Proctor and Gamble 2005 Annual Report Download - page 64

Management’s฀Discussion฀and฀AnalysisThe฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
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Off-Balance฀Sheet฀Arrangements
We฀do฀not฀have฀off-balance฀sheet฀financing฀arrangements,฀including฀
variable฀ interest฀ entities,฀ under฀ FASB฀ Interpretation฀ No.฀ 46,฀
“Consolidation฀of฀Variable฀Interest฀Entities,”฀that฀have฀a฀material฀
impact฀on฀our฀financial฀statements.฀
Purchase฀Commitments
We฀have฀purchase฀commitments฀for฀materials,฀supplies,฀services฀and฀
property,฀plant฀and฀equipment฀as฀part฀of฀the฀normal฀course฀of฀business.฀
Due฀to฀the฀proprietary฀nature฀of฀many฀of฀our฀materials฀and฀processes,฀
certain฀supply฀contracts฀contain฀penalty฀provisions฀for฀early฀termination.฀
We฀do฀not฀expect฀to฀incur฀penalty฀payments฀under฀these฀provisions฀that฀
would฀materially฀affect฀our฀financial฀condition,฀cash฀flows฀or฀results฀of฀
operations฀in฀any฀individual฀year.฀
Operating฀Leases
We฀lease฀certain฀property฀and฀equipment฀for฀varying฀periods.฀Future฀
minimum฀rental฀commitments฀under฀noncancelable฀operating฀leases฀
are฀as฀follows:฀2006฀-฀$215;฀2007฀-฀$162;฀2008฀-฀$126;฀2009฀-฀$114;฀
2010฀-฀$101;฀and฀$259฀thereafter.฀
Litigation
We฀are฀subject฀to฀various฀lawsuits฀and฀claims฀with฀respect฀to฀matters฀
such฀as฀governmental฀regulations,฀income฀taxes฀and฀other฀actions฀
arising฀out฀of฀the฀normal฀course฀of฀business.฀We฀are฀also฀subject฀to฀
contingencies฀pursuant฀to฀environmental฀laws฀and฀regulations฀that฀
in฀the฀future฀may฀require฀us฀to฀take฀action฀to฀correct฀the฀effects฀on฀
the฀environment฀of฀prior฀manufacturing฀and฀waste฀disposal฀practices.฀
Accrued฀environmental฀liabilities฀were฀not฀material.
While฀considerable฀uncertainty฀exists,฀in฀the฀opinion฀of฀management฀
and฀our฀counsel,฀the฀ultimate฀resolution฀of฀the฀various฀lawsuits฀and฀
claims฀will฀not฀materially฀affect฀our฀financial฀condition,฀cash฀flows฀or฀
results฀of฀operations.
Note฀11฀Segment฀Information
We฀are฀organized฀under฀three฀Global฀Business฀Units฀as฀follows:฀
฀•฀฀P&G฀Beauty฀includes฀retail฀and฀professional฀hair฀care,฀skin฀care,฀
feminine฀care,฀cosmetics,฀fine฀fragrances฀and฀personal฀cleansing.
฀•฀฀P&G฀Family฀Health฀includes฀the฀Health฀Care฀and฀Baby฀Care฀and฀
Family฀Care฀businesses.฀Health฀Care฀includes฀oral฀care,฀personal฀
health฀care,฀pharmaceuticals฀and฀pet฀health฀and฀nutrition.฀Baby฀
Care฀and฀Family฀Care฀includes฀diapers,฀baby฀wipes,฀bath฀tissue฀and฀
kitchen฀towels.
฀•฀฀P&G฀Household฀Care฀includes฀the฀Fabric฀Care฀and฀Home฀Care฀and฀฀
Snacks฀and฀Coffee฀businesses.฀Fabric฀Care฀and฀Home฀Care฀includes฀
laundry฀detergents,฀dish฀care,฀fabric฀enhancers,฀surface฀care฀and฀air฀care.฀
Snacks฀and฀Coffee฀includes฀coffee,฀snacks฀and฀commercial฀products.฀
Under฀U.S.฀GAAP,฀we฀have฀five฀reportable฀segments:฀P&G฀Beauty;฀
Health฀Care;฀Baby฀Care฀and฀Family฀Care;฀Fabric฀Care฀and฀Home฀Care;฀
and฀Snacks฀and฀Coffee.฀The฀accounting฀policies฀of฀the฀businesses฀are฀
generally฀the฀same฀as฀those฀described฀in฀Note฀1,฀Summary฀of฀Significant฀
Accounting฀Policies.฀Differences฀from฀these฀policies฀and฀U.S.฀GAAP฀
primarily฀reflect:฀income฀taxes,฀which฀are฀reflected฀in฀the฀businesses฀
using฀estimated฀local฀statutory฀rates;฀the฀recording฀of฀fixed฀assets฀at฀
historical฀exchange฀rates฀in฀certain฀high฀inflation฀economies;฀and฀the฀
treatment฀of฀certain฀unconsolidated฀investees.฀Certain฀unconsolidated฀
investees฀are฀managed฀as฀integral฀parts฀of฀our฀business฀units฀for฀
management฀reporting฀purposes.฀Accordingly,฀these฀partially฀owned฀
operations฀are฀reflected฀as฀consolidated฀subsidiaries฀in฀business฀results,฀
with฀100%฀recognition฀of฀the฀individual฀income฀statement฀line฀items฀
through฀before-tax฀earnings.฀Eliminations฀to฀adjust฀these฀line฀items฀to฀
U.S.฀GAAP฀are฀included฀in฀Corporate.฀In฀determining฀after-tax฀earnings฀
for฀the฀businesses,฀we฀eliminate฀the฀share฀of฀earnings฀applicable฀to฀
other฀ownership฀interests,฀in฀a฀manner฀similar฀to฀minority฀interest,฀and฀
apply฀statutory฀tax฀rates.฀Adjustments฀to฀arrive฀at฀our฀effective฀tax฀rate฀
are฀included฀in฀Corporate.฀
Corporate฀includes฀certain฀operating฀and฀non-operating฀activities฀
that฀are฀not฀reflected฀in฀the฀operating฀results฀used฀internally฀to฀
measure฀and฀evaluate฀the฀businesses,฀as฀well฀as฀eliminations฀to฀adjust฀
management฀reporting฀principles฀to฀U.S.฀GAAP.฀Operating฀activities฀
in฀Corporate฀include฀the฀results฀of฀incidental฀businesses฀managed฀at฀
the฀corporate฀level฀along฀with฀the฀elimination฀of฀individual฀revenues฀
and฀expenses฀generated฀by฀companies฀over฀which฀we฀exert฀significant฀
influence,฀but฀do฀not฀control.฀Operating฀elements฀also฀comprise฀
certain฀employee฀benefit฀costs฀and฀other฀general฀corporate฀items.฀The฀
non-operating฀elements฀include฀financing฀and฀investing฀activities.฀In฀
addition,฀Corporate฀includes฀the฀historical฀results฀of฀certain฀divested฀
businesses,฀including฀the฀Juice฀business,฀which฀was฀divested฀in฀August฀
of฀2004.฀Corporate฀assets฀primarily฀include฀cash,฀investment฀securities฀฀
and฀goodwill.฀
We฀had฀net฀sales฀in฀the฀U.S.฀of฀$25,342,฀$23,688฀and฀$21,853฀for฀
the฀years฀ended฀June฀30,฀2005,฀2004฀and฀2003,฀respectively.฀Assets฀in฀
the฀U.S.฀totaled฀$25,399฀and฀$23,687฀as฀of฀June฀30,฀2005฀and฀2004,฀
respectively.฀
Our฀largest฀customer,฀Wal-Mart฀Stores,฀Inc.฀and฀its฀affiliates,฀accounted฀
for฀16%,฀17%฀and฀18%฀of฀consolidated฀net฀sales฀in฀2005,฀2004฀and฀
2003,฀respectively.฀฀
Notes฀to฀Consolidated฀Financial฀StatementsThe฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
Millions฀of฀dollars฀except฀per฀share฀amounts฀or฀otherwise฀specified.