Question 6 Procter & Gamble / Gillette (8 Points)

We discussed the Procter and Gamble & Gillette situation in class. Please answer the following three questions:

Question 1

Of the roughly $8 billion write down, enter the amount which pertained to each of the three items listed below (i.e. you must enter some number on each line shown below)

Property, Plant & Equipment _____________________

Goodwill _____________________

Intangibles _____________________

Question 2

Where did Procter & Gamble classify the write down in its income statement?

Consumer company Quarterly organic sales, takes $8 billion charge change from previous year to write down value of Gillette razor business 7% 6% BY SHARON TERLEP AND AISHA AL-MUSLIM Procter & Gamble Co. re- ported its highest quarterly sales growth in over a decade, riding strong consumer spend- 2 ing on household staples from toothpaste to laundry deter- gent even as the company con- tinued to raise prices. The strong sales were FY2017 '18 19 marred by an $8 billion charge the Cincinnati-based company Notes: Excludes currency moves, took to write down the value acquisitions and divestitures; fiscal year of the Gillette razor business Source: the company it acquired 14 years ago. The charge is a reminder of the global economy and trade ten- challenges facing big brands sions. Rivals Kimberly-Clark amid shifting consumer habits Corp. and Colgate-Palmolive and new online entrants. Co. also posted solid quarterly After years of trying to results, though they didn't stoke demand by cutting match P&G's performance. prices, P&G and most of its ri P&G shares rose 3.8% to vals switched course about a $120.41. Shares are up about year ago and have been push- 50% in the past year. ing up prices across a range of For the fourth quarter, the products. The moves have paid company posted a net loss of off as consumers have been $5.24 billion, or $2.12 a share, willing to absorb the in- down from a profit of $1.89 creases, some of which were billion, or 72 cents a share, a prompted by higher costs and year earlier. have padded profits. The results were weighed The maker of Tide deter- down by the Gillette charge, gent and Pampers diapers said which reduced earnings by Tuesday that organic sales- $3.02 a share. which strip out currency Gillette started slashing moves, acquisitions and dives- prices in 2017 in hopes of titures--rose 7% in the quar- stopping defections of its U.S. ter. About half the gains came customers to online startups from higher prices. such as Dollar Shave Club and The company posted the Harry's that sell lower-price strongest organic-sales gains razors and blades. The move in its beauty and health-care helped, but the brand has re- businesses. mained a stubborn weak spot P&G's results for the fiscal for P&G, which bought Gillette year that ended June 30 mark for $57 billion in 2005. the biggest sales gain since The company has acknowl- the 2008 U.S. recession. Fi- edged that it erred with a sin- nance chief Jon Moeller said gular focus on creating more the results demonstrate that sophisticated razors with P&G's turnaround effort, from higher prices, opening the slashing brands and jobs to door to lower-price rivals. streamlining the organiza During the quarter, P&G's tional structure, is working. net sales rose 4% to $17.09 bil- "We built momentum on lion, above the consensus fore- sales, share and margin as the cast of $16.86 billion from an- year progressed," Mr. Moeller alysts polled by FactSet. said on a call Tuesday with re- Unfavorable foreign exchange porters. hurt sales by 4%, P&G said. P&G was buoyed by a For fiscal 2020, P&G pre- strong overall market in the dicted net sales growth of 3% U.S. and emerging markets, to 4% and organic sales despite concerns about the growth of 3% to 4%. Consumer company Quarterly organic sales, takes $8 billion charge change from previous year to write down value of Gillette razor business 7% 6% BY SHARON TERLEP AND AISHA AL-MUSLIM Procter & Gamble Co. re- ported its highest quarterly sales growth in over a decade, riding strong consumer spend- 2 ing on household staples from toothpaste to laundry deter- gent even as the company con- tinued to raise prices. The strong sales were FY2017 '18 19 marred by an $8 billion charge the Cincinnati-based company Notes: Excludes currency moves, took to write down the value acquisitions and divestitures; fiscal year of the Gillette razor business Source: the company it acquired 14 years ago. The charge is a reminder of the global economy and trade ten- challenges facing big brands sions. Rivals Kimberly-Clark amid shifting consumer habits Corp. and Colgate-Palmolive and new online entrants. Co. also posted solid quarterly After years of trying to results, though they didn't stoke demand by cutting match P&G's performance. prices, P&G and most of its ri P&G shares rose 3.8% to vals switched course about a $120.41. Shares are up about year ago and have been push- 50% in the past year. ing up prices across a range of For the fourth quarter, the products. The moves have paid company posted a net loss of off as consumers have been $5.24 billion, or $2.12 a share, willing to absorb the in- down from a profit of $1.89 creases, some of which were billion, or 72 cents a share, a prompted by higher costs and year earlier. have padded profits. The results were weighed The maker of Tide deter- down by the Gillette charge, gent and Pampers diapers said which reduced earnings by Tuesday that organic sales- $3.02 a share. which strip out currency Gillette started slashing moves, acquisitions and dives- prices in 2017 in hopes of titures--rose 7% in the quar- stopping defections of its U.S. ter. About half the gains came customers to online startups from higher prices. such as Dollar Shave Club and The company posted the Harry's that sell lower-price strongest organic-sales gains razors and blades. The move in its beauty and health-care helped, but the brand has re- businesses. mained a stubborn weak spot P&G's results for the fiscal for P&G, which bought Gillette year that ended June 30 mark for $57 billion in 2005. the biggest sales gain since The company has acknowl- the 2008 U.S. recession. Fi- edged that it erred with a sin- nance chief Jon Moeller said gular focus on creating more the results demonstrate that sophisticated razors with P&G's turnaround effort, from higher prices, opening the slashing brands and jobs to door to lower-price rivals. streamlining the organiza During the quarter, P&G's tional structure, is working. net sales rose 4% to $17.09 bil- "We built momentum on lion, above the consensus fore- sales, share and margin as the cast of $16.86 billion from an- year progressed," Mr. Moeller alysts polled by FactSet. said on a call Tuesday with re- Unfavorable foreign exchange porters. hurt sales by 4%, P&G said. P&G was buoyed by a For fiscal 2020, P&G pre- strong overall market in the dicted net sales growth of 3% U.S. and emerging markets, to 4% and organic sales despite concerns about the growth of 3% to 4%