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Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 25
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:
•฀ Overview฀of฀the฀Company฀and฀summary฀of฀results฀for฀the฀fiscal฀year
•฀ Results฀of฀operations
•฀ Segment฀results
•฀ Financial฀condition
•฀ Significant฀accounting฀policies฀and฀estimates
•฀ Other฀information
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฀organic฀sales฀growth฀(net฀sales฀
growth฀excluding฀the฀impacts฀of฀acquisitions,฀divestitures฀and฀foreign฀
exchange),฀free฀cash฀flow฀and฀free฀cash฀flow฀productivity,฀which฀are฀not฀
defined฀under฀accounting฀principles฀generally฀accepted฀in฀the฀United฀
States฀of฀America฀(U.S.฀GAAP).฀The฀explanation฀of฀these฀measures฀฀
at฀the฀end฀of฀MD&A฀provides฀more฀details.฀Management฀also฀uses฀฀
certain฀market฀share฀estimates฀to฀evaluate฀performance฀relative฀to฀฀
competition฀–฀despite฀limitations฀on฀the฀availability฀and฀comparability฀of฀
share฀information.฀References฀to฀market฀share฀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฀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.
Procter฀&฀Gamble฀markets฀over฀300฀branded฀products฀in฀more฀than฀
160฀countries.฀We฀have฀operations฀in฀over฀80฀countries฀through฀our฀
Market฀Development฀Organization฀(MDO).฀The฀MDO฀includes฀dedicated฀
retail฀customer,฀trade฀channel฀and฀country-specific฀teams฀that฀work฀to฀
build฀our฀brands฀in฀local฀markets.฀It฀is฀organized฀along฀seven฀geographic฀
areas:฀North฀America,฀Western฀Europe,฀Northeast฀Asia,฀Latin฀America,฀
Central฀and฀Eastern฀Europe/Middle฀East/Africa,฀Greater฀China฀and฀
ASEAN/Australasia/India.฀Throughout฀MD&A,฀we฀reference฀business฀฀
results฀in฀developing฀markets,฀which฀we฀define฀as฀the฀aggregate฀of฀฀
Latin฀America,฀Central฀and฀Eastern฀Europe/Middle฀East/Africa,฀Greater฀
China฀and฀ASEAN/Australasia/India.
Our฀products฀are฀sold฀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):฀P&G฀Beauty,฀P&G฀ Family฀Health฀
and฀P&G฀Household฀Care.฀We฀manage฀and฀report฀business฀and฀฀
financial฀results฀on฀this฀basis.฀Each฀GBU฀and฀the฀MDO฀is฀led฀by฀
a฀Vice฀Chair,฀all฀of฀whom฀report฀to฀the฀Chief฀Executive฀Officer.฀฀
In฀July,฀2005฀we฀changed฀the฀names฀of฀the฀GBUs.฀Beauty฀Care฀was฀฀
renamed฀P&G฀Beauty;฀Health,฀Baby฀&฀Family฀Care฀changed฀to฀P&G฀
Family฀Health;฀and฀Household฀Care฀was฀renamed฀P&G฀Household฀Care.฀
These฀changes฀have฀no฀impact฀on฀the฀composition฀or฀historical฀results฀
of฀the฀GBUs.฀
The฀following฀charts฀provide฀net฀sales฀and฀net฀earnings฀by฀GBU฀as฀a฀
percentage฀of฀total฀Company฀results,฀excluding฀net฀sales฀and฀earnings฀
held฀in฀Corporate,฀for฀the฀fiscal฀year฀ended฀June฀30,฀2005.฀Please฀see฀
the฀discussion฀on฀Corporate฀in฀the฀Segment฀Results฀discussion฀and฀฀
Note฀11฀to฀the฀Consolidated฀Financial฀Statements฀for฀more฀information.
Management’s฀Discussion฀and฀Analysis
฀ Overview฀ 25
฀ Results฀of฀Operations฀ 28
฀ Segment฀Results฀ 31
฀ Financial฀Condition฀ 34
฀ Significant฀Accounting฀Policies
฀ and฀Estimates฀ 37
฀ Other฀Information฀ 39
Audited฀Consolidated฀Financial฀Statements฀
฀ Earnings฀ 41
฀ Balance฀Sheets฀ 42
฀ Shareholders’฀Equity฀ 44
฀ Cash฀Flows฀ 45
฀ Notes฀to฀Consolidated฀Financial฀Statements฀ 46
Table฀of฀Contents
Management’s฀Discussion฀and฀Analysis