Proctor and Gamble 2005 Annual Report Download - page 35

Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 31
In฀2005,฀diluted฀net฀earnings฀per฀share฀were฀$2.66,฀an฀increase฀of฀15%฀
compared฀to฀the฀prior฀year.฀Our฀target฀is฀10%฀or฀better฀earnings฀per฀
share฀growth.฀Diluted฀net฀earnings฀per฀share฀grew฀ahead฀of฀net฀earnings฀
due฀to฀the฀Company’s฀share฀repurchase฀activity.฀Diluted฀net฀earnings฀per฀
share฀were฀$2.32฀in฀2004฀and฀$1.85฀in฀2003.฀Diluted฀net฀earnings฀per฀
share฀in฀2003฀included฀restructuring฀program฀impacts฀of฀$0.19.฀
Segment฀Results฀
Results฀for฀the฀segments฀reflect฀information฀on฀the฀same฀basis฀we฀use฀
for฀internal฀management฀reporting฀and฀performance฀evaluation.฀These฀
results฀exclude฀certain฀costs฀included฀in฀the฀Consolidated฀Financial฀
Statements฀(e.g.,฀interest฀expense,฀other฀financing฀costs,฀investing฀
activities฀and฀certain฀restructuring฀costs),฀which฀are฀reported฀in฀
Corporate.฀Within฀the฀P&G฀Household฀Care฀GBU,฀we฀provide฀data฀for฀the฀
Fabric฀Care฀and฀Home฀Care,฀as฀well฀as฀the฀Snacks฀and฀Coffee฀reportable฀
segments.฀In฀P&G฀Family฀Health,฀we฀provide฀information฀on฀the฀Health฀
Care฀and฀the฀Baby฀Care฀and฀Family฀Care฀reportable฀segments.
As฀described฀in฀Note฀11฀to฀the฀Consolidated฀Financial฀statements,฀we฀
have฀investments฀in฀certain฀companies฀over฀which฀we฀exert฀significant฀
influence,฀but฀do฀not฀control฀the฀financial฀and฀operating฀decisions฀
and,฀therefore,฀do฀not฀consolidate฀them฀(“unconsolidated฀entities”).฀
Because฀certain฀of฀these฀investments฀are฀managed฀as฀integral฀parts฀of฀
the฀Company’s฀business฀units,฀they฀are฀accounted฀for฀as฀if฀they฀were฀
consolidated฀subsidiaries฀for฀management฀and฀segment฀reporting฀
purposes.฀This฀means฀pre-tax฀earnings฀in฀the฀business฀units฀include฀
100%฀of฀each฀pre-tax฀income฀statement฀component,฀with฀eliminations฀
to฀adjust฀such฀line฀items฀to฀U.S.฀GAAP฀included฀in฀Corporate.฀In฀
determining฀after-tax฀earnings฀in฀the฀business฀units,฀we฀eliminate฀
the฀share฀of฀earnings฀applicable฀to฀other฀ownership฀interests,฀in฀a฀
manner฀similar฀to฀minority฀interest,฀and฀apply฀the฀statutory฀tax฀rates.฀
Adjustments฀to฀arrive฀at฀the฀Company’s฀effective฀tax฀rate฀are฀included฀
in฀Corporate.฀
P&G฀Beauty
P&G฀Beauty฀unit฀volume฀increased฀12%฀in฀2005.฀Organic฀volume,฀which฀฀
excludes฀the฀impacts฀of฀acquisitions฀and฀divestitures,฀increased฀8%.฀The฀
difference฀between฀total฀volume฀and฀organic฀volume฀is฀primarily฀Wella฀
–฀the฀current฀year฀includes฀two฀additional฀months฀of฀Wella฀acquisition฀
volume฀compared฀to฀the฀base฀period.฀P&G฀Beauty฀organic฀unit฀volume฀
grew฀behind฀base฀business฀growth฀and฀several฀new฀product฀initiatives฀
including฀Olay฀Anti-Aging,฀Olay฀Quench฀hand฀and฀body฀lotions,฀Olay฀
Moisturinse฀in-shower฀body฀moisturizer,฀Pantene฀Pro-Health,฀Pantene฀
Color฀Expressions฀and฀Lacoste฀Touch฀of฀Pink.฀Unit฀volume฀growth฀was฀
broad-based฀with฀all฀major฀businesses฀in฀the฀segment฀contributing฀฀
double-digit฀increases.฀Hair฀Care฀increased฀by฀low-double฀digits฀฀
behind฀the฀Pantene,฀Head฀&฀Shoulders,฀Herbal฀Essences,฀Rejoice฀and฀
Aussie฀brands.฀Our฀Hair฀Care฀business฀in฀North฀America฀was฀negatively฀฀
impacted฀by฀the฀discontinuation฀of฀several฀minor฀brands฀and฀a฀฀
difficult฀competitive฀environment.฀Hair฀Care฀global฀market฀share฀was฀24%,฀฀
an฀increase฀of฀about฀one฀point฀compared฀to฀last฀year.฀In฀Skin฀Care,฀
volume฀increased฀double-digits฀behind฀the฀continued฀growth฀of฀
the฀Olay฀brand.฀Double-digit฀growth฀in฀the฀Feminine฀Care฀business฀฀
continues฀to฀be฀driven฀by฀product฀upgrades฀to฀the฀Always/Whisper฀
brands฀and฀the฀successful฀introduction฀of฀Naturella฀in฀Central฀and฀Eastern฀
Europe.฀Our฀global฀market฀share฀in฀Feminine฀Care฀was฀approximately฀36%,฀
an฀increase฀of฀about฀one฀percentage฀point฀compared฀to฀last฀year.฀
Net฀sales฀increased฀14%฀to฀$19.48฀billion.฀Foreign฀exchange฀contributed฀
3%฀to฀sales฀growth,฀while฀the฀mix฀impact฀of฀higher฀relative฀growth฀in฀devel-
oping฀markets฀reduced฀sales฀by฀1%.฀Net฀earnings฀increased฀22%฀to฀$2.85฀
billion฀due฀to฀volume฀growth฀and฀an฀after-tax฀margin฀improvement฀of฀100฀฀
Diluted Net Earnings
(per common share)
2003 2004 2005
0
$3
2
1
1.85
2.32
2.66
฀ ฀ Net฀Sales฀Change฀Drivers฀vs.฀Year฀Ago
฀ ฀ ฀ Volume฀ Volume
฀ ฀ ฀ With฀ Without฀฀ ฀ ฀ ฀ ฀ Total
฀ ฀ ฀ Acquisitions฀฀ Acquisitions฀ Foreign฀฀ ฀ ฀ Total฀ Impact฀
฀ ฀ ฀ and฀Divestitures฀฀ and฀Divestitures฀ Exchange฀฀ Price฀ Mix/Other฀ Impact฀ Ex-FX
P&G฀Beauty฀ 12%฀฀ 8%฀฀ 3%฀ –%฀฀ -1%฀฀ 14%฀ 11%
P&G฀Family฀Health฀ ฀฀ ฀฀ ฀฀ ฀฀ ฀฀ ฀฀ ฀
฀Health฀Care฀ 10%฀฀ 8%฀฀ 2%฀ 1%฀฀ -2%฀฀ 11%฀ 9%
฀Baby฀Care฀and฀Family฀Care฀7%฀฀ 7%฀฀ 3%฀ 1%฀฀ –%฀฀ 11%฀ 8%
P&G฀Household฀Care
฀Fabric฀Care฀and฀Home฀Care฀9%฀฀ 7%฀฀ 2%฀ –%฀฀ -1%฀฀ 10%฀ 8%
฀Snacks฀and฀Coffee฀3%฀฀ 3%฀฀ 2%฀ 4%฀฀ -1%฀฀ 8%฀ 6%฀
฀ 8%฀ 8%฀ 2%฀ 1%฀ -1%฀ 10%฀ 8%
Sales฀percentage฀changes฀are฀approximations฀based฀on฀quantitative฀formulas฀that฀are฀consistently฀applied.