Proctor and Gamble 2005 Annual Report Download - page 34
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Please find page 34 of the 2005 Proctor and Gamble annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Management’sDiscussionandAnalysisTheProcter&GambleCompanyandSubsidiaries
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Selling,GeneralandAdministrativeexpense(SG&A)in2005was
31.7%ofnetsales,animprovementof40basispointscompared
to2004.ThebasispointreductioninSG&Awasdrivenbylower
marketingspendingasapercentageofnetsales.Absolutespending
formarketinginvestmentswasupyear-over-year,butdecreasedas
apercentageofnetsalesbehindscaleleverageandthemiximpact
ofdevelopingmarketgrowth.Marketingspendingasapercentageof
netsalesislowerindevelopingmarketsthantheCompanyaverage.
Marketingspending increased to support product innovations
includingOlayAnti-Aging,OlayMoisturinse,OlayQuench,Pantene
Pro-Health,TidewithaTouchofDowny,TideColdwater,FebrezeAir
Effects,PanteneColorExpressions,PampersFeel’nLearn,Kandoo
ToddlerWipesandHandsoapandtheexpansionofSK-II,Lenorand
HerbalEssences.
Overheadspendingasapercentageofnetsaleswasconsistentwithlast
year.Scaleefficienciesinthebasebusinesswereoffsetbythemiximpact
oftwoadditionalmonthsofWellainthecurrentyearandinvestmentsin
sellingcapability.Wellahasahigherratioofoverheadspendingtonet
salesthanthebalanceoftheCompany.
Minorityinterestexpenseasapercentageofnetsalesdecreased
reflectingtheCompany’spurchaseoftheremainingstakeinitsChina
venture,aswellasthecompletionoftheDominationandProfitTransfer
AgreementwithWella.Pleaseseethediscussionofthesetransactionsin
Note2totheConsolidatedFinancialStatements.
SG&Ain2004was32.1%ofnetsales,anincreaseof120basispoints
comparedtothepreviousyear.Themajorityofthebasispointincrease
wasduetoWella,reflectingahigherratioofSG&Aexpensetonet
salesthanthebasebusiness.Reducedrestructuringprogramcharges
intheprioryear,thataccountedforanimprovementof90basispoints,
weremorethanoffsetbyincreasesinmarketingspendingin2004.
Marketinginvestmentsweremadebehindproductlaunchesincluding
PrilosecOTC,CrestWhitestripsPremiumandOlayRegenerist,aswellas
continuedsupportforthebasebusiness.
Non-OperatingItems
Non-operatingitemsprimarilyincludeinterestexpense,divestiture
gainsandlossesandinterestandinvestmentincome.Interestexpense
increased33%to$834millionin2005duetohigherdebtbalances
tofinancesharerepurchases,aswellasanincreaseininterestrates
versustheprioryear.In2004,interestexpenseincreased$68millionto
$629million,primarilyduetoadditionaldebttosupporttheacquisition
ofWella.
Othernon-operatingincomewas$346millionin2005compared
to$152millionin2004and$238millionin2003.Theincreasein
2005wasdrivenprimarilybythebefore-taxgainonthesaleofthe
Juicebusiness.ThesaleoftheJuicebusinesswasessentiallyneutralto
overallearnings,asthenon-operatinggainfromthesalewaslargely
offsetbythelossofoperatingincome.In2004,othernon-operating
incomedeclinedprimarilyduetohighergainsfromdivestituresinthe
baseperiod.
Theeffectiveincometaxratewas30.5%in2005comparedwith
30.7%in2004and31.1%in2003.Thefiscal2005effectivetaxrate
includesa280basispointimpactforestimatedtaxesinanticipation
ofrepatriatingapproximately$7.2billioninspecialdividendsfrom
theCompany’snon-U.S.subsidiaries,pursuanttotheAmericanJobs
CreationActof2004(seeNote9toConsolidatedFinancialStatements).
Thischargewaslargelyoffsetbya230basispointimpactfromthe
reversaloftaxprovisionsresultingfromthesuccessfulresolutionoftax
auditsincertaincountries.Theeffectivetaxratealsobenefitedfromthe
overallcountrymixoftaxableincome.
NetEarnings
In2005,netearningsincreased12%to$7.26billion.Earningsgrew
primarilybehindvolumeandcostreductionefforts,whichmorethan
offsettheeffectsofhighercommoditycostsandincreasedmarketing
spendinginsupportofproductinnovationsandthebasebusiness.Net
earningsmarginincreased20basispointsto12.8%reflectingthescale
benefitsfromhighervolumeandimprovementsduetocostsavings.
Netearningsin2004increased25%overtheprioryear.Earningsgrowth
wasprimarilydrivenbyincreasedvolumeandthecompletionofthe
Company’sOrganization2005RestructuringProgram.Improvementsto
earningsfromgrossmarginexpansionwerepartiallyoffsetbyincreased
marketingspendingtosupportproductinitiativesandbasebusiness
growth.TheacquisitionofWellahadnomaterialimpactonearningsin
2004.2003resultsinclude$538millionofafter-taxchargesrelatedtothe
Company’sOrganization2005RestructuringProgram,whichrepresents
approximately10%ofthe2004earningsgrowth.Thesechargescovered
enrollmentreductions,manufacturingconsolidationsandportfoliochoices
toscalebackordiscontinueunder-performingbusinessesandinitiatives.
Therestructuringprogramwassubstantiallycompletedin2003.
Selling, General and Administrative Expense
(% of sales)
2003 2004 2005
32.1
30.9 31%
32%
33%
31.7