Proctor and Gamble 2016 Annual Report Download - page 15

The Procter & Gamble Company 1
PART I
Item 1. Business.
Additional information required by this item is incorporated
herein by reference to Management's Discussion and Analysis
(MD&A); and Notes 1 and 2 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, our products are sold 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.pginvestor.com.
Copies of these reports are also available, without charge, by
contacting Wells Fargo, 1100 Centre Pointe Curve, Suite 101,
Mendota, MN 55120-4100.
Financial Information about Segments
As of June 30, 2016 the Company has five reportable segments
under U.S. GAAP: Beauty; Grooming; Health Care; Fabric &
Home Care; and Baby, Feminine & 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
Appliances (Grooming), are seasonal.
Additional information about our reportable segments can be
found in the MD&A and Note 2 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 primarily through mass merchandisers, grocery
stores, membership club stores, drug stores, department stores,
distributors, baby stores, specialty beauty stores, e-commerce,
high-frequency stores and pharmacies. 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.
Key Product Categories. Information on key product
categories can be found in Note 2 to our Consolidated Financial
Statements.
Key Customers. Our customers include mass merchandisers,
grocery stores, membership club stores, drug stores,
department stores, distributors, baby stores, specialty beauty
stores, e-commerce, high-frequency stores and pharmacies.
Sales to Wal-Mart Stores, Inc. and its affiliates represent
approximately 15% of our total revenue in 2016, 2015 and
2014. No other customer represents more than 10% of our net
sales. Our top ten customers account for approximately 35%
of our total sales in 2016, 2015 and 2014. 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 transportation of input
materials and of finished product to customers. The prices we
pay for materials and other commodities are subject to
fluctuation. When prices for these items change, we may or
may not pass the change to our customers. The Company
purchases a substantial variety of other raw and packaging
materials, none of which is material to our business taken as a
whole.
Trademarks and Patents. We own or have licenses under
patents and registered trademarks which are used in connection
with our activity in all businesses. Some of these patents or
licenses cover significant product formulation and processes
used to manufacture our products. The trademarks are
important to the overall marketing and branding of our
products. All major trademarks in each business are registered.