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Microeconomics

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	Proctor & Gamble Proctor and Gamble is a company that is an active part of our everyday lives. We use several products of theirs whether we know it or not. While speaking about supply and demand and the reason why Proctor and Gamble is so important to everyone; you will see how vital this well-established company is to the American way of life. -Below is a list of a few of the products that Proctor and Gamble makes. FABRIC & HOME CARE Ace Bleach,Ariel,Bounce, Cascade,Cheer,Dawn,Downy, Fairy, Joy, Lenor, Mr. Clean,Tide FEMININE PROTECTION Always,Always Alldays,Lines Fem Pro,Tampax,Whisper HEALTH CARE Asacol,Actonel,Blend-a-Med,Crest,Didronel,Macrobid,Metamucil,Nyquil/Dayquil,Pepto-Bismol,Scope,Vicks Formula 44,Vicks Vaporub FOOD & BEVERAGE Crisco,Folgers,Jif,Millstone,Olean, Pringles,Punica ,Sunny Delight BEAUTY CARE Clearasil,Cover Girl,Head & Shoulders, Ivory, Max Factor,Oil of Olay,Old Spice, Pantene Pro-V,Pert PlusRejoice, Safeguard, Secret, SK-II, Vidal Sassoon,Zest TISSUE/TOWEL Bounty,Charmin, Puffs, Tempo BABY CARE Babysan, Luvs, Pampers, Pampers Wipes Supply and Demand is a very important concept because without either of them you could have an economy what so ever. You have to have some type of supply for a type of demand. That creates many different curves on a graph. If something is at a lower price more people are most likely going to want to try it just because it's not that much of an investment. But overall if the product is well liked then it's doing to be demanded more and more and the supply will have to be increased so there is enough to go around per say. There are certain rules that must be flowed no matter what the circumstances are it seems to be. For instance you would not want to head a company that didn't make enough of a certain product and not have enough of it for all to use. If that were to happen you can lose many customers and then you're supply will have to be less because not as many people would want to work with your company because you did not have enough of the product to go around the first time. If a product has low supply and high demand, there is scarcity, if there is high supply and low demand there is overabundance. The Proctor and Gamble Company achieved strong core earnings performance for the year ended June 30, 1999. Basic net earnings were $3.76 billion or $2.75 per share compared to $3.78 billion or $2.74 per share in the prior year. Results include charges of $385 million after tax for the current year costs of the Organization 2005 initiative approved in June 1999. Organization 2005 is the Company's multiyear program designed to accelerate sales and earnings growth over the coming years. Cash flow from operations was $5.54 billion, $4.89 billion and $5.88 billion in 1999, 1998 and 1997, respectively. Operating cash flow provided the primary source of funds to finance operating needs, capital expenditures and acquisitions. Operating cash flow, supplemented by additional borrowings, provided the primary source of funds to finance the share repurchase program. Cash and cash equivalents increased $745 million in the current year to $2.29 billion. The increase was primarily concentrated in Europe and was due to improved profitability. In the prior year, cash and cash equivalents decreased by $801 million to $1.55 billion, reflecting acquisitions and increased capital spending. Net cash used for acquisitions completed during 1999 totaled $137 million, compared to $3.27 billion in 1998 and $150 million in 1997. Transactions in fiscal 1998 were largely concentrated in paper businesses and included Tambrands, Inc., the Loreto y Peña paper company in Mexico and the Sangyong Paper Company in Korea. The Company also increased ownership of various joint ventures in Asia and Latin America in 1998. The Company continued to divest certain non-strategic brands in 1999 in order to focus resources on the Company's core businesses. The proceeds from these and other asset sales generated $434 million in cash flow in the current year, compared to $555 million and $520 million in 1998 and 1997, respectively. The Company maintains a share repurchase program, which authorizes the Company to purchase shares annually on the open market to mitigate the dilative impact of employee compensation programs. The Company also has a discretionary buy-back program under which it currently intends to repurchase additional outstanding shares of up to $1 billion per year. Current year purchases under the repurchase programs were above normal at $2.53 billion, compared to $1.93 billion in 1998 and $1.65 billion in 1997. Common share dividends grew 13% to $1.14 per share in 1999, compared to $1.01 and $.90 in 1998 and 1997, respectively. For the coming year, the annual dividend rate will increase to $1.28 per common share, marking the forty-fourth consecutive year of increased common share dividend payments. Total dividend payments, to both common and preferred shareholders, were $1.63 billion, $1.46 billion and $1.33 billion in 1999, 1998 and 1997, respectively. otal debt was up $1.33 billion to $9.38 billion, due to the issuance of commercial paper and long-term debt to fund share repurchases. Long-term borrowing available under the Company's shelf registration statement filed in 1995, as amended in July 1997, was $1.18 billion at June 30, 1999. Additionally, the Company has the ability to issue commercial paper at favorable rates, and to access general bank financing. The North America region delivered record results for the fiscal year, spurred by initiative activity and share growth. Net sales for the year were $18.98 billion, an increase of 3% from the prior year level of $18.46 billion, on broad-based unit volume growth of 2%. Net sales in 1998 increased 5% over 1997, on 4% unit volume growth. Net earnings for the region were up 10% to $2.71 billion. The region achieved earnings growth through volume gains, continued focus on cost control, pricing and value-added initiatives, particularly in laundry and cleaning products and in paper. Prior year net earnings were $2.47 billion, which represented a 10% increase over 1997. Net earnings margin for the region was 14.3%, compared to 13.4% and 12.8% in 1998 and 1997, respectively. The laundry and cleaning sector led the region's current year volume progress, generating 5% unit volume growth versus the prior year. The reformulation of Tide for sanitization and clean rinse benefits, the launch of Febreeze fabric refresher and strong base business performance drove volume gains and increased share. Febreeze, introduced late in fiscal 1998, exceeded expectations, becoming one of the Company's most successful brands in terms of introductory year sales. Laundry and cleaning also performed well on earnings, delivering half the region's earnings improvement behind the introduction of premium products, pricing and cost savings. In the prior year, the sector was also a strong contributor, driving volume and earnings gains. The paper sector also provided solid volume and earnings growth, achieving a 2% increase in unit volume compared to a strong base year. Tissue and towel posted gains on strength in the base business, as did feminine protection, behind the integration of the Tambrands acquisition, and diapers, behind initiatives. The paper sector improved sales and earnings ahead of volume, on the strength of its pricing program and cost savings, while still investing in initiatives. In 1998, paper led the region in volume and earnings progress. Prior year operating results were driven by the feminine protection business, behind the acquisition of Tambrands; initiative programs in diapers; and tissue and towel capacity increases and pricing strategies. The health care sector posted a 3% increase in unit volume versus the prior year. While all categories delivered positive volume results, pharmaceuticals made the strongest contribution by increasing share on all major brands. The sector attained excellent earnings progress behind the shift toward higher-margin pharmaceutical sales and pricing, mitigated by increased support for upcoming initiative launches. In 1998, the sector's unit volume fell slightly, as improved volume in pharmaceuticals only partially offset oral care declines related to heavy competition. Prior year earnings declined over 1997 due to a continued investment in research and development, primarily in pharmaceuticals, and in marketing support to combat competition in oral care. The sector's high level of investment in research and development has resulted in a strong pipeline of new pharmaceutical products, while setting the stage for innovations in other health care products in the years to come. Unit volume in the beauty care sector grew 1% during the year, led by cosmetics and fragrances, on the basis of the launch of Oil of Olay Cosmetics; and deodorants, behind a strong performance by Old Spice and the introduction of Secret Platinum. The introduction of Oil of Olay Cosmetics exceeded expectations and resulted in strong share performance. Net earnings for the sector increased versus the prior year, behind the success of a strategic pricing and initiative platform, partially offset by higher marketing costs for new product introductions as well as competitive defense in the hair care category. In 1998, unit volume gains were driven by hair care and deodorants. Earnings progressing in 1998 were driven by the skin care and personal cleansing and cosmetics and fragrances categories, partially offset by spending against intense competition and for product initiatives. The food and beverage sector experienced a 5% unit volume decline in the current year, due to competition in the snacks market and divestitures. In addition, the June 1998 launch of Fat Free Pringles created pipeline volume in the last fiscal year, depressing the current year comparison. Coffee performed well as a result of commodity-based price decreases, which were passed on to the consumer. Excluding the impact of acquisitions and divestitures, volume was up 1%. Current year sector earnings were negatively impacted by the loss of profit contribution from divested brands and lower volumes. In 1998, unit volume growth was led by the snacks category, behind the launch of Fat Free Pringles. In the prior year, sector earnings were negatively affected by the Duncan Hines divestiture and by investments in new initiatives. Results in the Europe, Middle East and Africa region were mixed, as progress on cost control, premium products and improved pricing were partially offset by impacts from the financial crisis in Russia and neighboring countries. The region was able to hold sales flat at $11.88 billion, despite a 3% decline in unit volume. Volume declines were driven by the Russian economic crisis and competitive activity, primarily in laundry and hair care. Sales outpaced volume due primarily to improved pricing. During the prior year, sales increased 2% to $11.84 billion, which trailed the 8% unit volume growth rate due to unfavorable exchange rate impacts. The region's net earnings progress continued in the current year, growing 11% to $1.21 billion. Net earnings in 1998 were $1.09 billion, a 14% increase over 1997. Current year earnings growth was driven by contributions from premium product introductions, pricing strategies and cost reductions, which more than offset the negative impacts in Russia. Progress in the net earnings margin also continued, increasing to 10.2% in the current year, up from 9.2% and 8.3%, in 1998 and 1997, respectively. Importantly, margins in Western Europe reached their highest levels, as the region continued to focus on developing even more productive relationships with customers. Middle East, Africa and General Export, which includes the region's snack business, increased unit volume 9% over the prior year base period, which generated a double-digit increase over 1997. Increased snack sales across the region and expansion of core categories into developing markets drove volume gains. Although volume fell off the high rate of growth achieved in prior years, unit volume improvements were notable in the midst of weak oil markets and political uncertainty in the area. Prior year results were also fueled by snack sales. Earnings in 1999 improved ahead of volume, behind cost reductions and economies of scale. Western Europe unit volume decreased 2%, reflecting divestitures of non-strategic local beauty care and juice brands, and strong competitive activity in laundry and hair care. Sunny Delight continued performing well in its first full year after launch, achieving a tie for the number two position in the United Kingdom soft drinks market during the last half of the year. Net earnings increased in the double digits due to cost savings, efficiencies in promotional spending and pricing. In the prior year, volume also grew behind the acquisition of Tambrands. Prior year earnings were boosted by volume increases, cost savings and lower tax rates, partially offset by increased promotional spending. Central and Eastern Europe's unit volume slid 16%, reflecting the 75% devaluation of the Russian ruble and the resulting disruptions in neighboring economies. Despite the contraction in consumption, Russia and Central and Eastern Europe either maintained or further improved leading market share positions. Current year earnings fell substantially as a result of the crisis. In the prior year, volume grew by double digits, and earnings improved versus 1997. The strong volume and earnings performance in the prior year reflected leverage in cost management and efficiency gained from expansion into emerging markets. The Asia region showed some signs of emergence from the currency crisis, as the Asian economy began to stabilize and consumer markets began to recover. Net sales for the region were $3.65 billion, 6% above the prior year on 2% unit volume growth. Current year volume growth was driven by prior year acquisitions, including Ssangyong, a paper business in Korea, and increased ownership of a joint venture in China. Japan also demonstrated growth, behind innovative products and increased share. Both Japan and China increased share in core categories. Price recovery strategies, especially in Korea and the ASEAN countries grew sales ahead of volume. Excluding exchange effects, sales grew 11%, primarily due to pricing aimed at recovering prior currency devaluation effects. In the prior year, net sales declined 3% to $3.45 billion on 4% unit volume growth. Prior year sales were negatively affected by the impact of unfavorable exchange rate movements, partially offset by improved pricing and product mix. Excluding exchange effects in 1998, sales grew 10%. The region's net earnings were a record $279 million, a 60% increase from the prior year. Earnings growth was driven by recovery pricing, volume gains and a focus on premium brands, partially offset by increased costs related to new initiatives and product upgrades. The prior year net earnings of $174 million represented a 37% decrease from 1997, reflecting lower sales, increased investment in product initiatives and the negative effects of the currency crisis. Net earnings margin for the current year was 7.6%, compared to 5.0% in 1998 and 7.7% in 1997. The 1999 margin improvement reflects the pricing and volume gains, and represents the region's return to pre-crisis margin levels. Japan demonstrated strong results this year, despite continuing economic recession. Unit volume was up 9% versus the prior year, behind an aggressive slate of new product innovations on core brands, such as Ariel and Pampers, and new brands, such as Febreeze. Net earnings increased substantially ahead of sales and volume due to cost efficiencies and the favorable settlement of a patent litigation dispute. Prior year results reflected relatively flat volume as a result of the difficult Japanese economy. Earnings were lower in 1998 due to unfavorable sales mix, investment in new products and a weak yen. Greater China's unit volume grew 5% versus the prior year despite a deceleration in overall market growth in the geography, given the difficult economic climate there. Volume gains were driven by Taiwan and increased ownership of joint ventures in China. Net earnings declined under competitive pressure, a consumption tax on hair care products and continued investment in product upgrades. In the prior year, increased ownership of a joint venture contributed to volume as well as earnings. The higher earnings were partially offset by unfavorable sales mix and investment in product initiatives. Volumes declined in the balance of Asia as a result of market contraction caused by economic volatility, particularly in India and Thailand. These effects were partially offset by Korea, where volumes were positively impacted by the prior year acquisition of the Ssangyong Paper Company. Earnings also benefited from improved pricing platforms. In 1998, acquisitions drove the net volume increase despite base business volume declines. Net earnings for 1998 were also down due to the currency crisis. The Asian markets continue to experience some difficulties. While early signs of recovery are evident, these are limited at present, and the potential for economic complications remains. However, because the Asia region accounts for less than 10% of total Company sales and total earnings, any impact from economic dislocation is not expected to disproportionately impact results. Latin America continued to deliver solid results, despite a challenging economic environment, with record sales, unit volume and net earnings. Net sales in the region grew 7% to $2.83 billion on 3% unit volume growth, as inflation-targeted pricing outpaced the negative impact of currency devaluation, primarily in Mexico and Venezuela. Strong volume progress in laundry and snacks supplemented the prior year acquisition of Loreto y Peña, a paper company in Mexico, and the buyout of a paper joint venture in the Southern Cone. Laundry results reflect the strengthening of the base business in Mexico and the launch of Ariel in the Southern Cone. In the prior year, sales for the region grew 14% to $2.64 billion on 12% unit volume growth, reflecting acquisitions, strength in the base business and pricing. The current year net earnings for the region were $318 million, a 16% increase. Mexico, Venezuela and Central America achieved double-digit earnings growth, and more than offset the heavy investment in the laundry expansion in the Southern Cone. Earnings surpassed sales as a result of cost reductions and tax benefits generated from inflationary markets. Prior year net earnings were $274 million, a 7% increase over 1997, despite increased initiative spending. Net earnings margin for the current year was 11.3% compared to 10.4% and 11.1% in 1998 and 1997, respectively. In Mexico, the Company's largest operation in the region, business results were strong. Unit volume increased 7%, behind a strong base business, prior year acquisitions and a general upturn in the consumer market. Prior year results were also strong, behind acquisitions and favorable economic conditions. The balance of the region's volume fell 1%, driven by the economic situation in Brazil. However, Chile and Argentina achieved double-digit volume increases over 1998, behind the prior year acquisition and the expansion of Ariel into the Southern Cone. Prior to January 1, 1998, both Brazil and Peru were highly inflationary economies, and accordingly, the results of the Company's subsidiaries in Brazil and Peru were measured using the United States dollar as their functional currency. Effective January 1, 1998, neither Brazil nor Peru qualified as a highly inflationary economy. The impact of this change was not material to the Company's earnings. The Company is exposed to market risk, including changes in interest rates, currency exchange rates and commodity prices. To manage the volatility relating to these exposures, the Company nets the exposures on a consolidated basis to take advantage of natural offsets and enters into various derivative transactions for the residual portion pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. The financial impacts of these hedging instruments are offset in part or in whole by corresponding changes in the underlying exposures being hedged. The Company does not hold or issue derivative financial instruments for trading purposes. 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 in accordance with P&G policy for such programs. The streamlined work processes and manufacturing consolidations driven by the Organization 2005 program will result in additional separations of approximately 9,000 employees through fiscal 2001, representing approximately $530 million of costs over that period. Net enrollment is expected to decline by approximately 75% of total separations, as some terminations will be partially offset through increased enrollment at remaining sites. Of total separations expected through fiscal 2001, approximately half will take place in manufacturing with the balance in administrative functions. Separation costs related to manufacturing employees are included in cost of products sold, while those for administrative employees are reported in marketing, research and administrative expenses. Asset write-downs relate primarily to manufacturing assets that, based on a shift in global strategy enabled by Organization 2005, as well as demand trends below expectation, now are expected to operate at levels significantly below their capacity. Because the projected cash flows from such assets over their remaining useful lives now are estimated to be less than their current carrying values, the assets were written down to estimated fair value as determined using discounted cash flows. The balance of the asset write-downs relate to "assets held for disposal" and represent excess capacity that is in the process of being removed from service and disposed. Such assets were written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less related disposal costs. Disposal costs are not expected to be significant. Asset write-downs charged to earnings in 1999 will not have a significant impact on future depreciation charges. The 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 and closures that will occur primarily over the next three years as a result of the Organization 2005 program. The Company has changed the estimated useful lives of such assets, resulting in an acceleration of depreciation. The underlying plant closures and consolidations will impact all regions and product segments. These planned plant closures and consolidations will not be executed immediately due to either capacity or logistics constraints. Accelerated depreciation charges for fiscal years 2000 and 2001 are expected to amount to approximately $390 million before tax and $170 million before tax, respectively. Other costs include primarily relocation and training costs, as well as other Organization 2005-related expenses. Such costs are expensed as incurred. Other costs currently are estimated at $220 million before tax and $170 million before tax for fiscal years 2000 and 2001, respectively, reflecting increased activity related to the transition to Global Business Services. The Company has substantially completed its program to address the possible exposures related to the Year 2000 impact on its computer systems. Progress against detailed plans is monitored and reported to management and the Audit Committee of the Board of Directors on a regular basis. Modification or replacements of critical financial, information and operational systems, including equipment with embedded microprocessors, have been substantially completed. Testing and certification of critical systems, which includes review of documented remediation work and test results by technical experts, key users and a central project team, is expected to be successfully completed by September 30, 1999. In addition, the Company's internal controls organization has reviewed the testing and certification process and observed the testing of selected critical systems in each region. As part of its Year 2000 preparation planning, the Company has also contacted suppliers and customers to assess the current state of readiness and any potential impact on operations if key third parties are not successful in converting their systems in a timely manner in all regions around the world. Risk assessment, readiness evaluation, action plans and contingency plans related to these third parties have now been completed. The Company's risk management program includes emergency backup and recovery procedures to be followed in the event of the failure of a business-critical system. These procedures have been expanded to include the Year 2000 Business Continuity Plan (BCP). The objectives of the Plan are to ensure business-critical processes are protected from disruption and will continue to function during and after the year 2000, and to ensure the Company's ability to produce an acceptable level of products and services is safeguarded in the event of failures of external systems and services. The BCP will be complete by October 31, 1999 and will include, for example, identification of alternate suppliers or customers, possible increases in safety inventory levels and other backup procedures. The Company believes the worst-case scenario is that a short-term disruption would occur with a few suppliers or customers. The Company has procedures in place to be notified immediately of any such disruption, and would respond as prescribed by the BCP. Incremental costs, which include contractor costs to modify existing systems and costs of internal resources dedicated to achieving Year 2000 compliance, are charged to expense as incurred. Total Year 2000 costs, including BCP costs, are expected to total approximately $90 million, of which 86% has been spent to date.The Company is taking all reasonable steps to prevent major interruptions in the business due to Year 2000 issues. The effect, if any, on the Company's financial statements if the Company, its customers, its suppliers or the public sector is not fully Year 2000 compliant is not reasonably estimable. The Company believes, however, that the successful completion of its Year 2000 project will significantly reduce the risk of a major business interruption due to Year 2000 failures. Additionally, the Company's broad base of customers and suppliers and the worldwide nature of its operations is expected to mitigate any Year 2000 risks. On August 11, 1999, the Company announced an agreement to acquire The Iams Company and Affiliates, a worldwide leader in pet nutrition, for approximately $2.3 billion in cash. The acquisition will be financed mainly through external borrowings and is expected to be completed during the first quarter of fiscal 2000. The Company has made and will make certain forward-looking statements in the Annual Report and in other contexts relating to volume growth, increases in market shares, Year 2000 compliance, Organization 2005, financial goals and cost reduction, among others. These forward-looking statements represent challenging goals for the Company and are based on certain assumptions and estimates regarding the worldwide economy, technological innovation, competitive activity, pricing, currency movements, product introductions, governmental action and the development of certain markets. Among the key factors necessary to achieve the Company's goals are: (1) the achievement of lower costs and increases in reliability and capacity utilization, resulting from simplification and standardization and Organization 2005, (2) the ability to improve revenue and profitability despite high levels of competitive activity and the economic volatility in emerging markets, (3) the ability to maintain key customer relationships in important developed markets, (4) the continuation of substantial growth in significant developing markets such as China, Mexico, Brazil and the countries of Central and Eastern Europe, (5) the ability to successfully manage regulatory, tax and legal matters, (6) the ability to continue technological innovation, (7) the timely resolution of the Year 2000 issue by the Company and its customers and suppliers and (8) the ability to react to the introduction of the euro currency in Europe, including the ability to successfully compete in Europe. If the Company's assumptions and estimates are incorrect or do not come to fruition, or if the Company does not achieve all of these key factors, then the Company's actual performance could vary materially from the forward-looking statements made herein.Consolidated financia lstatements and financial information included in this report are the responsibility of Company management. This includes preparing the statements in accordance with accounting principles generally accepted in the United States and necessarily includes estimates based on management's best judgments. To help insure the accuracy and integrity of Company financial data, management maintains internal controls designed to provide reasonable assurance that transactions are executed as authorized and accurately recorded and that assets are properly safeguarded. These controls are monitored by an ongoing program of internal audits. These audits are supplemented by a self-assessment program that enables individual organizations to evaluate the effectiveness of their controls. Careful selection of employees and appropriate divisions of responsibility are designed to achieve control objectives. The Company's "Worldwide Business Conduct Manual" sets forth management's commitment to conduct its business affairs with the highest ethical standards. Years Ended June 30 Amounts in Millions Except Per Share Amounts 1999 1998 1999 Net Sales $38,125 $37,154 $35,764 Cost of products sold 21,206 21,064 20,510 Marketing, research and administrative expenses 10,666 10,035 9,766 Operating Income 6,253 6,055 5,488 Interest expense 650 548 457 Other income, net 235 201 218 Earnings Before Income Taxes 5,838 5,708 5,249 Income taxes 2,075 1,928 1,834 Net Earnings $ 3,763 $ 3,780 $ 3,415 Basic Net Earnings Per Common Share $ 2.75 $ 2.74 $ 2.43 Diluted Net Earnings Per Common Share $ 2.59 $ 2.56 $ 2.28 Dividends Per Common Share $ 1.14 $ 1.01 $ .90 Net earnings for the fiscal year were $3.76 billion, including charges of $385 million after tax for the Fiscal 1999 costs of Organization 2005, our major initiative to accelerate growth through far-reaching changes in structure, work processes and culture. Core net earnings, which exclude Organization 2005 costs, were $4.15 billion or $3.04 basic net earnings per share - an 11% increase over the prior year. Every region achieved double-digit earnings growth. This was driven by introduction of more value-added initiatives, effective cost containment and improved pricing. In fact, our margin on core net earnings was the highest in 58 years. Net sales grew to a record $38.1 billion, up 3% versus last year. While this growth rate was below our expectations, we are encouraged by the increased percentage of sales in products that leverage our technology advantages. The Company continued to generate strong operating cash flow of $5.5 billion, up more than 12% percent over the previous year. Overall, the company expects the Organization 2005 program to increase long-term sales growth to 6-8% and accelerate core net earnings per share growth to 13-15% in each of the next five years. They also expect to generate annual after-tax savings of approximately $900 million by Fiscal 2004. It used to take years to start up a company. Now, it takes weeks. A consumer recommendation that used to reach a handful of friends in days now reaches thousands - worldwide - in minutes. The space between buyer and seller that was measured in distance is now measured in seconds. Markets totaling more than two billion people have opened as trade and regulatory barriers have collapsed. The Internet has created a global community of more than 179 million people online. Information moves faster. Products are redefined. The marketplace is global. The pace of business has changed. The first key to faster growth, greater business vitality, is increasing the pace of innovation at P&G. This has been true for them in the past and is just as true today. P&G is unique when it comes to innovation. They compete in nearly 50 product categories - laundry products, toothpaste, paper towels, personal cleansing, cough and cold, bone disease therapies, snacks, diapers, cosmetics - and many others. Some people argue that such a diversity of categories leads to a lack of focus. They see it differently. The breadth of their business enables them to connect technologies from seemingly unrelated businesses in unexpected ways. Connections create breakthroughs. Last year, for example, we were granted more U.S. patents than any of our competitors. We hold over 25,000 patents worldwide, and this technology base is paying off. Employee separation charges in 1999 relate to severance packages for approximately 400 people, representing primarily administrative employees in Asia, Europe, Middle East and Africa. The predominantly voluntary packages are