Proctor and Gamble 2012 Annual Report Download - page 17
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PART I
Item 1. Business.
Additional information required by this item is
incorporated herein by reference to Management's
Discussion and Analysis (MD&A); Note 1 of our
Consolidated Financial Statements, Summary of Significant
Accounting Policies; and Note 11 of our Consolidated
Financial Statements, Segment Information. Unless the
context indicates otherwise, the terms the "Company,"
"P&G," "we," "our" or "us" as used herein refer to The
Procter & Gamble Company (the registrant) and its
subsidiaries.
The Procter & Gamble Company is focused on
providing branded consumer packaged goods of superior
quality and value to improve the lives of the world's
consumers. The Company was incorporated in Ohio in 1905,
having been built from a business founded in 1837 by
William Procter and James Gamble. Today, we market our
products in more than 180 countries.
Throughout this Form 10-K, we incorporate by
reference information from other documents filed with the
Securities and Exchange Commission (SEC).
The Company's annual report on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form
8-K, and amendments thereto, are filed electronically with
the SEC. The SEC maintains an internet site that contains
these reports at: http://www.sec.gov. You can also access
these reports through links from our website at:
www.pg.com/investors.
Copies of these reports are also available, without
charge, by contacting The Procter & Gamble Company,
Shareholder Services Department, P.O. Box 5572,
Cincinnati, Ohio 45201-5572.
Financial Information about Segments
As of June 30, 2012, the Company is organized into
two Global Business Units (GBUs): Beauty and Grooming
and Household Care. We have five reportable segments
under U.S. GAAP: Beauty; Grooming; Health Care; Fabric
Care and Home Care; and Baby Care and Family Care.
Many of the factors necessary for understanding these
businesses are similar. Operating margins of the individual
businesses vary due to the nature of materials and processes
used to manufacture the products, the capital intensity of the
businesses and differences in selling, general and
administrative expenses as a percentage of net sales. Net
sales growth by business is also expected to vary slightly due
to the underlying growth of the markets and product
categories in which they operate. While none of our
reportable segments are highly seasonal, components within
certain reportable segments, such as Batteries (Fabric Care
and Home Care), Appliances (Grooming) and Prestige
Fragrances (Beauty) are seasonal. In addition, anticipation or
occurrence of natural disasters, such as hurricanes, can drive
unusually high demand for batteries.
Additional information about our reportable
segments can be found in MD&A and Note 11 of our
Consolidated Financial Statements, Segment Information.
Narrative Description of Business
Business Model. Our business model relies on the
continued growth and success of existing brands and
products, as well as the creation of new products. The
markets and industry segments in which we offer our
products are highly competitive. Our products are sold in
more than 180 countries around the world primarily through
mass merchandisers, grocery stores, membership club stores,
drug stores, department stores, salons and in high-frequency
stores, the neighborhood stores which serve many consumers
in developing markets. We work collaboratively with our
customers to improve the in-store presence of our products
and win the "first moment of truth" - when a consumer is
shopping in the store. We must also win the "second moment
of truth" - when a consumer uses the product, evaluates how
well it met his or her expectations and decides whether it
was a good value. We believe we must continue to provide
new, innovative products and branding to the consumer in
order to grow our business. Research and product
development activities, designed to enable sustained organic
growth, continued to carry a high priority during the past
fiscal year. While many of the benefits from these efforts
will not be realized until future years, we believe these
activities demonstrate our commitment to future growth.
Key Product Categories. Information on key
product categories can be found in Note 11 of our
Consolidated Financial Statements, Segment Information.
Key Customers. Our customers include mass
merchandisers, grocery stores, membership club stores, drug
stores and high-frequency stores. Sales to Wal-Mart Stores,
Inc. and its affiliates represent approximately 14%, 15% and
16% of our total revenue in 2012, 2011 and 2010,
respectively. No other customer represents more than 10% of
our net sales. Our top ten customers account for
approximately 31% of our total unit volume in 2012, and
32% of our total unit volume in 2011 and 2010. The nature
of our business results in no material backlog orders or
contracts with the government. We believe our practices
related to working capital items for customers and suppliers
are consistent with the industry segments in which we
compete.
Sources and Availability of Materials. Almost all
of the raw and packaging materials used by the Company are
purchased from others, some of whom are single-source
suppliers. We produce raw materials, primarily chemicals,
for further use in the manufacturing process. In addition,
fuel, natural gas and derivative products are important
commodities consumed in our manufacturing process and in