Proctor and Gamble 2006 Annual Report Download

Download and view the complete annual report

Please find the complete 2006 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

2006 Annual Report

Table of contents

  • Page 1
    2006 Annual Report

  • Page 2
    ...of dollars) OPERATING CASH FLOW (in billions of dollars) DILUTED NET EARNINGS (per common share) 68.2 4 4 40 4 4 11.4 0 0 2.64 0 0 04 0 06 0 0 04 0 06 0 0 04 0 06 Contents Letter to Shareholders Capability & Opportunity P&G's Billion-Dollar Brands Financial Contents Corporate Of...

  • Page 3
    P&G has built a strong foundation for consistent sustainable growth, with clear strategies and room to grow in each strategic focus area, core strengths in the competencies that matter most in our industry, and a unique organizational structure that leverages P&G strengths. We are focused on ...

  • Page 4
    ...of acquisitions, divestitures and foreign exchange (13% in 2006). (2) EPS excluding Gillette dilution is comprised of 4% EPS growth, less the -8% to -9% dilution impact from Gillette. A.G. Laï¬,ey Chairman of the Board, President and Chief Executive behind the addition of Gillette as well as sales...

  • Page 5
    The Procter & Gamble Company and Subsidiaries 3 +20% Net Sales Net Earnings +25% +12% to 13 % 100 % EPS Excluding Gillette Dilution Free Cash Flow Productivity commitments we made when we asked shareholders to approve the acquisition: • $1.0 - 1.2 billion in annual cost synergies (...

  • Page 6
    ...Consumers have more brands, products and services to choose from in every industry in every market. As a result, consumers expect more from the brands they buy and use every day. They expect manufacturers and retailers to communicate with and to listen to them more carefully, to learn from them, and...

  • Page 7
    ... enable us to commercialize a larger innovation pipeline. P&G's leading global brands are platforms for innovation. We can bring new products to market on brands that already have strong equities and deep consumer trust; this increases consumer trial and retail customer support. P&G has also been...

  • Page 8
    ... products company with global business unit profit centers, a global Market Development Organization, and global shared business services, all supported by innovative corporate functions. We are essentially running a number of highly focused companies that share common go-to-market operations...

  • Page 9
    ...strengths create capability to win and opportunities to grow. They help us: Win the first & second moments of truth, when consumers choose and use P&G brands Connect & develop innovation inside and outside P&G Build even stronger brands for men & women Get the best of local focus & global scale

  • Page 10
    ...The Procter & Gamble Company and Subsidiaries First & Second The Moments of Truth P&G brands face two moments of truth every day: the first at the store shelf, when shoppers choose which brands to buy; and the second at home, when consumers decide whether our products deliver on the brand promise...

  • Page 11

  • Page 12

  • Page 13
    ... and we look for sources of innovation inside and outside P&G. Internally, we connect and develop ideas across more than 25 product categories and 11 core product technologies. Externally, P&G people connect to a global network of nearly two million innovation experts and technology problem-solvers...

  • Page 14

  • Page 15
    ... marketing, package design, global brand management, and marketing returnon-investment analysis. Brand-building capability is increasingly important to delivering sustainable growth. In an environment in which consumers and retailers have more choices than ever, the capability to build lasting bonds...

  • Page 16
    ...shareholder returns from their businesses. • Market Development Organizations (MDOs) are charged with knowing consumers and retailers in each market where P&G competes and integrating the innovations ï¬,owing from the GBUs into business plans that work in each country. • Global Business Services...

  • Page 17

  • Page 18
    ... Brands are platforms for innovation. They are global leaders. Consumers want them in their homes. Retailers want them in their stores. They enable us to bring innovation to consumers around the world effectively, efficiently, and profitably. They make consumers' lives a little better every day...

  • Page 19

  • Page 20

  • Page 21

  • Page 22
    "P&G brands and P&G people improve consumers' lives in small but meaningful ways. Every day." - A.G. Laï¬,ey

  • Page 23
    ... & Gamble Company and Subsidiaries 21 Financial Contents Management's Responsibility for Financial Reporting Management's Report on Internal Control over Financial Reporting Reports of Independent Registered Public Accounting Firm Management's Discussion and Analysis Overview Summary of 2006...

  • Page 24
    ... & Gamble Company and Subsidiaries Management's Responsibility for Financial Reporting At Procter & Gamble, we take great pride in our long history of doing what's right. If you analyze what's made our Company successful over the years, you may focus on our brands, our marketing strategies, our...

  • Page 25
    ...Gamble Company (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external...

  • Page 26
    ... to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and...

  • Page 27
    ... prior year pro forma net sales and earnings data. Results of Gillette's personal care and oral care businesses were subsumed within the Beauty and the Health Care reportable segments, respectively. OVERVIEW P&G's business is focused on providing branded consumer goods products. Our goal is to...

  • Page 28
    ...are the number one or number two baby care competitor in most of the key markets in which we compete, primarily behind the Pampers brand, the Company's largest brand with annual net sales in excess of $6 billion. Our Family Care business is predominantly a North American business comprised primarily...

  • Page 29
    ...market globally. We generally have the number one or number two market share position in the markets in which we compete behind the Duracell brand. Our Braun brand spans across electric razors and small electrical appliances. GLOBAL OPERATIONS Sustainability To sustain consistent and reliable sales...

  • Page 30
    ... and work force rationalization. Global Economic Conditions. Economic changes, terrorist activity and political unrest may result in business interruption, inï¬,ation, deï¬,ation or decreased demand for our products. Our success will depend in part on our ability to manage continued global political...

  • Page 31
    ... in family care, pet health, pharmaceuticals, coffee and in certain fabric care markets were partially offset by price investments taken primarily in Europe to improve the consumer value of P&G brands as compared to hard-discounter private labels. Operating Costs Gross margin was 51.4% in 2006, an...

  • Page 32
    ...acquisition and a continued focus on marketing return-on-investment (ROI) programs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (% of net sales) markets, which have lower marketing spending as a percentage of net sales than the balance of the Company. Marketing spending increased to support product...

  • Page 33
    ...Home Care, the Baby Care and Family Care and the Pet Health, Snacks and Coffee reportable segments. In the Gillette GBU, we provide data for the Blades and Razors and the Duracell and Braun reportable segments. As described in Note 12 to the Consolidated Financial Statements, we have investments in...

  • Page 34
    ...billion aided by a positive 2% foreign exchange impact. Pricing in pharmaceuticals added 1% to sales, while product mix reduced sales by 2% due to the shift of Macrobid branded sales to generic sales and higher relative growth in developing markets. Health Care net earnings in 2005 were $811 million...

  • Page 35
    ... of share growth in Central & Eastern Europe/ Middle East/Africa. In developed regions, baby care volume declined slightly as growth on Pampers Baby Stages of Development and Kandoo was more than offset by softness on Baby Dry as well as on Luvs in North America, primarily due to pricing pressure...

  • Page 36
    ... with Gillette's Sales for Duracell and Braun since the acquisition closed on October 1, 2005, were $2.92 billion, 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...

  • Page 37
    .... The overall cash position of the Company reï¬,ects our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations. Operating Activities Operating cash ï¬,ow in 2006 was $11.38 billion compared to $8.68...

  • Page 38
    ... acquisition, and our Korea paper businesses. In 2005, proceeds from asset sales were $517 million 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...

  • Page 39
    ... revenue when title, ownership and risk of loss transfer to the customer, which generally is on the date of shipment. The revenue recorded includes shipping and handling costs, which generally are included in the list price to the customer. A provision for payment discounts and product return...

  • Page 40
    ... acquired brands are expected to have determinable useful lives. Our assessment as to brands that have an indefinite life and those that have a determinable life is based on a number of factors including competitive environment, market share, brand history, underlying product life cycles, operating...

  • Page 41
    ... price allocation as of the acquisition date. Because the Gillette intangible and goodwill amounts represent current values as of the acquisition date, such amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate. New Accounting...

  • Page 42
    ... in exchange rates. Corporate policy prescribes the range of allowable hedging activity. We primarily use forward contracts and options with maturities of less than 18 months. The following table provides a numerical reconciliation of organic sales growth to reported sales growth for fiscal 2006...

  • Page 43
    ...Procter & Gamble Company and Subsidiaries 41 Consolidated Statements of Earnings Amounts in millions except per share amounts; Years ended June 30 2006 2005 2004 NET SALES $68,222 33,125 21,848 13,249 1,119 283 12,413 3,729 $ 8,684 $ $ $ 2.79 2.64 1.15 Cost of products sold Selling, general and...

  • Page 44
    ... The Procter & Gamble Company and Subsidiaries Consolidated Balance Sheets Assets Amounts in millions; June 30 2006 2005 CURRENT ASSETS Cash and cash equivalents Investment securities Accounts receivable Inventories Materials and supplies Work in process Finished goods Total inventories Deferred...

  • Page 45
    The Procter & Gamble Company and Subsidiaries 43 Consolidated Balance Sheets Liabilities and Shareholders' Equity Amounts in millions; June 30 2006 2005 CURRENT LIABILITIES Accounts payable Accrued and other liabilities Taxes payable Debt due within one year TOTAL CURRENT LIABILITIES $ 4,910 ...

  • Page 46
    ... benefits Total comprehensive income Dividends to shareholders: Common Preferred, net of tax benefits Treasury purchases (297,132) Employee plan issuances 36,763 Preferred stock conversions 3,788 Gillette acquisition 962,488 Change in ESOP debt reserve BALANCE JUNE 30, 2006 1,316 (786) 518 (3,555...

  • Page 47
    ... Change in inventories Change in accounts payable, accrued and other liabilities Change in other operating assets and liabilities Other TOTAL OPERATING ACTIVITIES INVESTING ACTIVITIES Capital expenditures Proceeds from asset sales Acquisitions, net of cash acquired Change in investment securities...

  • Page 48
    ...in the list price to the customer. Our policy is to recognize revenue when title to the product, ownership and risk of loss transfer to the customer, which generally is on the date of shipment. A provision for payment discounts and product return allowances is recorded as a reduction of sales in the...

  • Page 49
    ... of acquired brands that have been determined to have indefinite lives due to the nature of our business. We evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, product life cycles, operating plan...

  • Page 50
    ...Care Fabric Care and Home Care Baby Care and Family Care Pet Health, Snacks and Coffee Blades and Razors Duracell and Braun The accompanying financial statements, including historical results, reï¬,ect the new management and organization structure. In July 2006, the FASB issued FIN 48, "Accounting...

  • Page 51
    ... purchase method of accounting, the total consideration was approximately $53.43 billion including common stock, the fair value of vested stock options and acquisition costs. This acquisition resulted in two new reportable segments: Blades and Razors, and Duracell and Braun. The Gillette oral care...

  • Page 52
    ...was based on a number of factors, including the competitive environment, market share, brand history, product life cycles, operating plan and macroeconomic environment of the countries in which the brands are sold. The indefinite-lived brands include Gillette, Venus, Duracell, Oral-B and Braun. The...

  • Page 53
    ... 2005 by business was as follows: 2006 2005 Current year acquisitions and divestitures primarily reï¬,ect the Gillette acquisition. Gillette goodwill has been preliminarily allocated primarily to the segments comprising the Gillette businesses (Blades and Razors, Duracell and Braun, Health Care and...

  • Page 54
    ... Procter & Gamble Company and Subsidiaries Notes to Consolidated Financial Statements NOTE 5 SHORT-TERM AND LONG-TERM DEBT June 30 2006 2005 NOTE 6 RISK MANAGEMENT ACTIVITIES SHORT-TERM DEBT Current portion of long-term debt USD commercial paper Non-USD commercial paper Bridge credit facility...

  • Page 55
    .... To manage this exchange rate risk, we primarily utilize forward contracts and options with maturities of less than 18 months and currency swaps with maturities up to 5 years. These instruments are intended to offset the effect of exchange rate ï¬,uctuations on forecasted sales, inventory purchases...

  • Page 56
    ..., net of tax benefit NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS We have a primary stock-based compensation plan under which stock options are granted annually to key managers and directors with exercise prices equal to the market price of the underlying shares on the date of grant. Grants were...

  • Page 57
    ... the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. In connection with the Gillette acquisition, we issued 70 million fully vested Procter & Gamble stock options valued at $1.22 billion to current and former Gillette employees in exchange for...

  • Page 58
    56 The Procter & Gamble Company and Subsidiaries Notes to Consolidated Financial Statements Obligation and Funded Status. We use a June 30 measurement date for our defined benefit retirement plans and other retiree benefit plans. The following provides a reconciliation of benefit obligations,...

  • Page 59
    ... Financial Statements The Procter & Gamble Company and Subsidiaries 57 Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows: Pension Benefits Years ended June 30 2006 2005 2004 Other Retiree Benefits 2006 2005 2004 $ 265 $ 162 $ 157 $ 97 $ 67 $ 89 Service...

  • Page 60
    ... account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan...

  • Page 61
    ... Certain Employee Stock Ownership Plans." ESOP debt, which is guaranteed by the Company, is recorded as debt (see Note 5). Preferred shares issued to the ESOP are offset by the Reserve for ESOP Debt Retirement in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders' Equity...

  • Page 62
    ... tax rate is provided below: Years ended June 30 2006 2005 2004 Stock-based compensation Loss and other carryforwards Pension and postretirement benefits Unrealized loss on financial and foreign exchange transactions Advance payments Accrued marketing and promotion expense Accrued Gillette exit...

  • Page 63
    ..., electric razors and small appliances. Under U.S. GAAP, we have seven reportable segments: Beauty; Health Care; Fabric Care and Home Care; Baby Care and Family Care; Pet Health, Snacks and Coffee; Blades and Razors and Duracell and Braun. The accounting policies of the businesses are generally the...

  • Page 64
    62 The Procter & Gamble Company and Subsidiaries Notes to Consolidated Financial Statements Net Sales Before-Tax Earnings Net Earnings Depreciation & Amortization Total Assets Capital Expenditures BEAUTY 2006 2005 2004 $21,126 $ 4,359 $3,106 $ 535 $ 13,498 $ 577 19,721 17,346 7,852...

  • Page 65
    Notes to Consolidated Financial Statements The Procter & Gamble Company and Subsidiaries 63 NOTE 13 QUARTERLY RESULTS (UNAUDITED) Quarters ended Sept 30 2005 - 2006 2004 - 2005 Dec 31 Mar 31 Jun 30 Total Year NET SALES $14,793 $18,337 $17,250 $17,842 $68,222 13,744 3,057 14,452 3,892 14,...

  • Page 66
    ... President - Global Snacks Jorge S. Mesquita President - Global Home Care & Commercial Products Martin Riant President - Global Baby Care David S. Taylor President - Global Family Care Richard G. Pease Senior Vice President - Human Resources, Household Care Mark M. Leckie Group President - Gillette...

  • Page 67
    ...^dc&AZVYZgh]^e9ZkZadebZci8dbb^iiZZVcYbZbWZg d[i]Z>ccdkVi^dc&IZX]cdad\n8dbb^iiZZ# 7gjXZA#7ngcZh K^XZ8]V^gbVcd[i]Z7dVgYÃ...=djhZ]daY8VgZ#9^gZXidgh^cXZ'%%'# 6ahdV9^gZXidgd[8^cX^ccVi^7Zaa>cX#6\Z*-# HXdii9#8dd` 8]V^gbVcd[i]Z:mZXji^kZ8dbb^iiZZd[i]Z7dVgY!>cij^i>cX...

  • Page 68
    ... after USA business hours CONTACT P & G - 24 HOURS A DAY The Procter & Gamble Company Shareholder Services Department P.O. Box 5572 Cincinnati, OH 45201-5572 REGISTRAR • Visit us online at www.pg.com/investor where you can get stock purchase information, transaction forms, Company annual reports...

  • Page 69
    ... & Gamble Company and Subsidiaries 67 Financial Summary (Unaudited) Amounts in millions, except per share amounts 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 Net Sales Gross Margin Operating Income Net Earnings Net Earnings Margin Basic Net Earnings Per Common Share Diluted...

  • Page 70
    ... Care, Surface Care, Air Care, Commercial Products Group Diapers, Baby Wipes, Bath Tissue, Kitchen Towels, Facial Tissue Coffee, Pet Health, Snacks Men's and Women's Blades and Razors Batteries, Electric Razors, Small Appliances HOUSEHOLD CARE Fabric Care and Home Care Baby Care and Family Care...

  • Page 71
    ... our global corporate cause - P&G Live, Learn and Thriveâ„¢. This cause comes to life through programs in P&G communities around the world and our global signature program, Children's Safe Drinking Water. P&G Live, Learn and Thrive brings focus to the philanthropic efforts of our brands, employees...

  • Page 72
    © 2006 Procter & Gamble 0038-7125