The following is provided to supplement certain non-GAAP financial measures discussed in the letter to shareholders and in the financial highlights section of this report both as reported (on a GAAP basis) and excluding the impact of certain items (non-GAAP), as explained below. Management believes these non-GAAP financial measures provide useful supplemental information to investors regarding the underlying business trends and performance of the Company’s ongoing operations and are useful for period-over-period comparisons of such operations. The Company uses these financial measures internally in its budgeting process and as a factor in determining compensation. While the Company believes that these non-GAAP financial measures are useful in evaluating the Company’s business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similar measures presented by other companies.

 
(Dollars in Millions Except Per Share Amounts) 2008 2007 2006
  Gross
Profit Margin		 Operating Profit Net Income Diluted EPS Gross
Profit Margin		 Operating Profit Net Income Diluted EPS Gross
Profit Margin		 Operating Profit Net Income Diluted EPS
As Reported (GAAP) 56.3% $3,021 $1,957 $3.66 56.2% $2,653 $1,737 $3.20 54.8% $2,161 $1,353 $2.46
Restructuring Charges (1) 0.4% 164 113 0.21 1.1% 259 184 0.34 1.6% 395 287 0.52
Gain on Bleach Sales (2) – – – – – (49) (29) (0.05) – (47) (38) (0.07)
Hill's Voluntary Product
Recall (3)		 – – – – – 14 8 0.01 – – – –
Tax Adjustments (4) – – – – – – (74) (0.14) – – – –
SFAS No. 88 Pension
Charges (5)		 – – – – – 15 10 0.02 – – – –
Excluding Restructuring and Other Items (Non-GAAP) 56.7% $3,185 $2,070 $3.87 57.3% $2,892 $1,836 $3.38 56.4% $2,509 $1,602 $2.91
  2005 2004  
  Gross
Profit Margin		 Operating Profit Net Income Diluted EPS Gross
Profit Margin		 Operating Profit Net Income Diluted EPS        
As Reported (GAAP) 54.4% $2,215 $1,351 $2.43 55.1% $2,122 $1,327 $2.33        
Restructuring Charges (1) 0.9% 183 145 0.26 0.1% 69 48 0.09        
Gain on Detergent Sales (6) – (148) (93) (0.17) – – – –        
SFAS No. 88 Pension
Charges (5)		 – 34 23 0.04 – – – –        
Tax on Incremental Remittances (7) – – 41 0.08 – – – –        
Excluding Restructuring and Other Items (Non-GAAP) 55.3% $2,284 $1,467 $2.64 55.2% $2,191 $1,375 $2.42        
 
 
  1. The restructuring charges relate to the restructuring program that began in the fourth quarter of 2004 and was finalized as of the end of 2008 (the 2004 Restructuring Program). These restructuring charges include separation-related costs, incremental depreciation and asset write-downs, and other costs related to the implementation of the 2004 Restructuring Program.
  2. In 2007, the Company recorded a $29 million aftertax gain associated with the sale of the Company’s household bleach business in Latin America. In 2006, the Company recorded a $38 million aftertax gain associated with the sale of the Company’s household bleach business in Canada.
  3. In 2007, the Company recorded an $8 million aftertax charge related to the limited voluntary product recall of certain Hill’s feline products.
  4. In 2007, the Company recorded $74 million of net tax adjustments consisting of the reduction of a tax loss carryforward valuation allowance in Brazil, partially offset by tax provisions for the recapitalization of certain overseas subsidiaries.
  5. In 2007 and 2005, the Company recorded a $10 million and $23 million aftertax charge, respectively, associated with certain pension obligations in accordance with Statement of Financial Accounting Standards (SFAS) No. 88, “Employers’ Accounting for Settlement and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.”
  6. In 2005, the Company recorded a $93 million aftertax gain associated with the sale of the Company’s heavy-duty laundry detergent brands in North America and Southeast Asia.
  7. In 2005, the Company recorded a $41 million income tax charge for incremental repatriation of foreign earnings related to the American Jobs Creation Act.
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