Proctor and Gamble 2008 Annual Report Download

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Table of contents

  • Page 1
    Designed to Innovate 2008 Annual Report

  • Page 2
    ... Financial Contents Corporate Officers Board of Directors Shareholder Information 11-Year Financial Summary P&G at a Glance 2 10 14 18 22 26 35 77 78 79 80 82 Financial Highlights FInAnCIAl SuMMARy (unAuDItED) Amounts in millions, except per share amounts 2008  NetSales  Operating...

  • Page 3
    ... for it. We invest in innovation at industry-leading levels with ongoing productivity savings. We manage innovation with discipline. We deliver innovation that builds consumer trust and loyalty over time. We lead innovation on leading global brands and with an outstanding team of innovation leaders...

  • Page 4
    ...oforganicsales growthatoraheadofthelong-termtargetrange;brandand newproductinnovations,particularlyindevelopingmarkets, accountedforvirtuallyallthissalesgrowth.Overthesameperiod, dilutedearningspersharehavegrownatacompoundaverage growthrateof13%,(1)well...

  • Page 5
    ...Carebusiness:CrestPro-HealthNightPaste andRinse,Oral-BCross-ActionPro-HealthBrush,AlwaysClean andAlwaysFresh,andcomfortupgradesontheNaturella brand. • Snacks,CoffeeandPetCareorganicsalesincreased4%,led bythelaunchofDunkinDonuts®retailcoffee,anumber...

  • Page 6
    ... growthisgreatertodaythanatanytimeinthepast50years. Commodityandenergycostscontinuetoriseforcompanies. Consumersarefacinghigherfoodandgasprices,declining homevalues,andrisinglevelsofunemployment.Thequestion shareholdersandprospectiveinvestorsareaskingis...

  • Page 7
    ...timesandplaces, andwerespondwithcommunicationandmarketingplans tailoredtotheirdesiresandpreferences. We'reabletoinnovatebroadlyandsuccessfullybecausewe engageconsumersasco-designersofinnovation.Welivewith consumersintheirhomes,shopwiththeminstores...

  • Page 8
    ...ourtopsixcompetitorscombined.In2008, 5ofthe10best-sellingnewproductscamefromP&G,including TideSimplePleasuresdetergent,FebrezeNoticeablesairfreshener,thenewHerbalEssenceslineofproducts,CrestPro-Health toothpaste,andOlayDefinityskincareproducts. InVEStInG In...

  • Page 9
    ...deliveredfreecashflowwellabovetheCompany's90% cashproductivitytargetforthepastfiveyears,despiteinvestmentsininnovationandinnewmanufacturingcapacityto supportgrowth. TherearesimilarstoriesinFabricCare,FeminineCare,Baby Care,BeautyCare,andHealthCare.These...

  • Page 10
    ... laundry,diapersandpaperproducts.Thisenablesthemto purchasepackingmaterialsandbasiccommoditiesatlower pricesthantheirdirectcompetitors.Similarly,HouseholdCare enjoyseconomiesofscalecreatedbythelargeadvertising budgetssupportingourHealth&BeautyCarebusinesses...

  • Page 11
    ...every partofthebusiness.Consumerresearchersaredeveloping innovativenewwaystolearnfromconsumers.Marketersare findingnewwaysandnewplacestoengageconsumers. TechniciansoperatinglinesinP&Gplantsarecreatinginnovative ideasformakingproductsbetter,fasterandcheaper...

  • Page 12
    DEFIN

  • Page 13
    ...in P&G brands. Innovation ranges from product formulation, package design and consumer communications to supply systems, business models and organizational productivity. Where innovation comes from at P&G: Inside, across 22 global product categories and more than a hundred technology areas. Outside...

  • Page 14
    ... deep understanding of current and potential consumers. Most consumers felt Head & Shoulders delivered good dandruff control, but many assumed they had to trade off beauty benefits. This research clearly defined the brand team's challenge in developing new product, package and marketing innovations.

  • Page 15
    ... first step toward healthy, beautiful hair. Supply Chain Innovation P&G's hair care R&D and supply chain experts developed creative solutions to produce the challenging new package along with selective product formulation improvements in record time. The new, equity-enhancing package was launched...

  • Page 16
    INVES

  • Page 17
    ... in P&G's culture. Every organization has specific goals for cost savings and productivity improvements, and we manage restructuring work as an ongoing business activity. Steady investment in innovation and brand building is a top priority in both good times and challenging times alike. Decades of...

  • Page 18
    ... business and all elements of cost. net Sales - Cost of Products Sold Raw & Packaging Materials Manufacturing Expenses Finished Product Logistics - Selling, General & Administrative Costs Marketing Sales Research Administration Historical Productivity Improvement P&G's organizational productivity...

  • Page 19
    ... and warehousing while improving service levels to customers by optimizing the Company's finished-product supply chain, including cutting the number of distribution centers in half. MARkEtInG PRODuCtIVIty All of P&G's major global brands have changed their mix of marketing tools to reach target...

  • Page 20
    MANA

  • Page 21
    ..., allocate resources, and bring innovation to market with disciplined processes and systems that ensure a steady new-product pipeline for every P&G business. AG NG We select innovation projects by identifying consumer-inspired ideas that will build the most short- and longterm shareholder value...

  • Page 22
    ... customers, external partners, and our own research. Many small investments are made to test the viability of new ideas, focusing on the long-term market potential of a new technology or product concept. Each year, P&G researchers and business development professionals explore an estimated 5,000 new...

  • Page 23
    ... introduced to consumers and retail customers along with a plan to help deliver key business objectives, including retail distribution, correct pricing, consumer trial, repeat purchase, and ultimately sales and profit. The performance of a new innovation is monitored and measured against these goals...

  • Page 24
    DELIVE

  • Page 25
    ... innovation at P&G is the relentless stream of product, package, and other improvements that keep brands growing in the years following big, disruptive innovations. Commercial innovation at P&G is marketing, communications, and in-store innovations that build consumer awareness and trial between...

  • Page 26
    ... brand equity. Every seven or eight years, Gillette launches an entirely new platform, such as Gillette Fusion, that sets a new standard for the brand and for the category. We enhance product performance and brand equity between these disruptive innovations with meaningful product and design...

  • Page 27
    ... blade, setting a new standard for shaving closeness and comfort FuSIOn PHAntOM 2007 Fusion razor featuring a new sleek, black design CHAMPIOnS 2008 New marketing campaign featuring three of the world's top athletes FuSIOn PHEnOM 2008 New razor color leveraging "Gillette Champions" commercial...

  • Page 28
    26 TheProcter&GambleCompany LEAD

  • Page 29
    ... and manage innovation with creativity and discipline. The ability to lead effective innovation programs is required at P&G, particularly at the general manager and president levels. P&G brands - P&G's 44 largest brands - 24 that generate over $1 billion in annual sales and 20 with sales between...

  • Page 30
    ... Global Customer Business Development Officer 5. nancy Swanson Vice President - Corporate 6. Filippo Passerini President - Global Business Services and Chief Information Officer 7. Joan lewis Vice President - Global Consumer and Market Knowledge 8. Moheet nagrath Global Human Resources Officer...

  • Page 31
    TheProcter&GambleCompany 33 25. Melanie Healey Group President - Global Feminine & Health Care 26. Rob Steele Vice Chairman - Global Health & Well-Being 27. Dimitri Panayotopoulos Vice Chairman - Global Household Care 28. Charlie Pierce Group President - Global Oral Care 29. tom Finn ...

  • Page 32
    ...TheProcter&GambleCompany Billion-Dollar Brands Since the beginning of the decade, P&G has more than doubled the number of brands in its portfolio that generate over a billion dollars in annual sales - from 10 to 24. The most recent addition to the billion-dollar brand club is Gillette Fusion...

  • Page 33
    Global Household Care

  • Page 34
    $500 Million to $1 Billion P&G's brand portfolio now includes 20 brands that generate between $500 million and $1 billion in annual sales. Combined with the billion-dollar brands, P&G's top 44 brands account for more than 85% of P&G sales and 90% of profits. Global Health & Well-Being

  • Page 35
    TheProcter&GambleCompany 32

  • Page 36
    ...GambleCompany Executive leadership From left to right: Susan Arnold President - Global Business Units Bob McDonald Chief Operating Officer Ed Shirley Vice Chairman - Global Beauty & Grooming Clayt Daley, Jr. Vice Chairman and Chief Financial Officer Rob Steele Vice Chairman - Global Health & Well...

  • Page 37
    ...Reporting    ReportsofIndependentRegisteredPublicAccountingFirm  Management's Discussion and Analysis Overview   Summaryof2008Results   Forward-LookingStatements  ResultsofOperations   SegmentResults   FinancialCondition   SignificantAccountingPolicies...

  • Page 38
    ...Company Management's Responsibility for Financial Reporting AtTheProcter&GambleCompany,wetakegreatprideinourlong historyofdoingwhat'sright.Ifyouanalyzewhat'smadeourcompany successfulovertheyears,youmayfocusonourbrands,ourmarketing strategies,ourorganization...

  • Page 39
    ...,2008 Clayton C. Daley, Jr. ViceChairmanand ChiefFinancialOfficer Report of Independent Registered Public Accounting Firm TotheBoardofDirectorsandShareholdersof TheProcter&GambleCompany WehaveauditedtheaccompanyingConsolidatedBalanceSheetsof TheProcter&GambleCompany...

  • Page 40
    ...109," effectiveJuly1,2007andtheCompany'sadoptionoftheprovisions ofSFASNo.158,"Employers'AccountingforDefinedBenefitPension andOtherPostretirementPlans,anamendmentofFASBStatements No.87,88,106,and132(R),"effectiveJune30,2007. Cincinnati,Ohio August12,2008

  • Page 41
    ...needs, developnewproductinnovationsandupgrades,andbuildourbrands througheffectivecommercialinnovations,marketingandsales. UnderU.S.GAAP,thebusinessunitscomprisingtheGBUsareaggregatedintosixreportablesegments:Beauty;Grooming;HealthCare; Snacks,CoffeeandPetCare...

  • Page 42
    ...GBU Reportable Segment % of Net Sales* % of Net Earnings* Key Products Billion-Dollar Brands BEAuty HEAltH AnD WEll-BEInG     HOuSEHOlD CARE Beauty  Grooming   HealthCare  Snacks,Coffee andPetCare FabricCareand HomeCare BabyCareand FamilyCare...

  • Page 43
    ...ofour salesandprofits.Thesebrandsareplatformsforfutureinnovations thatwilldrivesalesgrowth,expandcategoriesforretailcustomers anddifferentiatebrandsinthemindsofconsumers.Ourgeographicportfolioincludesahealthybalanceofdevelopedand developingmarketbusinesses...

  • Page 44
    ...in developingregions,wheresellingpricesarebelowtheCompany average.Eachreportablesegmentpostedyear-on-yearvolumegrowth, withmid-single-digitgrowthinFabricCareandHomeCare,BabyCare andFamilyCare,GroomingandHealthCareandlow-single-digit growthinBeautyandSnacks...

  • Page 45
    ...for theyear.Allreportablesegmentsincreasedorganicvolumeforthe yearexcepttheSnacks,CoffeeandPetCaresegment.Higherpricing, primarilyincoffeeandHealthCare,contributed1%tosalesgrowth. Productmixhadnonetimpactonsalesasamorepremiumproduct mixdrivenbythe...

  • Page 46
    ...includedinourCorporatesegment. Beauty BEAuty (in millions of dollars) 2008 Change vs. Prior Year 2007 Change vs. Prior Year* Volume Netsales Netearnings n/a $19,515 $ 2,730 +2% +9% +5% n/a $17,889 $ 2,611 +4% +7% +8% *TheGillettebusinesswasacquiredonOctober...

  • Page 47
    ... 11% 9% 9% HealthCare Snacks,CoffeeandPetCare HOuSEHOlD CARE FabricCareandHomeCare BabyCareandFamilyCare tOtAl COMPAny Salespercentagechangesareapproximationsbasedonquantitativeformulasthatareconsistentlyapplied. higherthansegmentaverageunitsellingprices.This...

  • Page 48
    ...Gillette's openinginventorybalance.Amortizationchargeswerehigherinfiscal 2007duetotheextrathreemonthsofGilletteresultsintheperiod. Health and Well-Being HEAltH CARE (in millions of dollars) 2008 Change vs. Prior Year 2007 Change vs. Prior Year* Volume Netsales...

  • Page 49
    ...ofstrongcompetitive activityinWesternEuropeandNortheastAsia,resultingina1-point increaseinourglobalfemininecaremarketshare.Pricing,primarilyin pharmaceuticalsandpersonalhealth,contributed2%tosegmentnet salesgrowth.Amorepremiumproductmixaddedanadditional...

  • Page 50
    ...duetoamoreprofitableproductmixfollowingthe WesternEuropefamilycaredivestiture,thebenefitofincreased volumescaleleverage,pricingandmanufacturingcostsavingsprojects, whichmorethanoffsethighercommodityandenergycosts.SG&A improvedasapercentageofnetsalesdueto...

  • Page 51
    ...tofundthesharerepurchase programannouncedinconjunctionwiththeGilletteacquisition. FInAnCIAl COnDItIOn Webelieveourfinancialconditioncontinuestobeofhighquality,as evidencedbyourabilitytogeneratesubstantialcashfromoperations andreadyaccesstocapitalmarketsat...

  • Page 52
    ...andshareholder dividends,aswellasalevelofotherdiscretionarycashuses (e.g.,forminoracquisitionsorsharerepurchases). Weareabletosupplementourliquidityneeds,asrequired,withbroad accesstofinancingincapitalmarketsandfourbankcreditfacilities. Broadaccessto...

  • Page 53
    ...courseofbusiness.Commitmentsmadeundertake-or-payobligations representfuturepurchasesinlinewithexpectedusagetoobtainfavorablepricing.Approximately36%relatestoservicecontractsforinformationtechnology,humanresourcesmanagementand facilitiesmanagementactivitiesthat...

  • Page 54
    ...bytheEmployeeStockOwnershipPlan(ESOP),asdiscussedin Note9totheConsolidatedFinancialStatements. Acquisitions Weaccountforacquiredbusinessesusingthepurchasemethodof accounting.Underthepurchasemethod,ourConsolidatedFinancial Statementsreflecttheoperationsofan...

  • Page 55
    ...environment,marketshare, brandhistory,underlyingproductlifecycles,operatingplansandthe macroeconomicenvironmentofthecountriesinwhichthebrandsare sold.Ourestimatesoftheusefullivesofdeterminable-livedintangibles, primarilyincludingbrands,technologiesandcustomer...

  • Page 56
    ... oflessthan18months. Hedging and Derivative Financial Instruments Asamultinationalcompanywithdiverseproductofferings,weare exposedtomarketriskssuchaschangesininterestrates,currency exchangeratesandcommodityprices.Tomanagethevolatility relatedtotheseexposures,we...

  • Page 57
    ...netsalesgrowthforfiscal2008: Total Company Beauty Grooming Snacks, Coffee Health Care and Pet Care Fabric Care and Baby Care and Home Care Family Care Reportednetsalesgrowth  Acquisitions&divestituresimpact Foreignexchangeimpact  ORGAnIC SAlES GROWtH...

  • Page 58
    56 TheProcter&GambleCompany Consolidated Statements of Earnings Amounts in millions except per share amounts ; Years ended June 30 2008 2007 2006 nEt SAlES  Costofproductssold  Selling,generalandadministrativeexpense OPERAtInG InCOME  Interestexpense  Other...

  • Page 59
    TheProcter&GambleCompany 57 Consolidated Balance Sheets Amounts in millions; June 30 2008 2007 CuRREnt ASSEtS Cashandcashequivalents  Investmentsecurities  Accountsreceivable  Inventories  Materialsandsupplies   Workinprocess   Finishedgoods  Totalinventories  ...

  • Page 60
    ...benefits   Treasurystockpurchases  (297,132) Employeeplanissuances  36,763 Preferredstockconversions  3,788 Gilletteacquisition  962,488 ESOPdebtimpacts   BAlAnCE JunE 30, 2006  3,178,841 Netearnings   Othercomprehensiveincome:  Financialstatementtranslation...

  • Page 61
    ...   tOtAl OPERAtInG ACtIVItIES    InVEStInG ACtIVItIES Capitalexpenditures  Proceedsfromassetsales  Acquisitions,netofcashacquired Changeininvestmentsecurities tOtAl InVEStInG ACtIVItIES FInAnCInG ACtIVItIES         Dividendstoshareholders  Changeinshort-term...

  • Page 62
    ...667in2008,$7,937 in2007and$7,122in2006.Non-advertisingrelatedcomponentsof theCompany'stotalmarketingspendingincludecostsassociated withconsumerpromotions,productsamplingandsalesaids,allof whichareincludedinSG&Aexpense,aswellascouponsandcustomer tradefunds...

  • Page 63
    ...acquiredbrandsthathavebeendeterminedto haveindefinitelivesduetothenatureofourbusiness.Weevaluate anumberoffactorstodeterminewhetheranindefinitelifeisappropriate,includingthecompetitiveenvironment,marketshare,brand history,productlifecycles,operatingplans...

  • Page 64
    ...andrelatedactivityinthecurrentyear. ADOPtIOn OF FASB StAnDARD 158, "EMPlOyERS' ACCOuntInG FOR DEFInED BEnEFIt PEnSIOn AnD OtHER POStREtIREMEnt PlAnS - An AMEnDMEnt OF FASB StAtEMEntS nO. 87, 88, 106, AnD 132(R)" incomeinshareholders'equityintheyearinwhichthechangesoccur. We...

  • Page 65
    ...withintheHealthCare,FabricCareand HomeCare,andBeautyreportablesegments,respectively.Theoperating resultsoftheGillettebusinessesarereportedinourfinancialstatements beginningOctober1,2005. TheGilletteCompanywasamarketleaderinseveralglobalproduct categories...

  • Page 66
    ...offutureforeignexchange ratechanges. Fabric Care and Home Care,beginningofyear  NOTE 4 SuPPlEMEntAl FInAnCIAl InFORMAtIOn Acquisitionsanddivestitures  Translationandother  GOODWIll, JunE 30, 2008  Baby Care and Family Care,beginningofyear Acquisitionsanddivestitures...

  • Page 67
    ...theeffectsof interestrateswapsdiscussedinNote6. June 30 2008 2007 Asamultinationalcompanywithdiverseproductofferings,weare exposedtomarketrisks,suchaschangesininterestrates,currency exchangeratesandcommodityprices.Tomanagethevolatility relatedto...

  • Page 68
    .... Certaininstrumentsusedtomanageforeignexchangeexposureof intercompanyfinancingtransactions,incomefrominternational operationsandotherbalancesheetitemssubjecttorevaluationdo notmeettherequirementsforhedgeaccountingtreatment.Inthese cases,thechangeinvalueof...

  • Page 69
    ...-basedcompensationplansunderwhichweannually grantstockoptionandrestrictedstockawardstokeymanagersand directors.Exercisepricesonoptionsgrantedhavebeenandcontinue tobesetequaltothemarketpriceoftheunderlyingsharesonthe dateofthegrant.Thekeymanagerstock...

  • Page 70
    ...tolocalplansoutsidetheU.S.,andto alesserextent,plansassumedintheGilletteacquisitioncoveringU.S. employees.TheseacquiredGilletteplanswerefrozeneffective January1,2008. Wealsoprovidecertainotherretireebenefits,primarilyhealthcareand lifeinsurance,forthe...

  • Page 71
    ...the Company'scashastheybecomedue. Pursuanttoplanrevisionsadoptedduring2007,Gillette'sU.S.defined benefitretirementpensionplanswerefrozeneffectiveJanuary1,2008, atwhichtimeGilletteemployeesintheU.S.movedintotheP&G definedcontributionProfitSharingTrustand...

  • Page 72
    ...accountinvestmentreturnvolatilityandcorrelationsacross assetclasses.Planassetsarediversifiedacrossseveralinvestment managersandaregenerallyinvestedinliquidfundsthatareselected totrackbroadmarketequityandbondindices.Investmentriskis carefullycontrolledwithplan...

  • Page 73
    ...topurchaseSeriesBESOPConvertibleClassAPreferred Stocktofundaportionofretireehealthcarebenefits.Theseshares, netoftheESOP'sdebt,areconsideredplanassetsoftheOtherRetiree Benefitsplandiscussedabove.Debtservicerequirementsarefundedby preferredstockdividends...

  • Page 74
    ...&GambleCompany Notes to Consolidated Financial Statements NOTE 10 InCOME tAxES UnderSFAS109,"AccountingforIncomeTaxes,"incometaxesare recognizedfortheamountoftaxespayableforthecurrentyearand fortheimpactofdeferredtaxliabilitiesandassets,whichrepresent future...

  • Page 75
    ... Financial Statements TheProcter&GambleCompany 73 above.Atthistimewearenotabletomakeareasonableestimateof therangeofimpactonthebalanceofunrecognizedtaxbenefitsor theimpactontheeffectivetaxraterelatedtotheseitems. Taxbenefitscreditedtoshareholders...

  • Page 76
    ...CareandFamilyCarebusinessincludes babywipes,bathtissue,diapers,facialtissueandpapertowels. UnderU.S.GAAP,wehavesixreportablesegments:Beauty;Grooming; HealthCare;Snacks,CoffeeandPetCare;FabricCareandHomeCare; andBabyCareandFamilyCare.Theaccountingpolicies...

  • Page 77
    ... Financial Statements TheProcter&GambleCompany 75 Global Segment Results Net Sales Before-Tax Earnings Depreciation & Net Earnings Amortization Total Assets Capital Expenditures BEAuty GBu BEAuty(1)     GROOMInG (1)     HEAltH...

  • Page 78
    76 TheProcter&GambleCompany Notes to Consolidated Financial Statements NOTE 13 quARtERly RESultS (unAuDItED) Quarters Ended 2007 - 2008 2006 - 2007 2007 - 2008 2006 - 2007 2007 - 2008 2006 - 2007 2007 - 2008 2006 - 2007 2007 - 2008 2006 - 2007 Sept 30 Dec 31 Mar 31 ...

  • Page 79
    TheProcter&GambleCompany 77 Corporate Officers CORPORAtE & COMPAny OPERAtIOnS GlOBAl OPERAtIOnS GlOBAl BEAuty & GROOMInG GlOBAl HEAltH & WEll-BEInG GlOBAl HOuSEHOlD CARE A.G. lafley ChairmanoftheBoardand ChiefExecutiveOfficer Susan E. Arnold President- GlobalBusinessUnits Robert ...

  • Page 80
    ...BrandBuildingTraining. Directorsince2002.AlsoaDirectorofCincinnatiBellInc.Age60. Mr.ByrnesretiredfromtheBoardofDirectorsfollowingtheCompany's June,2008Boardmeeting. kenneth I. Chenault ChairmanandChiefExecutiveOfficeroftheAmericanExpressCompany (financial...

  • Page 81
    ... ExCHAnGE lIStInG • Visitusonlineatwww.pg.com/investor,whereyoucangetstock purchaseinformation,transactionforms,Companyannualreports andwebcasts • E-mailusat[email protected] • Callforfinancialinformationat1-800-764-7483 COMMOn StOCk PRICE RAnGE AnD DIVIDEnDS...

  • Page 82
    80 TheProcter&GambleCompany Financial Summary (unaudited) Amounts in millions, except per share amounts 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 NetSales GrossMargin OperatingIncome NetEarnings NetEarningsMargin BasicNetEarningsper ...

  • Page 83
    ...ProductsIndex,theS&PPaperProductsIndex, theS&PPersonalProductsIndex,theS&PHealthCareIndexandtheS&PFoodIndex.ThecompositegroupisweightedbasedonP&G'scurrent fiscalyearrevenues.Thegraphassumes$100wasinvestedonJune30,2003andthatalldividendswerereinvested...

  • Page 84
    ...Reportable Segment Key Products Billion Dollar Brands Net Sales by GBU(1) (in billions) BEAuty Beauty  Grooming  HEAltH AnD WEll-BEInG HealthCare     Snacks,Coffee  andPetCare HOuSEHOlD CARE FabricCareand  HomeCare   BabyCareand  FamilyCare...

  • Page 85
    ... visit www.pg.com/sustainability. We invest in innovation to improve the environmental profile of our operations and products. In addition to investing in product development of more sustainable products, we have systematized the process of sustainably designing and building new facilities. In...

  • Page 86
    ©2008Procter&Gamble  00046002