Proctor and Gamble 2003 Annual Report Download

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2003 Annual Report
Sustaining Growth

Table of contents

  • Page 1
    Sustaining Growth 2003 Annual Report

  • Page 2
    ... worldwide make sure P&G brands live up to their promise to make everyday life just a little better. Financial Highlights Amounts in millions except per share amounts Years ended June 30 Net Sales Operating Income Net Earnings Per Common Share Diluted Net Earnings Dividends 2003 $43,377 7,853...

  • Page 3
    .... • Total Shareholder Return outperformed the Dow Jones Industrial Average and the S&P 500. • P&G has declared a dividend increase of 11%, the 48th consecutive year of increased dividend payments. These excellent results represent broad-based strength: • All five Global Business Units grew...

  • Page 4
    ...the addition of Wella, Health Care and Beauty Care will account for nearly half of P&G sales and profits, up from about one-fourth at the beginning of the 1990s. We expect these two high-growth businesses to represent an increasing share of P&G's total business in the future. Build P&G leadership in...

  • Page 5
    ...inventories and to increase the return on investments in marketing and new products. We must conserve cash and control costs to continue to deliver superior consumer and shareholder value. Core Strengths Three core capabilities set P&G apart from competition: branding, innovation and scale. Branding...

  • Page 6
    ... resources to interact with retail customers on multiple levels including finance, logistics, marketing, shopper understanding and a wide range of services. We bring deep category understanding with global consumer research. We create greater value through the total supply chain by pooling knowledge...

  • Page 7
    ...common goals and pursue clear strategies. They operate with shared values and principles. They have unleashed their passion for serving consumers - and creating value for shareholders - in a way that is building billion-dollar brands and delivering the best results this Company has achieved in years...

  • Page 8
    6 P&G's Billion-Dollar Brands

  • Page 9
    7 With combined revenues of more than $24 billion, P&G's 13 billion-dollar brands would rank among the top 70 U.S. companies in the Fortune 500. ®

  • Page 10
    Fabric and Home Care Fabric and Home Care is the Company's largest and oldest business - and it continues to grow to record levels with its fastest and most balanced growth in a decade. Key brands include Tide, Ariel, Downy, Lenor, Gain, Cascade, Swiffer and Febreze. • Fabric and Home Care net ...

  • Page 11
    ... allocate financial and human resources. Our target benchmarks are the companies that are best-in-class in each area. Innovation and productivity are critical. When Fabric and Home Care grows, P&G grows. In 2002/03, Fabric and Home Care added $941 million in sales and $228 million in Company profit...

  • Page 12
    ... with 16% volume growth in Fiscal 2003. Tampax Pearl Feminine Care is extending its brands to reach millions of new consumers in developing markets and new segments, such as plastic applicator tampons. Each additional global share point earned in Feminine Care is worth $100 million of P&G sales.

  • Page 13
    ...brand with sales of less than $50 million. SK-II is now the leading prestige skin care brand in Asia. The Wella acquisition will give us access to the large and growing professional hair care market, provide a geographic complement and a strong technology partner to Clairol's colorant business, give...

  • Page 14
    ... Care Baby and Family Care is home to the Company's single largest billion-dollar brand, Pampers, and two other billion-dollar brands, Bounty and Charmin. Other brands include Luvs, Puffs, Tempo and Dodot. • Baby and Family Care net sales grew 8% to $9.9 billion. • Baby and Family Care net...

  • Page 15
    ... longer innovation lead times. Our approach to managing complex innovation in this environment is paying dividends with consumers and shareholders alike. Baby and Family Care includes three of the Company's most recognizable billion-dollar brands: Pampers, Bounty, and Charmin. Industry consolidation...

  • Page 16
    Health Care Health Care is the Company's fastest growing business, with innovations over the last three years representing more than $1 billion in new sales. Key brands include Crest, Iams, Eukanuba, Vicks, Actonel, Asacol, Scope, Pepto-Bismol and ThermaCare. • Health Care net sales grew 16% to ...

  • Page 17
    ...an external brand, product or technology and P&G's capabilities can create significant incremental value for shareholders. We bought the Iams Company four years ago. Since then, we've nearly doubled sales to $1.5 billion. Iams is now the #1 dog and cat food brand in both the U.S. and Canada, up from...

  • Page 18
    ... of dollars) 303 242 306 2001 2002 2003 Folgers Plastic Packaging Folgers new AromaSealâ„¢ Canister preserves freshness and has an easy-grip handle and peel-off seal for greater convenience. Pringles Snack Stacks Snack Stacks is one of the most successful initiatives in P&G's North America...

  • Page 19
    ...P&G employees, both active and retired, during this past year. The Pringles plant in Jackson, Tennessee was struck by a devastating tornado in May. Homes and businesses near the plant were destroyed and virtually every tree surrounding the plant was snapped in two. Fortunately, none of our employees...

  • Page 20
    Market Development Organization P&G's Market Development Organization is the Company's on-the-ground connection to local consumers and customers... • Northeast Asia • Western Europe • P&G's top 10 countries grew volume 11% in fiscal 2003. • P&G grew volume 13% with its top 10 customers in ...

  • Page 21
    ... go to market as one company in every country to help leverage scale and get the full benefit of understanding what works and what doesn't work across categories. The Market Development Organization focuses primarily on winning the first moment of truth - when the consumer chooses P&G brands at the...

  • Page 22
    .... Marina v.N. Whitman Professor of Business Administration and Public Policy, University of Michigan. Director since 1976. Age 68. Chairman of the Governance and Nominating Committee, and member of the Compensation and Finance Committees. Robert D. Storey Partner in the law firm of Thompson Hine...

  • Page 23
    ..., Global Fabric and Home Care Richard L. Antoine Global Human Resources Officer G. Gilbert Cloyd Chief Technology Officer Clayton C. Daley, Jr. Chief Financial Officer Stephen N. David Chief Information Officer and Business-to-Business Officer R. Keith Harrison, Jr. Global Product Supply Officer...

  • Page 24
    ... Company's "Worldwide Business Conduct Manual," which sets forth management's commitment to conduct its business affairs with high ethical standards. Focusing on financial stewardship. We maintain a specific program to ensure that employees understand their fiduciary responsibilities to shareholders...

  • Page 25
    ... to Consolidated Financial Statements 34 35 36 38 39 40 Financial Review Results of Operations The Company markets nearly 300 products in more than 160 countries around the world in five distinct business segments: Fabric and Home Care, Beauty Care, Baby and Family Care, Health Care and Snacks and...

  • Page 26
    ...expansions of existing brands, including Tide with Bleach, Swiffer Duster, Crest Whitestrips and Olay Regenerist. Marketing investments were partially offset by lower research and administrative costs, reflecting savings from the Company's restructuring program. As a percent of net sales, MRA&O has...

  • Page 27
    ...2003 Net Earnings by Business Segment (1) 5% 12% 35% 15% Fabric and Home Care Beauty Care Baby and Family Care Health Care Snacks and Beverages 33% Snacks and Beverages 28% net sales and net earnings held in Corporate Percentage Change in Net Sales vs. Prior Year Foreign Exchange Pricing Mix/Other...

  • Page 28
    ...-tier brands, larger sizes and developing market business. Net earnings were $1.83 billion in 2002, up 11% behind lower material prices, cost savings from product reformulations and manufacturing plant efficiencies. Beauty Care Beauty Care delivered double-digit unit volume, sales and net earnings...

  • Page 29
    ...program charges, certain employee benefit costs and other general corporate items. The non-operating elements include financing and investing activities. In addition, Corporate includes the historical results of certain divested businesses of the former Food and Beverage segment. Corporate net sales...

  • Page 30
    ... to finance operating needs, capital expenditures and shareholder dividends. This is supplemented by additional borrowings to provide funds to finance the share repurchase program and acquisitions. The overall cash position of the Company reflects a global strategy to optimize cash management while...

  • Page 31
    ... of inventory, and revenue is recognized when risk and title to the product transfers to the customer. A provision for payment discounts and product return allowances is recorded as a reduction of sales within the same period that the revenue is recognized. Given the nature of the Company's business...

  • Page 32
    ... B shares, used to fund a portion of retiree health care benefits, a component of OPEB, are considered plan assets (net of related debt) under SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions." The Company also has employee stock option plans which are accounted...

  • Page 33
    ... Company uses futures, options and swap contracts to manage the volatility related to the above exposures. Commodity hedging activity is not considered material to the Company's financial statements. Restructuring Program In 1999, concurrent with a reorganization of its operations into product-based...

  • Page 34
    ...and are formula driven based on salary levels and past service. Separation costs are charged to cost of products sold for manufacturing employees and marketing, research, administrative and other expense for all other employees. Approximately 21,600 separation packages have been provided for through...

  • Page 35
    Financial Review The Procter & Gamble Company and Subsidiaries 33 Forward-Looking Statements The Company has made and will make certain forward-looking statements in the Annual Report and in other contexts relating to volume and sales growth, increases in market shares, financial goals and ...

  • Page 36
    ... & Gamble Company and subsidiaries as of June 30, 2003 and 2002 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2003. These financial statements are the responsibility of the Company's management. Our...

  • Page 37
    ...& Gamble Company and Subsidiaries 35 Consolidated Statements of Earnings Years Ended June 30 Amounts in millions except per share amounts Net Sales Cost of products sold Marketing, research, administrative and other expense Operating Income Interest expense Other non-operating income, net Earnings...

  • Page 38
    ... & Gamble Company and Subsidiaries 36 Consolidated Balance Sheets Assets June 30 Amounts in millions 2003 $5,912 300 3,038 1,095 291 2,254 3,640 843 1,487 15,220 2002 $3,427 196 3,090 1,031 323 2,102 3,456 521 1,476 12,166 Current Assets Cash and cash equivalents Investment securities Accounts...

  • Page 39
    ... & Gamble Company and Subsidiaries 37 Consolidated Balance Sheets Liabilities and Shareholders' Equity June 30 Amounts in millions 2003 $2,795 5,512 1,879 2,172 12,358 11,475 1,396 2,291 27,520 2002 $2,205 5,330 1,438 3,731 12,704 11,201 1,077 2,088 27,070 Current Liabilities Accounts payable...

  • Page 40
    ...: Financial statement translation Net investment hedges, net of $238 tax Other, net of tax benefits Total comprehensive income Dividends to shareholders: Common Preferred, net of tax benefits Spin-off of Jif and Crisco (7,681) Treasury purchases 8,323 Employee plan issuances 4,390 Preferred stock...

  • Page 41
    ... & Gamble Company and Subsidiaries 39 Consolidated Statements of Cash Flows Years ended June 30 Amounts in millions Cash and Cash Equivalents, Beginning of Year Operating Activities Net earnings Depreciation and amortization Deferred income taxes Change in accounts receivable Change in inventories...

  • Page 42
    .... Most revenue transactions represent sales of inventory, and the revenue recorded includes shipping and handling costs, which generally are included in the list price to the customer. The Company's policy is to recognize revenue when risk and title to the product transfers to the customer, which...

  • Page 43
    ... are charged to earnings. Unrealized gains or losses on securities classified as available for sale are recorded net of tax in OCI. Inventory Valuation Inventories are valued at cost, which is not in excess of current market prices. Product-related inventories are primarily maintained on the firstin...

  • Page 44
    ... and Disclosure." This Statement amends the transition alternatives for companies choosing to adopt the fair value method of accounting for the compensation cost of options issued to employees and requires additional disclosure on all stock-based compensation plans. The Company has adopted the...

  • Page 45
    ... 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 controlling shareholders of Wella AG, a beauty and hair care company based in Darmstadt, Germany, to acquire 77...

  • Page 46
    ... of $208. 2002 Spin-off On May 31, 2002, the Jif peanut butter and Crisco shortening brands were spun off to the Company's shareholders, and subsequently merged into The J.M. Smucker Company (Smucker). The Company's shareholders received one new common Smucker share for every 50 shares held in the...

  • Page 47
    Notes to Consolidated Financial Statements The Procter & Gamble Company and Subsidiaries 45 Fabric and Home Care, beginning of year Translation and other End of year Baby and Family Care, beginning of year Translation and other End of year Beauty Care, beginning of year Acquisitions Translation ...

  • Page 48
    ... obligations that are secured. Note 7 Risk Management Activities As a multinational company with diverse product offerings, the Company is exposed to market risks, such as changes in interest rates, currency exchange rates and commodity pricing. To manage the volatility related to these exposures...

  • Page 49
    ...cost of products sold. Commodity hedging activity was not material to the Company's financial statements for the years ended June 30, 2003, 2002 and 2001. Note 8 Earnings per Share and Stock Options Net Earnings Per Common Share Net earnings less preferred dividends (net of related tax benefits) are...

  • Page 50
    ... net earnings per share calculation because to do so would have been antidilutive (i.e., the exercise price exceeded market value). Outstanding, beginning of year Granted Jif and Crisco spin-off adjustment Exercised Canceled Outstanding, end of year Exercisable Available for grant Average price...

  • Page 51
    ...' accounts that do not exceed 15% of total participants' annual wages and salaries. The Company maintains The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide funding for the U.S. defined contribution plan, as well as other retiree benefits. Operating...

  • Page 52
    ... discount and health care cost trend rates. Benefit obligations exceed the fair value of plan assets for each retiree benefit plan. Annual funding requirements are met through cash from operations. Pension plan assets comprise a diversified mix of assets including corporate equities, government...

  • Page 53
    ... a portion of retiree health care benefits. These shares are considered plan assets, net of the associated debt, of the other retiree benefits plan discussed above. Debt service requirements are $94 per year, funded by preferred stock dividends and cash contributions from the Company. Each share is...

  • Page 54
    ... to Consolidated Financial Statements The Procter & Gamble Company and Subsidiaries 52 As permitted by SOP 93-6, "Employers Accounting for Employee Stock Ownership Plans," the Company has elected, where applicable, to continue its practices, which are based on SOP 76-3, "Accounting Practices for...

  • Page 55
    ... Company's reportable segments are organized into five productbased global business units. The segments, which are generally determined by the product type and end-point user benefits offered, manufacture and market products as follows: • Fabric and Home Care includes laundry detergents, dish care...

  • Page 56
    ... The Company's largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 18%, 17% and 15% of consolidated net sales in 2003, 2002 and 2001, respectively. These sales occurred primarily in the United States. Fabric and Home Care Beauty Care Baby and Family Care Health Care Snacks...

  • Page 57
    Notes to Consolidated Financial Statements The Procter & Gamble Company and Subsidiaries 55 Note 13 Quarterly Results (Unaudited) Quarters Ended Net Sales Operating Income Net Earnings Diluted Net Earnings Per Common Share 2002-2003 2001-2002 2002-2003 2001-2002 2002-2003 2001-2002 2002-2003 ...

  • Page 58
    ...a Day Visit our Web site at www.pg.com/investor E-mail us at [email protected] Call for financial information at 1-800-764-7483 (call 1-513-945-9990 outside the U.S. and Canada) Corporate Headquarters The Procter & Gamble Company P.O. Box 599 Cincinnati, OH 45201-0599 Transfer Agent/Shareholder...

  • Page 59
    ...Glance Net Sales by Segment* (in billions) 7% 13% 29% Global Business Unit Product Lines Laundry detergent, fabric conditioners, dish care, household cleaners, fabric refreshers, bleach and care for special fabrics Key Brands Fabric and Home Care Beauty Care Hair care/hair color, skin care and...

  • Page 60
    © 2003 Procter & Gamble 0038-7121 Touching lives, improving life.