Proctor and Gamble 2007 Annual Report Download - page 43

The Procter & Gamble Company 41Management’s Discussion and Analysis
marketing investment in 2006 behind the launch of Fusion in North
America, offset by synergy savings from cost reductions and base
period charges for severance and other exit charges associated with
Gillette’s Functional Excellence program, the European Manufacturing
Realignment program and other asset write-downs. Net earnings
were $781 million for the nine-month period after the acquisition
closed on October 1, 2005.

Change vs. Change vs.
(in millions of dollars)  Prior Year* 2006* Prior Year*
Volume  n/a n/a n/a
Net sales  n/a $2,924 n/a
Net earnings   n/a $ 273 n/a
* The Gillette business was acquired on October 1, 2005. Therefore, scal 2006 only includes
results for the nine-month period that P&G owned the business.
Net sales in Duracell and Braun increased 5% in 2007 to $4.0 billion
versus 2006 full-year pro forma results. In Duracell, sales increased
high-single digits globally driven by double-digit developing region
growth from expanded distribution in high-frequency stores in Latin
America. In developed regions, Duracell organic sales were up low-
single digits as the impact of higher pricing was largely offset by
market share declines resulting from high levels of competitive activity
from both private label and branded competitors. Our global market
share in batteries was down about 1 point for the year. In Braun,
sales increased 3%. The impact of the launches of 360 Complete and
Contour razors in North America and Pulsonic razors in Germany and
Japan was largely offset by lower volume on household appliances in
Europe and the divestiture of thermometer and blood pressure devices.
Overall, volume/mix in the Duracell and Braun segment contributed
1% to sales growth and price increases in Duracell added an
additional 1%. Favorable foreign exchange had a positive 3% impact.
Earnings before income taxes increased 6% in 2007 to $588 million
versus 2006 full-year pro forma results. Earnings were up behind sales
growth and lower year-on-year acquisition-related expenses, partially
offset by higher overhead expenses resulting from the inclusion of
Gillette into P&G’s corporate overhead allocations systems in 2007
(this had no net impact on the Company’s total overhead expense as
the offsetting reductions are spread across the Beauty and Health and
the Household Care GBUs). Acquisition-related charges were down
$17 million primarily due to base period product costs related to
revaluing Gillette opening inventory balances, which more than offset
the impact of an additional three months of amortization charges in
current year period from revaluing intangible assets in the opening
balance sheet. Net earnings in 2007 were $394 million.
In 2006, net sales for Duracell and Braun were $2.9 billion for the nine-
month post-acquisition period, in line with the comparable prior year
period pro forma results, including a negative 2% foreign exchange
impact. In the Duracell business, market share growth in North America
and the impacts of price increases to compensate for rising commodity
costs were offset by sales declines in Western Europe due to competitive
activity. Braun sales increased low-single digits globally as double-digit
growth in Central & Eastern Europe/Middle East/Africa and new
product initiatives were largely offset by declines in Western Europe
due to strong competitive activity and in North America due to a base
period that included pipeline shipments for the Braun Activator launch.
Earnings before income taxes increased 9% to $400 million in 2006,
including acquisition-related charges of $60 million that negatively
impacted earnings by 16% in the period. The acquisition-related
charges primarily represented increased amortization expense of
$39 million as a result of revaluing Gillette’s intangible assets to fair
market value. The balance of the charges were primarily due to
increased product costs for revaluing opening inventory balances at
fair value. Earnings growth was favorably impacted by base period
charges for severance and other exit costs associated with Gillette’s
Functional Excellence program, including charges related to the
shutdown of a manufacturing facility, as well as synergy savings from
cost reductions. Net earnings were $273 million for the nine-month
period after the acquisition closed on October 1, 2005.

Corporate includes certain operating and non-operating activities not
allocated to specic business units. These include: the incidental
businesses managed at the corporate level, nancing and investing
activities, other general corporate items, the historical results of
certain divested brands and categories, including certain Gillette brands
that were divested as required by the regulatory authorities in relation
to the Gillette acquisition, and certain restructuring-type activities to
maintain a competitive cost structure, including manufacturing and
workforce rationalization. Corporate also includes reconciling items to
adjust the accounting policies used in the segments to U.S. GAAP.
The most signicant reconciling items include income taxes (to adjust
from statutory rates that are reected in the segments to the overall
Company effective tax rate), adjustments for unconsolidated entities
(to eliminate sales, cost of products sold and SG&A for entities that
are consolidated in the segments but accounted for using the equity
method for U.S. GAAP) and minority interest adjustments for
subsidiaries where we do not have 100% ownership. Since both
unconsolidated entities and less than 100% owned subsidiaries are
managed as integral parts of the Company, they are accounted for
similar to a wholly owned subsidiary for management and segment
purposes. This means our segment results recognize 100% of each
income statement component through before-tax earnings in the
segments, with eliminations for unconsolidated entities in Corporate.
In determining segment net earnings, we apply the statutory tax rates
(with adjustments to arrive at the Company’s effective tax rate in
Corporate) and eliminate the share of earnings applicable to other
ownership interests, in a manner similar to minority interest.