Proctor and Gamble 2014 Annual Report Download - page 13

The Procter & Gamble Company 11
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 to our Consolidated Financial
Statements and Note 12 to our Consolidated Financial
Statements. 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 sell our products in more than
180 countries and territories.
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: 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 Computershare Inc., 250 Royall Street, Canton,
MA 02021.
Financial Information about Segments
As of June 30, 2014, the Company has five reportable
segments under U.S. GAAP: Beauty; Grooming; Health
Care; Fabric Care and Home Care; and Baby, Feminine 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 12 to our Consolidated Financial
Statements.
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 and territories around the world
primarily through mass merchandisers, grocery stores,
membership club stores, drug stores, department stores,
salons, e-commerce and high-frequency stores. We utilize
our superior marketing and online presence to win with
consumers at the "zero moment of truth" - when they are
searching for information about a brand or product. 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 12 to our Consolidated
Financial Statements.
Key Customers. Our customers include mass
merchandisers, grocery stores, membership club stores, drug
stores, department stores, salons, distributors, e-commerce
and high-frequency stores. Sales to Wal-Mart Stores, Inc.
and its affiliates represent approximately 14% of our total
revenue in 2014, 2013 and 2012. No other customer
represents more than 10% of our net sales. Our top ten
customers account for approximately 30% of our total unit
volume in 2014 and 2013 and 31% of our total unit volume
in 2012. 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 which are single-source
suppliers. We produce certain 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 the distribution of input materials and finished