UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2002 Commission file number 1-434
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
Ohio 31-0411980
(State of incorporation) (I.R.S. Employer Identification No.)
One Procter & Gamble Plaza, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 983-1100
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 [X] No [ ]
There were 1,299,298,686 shares of Common Stock outstanding as of September
30, 2002.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Consolidated Statement of Earnings of The Procter & Gamble Company and
subsidiaries for the three months ended September 30, 2002 and 2001, the
Condensed Consolidated Balance Sheet as of September 30, 2002 and June 30, 2002,
and the Consolidated Statement of Cash Flows for the three months ended
September 30, 2002 and 2001 follow. In the opinion of management, these
unaudited consolidated financial statements contain all adjustments necessary to
present fairly the financial position, results of operations, and cash flows for
the interim periods reported. However, such financial statements may not be
indicative necessarily of annual results.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
Amounts in millions except per share amounts
Three Months Ended
September 30
-------------------------------
2002 2001
------------- -------------
NET SALES $ 10,796 $ 9,766
Cost of products sold 5,489 5,111
Marketing, research, administrative
and other expenses 3,128 2,893
------------- -------------
OPERATING INCOME 2,179 1,762
Interest expense 144 157
Other non-operating income, net 103 22
------------- -------------
EARNINGS BEFORE INCOME TAXES 2,138 1,627
Income taxes 674 523
------------- -------------
NET EARNINGS $ 1,464 $ 1,104
============= =============
PER COMMON SHARE:
Basic net earnings $ 1.10 $ 0.83
Diluted net earnings $ 1.04 $ 0.79
Dividends $ 0.41 $ 0.38
AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 1,407.3 1,400.8
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Amounts in millions
September 30 June 30
ASSETS 2002 2002
- ------ ------------------ ------------------
CURRENT ASSETS
Cash and cash equivalents $ 4,703 $ 3,427
Investment securities 186 196
Accounts receivable 3,110 3,090
Inventories
Materials and supplies 1,085 1,031
Work in process 338 323
Finished goods 2,136 2,102
------------------ ------------------
Total Inventories 3,559 3,456
Deferred income taxes 434 521
Prepaid expenses and other receivables 1,571 1,476
------------------ ------------------
TOTAL CURRENT ASSETS 13,563 12,166
PROPERTY, PLANT AND EQUIPMENT
Buildings 4,532 4,532
Machinery and equipment 17,890 17,963
Land 568 575
------------------ ------------------
22,990 23,070
Accumulated depreciation (9,941) (9,721)
------------------ ------------------
NET PROPERTY, PLANT AND EQUIPMENT 13,049 13,349
NET GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill 10,958 10,966
Trademarks and other intangible assets 2,437 2,464
------------------ ------------------
NET GOODWILL AND OTHER INTANGIBLE ASSETS 13,395 13,430
OTHER NON-CURRENT ASSETS 1,843 1,831
------------------ ------------------
TOTAL ASSETS $ 41,850 $ 40,776
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 2,015 $ 2,205
Accrued and other liabilities 4,997 5,330
Taxes payable 1,860 1,438
Debt due within one year 4,199 3,731
------------------ ------------------
TOTAL CURRENT LIABILITIES 13,071 12,704
LONG-TERM DEBT 11,263 11,201
DEFERRED INCOME TAXES 1,239 1,077
OTHER NON-CURRENT LIABILITIES 2,038 2,088
------------------ ------------------
TOTAL LIABILITIES 27,611 27,070
SHAREHOLDERS' EQUITY
Preferred stock 1,613 1,634
Common stock - shares outstanding - Sept 30 1,299.3 1,299
June 30 1,300.8 1,301
Additional paid-in capital 2,586 2,490
Reserve for ESOP debt retirement (1,322) (1,339)
Accumulated other comprehensive income (2,464) (2,360)
Retained earnings 12,527 11,980
------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 14,239 13,706
------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 41,850 $ 40,776
================== ==================
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
Amounts in millions September 30
----------------------------
2002 2001
----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 3,427 $ 2,306
OPERATING ACTIVITIES
Net earnings 1,464 1,104
Depreciation and amortization 410 382
Deferred income taxes 142 78
Change in:
Accounts receivable (44) (96)
Inventories (105) (273)
Accounts payable and accruals (15) 269
Other operating assets & liabilities 65 (342)
Other 93 207
----------- -----------
TOTAL OPERATING ACTIVITIES 2,010 1,329
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (281) (352)
Proceeds from asset sales 62 9
Acquisitions - (74)
Change in investment securities 24 55
----------- -----------
TOTAL INVESTING ACTIVITIES (195) (362)
----------- -----------
FINANCING ACTIVITIES
Dividends to shareholders (565) (525)
Change in short-term debt (306) 619
Additions to long-term debt 678 -
Reduction of long-term debt (12) (351)
Proceeds from stock options 31 36
Purchase of treasury shares (350) (168)
----------- -----------
TOTAL FINANCING ACTIVITIES (524) (389)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (15) 9
CHANGE IN CASH AND CASH EQUIVALENTS 1,276 587
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,703 $ 2,893
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts in millions
1. These statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002. During the
quarter ended September 30, 2002, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset
Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". The adoption of these Statements did not
have a material impact on the Company's financial statements. The results
of operations for the three-month period ended September 30, 2002 are not
indicative necessarily of annual results.
2. Comprehensive Income - Total comprehensive income is comprised primarily of
net earnings, net currency translation gains and losses, impacts of net
investment and cash flow hedges and net unrealized gains and losses on
securities. Total comprehensive income for the three months ended September
30, 2002 and 2001 was $1,360 million and $1,040 million, respectively.
3. Segment Information - To reflect recent management and business changes,
the Company has realigned its reporting segments. Effective July 1, 2002,
the feminine care business, which had been managed within the baby,
feminine and family care segment, is included in the beauty care segment,
with the baby, feminine and family care segment renamed the baby and family
care segment. In addition, the food and beverage segment was renamed snacks
and beverages to reflect its remaining businesses. The historical results
for the elements of the former food and beverage segment that have been
divested or spun-off (i.e., Jif, Crisco and commercial shortening and oils)
are now reflected in corporate. As required by SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," prior year
operating information in the following table has been restated to conform
with the current year presentation. In conjunction with the realignments,
approximately $1.8 billion in segment assets related to the feminine care
business are now part of the beauty care reporting segment.
The basis for presenting segment results generally is consistent with
overall Company reporting. The primary difference relates to
partially-owned operations, where segment reporting reflects such
investments as consolidated subsidiaries with applicable adjustments to
comply with U.S. GAAP in the corporate segment. The corporate segment also
includes both operating and non-operating elements such as financing and
investment activities, certain employee benefit costs, intangible asset
amortization, certain restructuring charges, segment eliminations, prior
year results of certain divested businesses and other general corporate
items. Additionally, for interim periods certain non-recurring tax impacts
are reflected on a discrete basis for management and segment reporting
purposes, but are eliminated in corporate to arrive at the Company's
effective tax rate for the quarter.
Three Months Ended Fabric & Baby & Beauty Health Snacks &
September 30 Home Care Family Care Care Care Beverages Corporate Total
- ------------------------- -------------- ------------ ---------- ----------- ------------ ------------ ---------
Net Sales
2002 $ 3,132 $ 2,426 $ 3,123 $ 1,410 $ 822 $ (117) $ 10,796
2001 2,883 2,312 2,457 1,176 798 140 9,766
Earnings Before Income Taxes
2002 809 400 804 275 122 (272) 2,138
2001 665 364 643 210 113 (368) 1,627
Net Earnings
2002 547 241 548 196 91 (159) 1,464
2001 450 223 445 140 74 (228) 1,104
4. Acquisitions - On November 16, 2001, the Company completed the acquisition
of the Clairol business from Bristol-Myers Squibb Company for approximately
$5 billion. The operating results of the Clairol business are reported in
the beauty care segment from November 16, 2001. The following table
provides pro forma results of operations for the prior year's first
quarter, as if Clairol had been acquired at the beginning of fiscal year
2002. The pro forma results do not include any anticipated cost savings or
other effects of the planned integration of Clairol. Accordingly, such
amounts are not indicative necessarily of the results that would have
occurred if the acquisition had been completed on the date indicated or
that may result in the future.
Pro Forma Results - The Procter & Gamble Company
------------------------------------------------
Three months ended
September 30, 2001
----------------------------
Net Sales $10,154
Net Earnings 1,141
Diluted net earnings per
common share 0.81
5. Goodwill - Goodwill as of September 30, 2002, as adjusted for the segment
restatement of the feminine care business (See Note 3), is allocated by
reportable segment as follows:
Fabric & Baby & Health Snacks &
Home Care Family Care Beauty Care Care Beverages Total
--------- ----------- ----------- ------ --------- -----
Goodwill, September 30, 2002 $452 $817 $6,546 $2,865 $278 $10,958
6. Pro Forma Stock-Based Compensation - The Company has stock-based
compensation plans under which stock options are granted annually to key
managers and directors at the market price on the date of grant. Grants
were issued in the quarter ended September 30, 2002 under stock-based
compensation plans approved by shareholders in 2001. These new grants are
fully exercisable after three years and have a ten-year life. Prior grants,
issued in fiscal years 1999 through 2002, are fully exercisable after three
years and have a fifteen-year life. The Company also makes other grants to
employees, for which vesting terms and option life differ.
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to account for its employee stock option plans under
APB Opinion No. 25, "Accounting for Stock Issued to Employees," which
recognizes expense based on intrinsic value at date of grant. As stock
options have been issued with exercise prices equal to grant date fair
value, no compensation cost has resulted. Had compensation cost for all
options granted been determined based on the fair value at grant date
consistent with SFAS No. 123, the Company's net earnings and earnings per
share would have been as follows:
Three months ended
-------------------------------
Sept. 30, 2002 Sept. 30, 2001
--------------------------------------------------------------------
Net earnings
As reported $1,464 $1,104
Pro forma expense 104 113
Pro forma 1,360 991
--------------------------------------------------------------------
Net earnings per common share
Basic
As reported $1.10 $0.83
Pro forma adjustments (0.08) (0.09)
Pro forma 1.02 0.74
Diluted
As reported 1.04 0.79
Pro forma adjustments (0.07) (0.08)
Pro forma 0.97 0.71
--------------------------------------------------------------------
The assumptions used to calculate the fair value of options granted are
evaluated and revised, as necessary, to reflect market conditions and
experience.
Item 2. Management Discussion and Analysis
RESULTS OF OPERATIONS
- ---------------------
Despite continuing softness in the global economy, and in particular in the
Latin American region, the Company delivered double-digit volume, sales and
earnings growth for the quarter ended September 30, 2002. For a discussion of
key factors that could impact and must be managed by the Company, refer to the
Management Discussion and Analysis section in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2002.
The Company reported net earnings of $1.46 billion or $1.04 diluted net earnings
per share for the quarter ended September 30, 2002. Results included a $113
million after-tax restructuring charge related to the program to streamline the
Company's operations and business portfolio. This restructuring program charge
included employee separation costs of $52 million before tax and asset-related
charges of $62 million before tax. Net earnings in the year ago quarter were
$1.10 billion or $0.79 diluted net earnings per share, including a $238 million
after-tax restructuring charge. The restructuring charge for the year ago
quarter include employee separation costs of $212 million before tax and
asset-related charges of $69 million before tax.
Core net earnings were $1.58 billion or $1.12 diluted net earnings per share for
the current quarter, compared to $1.34 billion or $0.96 core diluted net
earnings per share in the year ago quarter. These results exclude restructuring
program charges in both periods.
Net sales were $10.80 billion, up eleven percent versus the year ago quarter.
Unit volume grew thirteen percent versus the prior year, led by double-digit
growth in the fabric and home care, health care and beauty care businesses.
Excluding acquisitions and divestitures, unit volume increased ten percent.
Sales trailed volume growth as a three-percent negative pricing and mix impact
was partially offset by a positive foreign exchange impact of one percent. The
pricing and mix impact was a function of the following primary effects: the pass
through of lower commodity costs to consumers in coffee and tissue and
structural price adjustments in baby care; negative mix impacts in beauty care,
primarily related to Clairol; and continuing strong growth of the Company's
developing market businesses which typically have a lower sales rate per unit
and growth in mid-tier laundry brands.
Gross margin was 49.2 percent for the quarter ended September 30, 2002, compared
to 47.7 percent in the same quarter of the prior year. Cost of products sold
includes a $83 million before-tax charge related to the restructuring program.
Excluding restructuring costs, gross margin was 50.0 percent, compared to 48.8
percent in the year ago quarter. This gross margin progress reflects the
benefits from improved corporate portfolio mix, ongoing base business and
restructuring savings and lower material costs.
Operating margin was 20.2 percent for the quarter, compared to 18.0 percent in
the same quarter a year ago. Excluding restructuring charges, core operating
margin increased to 21.6 percent from 21.3 percent, as gross margin improvement
was offset by increased core marketing, research, administrative and other
(MRA&O) costs. Core MRA&O as a percent of sales increased to 28.4 percent from
27.5 percent in the same quarter a year ago, reflecting increased marketing
investments and investments in pharmaceuticals for clinical trials for our
ongoing feminine testosterone research and milestone payments for our diabetes
product research per our contractual agreements, partially offset by continued
progress from the Company's restructuring program.
Non-operating income increased $81 million, which includes the gain from the
divestiture of the non strategic elements of the Company's Vicks business in
Japan.
As discussed in Note 3, segments have been restated for recent management and
business changes.
FABRIC & HOME CARE
- ------------------
Fabric and home care delivered eleven percent volume growth reflecting
innovation across all brands. Net sales were $3.13 billion, up nine percent,
including a positive one percent foreign exchange impact. Sales trailed volume
growth primarily due to strong performance on mid-tier brands and in developing
markets, which resulted in a negative sales mix impact. Net earnings were $547
million, up 22 percent, reflecting higher volumes and a strong cost management
focus. Operating margin expansion was achieved through lower material prices and
a continued focus on base business savings projects, which funded increased
marketing costs.
All regions posted double-digit volume increases in fabric care except Latin
America, where markets are contracting reflecting the tough economic environment
and sharp currency erosion. However, the Company maintained laundry category
share leadership in Latin America and shares are up versus prior year.
BABY & FAMILY CARE
- ------------------
Baby and family care delivered unit volume growth of six percent behind strength
in baby care in North America and Western Europe. Net sales were $2.43 billion,
up five percent, as pricing adjustments to reflect lower commodity costs and
improved consumer value on Luvs were partially offset by a positive one percent
foreign exchange impact and product mix toward premium tier diapers and pants.
Earnings were $241 million, up eight percent, reflecting sales growth,
particularly in premium tier diapers, and manufacturing and restructuring cost
savings.
Despite four percent volume growth in family care, shares were down slightly due
to aggressive competitive promotional spending - well beyond levels associated
with passing on lower pulp prices to consumers. The Company has responded to
these actions, but is anticipating a reversal of the spending trends as pulp
costs start to increase. Baby care volume grew double-digits in both North
America and Western Europe, leading to strong share growth in the quarter driven
by the Pampers Baby Stages initiative.
BEAUTY CARE
- -----------
Beauty care posted double-digit volume, sales and earnings growth. Unit volume
increased 32 percent led by the Clairol acquisition. Excluding the impact of
acquisitions and divestitures, volume was up ten percent behind strength in hair
care and fine fragrances. The hair care business was particularly strong, with
North America delivering broad-based volume progress across the hair care
portfolio. Western Europe and China hair care were also notably strong, where
both Pantene and Head & Shoulders delivered excellent volume growth. Feminine
care volume grew in the high single digits after several quarters of declines,
with the U.S. delivering double-digit volume growth. Net sales were $3.12
billion, up 27 percent including a two percent positive foreign exchange impact.
Volume growth was partially offset by mix impacts driven by the Clairol
business. Net earnings were $548 million, up 23 percent versus last year as
manufacturing cost reductions were partially offset by increased marketing
investments, primarily in advertising.
HEALTH CARE
- -----------
Health care continued to deliver strong results. Unit volume increased 19
percent, driven by strength in pharmaceuticals, behind strong Actonel
once-a-week results, and oral care. Net sales grew 20 percent to $1.41 billion,
including a positive one percent foreign exchange impact. Net earnings for
health care were $196 million, up 40 percent, reflecting volume and sales growth
of high margin items, such as Crest Whitestrips and Actonel. This growth is
after the funding of increased clinical and milestone costs in pharmaceuticals.
The oral care business continued to grow strongly in all major tooth care
segments: dentifrice, toothbrushes and whitening systems. Crest Whitestrips
results have been very strong, with volume double the prior year. Recently, the
Company has responded to a competitive entry into the tooth whitening category
by announcing a price decline, of approximately 30%, effective in October 2002.
Additionally, the expected FDA approval timing on Prilosec OTC has moved to the
fall of 2003. This new timeline has no material impact to the Company's expected
results for the current fiscal year.
SNACKS & BEVERAGES
- ------------------
Snacks and beverages delivered good results as unit volume increased four
percent behind strength in the snacks businesses offset by softness in
beverages. Net sales grew three percent to $822 million, including a two percent
positive foreign exchange impact. Results reflect the Folgers' pricing response
to aggressive competitive pricing activity in the marketplace and continued
lower green coffee costs. Snacks delivered double-digit volume growth, with
progress in both Pringles and Torengos. Net earnings grew strongly, up 23
percent to $91 million, driven by volume growth and a continued focus on cost
reductions.
CORPORATE
- ---------
The corporate segment contains both operating and non-operating items that are
not included in the business results. Current year results reflect increased
divestiture gains and lower restructuring costs.
FINANCIAL CONDITION
- -------------------
For the quarter ended September 30, 2002, cash generated from operating
activities totaled $2.01 billion. Earnings, adjusted for non-cash charges, are
the primary driver of operating cash flow and the $0.68 billion increase from
the first quarter of last year. Working capital increased slightly from June 30.
Days sales outstanding improved two days for receivables and seven days for
inventory days on hand versus the first quarter of last year. Accounts payable
and other accruals decreased, reflecting a reduction in days outstanding for
trade payables and normal timing differences for other accruals. The remaining
increase versus the prior year was driven by changes in other operating assets
and liabilities, including deferred taxes, and a reduction in equity investments
for dividends received.
Free cash flow, defined as cash flow from operations less capital expenditures,
for the first quarter was $1.73 billion, representing a $0.76 billion increase
over the same period last year. In addition to earnings growth, this increase
reflects reduced capital spending levels in the quarter. The Company anticipates
that this capital spending rate will increase through the year, but the fiscal
year average will be in line with the revised target of below five percent of
sales.
Investing activities used $195 million of cash in the current year compared to
$362 million in the previous year. This generated a $167 million net cash
increase versus the prior year, primarily attributable to $53 million higher
divestiture proceeds, reduced capital spending of $71 million and the absence of
acquisition activity in the quarter. Divestiture proceeds in the quarter were
from the Vicks throat drop business in Japan. The prior year acquisition
activity relates primarily to Jean Patou.
Financing activities used $524 million of cash for the current fiscal year
versus a net use of $389 million in the prior year quarter. The largest driver
of this $135 million difference is increased purchase of treasury shares,
reflecting a return of the share repurchase program to historical levels.
We continue negotiations regarding the potential outsourcing of certain
administrative and other business support services. At this time, no final
decisions have been made.
RESTRUCTURING PROGRAM UPDATE
- ----------------------------
In 1999, concurrent with a reorganization of its operations into product-based
global business units, the Company initiated a multi-year restructuring program.
The program is designed to accelerate growth and deliver cost reductions by
streamlining management decision-making, manufacturing and other work processes
and discontinuing under-performing businesses and initiatives. Technology
improvements as well as standardization of manufacturing and other work
processes allow the Company to streamline operations, resulting in the
consolidation of manufacturing activity and various business processes.
Costs to be incurred include separation related costs, asset write-downs,
accelerated depreciation and other costs directly related to the restructuring
efforts.
During the quarter ended September 30, 2002, the Company recorded charges
totaling $151 million before tax ($113 million after tax) related to its
restructuring program, as detailed in the following table. In addition, the
Company continues to execute similar projects as part of ongoing operations.
Costs for these projects are included in core earnings.
Restructuring Program July - September, 2002 Charges (before tax)
Amounts in millions
-------------------------------------------------------------------------------
Beginning Current Applied Ending
Reserves Quarter Cash Against Reserves
6/30/02 Charges Spent Assets 9/30/02
--------- ------- ----- ------- --------
Employee separations $159 $ 52 $87 $ - $124
Asset write-downs - 25 - 25 -
Accelerated depreciation - 33 - 33 -
Other 86 41 15 4 108
-------------------------------------------------
245 151 102 62 232
During July - September 2002, restructuring charges against the Company's cost
of products sold amounted to $83 million before tax and charges included in
marketing, research and administrative expenses amounted to $63 million before
tax. In addition, the Company had $5 million of net sales reductions from
initiatives being discontinued, which are reflected in corporate.
Employee separation charges in July - September 2002 are associated with
severance packages for approximately 900 people. The packages are predominantly
voluntary and are formula driven based on salary levels and past service.
Severance costs related to voluntary separations are charged to earnings when
the employee accepts the offer. The current and planned separations span the
entire organization, including manufacturing, selling, research and
administrative positions.
The charges for accelerated depreciation and asset write-downs, which totaled
$58 million before tax in the quarter ended September 30, 2002, are primarily
related to manufacturing operations. Charges for accelerated depreciation relate
to long-lived assets that will be taken out of service prior to the end of their
normal service period due to manufacturing consolidations, technology
standardization, plant closures or strategic choices to discontinue initiatives.
The Company has shortened the estimated useful lives of such assets, resulting
in incremental depreciation expense. Charges for asset write-downs relate to the
establishment of new fair value bases for assets held for sale or disposal that
represent excess capacity in the process of being removed from service or
disposed and businesses held for sale in the next 12 months.
Other costs incurred as a direct result of the restructuring program amounted to
$41 million before tax during July - September 2002. These were primarily for
relocation, training, establishment of global business services and results from
discontinued initiatives.
Item 4: Controls and Procedures
The Company's President, Chief Executive, and Chairman of the Board, A.G.
Lafley, and the Company's Chief Financial Officer, Clayton C. Daley, Jr., have
evaluated the Company's internal controls and disclosure controls systems within
90 days of the filing of this report.
Messrs. Lafley and Daley have concluded that the Company's disclosure controls
systems are functioning effectively to provide reasonable assurance that the
Company can meet its disclosure obligations. The Company's disclosure controls
system is based upon a global chain of financial and general business reporting
lines that converge in the world-wide headquarters of the Company in Cincinnati,
Ohio. The reporting process is designed to ensure that information required to
be disclosed by the Company in the reports that it files or submits with the
Commission is recorded, processed, summarized and reported within the time
periods specified in the Commission's rules and forms.
Since Messrs. Lafley's and Daley's most recent review of the Company's internal
controls systems, there have been no significant changes in internal controls or
in other factors that could significantly affect these controls.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's 2002 Annual Meeting of Shareholders held on October 8, 2002,
the following actions were taken:
The following Directors were elected for terms of office expiring in 2005:
Votes Broker
Votes For Withheld Abstentions* Non-Votes*
- ------------------------------------------------------------------------------
BRUCE L. BYRNES 1,148,767,095 18,103,997 N/A N/A
- ------------------------------------------------------------------------------
SCOTT D. COOK 1,148,999,623 17,781,469 N/A N/A
- ------------------------------------------------------------------------------
DOMENICO DE SOLE 1,104,289,511 62,491,581 N/A N/A
- ------------------------------------------------------------------------------
CHARLES R. LEE 1,103,957,527 62,823,565 N/A N/A
- ------------------------------------------------------------------------------
ERNESTO ZEDILLO 1,143,973,421 22,807,671 N/A N/A
- ------------------------------------------------------------------------------
* Pursuant to the terms of the Notice of Annual Meeting and Proxy Statements,
proxies received were voted, unless authority was withheld, in favor of the
election of the five nominees named.
In addition, the following Directors continued to serve as Directors after the
meeting:
Norman R. Augustine
R. Kerry Clark
Richard J. Ferris
Joseph T. Gorman
A. G. Lafley
Lynn M. Martin
John E. Pepper
Johnathan A. Rodgers
John F. Smith, Jr.
Ralph Snyderman
Robert D. Storey
Marina v.N. Whitman
A proposal by the Board of Directors to ratify the appointment of Deloitte &
Touche LLP as the Company's independent auditors to conduct the annual audit of
the financial statements of the Company and its subsidiaries for the fiscal year
ending June 30, 2003, was approved by the shareholders. The shareholders cast
1,075,572,791 votes in favor of this proposal and 79,896,073 votes against.
There were 11,285,235 abstentions.
A shareholder resolution proposed by Evelyn Y. Davis was defeated by the
shareholders. The proposal requested that the Board take the necessary steps to
provide for cumulative voting in the election of directors. The Board opposed
the resolution. The shareholders cast 297,228,260 votes in favor of the
resolution and 654,814,803 against. There were 21,501,576 abstentions and
193,236,453 broker non-votes.
A shareholder resolution proposed by Lenore Goldman and four co-sponsors was
defeated by the shareholders. The proposal requested that the Board of Directors
adopt a policy to identify and label all food products manufactured or sold by
the Company that may contain genetically engineered ingredients. The Board
opposed the resolution. The shareholders cast 92,942,527 votes in favor of the
resolution and 830,924,946 against. There were 49,667,752 abstentions and
193,245,867 broker non-votes.
A shareholder resolution proposed by the New York City Comptroller's Office, as
Custodian and Trustee of the New York City Fire Department Pension Fund, the New
York City Police Pension Fund, the New York City Employees Retirement System,
and the New York City Teachers Retirement System and eight co-sponsors, was
defeated by the shareholders. The proposal requested that the Board of Directors
amend the Company's buying policy and standard purchase contracts to reflect
adoption of the principles defined by the International Labor Organization;
establish an independent monitoring process that assesses adherence to these
conventions; and report annually on adherence to the amended policy through an
independent and transparent process. The Board opposed the resolution. The
shareholders cast 107,055,468 votes in favor of the resolution and 805,207,939
against. There were 60,812,520 abstentions and 193,705,165 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3-1) Amended Articles of Incorporation (Incorporated by reference
to Exhibit (3-1) of the Company's Annual Report on Form 10-K
for the year ended June 30, 1998).
(3-2) Regulations (Incorporated by reference to Exhibit (3-2) of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998).
(11) Computation of Earnings per Share.
(12) Computation of Ratio of Earnings to Fixed Charges.
(99) Certification of Periodic Financial Reports Pursuant to 18
U.S.C. Section 1350.
(b) Reports on Form 8-K
The Company filed Current Reports on Form 8-K containing information
pursuant to Item 5 ("Other Events") dated August 5, 2002, relating to
the announcement of earnings for the April-June 2002 quarter; dated
September 5, 2002, updating previously issued guidance for the
July-September 2002 quarter; dated September 12, 2002, relating to the
certification by the CEO and CFO of the registrant of the Annual Report
on Form 10-K for the fiscal year ended June 30, 2002; and September 27,
2002, relating to updating previously issued guidance for the
July-September 2002 quarter, as amended that same date.
Pursuant to the requirements 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.
THE PROCTER & GAMBLE COMPANY
/S/ JOHN K. JENSEN
- -----------------------
(John K. Jensen)
Vice President and Comptroller
Date: October 31, 2002
-----------------
I, A.G. Lafley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Procter
& Gamble Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/S/ A.G. LAFLEY
- ---------------------------
(A.G. Lafley)
Chairman of the Board,
President and Chief Executive
Date: October 31, 2002
---------------------
I, Clayton C. Daley, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Procter
& Gamble Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/S/ CLAYTON C. DALEY, JR.
- ------------------------------
(Clayton C. Daley, Jr.)
Chief Financial Officer
Date: October 31, 2002
------------------------
EXHIBIT INDEX
Exhibit No. Page No.
(3-1) Amended Articles of Incorporation (Incorporated by
reference to Exhibit (3-1) of the Company's Annual
Report on Form 10-K for the year ended June 30, 1998).
(3-2) Regulations (Incorporated by reference to Exhibit
(3-2) of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998).
(11) Computation of Earnings per Share 22
(12) Computation of Ratio of Earnings to Fixed Charges 23
(99) Certification of Periodic Financial Reports Pursuant 24-25
to 18 U.S.C. Section 1350