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Earning฀Your฀Trust
Annual฀Report 2004

Table of contents

  • Page 1
    Earning฀Your฀Trust Annual฀Report 2004

  • Page 2
    ... Ariel,฀Pantene,฀Wella,฀Always,฀Crest,฀ Bounty,฀Charmin,฀Olay,฀Pringles,฀฀ Iams,฀Downy,฀Actonel,฀Folgers฀and... x��p�฀p Y E J N Op I N��฀E P 1฀ ฀ ฀ D N��฀E D 2004฀ $51,407฀ 9,827฀ 6,481฀ ฀ 2.32฀ 0.93฀ 4 9� �,...

  • Page 3
    ...all฀its฀financial฀goals฀in฀fiscal฀2004.฀ •฀Volume฀is฀up฀17%.฀Organic฀...฀size฀of฀P&G's฀total฀business฀in฀the฀U.K.฀or฀a฀ brand฀the฀size฀...of฀earnings. •฀Dividends฀are฀up฀13%,฀annualized. •฀Total฀Shareholder฀Return฀is฀24%....

  • Page 4
    A.G.฀Laï¬,ey

  • Page 5
    ...years.฀We฀have฀a฀31%฀share฀of฀global฀Fabric฀Care,฀฀ Organic฀Unit฀Volume฀Growth (%฀increase฀versus฀previous฀year) ��� 8� 4� annual฀sales฀and฀profit฀growth฀of฀7%฀and฀16%,฀respectively,฀ over฀the฀past฀three฀years.฀ Ten฀more...

  • Page 6
    ...,฀ we've฀delivered฀double-digit฀compounded฀annual฀growth฀ across฀the฀following฀Health฀Care฀...฀Actonel,฀which฀has฀grown฀ about฀90%฀a฀year฀over฀the฀three-year฀period.฀Actonel฀...฀of฀adding฀a฀brand฀ the฀size฀of฀Tide฀-฀every฀year. by...

  • Page 7
    ...Wella,฀we฀are฀well฀positioned฀for฀strong฀growth. ฀ In฀Health฀Care,฀we฀have฀strong,฀growing฀franchises฀in฀Crest,฀ Iams฀and฀Prilosec฀OTC.฀We've฀only฀scratched฀the฀surface฀ with฀Actonel...Business฀Services,฀for... leading฀product฀innovation฀in...

  • Page 8
    ...consumers฀when,฀where฀and฀how฀they฀choose.฀We฀must฀฀ be฀as฀innovative฀in฀marketing฀as฀we฀are฀in฀product฀design฀ and฀development. Global฀economic฀and฀political฀disruptions฀are฀also฀a฀ continuing฀risk.฀Our฀diversified฀portfolio฀and...

  • Page 9
    ...as฀ China,฀Russia฀and฀Mexico.฀In฀China,฀for฀example,฀we...฀reach฀China's฀largest฀cities.฀In฀the฀mid1990s,฀...ve฀doubled฀the฀size฀of฀P&G's฀China฀ business....฀Today,฀ we've฀expanded฀our฀product฀offerings฀to฀mid-tier฀consumers฀ ...฀Services฀...

  • Page 10
    ...any฀industry฀have฀global฀business฀services฀ capability฀that฀rivals฀P&G's฀for...and฀ customers฀without฀duplicating฀product฀innovation,฀product฀ sourcing,฀brand฀advertising฀or...the฀Company฀with฀clearer฀reporting฀ structures,฀clearer฀accountability฀and...

  • Page 11
    ...฀Research฀and฀Development฀is฀a฀good฀ example.฀Historically,฀systems฀for฀evaluating฀R&D฀were฀ strongly฀linked฀to฀technical฀product฀performance.฀There฀฀ was฀a฀heavy฀focus฀on฀patents฀and฀internally฀generated฀ innovation.฀There฀was฀less...

  • Page 12
    Touching Lives

  • Page 13
    ...฀October฀1,฀2004฀after฀more฀than฀33฀years฀of฀service. ...service. Why฀are฀we฀realigning฀the฀business฀units?฀Our฀Beauty฀and฀ Health฀Care฀businesses฀have฀grown฀dramatically.฀As฀the฀฀ size฀of฀key฀businesses฀changed฀with฀acquisitions...

  • Page 14
    P&G฀added฀three฀billion-dollar฀brands฀this฀year:฀Actonel,฀Head฀&฀Shoulders฀and฀ the฀Wella฀family฀of฀Professional฀and฀Retail฀Hair฀Care฀products.฀P&G฀has฀16฀brands฀ with฀over฀one฀billion฀dollars฀in฀sales฀-฀up฀from฀10฀billion-...

  • Page 15
    13 P&G's฀Billion-Dollar฀Brands

  • Page 16

  • Page 17

  • Page 18
    Fabric฀฀ and฀Home

  • Page 19
    ...Clean฀Magic฀Eraser฀and฀AutoDry฀ Carwash,฀two฀very฀successful฀new฀ product฀innovations,฀spurred฀this฀ well-known฀brand฀to฀volume฀growth฀ of฀nearly฀20%฀in฀fiscal฀year฀2004. Gain฀Fabric฀Enhancer The฀Gain฀brand฀delivered฀volume฀ growth...

  • Page 20
    Beauty

  • Page 21
    ...฀of฀double-digit฀organic฀growth฀ and฀the฀acquisition฀of฀Wella.฀Wella฀joined฀P&G฀Beauty฀Care฀ in฀September฀2003฀and฀added฀approximately฀$3.3฀billion฀to฀ Beauty฀Care฀sales฀in฀fiscal฀2004.฀ Beauty฀Care's฀organic฀growth฀was฀led฀by...

  • Page 22
    Baby฀and฀ Family

  • Page 23
    ...invest฀behind฀new฀ products฀with฀strong฀marketing฀...Ultra฀has฀maintained฀the฀brand's฀ advantages฀in฀softness,฀thickness,฀ absorbency฀and฀wet฀strength฀ against฀all฀competitors. Bounty In฀early฀2004,฀Bounty฀launched฀฀ a฀new฀array฀of฀prints...

  • Page 24
    Health

  • Page 25
    ...combination฀of฀breakthrough฀innovation,฀strategic฀ acquisitions฀and฀alliances,฀and฀operating฀cost฀...product฀ innovations฀and฀improving฀profit฀margins. All฀of฀the฀Health฀Care฀business฀segments฀delivered฀great฀ results฀in฀fiscal฀2004.฀Actonel...

  • Page 26
    Snacks฀and฀ Beverages

  • Page 27
    ....฀ Pringles฀Prints Pringles฀Prints,฀our฀newest฀ technology-driven฀innovation฀in฀ snacks,฀allows฀us฀to฀print฀right฀฀ on฀the฀chip.฀One฀example,฀฀ Pringles฀Prints฀with฀Trivial฀Pursuit฀ Junior™฀questions,฀began฀shipping฀ in฀June฀2004...

  • Page 28
    MDO

  • Page 29
    ...2004,฀P&G's฀global฀volume฀growth฀was฀17%,฀including฀the฀ impact฀of฀the฀Wella฀acquisition.฀Organic฀volume฀growth,฀ excluding฀acquisition...; •฀฀ improving฀the฀availability฀of฀our฀products฀on฀store฀shelves฀ with฀supply฀system฀innovations...

  • Page 30
    28 T��฀P������฀&฀G�����฀���p���฀���฀������������ Management's฀Responsibility฀for฀Financial฀Reporting ...

  • Page 31
    ...฀ ฀ Segment฀Results฀ ฀ Financial฀Condition฀ ฀ Significant฀Accounting฀Policies ฀ ฀ and฀Estimates฀ ฀ Other฀Information฀ Report฀of฀Independent฀Registered Public฀Accounting฀Firm฀ Audited฀Consolidated฀Financial฀Statements฀ ฀ Earnings฀ ฀ Balance...

  • Page 32
    30 T��฀P������฀&฀G�����฀���p���฀���฀������������ Management's฀Discussion฀and฀Analysis 2004฀Net฀Sales฀by฀Business฀Segment ��... 2004฀Net...

  • Page 33
    ... ���฀�������฀��p����฀�p������฀�������.฀ Summary฀of฀2004฀Results...

  • Page 34
    32 T��฀P������฀&฀G�����฀���p���฀���฀������������ Management's฀Discussion฀and฀Analysis •฀ ...

  • Page 35
    ...฀Progress (in฀billions฀of฀dollars) 5�.4 4�.� 4�.4 ���� ���� ���4 2004฀Net฀Sales฀by฀Geography... Eff������฀��x฀����฀ N��฀E�������฀ 2004฀ 51.2%฀ 32.1%฀...

  • Page 36
    34 T��฀P������฀&฀G�����฀���p���฀���฀������������ Management's฀Discussion฀and฀Analysis �������,฀G������฀���฀A�������������฀�xp...

  • Page 37
    Management's฀Discussion฀and฀Analysis T��฀P G p 35 D p w f฀�5 D p w 85 54 p p f฀ $�.�9 6฀p p Diluted฀Net฀Earnings (per฀common฀share T w z f p f x f x I p xp j f q q U.�.฀GAAP.฀ Fabric฀and฀Home฀Care w��฀�p฀9 ...

  • Page 38
    36 T��฀P������฀&฀G�����฀���p���฀���฀������������ Management's฀Discussion฀and฀Analysis ...

  • Page 39
    Management's฀Discussion฀and฀Analysis T��฀P������฀&฀G�����฀���p���฀���฀������������ 37 ...

  • Page 40
    ...�p w,฀p ff p xp p w w f฀��p p w฀4�฀�f p p w��฀w w w฀p f฀f w w p f฀9 w฀p w 9 Free฀Cash฀Flow฀and฀Free฀Cash฀Flow฀Productivity (in฀billions฀and฀as฀%฀of฀net฀earnings) $8 6 4 4 9 w w P w P T Operating฀Activities...

  • Page 41
    Management's฀Discussion฀and฀Analysis T��฀P������฀&฀G�����฀���p���฀���฀������������ 39 ...

  • Page 42
    40฀฀ T��฀P������฀&฀G�����฀���p���฀���฀������������ Management's฀Discussion฀and฀Analysis ...

  • Page 43
    Management's฀Discussion฀and฀Analysis T��฀P������฀&฀G�����฀���p���฀���฀������������ 41 Revenue฀Recognition ...

  • Page 44
    42 T��฀P G p Management's฀Discussion฀and฀Analysis p OPE U f E�p Ow p฀P E�OP N���฀9 W p p p w f p f฀ A P p AP�)฀Op N�.฀�5,฀"A f I E�p p A p w x p q f p xp N 8 p pp f p��฀f p f p f��฀�p f p f...

  • Page 45
    Management's฀Discussion฀and฀Analysis T��฀P������฀&฀G�����฀���p���฀���฀������������ 43 I�������฀R���฀Exp...

  • Page 46
    44 T��฀P������฀&฀G�����฀���p���฀���฀������������ Report฀of฀Independent฀Registered Public฀Accounting฀Firm ...

  • Page 47
    ... Basic฀Net฀Earnings฀Per฀Common฀Share1฀ Diluted฀Net฀Earnings฀Per฀Common฀Share1฀ Dividends฀Per฀Common฀Share1฀ 1฀ 2004฀ $51,407฀ 25,076฀ 16,504฀ 9,827฀ 629฀ 152฀ 9,350฀ 2,869฀ $6,481฀ $2.46฀ $2.32฀ $0.93฀ 4 4 8�฀ �,85...

  • Page 48
    ...Intangible฀Assets฀ ฀ G���w T Net฀Goodwill฀and฀Other฀Intangible฀Assets Other฀Non-Current฀Assets฀ Total฀Assets฀ 2004฀ $5,469฀ 423฀ 4,062฀ 1,191฀ 340฀ 2,869฀ 4,400฀ 958฀ 1,803฀ 17,115฀ 5,9 8฀ �,�95฀ �9 54฀ �,64...

  • Page 49
    ...54�.8 594.4)฀ A p p R f��฀E�OP A p R Total฀Shareholders'฀Equity฀ Total฀Liabilities฀and฀Shareholders'฀Equity฀ 1฀ J 2004฀ $3,617฀ 7,689฀ 2,554฀ 8,287฀ 22,147฀ 12,554฀ 2,261฀ 2,808฀ 39,770฀ 95฀ 5,5 8�9 58...

  • Page 50
    ...O p N f x O f฀��x T p D P��f f฀��x T p 79,893)฀ E�p p 22,678฀ P��f 6,658฀ E�OP Balance฀June฀30,฀2004฀ ฀ 2,543,838฀ 1฀ 2฀ $�,59 5 9฀ ฀ �,6 8)฀ �4฀ 6฀ ฀ �,594 6 6�4 54 58 $�6 51,2฀ �44฀ 58 89...

  • Page 51
    ...฀ Cash฀and฀Cash฀Equivalents,฀End฀of฀Year Supplemental฀Disclosure p f I I x��฀ N p��-�ff฀�f฀J�f Acquisition฀of฀Businesses f q x f Acquisitions฀ 2004฀ $5,912฀ ฀ 6,481฀ 1,733฀ 415฀ (159)฀ 56฀ 625฀ (88)฀ 299฀ 9,362...

  • Page 52
    ... Cost฀of฀Products฀Sold ����฀�f฀p�������฀����฀p��������฀���p�����฀������฀���������฀���฀��pp...

  • Page 53
    Notes฀to฀Consolidated฀Financial฀Statements T��฀P������฀&฀G�����฀���p���฀���฀������������ 51 ...

  • Page 54
    ...p p��j p f w f z p f p Note฀3฀Acquisitions฀and฀Spin-Off ฀ ฀฀ Net฀Earnings฀ ฀ A�฀��p P��฀f j Pro฀...and฀Reclassifications฀ N�฀��w p ff xp p f฀p f p Wella฀Acquisition฀ O�฀��p p q W AG฀(W T p w j f฀W...

  • Page 55
    ... 5,864 9฀ ��5 66 4฀ �,6�9฀ �,�9�฀ 6 Net฀Sales฀ Net฀Earnings฀ Diluted฀Net฀Earnings ฀ per฀Common฀Share฀ 2004฀ $51,958฀ 6,402฀ $2.29฀ 46,�5�฀ 5 86฀ 4 4,�45 $�.54฀ ฀฀ T��฀W q 5.86 w f฀w w q w 5 w T 556...

  • Page 56
    ...฀Statements Clairol฀Acquisition O�฀N 6 p p q f f���฀T M q p���฀f pp��x 5...Spin-off O�฀M J�f฀p w p��฀�ff p q T��฀J.M p T p w f 5 p 6 pp��x 9 T w f฀ �p p��-�ff p 5 O p q 84,฀$6 446 4 p 2004...

  • Page 57
    ...฀and฀Other฀Current฀Liabilities฀ M p L W D A p xp O Other฀Non-Current฀Liabilities฀ P O p O ฀ ฀ 2004฀ $1,876฀ ฀ 1,106฀ 1,049฀ 3,658฀ 7,689฀ ฀ $1,798฀ 142฀ 868฀ 2,808฀ 8�� 8�4 �,9�6 5,5�� 8� 8�9 �,�9�฀ Selected...

  • Page 58
    56 T��฀P G p Notes฀to฀Consolidated฀Financial฀Statements Note฀7฀Risk฀Management฀Activities฀ A p���฀w p ff p xp x p T xp p xp f xp xp p w x w p p p xp p f A�฀N A f��฀D I A p T p f��฀�p p��p A p ...

  • Page 59
    ...f f฀E�OP฀ Diluted฀net฀earnings฀ ฀ ฀ 2004฀ $6,481฀ (131)฀ 6,350฀ 131฀ (4)฀ 6,477฀ ฀ 2004฀ 5,�86฀ (��5)฀ 5,�6 5฀ (9)฀ 5 4,�5� (��4) 4,��8 ��4 4,�4�฀ Y J 59 9.�฀ 594.8 ���.6 ��.5 w 2,580...

  • Page 60
    ...J $�6.4 4.84฀฀ �5 46.�4฀ 48 5�.98฀ ฀36,863 48,426 43,624 22,915฀฀฀ $24.07 31.06฀ 42.36฀ 49.49 2004฀ O f 259,598฀ G 40,866฀ J�f p��-�ff฀��j Ex 22,307 1,864)฀ Outstanding,฀end฀of฀year฀ 276,293฀ Ex A f 151,828฀ 165,399...

  • Page 61
    ...p 208)฀ Fair฀value฀of฀plan฀assets฀ ฀ at฀end฀of฀year฀ 2,263฀ Funded฀status฀ (2,353)฀ 1฀ 2004฀ ���� ฀$�,9 4 8฀ 4�฀ (�9 5฀ (�55)฀ �,54�฀ ฀ $2,914฀ 89฀ 172฀ 31฀ (258)฀ (460)฀ 7฀ (8)฀ 41฀ 5฀ (133)฀ 2,400...

  • Page 62
    ... O Ex V f฀P���฀A $(�,985)฀ $443฀ $(6��) 9 9 5�)฀ (344)฀ -฀ (259)฀ (160)฀ 4�5 4) 2004฀ P��j 2,809฀ A 2,396 f ฀ p 638฀ 945 9�9฀ 2004฀ $4,059฀ 3,320฀ 1,676฀ 9 �,49� �,�86 Classification฀of฀net ฀ amount...

  • Page 63
    ...A J P ���5 99 ฀-฀ -฀ 5.1%฀ 2010฀ 5 ฀ A O R D f f 2฀ D f f 3฀ R pp p f฀ M f f฀M f 4 8.8�฀f Eq 1฀ D R Total฀ 1฀ 2004฀ 64%฀ 32%฀ 4%฀ 100%฀ 6 5 2004฀ 99%฀ 1%฀ -%฀ 100%฀ 99 Eq f p p f E�OP...

  • Page 64
    62 T��฀P������฀&฀G�����฀���p���฀���฀������������ Notes฀to฀Consolidated฀Financial฀Statements ...

  • Page 65
    ... f����w���: ฀ Y J A U Total฀Series฀A฀ ฀ A U Total฀Series฀B฀ 2004฀ 62,511฀ 28,296฀ 90,807฀ ฀ 21,399฀ 48,528฀ 69...Current฀Tax฀Expense฀ U I U L Deferred฀Tax฀Expense฀ U I 2004฀ ฀ $1,508฀ 830฀ 116฀ 2,454฀ ฀ 348฀ 67฀...

  • Page 66
    ... 4 p xp w W x p f p f w w ff p ฀ ฀ ฀ Deferred฀Tax฀Assets฀ ฀ U z L f��w A p O p O V w Deferred฀Tax฀Liabilities x G���w O 2004฀ ฀ $381฀ 365฀ 226฀ 95฀ 1,169฀ (342)฀ 1,894฀ 8 8� 9� 8�� (�58) �,5�5 (1,350...

  • Page 67
    Notes฀to฀Consolidated฀Financial฀Statements T��฀P G p 65 Note฀12฀Segment฀Information ฀ T p z f���฀p G U T w p p p f ff f p f����w f f p��f f f p p w�p w p p p ff j I�฀A 4 p j Eff J 4 p p w w w T p f p N...

  • Page 68
    ...p Q E���� Net฀Sales Operating฀Income Net฀Earnings Diluted฀Net฀Earnings฀Per฀Common฀Share1 1฀ 2003-2004 2003-2004 2003-2004 2003-2004 $12,195฀฀ ฀$13,221฀฀ ฀$13,029฀฀ ฀$12,962฀฀ ฀$51,407 96 5฀ ��,656฀ ��,9��฀ 4 2,643...

  • Page 69
    ...Research฀and฀ ฀ Development฀Expense฀ Advertising฀Expense฀ Total฀Assets฀ Capital฀Expenditures฀ Long-Term฀Debt฀ Shareholders'฀Equity฀ 1฀ 2฀ 2004฀ $51,407฀ 9,827฀ 6,481฀ 12.6%฀ 2003฀฀ ฀$4 85 5,�86 2002฀฀ 2001฀฀ ฀$4�,��8 9,�44...

  • Page 70
    ...Enterprises฀LLC฀(venture฀ web฀services฀firm).฀Director฀ capital).฀Director฀...฀Inc.฀and฀eBay฀Inc.฀฀ National฀City฀Corporation฀ Age฀52.฀Member฀of฀the... Graduate฀School฀of฀ Management,฀Northwestern฀ University฀and฀Chair฀of฀the฀ Council฀for...

  • Page 71
    ...L.L.P.,฀Cleveland,฀Ohio.฀...goods฀and฀services).฀ Director...Mexico฀ and฀Director฀of฀the฀Center฀ for฀the฀Study฀of฀ Globalization฀and฀Professor฀ in฀the฀field฀of฀International฀ Economics฀and฀Politics฀at฀ Yale฀University...Global฀Product฀Supply฀...

  • Page 72
    ...฀information,฀transaction฀ forms,฀information฀about฀the฀2004฀ stock฀split,฀Company฀reports฀and฀ webcasts,฀as฀well฀as฀product฀ information,฀newsletters฀and฀samples. Corporate฀Sustainability฀Report Sustainable฀development฀is฀a฀simple฀ idea...

  • Page 73
    P&G฀at฀a฀Glance N 1 G U��� P L L f f f f��฀�p f K Fabric฀and฀Home฀Care Beauty฀Care f p���p p p p p Baby฀and฀Family฀Care p w�p P�p w f T A D�w��,฀L D�w J��,฀G A��฀L w�ff��,฀D ...

  • Page 74
    P&G฀ ฀ 2004฀Annual฀Report ©฀2004฀Procter฀&฀Gamble 0038-7122