ond2007.htm
UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
WASHINGTON,
D.C.
20549
FORM
10-Q
(Mark
one)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
Quarterly Period Ended December 31, 2007
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from ___ to ___
Commission
file number 1-434
THE
PROCTER & GAMBLE
COMPANY
(Exact
name of registrant as specified in its charter)
Ohio
|
|
31-0411980
|
(State
of Incorporation)
|
|
(I.R.S.
Employer Identification No.)
|
One
Procter & Gamble Plaza,
Cincinnati,
Ohio
|
|
45202
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(513)
983-1100
Registrant's
telephone number, including area code
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act). Large accelerated filer x Accelerated
filer ¨ Non-accelerated
filer ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
There
were 3,077,498,216 shares of Common Stock outstanding as of December 31,
2007.
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
The
Consolidated Statements of Earnings of The Procter & Gamble Company and
subsidiaries (the “Company”, “we” or “our”) for the three months and six months
ended December 31, 2007 and 2006, the Consolidated Balance Sheets as of December
31, 2007 and June 30, 2007, and the Consolidated Statements of Cash Flows
for
the six months ended December 31, 2007 and 2006 follow. In the opinion of
management, these unaudited consolidated financial statements contain all
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the interim periods reported. However, such
financial statements may not necessarily be indicative of annual
results.
THE
PROCTER & GAMBLE COMPANY AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF
EARNINGS
Amounts
in
millions except per share amounts
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
Amounts
in millions
|
|
December
31
|
|
December
31
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
$
|
21,575
|
|
$
|
19,725
|
|
$
|
41,774
|
|
$
|
38,510
|
|
Cost
of products sold
|
|
|
10,394
|
|
|
9,287
|
|
|
19,913
|
|
|
18,152
|
|
Selling,
general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expense
|
|
|
6,467
|
|
|
6,088
|
|
|
12,729
|
|
|
11,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME
|
|
|
4,714
|
|
|
4,350
|
|
|
9,132
|
|
|
8,404
|
|
Interest
expense
|
|
|
389
|
|
|
339
|
|
|
748
|
|
|
697
|
|
Other
non-operating income, net
|
|
|
192
|
|
|
79
|
|
|
385
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
BEFORE INCOME TAXES
|
|
|
4,517
|
|
|
4,090
|
|
|
8,769
|
|
|
7,966
|
|
Income
taxes
|
|
|
1,247
|
|
|
1,228
|
|
|
2,420
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
EARNINGS
|
|
$
|
3,270
|
|
$
|
2,862
|
|
$
|
6,349
|
|
$
|
5,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings
|
|
$
|
1.04
|
|
$
|
0.89
|
|
$
|
2.02
|
|
$
|
1.73
|
|
Diluted
net earnings
|
|
$
|
0.98
|
|
$
|
0.84
|
|
$
|
1.90
|
|
$
|
1.63
|
|
Dividends
|
|
$
|
0.35
|
|
$
|
0.31
|
|
$
|
0.70
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
WEIGHTED AVERAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
SHARES OUTSTANDING
|
|
|
3,341.5
|
|
|
3,406.5
|
|
|
3,348.2
|
|
|
3,410.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THE
PROCTER & GAMBLE COMPANY AND
SUBSIDIARIES
CONSOLIDATED
BALANCE
SHEETS
Amounts
in Millions
|
|
|
|
|
December
31
|
|
June
30
|
|
ASSETS
|
|
|
|
|
2007
|
|
2007
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
5,349
|
|
$
|
5,354
|
|
Investment
securities
|
|
|
|
|
|
696
|
|
|
202
|
|
Accounts
receivable
|
|
|
|
|
|
7,688
|
|
|
6,629
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
Materials
and supplies
|
|
|
|
|
|
1,860
|
|
|
1,590
|
|
Work
in process
|
|
|
|
|
|
619
|
|
|
444
|
|
Finished
goods
|
|
|
|
|
|
5,211
|
|
|
4,785
|
|
Total
inventories
|
|
|
|
|
|
7,690
|
|
|
6,819
|
|
Deferred
income taxes
|
|
|
|
|
|
2,143
|
|
|
1,727
|
|
Prepaid
expenses and other current assets
|
|
|
|
|
|
3,394
|
|
|
3,300
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
|
|
|
26,960
|
|
|
24,031
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
|
|
|
6,681
|
|
|
6,380
|
|
Machinery
and equipment
|
|
|
|
|
|
28,513
|
|
|
27,492
|
|
Land
|
|
|
|
|
|
865
|
|
|
849
|
|
|
|
|
|
|
|
36,059
|
|
|
34,721
|
|
Accumulated
depreciation
|
|
|
|
|
|
(16,171
|
)
|
|
(15,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
19,888
|
|
|
19,540
|
|
|
|
|
|
|
|
|
|
|
|
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
58,216
|
|
|
56,552
|
|
Trademarks
and other intangible assets, net
|
|
|
|
|
|
34,168
|
|
|
33,626
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
GOODWILL AND OTHER INTANGIBLE ASSETS
|
|
|
|
|
|
92,384
|
|
|
90,178
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
NON-CURRENT ASSETS
|
|
|
|
|
|
5,169
|
|
|
4,265
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
|
|
$ |
144,401
|
|
$
|
138,014
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
$
|
4,829
|
|
$
|
5,710
|
|
Accrued
and other liabilities
|
|
|
|
|
|
11,818
|
|
|
9,586
|
|
Taxes
payable
|
|
|
|
|
|
1,263
|
|
|
3,382
|
|
Debt
due within one year
|
|
|
|
|
|
13,569
|
|
|
12,039
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
|
|
|
31,479
|
|
|
30,717
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
|
|
|
23,528
|
|
|
23,375
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
|
|
|
11,579
|
|
|
12,015
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
NON-CURRENT LIABILITIES
|
|
|
|
|
|
9,572
|
|
|
5,147
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
|
|
|
|
76,158
|
|
|
71,254
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
1,386
|
|
|
1,406
|
|
Common
stock - shares issued -
|
Dec
31 |
|
3,997.8
|
|
|
3,998
|
|
|
|
|
|
June
30 |
|
3,989.7
|
|
|
|
|
|
3,990
|
|
Additional
paid-in capital
|
|
|
|
|
|
59,712
|
|
|
59,030
|
|
Reserve
for ESOP debt retirement
|
|
|
|
|
|
(1,318
|
)
|
|
(1,308
|
)
|
Accumulated
other comprehensive income
|
|
|
|
|
|
2,466
|
|
|
617
|
|
Treasury
stock
|
|
|
|
|
|
(43,648
|
)
|
|
(38,772
|
)
|
Retained
earnings
|
|
|
|
|
|
45,647
|
|
|
41,797
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
68,243
|
|
|
66,760
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
$
|
144,401
|
|
$
|
138,014
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
THE
PROCTER & GAMBLE COMPANY AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH
FLOWS
|
|
Six
Months Ended
|
|
Amounts
in millions
|
|
December
31
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
$
|
5,354
|
|
$
|
6,693
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
6,349
|
|
|
5,560
|
|
Depreciation
and amortization
|
|
|
1,503
|
|
|
1,489
|
|
Share-based
compensation expense
|
|
|
242
|
|
|
289
|
|
Deferred
income taxes
|
|
|
325
|
|
|
201
|
|
Changes
in:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(703
|
)
|
|
(1,668
|
)
|
Inventories
|
|
|
(589
|
)
|
|
(486
|
)
|
Accounts
payable, accrued and other liabilities
|
|
|
(97
|
)
|
|
8
|
|
Other
operating assets and liabilities
|
|
|
126
|
|
|
(110
|
)
|
Other
|
|
|
215
|
|
|
120
|
|
|
|
|
|
|
|
|
|
TOTAL
OPERATING ACTIVITIES
|
|
|
7,371
|
|
|
5,403
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(1,184
|
)
|
|
(1,239
|
)
|
Proceeds
from asset sales
|
|
|
747
|
|
|
135
|
|
Acquisitions
|
|
|
24
|
|
|
(139
|
)
|
Change
in investment securities
|
|
|
(502
|
)
|
|
620
|
|
|
|
|
|
|
|
|
|
TOTAL
INVESTING ACTIVITIES
|
|
|
(915
|
)
|
|
(623
|
)
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Dividends
to shareholders
|
|
|
(2,267
|
)
|
|
(2,045
|
)
|
Change
in short-term debt
|
|
|
1,163
|
|
|
9,873
|
|
Additions
to long-term debt
|
|
|
5,038
|
|
|
7
|
|
Reductions
of long-term debt
|
|
|
(6,129
|
)
|
|
(12,488
|
)
|
Impact
of stock options and other
|
|
|
979
|
|
|
730
|
|
Treasury
purchases
|
|
|
(5,481
|
)
|
|
(2,713
|
)
|
|
|
|
|
|
|
|
|
TOTAL
FINANCING ACTIVITIES
|
|
|
(6,697
|
)
|
|
(6,636
|
)
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
|
|
|
|
|
|
AND
CASH EQUIVALENTS
|
|
|
236
|
|
|
150
|
|
|
|
|
|
|
|
|
|
CHANGE
IN CASH AND CASH EQUIVALENTS
|
|
|
(5
|
)
|
|
(1,706
|
)
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
5,349
|
|
$
|
4,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements
|
|
|
|
|
|
|
|
THE
PROCTER & GAMBLE COMPANY AND
SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
-
These
statements should be read in conjunction with the Company’s Annual Report on
Form 10-K for the fiscal year ended June 30, 2007. The results of operations
for the three-month and six-month period ended December 31, 2007 are not
necessarily indicative of annual results.
-
Comprehensive
Income - Total comprehensive income is composed primarily of net earnings,
net
currency translation gains and losses, impacts of net investment and cash
flow
hedges and net unrealized gains and losses on investment securities. Total
comprehensive income for the three months ended December 31, 2007 and 2006
was
$4,086 million and $3,513 million, respectively. For the six months ended
December 31, 2007 and 2006, total comprehensive income was $8,199 million
and
$6,176 million, respectively.
-
Segment
Information - Following is a summary of segment results. In May 2007, we
announced a number of changes to our organization structure and certain
of our
key leadership positions. The changes became effective on July 1, 2007
and
resulted in changes to our GBU and reporting segment structure. The businesses
that previously comprised the Gillette GBU are now included within the
Beauty
and Household Care GBUs. The Braun business has been combined with the
Blades and Razors business to form the Grooming reportable segment within
the Beauty GBU. The Grooming reportable segment also includes all face
and
shave prep products which were previously reported within the Beauty
reportable segment. Duracell was moved to our Household Care GBU and will
be
reported as part of our Fabric Care and Home Care reportable segment. Finally,
our feminine care business, which previously was part of our Beauty GBU
and
reportable segment, is now part of our Health and Well-Being GBU and will
be
reported as part of the Health Care reportable segment. The following segment
information reflects the new segment reporting structure.
SEGMENT
INFORMATION
Amounts
in millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended December 31
|
|
Six
Months Ended December 31
|
|
|
|
|
Net
Sales
|
|
Earnings
Before Income Taxes
|
|
Net
Earnings
|
|
Net
Sales
|
|
Earnings
Before Income Taxes
|
|
Net
Earnings
|
Beauty
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beauty
|
|
2007
|
|
$
5,137
|
|
$
1,120
|
|
$
883
|
|
$
9,736
|
|
$
2,004
|
|
$
1,572
|
|
|
2006
|
|
4,656
|
|
1,027
|
|
804
|
|
8,980
|
|
1,862
|
|
1,438
|
Grooming
|
|
2007
|
|
2,161
|
|
596
|
|
429
|
|
4,176
|
|
1,210
|
|
880
|
|
|
2006
|
|
1,976
|
|
530
|
|
386
|
|
3,821
|
|
1,057
|
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
&
Well-Being
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Care
|
|
2007
|
|
3,772
|
|
1,056
|
|
715
|
|
7,331
|
|
2,036
|
|
1,363
|
|
|
2006
|
|
3,407
|
|
960
|
|
648
|
|
6,743
|
|
1,838
|
|
1,241
|
Snacks,
Coffee and Pet Care
|
|
2007
|
|
1,302
|
|
201
|
|
127
|
|
2,425
|
|
385
|
|
240
|
|
|
2006
|
|
1,253
|
|
232
|
|
150
|
|
2,316
|
|
376
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Household
Care
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabric
Care and Home Care
|
|
2007
|
|
6,074
|
|
1,306
|
|
882
|
|
11,978
|
|
2,662
|
|
1,798
|
|
|
2006
|
|
5,511
|
|
1,234
|
|
834
|
|
10,863
|
|
2,459
|
|
1,665
|
Baby
Care and Family Care
|
|
2007
|
|
3,374
|
|
652
|
|
418
|
|
6,794
|
|
1,330
|
|
848
|
|
|
2006
|
|
3,119
|
|
548
|
|
341
|
|
6,218
|
|
1,148
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
2007
|
|
(245)
|
|
(414)
|
|
(184)
|
|
(666)
|
|
(858)
|
|
(352)
|
|
|
2006
|
|
(197)
|
|
(441)
|
|
(301)
|
|
(431)
|
|
(774)
|
|
(516)
|
Total
|
|
2007
|
|
21,575
|
|
4,517
|
|
3,270
|
|
41,774
|
|
8,769
|
|
6,349
|
|
|
2006
|
|
19,725
|
|
4,090
|
|
2,862
|
|
38,510
|
|
7,966
|
|
5,560
|
4. |
The
Company acquired the Gillette Company in October 2005. At that time,
we
recognized an assumed liability for Gillette exit costs of $1.23
billion,
including $854 million in separations related to approximately 5,500
people, $55 million in employee relocation costs and $320 million
in other
exit costs. These costs are primarily related to the elimination
of
selling, general and administrative overlap between the two companies
in
areas like Global Business Services, corporate staff and go-to-market
support, as well as redundant manufacturing capacity. As of December
31,
2007, the remaining liability was $515 million. Total integration
plan
charges against the assumed liability were $58 million for the three
months ended December 31, 2007 and $126 million for the six months
ended
December 31, 2007. We expect such activities to be substantially
complete
by June 30, 2008.
|
5. |
Goodwill
and Other Intangible Assets - Goodwill as of December 31, 2007 is
allocated by reportable segment and global business unit as follows
(amounts in millions):
|
BEAUTY
GBU
|
Six
Months Ended December 31, 2007
|
|
|
Beauty,
beginning of
year
|
$
|
15,359
|
|
|
Acquisitions
and divestitures |
|
(50
|
)
|
|
Translation
and other
|
|
785
|
|
Goodwill,
December 31, 2007
|
|
16,094
|
|
|
|
|
|
Grooming,
beginning of year
|
|
24,211
|
|
Acquisitions and divestitures
|
|
(178
|
)
|
Translation and other
|
|
790
|
|
Goodwill,
December 31, 2007
|
|
24,823
|
|
|
|
|
|
HEALTH
& WELL-BEING GBU
|
|
|
|
Health
Care, beginning of
year
|
|
8,482
|
|
Acquisitions and divestitures
|
|
(38
|
)
|
Translation and other
|
|
186
|
|
Goodwill,
December 31, 2007
|
|
8,630
|
|
|
|
|
|
Snacks,
Coffee and Pet Care,
beginning of year
|
|
2,407
|
|
Acquisitions and divestitures
|
|
(3
|
)
|
Translation and other
|
|
20
|
|
Goodwill,
December 31, 2007
|
|
2,424
|
|
|
|
|
|
HOUSEHOLD
CARE GBU
|
|
|
|
Fabric
Care and Home Care,
beginning of year
|
|
4,470
|
|
Acquisitions and divestitures
|
|
(29
|
)
|
Translation and other
|
|
135
|
|
Goodwill,
December 31, 2007
|
|
4,576
|
|
|
|
|
|
Baby
Care and Family Care,
beginning of year
|
|
1,623
|
|
Acquisitions and divestitures
|
|
(31
|
)
|
Translation and other
|
|
77
|
|
Goodwill,
December 31, 2007
|
|
1,669
|
|
|
|
|
|
GOODWILL,
Net, beginning of year
|
|
56,552
|
|
Acquisitions and divestitures
|
|
(329
|
)
|
Translation and other
|
|
1,993
|
|
Goodwill,
December 31, 2007
|
$
|
58,216
|
|
The
increase in goodwill from June 30, 2007 is primarily due to
currency translation.
Identifiable
intangible assets as of December 31, 2007 are comprised of (amounts in
millions):
|
|
Gross
Carrying Amount
|
|
Accumulated
Amortization
|
|
Amortizable
intangible assets with determinable lives
|
|
$
|
8,802
|
|
$
|
2,299
|
|
Intangible
assets with indefinite lives
|
|
|
27,665
|
|
|
-
|
|
Total
identifiable intangible assets
|
|
$
|
36,467
|
|
$
|
2,299
|
|
Amortizable
intangible assets consist principally of brands, patents, technology and
customer relationships. The non-amortizable intangible assets consist primarily
of brands.
The
amortization expense of intangible assets for the three months ended December
31, 2007 and 2006 was $155 million and $168 million, respectively. For the
six
months ended December 31, 2007 and 2006, the amortization expense of intangible
assets was $312 million and $331 million respectively.
6. Pursuant
to SFAS 123(R) “Share-Based Payment”, companies must recognize the cost of
employee services received in exchange for awards of equity instruments based
on
the grant-date fair value of those awards (the “fair-value-based” method).
Total
share-based compensation for the three months and six months ended December
31,
2007 and 2006 are summarized in the following table (amounts in
millions):
|
|
Three
Months Ended
December
31
|
|
Six
Months Ended
December
31
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Share-Based
Compensation
|
|
|
|
|
|
|
|
|
|
SFAS
123(R) Stock Options
|
|
$
|
131
|
|
$
|
129
|
|
$
|
229
|
|
$
|
259
|
|
Other
Share-Based Awards
|
|
|
5
|
|
|
2
|
|
|
13
|
|
|
30
|
|
Total
Share-Based Compensation
|
|
$ |
136
|
|
$ |
131
|
|
$ |
242
|
|
$ |
289
|
|
Assumptions
utilized in the model are evaluated and revised, as necessary, to reflect
market
conditions and experience.
7. |
Postretirement Benefits - The Company offers various postretirement
benefits to its employees.
|
The
components of net periodic benefit cost are as follows:
Amounts
in millions |
|
Pension
Benefits
|
|
Other
Retiree
Benefits
|
|
|
Three
Months
Ended
|
|
Three
Months
Ended
|
|
|
December
31
|
|
December
31
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
Cost
|
|
$ |
69 |
|
|
$ |
67 |
|
|
$ |
24 |
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Cost |
|
|
136 |
|
|
|
118 |
|
|
|
56 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
Return on Plan
Assets |
|
|
(139 |
)
|
|
|
(111 |
)
|
|
|
(107 |
)
|
|
|
(101 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Deferred
Amounts |
|
|
4 |
|
|
|
3 |
|
|
|
- |
|
|
|
(6 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
Net Actuarial
Loss |
|
|
5 |
|
|
|
11 |
|
|
|
(3 |
)
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Benefit
Cost |
|
|
75 |
|
|
|
88 |
|
|
|
(30 |
)
|
|
|
(35 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on ESOP Preferred
Stock
|
|
|
- |
|
|
|
- |
|
|
|
(23 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Periodic Benefit Cost
(Credit)
|
|
$ |
75 |
|
|
$ |
88 |
|
|
$ |
(53 |
)
|
|
$ |
(56 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
in millions |
|
Pension
Benefits
|
|
Other
Retiree
Benefits
|
|
|
Six
Months
Ended
|
|
Six
Months
Ended
|
|
|
December
31
|
|
December
31
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
Cost
|
|
$ |
135 |
|
|
$ |
133 |
|
|
$ |
47 |
|
|
$ |
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Cost
|
|
|
266 |
|
|
|
236 |
|
|
|
112 |
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected
Return on Plan
Assets |
|
|
(273 |
)
|
|
|
(221 |
)
|
|
|
(214 |
)
|
|
|
(203 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of Deferred
Amounts |
|
|
7 |
|
|
|
6 |
|
|
|
- |
|
|
|
(11 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
Net Actuarial
Loss |
|
|
12 |
|
|
|
22 |
|
|
|
(7 |
)
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Benefit
Cost
|
|
$ |
147 |
|
|
$ |
176 |
|
|
$ |
(62 |
) |
|
$ |
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
on ESOP Preferred
Stock
|
|
|
- |
|
|
|
- |
|
|
|
(46
|
) |
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Periodic Benefit Cost
(Credit)
|
|
$ |
147 |
|
|
$ |
176 |
|
|
$ |
(108 |
)
|
|
$ |
(112 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the
year ending June 30, 2008, the expected return on plan assets is 7.4% and
9.3%
for defined benefit and other retiree benefit plans,
respectively.
8. New
Accounting Standards
On
July 1, 2007, we adopted FASB Interpretation 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 addresses the accounting and disclosure of
uncertain tax positions. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. The difference
between the tax benefit recognized in the financial statements for a position
in
accordance with FIN 48 and the tax benefit claimed in the tax return is referred
to as an unrecognized tax benefit.
The
adoption of FIN 48 resulted in a decrease to retained earnings as of July 1,
2007 of $232 million, which was reflected as a cumulative effect of a change
in
accounting principle, with a corresponding increase to the net liability for
unrecognized tax benefits. The impact primarily reflects the accrual of
additional statutory interest and penalties as required by FIN 48, partially
offset by adjustments to existing unrecognized tax benefits to comply with
FIN
48 measurement principles. The implementation of FIN 48 also resulted in a
reduction in our net tax liabilities for uncertain tax positions related to
prior acquisitions accounted for under purchase accounting, resulting in an
$80
million decrease to goodwill. Additionally, the Company historically classified
unrecognized tax benefits in current taxes payable. As a result of the adoption
of FIN 48, unrecognized tax benefits not expected to be paid in the next 12
months were reclassified to other non-current liabilities.
The
total
amount of unrecognized tax benefits at July 1, 2007 is $2,971 million, excluding
any related accruals for interest and penalties. Included in the
total unrecognized tax benefits is $1,893 million that, if recognized, would
impact the effective tax rate in future periods. We recognize accrued
interest and penalties related to unrecognized tax benefits in income tax
expense. Accrued interest and penalties as of July 1, 2007 were $589
million and $128 million, respectively, on an after tax basis. At
this time, we are not able to make a reasonable estimate of the amount of
unrecognized tax benefits and related interests and penalties that are expected
to be paid in the next 12 months. On an ongoing basis, adjustments
will be made to the liability for unrecognized tax benefits to reflect the
impact of audit developments, tax law changes, statute expirations, as well
as
for the accrual of additional current year tax exposures and for interest
and
penalties on existing liabilities.
P&G
files income tax returns in multiple federal, state and local US and foreign
jurisdictions. The Company is subject to examination by the taxing authorities
in these jurisdictions, with open tax years generally ranging from 1997 and
forward. The Company has on-going audits in various stages of completion
in
several jurisdictions, one or more of which might conclude within the next
12
months. Audit outcomes and the timing of audit settlements are subject to
significant uncertainty at this time. Such settlements will involve some
or all
of the following: the payment of additional taxes, the adjustment of certain
deferred taxes and/or the recognition of unrecognized tax benefits. It is
possible that the amount of unrecognized benefit with respect to certain
of our
uncertain tax positions will significantly increase or decrease within the
next
twelve months related to the audits described above. At this time, we are
not
able to make a reasonable estimate of the range of impact on the balance
of
unrecognized tax benefits or the impact on the effective tax rate related
to
these items.
The
unrecognized tax benefits described above will be included in the Company's
annual Form 10-K contractual obligations table to the extent the Company is able
to make reliable estimates of the timing of cash settlements with the respective
taxing authorities. If not, the total amount of unrecognized tax benefits
will be disclosed in a footnote to the contractual obligations table. At this
time, the Company can not make a reliable estimate as to the timing of cash
settlements.
In
December 2007, the FASB issued SFAS 141 (Revised), Business Combinations (SFAS
141R) and SFAS 160, Noncontrolling Interests in Consolidated Financial
Statements (SFAS 160). SFAS 141R and SFAS 160 revise the method of
accounting for a number of aspects of business combinations and non-controlling
interests, including acquisition costs, contingencies (including contingent
assets, contingent liabilities and contingent purchase price), the impacts
of
partial and step-acquisitions (including the valuation of net assets
attributable to non-acquired minority interests), and post acquisition exit
activities of acquired businesses. SFAS 141R and SFAS 160 will be
effective for the company during our fiscal year beginning July 1,
2009.
No
other
new accounting pronouncement issued or effective during the fiscal year had
or
is expected to have a material impact on the consolidated financial statements.
Item
2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The
purpose of this discussion is to
provide an understanding of P&G’s financial results and condition by
focusing on changes in certain key measures from year to
year. Management's Discussion and Analysis (MD&A) is organized in
the following sections:
·
|
Forward-Looking
Statements
|
·
|
Results
of Operations – Three Months Ended December 31,
2007
|
·
|
Results
of Operations – Six Months Ended December 31,
2007
|
·
|
Business
Segment Discussion – Three Months Ended December 31,
2007
|
·
|
Business
Segment Discussion – Six Months Ended December 31,
2007
|
·
|
Reconciliation
of Non-GAAP Measures
|
Throughout
MD&A, we refer to
measures used by management to evaluate performance, including
unit volume growth, net
outside sales and after-tax profit. We also refer to financial
measures that are not
defined under accounting principles generally accepted in the United States of America
(U.S.
GAAP), including organic
sales growth, free cash flow and
free cash flow productivity. The explanation of these measures at the
end of MD&A provides more details on the use and the derivation of these
measures. Management also uses certain market share and market
consumption estimates to evaluate performance relative to competition despite
some limitations on the availability and comparability of share
information. References to market share and market consumption in
MD&A are based on a combination of vendor-reported consumption and market
size data, as well as internal estimates.
OVERVIEW
P&G's
business is focused on
providing branded consumer goods products. Our goal is to
provide products of superior quality and value to improve the lives of the
world's consumers. We believe this will result in leadership sales,
profits and value creation, allowing employees, shareholders and the communities
in which we operate to prosper.
Our
products are sold in more than 180
countries primarily through mass merchandisers, grocery stores, membership
club
stores and drug stores. We have also expanded our presence in "high
frequency stores," the neighborhood stores which serve many consumers in
developing markets. We compete in multiple product categories
and have three global business units (GBUs): Beauty; Health and Well-Being;
and
Household Care. Under U.S. Generally Accepted Accounting Principles,
the business units comprising the GBUs are aggregated into six reportable
segments: Beauty; Grooming; Health Care; Snacks, Coffee and Pet Care;
Fabric Care and Home Care; and Baby Care and Family Care. We have
on-the-ground operations in over 80 countries through our Market Development
Organization, which leads country business teams to build our brands in local
markets and is organized along seven geographic areas comprised of three
developed regions (North America, Western Europe and Northeast Asia) and
four
developing regions (Latin America, Central and Eastern Europe/Middle
East/Africa, Greater China and ASEAN/Australasia/India).
The
following table provides the percentage of net sales and net earnings by
reportable business segment for the three months ended December 31, 2007
(excludes net sales and net earnings in Corporate):
|
|
Net
Sales
|
|
|
Net
Earnings
|
|
Beauty
GBU
|
|
|
34
|
%
|
|
|
37 |
%
|
Beauty
|
|
|
24 |
% |
|
|
25 |
% |
Grooming
|
|
|
10 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
Health
and Well-Being
GBU
|
|
|
23 |
%
|
|
|
25 |
%
|
Health
Care
|
|
|
17 |
% |
|
|
21 |
% |
Snacks,
Coffee and Pet Care
|
|
|
6 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
Household
Care
GBU
|
|
|
43 |
%
|
|
|
38 |
%
|
Fabric
Care and Home Care
|
|
|
28 |
% |
|
|
26 |
% |
Baby
Care and Family Care
|
|
|
15 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
The
following table provides the percentage of net sales and net earnings by
reportable business segment for the six months ended December 31, 2007 (excludes
net sales and net earnings in Corporate):
|
|
Net
Sales
|
|
|
Net
Earnings
|
|
Beauty
GBU
|
|
|
33 |
%
|
|
|
36 |
%
|
Beauty
|
|
|
23 |
% |
|
|
23 |
% |
Grooming
|
|
|
10 |
% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
Health
and Well-Being
GBU
|
|
|
23 |
%
|
|
|
24 |
%
|
Health
Care
|
|
|
17 |
% |
|
|
20 |
% |
Snacks,
Coffee and Pet Care
|
|
|
6 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
Household
Care
GBU
|
|
|
44 |
%
|
|
|
40 |
%
|
Fabric
Care and Home Care
|
|
|
28 |
% |
|
|
27 |
% |
Baby
Care and Family Care
|
|
|
16 |
% |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
SUMMARY
OF
RESULTS
Following
are highlights of results for the six months ended December 31,
2007:
·
|
Net
sales grew eight percent to $41.8 billion. Organic sales, which
exclude the impacts of acquisitions, divestitures and foreign exchange,
increased five percent.
|
·
|
Unit
volume increased five percent and organic volume grew six
percent. Every reportable segment and geographic region posted
year-on-year organic volume growth.
|
·
|
Net
earnings increased 14 percent to $6.3 billion. Net earnings
increased behind sales growth, higher operating profit, a lower
tax rate
and favorable foreign exchange.
|
·
|
Diluted
net earnings per share were $1.90, an increase of 17 percent versus
the
comparable prior year period.
|
·
|
Operating
cash flow was $7.4 billion, an increase of 36 percent versus the
prior
year period. Free cash flow productivity was 97 percent for the
fiscal year to date period. Free cash flow productivity is
defined as the ratio of operating cash flow less capital expenditures
to
net earnings.
|
FORWARD-LOOKING
STATEMENTS
We
discuss expectations regarding future
performance, events and outcomes, such as our business outlook and objectives,
in annual and quarterly reports, press releases and other written and oral
communications. All such statements, except for historical and
present factual information, are "forward-looking statements," and are based
on
financial data and our business plans available only as of the time the
statements are made, which may become out-of-date or incomplete. We
assume no obligation to update any forward-looking statements as a result
of new
information, future events or other factors. Forward-looking
statements are inherently uncertain, and investors must recognize that events
could be significantly different from our expectations.
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 on leading-edge
innovation with respect to both products and operations and on the continued
positive reputations of our brands. This means we must be able to
obtain patents and respond to technological advances and patents granted
to
competition. Our success is also dependent on effective sales,
advertising and marketing programs in an increasingly fragmented media
environment. Our ability to innovate and execute in these areas will
determine the extent to which we are able to grow existing sales and volume
profitably, especially with respect to the product categories and geographic
markets (including developing markets) in which we have chosen to
focus. There are high levels of competitive activity in the
environments in which we operate. To address these challenges, we
must respond to competitive factors, including pricing, promotional incentives
and trade terms. We must manage each of these factors, as well as
maintain mutually beneficial relationships with our key customers, in order
to
effectively compete and achieve our business plans. Since our goals
include a growth component which can be affected by acquisitions and
divestitures, we must manage and integrate key company transactions, such
as the
Gillette and Wella acquisitions, including achieving the cost and growth
synergies for those transactions in accordance with stated goals, and the
successful separation of the Company’s coffee business while continuing to
deliver the Company’s goals.
Cost
Pressures. Our costs are subject to fluctuations, particularly
due to changes in commodity prices, raw materials, cost of labor, foreign
exchange and interest rates. Therefore, our success is dependent, in
part, on our continued ability to manage these fluctuations through pricing
actions, cost savings projects, sourcing decisions and certain hedging
transactions. We also must manage our debt and currency exposure,
especially in volatile countries. We need to maintain key
manufacturing and supply arrangements, including sole supplier and sole
manufacturing plant arrangements. We must implement, achieve and
sustain cost improvement plans, including our outsourcing projects and those
related to general overhead and workforce rationalization.
Global
Economic
Conditions. Economic changes, terrorist activity and political
unrest may result in business interruption, inflation, deflation or decreased
demand for our products. Our success will depend in part on our
ability to manage continued global political and/or economic uncertainty,
especially in our significant geographic markets, as well as any political
or
economic disruption due to terrorist and other hostile activities.
Regulatory
Environment. Changes in laws, regulations and the related
interpretations may alter the environment in which we do
business. This includes changes in environmental, competitive and
product-related laws, as well as changes in accounting standards and taxation
requirements. Accordingly, our ability to manage regulatory, tax and
legal matters (including product liability, patent and intellectual property
matters, as well as those related to the integration of Gillette and its
subsidiaries) and to resolve pending matters within current estimates may
impact
our results.
RESULTS
OF OPERATIONS –
Three Months Ended December 31, 2007
The
following discussion provides a review of results for the three months ended
December 31, 2007 versus the three months ended December 31, 2006.
THE
PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts
in Millions Except Per Share Amounts)
Consolidated
Earnings Information
|
|
|
|
Three
Months Ended
December
31
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
CHG
|
|
NET
SALES
|
|
$ |
21,575 |
|
|
$ |
19,725 |
|
|
|
9 |
% |
COST
OF PRODUCTS SOLD
|
|
|
10,394 |
|
|
|
9,287 |
|
|
|
12 |
% |
GROSS
MARGIN
|
|
|
11,181 |
|
|
|
10,438 |
|
|
|
7 |
% |
SELLING,
GENERAL & ADMINISTRATIVE EXPENSE
|
|
|
6,467 |
|
|
|
6,088 |
|
|
|
6 |
% |
OPERATING
INCOME
|
|
|
4,714 |
|
|
|
4,350 |
|
|
|
8 |
% |
TOTAL
INTEREST EXPENSE
|
|
|
389 |
|
|
|
339 |
|
|
|
|
|
OTHER
NON-OPERATING INCOME, NET
|
|
|
192 |
|
|
|
79 |
|
|
|
|
|
EARNINGS
BEFORE INCOME TAXES
|
|
|
4,517 |
|
|
|
4,090 |
|
|
|
10 |
% |
INCOME
TAXES
|
|
|
1,247 |
|
|
|
1,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
EARNINGS
|
|
|
3,270 |
|
|
|
2,862 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECTIVE
TAX RATE
|
|
|
27.6 |
% |
|
|
30.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
NET EARNINGS
|
|
$ |
1.04 |
|
|
$ |
0.89 |
|
|
|
17 |
% |
DILUTED
NET EARNINGS
|
|
$ |
0.98 |
|
|
$ |
0.84 |
|
|
|
17 |
% |
DIVIDENDS
|
|
$ |
0.35 |
|
|
$ |
0.31 |
|
|
|
13 |
% |
AVERAGE
DILUTED SHARES OUTSTANDING
|
|
|
3,341.5 |
|
|
|
3,406.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPARISONS
AS A % OF
NET SALES
|
|
|
|
|
|
|
|
|
|
Basis
Pt Chg
|
COST
OF PRODUCTS SOLD
|
|
|
48.2 |
% |
|
|
47.1 |
% |
|
|
110 |
|
GROSS
MARGIN
|
|
|
51.8 |
% |
|
|
52.9 |
% |
|
|
(110 |
) |
SELLING,
GENERAL & ADMINISTRATIVE EXPENSE
|
|
|
30.0 |
% |
|
|
30.9 |
% |
|
|
(90 |
) |
OPERATING
MARGIN
|
|
|
21.9 |
% |
|
|
22.1 |
% |
|
|
(20 |
) |
EARNINGS
BEFORE INCOME TAXES
|
|
|
20.9 |
% |
|
|
20.7 |
% |
|
|
20 |
|
NET
EARNINGS
|
|
|
15.2 |
% |
|
|
14.5 |
% |
|
|
70 |
|
Net
sales
increased nine percent for the quarter to $21.6 billion. Sales were
up behind a five percent increase in unit volume and a five percent favorable
foreign exchange impact. These were partially offset by a negative
one percent mix impact resulting from disproportionate double-digit volume
growth in developing regions, where average selling price is below the company
average. Volume growth was broad-based across geographies with each
geographic region posting year-on-year organic volume growth. All
reportable segments except Snacks, Coffee and Pet Care grew both total and
organic volume, led by Fabric Care and Home Care, Baby Care and Family Care,
and
Grooming. Volume grew primarily behind initiative activity on our key
brands and continued developing region expansion. Duracell, Febreze,
Fusion, Head & Shoulders, Nice ‘N Easy, Pampers, Prilosec and Tide each
delivered double-digit volume growth for the quarter. Organic sales
were up five percent for the quarter behind six percent organic volume
growth.
|
|
Net
Sales Change Drivers 2007 vs. 2006 (Three Months Ended Dec.
31)
|
|
|
Volume
with Acquisitions & Divestitures
|
|
Volume
excluding Acquisitions & Divestitures
|
|
Foreign
Exchange
|
|
Price
|
|
Mix/
Other
|
|
Net
Sales Growth
|
Beauty
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beauty
|
|
|
3 |
% |
|
|
3 |
% |
|
|
6 |
% |
|
|
0 |
% |
|
|
1 |
% |
|
|
10 |
% |
Grooming
|
|
|
7 |
% |
|
|
8 |
% |
|
|
7 |
% |
|
|
0 |
% |
|
|
-5 |
% |
|
|
9 |
% |
Health
and Well-Being
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Care
|
|
|
5 |
% |
|
|
5 |
% |
|
|
6 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
11 |
% |
Snacks,
Coffee and Pet Care
|
|
|
0 |
% |
|
|
0 |
% |
|
|
3 |
% |
|
|
1 |
% |
|
|
0 |
% |
|
|
4 |
% |
Household
Care
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabric
Care and Home Care
|
|
|
7 |
% |
|
|
7 |
% |
|
|
5 |
% |
|
|
0 |
% |
|
|
-2 |
% |
|
|
10 |
% |
Baby
Care and Family Care
|
|
|
2 |
% |
|
|
8 |
% |
|
|
5 |
% |
|
|
0 |
% |
|
|
1 |
% |
|
|
8 |
% |
Total
Company
|
|
|
5 |
% |
|
|
6 |
% |
|
|
5 |
% |
|
|
0 |
% |
|
|
-1 |
% |
|
|
9 |
% |
Sales
percentage changes are approximations based on quantitative formulas that are
consistently applied.
Gross
margin was down 110-basis points for the quarter to 51.8% of net
sales. Commodity and energy cost increases had a negative impact on
gross margin of over 150-basis points. These were partially offset by
scale leverage from volume growth and cost savings projects.
Total
selling, general and administrative expenses (SG&A) increased six percent to
$6.5 billion. SG&A as a percentage of net sales was down 90-basis
points as lower overhead spending as a percentage of net sales more than
offset
higher marketing spending as a percentage of net sales. Overhead
spending as a percentage of net sales was down primarily due to scale leverage,
overhead cost controls and Gillette synergy savings.
Interest
expense for the quarter was up $50 million versus the year-ago period due
to a
higher interest rate driven by the geographic mix of our short-term
borrowings. Other non-operating income increased $113 million versus
the prior year period primarily due to the gain on the sale of our Western
European family care business, which closed on October 1, 2007.
Net
earnings increased 14 percent for the quarter to $3.3 billion behind sales
growth, higher operating profit, a lower tax rate and favorable foreign
exchange. Our tax rate declined from 30.0% to 27.6% primarily due to
the favorable settlement of tax audits and a more favorable geographic mix
of
earnings. Diluted net earnings per share were $0.98, up 17 percent
versus the prior year. Diluted net earnings per share growth exceeded
net earnings growth due to share repurchase activity.
RESULTS
OF OPERATIONS – Six
Months Ended December 31, 2007
The
following discussion provides a review of results for the six months ended
December 31, 2007 versus the six months ended December 31, 2006.
THE
PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts
in Millions Except Per Share Amounts)
Consolidated
Earnings Information
|
|
|
|
Six
Months Ended
December
31
|
|
|
|
|
|
|
2007
|
|
2006
|
|
%
CHG
|
NET
SALES
|
|
$ |
41,774 |
|
|
$ |
38,510 |
|
|
|
8 |
% |
COST
OF PRODUCTS SOLD
|
|
|
19,913 |
|
|
|
18,152 |
|
|
|
10 |
% |
GROSS
MARGIN
|
|
|
21,861 |
|
|
|
20,358 |
|
|
|
7 |
% |
SELLING,
GENERAL & ADMINISTRATIVE EXPENSE
|
|
|
12,729 |
|
|
|
11,954 |
|
|
|
6 |
% |
OPERATING
INCOME
|
|
|
9,132 |
|
|
|
8,404 |
|
|
|
9 |
% |
TOTAL
INTEREST EXPENSE
|
|
|
748 |
|
|
|
697 |
|
|
|
|
|
OTHER
NON-OPERATING INCOME, NET
|
|
|
385 |
|
|
|
259 |
|
|
|
|
|
EARNINGS
BEFORE INCOME TAXES
|
|
|
8,769 |
|
|
|
7,966 |
|
|
|
10 |
% |
INCOME
TAXES
|
|
|
2,420 |
|
|
|
2,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
EARNINGS
|
|
|
6,349 |
|
|
|
5,560 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECTIVE
TAX RATE
|
|
|
27.6 |
% |
|
|
30.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
NET EARNINGS
|
|
$ |
2.02 |
|
|
$ |
1.73 |
|
|
|
17 |
% |
DILUTED
NET EARNINGS
|
|
$ |
1.90 |
|
|
$ |
1.63 |
|
|
|
17 |
% |
DIVIDENDS
|
|
$ |
0.70 |
|
|
$ |
0.62 |
|
|
|
13 |
% |
AVERAGE
DILUTED SHARES OUTSTANDING
|
|
|
3,348.2 |
|
|
|
3,410.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPARISONS
AS A % OF
NET SALES
|
|
|
|
|
|
|
|
|
|
Basis
Pt Chg
|
COST
OF PRODUCTS SOLD
|
|
|
47.7 |
% |
|
|
47.1 |
% |
|
|
60 |
|
GROSS
MARGIN
|
|
|
52.3 |
% |
|
|
52.9 |
% |
|
|
(60 |
) |
SELLING,
GENERAL & ADMINISTRATIVE EXPENSE
|
|
|
30.5 |
% |
|
|
31.0 |
% |
|
|
(50 |
) |
OPERATING
MARGIN
|
|
|
21.9 |
% |
|
|
21.8 |
% |
|
|
10 |
|
EARNINGS
BEFORE INCOME TAXES
|
|
|
21.0 |
% |
|
|
20.7 |
% |
|
|
30 |
|
NET
EARNINGS
|
|
|
15.2 |
% |
|
|
14.4 |
% |
|
|
80 |
|
Net
sales
for fiscal year to date period were up eight percent to $41.8 billion behind
five percent volume growth and a favorable four percent foreign exchange
impact. This was partially offset by a negative one percent mix
impact primarily due to disproportionate double-digit growth in developing
regions. Volume growth was broad-based across segments and geographic
regions. Each reportable segment and geographic region as well as 15
of our top 16 countries delivered year-on-year organic volume growth for
the
fiscal year to date period. Volume grew behind initiative
activity, led by Tide, Downy, Febreze, Fusion, Head & Shoulders, Hugo Boss,
Dolce & Gabbana, Naturella, Pampers, Charmin and Pringles, all of which
posted high-single digit or higher volume growth to offset declines on Braun,
Actonel and in pet care. Organic sales increased five percent for the
fiscal year to date period behind six percent organic volume
growth.
|
|
Net
Sales Change Drivers 2007 vs. 2006 (Six Months Ended Dec.
31)
|
|
|
Volume
with Acquisitions & Divestitures
|
|
Volume
excluding Acquisitions & Divestitures
|
|
Foreign
Exchange
|
|
Price
|
|
Mix/
Other
|
|
Net
Sales Growth
|
Beauty
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beauty
|
|
|
2 |
% |
|
|
3 |
% |
|
|
5 |
% |
|
|
0 |
% |
|
|
1 |
% |
|
|
8 |
% |
Grooming
|
|
|
6 |
% |
|
|
7 |
% |
|
|
6 |
% |
|
|
1 |
% |
|
|
-4 |
% |
|
|
9 |
% |
Health
and Well-Being
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Care
|
|
|
5 |
% |
|
|
4 |
% |
|
|
5 |
% |
|
|
0 |
% |
|
|
-1 |
% |
|
|
9 |
% |
Snacks,
Coffee and Pet Care
|
|
|
1 |
% |
|
|
1 |
% |
|
|
3 |
% |
|
|
0 |
% |
|
|
1 |
% |
|
|
5 |
% |
Household
Care
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabric
Care and Home Care
|
|
|
8 |
% |
|
|
8 |
% |
|
|
4 |
% |
|
|
0 |
% |
|
|
-2 |
% |
|
|
10 |
% |
Baby
Care and Family Care
|
|
|
5 |
% |
|
|
9 |
% |
|
|
4 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
9 |
% |
Total
Company
|
|
|
5 |
% |
|
|
6 |
% |
|
|
4 |
% |
|
|
0 |
% |
|
|
-1 |
% |
|
|
8 |
% |
Sales
percentage changes are approximations based on quantitative formulas that
are
consistently applied.
Gross
margin was down 60-basis points fiscal year to date to 52.3% of net
sales. Commodity and energy cost increases had a negative impact on
gross margin of over 120-basis points. These were largely
offset by scale leverage from volume growth and cost savings
projects.
Total
selling, general and administrative expenses (SG&A) increased six percent to
$12.7 billion for the fiscal year to date period. SG&A as a
percentage of net sales was down 50-basis points primarily behind lower overhead
spending as a percentage of net sales. Overhead spending as a
percentage of net sales was down primarily due to scale leverage, overhead
cost
controls and Gillette synergy savings. Marketing spending as a
percentage of net sales increased slightly versus the year ago period to
support
initiative activity on key brands.
Interest
expense for the fiscal year to date period was up $51 million versus the
year-ago period due to a higher interest rate driven by the geographic mix
of
our short-term borrowings. Other non-operating income increased $126
million primarily due to higher current year divestiture gains, including
a gain
on the sale of our Western European family care business and our Japanese
adult
incontinence business. The base period included gains on the sale of
Pert in North America and Sure.
Net
earnings increased 14 percent to $6.3 billion behind sales growth, higher
operating profit, a lower tax rate and favorable foreign
exchange. Our tax rate declined from 30.2% to 27.6% due to a one-time
tax benefit resulting from a reduction in the German statutory tax rate,
which
reduced our deferred tax liabilities related to acquired intangible assets,
the
favorable settlement of tax audits and a more favorable geographic mix of
earnings. Diluted net earnings per share were up 17 percent versus
the prior year to $1.90 per share.
BUSINESS
SEGMENT DISCUSSION–
Three and Six Months Ended December 31, 2007
The
following discussion provides a review of results by business
segment. Analyses of the results for the three and six months ended
December 31, 2007 are provided compared to the same three and six month period
ended December 31, 2006. The primary financial measures used to
evaluate segment performance are net sales and net earnings. The
table below provides supplemental information on net sales and net earnings
by
business segment for the three and six months ended December 31, 2007 versus
the
comparable prior year period (Amounts in millions):
|
|
Three
Months Ended December 31, 2007
|
|
|
|
|
Net
Sales
|
|
|
%
Change
Versus
Year
Ago
|
|
|
Earnings
Before Income Taxes
|
|
|
%
Change
Versus
Year
Ago
|
|
Net
Earnings
|
|
%
Change
Versus
Year
Ago
|
|
Beauty
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beauty
|
|
$ |
5,137 |
|
|
|
10 |
% |
|
$ |
1,120 |
|
|
|
9 |
% |
|
$ |
883 |
|
|
10 |
% |
Grooming
|
|
|
2,161 |
|
|
|
9 |
% |
|
|
596 |
|
|
|
12 |
% |
|
|
429 |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
and Well-Being
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Care
|
|
|
3,772 |
|
|
|
11 |
% |
|
|
1,056 |
|
|
|
10 |
% |
|
|
715 |
|
|
10 |
% |
Snacks,
Coffee and Pet Care
|
|
|
1,302 |
|
|
|
4 |
% |
|
|
201 |
|
|
|
-13 |
% |
|
|
127 |
|
|
-15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Household
Care
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabric
Care and Home Care
|
|
|
6,074 |
|
|
|
10 |
% |
|
|
1,306 |
|
|
|
6 |
% |
|
|
882 |
|
|
6 |
% |
Baby
Care and Family Care
|
|
|
3,374 |
|
|
|
8 |
% |
|
|
652 |
|
|
|
19 |
% |
|
|
418 |
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Business Segments
|
|
|
21,820 |
|
|
|
10 |
% |
|
|
4,931 |
|
|
|
9 |
% |
|
|
3,454 |
|
|
9 |
% |
Corporate
|
|
|
(245 |
) |
|
|
N/A |
|
|
|
(414 |
) |
|
|
N/A |
|
|
|
(184 |
) |
|
N/A |
|
Total
Company
|
|
|
21,575 |
|
|
|
9 |
% |
|
|
4,517 |
|
|
|
10 |
% |
|
|
3,270 |
|
|
14 |
% |
|
|
Six
Months Ended December 31, 2007
|
|
|
|
|
Net
Sales
|
|
|
%
Change Versus
Year
Ago
|
|
|
Earnings
Before Income Taxes
|
|
|
%
Change Versus
Year
Ago
|
|
Net
Earnings
|
|
%
Change Versus
Year
Ago
|
|
Beauty
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beauty
|
|
$ |
9,736 |
|
|
|
8 |
% |
|
$ |
2,004 |
|
|
|
8 |
% |
|
$ |
1,572 |
|
|
9 |
% |
Grooming
|
|
|
4,176 |
|
|
|
9 |
% |
|
|
1,210 |
|
|
|
14 |
% |
|
|
880 |
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
and Well-Being
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Care
|
|
|
7,331 |
|
|
|
9 |
% |
|
|
2,036 |
|
|
|
11 |
% |
|
|
1,363 |
|
|
10 |
% |
Snacks,
Coffee and Pet Care
|
|
|
2,425 |
|
|
|
5 |
% |
|
|
385 |
|
|
|
2 |
% |
|
|
240 |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Household
Care
GBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabric
Care and Home Care
|
|
|
11,978 |
|
|
|
10 |
% |
|
|
2,662 |
|
|
|
8 |
% |
|
|
1,798 |
|
|
8 |
% |
Baby
Care and Family Care
|
|
|
6,794 |
|
|
|
9 |
% |
|
|
1,330 |
|
|
|
16 |
% |
|
|
848 |
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Business Segments
|
|
|
42,440 |
|
|
|
9 |
% |
|
|
9,627 |
|
|
|
10 |
% |
|
|
6,701 |
|
|
10 |
% |
Corporate
|
|
|
(666 |
) |
|
|
N/A |
|
|
|
(858 |
) |
|
|
N/A |
|
|
|
(352 |
) |
|
N/A |
|
Total
Company
|
|
|
41,774 |
|
|
|
8 |
% |
|
|
8,769 |
|
|
|
10 |
% |
|
|
6,349 |
|
|
14 |
% |
BEAUTY
GBU
Beauty
Beauty
net sales increased 10 percent
during the quarter to $5.1 billion. Net sales were up behind
three percent volume
growth
and a favorable
six
percent foreign exchange
impact. Disproportionate growth
on premium
priced Prestige fragrances and on skin care products drove a favorable one
percent mix impact on net sales. Organic sales increased five
percent. Skin
care
volume increased high-single digits
behind Olay
Definity and
Regenerist. Volume in Prestige Fragrances was up mid-single digits
with continued growth on
Hugo Boss and
Dolce & Gabbana. Hair
care
volume was up low-single digits as
double-digit growth
on Head & Shoulders and
Nice 'N Easy was
partially
offset by
declines in
professional hair care and flat volume on
Pantene. Net
earnings in
Beauty were up ten
percent to $883
million. Net
earnings margin was down 10-basis
points as a reduction in gross margin was largely offset by an improvement
in
SG&A. Gross margin was down primarily due to higher commodity
costs. SG&A as a percentage of net sales was down as higher
marketing spending was more than offset by lower overhead spending as a
percentage of net sales.
Beauty
net sales increased eight percent fiscal
year to date to $9.7
billion. Sales
increased
behind two percent volume growth, a one percent positive product mix impact
from disproportionate
growth in prestige fragrances and five points
of favorable foreign
exchange. Prestige Fragrances volume was up mid-single
digits behind growth on Dolce & Gabbana, Hugo
Boss and Lacoste. In
skin care, volume
was up mid-single
digits behind growth on Olay
behind Definity
and Regenerist. Hair
care volume was up low-single
digits as growth in
developing markets was partially offset by a volume decline in North America. Head
&
Shoulders
volume
was up double-digits globally. Pantene volume grew low-single digits
globally as high-single digits growth in developing markets was largely offset
by softness in North
America. Volume
in deodorants was down
mid-single
digits. Net
earnings in Beauty increased nine
percent to $1.6 billion primarily behind higher sales
growth. Net
earnings margin was
up
10-basis points as lower
gross margin was more than offset by improved SG&A as a percentage of net
sales and a lower tax rate. Gross margin was down due to higher
commodity costs. SG&A improved as lower overhead
spending as
a percentage of net sales was
partially offset by increased marketing investment.
Grooming
Grooming
net sales increased nine percent for the quarter to $2.2 billion behind seven
percent volume growth. Net sales benefited from a
favorable seven percent foreign exchange impact, partially offset by a negative
five percent mix impact primarily due to disproportionate double-digit growth
in
developing regions, where average selling prices are below the segment
average. Blades and razors volume was up double-digits behind
developing region volume growth of approximately 20% driven by the expansion
of
Fusion. In developed regions, high-single digit growth in North
America driven by Fusion and Venus Breeze more than offset reductions in
several
Western European markets from the impact of pipeline volume in the base period
related to the Fusion launch. In Braun, mid-single digit volume
growth in male and female hair removers was more than offset by reductions
in
home appliances resulting from supply constraints at our contract manufacturer,
a de-emphasis of the home appliances business in the U.S. and the divestiture
of
thermometer and blood pressure devices. Net earnings in Grooming were
up 11 percent for the quarter to $429 million. Net earnings margin
improved 30-basis points for the quarter as lower gross margins were more
than
offset by lower SG&A as a percentage of net sales. Gross margin
declined primarily due to higher costs incurred at our contract manufacturer
on
the Braun home appliance business. SG&A improved as higher
marketing spending as a percentage of net sales was more than offset by lower
overhead spending.
Grooming
net sales increased nine percent to $4.2 billion fiscal year to
date. Sales were up behind six percent volume growth, a six percent
favorable foreign exchange impact and a one percent positive pricing impact
from
carryover price increases. These were partially offset by a negative
four percent mix impact as positive product mix from growth on the
premium-priced Fusion brand was more than offset by disproportionate growth
in
developing regions. Blades and razors volume increased high-single
digits behind volume growth of over 20% in developing regions driven primarily
by Fusion expansion. In developed regions, blades and razors volume
was down low-single digits due to a base period that included significant
pipeline shipments related to the Fusion launch in Western Europe and
Japan. Braun volume was down mid-single digits fiscal year to date
primarily due to lower home appliances shipments resulting from supply
constraints at our contract manufacturer, a de-emphasis of the home appliances
business in the U.S. and the divestiture of thermometer and blood pressure
devices. Net earnings in Grooming were up 14% fiscal year to date to
$880 million behind sales growth and a 90-basis point earnings margin
expansion. Earnings margin improved as a reduction in gross margin
was more than offset by improved SG&A as a percentage of net
sales. Gross margin declined primarily due to higher costs incurred
at our contract manufacturer on the Braun home appliance
business. SG&A was down due to lower overhead spending, partially
offset by higher marketing investment levels as a percentage of net
sales.
HEALTH
AND
WELL-BEING GBU
Health
Care
Health
Care net sales were up 11 percent during the quarter to $3.8
billion. Sales grew behind a five percent increase in volume and a
six percent favorable foreign exchange impact. Oral care volume was
up high-single digits driven by double-digit growth in developing regions
behind
Crest toothpaste. Oral care volume grew mid-single digits in
developed regions behind Oral-B brushes and Crest toothpaste and oral
rinse. Feminine care volume was up mid-single digits behind
double-digit growth in developing regions, partially offset by the impact
of the
divestiture of our Japanese adult incontinence business. Volume in
pharmaceuticals and personal health was in-line with the year ago period
as
double-digit growth on Prilosec OTC and the addition of the Swiss Precision
Diagnostics joint venture were offset by lower shipment levels on Actonel
and
Vicks. Net earnings in Health Care were up 10 percent to $715
million. Net earnings margin was down 10-basis points as reduced
gross margin from a less profitable geographic and product mix and higher
commodity costs was partially offset by lower overhead and marketing spending
as
a percentage of net sales.
Health
Care net sales increased nine percent fiscal year to date to $7.3 billion
behind
a five percent increase in volume. Foreign exchange had a positive
five percent impact on net sales. Disproportionate growth in
developing regions on feminine care and oral care resulted in a negative
one
percent mix impact. Oral care volume was up mid-single digits behind
initiative-driven growth on Oral-B brushes and Crest
toothpaste. Feminine care volume increased mid-single digits behind
double-digit growth in developing regions. Volume in pharmaceuticals
and personal health was up low-single digits as the impact of adding the
Swiss
Precision Diagnostics business and mid-single digit growth on Prilosec OTC
was
largely offset by lower shipments on Actonel and Vicks. Net earnings
in Health Care were up 10 percent to $1.4 billion behind sales growth and
a
20-basis point improvement in net earnings margin. Net earnings
margin increased behind lower SG&A as a percentage of net sales, partially
offset by lower gross margin. Gross margin was down due to a less
profitable geographic and product mix and higher commodity
costs. SG&A improved primarily behind lower overhead spending as
a percentage of net sales.
Snacks,
Coffee and Pet
Care
Snacks,
Coffee and Pet Care net sales increased four percent for the quarter to $1.3
billion. Sales benefited from a positive one percent pricing impact
from the carryover effect of price increases in coffee and pet care and a
three
percent favorable foreign exchange impact. Volume for the segment was
in-line with the year-ago level as growth in snacks and coffee was offset
by a
decline in pet care. Snacks volume increased mid-single digits behind
the Pringles Minis and Selects initiatives. Coffee volume was up
low-single digits behind the recent launches of Dunkin’ Donuts, Folgers Black
Silk and Folgers House Blend. In pet care, volume was down
high-single digits primarily due to continued negative impacts from the
voluntary wet pet food recall in the U.S. in March 2007. Net earnings
in Snacks, Coffee and Pet Care were down 15 percent to $127 million for the
quarter. Higher sales were more than offset by a 220-basis point
decline in net earnings margin. Net earnings margin was down due to a
reduction in gross margin partially offset by lower overhead spending as
a
percentage of net sales. Gross margin was down primarily due to
higher commodity costs.
Snacks,
Coffee and Pet Care net sales increased five percent to $2.4 billion fiscal
year
to date. Sales grew behind a one percent volume increase and a three
percent favorable foreign exchange impact. Favorable product mix,
primarily from growth in premium priced coffee, added one percent to net
sales. Snacks volume was up high-single digits behind the launch of
Rice Infusion in Western Europe and continued growth on Pringles Minis and
Selects. Coffee volume increased mid-single digits behind the launch
of Folgers Black Silk, Folgers House Blend and Dunkin’ Donuts
coffee. In pet care, volume was down mid-single digits due to
continued negative impacts from the voluntary wet pet food recall in the
U.S. in
March 2007. Net earnings in Snacks, Coffee and Pet Care increased one
percent to $240 million. Net earnings margin was down 30-basis points
as a first-quarter insurance recovery related to Hurricane Katrina and lower
overhead and marketing spending as a percentage of net sales were more than
offset by a reduction in gross margin driven by higher commodity
costs.
In
January 2008, P&G announced plans to separate its coffee business and create
an independent company. The coffee business had net sales of
approximately $1.6 billion and operating income of about $350 million in
fiscal
year 2007. Although no decision has been made on the form of the
separation, P&G expects to do a spin-off or split-off
transaction.
HOUSEHOLD
CARE GBU
Fabric
Care and Home
Care
Fabric
Care and Home Care net sales increased 10 percent for the quarter to $6.1
billion behind seven percent volume growth. Favorable foreign
exchange added five percent to net sales, but was partially offset by a negative
two percent mix impact resulting from disproportionate double-digit growth
in
developing regions. Fabric Care volume was up high-single digits
behind double-digit volume growth in developing regions and initiative activity
on Tide, Ariel, Downy and Gain, including continued growth from the expansion
of
the liquid laundry detergent compaction project in North
America. Home Care volume was up low-single digits as growth on
initiative activity, including Febreze Candles and the Western Europe Air
Care
launch, was partially offset by market softness in North America. In
batteries, volume was up double-digits in both developed and developing regions
behind promotion programs during the holiday period. Net earnings in
Fabric Care and Home Care increased six percent to $882 million for the
quarter. Net earnings margin was down 60-basis points primarily due
to lower gross margin from increased commodity costs. SG&A was
roughly in-line with the year ago period as lower overhead spending as a
percentage of net sales was largely offset by higher marketing spending as
a
percentage of net sales.
Fabric
Care and Home Care net sales increased 10 percent to $12.0 billion fiscal
year
to date. Volume was up eight percent and favorable foreign exchange
added four percent to sales growth. This was partially offset by a
negative two percent mix impact primarily from disproportionate double-digit
growth in developing regions and on large pack sizes in fabric
care. Fabric care volume increased high-single digits behind
double-digit developing region growth, the liquid laundry detergent compaction
launch in North America and initiative activity on Tide, Gain, Ariel and
Downy. Home care volume was up high-single digits behind the Dawn
restage in North America, the launch of Febreze Candles and continued expansion
of auto-dishwashing products in Western Europe. Batteries volume was
up high-single digits behind double-digit growth in developing regions and
high-single digit growth in North America behind promotional
activity. Net earnings in Fabric Care and Home Care increased eight
percent to $1.8 billion. Earnings margin was down 30-basis points
primarily due to lower gross margin. Gross margin was down as volume
scale leverage and manufacturing cost savings projects were more than offset
by
higher commodity costs. SG&A improved as a percentage of net
sales as higher marketing spending was more than offset by lower overheads
as a
percentage of net sales.
Baby
Care and Family
Care
Baby
Care
and Family Care net sales increased eight percent for the quarter to $3.4
billion, including the impact of the Western European family care
divestiture. Sales were up behind two percent volume growth, five
points of favorable foreign exchange and a one percent favorable mix
impact. Organic volume and organic sales, which exclude the impacts
of foreign exchange and the Western European family care divestiture, grew
eight
percent. Baby care volume increased double-digits behind double-digit
growth in developing regions, driven by the expansion of Pampers, and mid-single
digit growth in developed regions, driven by Baby Dry, Swaddlers and
Luvs. Family care volume was down high-single digits due to the sale
of the Western European business. Family care organic volume was up
mid-single digits behind growth on both Charmin and Bounty from recently
launched product restages. Net earnings in Baby Care and Family Care
were up 23 percent to $418 million behind sales growth and net earnings margin
expansion. Net earnings margin was up 150-basis points behind higher
gross margin and lower overhead spending as a percentage of net
sales. Gross margin improved due to a more profitable product mix
following the Western Europe family care divestiture, volume scale leverage
and
cost savings projects, partially offset by higher commodity costs.
Baby
Care
and Family Care net sales increased nine percent fiscal year to date to $6.8
billion, including the impact of the Western European family care
divestiture. Sales grew behind five percent volume growth and a four
percent favorable foreign exchange impact. Organic sales, which
exclude the impacts of foreign exchange and the Western European family care
divestiture, grew eight percent behind nine percent organic volume
growth. Organic volume growth was balanced across the segment with
high-single digit growth in both baby care and family care. Baby care
volume in developed regions was up mid-single digits behind growth on Pampers
Baby Stages of Development and on the Baby Dry caterpillar flex
initiative. In developing regions, baby care volume was up
double-digits, led by growth on Pampers across regions. Family care
organic volume was up high-single digits behind the Bounty and Charmin product
restages and continued growth on the Basic product tier. Net earnings
in Baby Care and Family Care were up 17 percent to $848 million. Net
earnings margin improved 80-basis points primarily behind lower SG&A costs
due to lower overhead and marketing as a percentage of net
sales. Gross margin was up slightly as a more profitable product mix
following the Western Europe family care divestiture, volume scale leverage
and
cost savings projects were largely offset by higher commodity
costs.
CORPORATE
Corporate
includes certain operating and non-operating activities not allocated to
specific business units. These include: the incidental
businesses managed at the corporate level, financing and investing activities,
certain restructuring charges, other general corporate items and the historical
results of certain divested brands and categories, including certain Gillette
brands that were divested as required by the regulatory authorities in relation
to the Gillette acquisition. Corporate also includes reconciling
items to adjust the accounting policies used in the segments to U.S.
GAAP. The most significant reconciling items include income taxes (to
adjust from statutory rates that are reflected in the segments to the overall
Company effective tax rate), adjustments for unconsolidated entities (to
eliminate sales, cost of products sold and SG&A for entities that are
consolidated in the segments but accounted for using the equity method for
U.S.
GAAP) and minority interest adjustments for subsidiaries where we do not
have
100% ownership. Since both unconsolidated entities and less than 100%
owned subsidiaries are managed as integral parts of the Company, they are
accounted for similar to a wholly owned subsidiary for management and segment
purposes. This means our segment results recognize 100% of each
income statement component through before-tax earnings in the segments, with
eliminations for unconsolidated entities in Corporate. In determining
segment net earnings, we apply the statutory tax rates (with adjustments
to
arrive at 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.
Net
earnings in Corporate increased $117 million for the quarter primarily due
to
the gain on the sale of our Western European family care business and a lower
tax rate, partially offset by higher interest expense. Our tax rate
was down 240-basis points in the current quarter due to favorable settlements
of
tax audits and a more favorable geographic mix of earnings. Fiscal
year to date, net earnings in Corporate increased $166 million versus the
year-ago period. The increase was driven primarily by higher
divestiture gains and a lower tax rate, partially offset by higher interest
expense. Divestiture gains in the current year period include our
Western European family care business and our adult incontinence business
in
Japan. Our fiscal year to date tax rate was down 260-basis points due
to a one-time tax benefit in the first quarter resulting from a change in
the
statutory tax rate in Germany, tax audit settlements and a more favorable
geographic mix.
FINANCIAL
CONDITION
Operating
Activities
Cash
generated from operating activities for the fiscal year to date period was
$7.4
billion, an increase of 36 percent versus the comparable prior year
period. Operating cash increased due to higher net earnings and an
improvement in working capital days versus the base period. Accounts
receivable days improved by two days versus the prior year level due to Gillette
integration benefits including a temporary increase in the base period due
to
Gillette integration impacts. Inventory days increased one day and
accounts payable days were down one day.
Investing
Activities
Investing
activities in the current year used $915 million, compared to the prior year
period cash use of $623 million. Capital expenditures were $1.2
billion, or 2.8 percent of net sales. Proceeds from asset sales
generated $747 million in cash primarily from the sale of our Western European
family care business and our adult incontinence business in Japan.
Financing
Activities
Total
cash used by financing activities was $6.7 billion this fiscal year to date,
versus $6.6 billion in the comparable prior year period. We
repurchased $5.5 billion of treasury shares under a previously announced
share
buyback program that started in July 2007. We reduced our debt
position by $72 million during the fiscal year. In the prior year
period, we repurchased $2.7 billion of treasury shares and reduced our debt
position by $2.6 billion.
As
of
December 31, 2007 the Company’s current liabilities exceeded current assets by
$4.5 billion, driven by our short-term debt position. The Company
anticipates being able to support its short-term liquidity through cash
generated from operations. The Company also has very strong long- and
short-term debt ratings which will enable it to continue to refinance this
debt
at favorable rates in commercial paper and bond markets. In addition,
the Company has agreements with a diverse group of creditworthy financial
institutions that, if needed, would provide sufficient credit funding to
meet
short-term financing requirements.
RECONCILIATION
OF NON-GAAP
MEASURES
Our
discussion of financial results includes several measures not defined by
U.S.
GAAP. We believe these measures provide our investors with additional
information about the underlying results and trends of the Company, as well
as
insight to some of the metrics used to evaluate management. When used
in MD&A, we have provided the comparable GAAP measure in the
discussion.
Organic
Sales
Growth. Organic sales growth is a non-GAAP measure of sales
growth excluding the impacts of acquisitions, divestitures and foreign exchange
from year-over-year comparisons. We believe this provides investors
with a more complete understanding of underlying sales trends by providing
sales
growth on a consistent basis.
The
reconciliation of reported sales growth to organic sales for the October
-
December quarter:
|
Total
Company |
Beauty
Care
|
|
Baby
Care & Family
Care
|
Total
Sales Growth
|
|
|
9 |
% |
|
|
10 |
% |
|
|
8 |
% |
Less:
Foreign Exchange Impact
|
|
|
-5 |
% |
|
|
-6 |
% |
|
|
-5 |
% |
Less:
Acquisition/Divestiture Impact
|
|
|
+1 |
%
|
|
|
+1 |
%
|
|
|
+5 |
%
|
Organic
Sales Growth
|
|
|
5 |
% |
|
|
5 |
% |
|
|
8 |
% |
The
reconciliation of reported sales growth to organic sales for the fiscal
year to
date period:
|
|
Total
Company
|
|
Baby
Care &
Family
Care
|
Total
Sales Growth
|
|
|
8 |
% |
|
|
9 |
% |
Less:
Foreign Exchange Impact
|
|
|
-4 |
% |
|
|
-4 |
% |
Less:
Acquisition/Divestiture Impact
|
|
|
+1 |
%
|
|
|
+3 |
%
|
Organic
Sales Growth
|
|
|
5 |
% |
|
|
8 |
% |
Free
Cash
Flow. Free cash flow is defined as operating cash flow less
capital spending. We view free cash flow as an important measure
because it is one factor in determining the amount of cash available for
dividends and discretionary investment. Free cash flow is also one of
the measures used to evaluate senior management and is a factor in determining
their at-risk compensation.
Free
Cash Flow
Productivity. Free cash flow productivity is defined as the
ratio of free cash flow to net earnings. The Company’s long-term
target is to generate free cash at or above 90 percent of net
earnings. Free cash flow is also one of the measures used to evaluate
senior management. The reconciliation of free cash flow and free cash
flow productivity is provided below (amounts in millions):
|
|
Operating
Cash Flow
|
|
|
Capital
Spending
|
|
|
Free
Cash Flow
|
|
|
Net
Earnings
|
|
|
Free
Cash Flow
Productivity
|
Jul
– Dec ’07
|
|
|
7,371 |
|
|
$ |
(1,184 |
) |
|
$ |
6,187 |
|
|
$ |
6,349 |
|
|
|
97 |
% |
Item
3.
Quantitative and Qualitative Disclosures About Market Risk.
There
have been no material changes in the
Company’s exposure to market risk since June 30, 2007. Additional information
can be found in the section entitled Other Information, which appears on page
47, and Note 6, Risk Management Activities, which appears on pages 59-60 of
the
Annual Report to Shareholders for the fiscal year ended June 30, 2007 which
can
be found by reference to Exhibit 13 of the Company’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2007.
Item
4.
Controls and Procedures.
Evaluation
of Disclosure Controls and
Procedures.
The
Company’s Chairman of the Board and Chief Executive Officer, A. G. Lafley, and
the Company’s Chief Financial Officer, Clayton C. Daley, Jr., performed an
evaluation of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange
Act”)) as of the end of the period covered by this report. Messrs. Lafley and
Daley have concluded that the Company’s disclosure controls and procedures were
effective to ensure that information required to be disclosed in reports we
file
or submit under the Exchange Act is (1) recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms, and (2) accumulated and communicated to our management,
including Messrs. Lafley and Daley, to allow their timely decisions regarding
required disclosure.
Changes
in Internal Control Over
Financial Reporting.
There
were no changes in our internal control over financial reporting that occurred
during the Company’s fiscal quarter ended December 31, 2007 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART
II. OTHER INFORMATION
Item
1A. Risk Factors.
For
a
discussion of the Company’s risk factors, please refer to Part 1, “Item 1A. Risk
Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended
June 30, 2007.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
ISSUER
PURCHASES OF EQUITY SECURITIES
Period
|
|
|
Total
Number
of Shares Purchased(1)
|
|
|
Average
Price Paid
per
Share(2)
|
|
|
Total
Number
of Shares Purchased as Part of Publicly Announced Plans or
Programs(3)
|
|
|
Approximate
dollar value of shares that may yet be purchased under our share
repurchase program
($
in
Billions) (3)
|
|
10/1/07-10/31/07
|
|
|
11,002,237
|
|
$
|
70.61
|
|
|
10,895,749
|
|
|
26.6
|
|
11/1/07-11/30/07
|
|
|
11,346,572
|
|
$
|
70.42
|
|
|
11,302,472
|
|
|
25.8
|
|
12/1/07-12/31/07
|
|
|
17,720,294
|
|
$
|
73.34
|
|
|
17,713,433
|
|
|
24.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The
total number of shares purchased was 40,069,103 for the quarter.
All
transactions were made in the open market or pursuant to prepaid
forward
agreements with large financial institutions. Under these agreements,
the
Company prepaid large financial institutions to deliver shares at
a future
date in exchange for a discount. The number of shares purchased other
than
through a publicly announced repurchase plan was 157,449 for the
quarter.
These shares were acquired by the Company under various compensation
and
benefit plans. This table excludes shares withheld from employees
to
satisfy minimum tax withholding requirements on option exercises
and other
equity-based transactions. The Company administers cashless exercises
through an independent, third party broker and does not repurchase
stock
in connection with cashless exercise.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Average price
paid per share is calculated on a settlement basis and excludes
commission.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
On August 3, 2007, the Company announced a share repurchase
plan.
Pursuant to the share repurchase plan, the Board of Directors authorized
the Company and its subsidiaries to acquire in open market and/or
private
transactions $24 to $30 billion of shares of Company common stock
over the
next three years to be financed by issuing a combination of long-term
and
short-term debt. Certain purchases were made prior to announcement
of the
plan but are considered purchases against the plan. The numbers
listed in this column include commissions paid to brokers to execute
the
transactions.
|
Item
6.
Exhibits
Exhibit
3-1
|
Amended
Articles of Incorporation (Incorporated by reference to Exhibit
(3-1) of
the Company’s Form 10-Q for the quarter ended September 30,
2005).
|
|
|
3-2
|
Regulations
(as amended by shareholders at the annual meeting on October 10,
2006)
(Incorporated by reference to Exhibit (3-2) of the Company’s Form 10-Q for
the quarter ended September 30, 2006).
|
|
|
10-1 |
The
Procter & Gamble 2001 Stock and Incentive Compensation Plan (as
amended on August 14, 2007) which was adopted by shareholders at
the
annual meeting on October 9, 2001, and related correspondence and
terms
and conditions.* |
|
|
11 |
Computation of Earnings per Share. |
|
|
12
|
Computation of Ratio of Earnings to Fixed Charges. |
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification – Chief Executive
Officer |
|
|
31.2 |
Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer
|
|
|
32.1
|
Section 1350 Certifications – Chief Executive Officer |
|
|
32.2
|
Section 1350 Certifications – Chief Financial Officer
|
*
Compensatory plan or arrangement
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
THE
PROCTER
& GAMBLE COMPANY
February
1,
2008
/s/ VALARIE
L. SHEPPARD
Date (Valarie
L.
Sheppard)
Vice
President and
Comptroller
EXHIBIT
INDEX
Exhibit
3-1
|
Amended
Articles of Incorporation (Incorporated by reference to Exhibit
(3-1) of
the Company’s Form 10-Q for the quarter ended September 30,
2005).
|
|
|
3-2
|
Regulations
(as amended by shareholders at the annual meeting on October 10,
2006)
(Incorporated by reference to Exhibit (3-2) of the Company’s Form 10-Q for
the quarter ended September 30, 2006).
|
|
|
10-1
|
The
Procter & Gamble 2001 Stock and Incentive Compensation Plan (as
amended on August 14, 2007) which was adopted by shareholders at
the
annual meeting on October 9, 2001, and related correspondence and
terms
and conditions.
|
|
|
11
|
Computation
of Earnings per Share.
|
|
|
12
|
Computation
of Ratio of Earnings to Fixed Charges.
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification - Chief Executive
Officer
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification - Chief Financial
Officer
|
|
|
32.1
|
Section
1350 Certifications - Chief Executive Officer
|
|
|
32.2
|
Section
1350 Certifications - Chief Financial
Officer
|
EXHIBIT (11)
THE
PROCTER & GAMBLE
COMPANY AND SUBSIDIARIES
Computation
of Earnings Per
Share
Amounts
in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
December
31
|
|
|
December
31
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
BASIC
NET EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
3,270
|
|
$
|
2,862
|
|
$
|
6,349
|
|
$
|
5,560
|
|
Preferred
dividends, net of tax benefit
|
|
|
43
|
|
|
39
|
|
|
85
|
|
|
78
|
|
Net
earnings available to common shareholders
|
|
$
|
3,227
|
|
$
|
2,823
|
|
$
|
6,264
|
|
$
|
5,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
3,094.8
|
|
|
3,161.7
|
|
|
3,106.2
|
|
|
3,168.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net earnings per common share
|
|
$
|
1.04
|
|
$
|
0.89
|
|
$
|
2.02
|
|
$
|
1.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
NET EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings
|
|
$
|
3,270
|
|
$
|
2,862
|
|
$
|
6,349
|
|
$
|
5,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
3,094.8
|
|
|
3,161.7
|
|
|
3,106.2
|
|
|
3,168.4
|
|
Add
potential effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred shares
|
|
|
144.9
|
|
|
150.5
|
|
|
145.5
|
|
|
151.0
|
|
Exercise
of stock options and other Unvested Equity awards
|
|
|
101.8
|
|
|
94.3
|
|
|
96.5
|
|
|
90.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
3,341.5
|
|
|
3,406.5
|
|
|
3,348.2
|
|
|
3,410.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net earnings per common share
|
|
$
|
0.98
|
|
$
|
0.84
|
|
$
|
1.90
|
|
$
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT
(12)
THE
PROCTER & GAMBLE
COMPANY AND SUBSIDIARIES
COMPUTATION
OF RATIO OF
EARNINGS TO FIXED CHARGES
Amounts
in millions
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
Years
Ended June 30
|
|
December
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS,
AS DEFINED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
before adjustments for minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
consolidated subsidiaries and after
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
eliminating
undistributed earnings of equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
method
investees
|
|
$
|
7,219
|
|
$
|
9,010
|
|
$
|
9,954
|
|
$
|
12,419
|
|
$
|
14,746
|
|
$
|
8,041
|
|
$
|
8,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
charges (excluding capitalized interest)
|
|
|
657
|
|
|
719
|
|
|
924
|
|
|
1,242
|
|
|
1,428
|
|
|
777
|
|
|
835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
EARNINGS, AS DEFINED
|
|
$
|
7,876
|
|
$
|
9,729
|
|
$
|
10,878
|
|
$
|
13,661
|
|
$
|
16,174
|
|
$
|
8,818
|
|
$
|
9,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FIXED
CHARGES, AS DEFINED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense (including capitalized interest)
|
|
$
|
561
|
|
$
|
629
|
|
$
|
869
|
|
$
|
1,153
|
|
$
|
1,374
|
|
$
|
729
|
|
$
|
788
|
|
1/3
of rental expense
|
|
|
96
|
|
|
90
|
|
|
90
|
|
|
122
|
|
|
124
|
|
|
63
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
FIXED CHARGES, AS DEFINED
|
|
$
|
657
|
|
$
|
719
|
|
$
|
959
|
|
$
|
1,275
|
|
$
|
1,498
|
|
$
|
792
|
|
$
|
852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RATIO
OF EARNINGS TO FIXED CHARGES
|
|
|
12.0x
|
|
|
13.5x
|
|
|
11.3x
|
|
|
10.7x
|
|
|
10.8x
|
|
|
11.1x
|
|
|
11.4x
|
|
Rule
13a-14(a)/15d-14(a)
Certifications
I,
A.G.
Lafley, certify that:
(1) |
I
have reviewed this quarterly report on Form 10-Q of The Procter &
Gamble Company;
|
(2) |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
(3) |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
(4) |
The
registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
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;
|
c) |
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such
evaluation;
|
d) |
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's second
fiscal
quarter (the registrant's fourth fiscal quarter in the case of an
annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
(5) |
The
registrant's other certifying officer(s) and I have disclosed, based
on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
/s/
A.G. LAFLEY
(A.G.
Lafley)
Chairman
of the Board
and
Chief
Executive Officer
February
1, 2008
Date
EXHIBIT
31.2
Rule
13a-14(a)/15d-14(a)
Certifications
I,
Clayton C. Daley, Jr., certify that:
(1) |
I
have reviewed this quarterly report on Form 10-Q of The Procter &
Gamble Company;
|
(2) |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
(3) |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
(4) |
The
registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a) |
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
b) |
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
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;
|
c) |
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such
evaluation;
|
d) |
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's second
quarter
(the registrant's fourth fiscal quarter in the case of an annual
report)
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting;
and
|
(5) |
The
registrant's other certifying officer(s) and I have disclosed, based
on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
a) |
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record,
process, summarize and report financial information;
and
|
b) |
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control
over financial reporting.
|
/s/
CLAYTON C. DALEY, JR.
(Clayton
C. Daley, Jr.)
Chief
Financial Officer
February
1, 2008
Date
EXHIBIT
32.1
Section
1350
Certifications
Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble
Company (the “Company”) certifies to his knowledge that:
(1) |
The
Quarterly Report on Form 10-Q of the Company for the quarterly period
ended December 31, 2007 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934;
and
|
(2) |
The
information contained in that Form 10-Q fairly presents, in all material
respects, the financial conditions and results of operations of the
Company.
|
/s/
A.G.
LAFLEY
(A.G.
Lafley)
Chairman
of the Board
and
Chief
Executive Officer
February
1,
2008
Date
A
signed
original of this written statement required by Section 906 has been provided
to
The Procter & Gamble Company and will be retained by The Procter &
Gamble Company and furnished to the Securities and Exchange Commission or
its
staff upon request.
EXHIBIT
32.2
Section
1350
Certifications
Pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble
Company (the “Company”) certifies to his knowledge that:
(1) |
The
Quarterly Report on Form 10-Q of the Company for the quarterly period
ended December 31, 2007 fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934;
and
|
(2) |
The
information contained in that Form 10-Q fairly presents, in all material
respects, the financial conditions and results of operations of the
Company.
|
/s/
CLAYTON C. DALEY, JR.
(Clayton
C. Daley, Jr.)
Chief
Financial Officer
February
1,
2008
Date
A
signed
original of this written statement required by Section 906 has been provided
to
The Procter & Gamble Company and will be retained by The Procter &
Gamble Company and furnished to the Securities and Exchange Commission or
its
staff upon request.