Proctor and Gamble 2003 Annual Report Download - page 45

Notes to Consolidated Financial Statements 43The Procter & Gamble Company and Subsidiaries
Additionally, asset write-downs include certain manufacturing assets
that are expected to operate at levels significantly below their planned
capacity, primarily capital expansions related to recent initiatives that
have not met expectations. The projected cash flows from such assets
over their remaining useful lives are no longer estimated to be greater
than their current carrying values; therefore, they are written down to
estimated fair value, generally determined by reference to discounted
expected future cash flows. Such before-tax charges were $60 in 2003,
$45 in 2002 and $160 in 2001 and generally are included in cost of
products sold.
Accelerated Depreciation
Charges for accelerated depreciation relate to long-lived assets that will
be taken out of service prior to the end of their normal service period
due to manufacturing consolidations, technology standardization, plant
closures or strategic choices to discontinue initiatives. The Company has
shortened the estimated useful lives of such assets, resulting in incre-
mental depreciation expense. Accelerated depreciation is charged to
cost of products sold for manufacturing assets and marketing, research,
administrative and other expense for all other assets.
Other Restructuring Charges
Other costs incurred as a direct result of the program include relocation,
training, certain costs associated with discontinuation of initiatives and
the establishment of global business services, and the new legal and
organization structure. These costs are charged to the applicable income
statement line item based on the underlying nature of the charge.
Note 3 Acquisitions and Spin-Off
2003 Acquisitions
In March 2003, the Company reached an agreement with the control-
ling shareholders of Wella AG, a beauty and hair care company based in
Darmstadt, Germany, to acquire 77.6% of the voting class shares. In
June 2003, the Company completed a tender offer for the remaining
outstanding voting class shares and preference shares, securing
approximately 81% of the outstanding Wella shares (99% of the voting
class shares and 45% of the preference shares). Total consideration for
shares to be acquired under the agreement with the controlling share-
holders and the tender offer is 4.65 billion Euros (approximately $5.35
billion based on June 30, 2003 exchange rates). The acquisition will be
financed with a combination of available cash and debt. Completion of
the transaction is expected to occur in the first quarter of fiscal 2004.
Before-tax restructuring activity was as follows:
Separation Costs
Employee separation charges relate to severance packages for approxi-
mately 5,000 people in 2003, 7,400 people in 2002 and 6,000 people
in 2001. The packages are predominantly voluntary and are formula
driven based on salary levels and past service. Severance costs related
to voluntary separations are charged to earnings when the employee
accepts the offer. The separations span the entire organization, includ-
ing manufacturing, selling, research and administrative positions across
substantially all geographies. Separation costs are charged to cost of
products sold for manufacturing employees and marketing, research,
administrative and other expense for all other employees.
Asset Write-Downs
Asset write-downs relate to the establishment of new carrying values
for assets held for sale or disposal. These assets represent excess
capacity in the process of being removed from service or disposed of, as
well as assets held for sale in the next 12 months. These assets are
written down to the amounts expected to be realized upon sale or
disposal, less minor disposal costs. Such before-tax charges were $130
in 2003, $163 in 2002 and $571 in 2001 and are generally included in
cost of products sold.
Millions of dollars except per share amounts
$88
1,850
(385)
(1,093)
460
958
(813)
(360)
245
751
(359)
(302)
335
$88
341
(186)
–
243
393
(477)
–
159
351
(265)
–
245
2001
Charges
Cash spent
Charged against
assets
Reserve balance
June 30, 2001
2002
Charges
Cash spent
Charged against
assets
Reserve balance
June 30, 2002
2003
Charges
Cash spent
Charged against
assets
Reserve balance
June 30, 2003
$–
731
–
(731)
–
208
–
(208)
–
190
–
(190)
–
$–
276
–
(276)
–
135
–
(135)
–
87
–
(87)
–
$–
502
(199)
(86)
217
222
(336)
(17)
86
123
(94)
(25)
90
Separations Asset
Write-Downs Accelerated
Depreciation Other Total
Reserve balance
June 30, 2000