Proctor and Gamble 2007 Annual Report Download

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Table of contents

  • Page 1
    Designed to Grow 2007 Annual Report

  • Page 2
    ... to Deliver Designed to Lead Financial Contents Corporate Officers Board of Directors Shareholder Information 11-Year Financial Summary P&G at a Glance 2 8 14 18 22 27 70 71 72 73 74 Financial highlights FInAnCIAl SuMMARY (unAuDItED) Amounts in millions, except per share amounts 2007 2006 2005 2004...

  • Page 3
    .... We've designed P&G's business portfolio to Grow consistently and reliably. We've designed the core strengths we need to Win in our industry. We've designed strategic, operational and financial processes that ensure discipline to Deliver. We've designed a management team and organization to lead...

  • Page 4
    ...'ve designed strategic, operational and financial processes that ensure discipline to deliver. And we've designed a management team and organization to lead. With clear choices, smart and sufficient investments, and an unwavering focus on the long-term health of our business, we have designed P&G to...

  • Page 5
    ... market leadership to 38% behind the success of the Pro-Health line. • Baby and Family Care organic sales increased 4%. This growth Develop faster-growing, higher-margin, more assetefficient businesses was driven by continuing expansion into developing markets and strong results on Pampers Baby...

  • Page 6
    ...-growing, higher-margin, asset-efficient businesses, such as beauty or home care, and large, foundation categories, such as laundry or baby care. We also have an attractive geographic mix, with about half of the Company's sales coming from North America and half coming from the rest of the world. We...

  • Page 7
    ... to win in consumer products: consumer understanding, brand-building, innovation, go-to-market capability, and scale Portfolio A diversified mix of businesses that reduces exposure to single economic and competitive events, and maximizes future growth opportunities growth, and operating TSR well...

  • Page 8
    ...basis points of operating margin expansion over the next five years. Three of the most important opportunities for future productivity improvement are in Global Business Services (GBS), Product Supply and Research and Development (R&D). We've delivered nearly $400 million in cost savings through GBS...

  • Page 9
    ... business units and market development organizations. We'll be more effective and efficient in how we manage our smaller country organizations and brands. And we'll continue to increase productivity in every one of our businesses. We'll also continue to improve gross margins. The Company's current...

  • Page 10
    ... categories...We are continuing to shift P&G's product portfolio toward faster-growing, higher-margin, more assetefficient businesses such as beauty, health, personal care, and home care, and we strengthened P&G's leadership in these areas with the acquisition of Gillette. The market for these...

  • Page 11
    The Procter & Gamble Company 9 Developing Markets and low-Income Consumers P&G generated over $20 billion in sales from developing markets in 2007, more than double the sales level at the beginning of the decade. H6A:H;GDB9:K:ADE>C

  • Page 12
    ... Head & Shoulders has nearly doubled its annual sales in just four years, making it the second largest shampoo brand in the world. #1 Feminine Care brand in the World Always Always Clean and Always Fresh innovations have propelled the brand to an all-time high market share of more than 55% in the...

  • Page 13
    ... world's leading hair care brand, is sold in about 100 countries and is fast approaching $3 billion in annual sales. #1 laundry Detergent brand in the World tide Already the world's leading laundry detergent brand, Tide widened its lead by posting high-single digit sales growth in fiscal year 2007...

  • Page 14
    ... in the next few years. 40% Sales Growth #1 Men's Shaving brand in the World Mach3 Mach3 delivered double-digit sales growth in developing markets last year. herbal Essences Global annual sales of Herbal Essences have grown 40% since P&G acquired the brand in fiscal year 2002. Fusion Fusion and...

  • Page 15
    ... over the past five years. Market Share #1 Fabric Freshener brand in the World Febreze Febreze, the U.S. air care category leader, has averaged more than 25% annual sales growth over the last four years. #1 tampon brand in the World tampax After just four years in the market, Tampax Pearl has...

  • Page 16
    ... that we can use to create even more consumer, customer and shareholder value. brand-building 7,000 marketers formally certified in P&G's brand-building discipline Innovation 1,100 Ph.D. researchers networked through 27 global technical centers With increasing margins of competitive advantage...

  • Page 17
    ...brand equities, and marketing plans developed with qualified brand-building tools tend to grow five percentage points faster than average. We now have more than 7,000 marketers certified in P&G's proprietary approach to brand-building. Olay Olay has become the world's leading retail skin care brand...

  • Page 18
    ...-spending productivity by doing more simulation, modeling and design research in the virtual world. • Finally, we are focusing on cost innovation to provide consumers with a better brand experience at a lower cost, which also yields higher returns for P&G's shareholders. These ongoing improvements...

  • Page 19
    ... knowledge scale in consumer understanding, research and development, and marketing. And we are always finding new ways to reap benefits from P&G's scale. GEttInG StROnGER We are better leveraging global purchasing scale to reduce the cost of global business services as a percentage of sales...

  • Page 20
    ... detailed work processes that force discipline and focus throughout critical business activities such as the development and launch of new products, building marketing plans, enhancing brand equities, and developing joint business plans with retail customers. We instill strict operational discipline...

  • Page 21
    ...rigorous approach to talent development. The Global Leadership Council meets three times per year to identify top talent, to align on management succession planning for each business unit, geographic organization and functional organization, and to ensure the Company is achieving its diversity goals...

  • Page 22
    ... Crest Pro-Health toothpaste into the market, and the results have been outstanding. It generated well above $100 million in retail sales in its first year and has been a key driver in the Crest brand's U.S. market-share growth. The operational discipline of the Crest management team has definitely...

  • Page 23
    .... Total Shareholder Return Profit Growth Cash Flow Growth Sales Growth Margin Improvement Asset Efficiency Sales Growth We grow sales organically by building market share where brands are currently sold, expanding existing products into new markets and creating entirely new consumer product...

  • Page 24
    ... three best companies for leaders. Human Resources Executive magazine ranked P&G as the best company among the Fortune Most Admired for "management quality." "Graduate School" for leaders We've developed advanced leadership training for senior managers. Our new General Manager College is targeted...

  • Page 25
    Executive leadership From left to right: A.G. lafley Chairman of the Board and Chief Executive Officer bob McDonald Chief Operating Officer Clayt Daley, Jr. Vice Chairman and Chief Financial Officer Susan Arnold President - Global Business Units

  • Page 26
    ... bruce byrnes Vice Chairman of the Board - Global Brand Building Training tom Finn President - Global Health Care Mary lynn Ferguson-Mchugh President - Family Care hartwig langer President - Global Prestige Products Charlie Pierce Group President - Global Oral Care and Coffee/Snacks David taylor...

  • Page 27
    ... President - Global Wal-Mart Team Jorge uribe President - Latin America Daniela Riccardi President - Greater China Deb henretta Group President - Asia laurent Philippe Group President - Central & Eastern Europe, Middle East & Africa Steve bishop President - North America Market Operations

  • Page 28
    ... Officer Jim Stengel Global Marketing Officer Robert Dixon Vice President - Global Business Units, Global Business Services Dick Antoine Global Human Resources Officer Sharon Mitchell Senior Vice President - Research & Development, Global Fabric Care Charlotte Otto Global External Relations Officer...

  • Page 29
    ...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 2007 Results Forward-Looking Statements Results of Operations Segment Results Financial Condition...

  • Page 30
    ... Management's Responsibility for Financial Reporting At The Procter & Gamble Company, 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 organization design...

  • Page 31
    ... three years in the period ended June 30, 2007, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted the provisions of SFAS No. 158, "Employers' Accounting for Defined Benefit...

  • Page 32
    ... Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Financial Statements as of and for the year ended June 30, 2007, of the Company and our report dated August 14, 2007...

  • Page 33
    ...develop new product innovations and build our brands through effective commercial innovations, marketing and sales. Under U.S. GAAP, the business units comprising the GBUs are aggregated into seven reportable segments: Beauty; Health Care; Fabric Care and Home Care; Baby Care and Family Care; Snacks...

  • Page 34
    ... global market share. We are the number one or number two baby care competitor in most of the key markets in which we compete, primarily behind Pampers, the Company's largest brand, with annual net sales of approximately $7 billion. Our family care business is predominantly a North American business...

  • Page 35
    ... as the ratio of operating cash flow less capital expenditures to net earnings). º The GBU organizations leverage their consumer understanding to develop the overall strategy for our brands. They identify common consumer needs, develop new products and build our brands through effective marketing...

  • Page 36
    ... our stated targets. Ability to Achieve Business Plans. We are a consumer products company and rely on continued demand for our brands and products. To achieve business goals, we must develop and sell products that appeal to consumers and retail trade customers. Our continued success is dependent...

  • Page 37
    .... Developing regions continued to lead the growth with double-digit increases for the year. All reportable segments increased organic volume for the year except the Snacks, Coffee and Pet Care segment. Higher pricing, primarily in coffee and Health Care, contributed 1% to sales growth. Product mix...

  • Page 38
    ... synergies from the Gillette integration. Marketing spending as a percentage of net sales in 2007 was roughly in line with prior-year levels despite media purchasing synergies generated by the Gillette acquisition and a continued focus on marketing return-on-investment (ROI) programs. SG&A in 2006...

  • Page 39
    ...Home Care, the Baby Care and Family Care and the Snacks, Coffee and Pet Care reportable segments. In the Gillette GBU, we provide data for the Blades and Razors and the Duracell and Braun reportable segments. The results of these reportable business segments do not include certain non-business unit...

  • Page 40
    ..., 2006. Health Care net sales increased 14% in 2007 to $9.0 billion behind a 9% increase in unit volume. Sales and volume were up as a result of three additional months of Gillette oral care results in the current fiscal year and growth on the base P&G business. Health Care organic sales increased...

  • Page 41
    ...organic volume grew mid-single digits, largely behind growth on the Bounty and Charmin Basic initiative. Price increases in North America baby care, coupled with a mid-year increase in North America family care, added 2% to sales growth. Disproportionate growth in mid-tier products and in developing...

  • Page 42
    ... of pricing in coffee and earnings growth in snacks. Gillette Gbu As disclosed in Note 2 to the Consolidated Financial Statements, we completed the acquisition of The Gillette Company on October 1, 2005. This acquisition resulted in two new reportable segments for the Company: the Blades and Razors...

  • Page 43
    ...in Latin America. In developed regions, Duracell organic sales were up lowsingle digits as the impact of higher pricing was largely offset by market share declines resulting from high levels of competitive activity from both private label and branded competitors. Our global market share in batteries...

  • Page 44
    ... repurchase program and the gain on the sale of the Juice business in 2005. FInAnCIAl COnDItIOn We believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and ready access to capital markets at competitive rates. Free...

  • Page 45
    ... 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 was $35.4 billion in 2007, $38.1 billion in 2006 and $24.3 billion in 2005. The...

  • Page 46
    ... course of business. Commitments made under take-or-pay obligations represent future purchases in line with expected usage to obtain favorable pricing. Approximately 44% relates to service contracts for information technology, human resources management and facilities management activities that were...

  • Page 47
    ...of health care and life insurance for retirees. For accounting purposes, the defined benefit and OPEB plans require assumptions to estimate the projected and accumulated benefit obligations, including the following variables: discount rate; expected salary increases; certain employee-related factors...

  • Page 48
    ... 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 49
    ... and Analysis The Procter & Gamble Company 47 OthER InFORMAtIOn hedging and Derivative Financial Instruments As a multinational company with diverse product offerings, we are exposed to market risks such as changes in interest rates, currency exchange rates and commodity prices. To manage the...

  • Page 50
    ...& Gamble Company Management's Discussion and Analysis The following table provides a numerical reconciliation of organic sales growth to reported net sales growth for fiscal 2007: Total Company Fabric Care and Home Care Baby Care and Family Care Blades and Razors Beauty Health Care Reported net...

  • Page 51
    ... Company 49 Consolidated Statements of Earnings Amounts in millions except per share amounts; Years ended June 30 2007 2006 2005 nEt SAlES $76,476 36,686 24,340 15,450 1,304 564 14,710 4,370 $10,340 $ $ $ 3.22 3.04 1.28 Cost of products sold Selling, general and administrative expense OPERAtInG...

  • Page 52
    50 The Procter & Gamble Company Consolidated balance Sheets Assets Amounts in millions; June 30 2007 2006 CuRREnt ASSEtS Cash and cash equivalents Investment securities Accounts receivable Inventories Materials and supplies Work in process Finished goods Total inventories Deferred income taxes ...

  • Page 53
    The Procter & Gamble Company 51 Consolidated balance Sheets liabilities and Shareholders' Equity Amounts in millions; June 30 2007 2006 CuRREnt lIAbIlItIES Accounts payable Accrued and other liabilities Taxes payable Debt due within one year tOtAl CuRREnt lIAbIlItIES lOnG-tERM DEbt DEFERRED ...

  • Page 54
    ... 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 3,178,841 Net earnings Other comprehensive income: Financial statement translation Net investment hedges, net...

  • Page 55
    ... purchases tOtAl FInAnCInG ACtIVItIES EFFECt OF ExChAnGE RAtE ChAnGES On CASh AnD CASh EquIVAlEntS ChAnGE In CASh AnD CASh EquIVAlEntS CASh AnD CASh EquIVAlEntS, EnD OF YEAR SuPPlEMEntAl DISClOSuRE Cash payments for: Interest Income taxes Assets acquired through noncash capital leases Gillette...

  • Page 56
    ... management's best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, consumer and trade promotion accruals, pensions, postemployment benefits, stock options, valuation of acquired intangible assets, useful lives...

  • Page 57
    ... 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 plans...

  • Page 58
    ...of the Gillette businesses are reported in our financial statements beginning October 1, 2005. The Gillette Company is a market leader in several global product categories including blades and razors, oral care and batteries. Total sales for Gillette during its most recent pre-acquisition year ended...

  • Page 59
    ... 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 60
    ... impact of future foreign exchange rate changes. NOTE 4 SuPPlEMEntAl FInAnCIAl InFORMAtIOn Acquisitions and divestitures Translation and other End of year Snacks, Coffee and Pet Care, beginning of year Acquisitions Translation and other End of year GIllEttE Gbu Selected components of current and...

  • Page 61
    ..., including the effects of interest rate swaps discussed in Note 6. June 30 2007 2006 As a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. To manage the volatility related to these...

  • Page 62
    ...flow generation and access to capital markets. NOTE 7 EARnInGS PER ShARE Net earnings less preferred dividends (net of related tax benefits) are divided by the weighted average number of common shares outstanding during the year to calculate basic net earnings per common share. Diluted net earnings...

  • Page 63
    ...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. A total of 229 million shares of common stock were authorized for issuance under plans approved by shareholders...

  • Page 64
    ...certain other retiree benefits, primarily health care and life insurance, for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require cost sharing with retirees and pay a stated percentage...

  • Page 65
    ... defined benefit retirement pension plans will be frozen effective January 1, 2008, at which time Gillette employees in the U.S. will move into the P&G defined contribution Profit Sharing Trust and Employee Stock Ownership Plan. This revision resulted in a $154 curtailment gain for the year ended...

  • Page 66
    ... of beginning of year, and adjusted for acquisitions. Several factors are considered in developing the estimate for the longterm expected rate of return on plan assets. For the defined benefit retirement plans, these include historical rates of return of broad equity and bond indices and projected...

  • Page 67
    ... the Company's common stock. The dividend for the current year was equal to the common stock dividend of $1.28 per share. The liquidation value is $12.96 per share. As permitted by SOP 93-6, "Employers Accounting for Employee Stock Ownership Plans," we have elected, where applicable, to continue our...

  • Page 68
    ... 30 2007 2006 2005 Stock-based compensation Unrealized loss on financial and foreign exchange transactions Pension and postretirement benefits Loss and other carryforwards Goodwill and other intangible assets Advance payments Accrued marketing and promotion expense Accrued Gillette exit costs Fixed...

  • Page 69
    ... Care and Home Care includes laundry detergents, fabric enhancers, dish care, surface care, air care and commercial products. Baby Care and Family Care includes diapers, baby wipes, bath tissue and kitchen towels. Snacks, Coffee and Pet Care includes snacks, coffee and pet food. • Gillette GBU...

  • Page 70
    ... to the Gillette acquisition and the Juice business, which was divested in August of 2004. Corporate assets primarily include cash, investment securities and all goodwill. We had net sales in the U.S. of $31.9, $29.5 and $25.3 billion for the years ended June 30, 2007, 2006 and 2005, respectively...

  • Page 71
    ...Statements The Procter & Gamble Company 69 NOTE 13 quARtERlY RESultS (unAuDItED) Quarters ended Sept 30 2006 - 2007 2005 - 2006 Dec 31 Mar 31 Jun 30 Total Year nEt SAlES $18,785 $19,725 $18,694 $19,272 $76,476 14,793 4,054 18,337 4,350 17,250 3,646 17,842 3,400 68,222 15,450 OPERAtInG...

  • Page 72
    ...- Global Oral Care and Coffee/Snacks Jamie Egasti President - Coffee and Snacks thomas M. Finn President - Global Health Care thE FOllOWInG COMPAnY OFFICERS hAVE AnnOunCED thEIR IntEntIOn tO REtIRE DuRInG thE 2007/08 FISCAl YEAR: bruce l. byrnes Vice Chairman of the Board and Global Brand Building...

  • Page 73
    ... the Company's August, 2007 Board meeting. Chairman of the Compensation & Leadership Development Committee and member of the Innovation and Technology Committee. bruce l. byrnes Vice Chairman of the Board - Global Brand Building Training. Director since 2002. Also a Director of Cincinnati Bell...

  • Page 74
    ... transaction forms, Company annual reports and webcasts • E-mail us at [email protected] • Call for financial information at 1-800-764-7483 (call 1-513-945-9990 outside the USA and Canada) COMMOn StOCk PRICE RAnGE AnD DIVIDEnDS Price Range Quarter Ended 2006 - 2007 high 2006 - 2007 low 2005...

  • Page 75
    ... comprised of the S&P Household Products Index, the S&P Paper Products Index, the S&P Personal Products Index, the S&P Health Care Index and the S&P Food Index. The composite group is weighted based on P&G's current fiscal year revenues. The graphs assume that $100 was invested on June 30, 2002, and...

  • Page 76
    ... & Gamble Company P&G at a Glance GBU Reportable Segment Key Products Billion-Dollar Brands Net Sales by GBU (1) (in billions) bEAutY AnD hEAlth Beauty Health Care hOuSEhOlD CARE GIllEttE Gbu Fabric Care and Home Care Baby Care and Family Care Snacks, Coffee and Pet Care Blades and Razors...

  • Page 77
    ...our Global Sustainability and Philanthropy Report at www.pg.com/sr. P&G's Pampers brand, in partnership with UNICEF, is improving life in Latin America by providing low-income families with nutrition programs and training on child development to help children get off to a healthy start. learn India...

  • Page 78
    © 2007 Procter & Gamble 0038-7007