SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
\X\ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2006, OR
\ \ FOR TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
---------------
Commission file number 001-00434
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below: Procter & Gamble International Stock Ownership
Plan, P&G AG, 1 Rue du Pre De La Bichette, P.O. Box 2696, 1211 Geneva 2,
Switzerland.
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office: The Procter & Gamble Company, One
Procter & Gamble Plaza, Cincinnati, Ohio 45202.
REQUIRED INFORMATION
Item 1. Audited statement of financial condition as of the end of the latest two
fiscal years of the plan (or such lesser period as the plan has been in
existence). (See Page 2)
Item 2. Audited statement of income and changes in plan equity for each of the
latest three fiscal years of the plan (or such lesser period as the plan
has been in existence). (See Page 3)
PROCTER & GAMBLE
INTERNATIONAL STOCK
OWNERSHIP PLAN
Financial Statements as of June 30, 2006 and
2005, and for the Years Ended June 30, 2006,
2005, and 2004, and Report of Independent
Registered Public Accounting Firm
PROCTER & GAMBLE INTERNATIONAL STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
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Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of
June 30, 2006 and 2005 2
Statements of Changes in Net Assets Available for Benefits
for the Years Ended June 30, 2006, 2005 and 2004 3
Notes to Financial Statements 4-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Procter & Gamble Company
Cincinnati, Ohio
We have audited the accompanying statements of net assets available for plan
benefits of the Procter & Gamble International Stock Ownership Plan (the "Plan")
as of June 30, 2006 and 2005, and the related statements of changes in net
assets available for plan benefits for each of the three years in the period
ended June 30, 2006. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Plan is not required to have,
nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion on the
effectiveness of the Plan's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for plan benefits of the Plan as of June 30,
2006 and 2005, and the changes in net assets available for plan benefits for
each of the three years in the period ended June 30, 2006, in conformity with
accounting principles generally accepted in the United States of America.
/S/ DELOITTE & TOUCHE LLP
September 27, 2006
PROCTER & GAMBLE INTERNATIONAL STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AS OF JUNE 30, 2006 AND 2005
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2006 2005
ASSETS:
Investments, at fair value:
Cash $ 28,669 $ 4,674
The Procter & Gamble Company common stock-
9,327,123 shares (cost $392,713,585) at June 30, 2006;
8,861,469 shares (cost $350,007,079) at June 30, 2005 518,588,088 467,442,515
The J.M. Smucker Company common stock-
37,534 shares (cost $910,713) at June 30, 2006;
43,733 shares (cost $1,067,674) at June 30, 2005 1,677,763 2,052,820
------------- -------------
Total investments 520,294,520 469,500,009
------------- -------------
Receivables:
Participant contributions 4,780,314 4,765,218
Employer contributions 1,781,546 1,547,762
------------- -------------
Total receivables 6,561,860 6,312,980
------------- -------------
Total Assets 526,856,380 475,812,989
LIABILITY?
Benefits payable 1,619,795
------------- -------------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $ 525,236,585 $ 475,812,989
============= =============
See notes to financial statements.
PROCTER & GAMBLE INTERNATIONAL STOCK OWNERSHIP PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEARS ENDED JUNE 30, 2006, 2005, AND 2004
------------------------------------------------------------------------------------------------------------------------
2006 2005 2004
ADDITIONS:
Contributions:
Participant contributions $ 51,254,843 $ 43,113,740 $ 41,511,924
Employer contributions 19,862,937 20,342,480 15,372,231
------------- ------------- -------------
Total contributions 71,117,780 63,456,220 56,884,155
------------- ------------- -------------
Investment income (loss):
Increase (decrease) in unrealized appreciation of investments 8,220,971 (24,233,056) 67,065,765
Decrease (increase) in unrealized depreciation of investments 4,390,781
Realized gain from The Procter & Gamble Company common stock sold 11,590,780 9,715,351 7,247,881
Realized gain from The J.M. Smucker Company common stock sold 116,031 152,693 54,329
Dividends from The Procter & Gamble Company common stock 8,566,848 7,425,640 6,465,954
Dividends from The J.M. Smucker Company common stock 36,228 40,327 43,612
------------- ------------- -------------
Net investment income (loss) 28,530,858 (6,899,045) 85,268,322
------------- ------------- -------------
Total additions 99,648,638 56,557,175 142,152,477
DEDUCTION-Benefits paid to participants 50,225,042 51,834,477 49,547,044
------------- ------------- -------------
NET INCREASE 49,423,596 4,722,698 92,605,433
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 475,812,989 471,090,291 378,484,858
------------- ------------- -------------
End of year $ 525,236,585 $ 475,812,989 $ 471,090,291
============= ============= =============
See notes to financial statements.
PROCTER & GAMBLE INTERNATIONAL STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED JUNE 30, 2006, 2005, AND 2004
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1. DESCRIPTION OF THE PLAN
The following description of the Procter & Gamble International Stock
Ownership Plan (the "Plan") is provided for general information purposes
only. Participants should refer to the Plan Document and their country's
Plan Supplement for more complete information.
GENERAL--The Plan is a defined contribution plan established in June of
1992 covering substantially all full-time international employees of The
Procter & Gamble Company (the "Company") and certain of its subsidiaries
who are not residents of the United States of America. Generally,
employees must have completed one year of service to participate; however,
participation varies by subsidiary or country and eligibility can begin
immediately after employment and at various milestones up to one year. The
Board of Directors of the Company control and manage the operation and
administration of the Plan. The Dexia Banque Internationale a Luxembourg
serves as the trustee of the Plan. The Plan is not subject to the
provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), nor is it subject to U.S. income taxation (Note 6).
CONTRIBUTIONS--Each year, participants may contribute up to 15% of their
base compensation, as defined in the Plan. The Company contributes 50% of
the first 5% of the base compensation that a participant contributes to
the Plan. However, participants in their initial year of eligibility
receive a 100% Company contribution, up to 1% of the base compensation
that the participant contributes to the Plan. Participants may also
contribute a "Special Additional Deposit" as a lump sum payment once per
month.
Non cash employer contributions consisting of Company common stock
recorded at fair value were $1,466,527, $1,622,675 and $1,465,454 for the
years ended June 30, 2006, 2005 and 2004, respectively.
PARTICIPANT ACCOUNTS--Individual accounts are maintained for each Plan
participant. Each participant's account is credited with the participant's
contribution, the Company's matching contribution, allocations of Company
discretionary contributions, if any, and Plan earnings, and charged with
withdrawals and an allocation of Plan losses. Allocations are based on
participant earnings or account balances, as defined. The benefit to which
a participant is entitled is the benefit that can be provided from the
participant's vested account.
INVESTMENTS--Participants are only permitted to invest in Company common
stock. All employee and Company contributions are converted into U.S.
dollars and then invested in shares of Company common stock on the 18th
day of each month (or the first business day immediately following the
18th). Sales of Company common stock occur once per week and are
subsequently converted into the applicable local currencies, where
required, for payment to employees. Any dividends on shares of Company
common stock are invested in additional shares of Company common stock.
In May of 2002, the Jif peanut butter and Crisco shortening brands were
spun-off to the Company's shareholders and subsequently merged into the
J.M. Smucker Company ("Smucker"). As a result of the spin-off,
participants holding Company common stock received one share of Smucker
stock for each fifty shares of Company common stock. The cost basis of
Company common stock prior to the Smucker spin-off was allocated between
Company common stock held and the Smucker common stock received.
Participants are not permitted to purchase additional shares of Smucker
stock within the Plan.
VESTING--Participants are fully vested in all shares of Company common
stock credited to their accounts under the Plan, except for Switzerland
and Saudi Arabia, which are credited in accordance with their respective
Plan Supplement.
PAYMENT OF BENEFITS--Participants may withdraw any portion of their
contributions made in excess of 5% of their base compensation at any time
during the year, with only two withdrawals permitted per year.
Contributions made up to 5% of base compensation and Company matches are
available to be withdrawn without penalty five years after the end of the
plan year in which the contributions are made. If a participant withdraws
these funds prior to the completion of five years, the Company will
suspend matching of employee contributions for one year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING--The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America.
USE OF ESTIMATES--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires Plan management to make estimates and assumptions that
affect the reported amounts of net assets available for benefits and
changes therein. Actual results could differ from those estimates.
The Plan invests in common stock. Investment securities, in general, are
exposed to various risks, such as interest rate, credit, and overall
market volatility. Due to the level of risk associated with investment
securities, it is reasonably possible that changes in the values of
investment securities will occur in the near term and that such changes
could materially affect the amounts reported in the financial statements.
INVESTMENT VALUATION AND INCOME RECOGNITION--The Plan's investments in
common stock are stated at fair value. Quoted market prices are used to
value these investments.
Purchases and sales of securities are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date.
CASH--Amounts shown as cash are uninvested funds held by the Trustee that
are to be invested in Company common stock in the following month.
ADMINISTRATIVE EXPENSES--Administrative expenses (i.e. investment
management and record keeping expenses) of the Plan are paid by the Plan
Sponsor as provided in the Plan Document. Brokerage commissions are paid
by the participant, and other costs related to the purchase or sale of
shares are reflected in the price of the shares and borne by the
participant.
PAYMENT OF BENEFITS--Benefit payments to participants are recorded upon
distribution. Amounts allocated to accounts of persons who have elected to
withdraw from the plan but have not yet been paid were approximately
$1,619,795 at June 30, 2006.
RECLASSIFICATION--The amounts reported as net (depreciation) appreciation
in fair value of investments in the previously issued 2005 and 2004
statements of changes in net assets available for benefits have been
separated and reported within the accompanying statements of changes in
net assets available for benefits as an increase (decrease) in unrealized
appreciation of investments and realized gain from common stock sold for
both the Company and Smucker common stock to conform to the 2006
presentation. The prior year investment information in Note 3 has been
expanded to conform to the 2006 presentation.
3. INVESTMENTS
The investments held by the Plan as of June 30, 2006 and 2005 and for the
years ended June 30, 2006, 2005 and 2004 were as follows:
2006 2005 2004
Number of shares 9,364,657 8,905,202 8,563,033
Cost $ 393,624,298 $ 351,074,753 $ 328,436,653
Market value 520,265,851 469,495,335 471,090,291
------------- ------------- -------------
Unrealized appreciation (depreciation) $ 126,641,553 $ 118,420,582 $ 142,653,638
============= ============= =============
Decrease in unrealized depreciation $ 4,390,781
Increase (decrease) in unrealized appreciation $ 8,220,971 $ (24,233,056) $ 67,065,765
The realized gain on sales of Company common stock for the years ended
June 30, 2006, 2005, and 2004 was determined as follows:
2006 2005 2004
Proceeds on sales of shares $ 48,332,254 $ 44,985,007 $ 49,050,647
Cost 36,741,474 35,269,656 41,802,766
------------ ------------ ------------
Realized gain $ 11,590,780 $ 9,715,351 $ 7,247,881
============ =========== ===========
The realized gain on sales of Smucker common stock for the years ended
June 30, 2006, 2005, and 2004 was determined as follows:
2006 2005 2004
Proceeds on sales of shares $ 272,992 $ 334,318 $ 474,621
Cost 156,961 181,625 420,292
------------ ----------- -----------
Realized gain $ 116,031 $ 152,693 $ 54,329
============ =========== ===========
4. RELATED-PARTY TRANSACTIONS
At June 30, 2006 and 2005, the Plan held 9,327,123 and 8,861,469 shares,
respectively, of common stock of The Procter & Gamble Company, the
sponsoring employer, with a cost basis of $392,713,585 and $350,007,079,
respectively. During the years ended June 30, 2006, 2005, and 2004, the
Company contributed $19,862,937, $20,342,480, and $15,372,231,
respectively, to the Plan on behalf of participating employees.
During the years ended June 30, 2006, 2005, and 2004, the Plan recorded
dividend income from Company common stock of $8,566,848, $7,425,640, and
$6,465,954, respectively.
During the years ended June 30, 2006, 2005, and 2004, the Plan's
investment in Company common stock, including gains and losses on
investments bought and sold as well as held during the year, appreciated
(depreciated) in value by $20,029,847, $(14,742,823), and $78,385,449,
respectively.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions set forth in the Plan
agreement.
6. FEDERAL INCOME TAX STATUS
The Plan is not qualified under Section 401(a) of the Internal Revenue
Code, and is exempt from the provisions of Title I of ERISA pursuant to
Section 4(b)(4) thereof. The Company believes that the Trustee should be
viewed as a direct custodian, and that, for U.S. tax purposes, the
participating employees should be treated as the owners of the shares of
Company common stock held for their account under the Plan.
Plan management believes that the participating employees should be
treated as the beneficial owners of the shares of Company common stock
held for their account under the Plan for U.S. tax purposes and that,
subject to certain procedural conditions, the information provided by the
employees may be relied upon in determining the applicable U.S. tax
withholding rate on dividends paid by the Company with respect to these
shares.
7. SUBSEQUENT EVENTS
On January 27, 2005 and in connection with the Company's acquisition of
The Gillette Company, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with The Gillette Company Global Employee
Stock Ownership Plan (the "GESOP"). The Merger Agreement provides that,
upon the terms and subject to the conditions set forth in the Merger
Agreement, the GESOP will merge with and into the Plan.
Consummation of the merger was subject to customary conditions, including
(i) approval of the holders of Gillette Company common stock, (ii)
approval of the holders of Company common stock, (iii) absence of any law
or order prohibiting the closing, (iv) expiration or termination of the
applicable Hart-Scott-Rodino waiting period and certain other regulatory
approvals, (v) subject to certain exceptions, the accuracy of
representations and warranties, (vi) the absence of any material adverse
effect with respect to each party's business and (vii) the delivery of
customary opinions from counsel to the Plan and counsel to the Company
that the merger would qualify as a tax-free reorganization for federal
income tax purposes.
The Company stated as of the close of the merger, GESOP participants'
shares of the Gillette Company common stock will be converted into Company
common stock using the same ratio (0.975 share of Company common stock for
each share of the Gillette Company common stock) that will apply to all
other shareholders.
All customary conditions have been met and GSEOP participants began
merging into the Plan effective July 1, 2006. The merger will occur in
phases by country and be completed in 2008.
Effective April 1, 2007, the Plan will change its recordkeeper from Buck
Consultants, LLC to the Company. The transition will occur in phases with
an estimated completion date of June 30, 2008.
* * * * * *
THE PLAN. Pursuant to the requirements of the Securities Act of 1933, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Luxembourg, Luxembourg, on September
28, 2006.
PROCTER & GAMBLE INTERNATIONAL STOCK OWNERSHIP PLAN
By: BANQUE INTERNATIONALE A LUXEMBOURG, TRUSTEE
By: /S/ PHILIPPE MEYERS
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Philippe Meyers
Fonde de Pouvoir Principal
Trustee
By: /S/ PHILIPPE GILTAIRE
-----------------------------
Philippe Giltaire
Fonde de Pouvoir
Trustee