities in the Unaudited Pro Forma
Condensed Combined Financial Statements are based on management's preliminary
internal valuation estimates. Definitive allocations will be performed and
finalized based upon certain valuations and other studies that will be performed
by Procter & Gamble with the assistance of outside valuation specialists.
Accordingly, the purchase allocation pro forma adjustments are preliminary and
have been made solely for the purpose of providing unaudited pro forma condensed
combined financial information and are subject to revision based on a final
determination of fair value.
Selected Financial Data
The Unaudited Pro Forma Condensed Combined Statement of Earnings also
includes certain purchase accounting adjustments, including items expected to
have a continuing impact on the combined results, such as increased depreciation
and amortization expense on acquired tangible and intangible assets. The
Unaudited Pro Forma Condensed Combined Statement of Earnings does not include
the impacts of any revenue, cost or other operating synergies that may result
from the merger. Procter & Gamble expects the transaction to generate $1 billion
to $1.2 billion of annual before tax cost synergies by year three. The biggest
synergies will come from elimination of selling, general, and administrative
overlap between the two companies in areas like Global Business Services,
corporate staff, and go-to-market support. The company also has cost synergy
opportunities in purchasing, manufacturing and logistics through increased
scale, improved asset utilization and coordinated procurement. As a result,
Procter & Gamble anticipates a reduction of about 5,000 to 6,000 positions,
representing roughly four percent of the combined workforce of the two
companies. Finally, Procter & Gamble anticipates economies of scale in retail
selling and marketing, including media buying. Procter & Gamble and Gillette are
collecting information in order to formulate detailed integration plans to
deliver planned synergies.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
reflect the impact of financing, liquidity or other balance sheet repositioning
that may be undertaken in connection with or subsequent to the merger. In
connection with this transaction, Procter & Gamble also announced a common stock
repurchase program pursuant to which it and/or one or more of its subsidiaries
plan to repurchase between $18 and $22 billion of its common stock by
mid-calendar year 2006. Through September 30, 2005, Procter & Gamble repurchased
$8.50 billion under this plan. Procter & Gamble intends to finance such share
repurchases through a $24 billion three-year credit facility entered into with a
syndicate of banks on July 27, 2005. Procter & Gamble does not anticipate any
significant impacts on its overall liquidity as a result of the merger or share
repurchases program.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
reflect nonrecurring charges resulting from the merger. The substantial majority
of nonrecurring charges resulting from the merger will be comprised of employee
termination costs and other exit costs related to the Gillette business that
will be recognized in the opening balance sheet in accordance with EITF Issue
No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business
Combination." Other merger-related charges may be incurred that do not meet the
criteria in EITF Issue No. 95-3, including employee termination and exit costs
related to the Procter & Gamble business, other integration-related costs, and
the impacts of divestitures which are required by governmental authorities. On
September 14, 2005, Procter & Gamble announced that it entered into an agreement
to sell the SpinBrush toothbrush business. Procter & Gamble will divest
Rembrandt, a Gillette oral care product line, and Right Guard, a Gillette
deodorant. Additionally, Procter & Gamble will make Soft & Dri and Dry Idea,
Gillette deodorant brands, available for purchase by the Right Guard buyer. Such
divestitures are not reflected in the Unaudited Pro Forma Condensed Combined
Financial Statements.
Based on Procter & Gamble's review of Gillette's summary of significant
accounting policies disclosed in Gillette's financial statements and preliminary
discussions with Gillette's management, the nature and amount of any adjustments
to the historical financial statements of Gillette to conform their accounting
policies to those of Procter & Gamble are not expected to be significant. Upon
consummation of the merger, further review of Gillette's accounting policies and
financial statements may result in required revisions to Gillette's policies and
classifications to conform to Procter & Gamble's.
Conforming Year Ends
Procter & Gamble has a fiscal year end of June 30 whereas Gillette has a
December 31 calendar year end. In order to prepare the Unaudited Pro Forma
Condensed Combined Statement of Earnings for the year ended June 30, 2005,
Gillette's operating results were first conformed to Procter & Gamble's
year-end. This was done utilizing Gillette's historical audited financial
statements as of and for the year ended December 31, 2004, and their historical
unaudited financial statements as of and for the six-month periods ended June
30, 2004 and June 30, 2005.
Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Year Ended June 30, 2005
(in millions, except per share data)
Procter & Pro Forma Pro Forma
Gamble Gillette(a) Adjustments Combined
-------------- -------------- -------------- --------------
Net Sales $ 56,741 $ 11,179 $ 67,920
Cost of products sold 27,804 4,637 21 (b) 32,462
Selling, general and administrative expense 18,010 3,882 265 (c) 22,157
-------------- -------------- -------------- --------------
Operating Income 10,927 2,660 (286) 13,301
Interest expense 834 35 869
Other non-operating income, net 346 (54) 292
-------------- -------------- -------------- --------------
Earnings Before Income Taxes 10,439 2,571 (286) 12,724
Income Taxes 3,182 734 (87)(d) 3,829
-------------- -------------- -------------- --------------
Net Earnings 7,257 1,837 (199) 8,895
Preferred dividends, net of tax benefit (136) (136)
-------------- -------------- -------------- --------------
Net Earnings Available to Common Shareholders $ 7,121 $ 1,837 $ (199) $ 8,759
Basic Net Earnings Per Common Share $2.83 $2.51
Diluted Net Earnings Per Common Share $2.66 $2.40
Dividends Per Common Share $1.03 $1.03
Weighted Average Shares Outstanding (millions):
Basic 2,516 969 (e) 3,485
Diluted 2,726 980 (e) 3,706
See accompanying Notes to Unaudited Pro Forma Condensed Combined Statement of Earnings.
Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF EARNINGS
(a) Certain reclassifications have been made to the historical presentation of
Gillette to conform to the presentation used in the Unaudited Pro Forma
Condensed Combined Statement of Earnings.
(b) Represents a $54 increase in depreciation expense resulting from the fair
value adjustments to Gillette's property, plant and equipment (see note
(b2) to the Unaudited Pro Forma Condensed Combined Balance Sheet),
partially offset by a $33 reduction in cost of sales attributable to the
impact of the fair value adjustment to Gillette's pension and other
postretirement medical benefits obligations (see note (b6) to the Unaudited
Pro Forma Condensed Combined Balance Sheet).
(c) Represents an increase in intangible asset amortization expense of $315
resulting from the fair value adjustments to Gillette's intangible assets
(see note (b3) to the Unaudited Pro Forma Condensed Combined Balance
Sheet), partially offset by a $50 reduction in selling, general and
administrative costs attributable to fair value adjustments to Gillette's
pension and other postretirement medical benefits obligations (see note
(b6) to the Unaudited Pro Forma Condensed Combined Balance Sheet).
The unaudited pro forma condensed combined financial statements reflect a
preliminary allocation to tangible assets, liabilities, goodwill and other
intangible assets. The final purchase price allocation may result in a
different allocation for tangible and intangible assets than that
presented in these unaudited pro forma condensed combined financial
statements.
(d) Income tax impacts as a result of purchase accounting adjustments are
reflected at our best estimate of Procter & Gamble statutory income tax
rates for all tax jurisdictions.
(e) The pro forma combined per share amounts and weighted average common shares
reflect the combined weighted average of Procter & Gamble common shares for
each of the periods presented and the Gillette common shares, adjusted to
reflect the exchange ratio of 0.975 shares of Procter & Gamble common stock
for each share of Gillette common stock, including the impact of net shares
issued to satisfy Gillette stock options using the treasury stock method.
Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2005
(in millions)
Procter & Pro Forma Pro Forma
Gamble Gillette(a) Adjustments Combined
-------------- -------------- -------------- --------------
ASSETS
Cash and cash equivalents $6,389 $471 $- $6,860
Investment securities 1,744 325 2,069
Accounts receivable 4,185 939 5,124
Total inventories 5,006 1,484 65 (b1) 6,555
Deferred income taxes 1,081 300 1,381
Prepaid expenses and other receivables 1,924 952 2,876
-------------- -------------- -------------- --------------
TOTAL CURRENT ASSETS 20,329 4,471 65 24,865
Net Property, Plant and Equipment 14,332 3,578 810 (b2) 18,720
Net Goodwill and Other Intangible Assets 24,163 1,575 57,723 (b3) 83,461
Other Non-Current Assets 2,703 1,153 3,856
-------------- -------------- -------------- --------------
TOTAL ASSETS $61,527 $10,777 $58,598 $130,902
============== ============== ============== ==============
LIABILITIES
Accounts payable $3,802 $637 $150 (b4) $4,589
Accrued and other liabilities 7,531 1,813 9,344
Taxes payable 2,265 480 2,745
Debt due within one year 11,441 629 12,070
-------------- -------------- -------------- --------------
TOTAL CURRENT LIABILITIES 25,039 3,559 150 28,748
Long-Term Debt 12,887 2,129 15,016
Deferred Income Taxes 2,894 688 6,409 (b5) 9,991
Other Non- Current Liabilities 3,230 809 1,447 (b6) 5,486
-------------- -------------- -------------- --------------
TOTAL LIABILITIES 44,050 7,185 8,006 59,241
-------------- -------------- -------------- --------------
Shareholders' Equity
Preferred stock 1,483 0 1,483
Common stock 2,473 998 (25) (b7) 3,446
Addition paid-in capital 3,142 1,810 51,401 (b7) 56,353
Reserve for ESOP debt retirement (1,259) 0 (1,259)
Accumulated other comprehensive income (1,566) (923) 923 (b7) (1,566)
Retained earnings 13,204 1,707 (1,707) (b7) 13,204
-------------- -------------- -------------- --------------
TOTAL SHAREHOLDERS' EQUITY 17,477 3,592 50,592 (b7) 71,661
-------------- -------------- -------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $61,527 $10,777 $58,598 $130,902
============== ============== ============== ==============
See accompanying Notes to Unaudited Pro Forma Condensed Combined Balance Sheet.
Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
(a) Certain reclassifications have been made to the historical presentation of
Gillette to conform to the presentation used in the Unaudited Pro Forma
Condensed Combined Balance Sheet.
(b) Gillette shareholders received 0.975 shares of Procter & Gamble common
stock for each share of Gillette common stock. Each outstanding Gillette
stock option (other than stock options granted in June 2005) became
fully-vested and exercisable immediately prior to the merger and was
exchanged for an equivalent number of Procter & Gamble options. The shares
of Procter & Gamble common stock issued to Gillette shareholders in the
merger represent approximately 28% of the outstanding Procter & Gamble
common stock after the merger on a fully diluted basis.
Under the purchase method of accounting, the total consideration was
determined using the average Procter & Gamble closing stock prices beginning two
days before and ending two days after January 28, 2005, the date the acquisition
was agreed to and announced. In addition, the issuance of Procter & Gamble stock
options was measured at estimated fair value. The preliminary consideration is
as follows:
Common
Shares Capital in
(stated value Excess of
$1.00 share) Par Value Total
-------------- -------------- --------------
(b7) Issuance of 973 million Procter & Gamble shares to
Gillette's shareholders in exchange for outstanding
Gillette common stock and issuance of 76 million
Procter & Gamble stock options measured at fair value $973 $53,211 $54,184
(b4) Estimated Procter & Gamble transaction costs 150
--------------
Total consideration $54,334
==============
Procter & Gamble has not completed an assessment of the fair value of
assets and liabilities of Gillette and the related business integration
plans. The table below represents a preliminary allocation of the total
consideration to Gillette's tangible and intangible assets and liabilities
based on management's preliminary estimate of their respective fair value as
of the date of the business combination.
(b1) Adjustment to fair value inventory $ 65
(b2) Adjustment to fair value property, plant and equipment 810
(b3) Elimination of Gillette's historical goodwill (1,024)
(b3) Adjustment to fair value identifiable intangible assets 21,597
(b3) Residual goodwill created from the merger 37,150
(b5) Deferred tax impact of purchase accounting adjustments (6,409)
(b6) Adjustment to fair value pension and post-retirement obligations (1,447)
(b7) Gillette's historical net book value 3,592
--------------
Total consideration allocated $ 54,334
==============
Selected Financial Data
Upon completion of the fair value assessment, Procter & Gamble anticipates that
the ultimate purchase price allocation may differ from the preliminary
assessment outlined above. Any changes to the initial estimates of the fair
value of the assets and liabilities will be allocated to residual goodwill.
For purposes of the preliminary allocation, Procter & Gamble has estimated a
fair value adjustment for Gillette's property, plant and equipment equal to 20%
of Gillette's accumulated depreciation, based on valuation studies from other
recent Procter & Gamble acquisitions. The fair value adjustment was depreciated
over an assumed weighted-average useful life of fifteen years.
Procter & Gamble has estimated the fair value of Gillette's identifiable
intangible assets as $22,148. The preliminary allocation included in these pro
forma financial statements is as follows:
Estimated
Average
Estimated remaining
Fair Value useful life
-------------- --------------
Asset class:
Brand Intangibles -- indefinite lived $ 17,093 Indefinite
Brand Intangibles -- definite lived 2,929 15 years
Technology and Customer Relationships 2,126 15 years
--------------
$ 22,148
==============
The majority of this intangible valuation relates to brand intangibles,
including Gillette, Duracell, Oral B, Braun and others. Procter & Gamble's
preliminary assessment as to brand intangibles that have an indefinite life and
those that have a definite life was based on a number of factors, including the
competitive environment, market share, brand history, operating plan and the
macroeconomic environment of the countries in which the brands are sold. For
perspective, if Procter & Gamble determines that 30 percent of the amount
allocated to indefinite lived intangible assets is more appropriately allocated
to definite lived intangible assets with an estimated weighted average useful
life of fifteen years, the annual income statement impact is estimated as $115
after-tax, or $0.03 per share.
Procter & Gamble has estimated the fair value of Gillette's pension and
post-retirement obligation based on Gillette's unrecognized actuarial losses as
of December 31, 2004. The recognition of the fair value of Gillette's pension
and post-retirement obligation eliminates the unrecognized actuarial loss and
related amortization expense over the estimated weighted-average remaining
service life of seventeen years.
Deferred income tax impacts as a result of purchase accounting adjustments are
reflected at our best estimate of Procter & Gamble statutory income tax rates
for all tax jurisdictions.