Example 1: Sample letter of company annual report
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Date
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To Our Shareholders:
Financial Highlights
We submit herewith the Annual Report of The Procter & Gamble Company for the 1987 fiscal year that ended June 30, 1987.
Net sales for the year amounted to $17.0 billion, an increase of 10 percent over net sales of $15.4 billion for the previous year.
Net earnings for the year amounted to $327 million, and earnings per share amounted to $1.87 per share. Excluding the impact of the reserve to restructure manufacturing operations we wrote to you about in June, net earnings amounted to $786 million, an increase of 11 percent over net earnings of $709 million for the previous year. Pre-tax earnings excluding the restructuring reserve were up 21 percent over the comparable amount a year ago. Earnings per share excluding restructuring were $4.59, which compares with $4.20 for the previous year.
Dividends of $2.70 per common share were paid during the year. The comparable amount for the previous year was $2.625 per share. This marked the 31st consecutive fiscal year of increased dividend payments.
Sesquicentennial Anniversary
This year marks the 150th anniversary of the partnership formed by the Company’s founders, candlemaker William Procter and soapmaker James Gamble. We are proud of our long and successful history. As we look to the future, we are committed to do what’s right for the long-term interest of our Company so it will prosper through another 150 years.
Restructuring of Manufacturing Operations
In June, we reported to you we had established a restructuring reserve for the Company’s worldwide manufacturing operations. After final review, this resulted in a pre-tax charge against the fourth quarter of $805 million that reduced net earnings by $459 million, or $2.72 per share. The restructuring program primarily focuses on consolidations of manufacturing operations, which result in the conversion or disposal of some plants, buildings, and equipment in the United States and abroad.
A significant part of the program includes a sharp curtailment of Duncan Hines cookie manufacturing operations in the United States and Canada. This cutback in resources behind the ready-to-serve cookie business is related directly to the infringement of the Company’s patented technology by three major U.S. cookie manufacturers and the injury this has done to our cookie business. We are continuing to pursue these lawsuits in U.S. District Court.
Over the long-term, the restructuring program will result in a stronger, more competitive company and will set the stage for more vigorous growth in the current year and beyond. The program will have a positive impact on cash flow and will not inhibit the Company’s ability to pay dividends.
Acquisitions
Earlier this month, the Company announced an agreement to purchase all shares of the Blendax Group subject to governmental agreement. Blendax is a major European manufacturer and marketer of health and beauty aids headquartered in Mainz, Germany. It holds important market positions in the Federal Republic of Germany and Austria. Blendax’s products include dentifrice, toothbrushes, oral care appliances, bath and shower foams, hand and body lotions, shampoos, hair colorings, and deodorants. Its experienced organization of more than 2,000 employees will give the Company an expanded presence in European health and beauty aid markets.
In mid-June, the Company’s Richardson-Vicks subsidiary signed an agreement to purchase the worldwide rights to Bain de Soleil, the second-largest-selling sun care line in the U.S. The line comprises a full range of sun care products for tanning, sun protection and moisturizing.
United States Business
Net earnings from operations in the United States excluding the effects of restructuring totaled $711 million, a 12 percent increase over the previous year. A new unit volume record was established for the domestic consumer products divisions despite a business climate that was particularly competitive throughout the markets in which we do business. Termination of investment tax credits by the Tax Reform Act of 1986 had a negative impact on net earnings this past year. However, beginning July 1, 1987, the drop in the federal statutory tax rate from 46 to 34 percent under the Act will more than offset the loss of these tax credits.
Notable volume and market share increases were achieved in the dentifrice and deodorant categories, led by Crest Tartar Control toothpaste and Secret anti-perspirant. In the mouthwash category, Peppermint Scope was expanded broadly as a companion product to Original Mint Scope. Two new and unique health and beauty aids were expanded into national distribution: New Pert Plus, which replaced original Pert, is the first hair care product that delivers complete cleaning and conditioning benefits in one product. Peridex, a prescription mouthwash, is the first product to carry the American Dental Association’s seal of acceptance for control of plaque and gingivitis.
There was significant growth in the coffee and fruit juice business. A record market share boosted Vacuum Folgers coffee to leadership in its category. Record unit volumes of Citrus Hill Select orange juice were shipped, and the stage was set for future growth by expanding Citrus Hill Plus Calcium nationally in orange juice and grapefruit flavors. Its calcium source marks an important breakthrough in family nutrition. Patent approval on the product is pending. The American Medical Women’s Association accorded special recognition to Citrus Hill Plus Calcium as an effective source of dietary calcium, which also marked the first product acceptance citation by this professional organization.
Record unit volume was attained in paper products, led by Charmin bathroom tissue, Bounty towels, Always feminine sanitary pads and liners, and Pampers disposable diapers, all of which reported significant growth over the previous year. New Always Slender for Teens was expanded nationally late in the year and is directed specifically at the teenage catamenial market. In June, Luvs Deluxe diapers with improved containment and ultra thin padding were expanded into national distribution.
In the laundry and cleaning products segment, a number of reformulated and companion products to existing Company brands were expanded successfully to national distribution.
• Liquid Cascade dishwashing detergent is generating new volume in tandem with powder Cascade, the dishwashing market leader.
• Liquid Cheer detergent offers all-temperature cleaning versatility just like Cheer powder detergent.
• Dash detergent was repositioned as a lemon-scented economically priced detergent.
• New, fresh-scented Lemon Comet joins regular Comet in the cleanser category.
Our industrial and institutional businesses made significant progress this past year, most notably from improved margins on wood pulp that helped to restore profitability to more satisfactory levels.
International Operations
International operations achieved net earnings of $197 million excluding the effects of restructuring. This represented an increase of 38 percent over the prior year. This was the second straight year of strong earnings growth. The growth was broadly based geographically and by product line and included the effect of favorable currency exchange rates.
The soap and detergent business in Europe recorded significantly improved margins. New or re-formulated products expanded our brand line-up in many major markets. Additionally, we are very encouraged by the growth of the citrus beverage business in Germany, where we introduced improved products with unique technology that retains more of the natural juice flavors. In most countries improved versions of Pampers contributed important unit volume growth. This progress was particularly noteworthy in Japan, where our market share improved in a disposable diaper category that has grown substantially.
During the past year we completed the integration of the Richardson-Vicks international business with P&G operations. Revised divisional structures and the combining of companies in many countries are providing efficiencies and presenting new opportunities for business growth to the unified organizations.
Geographic expansion activities continued during the past year. A joint venture became operational in Egypt, and a joint venture was established in Turkey with the Mintax Company. In Colombia, the Company acquired a controlling interest in Inextra, a local manufacturer of soaps and detergents.
Research and Development
Last year, the Company invested $576 million in research and development expenses, a 20 percent increase over the previous year. Expenditures included basic research with emphasis on relevant new technologies as well as applied research to develop new products and to maintain the vitality of existing brands. Worldwide, about 6,000 employees–or more than eight percent of the Company’s total enrollment–are engaged in research and development activities.
Olestra
Following 20 years of extensive research, the Company has developed an important new food ingredient. In May, the Company’s petition for approval of a new calorie-free ingredient to replace fat in everyday foods was accepted for processing by the U.S. Food and Drug Administration. Olestra, its proposed generic name, will let consumers reduce their intake of fat and calories. Products containing olestra cannot be marketed until the FDA reviews and approves its use, but we are very much encouraged by this first step in making these important nutritional and health benefits available to the public.
Capital Expenditures
Last year, capital expenditures amounted to $925 million, or slightly below the expenditure level of the previous two years. Product and process improvement projects to existing manufacturing capacity and cost savings projects accounted for more than 60 percent of these expenditures.
Financial Strength
The Company maintained its strong financial position in 1987. All of the past year’s cash needs were provided by internally generated funds. Coupled with considerable unused debt potential and ready access to capital markets here and abroad, we have a great deal of financial flexibility in funding the future growth of the business.
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The commemorative booklet inside the front cover of this report reviews how “Excellence through commitment and innovation” has characterized the Company’s operations since it was founded in 1837. It is particularly appropriate in this sesquicentennial year to pay tribute to the men and women of Procter & Gamble, both past and present, who have contributed to that record. They are primarily responsible for the past achievements and growth of the Company through the years, and it’s because of them, now 73,000 strong, that you can share our confidence in the future.
Respectfully,
John G. Smale
Chairman of the Board and CEO
John E. Pepper
President
Reprinted by courtesy of The Procter & Gamble Company.
