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CONSUMER PRODUCT INDUSTRY CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Carmen Daniel George Tobey Ying Ying March 20, 2004 March 20, 2004

CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

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Page 1: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

CONSUMER PRODUCT INDUSTRYCONSUMER PRODUCT INDUSTRY

Carmen • Daniel • George • Tobey • YingCarmen • Daniel • George • Tobey • Ying

March 20, 2004March 20, 2004

Page 2: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Agenda

Overview of Industry

Company 1: Coca Cola

Company 2 : Procter and Gamble

Financial Highlights

Risk Management

Page 3: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Consumer Product Industry

Definition:

Consumer Products are everything tangible that the consumer might consider buying

Two Categories:

Cyclical Goods: include vehicles, home furnishings, toys, jewelry, sporting goods and electronics

Non-Cyclical Goods: include clothing, office supplies, personal care items and cleaning products.

Page 4: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Structure of Consumer Product Industry

Highly competitive and mature industry

Generates enormous portion of the gross domestic product

Pumps money into other industries

Sales are concentrated in the US, Japan & Western EuropeThe populations of United States, Canada, Europe, and Japan make up less than 20% of the world's population, yet they consume the vast majority of consumer goods.

Individual consumers make up the majority of this industry’s customers

Marketing an individual product and promoting a brand name are key factors to succeed in this industry

Page 5: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Structure of the Consumer Product Industry

This is a great sector for times when the economy is slow because the companies depend less on the economy than the companies from other sectors.

Compare the 12 month percentage changes in indexes (2002) for consumer products with indexes of other sectors :

INDEX 12 mo. % change

Non-Cyclical Consumer -3.22Consumer Cyclicals -17.61

Energy -13.51Financial -22.01Health Care -19.41Technology -37.73

Page 6: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Consumer Product Indices vs. S&P 500 during the last 12 months

Page 7: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Hot Industry: Home Appliance

Companies Current Revenue Historical Profitability

Stock Price ($ in million) Growth (EBIT to Revenue)

(01/31/2004)

Electrolux Ab $23.14 $17,048.2 -2.0% 6.2%

Whirlpool Corp. $75.95 $11,763.0 6.5% 7.3%

Maytag Corp. $28.64 $4,791.9 2.7% 6.4%

Salton Inc. $13.75 $933.4 -3.0% 4.8%

Applica Inc. $8.09 $653.0 0.0% 1.3%

National Presto

Inds Inc. $37.2 $132.7 11.7% 14.6%

Page 8: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Hot Industry: Home Appliances

Page 9: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Cold Industry: Housewares and Accessories

Companies Current Revenue Historical Profitability

Stock Price ($ in millions) Growth ( EBIT to Revenue)

(01/31/2004)

Newell Rubbermaid Inc. $24.43 $7,670.8 7.9% 10.3%

Blyth Inc. $33.27 $1,329.9 9.3% 11.2%

Tupperware Corp. $17.65 $1,151.9 -1.0% 7.9%

Waterford Wedgwood Plc $0.31 $966.8 -4.6% 2.3%

Libbey Inc. $18.26 $491.2 2.9% 9.0%

Oneida Ltd. $5.35 $454.1 -3.9% -2.7%

Home Products Intl Inc .$1.48 $235.4 -0.2% 2.5%

Page 10: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Cold Industry: Housewares and Accessories

Page 11: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Consumer Products in CanadaCanada's consumer products industry consists of furniture, clothing, textiles, toys, sporting goods, household goods, electronics, and appliances. 

In 2000, furniture sales led the way with 10.7% growth, while clothing and general merchandise sales grew by 5.5% and 4.4%, respectively.

Over the five year period, from 1996 to 2000, the best performing export areas in the industry were furniture, with shipments increasing from $CDN 3.7 billion to $CDN 6.9 billion, and clothing, with shipments increasing from $CDN 1.6 billion to $CDN 3.0 billion.

Page 12: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Challenges & Opportunities of Consumer Product Industry

Industry consolidation takes place

Globalization is the primary avenue of growth for many businesses

Deflation is a more recent phenomenon impacting the way companies do business

Operating efficiencies, both supply- and demand-based, are the new trends

Effective brand management is critical to sustaining a competitive advantage. Successful brand development and management involve building brand strategies that focus on the customer experience.

Technology is a major enabler for companies today. It is allowing companies to operate in a more time-sensitive, cost-conscious, consumer-centric manner.

Page 13: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Governmental Regulations

The production, distribution and sale in the United States of consumer products are subject to:

Federal Food, Drug and Cosmetic Act

Occupational Safety and Health Act

Lanham/Trademark Act

Various environment statutes

Various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products

Page 14: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Industry Major Players

Rank Company Revenue

$ million (2003)

Profit

$ million

# of employees

1 Nestle 50,624 3,993 229,765

2 Unilever 45,914 1,638 279,000

3 Procter & Gamble 39,244 2,922 106,000

4 Kraft 33,875 1,882 114,000

5 ConAgra 27,194 639 89,000

6 PepsiCo 26,935 2,662 143,000

7 Coca-Cola 20,092 3,969 38,000

8 Sara Lee 17,747 2,266 141,500

9 Kimberly-Clark 14,524 1,610 64,200

10 Anheuser-Busch 12,912 1,705 23,432

Page 15: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Our Examples: Two Major Players

Coca-Cola

Procter & Gamble

Page 16: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

The Coca-Cola Company and SubsidiariesThe Coca-Cola Company and Subsidiaries

Page 17: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Corporate Profile

World’s soft drink company

Invented by Atlanta pharmacist John Pemberton in 1886

Publicly traded in 1919

NYSE: KO

Credit Rating:

LT Debt Commercial Paper

Standard & Poor’s A+ A-1

Moody’s Aa3 P-1

Page 18: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Products

Carbonated Soft Drinks

Non-Carbonated Beverages

Page 19: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Financial Highlights

  Coca-Cola PepsiCo

Market Cap. $119.40B $89.62B

Total Debt / Equity 0.385 0.193

Current Ratio 1.065 1.08

Book Value Per Share 5.771 6.977

Profit Margin 20.66% 13.23%

Operating Margin 24.81% 17.73%

ROA 15.77% 14.62%

ROE 31.69% 33.94%

Page 20: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Financial Structure

Revenue Composition

Operating Revenues

Sale of beverage concentrates & syrups

Sale fountain syrups to fountain retailers

Sale of finished beverages

Revenues from Financial Activities

Interest Income

Equity Income

Page 21: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Financial Structure

Cost Structure

Cost of Good Sold

Selling, General, & Admin. Expenses

Other Expenses (i.e. Interest Expense)

Page 22: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Income Statement (in millions)2003 2002 % Change

Net Operating Revenues $21,044 $19,564 7.56%

COGS 7,762 7,105 9.25

Gross Profit $13,282 $12,495 6.30%

Selling, General, & Admin Exp 7,488 7,001 6.96

Other Operating Charges 573 0 -

Interest Income $176 $209 -15.79%

Interest Expense 178 199 -10.55

Equity Income – Net 406 384 5.73

Other Income (Loss) – Net (138) (353) 60.91

Gains on Issuances of Stock by Equity Investees

8 0 -

Net Income $4,347 $3,050 42.52%

Basic Net Income Per Share $1.77 $1.23 43.90%

Diluted Net Income Per Share $1.77 $1.23 43.90

Page 23: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Structure Cost

Stock Options (in millions)

Yr Ended Dec 31 (in millions) 2003 % in 2003 2002

Selling Exp $3,074 41.05% $2,915

Advertising Exp 1,905 25.44 1,775

General & Admin Exp 2,102 28.07 1,946

Stock-Based Compensation Exp 407 5.44 365

Selling, General, & Admin Exp $7,488 100% $7,001

2003 2002

Total Stock-based compensation expense $ 422 $ 365

Page 24: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Stock Options

Stock Option Plans

Max 120 millions shares

Granted to employees at fair market value at date of grant

Exercisable Expire

Prior to 1999 3 years 10 years

1999 To July 2003 4 years 15 years

Aug to Dec 2003 4 years 10 years

Page 25: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Stock Options

Stock option activity (in millions):

Shares Average Exercise Price

Outstanding on Jan 1, 2003 159 $ 50.24

Granted 24 49.67

Exercised (4) 26.96

Expired (12) 51.45

Outstanding on Dec 31, 2003 167 $ 50.56

Exercisable on Dec 31, 2003 102 $ 51.97

Page 26: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Stock Options

Restricted Stock Award Plans

Max 29 million shares

Granted to certain officers and key employees

Entitled to vote and receive dividends

# of shares Fair value

2003 Grants 52,720 $ 42.91

2002 Grants 30,000 $ 50.99

2001 Grants 116,300 $ 48.95

Page 27: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Risk Management

Risks

Interest rates

Foreign Exchange rates

Commodity prices

Other market risks

Page 28: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Management

Strategies:

Monitors % mix of

fixed-rate and variable-rate debt

term debt and non-term debt

Use interest rate swap agreements

Page 29: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Management

Short-Term Borrowings:

Commercial Paper (in millions)

2003 2002

Commercial Paper $ 2,234 $ 2,122

Weighted-Average Interest rates 1.1% 1.4%

Page 30: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Management

Long-Term Debt (in millions):

2003 2002

Long-Term Debt (Fixed) $ 1742 61% $ 1764 61%

Long-Term Debt (Variable) $ 1098 39% $ 1117 39%

$2840 100% $2881 100%

2003 2002

Average interest rate 3.9% 4.2%

Total interest payment $ 180 $ 197

Page 31: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Management

Long-Term Debt (in millions):

2003 % of 2003 2002 % of 2002

6%US notes due 2003 $ - - $150 5%

Variable rate euro notes due 2004 296 10% 248 9%

5 7/8% euro notes due 2005 591 21% 496 17%

4% US notes due 2005 749 26% 748 26%

5 3/4% US notes due 2009 399 14% 399 14%

5 3/4% US notes due 2011 498 18% 498 17%

7 3/8% US notes due 2093 116 4% 116 4%

Other, due through 2013 * 191 7% 226 8%

Total $ 2,840 100% $ 2,881 100%

Page 32: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Management

Interest rate swap:

Maturity less than 2 years

2003 2002

Interest rate swap $ 28 million $ 44 million

Page 33: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Management

Value at risk:

Confidence level: 95%

Time horizon: one-week period

“Any increase in net interest expense would not have material impact on our financial statements”

Page 34: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

5 geographic segments: net operating revenues

Europe / Eurasia / Middle East

31%

Africa4%

Latin American10%

Asia24%

North America31%

Page 35: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

Use 52 functional currencies

Weakness in one $$ is often offset by strengths in another

Impact of US$ on operating income

2003 Weaker US$ + 2%

2002 Stronger US$ - 3%

2001 Stronger US$ - 5%

Page 36: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

To hedge: Forecasted cash flows denominated in foreign $$

Derivative instruments:

Forward exchange contracts

currency options (euro and Japanese)

1 ~ 2 years maturity

Page 37: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

Hedging effects:

Gains/losses on foreign currency cash flow hedges (in millions):

2004 (estimates)

2003 2002

Increase (Decrease) to AOCI $ (40) $ (31) $ (151)

Page 38: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

To hedge: Net investment in certain major $$

Derivative instruments:

Forward exchange contracts

Hedging effects:

2003 2002 2001

Increase (Decrease) in foreign currency translation adjustment

$ (29) $ (26) $ (43)

Page 39: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

Value at risk:

Confidence level: 95%

Time horizon: 1-week period

“Fair value of foreign currency derivatives would decline by less than …”

2003 2002 2001

$ 26 million $34 million $43 million

Page 40: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Risk Management

Accumulated Other Comprehensive Income (in millions):

2003 2002

Accumulated derivatives net losses as of Jan $ (9) $ 142

Net changes in fair value of derivatives (100) (78)

Net losses reclassified from AOCI into earnings 69 (73)

Accumulated derivative net losses as of Dec $ (40) $ (9)

Page 41: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Risk Management Process

BOARD

FINANCE COMMITTEE CHARTER

INTEREST RATE & FOREIGN CURRENCY MANAGEMENT

Page 42: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Financial Committee Charter

Purpose: Aid the Board to oversight financial affairs

Membership:

No fewer than 3 members

Appointed/Removed by the Board

Responsibilities:

Formulate financial policies

Report financial conditions

Prepare annual budgets

Page 43: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Page 44: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Procter & Gamble

Exchange: NYS

Ticker: PG

Established in 1837

Began as a small, family operated soap and candle company

Based in Cincinnati, Ohio

Markets almost 300 products to more than five billion consumers in 140 countries

                                       

Page 45: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

P&G Operations

5 global business units

$43 Billion in Sales

Page 46: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Billion-Dollar Brands

Pampers

Tide

Ariel

Always

Pantene

Charmin

Page 47: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Billion-Dollar Brands

Bounty

Iams

Crest

Folgers

Pringles

Downy

Page 48: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Business Unit Breakdown

Baby & Family Care$9.93 Billion in Sales

Diapers, TissueBrands: Pampers, Charmin, Bounty

Fabric & Home Care$12.6 Billion in Sales

Detergent, Bleach, Household cleanersBrands: Cheer, Mr. Clean, Febreze

Beauty Care$12.22 Billion in Sales

Cosmetics, Hair Products, Skin Care, Femine CareBrands: Pantene, Tampax, Clairol, Ivory Soap

Health Care$5.8 Billion in Sales

Pet Health/Food, Oral Care, DrugsBrands: Iams, Crest, Vicks, Metamucil, Pepto-Bismol

Snacks & Beverages$3.24 Billion in Sales

Snacks and beveragesBrands: Folgers, Pringles, Sunny Delight

P&G$43.3 Billion in Sales

Page 49: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Cost Structure/Performance

P&G annualized total shareholder return nearly 17% over the past 20 years

Strategy for future growth:Best in brandingInnovation: creating new brands and categoriesScale

Page 50: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Income Statement

Jun-03 Jun-02 Jun-01 Jun-00 Jun-99Net Sales 43,377 40,238 39,244 39,951 38,125Cost of Goods Sold 22,141 20,989 22,102 21,514 21,027Gross Profit 21,236 19,249 17,142 18,437 17,098R & D Expenditure n/a n/a n/a n/a n/a SG&A Expense 13,383 12,571 12,406 12,483 10,845Depreciation & Amort. n/a n/a n/a n/a n/a Non-Operating Income 238 308 674 304 235Interest Expense 561 603 794 722 650Income Before Taxes 7,530 6,383 4,616 5,536 5,838Prov. For Inc. Taxes 2,344 2,031 1,694 1,994 2,075Minority Interest n/a n/a n/a n/a n/a Investment (Gain/Loss) n/a n/a n/a n/a n/a Other Income n/a n/a n/a n/a n/a Net Income Before Extra Items 5,186 4,352 2,922 3,542 3,763Extra Items & Disc. Ops. n/a n/a n/a n/a n/a Net Income 5,186 4,352 2,922 3,542 3,763

in millions of USD

Page 51: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004
Page 52: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004
Page 53: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004
Page 54: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Risk Management

There is no explicit mentioning of a risk management committee

Use sensitivity analysis and value-at-risk

With VaR, P&G states that it is 95% confident that there will be no material impact to their financial statements concerning interest rates and currency

Page 55: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Risk Management

Sources of risk

Currency rate exposure

Credit risk

Interest rate risk

Commodity market risk

Other general business risks

Page 56: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency

To what degree is foreign currency management important?A lot.Sales and Assets consisted of the following:

2003 2002 2001 2003 2002 2001United States 21,853$ 21,198$ 20,334$ 23,424$ 23,434$ 18,318$ International 21,524$ 19,040$ 18,910$ 20,282$ 17,342$ 16,069$

Assets (as of June 30)Net Sales (for the year ended June 30)

Page 57: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

Derivative Instruments used:

Forward exchange contracts

Options

Currency swaps

Maturity

<18 months: Forwards and options

<5 years: Swaps

Manages both hedging and non-hedging eligible treatment

Both are immediately recognized in earnings

Page 58: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

Fair Value (June 03 vs. June 02 for Hedges)

Assets: $27 vs. $60

Liabilities: $92 vs. $29

To offset impact on sales, inventory purchases, inter-company royalties and loans in foreign monies

Fair Value (June 03 vs. 02 for Non-Hedging)

Assets: $113 vs. $93

Liabilities: $26 vs. $25

To offset impact on inter-company financing, income from international operations

Page 59: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency Management

Bottom line impact of gains:

2003: $264

2002: $50

2001: $38

Overall, why so little hedged?

Exposure netting:

35 Manufacturing Sites in America, and

83 Manufacturing Sites, in another 42 countries

Page 60: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Foreign Currency- Net Investment

Hedges net investment position in major currencies

How?

Borrows in foreign currency and designates a portion of the debt as a hedge of net investments in the currency (I.e. use foreign denominated earnings to pay foreign denominated interest payments)

Effects in Other Comprehensive Income

($418) 2003 vs. ($397) 2002

Accumulated Net Balance

($238) 2003 vs. $180 2002

Page 61: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Credit Risk Management

Strict credit guidelines:

Transactions entered with only financial institutions of investment grade or better

Closely monitoring counter-party exposures

Limiting counter-party’s obligation to a certain amount

P & G doesn’t expect to incur any material losses

Page 62: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Risk Management

Manages cost by using a mix of variable and fixed-rate debt

Managed through the use of swaps

“agrees to exchange, at specific intervals, the difference between fixed and variable interest amounts”

Fair value (June 03 vs. June 02)

$322 vs. $231

Page 63: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Risk Management

Short-term debt

Page 64: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Interest Rate Risk Management

Long-term debt

Page 65: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Commodity Price Management

Potential impact of:WeatherSupply conditionsPolitical and economic variables

Derivative Instruments used:Futures and OptionsSwaps

Maturity<1 year: Forwards and options<5 years: Swaps

Not material for the past 3 years

Page 66: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Stock-Based Compensation

Page 67: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Stock-Based Compensation

Grants to key managers and directors

With exercise prices equal to the market price of the grant

Vested with life of:

Valued in 2001 using binomial; 2002 and 2003 using Black-Scholes

Date Vested Life<July 1998 1 Year 10 Years

July 1998- August 2002 3 Years 15 Years>September 2002 3 Years 10 Years

Options Granted 2003 2002 2001Interest rate 3.9% 5.4% 5.8%Dividend yield 1.8% 2.2% 2.0%Expected volatility 20.0% 20.0% 26.0%Expected life in years 8 12 9

Years ended June 30

Page 68: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Stock-Based Compensation

1.3 Billion Shares Outstanding

Options in Thousands 2003 2002 2001Outstanding, beginning of year 120,163 104,196 82,744Granted 17,880 25,040 28,400

June 30

Weighted Avg.Remaining Number Weighted

Number Weighted Avg. Contractual Exercisable AverageRange of Prices Outstanding (1000s) Exercise Price Life Years (1000s) Exercise Price

$28 to 46 15,847 $35.78 2 15,847 $35.7854 to 66 36,470 $61.35 10.2 7,938 $59.7767 to 85 40,575 $74.85 9.7 16,826 $82.63

85 to 106 36,907 $93.17 10 18,490 $95.02

Outstanding Options Exercisable Options

Page 69: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Other types of risks

General business risk

Operational riskRestructuring riskManagement control risk

Legal riskPurchase commitments for materials, supplies, services and fixed assets

Page 70: CONSUMER PRODUCT INDUSTRY Carmen Daniel George Tobey Ying March 20, 2004

Any Questions?