Procter & Gamble Company 10-K 2008
Documents found in this filing:
THE PROCTER & GAMBLE COMPANY
ANNUAL REPORT ON FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED JUNE 30, 2008
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
For the Fiscal Year Ended June 30, 2008
For the transition period from to
Commission File No. 1-434
THE PROCTER & GAMBLE COMPANY
One Procter & Gamble Plaza, Cincinnati, Ohio 45202
Telephone (513) 983-1100
IRS Employer Identification No. 31-0411980
State of Incorporation: Ohio
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the voting stock held by non-affiliates amounted to $226 billion on December 31, 2007.
There were 3,034,310,829 shares of Common Stock outstanding as of July 31, 2008.
Documents Incorporated By Reference
Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 2008 are incorporated by reference into Part I, Part II and Part IV of this report to the extent described herein.
Portions of the Proxy Statement for the 2008 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent described herein.
TABLE OF CONTENTS
Item 1. Business.
Additional information required by this item is incorporated herein by reference to Managements Discussion and Analysis, which appears on pages 39-55; Note 1, Summary of Significant Accounting Policies, which appears on pages 60-63; Note 2, Acquisitions, which appears on page 63; and Note 12, Segment Information, which appears on pages 74-75 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008. Unless the context indicates otherwise, the terms the Company, P&G, we, our or us as used herein refers to The Procter & Gamble Company (the registrant) and its subsidiaries.
The Procter & Gamble Company is focused on providing branded consumer goods products of superior quality and value to improve the lives of the worlds 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 Companys annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K 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/sectionmain.shtml.
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
In fiscal year 2008, the Company was organized into three Global Business Units: Beauty; Health & Well-Being; and Household Care. We had six reportable segments under U.S. GAAP: Beauty; Grooming; Health Care; Snacks, Coffee and Pet Care; Fabric Care and Home Care; and Baby Care and Family Care. Many of the factors necessary for an understanding of these businesses are similar. Operating margins of the individual businesses vary slightly 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 of each business and products. While none of our reportable segments are highly seasonal, components within certain of our reportable segments, such as batteries (Fabric Care and Home Care), appliances (Grooming) and prestige fine 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 businesses can be found in Managements Discussion and Analysis, pages 39-55, and Note 12, Segment Information, which appears on pages 74-75 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008.
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 over 180 countries around the world primarily through mass merchandisers, grocery stores, membership club stores, drug stores 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 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. In 2008, one product category accounted for 10% or more of consolidated net sales. The laundry category constituted approximately 16% of net sales for fiscal years 2008, 2007 and 2006.
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 15% of our total revenue in 2008, 2007 and 2006. 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 2008, compared to 30% of total unit volume in 2007 and 31% in 2006. 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 used in our plants, products and in the trucks used to deliver our products 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 on the change to our customers, depending on the magnitude and expected duration of the change. The Company purchases a substantial variety of other raw and packaging materials, no one 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 products and trademarks in each business are registered. In part, our success can be attributed to the existence and continued protection of these trademarks, patents and licenses.
Competitive Condition. The markets in which our products are sold are highly competitive. Our products compete against similar products of many large and small companies, including well-known global competitors. We market our products with advertising, promotions and other vehicles to build awareness of our brands in conjunction with an extensive sales force. We believe this combination provides the most efficient method of marketing for these types of products. Product quality, performance, value and packaging are also important competitive factors.
Research and Development Expenditures. Research and development expenditures enable us to develop technologies and obtain patents across all categories in order to meet the needs and improve the lives of our consumers. Total research and development expenses were $2,226 million in 2008, $2,112 million in 2007 and $2,075 million in 2006.
Expenditures for Environmental Compliance. Expenditures for compliance with federal, state and local environmental laws and regulations are fairly consistent from year to year and are not material to the Company. No material change is expected in fiscal year 2009.
Employees. The Company has approximately 138,000 employees.
Financial Information About Foreign and Domestic Operations
Net sales in the United States account for approximately 40% of total net sales. No other individual country had net sales exceeding 10% of total net sales. Operations outside the United States are generally characterized by the same conditions discussed in the description of the business above and may also be affected by additional factors including changing currency values, different rates of inflation, economic growth and political and economic uncertainties and disruptions. Our sales by geography for the fiscal years ended June 30 were as follows:
Developing markets include Latin America, Central & Eastern Europe/Middle East and Africa, Greater China, and ASEAN/Australasia/India.
Net sales and assets in the United States and internationally were as follows (in millions):
Development of the Business
The discussion below provides insight to the general development of our business, including the material acquisitions and disposition of assets over the past five years.
Gillette Acquisition. On October 1, 2005, we completed the acquisition of The Gillette Company. Pursuant to the acquisition agreement, which provided for the exchange of 0.975 shares of The Procter & Gamble Company common stock, on a tax-free basis, for each share of The Gillette Company, we issued 962 million shares of The Procter & Gamble Company common stock. We also issued 79 million stock options in exchange for The Gillette Companys outstanding stock options. Under the purchase method of accounting, the total consideration was approximately $53.43 billion including common stock, the fair value of vested stock options and acquisition costs.
The acquisition of The Gillette Company provided us with global market leadership in male grooming, selected female grooming products, alkaline batteries and in manual and power toothbrushes. Total sales for The Gillette Company during its most recent pre-acquisition year ended December 31, 2004 were $10.5 billion.
In order to obtain regulatory approval of the transaction, we were required to divest certain overlapping businesses. We completed the divestiture of the Spinbrush toothbrush business, Rembrandt (a Gillette oral care product line) and Right Guard and other Gillette deodorant brands during the fiscal year ended June 30, 2006.
Juice Divestiture. In August 2004 the Company completed the divestiture of its Juice business.
Wella Acquisition. In September 2003, the Company acquired a controlling interest in Wella. Through a stock purchase agreement with the majority shareholders of Wella and a tender offer made on the remaining shares, we acquired approximately 81% of the outstanding Wella shares (99% of the voting class shares and 45% of the preference shares). In June 2004, a Companys subsidiary and Wella entered into a Domination and Profit Transfer Agreement (the Domination Agreement). Under the Domination Agreement, we are entitled to exercise full operating control and receive 100% of the future earnings of Wella. As consideration for the Domination Agreement, we agreed to pay the remaining shareholders of Wella a guaranteed annual dividend payment. Alternatively, the remaining Wella shareholders could have elected to tender their shares to the Company for an agreed price. The fair value of the total guaranteed annual dividend payments was $1.11 billion, which is the approximate cost if all remaining shares were tendered. During the year ended June 30, 2006, a portion of the remaining shares were tendered, resulting in a $944 million reduction in our liability under the Domination Agreement. In December 2005, the Wella shareholder meeting approved the squeeze-out of the remaining shareholders. Upon the registration of the squeeze-out in the commercial register on November 12, 2007, the remaining shares of the minority shareholders were transferred to the Company in exchange for a pre-determined cash consideration. While the Domination Agreement transaction, including the guaranteed dividend payment and the cash offer, as well as the squeeze-out transaction, including the cash consideration, have been challenged by the former minority shareholders, the Company now owns 100% of the Wella stock.
The total purchase price for Wella, including acquisition costs and the costs of the guaranteed dividend and squeeze-out payments, was $6.27 billion based on exchange rates at the acquisition dates. The acquisition was financed by a mixture of available cash balances, debt and the liability recorded under the Domination Agreement.
Hutchison Acquisition. In June 2004, we purchased the remaining 20% stake of our China venture from our partner, Hutchison Whampoa China Ltd. (Hutchison), giving us full ownership of our operations in China. The net purchase price was $1.85 billion, which is the purchase price of $2.00 billion net of minority interest and certain obligations that were eliminated as a result of the transaction. The acquisition was funded by debt.
Item 1A. Risk Factors.
We discuss our expectations regarding future performance, events and outcomes, such as our business outlook and objectives in this Form 10-K, the Annual Report to Shareholders, quarterly reports, press releases and other written and oral communications. All statements, except for historical and present factual information, are forward-looking statements and are based on financial data and business plans available only as of the time the statements are made, which may become out of date or incomplete. We assume no obligation to update any forward-looking statements as a result of new information, future events, or other factors. Forward-looking statements are inherently uncertain, and investors must recognize that events could significantly differ from our expectations.
The following discussion of risk factors identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with Managements Discussion and Analysis (MD&A) and the consolidated financial statements and related notes incorporated by reference into this report. The following discussion of risks is not all inclusive but is designed to highlight what we believe are important factors to consider when evaluating our expectations. These factors could cause our future results to differ from those in the forward-looking statements and from historical trends.
A material change in consumer demand for our products could have a significant impact on our business.
We are a consumer products company and rely on continued global demand for our brands and products. To achieve business goals, we must develop and sell products that appeal to consumers. This is dependent on a number of factors including our ability to develop effective sales, advertising and marketing programs in an increasingly fragmented media environment. We expect to achieve our financial targets, in part, by shifting our portfolio towards faster growing, higher margin businesses. If demand and growth rates fall substantially below expected levels or our market share declines significantly in these businesses, our results could be negatively impacted. This could occur due to unforeseen negative economic or political events or to changes in consumer trends and habits. In addition, our continued success is dependent on leading-edge innovation, with respect to both products and operations. This means we must be able to obtain patents that lead to the development of products that appeal to our consumers across the world.
The ability to achieve our business objectives is dependent on how well we can respond to our local and global competitors.
Across all of our categories, we compete against a wide variety of global and local competitors. As a result, there are ongoing competitive product and pricing pressures in the environments in which we operate, as well as challenges in maintaining profit margins. To address these challenges, we must be able to successfully respond to competitive factors, including pricing, promotional incentives and trade terms, as well as technological advances and patents granted to competition.
Our ability to successfully integrate key acquisitions, such as Gillette, could impact our business results.
Since our goals include a growth component tied to acquisitions, we must be able to successfully manage and integrate key acquisitions, such as the acquisition of The Gillette Company. Specifically, we must be able to integrate acquisitions without any significant disruption to our ability to manage and execute business plans on our base businesses. In addition, our financial results could be adversely impacted if we are not able to deliver the expected cost and growth synergies associated with our acquisitions.
Our businesses face cost pressures which could affect our business results.
Our costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials, cost of labor, foreign exchange and interest rates. Our costs in 2008 were impacted by higher commodity costs and this trend is likely to continue in 2009. Therefore, our success is dependent, in part, on our continued ability to manage these fluctuations through pricing actions, cost savings projects (including outsourcing projects), sourcing decisions and certain hedging transactions. In the manufacturing and general overhead areas, we need to maintain key manufacturing and supply arrangements, including any key sole supplier and sole manufacturing plant arrangements.
We face risks associated with significant international operations.
We conduct business across the globe with a significant portion of our sales outside the United States. We expect to achieve our financial targets, in part, by achieving disproportionate growth in developing regions. Should growth rates or our market share fall substantially below expected levels in these regions, our results could be negatively impacted. In addition, economic changes, terrorist activity and political unrest may result in business interruption, inflation, deflation or decreased demand for our products. Our success will depend, in part, on our ability to manage continued global political and/or economic uncertainty, especially in our significant geographical markets, as well as any political or economic disruption due to terrorist and other hostile activities.
Our business is subject to regulation in the U.S. and abroad.
Changes in laws, regulations and the related interpretations may alter the environment in which we do business. This includes changes in environmental, competitive and product-related laws, as well as changes in accounting standards and taxation requirements. Accordingly, our ability to manage regulatory, tax and legal matters (including product liability, patent, and intellectual property matters), and to resolve pending legal matters without significant liability, including the competition law and antitrust investigations described in Part I, Item 3 of this Form 10-K, which could require the Company to take significant reserves or pay significant fines during a reporting period, may materially impact our results.
If the reputation of one or more of our leading brands erodes significantly, it could have a material impact on our financial results.
Our Companys financial success is directly dependent on the success of our brands, particularly our billion-dollar brands. The success of these brands can suffer if our marketing plans or product initiatives do not have the desired impact on a brands image or its ability to attract consumers. Further, our Companys results could be negatively impacted if one of our leading brands suffers a substantial impediment to its reputation due to real or perceived quality issues.
A material change in customer relationships or in customer demand for our products could have a significant impact on our business.
Our success is dependent on our ability to successfully manage relationships with our retail trade customers. This includes our ability to offer trade terms that are acceptable to our customers and are aligned with our pricing and profitability targets. Our business could suffer if we cannot reach agreement with a key customer based on our trade terms and principles. Further, there is a continuing trend towards retail trade consolidation and this leads to more complex work across broader geographic boundaries for both us and key retailers. This can be particularly difficult when major customers are addressing local trade pressures or local law and regulation changes. Further, our business would be negatively impacted if a key customer were to significantly reduce the range or inventory level of our products.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
In the United States, we own and operate 39 manufacturing facilities located in 23 different states. In addition, we own and operate 103 manufacturing facilities in 42 other countries. Many of the domestic and international facilities produce products for multiple businesses. Beauty products are manufactured at 42 of these locations; Grooming products are manufactured at 13 of these locations; Fabric Care and Home Care products at 49; Baby Care and Family Care products at 29; Pet Care, Snacks and Coffee products at 15; and Health Care products at 37. Management believes that the Companys production facilities are adequate to support the business efficiently and that the properties and equipment have been well maintained.
Item 3. Legal Proceedings.
The Company is subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, and taxes.
Recently, the Company has become subject to a variety of investigations into potential competition law violations in the European Union. In July 2006, French authorities, in connection with an inquiry into potential competition law violations in France, entered the premises of two of the Companys French subsidiaries and seized a variety of documents. In April 2008, UK authorities initiated an investigation concerning potential antitrust violations in the UK involving one of the Companys subsidiaries. In June 2008, European Commission officials, with the assistance of the national authorities from a variety of countries, started an investigation into potential competition law violations in a variety of countries across the European Union. At the same time, the national authorities in Spain and Italy initiated additional investigations into potential antitrust concerns within those countries. In connection with these investigations, a number of the Companys subsidiaries were visited and documents seized. The Company or its
subsidiaries are also involved in other competition law investigations in Belgium, Romania and Greece. We believe that all of the above matters involve a number of other consumer products companies and/or retail customers. The Companys policy is to comply with all laws and regulations, including all antitrust and competition laws.
Competition and antitrust law investigations often continue for several years and, if violations are found, can result in substantial fines. At this point, no formal claims have been made against the Company or any of our subsidiaries in connection with any of above inquiries.
During the fiscal year just ended, certain of the Companys subsidiaries in Germany received a formal complaint alleging violations of the antitrust laws. We are now discussing the situation with the German authorities.
Although the Company cannot accurately predict what financial impact may ultimately result from the totality of these matters, we have taken and will take reserves as appropriate. Please refer to the Companys Risk Factors in Item 1A of this Form 10-K for additional information.
Item 4. Submission of Matters to a Vote of Security Holders.
Executive Officers of the Registrant
The names, ages and positions held by the executive officers of the Company on August 28, 2008 are:
All of the Executive Officers named above, excluding Mr. Shirley, have been employed by the Company for more than five years. During the previous five years, Mr. Shirley has held the following positions within the Company: Vice Chairman Global Beauty and Grooming (July 1, 2008 - present), Group President North America (April 17, 2006 June 30, 2008) and President - Commercial Operations Gillette International (October 11, 2005 April 16, 2006). Mr. Shirley also held the following positions with The Gillette Company prior to its acquisition by the Company in October 2005: President Gillette International Commercial Operations (June 2004 October 11, 2005) and Senior Vice President, Gillette Global Value Chain & Global Marketing Resources (June 2002 May 2004).
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
ISSUER PURCHASES OF EQUITY SECURITIES
Additional information required by this item is incorporated by reference to Shareholder Information, which appears on page 79 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008, and Part III, Item 12 of this Form 10-K.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference to Note 1, Summary of Significant Accounting Policies, which appears on pages 60-63; Note 12, Segment Information, which appears on pages 74-75; and Financial Summary, which appears on page 80 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The information required by this item is incorporated by reference to Managements Discussion and Analysis, which appears on pages 39-55; Note 1, Summary of Significant Accounting Policies, which appears on pages 60-63; Note 2, Acquisitions, which appears on page 63; Note 11, Commitments and Contingencies, which appears on pages 73-74; and Note 12, Segment Information, which appears on pages 74-75 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008.
The Company has made certain forward-looking statements in the Annual Report to Shareholders for the fiscal year ended June 30, 2008 and in other contexts relating to volume and net sales growth, increases in market shares, financial goals and cost reduction, among others.
These forward-looking statements are based on assumptions and estimates regarding competitive activity, pricing, product introductions, economic conditions, customer and consumer trends, technological innovation, currency movements, governmental action and the development of certain markets available at the time the statements are made. There are a number of key factors that could cause our actual results to materially differ from the forward-looking statements made herein and in other contexts. Please see Item 1A Risk Factors of this Form 10-K for a discussion of these important factors.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is incorporated by reference to the section entitled Other Information, which appears on pages 54-55, and Note 6, Risk Management Activities, which appears on pages 65-66 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data are incorporated by reference to pages 56-76 and 79-81 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008, but excluding the section entitled Shareholder Return Performance Graphs on page 81.
Note 5 (Short-Term and Long-Term Debt) to the consolidated financial statements incorporated by reference herein includes: The Procter & Gamble Company fully and unconditionally guarantees the registered debt securities issued by its 100% owned finance subsidiaries.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
The Companys Chairman of the Board and Chief Executive Officer, A. G. Lafley, and the Companys Chief Financial Officer, Clayton C. Daley, Jr., performed an evaluation of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act)) as of the end of the period covered by this Annual Report on Form 10-K.
Messrs. Lafley and Daley have concluded that the Companys disclosure controls and procedures were effective to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and
(2) accumulated and communicated to our management, including Messrs. Lafley and Daley, to allow their timely decisions regarding required disclosure.
Managements Report on Internal Control over Financial Reporting.
Managements annual report on internal control over financial reporting and the report of the independent registered public accounting firm are incorporated by reference to page 37 of the Annual Report to Shareholders for the fiscal year ended June 30, 2008.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the Companys fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 9B. Other Information.
Item 10. Directors and Executive Officers of the Registrant.
The Board of Directors has determined that Mr. Charles R. Lee, Chairman of the Audit Committee, is independent and an audit committee financial expert, as defined by SEC guidelines.
The information required by this item is incorporated by reference to pages 4-10, up to but not including the section entitled Board and Committee Meeting Attendance; to the section entitled Code of Ethics, which appears on pages 10-11; and to the section entitled Section 16(a) Beneficial Ownership Reporting Compliance, which appears on page 53 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2008, pursuant to Regulation 14A which involved the election of directors. Pursuant to Instruction 3 of Item 401(b) of Regulation S-K, Executive Officers of the Registrant are reported in Part I of this report.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to pages 13-51 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2008, pursuant to Regulation 14A which involved the election of directors, beginning with the section entitled Director Compensation up to but not including the section entitled Security Ownership of Management and Certain Beneficial Owners.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table gives information about the Companys common stock that may be issued upon the exercise of options, warrants and rights under all of the Companys equity compensation plans as of June 30, 2008. The table includes the following plans: The 1968 Procter & Gamble Plan for the Use of Shares in Payment of Remuneration; The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1992 Stock Plan (Belgian Version); The Procter & Gamble 1993 Non-Employee Directors Stock Plan; The Procter & Gamble Future Shares Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; The Procter & Gamble 2003 Non-Employee Directors Stock Plan; The Gillette Company 1971 Stock Option Plan and The Gillette Company 2004 Long-Term Incentive Plan.
The Procter & Gamble 1992 Stock Plan (Belgian Version)
No further grants can be made under the plan, although unexercised stock options previously granted under this plan remain outstanding. This plan was approved by the Companys Board of Directors on February 14, 1997. Although the plan has not been submitted to shareholders for approval, it is nearly identical to The Procter & Gamble 1992 Stock Plan, approved by the Companys shareholders on October 13, 1992, except for a few minor changes designed to comply with the Belgian tax laws.
The plan was designed to attract, retain and motivate key Belgian employees. Under the plan, eligible participants were: (i) granted or offered the right to purchase stock options, (ii) granted stock appreciation rights and/or (iii) granted shares of the Companys common stock. Except in the case of death of the recipient, all stock options and stock appreciation rights must vest in no less than one year from the date of grant and must expire no later than fifteen years from the date of grant. The exercise price for all stock options granted under the plan is the average price of the Companys stock on the date of grant. If a recipient of a grant leaves the Company while holding an unexercised option or right, any unexercisable portions immediately become void, except in the case of death, and any exercisable portions become void within one month of departure, except in the case of death or retirement. Any common stock awarded under the plan may be subject to restrictions on sale or transfer while the recipient is employed, as the committee administering the plan may determine.
The Procter & Gamble Future Shares Plan
On October 14, 1997, the Companys Board of Directors approved The Procter & Gamble Future Shares Plan pursuant to which options to purchase shares of the Companys common stock may be granted to employees worldwide. The purpose of this plan is to advance the interests of the Company by giving substantially all employees a stake in the Companys future growth and success and to strengthen the alignment of interests between employees and the Companys shareholders through increased ownership of shares of the Companys stock. The plan has not been submitted to shareholders for approval.
Subject to adjustment for changes in the Companys capitalization, the number of shares to be granted under the plan is not to exceed 17 million shares. Under the plans regulations, recipients are granted options to acquire 100 shares of the Companys common stock at an exercise price equal to the average price of the Companys common stock on the date of the grant. These options vest five years after the date of grant and expire ten years following the date of grant. If a recipient leaves the employ of the Company prior to the vesting date for a reason other than disability, retirement or special separation (as defined in the plan), then the award is forfeited.
At the time of the first grant following Board approval of the plan, each employee of the Company not eligible for an award under the 1992 Stock Plan was granted options for 100 shares. From the date of this first grant through June 30, 2003, each new employee of the Company has also received options for 100 shares. Following the grant of options on June 30, 2003, the Company suspended this part of the plan and intends to make no further grants under this part of the plan. The plan terminated on October 13, 2007.
In addition to the grants above, annual grants of options for 100 shares are granted to approximately 3,000 employees who are not eligible for participation in the 2001 Stock and Incentive Compensation Plan in recognition of outstanding performance. The Companys key managers are not eligible for such grants.
The Gillette Company 1971 Stock Option Plan
No further grants can be made under the plan after April 25, 2005, although unexercised stock options previously granted under this plan remain outstanding. The plan was approved by shareholders of The Gillette Company and assumed by the Company upon the merger between The Procter & Gamble Company and The Gillette Company. All options became immediately vested and exercisable on October 1, 2005 as a result of the merger. After the merger, all outstanding options became options to purchase shares of The Procter & Gamble Company subject to an exchange ratio of 0.975 shares of P&G stock per share of Gillette stock.
The plan was designed to attract, retain and motivate key salaried employees of The Gillette Company and non-employee members of its Board of Directors. Under the plan, eligible participants receive the option to purchase Company stock at a pre-determined price which cannot be less than 100% of the fair market value per share at the time that the option is granted. The period of any option may not exceed ten years from the date of grant. Subject to adjustment for changes in the Companys capitalization, the number of shares granted under the plan was not to exceed 198 million shares.
If a recipient leaves the employ of the Company for any reason other than death or discharge for cause, the recipient is permitted to exercise any vested options granted under the plan for a period between thirty days and five years after termination, depending on the circumstances of his/her departure. If a participant is discharged for cause, all options are immediately cancelled. If a participant dies while holding options, the options are exercisable for a period of one to three years depending on the date of grant. In addition, the plan allows Gillette employees whose employment is terminated for Good Reason within two years after the effective date of the merger the ability to exercise remaining options for the shorter of five years following their termination date or the original life of the grant. Employees terminated for Good Reason who are also eligible to retire under a Company plan are allowed to exercise their options subject to the original terms of the grant.
The Gillette Company 2004 Long-Term Incentive Plan
Shareholders of The Gillette Company approved The Gillette Company 2004 Long Term Incentive Plan on May 20, 2004, and the plan was assumed by the Company upon the merger between The Procter & Gamble Company and The Gillette Company. All options became immediately vested and exercisable on October 1, 2005 as a result of the merger. After the merger, all outstanding options became options to purchase shares of The Procter & Gamble Company subject to an exchange ratio of 0.975 shares of P&G stock per share of Gillette stock. Only employees previously employed by the Gillette Company prior to October 1, 2005 are eligible to receive grants under this plan.
The plan was designed to attract, retain and motivate employees of The Gillette Company, and until the effective date of the merger between The Gillette Company and The Procter & Gamble Company, non-employee members of the Gillette Board of Directors. Under the plan, eligible participants are: (i) granted or offered the right to purchase stock options, (ii) granted stock appreciation rights and/or (iii) granted shares of the Companys common stock or restricted stock units (and dividend equivalents). Subject to adjustment for changes in the Companys capitalization and the addition of any shares authorized but not issued or redeemed under The Gillette Company 1971 Stock Option Plan, the number of shares to be granted under the plan is not to exceed 19 million shares.
Except in the case of death of the recipient, all stock options and stock appreciation rights must expire no later than ten years from the date of grant. The exercise price for all stock options granted under the plan must be equal to or greater than the fair market value of the Companys stock on the date of grant. Any common stock awarded under the plan may be subject to restrictions on sale or transfer while the recipient is employed, as the committee administering the plan may determine.
If a recipient of a grant leaves the Company while holding an unexercised option or right: (1) any unexercisable portions immediately become void, except in the case of death, retirement, special separation (as those terms are defined in the plan) or any grants as to which the Compensation Committee of the Board of Directors has waived the termination provisions; and (2) any exercisable portions immediately become void, except in the case of death, retirement, special separation, voluntary resignation that is not for Good Reason (as those terms are defined in the plan) or any grants as to which the Compensation Committee of the Board of Directors has waived the termination provisions. In addition, the plan allows Gillette employees whose employment was terminated for Good Reason within two years of the effective date of the merger the ability to exercise their options for the shorter of five years following their
termination date or the original life of the grant. Employees terminated for Good Reason who are also eligible to retire under a Company plan are allowed to exercise their options subject to the original terms of the grant.
Additional information required by this item is incorporated by reference to pages 51-53, beginning with the section entitled Security Ownership of Management and Certain Beneficial Owners and up to but not including the section entitled Section 16(a) Beneficial Ownership Reporting Compliance, of the Proxy Statement filed since the close of the fiscal year ended June 30, 2008, pursuant to Regulation 14A which involved the election of directors, including footnotes referenced therein.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to the sections entitled Director Independence and Review and Approval of Transactions with Related Persons which appear on pages 10 and 11, respectively, of the Proxy Statement filed since the close of the fiscal year ended June 30, 2008, pursuant to Regulation 14A which involved the election of directors.
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference to pages 54-55 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2008, pursuant to Regulation 14A which involved the election of directors, beginning with the section entitled Report of the Audit Committee and ending with the section entitled Services Provided by Deloitte.
Item 15. Exhibits and Financial Statement Schedules.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Cincinnati, State of Ohio.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.