Proctor and Gamble 2008 Annual Report Download - page 46

44 TheProcter&GambleCompany Management’sDiscussionandAnalysis

Non-operatingitemsprimarilyincludeinterestexpense,divestiture
gainsandinterestandinvestmentincome.Interestexpenseincreased
13%to$1.5billionin2008drivenbyahigherinterestrateonour
long-termborrowingsandahigherdebtleveltofundtheCompany’s
previouslyannouncedsharerepurchaseprogram.Underthisshare
repurchaseprogram,whichbeganinJuly2007,weplantorepurchase
between$24–$30billionofP&Gstockoverathree-yearperiod.
In2007,interestexpenseincreased17%to$1.3billionduetothe
nancingcostsassociatedwiththedebtissuedtofundtheshare
repurchaseprogramexecutedinconjunctionwiththeacquisitionof
GilletteinOctober2005.Therepurchaseprogramassociatedwith
GillettewascompletedinJuly2006.
Othernon-operatingincomein2008decreased$102millionversus
theprioryearperiodprimarilyduetolowercurrentperiodinterest
income.Interestincomedeclinedin2008primarilyduetolowerinterest
ratesandcashbalances.Divestituregainsonthesaleofminorbrands
in2008wereinlinewithpreviousyearlevels.Othernon-operating
incomeincreased$281millionin2007to$564millionprimarilydue
tohigherdivestituregainsin2007.
Ourtaxratedeclinedin2008from29.7%to24.9%.Approximately
3percentagepointsofthisdeclinewasduetodiscreteadjustments
toreservesforpreviouslyexistinguncertaintaxpositionsintheU.S.
andothercountries.Thebalanceofthedeclinewasprimarilydriven
byamorefavorablegeographicmixofearningsandareductioninthe
Germanstatutorytaxrate,whichreducedourdeferredtaxliabilities
relatedtoacquiredintangibleassets.Oureffectivetaxratein2007
wasdown30basispointsversus2006primarilyduetoamorefavor-
ablecountrymiximpactin2007,partiallyoffsetbyhigherlevelsof
reservereleasesin2006.

Netearningsincreased17%to$12.1billionin2008behindsales
growthanda100-basispointimprovementinnetearningsmargin.
NetearningsmarginincreasedduetolowerSG&Aasapercentageof
netsalesandalowertaxrate,whichmorethanoffsetlowergross
margin.Netearningsin2007increased19%to$10.3billionbehind
salesgrowth,includingtheadditionalthreemonthsofGilletteresults
andearningsmarginexpansion.Netearningsmarginexpanded80
basispointsprimarilybehindgrossmarginimprovement.
Dilutednetearningspersharein2008wereup20%versusthe
prioryearto$3.64pershare.Dilutednetearningspersharegrowth
exceedednetearningsgrowthduetosharerepurchaseactivity.
Werepurchased$10billionoftreasurysharesin2008underaprevi-
ouslyannouncedsharebuybackprogramthatstartedinJuly2007.
Gillettewasmodestlyaccretivetoourearningspershareresultsin
2008,comparedtodilutionofapproximately$0.10–$0.12pershare
in2007.TheeliminationofGillettedilutiononourearningspershare
droveapproximately4percentagepointsofearningspersharegrowth
in2008.Dilutednetearningspersharein2007increased15%to$3.04
primarilybehindearningsgrowth,partiallyoffsetbytheimpactofa
netincreaseintheweightedaveragesharesoutstandingin2007versus
2006resultingfromtheincrementalsharesissuedinconjunctionwith
theGilletteacquisitiononOctober1,2005.
2.64

3.04
06

07

(percommonshare)

Resultsforthesegmentsreectinformationonthesamebasiswe
useforinternalmanagementreportingandperformanceevaluation.
WithintheBeautyGBU,weprovidedatafortheBeautyandthe
Groomingreportablesegments.IntheHealthandWell-BeingGBU,
weprovidedatafortheHealthCareandtheSnacks,CoffeeandPet
Carereportablesegments.IntheHouseholdCareGBU,weprovide
datafortheFabricCareandHomeCareandtheBabyCareand
FamilyCarereportablesegments.
Theresultsofthesereportablebusinesssegmentsdonotinclude
certainnon-businessunitspeciccostssuchasinterestexpense,
investingactivitiesandcertainrestructuringcosts.Thesecostsare
reportedinourCorporatesegmentandareincludedaspartofour
Corporatesegmentdiscussion.Additionally,asdescribedinNote12
totheConsolidatedFinancialStatements,wehaveinvestmentsin
certaincompaniesoverwhichweexertsignicantinuence,butdo
notcontrolthenancialandoperatingdecisionsand,therefore,do
notconsolidatethem(“unconsolidatedentities”).Since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pretaxearningsinthebusinessunitsinclude100%ofeach
pretaxincomestatementcomponent.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.Eliminationstoadjusteachlineitem
toU.S.GAAPareincludedinourCorporatesegment.


   Changevs.  Changevs.
(inmillionsofdollars)  PriorYear 2007 PriorYear*
Volume  +2% n/a +4%
Netsales  +9% $17,889 +7%
Netearnings   +5% $ 2,611 +8%
*TheGillettebusinesswasacquiredonOctober1,2005.Therefore,thescal2007growth
ratesareversusabaseperiodthatincludedonly9monthsofGilletteBeautyresults
(e.g.,deodorantsproducts).
Beautynetsalesincreased9%in2008to$19.5billionbehind2%
volumegrowthand6%offavorableforeignexchange.Favorable
productmixhadapositive1%impactonnetsalesprimarilydueto
strongergrowthinskincareandprestigefragrances,whichhave