Proctor and Gamble 2005 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2005 Proctor and Gamble annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 72

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72

Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 35
Profit฀Transfer฀Agreement฀was฀$1.11฀billion฀and฀has฀been฀recognized฀as฀฀
a฀current฀liability.฀The฀portion฀of฀the฀acquisition฀related฀to฀the฀Domination฀
and฀Profit฀Transfer฀Agreement฀represents฀a฀non-cash฀transaction.฀Future฀
payments฀related฀to฀the฀principal฀portion฀of฀the฀annual฀dividend฀arrange-
ment฀or฀acquisition฀of฀shares฀tendered฀will฀be฀reflected฀as฀investing฀฀
activities,฀consistent฀with฀the฀underlying฀transaction.
The฀gross฀cash฀outlay฀for฀Hutchison฀in฀2004฀was฀$2.00฀billion,฀which฀
also฀included฀the฀settlement฀of฀minority฀interest฀and฀certain฀other฀฀
liabilities,฀for฀a฀net฀cost฀of฀$1.85฀billion.฀The฀acquisition฀was฀funded฀by฀
debt.฀We฀also฀completed฀certain฀smaller฀acquisitions฀with฀an฀aggregate฀
cost฀of฀$384฀million฀in฀2004,฀including฀Glide฀dental฀floss฀and฀Fabric฀
Care฀brands฀in฀Western฀Europe,฀Latin฀America฀and฀the฀Middle฀East.฀Net฀
cash฀used฀for฀acquisitions฀was฀$61฀million฀in฀2003.฀
Capital฀Spending.฀Capital฀spending฀efficiency฀continues฀to฀be฀a฀critical฀
component฀of฀the฀Company’s฀overall฀cash฀management฀strategy.฀Capital฀
expenditures฀in฀2005฀were฀$2.18฀billion฀compared฀to฀$2.02฀billion฀in฀
2004฀and฀$1.48฀billion฀in฀2003.฀Capital฀spending฀in฀2005฀was฀3.8%฀
of฀net฀sales฀–฀slightly฀lower฀than฀the฀comparable฀prior฀year฀period฀as฀
a฀percentage฀of฀net฀sales฀and฀below฀our฀target฀ratio.฀Over฀the฀past฀
several฀years,฀we฀have฀made฀systemic฀interventions฀to฀improve฀capital฀
spending฀efficiencies฀and฀asset฀utilization.฀While฀the฀Company’s฀goal฀฀
is฀to฀maintain฀capital฀expenditures฀at฀or฀below฀4%฀of฀sales฀on฀an฀฀
ongoing฀basis,฀there฀may฀be฀exceptional฀years฀when฀specific฀business฀
circumstances,฀such฀as฀capacity฀additions,฀may฀lead฀to฀higher฀spending.
Proceeds฀from฀Asset฀Sales.฀Proceeds฀from฀asset฀sales฀increased฀฀
primarily฀due฀to฀the฀divestiture฀of฀the฀Juice฀business฀in฀August฀of฀2004.฀
Financing฀Activities
Dividend฀Payments.฀Our฀first฀discretionary฀use฀of฀cash฀is฀dividend฀
payments.฀Dividends฀per฀common฀share฀grew฀11%฀to฀$1.03฀per฀share฀
in฀2005.฀This฀increase฀represents฀the฀49th฀consecutive฀fiscal฀year฀the฀
Company฀has฀increased฀its฀common฀share฀dividend.฀The฀Company฀has฀
been฀paying฀common฀share฀dividends฀each฀year,฀without฀interruption,฀
since฀incorporation฀in฀1890.฀Total฀dividend฀payments฀to฀both฀common฀
and฀preferred฀shareholders฀were฀$2.73฀billion,฀$2.54฀billion฀and฀$2.25฀
billion฀in฀2005,฀2004฀and฀2003,฀respectively.
Long-Term฀and฀Short-Term฀Debt.฀We฀maintain฀debt฀levels฀we฀consider฀
appropriate฀after฀evaluating฀a฀number฀of฀factors,฀including฀cash฀flow฀
expectations,฀cash฀requirements฀for฀ongoing฀operations,฀investment฀
plans฀(including฀acquisitions฀and฀share฀repurchase฀activities)฀and฀the฀
overall฀cost฀of฀capital.฀Total฀debt฀increased฀by฀$3.49฀billion฀in฀2005฀
to฀$24.33฀billion.฀The฀increase฀was฀primarily฀due฀to฀additional฀debt฀to฀
finance฀share฀repurchases฀announced฀concurrently฀with฀our฀planned฀
acquisition฀of฀The฀Gillette฀Company.
In฀2004,฀total฀debt฀increased฀by฀$7.19฀billion฀to฀$20.84฀billion.฀
The฀increase฀was฀primarily฀due฀to฀the฀acquisitions฀of฀Wella฀and฀the฀
Hutchison฀minority฀interest,฀along฀with฀discretionary฀share฀repurchases.
Liquidity.฀As฀discussed฀previously,฀our฀primary฀source฀of฀liquidity฀is฀
cash฀generated฀from฀operations.฀We฀believe฀internally-generated฀cash฀
flows฀adequately฀support฀business฀operations,฀capital฀expenditures฀and฀
shareholder฀dividends,฀as฀well฀as฀a฀level฀of฀discretionary฀investments฀
(e.g.,฀for฀tack-on฀acquisitions).฀
We฀are฀able฀to฀supplement฀our฀short-term฀liquidity,฀if฀necessary,฀
with฀broad฀access฀to฀capital฀markets฀and฀$2.00฀billion฀in฀bank฀credit฀
facilities.฀Broad฀access฀to฀financing฀includes฀commercial฀paper฀programs฀
in฀multiple฀markets฀at฀favorable฀rates฀given฀our฀strong฀credit฀ratings฀
(including฀separate฀U.S.฀dollar฀and฀Euro฀multi-currency฀programs).฀We฀
maintain฀two฀bank฀credit฀facilities:฀a฀$1.00฀billion,฀five-year฀facility฀
which฀matures฀in฀July฀2007฀and฀a฀$1.00฀billion,฀five-year฀facility฀which฀
matures฀in฀July฀2009.฀We฀have฀never฀drawn฀against฀either฀facility฀and฀
have฀no฀plans฀to฀do฀so฀in฀the฀foreseeable฀future.
Capital Spending
(% of sales)
2002 20052003 20042001
0%
8%
6%
4%
2%
Capital Spending
% of Sales Target
Dividends
(per common share)
20022001 20052003 2004
.00
.20
.40
.80
.60
1.00
$1.20