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Procter & Gamble Co – ‘10-Q’ for 9/30/02

On: Thursday, 10/31/02, at 2:41pm ET · For: 9/30/02 · Accession #: 80424-2-168 · File #: 1-00434

  As Of                Filer                Filing    For·On·As Docs:Size

10/31/02  Procter & Gamble Co               10-Q        9/30/02    4:47K

Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report -- jas0210q                          22     81K 
 2: EX-11       Jas02-10-Q                                             1      7K 
 3: EX-12       Jas02-10-Q - Exhibit 12                                1      7K 
 4: EX-99       Jas02-10-Q - Certifications                            2      8K

10-Q — Quarterly Report — jas0210q
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Controls and Procedures Exhibits and Reports on Form 8-K Financial Statements Management Discussion and Analysis Submission of Matters to a Vote of Security Holders:
1	1st Page - Filing Submission
2	Item 1. Financial Statements
9	Item 2. Management Discussion and Analysis
14	Item 4:. Controls and Procedures
15	Item 4. Submission of Matters to a Vote of Security Holders:
17	Item 6. Exhibits and Reports on Form 8-K

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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.                                                                       

10-Q 2nd Page of 22 TOC 1st Previous Next ↓Bottom Just 2nd
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.                                       

                                                                [Download Table]


                  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.                 

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                  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 
                                                         ==================   ================== 

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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.                                     

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                  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.                            

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 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.                                   

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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    

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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:                                        

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                              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.                                                           

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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.                                 

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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.                                          

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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.                                

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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.                                                                        

10-Q 13th Page of 22 TOC 1st Previous Next ↓Bottom Just 13th
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.                                                       

10-Q 14th Page of 22 TOC 1st Previous Next ↓Bottom Just 14th
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.                

10-Q 15th Page of 22 TOC 1st Previous Next ↓Bottom Just 15th
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.                                              

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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.    

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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                                                          
-----------------                                                   

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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

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    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                                                          
---------------------                                               

10-Q 20th Page of 22 TOC 1st Previous Next ↓Bottom Just 20th
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

10-Q 21st Page of 22 TOC 1st Previous Next ↓Bottom Just 21st
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                                                          
------------------------                                            

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 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

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q’ Filing	Date	First	Last	Other Filings

	6/30/03	15		10-K, 11-K, 4, 5, 8-K
Filed on:	10/31/02	17	21
	10/8/02	15		11-K, DEF 14A
For Period End:	9/30/02	1	13	13F-HR, 8-K, 8-K/A, NT 11-K
	9/27/02	17		8-K, 8-K/A
	9/12/02	17		10-K, 8-K, S-8 POS
	9/5/02	17		8-K
	8/5/02	17		8-K
	7/1/02	6		4
	6/30/02	2	17	10-K, 11-K, 13F-HR, 5, 8-K, NT 11-K
	11/16/01	7		8-K
	9/30/01	2	8	10-Q, 13F-HR, 8-K
	9/30/98	17	22	10-Q
	6/30/98	17	22	10-K, 11-K
				List all Filings

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Procter & Gamble Co – ‘10-Q’ for 9/30/02

On: Thursday, 10/31/02, at 2:41pm ET · For: 9/30/02 · Accession #: 80424-2-168 · File #: 1-00434

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