Proctor and Gamble 2009 Annual Report Download

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Designed to Lead
2009 Annual Report
P&G 2009 Annual Report

Table of contents

  • Page 1
    Designed to Lead 2009 Annual Report

  • Page 2
    ... Bob McDonald Letter to Shareholders Touching Lives P&G Brands - Designed to Be Leaders Billion- and Half-Billion Dollar Brands Improving Life P&G Leaders - Built from Within Corporate Officers Board of Directors P&G at a Glance Financial Contents Shareholder Information 11-Year Financial Summary...

  • Page 3
    ...and funded product innovation and marketing initiatives across the business, with an emphasis on growing profitable value share in P&G's core categories. We also maintained our commitment to research and development investments and we delivered strong consumer communication programs that emphasized...

  • Page 4
    ... Razors, Fabric Care, Family Care, Feminine Care, Home Care, Oral Care, Prestige Fragrances, Retail Hair Care and Skin Care. About 75% of sales and profit growth has come from P&G's leading billion-dollar brands. We chose to shift our business portfolio to more Beauty and Personal Care businesses...

  • Page 5
    ... us to deliver consistently superior consumer and shareholder value. P&G REPORT CARD Progress Against P&G's Goals and Strategies GROWTH RESULTS Average annual Goals 2009 2001-2009 Organic Sales Growth (1) Core Earnings per Share Growth Free Cash Flow Productivity (4) 4-6% 10% 90% 2% 8% (2) 102...

  • Page 6
    ...- has averaged over 100% since the beginning of the decade, consistently among the very best in the industry. This cash productivity allows us to maintain the Company's excellent credit rating, to pay a strong dividend every year, and to have the ï¬,exibility to invest in the business organically or...

  • Page 7
    ... businesses and brands because this is the primary way we touch and improve lives - and there is plenty of room to keep growing our core brands and categories. ō Global Household Care is a $200 billion market - and P&G's global share is about 20%. ō Consumer Health Care is a $240 billion market...

  • Page 8
    ..., Feminine Care and Oral Care, we are ranked #1, #2 or #3 in market share. We will continue to increase the percentage of total company sales from these markets by building consumers' awareness of the performance, quality and value of our brands and making our products more accessible and affordable...

  • Page 9
    The Procter & Gamble Company 7 PURPOSE-FOCUSED EXECUTION: "HOW-TO-WIN" STRATEGIES We have made three strategic "how-to-win" choices to capture these growth opportunities. First, we will leverage our core strengths - consumer understanding, brand-building, innovation, go-to-market capability and ...

  • Page 10
    8 The Procter & Gamble Company Touching Lives. P&G's well-known, trusted brands touch the lives of consumers in more than 180 countries.

  • Page 11

  • Page 12
    ... is important because innovation improves consumer value and leads to profitable market share growth for our brands. P&G brands are Each year IRI, a leading market market leaders in 15 of the 21 major research firm, publishes its New Product Pacesetter global product Report. This U.S.-based study...

  • Page 13
    The Procter & Gamble Company 11 We regularly assess the strength and attractiveness of our brands with consumers by using proprietary testing tools. ō:HLJKWHG3XUFKDVH,QWHQW :3, WHVWVWKHFRPELQDWLRQ of product, concept and price in a competitive context. ō(TXLW\6FDQLGHQWLğHVNH\HTXLW\...

  • Page 14
    12 The Procter & Gamble Company Billion-Dollar Brands P&G is a company of leading brands. At the beginning of the decade, P&G had ten billion-dollar brands in its portfolio - brands that generate more than one billion dollars in sales each year. Today, we have 23 of these billion-dollar brands.

  • Page 15

  • Page 16
    ...Brands P&G also has 20 brands generating about $500 million or more in annual sales. When these are combined with the billion-dollar brands, P&G's top 43 brands account for 85% of sales and more than 90% of profit. Together, these 43 brands have delivered a 9-year compound average sales growth rate...

  • Page 17
    The Procter & Gamble Company 15

  • Page 18
    16 The Procter & Gamble Company 16 The Procter & Gamble Company Improving Life. P&G develops leaders whose purpose is centered on improving more consumers' lives in more parts of the world more completely.

  • Page 19

  • Page 20
    ... of how P&G develops leaders. This team is the most experienced and diverse leadership team in Company history. The majority of these executives have experience leading businesses in both developed and developing countries. They know how to compete in markets where P&G brands are established leaders...

  • Page 21
    ...offered at career milestones, such as when an employee first takes on responsibility for managing others or leading an organization. Other programs take managers out of the classroom and into retail stores or even into consumers' homes. This process not only helps P&G people develop business skills...

  • Page 22
    20 The Procter & Gamble Company Standing, left to right Bob McDonald President and Chief Executive Officer A.G. Lafley Chairman of the Board Front Row, left to right Jon Moeller Chief Financial Officer Daniela Riccardi President - Greater China Steve Jemison Chief Legal Officer and Secretary ...

  • Page 23
    ... Chief Technology Officer Nancy Swanson Vice President - Corporate Keith Harrison Global Product Supply Officer Steve Bishop President - North America Gina Drosos President - Global Female Beauty, Beauty & Grooming Filippo Passerini President - Global Business Services and Chief Information Officer...

  • Page 24
    ... President - Western Europe Robert Jongstra President - Global Professional Salon, Beauty & Grooming Clayt Daley, Jr. Retiring Vice Chairman and Chief Financial Officer Tom Finn President - Global Health Care John Goodwin President - Global Snacks and Pet Care Teri List Senior Vice President...

  • Page 25
    ... Rob Steele Vice Chairman - Global Health and Well-Being Werner Geissler Vice Chairman - Global Operations Ed Shirley Vice Chairman - Global Beauty & Grooming Dimitri Panayotopoulos Vice Chairman - Global Household Care (Not pictured) Susan Arnold Retiring President - Global Business Units Juan...

  • Page 26
    ... Mary Lynn Ferguson-McHugh President - Family Care The following company officers have announced their intention to retire during the 2009/10 fiscal year: Susan E. Arnold Retiring President - Global Business Units Clayton C. Daley, Jr. Retiring Vice Chairman and Chief Financial Officer Charlotte...

  • Page 27
    ... Whitman Former President and Chief Executive Officer of eBay Inc. (a global Internet company that includes online marketplaces, payments and communications). Director, Chair of the Governance & Public Responsibility Committee and member of the Compensation & Leadership Development Committee until...

  • Page 28
    ... Fragrances, Skin Care Blades and Razors, Electric Hair Removal Devices, Face and Shave Products, Home Appliances Feminine Care, Oral Care, Personal Health Care, Pharmaceuticals Pet Food, Snacks Air Care, Batteries, Dish Care, Fabric Care, Surface Care Baby Wipes, Bath Tissue, Diapers, Facial Tissue...

  • Page 29
    ... Analysis Overview Summary of 2009 Results Forward-Looking Statements Results of Operations Segment Results Financial Condition Significant Accounting Policies and Estimates Other Information Audited Consolidated Financial Statements Consolidated Statements of Earnings Consolidated Balance Sheets...

  • Page 30
    ...reporting and effective controls through process improvement, skill development and oversight. Exerting rigorous oversight of the business. We continuously review business results and strategic choices. Our Global Leadership Council is actively involved-from understanding strategies to reviewing key...

  • Page 31
    ... We have audited the accompanying Consolidated Balance Sheets of The Procter & Gamble Company and subsidiaries (the "Company") as of June 30, 2009 and 2008, and the related Consolidated Statements of Earnings, Shareholders' Equity, and Cash Flows for each of the three years in the period ended June...

  • Page 32
    ...report dated August 14, 2009 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company's adoption of new accounting guidance on the accounting for uncertainty in income taxes, effective July 1, 2007. Cincinnati, Ohio August 14, 2009

  • Page 33
    ... consumer needs, develop new product innovations and upgrades and build our brands through effective commercial innovations and marketing plans. Under U.S. GAAP, the business units comprising the GBUs were aggregated into six reportable segments: Beauty; Grooming; Health Care; Snacks and Pet Care...

  • Page 34
    ... Fragrances, Skin Care Blades and Razors, Electric Hair Removal Devices, Face and Shave Products, Home Appliances Feminine Care, Oral Care, Personal Health Care, Pharmaceuticals Pet Food, Snacks Air Care, Batteries, Dish Care, Fabric Care, Surface Care Baby Wipes, Bath Tissue, Diapers, Facial Tissue...

  • Page 35
    ...drive sales growth, expand categories for retail customers and differentiate brands in the minds of consumers. Our core categories, Baby Care, Blades and Razors, Fabric Care, Family Care, Feminine Care, Home Care, Oral Care, Prestige Fragrances, Retail Hair Care and Skin Care, have opportunities for...

  • Page 36
    ... & Gamble Company Management's Discussion and Analysis ō Continue to grow and develop faster-growing, structurally attractive businesses with global leadership potential. We are continually optimizing our portfolio of brands and businesses with an emphasis on opportunities in Beauty, Health Care...

  • Page 37
    ... developing regions, where selling prices are below the Company average. Each reportable segment posted year-on-year volume growth, with mid-single-digit growth in Fabric Care and Home Care, Baby Care and Family Care, Grooming and Health Care and low single-digit growth in Beauty and Snacks and Pet...

  • Page 38
    ... billion driven by a higher interest rate on our long-term borrowings and a higher debt level to fund the Company's previously announced share repurchase program. Other non-operating income increased $98 million in 2009 mainly due to higher divestiture gains from the current year sales of Thermacare...

  • Page 39
    ... consolidated subsidiaries for management and segment reporting purposes. This means pretax earnings in the business units include 100% of each pretax income statement component. In determining after-tax earnings in the business units, we eliminate the share of earnings applicable to other ownership...

  • Page 40
    ... & Gamble Company Management's Discussion and Analysis Net Sales Change Drivers vs. Year Ago (2009 vs. 2008) Volume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange Price Mix/Other Net Sales Growth BEAUTY Beauty Grooming HEALTH AND WELL-BEING...

  • Page 41
    ...while global value share of the male dry shaving market was down less than half a point. Net earnings were down 11% in 2009 to $1.5 billion primarily on the decline in net sales and a 60-basis point reduction in net earnings margin. Net earnings margin was down due to a higher effective tax rate and...

  • Page 42
    ... voluntary wet pet food recall in the U.S. in March 2007 that contributed to approximately a 1% decline in our U.S. market share. Net earnings in Snacks and Pet Care were up 7% to $261 million in 2008 due to sales growth. Operating margin was consistent with the prior year as lower gross margin was...

  • Page 43
    ... an increase in SG&A as a percentage of net sales and a higher effective tax rate. Gross margin improved due to the impact of price increases, manufacturing cost savings and more positive product mix following the Western European family care divestiture, which more than offset higher commodity and...

  • Page 44
    ... the Company's effective tax rate in Corporate) and eliminate the share of earnings applicable to other ownership interests, in a manner similar to minority interest. Corporate net sales primarily reï¬,ect the adjustment to eliminate the sales of unconsolidated entities included in business segment...

  • Page 45
    ... 90% target. FREE CASH FLOW PRODUCTIVITY (% of net earnings) Financing Activities Dividend Payments. Our first discretionary use of cash is dividend payments. Dividends per common share increased 13% to $1.64 per share in 2009. Total dividend payments to both common and preferred shareholders were...

  • Page 46
    ... discount and tax rates or future cash ï¬,ow projections, versus those anticipated at the time of the initial valuations, could result in impairment charges that could materially affect the financial statements in any given year. The Company has discussed the selection of significant accounting...

  • 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...

  • Page 48
    ... 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 plans and the macroeconomic environment of...

  • Page 49
    ... Financial Statements. 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. We evaluate exposures on a centralized...

  • Page 50
    ..., supply conditions, political and economic variables and other unpredictable factors. In addition to fixed price contracts, we use futures, options and swap contracts to manage the volatility related to the above exposures. Beauty Grooming Health Care Snacks and Pet Care Fabric Care and Home Care...

  • Page 51
    The Procter & Gamble Company 49 Consolidated Statements of Earnings Amounts in millions except per share amounts; Years ended June 30 2009 2008 2007 NET SALES Cost of products sold Selling, general and administrative expense OPERATING INCOME Interest expense Other non-operating income, net ...

  • Page 52
    50 The Procter & Gamble Company Consolidated Balance Sheets Assets Amounts in millions; June 30 2009 2008 CURRENT ASSETS Cash and cash equivalents Accounts receivable Inventories Materials and supplies Work in process Finished goods Total inventories Deferred income taxes Prepaid expenses and ...

  • Page 53
    The Procter & Gamble Company 51 Consolidated Balance Sheets Liabilities and Shareholders' Equity Amounts in millions; June 30 2009 2008 CURRENT LIABILITIES Accounts payable Accrued and other liabilities Debt due within one year TOTAL CURRENT LIABILITIES LONG-TERM DEBT DEFERRED INCOME TAXES OTHER...

  • Page 54
    ... impact for adoption of new accounting guidance (1) Dividends to shareholders: Common Preferred, net of tax benefits Treasury purchases Employee plan issuances Preferred stock conversions Shares tendered for Folgers coffee subsidiary ESOP debt impacts BALANCE JUNE 30, 2009 (6,151) 748 (1,701) (84...

  • Page 55
    ...debt Treasury stock purchases Impact of stock options and other 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...

  • Page 56
    ... "Company," "we" or "us") business is focused on providing branded consumer goods products of superior quality and value. Our products are sold in more than 180 countries primarily through retail operations including mass merchandisers, grocery stores, membership club stores, drug stores, department...

  • Page 57
    ... 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 and the macroeconomic environment of the countries...

  • Page 58
    ... additional information regarding our risk management activities, including derivative instruments and hedging activities. BUSINESS COMBINATIONS AND NONCONTROLLING INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS Fabric Care and Home Care, beginning of year Acquisitions and divestitures Translation...

  • Page 59
    ...companies in areas like Global Business Services, corporate staff and go-to-market support, as well as redundant manufacturing capacity. These activities are substantially complete as of June 30, 2009. Total integration plan charges against the assumed liability were $51, $286 and $438 for the years...

  • Page 60
    ... The Procter & Gamble Company Notes to Consolidated Financial Statements June 30 2009 2008 NOTE 5 RISK MANAGEMENT ACTIVITIES AND FAIR VALUE MEASUREMENTS LONG-TERM DEBT Floating rate note due July 2009 Floating rate note due August 2009 6.88% USD note due September 2009 Floating rate note due...

  • Page 61
    ... Financial Statements The Procter & Gamble Company 59 Interest Rate Risk Management Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps in which we agree to exchange...

  • Page 62
    ...The Procter & Gamble Company Notes to Consolidated Financial Statements The following table sets forth the Company's financial assets and liabilities as of June 30, 2009 that are measured at fair value on a recurring basis during the period, segregated by level within the fair value hierarchy: At...

  • Page 63
    ... to Consolidated Financial Statements The Procter & Gamble Company 61 Disclosures about Derivative Instruments The fair values and amounts of gains and losses on qualifying and non-qualifying financial instruments used in hedging transactions as of, and for the year ended, June 30, 2009 are as...

  • Page 64
    ... Procter & Gamble Company Notes to Consolidated Financial Statements NOTE 6 EARNINGS PER SHARE NOTE 7 STOCK-BASED COMPENSATION 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...

  • Page 65
    ...of total participants' annual wages and salaries in 2009, 2008 and 2007. We maintain The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. DC plan, as well as other retiree benefits. Operating details of the ESOP...

  • Page 66
    64 The Procter & Gamble Company 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, plan assets and ...

  • Page 67
    ... cost of providing retirement benefits. The weighted average assumptions for the defined benefit and other retiree benefit calculations, as well as assumed health care trend rates, were as follows: Pension Benefits Years ended June 30 2009 2008 Other Retiree Benefits 2009 2008 Projected benefit...

  • Page 68
    ... shares, net of related tax benefits, are charged to retained earnings. (1) Equity securities for other retiree plan assets include Company stock, net of Series B ESOP debt, of $2,084 and $2,809 as of June 30, 2009 and 2008, respectively. Our investment objective for defined benefit retirement...

  • Page 69
    ... to prior year tax positions. Tax benefits credited to shareholders' equity totaled $556 and $1,823 for the years ended June 30, 2009 and 2008, respectively. These primarily relate to the tax effects of net investment hedges, excess tax benefits from the exercise of stock options and the impacts...

  • Page 70
    ... benefits Stock-based compensation Unrealized loss on financial and foreign exchange transactions Loss and other carryforwards Goodwill and other intangible assets Accrued marketing and promotion expense Accrued interest and taxes Fixed assets Inventory Advance payments Other Valuation allowances...

  • Page 71
    ... fragrances, hair care, personal cleansing and skin care. The Grooming business includes blades and razors, electric hair removal devices, face and shave products and home appliances. ō The Health and Well-Being GBU includes the Health Care and the Snacks and Pet Care businesses. The Health Care...

  • Page 72
    ...2,945 HEALTH AND WELL-BEING GBU HEALTH CARE 2009 2008 2007 SNACKS AND PET CARE 2009 2008 2007 HOUSEHOLD CARE GBU FABRIC CARE AND HOME CARE 2009 2008 2007 BABY CARE AND FAMILY CARE 2009 2008 2007 CORPORATE (1) 2009 2008 2007 TOTAL COMPANY 2009 2008 2007 (1) The Corporate reportable segment...

  • Page 73
    ... Statement of Earnings for the year ended June 30, 2009. The Coffee business had historically been part of the Company's Snacks, Coffee and Pet Care reportable segment, as well as the coffee portion of our away-from-home business which is included in the Fabric Care and Home Care reportable segment...

  • Page 74
    ... after USA business hours CONTACT P&G SHAREHOLDER SERVICES - 24 HOURS A DAY The Procter & Gamble Company P.O. Box 599 Cincinnati, OH 45201-0599 EXCHANGE LISTINGS New York Stock Exchange, NYSE Euronext-Paris STOCK SYMBOL ō Visit us online at www.pg.com/investor, where you can get stock purchase...

  • Page 75
    ... from continuing operations Earnings from discontinued operations Diluted Net Earnings per Common Share Dividends per Common Share Restructuring Program Charges (1) Research and Development Expense Advertising Expense Total Assets Capital Expenditures Long-Term Debt Shareholders' Equity $ 79,029...

  • Page 76
    ... market" index as the S&P 500 satisfies this comparison. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN P&G 140 130 120 110 100 90 80 2004 2005 2006 2007 2008 2009 S&P 500 Consumer Staples Index S&P 500 Index Composite Group Cumulative Value of $100 Investment, through June 30 Company Name...

  • Page 77
    .... To learn more, please visit www.pg.com/sustainability. Strategy 1: Products Delight the consumer with sustainable innovations that improve the environmental profile of our products. GOAL: Develop and market at least $50 billion in cumulative sales of "sustainable innovation products," which...

  • Page 78
    © 2009 Procter & Gamble 00046009