Procter & Gamble Annual Report 2011

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FY2011 Annual Report · Procter & Gamble

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2011 ANNUAL REPORT

Innovating for Everyday Life

Contents

Letter to Shareholders................................. 1

Crest 3D White ......................................20

Financial Contents ....................................29

Leadership Brands.......................................9

Gain Dishwashing Liquid ........................22

Global Leadership Council......................... 75

Innovating for Everyday Life...................... 14

Head & Shoulders ..................................24

Board of Directors..................................... 75

Gillette Guard ........................................ 16

Old Spice ...............................................26

Financial Summary.................................... 76

Brazil...................................................... 18

Disaster Relief ...........................................28

Company and Shareholder Information..... 78

Net Sales ($ billions)

Operating Cash Flow ($ billions)

Diluted Net Earnings (per common share)

$82.6

$78.9
$76.7

$79.3

$72.4

$13.2

$16.1

$14.9
$15.0

$13.4

$3.93
$4.11

$4.26

$3.64

$3.04

2011 Net Sales

By business segment

By geographic region

By market maturity

19%

24%

Beauty

Grooming

Health Care

30%

14%

Snacks & Pet Care

Fabric Care & Home Care

Baby Care & Family Care

16%

14%

20%

North America

Western Europe

Developed

Developing

41%

Central & Eastern Europe,
Middle East & Africa

35%

65%

Latin America

Asia

Financial Highlights (unaudited)

Amounts in millions, except per share amounts

2011

2010

2009

2008

2007

Net Sales

Operating Income

Net Earnings

Net Earnings Margin from Continuing Operations

Diluted Net Earnings per Common Share from Continuing Operations

Diluted Net Earnings Per Common Share

Dividends Per Common Share

$82,559

$78,938

$76,694

$79,257

$72,441

15,818

11,797

14.3%

$3.93

3.93

1.97

16,021

12,736

13.9%

$3.53

4.11

1.80

15,374

13,436

13.9%

$3.39

4.26

1.64

15,979

12,075

14.2%

$3.40

3.64

1.45

14,485

10,340

13.3%

$2.84

3.04

1.28

Robert A. McDonald

Chairman of the Board, President and
Chief Executive Ofﬁcer

Dear Shareholders,
Last year, I described P&G’s Purpose-inspired Growth Strategy, which is to

touch and improve more consumers’ lives in more parts of the world more

completely. I told you that we intend to deliver total shareholder return

that consistently ranks P&G among the top third of our peers — the best-

performing consumer products companies in the world. To do this, we

must deliver the Company’s long-term annual growth goals, which are to:

(cid:333)(cid:3)Grow organic sales 1% to 2% faster than

market growth in the categories and countries
where we compete

(cid:333)(cid:3)Deliver core earnings per share (core EPS) growth

of high single to low double digits

(cid:333)(cid:3)Generate free cash ﬂow productivity of

90% or greater

2 The Procter & Gamble Company

We made meaningful progress toward these long-term goals
for ﬁscal 2011, despite signiﬁcant external challenges.

Growth Drivers

(cid:333)(cid:3) Organic sales grew 4%. Organic volume grew 5%.

(cid:333)(cid:3) Core earnings per share grew 8%.

(cid:333)(cid:3) Free cash ﬂow productivity was 84% of net earnings.

We increased our quarterly dividend by 9%, making
this the 121st consecutive year that P&G has paid
a dividend and the 55th consecutive year that the
dividend has increased.

Over the past 55 years, P&G’s dividend has increased at an
annual compound average rate of approximately 9.5%. In total,
we paid approximately $5.8 billion in dividends in ﬁscal 2011.

We also returned $7.0 billion to shareholders through the
repurchase of P&G stock. Based on our current market
capitalization, dividends and share repurchase, we provided
shareholders with an effective cash yield of nearly 7%, with
additional potential for capital appreciation.

This is good performance in a very demanding business and
economic environment. It is not yet great performance. I am
conﬁdent, however, that we will continue to grow our business
on the strength of our Purpose-inspired Growth Strategy:

(cid:333)(cid:3) We are executing the strategy as planned, with

unrelenting focus on innovation.

(cid:333)(cid:3) We are increasing productivity, which frees up resources

to invest in innovation.

(cid:333)(cid:3) We continue to strengthen our portfolio of businesses.

(cid:333)(cid:3) We are tackling growth challenges head on.

(cid:333)(cid:3) We have solid, executable plans in place to capture the
enormous growth potential that our strategy creates.

Further, P&G people are inspired and are performing heroically
to improve lives, to grow our business, and to create value
for our shareholders. My objective, with this Letter, is to explain
what we are doing in each of these areas.

P&G’s Purpose is to touch and improve people’s everyday lives.
This is an inspiring but demanding aspiration. There are nearly
seven billion people on the planet today and we are currently
reaching about 4.4 billion of them. We want to reach all of
them with products and services that make their everyday lives a
little better. We know that if we do this well, we’ll be rewarded
with sales and proﬁt growth, market share leadership, a strong
company reputation and, ultimately, the creation of value that
allows our people, our shareholders and the communities in
which we live and work to prosper.

Our growth strategy, which we established two years ago, is
inspired by our Purpose. We are executing this strategy by
innovating to improve people’s everyday lives in every part of
the world, and by then expanding our portfolio of innovation
up and down price tiers, into new markets, and into new and
existing product categories.

This strategy is fundamentally right for P&G because it inspires
our people and our partners, focuses us where the growth
opportunities are greatest, and leverages our core strengths:
consumer understanding, brand building, go-to-market capability,
global scale and, most importantly, innovation.

Innovation Wins Decades
Innovation is the driving force behind our strategy, as it always
has been at P&G. Our experience has proven that price promotion
may win a quarter here and there, but innovation wins decades.

There are many examples to prove this. Take our Laundry
business in the U.K., for instance. In the late 1970s, we were
competing hard just to defend and maintain our 35% market
share leadership position. We then stepped up our innovation
efforts. In the three decades since, we’ve introduced a series of
game-changing innovations such as Daz automatic detergent,
concentrated liquid detergent, and most recently, Liquitabs.
We now enjoy around a 50% share.

We’ve seen the same dynamic in Oral Care. In the 1990s, we
lost our historical lead versus our top competitor because they
simply out-innovated us. We stepped up our innovation game
once again and delivered a string of product breakthroughs
including Crest Whitestrips, Crest Pro-Health, and Crest 3D White.
We restored P&G’s leadership of the U.S. Dentifrice category,
which is now enabling us to expand these innovative products
around the world.

The Procter & Gamble Company 3

Purpose-inspired Growth Strategy: Our path forward

Organic Sales Growth (1)

Core EPS Growth (2)

Free Cash Flow (3)

fy 2011

annual growth targets

1–2% above global market growth rates

High single to low double digits

84% of net earnings

90% of net earnings

(1) Organic sales growth is a non-GAAP measure of sales growth. See page 51 for a reconciliation of net sales growth to organic sales growth.

(2) Core EPS growth is a non-GAAP measure of the Company’s diluted net earnings per share from continuing operations. See page 51 for a reconciliation of Core EPS to diluted

net earnings per share from continuing operations.

(3) Free cash ﬂow productivity is deﬁned as the ratio of free cash ﬂow to net earnings.

I’ll share one more example. Head & Shoulders was a relatively
small, primarily North American brand a decade ago. We invested
in a combination of marketing and product innovations and
then began to expand the brand globally. Since then, we have
more than tripled sales and Head & Shoulders is now the largest
shampoo brand in the world.

These and other experiences reinforce our commitment to
innovation as the fundamental driver of P&G’s growth.

We invest about $2 billion a year in Research &
Development — about 60% more than our next
closest competitor and more than most of our
competitors combined.

The investment continues to pay off. We currently have the
strongest innovation and global expansion program in P&G history.
We are globalizing products such as Gillette Fusion ProGlide,
Crest 3D White, Laundry additives, and the Pampers thinness
and absorbency upgrade.

We’re also expanding successful marketing innovation such
as the Shiksha education program in India, in which P&G
contributes a brick to build a school for each pack of product
purchased, or the Pampers “One Pack Equals One Vaccine”
campaign with its focus on eradicating maternal and neonatal
tetanus. The Old Spice “Smell Like a Man, Man” campaign
generated consumer excitement and demand that catapulted
the brand to market leadership. P&G’s global sponsorship
of the Olympic Games provides an outstanding platform for
integrated, multi-branded commercial innovation.

In this past ﬁscal year, we grew or held market share on
businesses representing about 60% of our sales, which is the best
indication that consumers are rewarding P&G innovation despite
a highly competitive and demanding economic environment.

We also continue to earn external recognition for our
innovations. In 2010, P&G launched eight of the top 25 most
successful new products in the consumer products industry
in North America, as measured by SymphonyIRI Group
(which recognized us last year as one of the most innovative
manufacturers in the U.S. Consumer Packaged Goods Industry
for the past decade, presenting us with an Outstanding
Achievement in Innovation Award). Crest 3D White was
the most successful new product launch measured by
SymphonyIRI Group last year. For the past 16 years, P&G has
had 132 products on the top 25 New Product Pacesetters list,
more than our six largest competitors combined.

In 2011, P&G along with our agencies brought
home a record-setting 32 Cannes Lion awards
(which recognize the world’s best advertising and
communications) at the Cannes Lions International
Festival of Creativity (formerly known as the
International Advertising Festival). This was nearly
double our previous record of 17 — and more than
double the combined number of Lions awarded to
our six closest competitors. We were also awarded
the title of Most Effective Marketer in the World
by Efﬁe Worldwide.

4 The Procter & Gamble Company

All this reﬂects P&G’s deep and abiding commitment to
innovation, which is always the best driver of long-term
sustainable growth — for P&G’s business and for the categories
in which we compete. In the section that follows this Letter,
you will ﬁnd a series of stories that bring P&G innovation to
life — stories that show how P&G people innovate for the way
everyday life is lived and, as a result, improve lives in every
moment of the day, in every part of the world, through
everything we do.

Integrated Plans for Developing Markets
We are creating multi-category plans for our top-priority
developing markets. These are plans that bring together
multiple categories and multifunctional capabilities in ways
that an individual brand or category team could not. They
reduce affordability barriers, accelerate speed of market entry,
increase relevance to distributors, retailers, governments
and potential employees, and create greater probabilities
of success.

Productivity Fuels Innovation
Productivity is the second critical growth driver for P&G.
Improved productivity frees up resources to invest in innovation
that improves lives and drives top- and bottom-line growth.
It is a virtuous cycle.

Our three most important productivity initiatives in
the Company today are integration, simpliﬁcation
and digitization. They are highly interdependent and
mutually reinforcing.

Integration
Integrating to operate more fully as a single company is the
way we turn our size into scale and our scale into faster growth
and cost advantage. For many years, the focus was on individual
brands. We then shifted to managing on a regional product
category basis and, later, to a global category basis. We’re now
operating through Global Business Units and Market Development
Organizations to go to market as a single Company, rather than
as categories, and have expanded our Global Business Services
organization to scale work and to provide better operational
support at lower cost.

For the most part, each of these evolutionary steps made P&G
more cost efﬁcient and incrementally faster, but we still weren’t
getting the full beneﬁt of our scale. We are now beginning to
reap greater scale advantages by integrating as one Company.

There are multiple efforts under way throughout the organization,
but I’ll highlight three of the most important ones to illustrate
how we create Company scale.

We’ve launched these plans over the past 18 months in
several markets, including the BRIC countries (Brazil, Russia,
India, and China) and successfully accelerated our historic
growth rates. Brazil is a good example. Our integrated plan
for that market will double the number of categories in
which P&G competes in the next few years. We launched
two new categories this year (Skin Care and Air Care) with
three more planned for 2012. We’ve accelerated sales growth
from a 12% average over the 2006 – 2009 period to 28% in
2010 and 32% this past year. We’ve seen similar results in other
countries. We will continue to execute these plans in our
top-priority developing markets over the next several years.

2. Multi-Brand Commercial Innovation

We’re creating more multi-brand programs such as our
Olympic Games sponsorship, Future Friendly (an environ-
mental sustainability initiative) and P&G Brand Saver
(a dedicated newspaper insert of advertising, coupons and
consumer education). These multi-brand initiatives earn
signiﬁcantly higher returns than many independent brand
programs. They beneﬁt from association with P&G as the
parent company, cost less to execute, and attract broad
retail support. Here, too, we can bring a broad, strong and
diverse mix of leading brands to these executions that other
companies with narrower portfolios simply cannot do.

Integrated Supply Chain
We’re moving from large, single-category manufacturing
plants to more localized, scaled multi-category facilities that
enable us to lower cost by leveraging the same infrastructure
(utilities, roads, rail spurs — which are often up to 50% of
the cost of a new plant), as well as lower transportation and
delivery costs. Accelerating local production also enables us
to use local talent and materials. At the same time, these
operations enable us to improve customer service with more
frequent multi-category full-truck deliveries.

This, like multi-brand commercial innovation, creates com-
petitive advantage that is difﬁcult for more narrowly focused
competitors to match.

The Procter & Gamble Company 5

Digitization
Our third major productivity effort is dramatically increased use
of digital technology. Our intention is to make P&G the most
technology-enabled company in the world. We are achieving
this by focusing on four key areas: We want to enable one-on-
one relationships with customers and consumers around the
world; we are focused on harnessing the power of real-time
business intelligence to aid decision making; we are accelerating
innovation by using digital technology to create visibility from
molecule-creation to the store shelf; and we are standardizing
best-in-class systems to integrate data.

Digitizing P&G will enable us to manage the business
in real time and on a demand-driven basis. We’ll be
able to collaborate more effectively and efﬁciently,
inside and outside the Company. And we’ll interact
with consumers, retail partners and others far more
directly and frequently than we can do today.

We’re already seeing the beneﬁts of digitization. We are
increasingly making business decisions faster and more
collaboratively with real-time data. We’re using virtual reality
technologies to reduce cost and increase the speed of
innovation. We are reducing the number of physical product
mock-ups created for new product initiatives. Virtual shelving
and displays are simplifying the way we test our brands with
top customers, and new product modeling tools are improving
our engineering and design productivity.

Employees are connecting faster through high-
deﬁnition technology that is reducing the need for
travel by as much as 20,000 trips per year, saving
$50 million annually.

All these productivity efforts are focused on one goal: high-quality
proﬁtable growth achieved on the strength of P&G innovation
and with the ﬁnancial and operational discipline that you expect
of P&G — and which we demand of ourselves.

Simpliﬁcation
Simpliﬁcation is also a critical driver of productivity. We’re pursuing
opportunities in a wide range of areas, two of which are the most
far-reaching.

1. Simplifying the Business

We’re simplifying the business by creating standard manu-
facturing platforms with common packages, formulas,
materials, equipment and operational systems. This enables
faster speed to market and concurrent product launches
across regions at a lower cost. We’re moving from more
than 500 manufacturing platforms as of two years ago to
a target of about 150 platforms by 2014. We think this is
worth about $500 million in savings worldwide.

Product simpliﬁcation is also a big opportunity. Today, we
have more than 50,000 unique products and we believe
we can increase the productivity of our portfolio of offerings
by 30% over three years. We are investing in new tools and
using deep shopper insight to simplify product lines and
increase consumer and shopper satisfaction. Our research
shows that in certain categories shoppers feel they have more
choices after category options are reduced because there
is less clutter and confusion; they can more easily ﬁnd the
product that meets their speciﬁc need.

2. Simplifying Processes that Support our Business

P&G currently has 5,000 Product Supply Planners distributed
over 300 locations globally. Over the next three years, we
will consolidate planning tasks into regional planning centers
and implement new simulation tools. This centralization and
digitization will improve productivity and create deeper,
more sustainable organizational capabilities. Simplifying our
planning processes and implementing new technologies will
lower transportation and warehousing costs and improve
productivity by 25% or more.

Packaging simpliﬁcation is another big opportunity. P&G
spends over $5 billion annually on packaging materials and
more than $250 million on packaging development costs.
The packaging development process touches every function
in the Company, involves more than 3,000 employees, and
has signiﬁcant opportunities for simpliﬁcation and cost
savings. We are implementing virtualized end-to-end pack-
aging development tools, which we believe can drive a 30%
reduction in packaging costs and release 30% of the time
spent today on package design.

6 The Procter & Gamble Company

Strategic Choices Create a Winning Portfolio
We continue to take steps to strengthen P&G’s portfolio of
businesses, which enables us to focus on our greatest growth
opportunities. Two years ago, we exited our pharmaceuticals
business. This was an industry where the innovation model did
not play to P&G’s strengths, where there was little go-to-market
synergy with the rest of P&G’s businesses, and where branding
was inherently difﬁcult and less relevant. We felt that exiting
pharmaceuticals would allow us to focus our efforts on consumer-
oriented health care, where we can more clearly apply our
Company’s strengths and where there are strong economic
and demographic tailwinds.

We are advancing this over-the-counter (OTC) focus with the
intent to form a joint venture with Teva Pharmaceutical Industries,
which we announced earlier this year. We will maintain our
North America OTC business, which generates 60% of our total
OTC sales. We will gain access to Teva’s manufacturing scale as
the largest prescription drug manufacturer in the world, to their
library of molecules including several prescription-to-OTC switch
portfolios, to their highly effective regulatory capabilities, and to
best-in-class pharmacy coverage in many markets. Teva will
further strengthen its position with major pharmacy customers
around the world and leverage P&G’s consumer understanding
and brand-building strengths. This partnership will allow both
companies to signiﬁcantly accelerate entry into additional OTC
categories and markets.

Negotiations continue to progress well as we work to close the
transaction by the end of this calendar year.

We closed the Ambi Pur acquisition and have completed a
successful integration. Through a combination of the acquisition
and organic expansions of the Febreze brand, we have grown
our Air Care presence from 17 markets to nearly 90 markets.

And, most recently, through a disciplined approach and two
rounds of negotiations, we agreed to divest Pringles to
Diamond Foods. This transaction is expected to close by the
end of calendar 2011 and will complete P&G’s exit from the
food and beverage business.

Strengthening our business portfolio is an ongoing process. We
continually evaluate the strength of our portfolio by assessing
category attractiveness across three dimensions: industry
attractiveness (market size, growth and structural economics),
competitive position (share, proﬁtability versus industry, brand
equity/consumer purchase intent versus competition), and
portfolio ﬁt (ability to apply the Company’s core capabilities of

brand building innovation, consumer understanding, go to
market and scale). Based on this evaluation, we believe that our
current portfolio is the strongest it has been in many years and
provides a highly strategic platform for market leadership and
sustainable growth.

These are the cornerstones of P&G’s growth strategy and our
ability to create sustainable shareholder value: innovation that
improves everyday life in every part of the world … fueled by
productivity that frees up resources to invest … in a portfolio
of businesses and brands designed for growth.

Growth Challenges
As we executed the Company’s growth strategy this past year,
we faced a number of extremely challenging external head-
winds — two of which are most important and most likely to
continue in the year ahead.

We are facing rapid and signiﬁcant increases in commodity costs.

Materials and energy costs were up more than $1.8 billion
before tax for the ﬁscal year. We’re taking a holistic approach
to manage these cost increases.

(cid:333)(cid:3) We’re turning up the dial on our productivity and
cost-savings initiatives, as indicated previously.

(cid:333)(cid:3) We’re creating alternative product formulations and
developing materials that use renewable feedstocks.

(cid:333)(cid:3) We’re reducing our dependency on commodity and
energy costs through our own and our suppliers’
sustainability efforts.

(cid:333)(cid:3) We’re increasing prices where necessary, coupled

with innovation where possible, to deliver the best
consumer value.

We expect commodity costs to continue escalating in the year
ahead and will remain highly disciplined to ensure we can offset
increases as fully as possible while continuing to invest in growth
and create shareholder value.

Developed markets are growing slower than expected. These
markets — principally North America, Western Europe and
Japan — account for about two-thirds of our sales. Their under-
performance reduced total Company growth by one percentage
point in ﬁscal year 2011.

The Procter & Gamble Company 7

Our primary response to slow-growth markets is innovation —
the only sustainable way to grow faster than the markets
in which we compete. Innovation creates consumer value,
stimulates market growth and attracts retail support. We don’t
anticipate accelerated economic recovery in developed markets
in the coming year, but we remain conﬁdent that our focus
on creating and expanding innovations will enable us to grow
even where underlying market growth rates remain soft.

On this basis, we currently compete in only about one-third
of the potential segments. Here, too, we are expanding our
presence. We’ve recently introduced the Crest 3D White lineup,
Gillette Fusion ProGlide, and Olay ProX as premium products.
At lower price points, innovations such as Gillette Guard
(our entry point razor system in India), Pampers Simply Dry
and Gain Dishwashing Liquid are attracting new consumers
to P&G brands.

Growth Opportunities
I have spent most of this Letter explaining the factors that
are driving and challenging P&G’s growth today. I want to
conclude by looking forward and reafﬁrming my strong
conﬁdence that we have the right strategy and supporting
capability to grow well into the future.

The growth opportunities created by our strategy are clearest
when you look at population and economic growth trends
and our geographic expansion plans.

It’s estimated that the world’s population will be
nearly eight billion people by 2020. All these
people — in developed and developing countries
alike — will have the same fundamental needs,
wants and aspirations for products and services
that make their lives better. There is tremendous
potential for P&G to grow by meeting those needs.

We are going after this potential by making our products
available in more categories, countries and channels,
expanding product lines to meet a fuller range of regimen
needs, and stimulating market growth.

We currently compete in a total of 38 product categories.
Today, on average, we compete in 19 categories in any given
country. In our most developed market, the United States,
we compete in 35 product categories. In Russia and Mexico,
we’re in the 20s. In China, Brazil and India, we’re in the
mid-to-high teens. In Nigeria, we’re in the mid-single-digits.
Our ﬁve-year plan will increase the average number of
categories from 19 to 24.

Within each of these categories and countries, there are
generally ﬁve distinct price tiers — ranging from the best
performing and highest priced products in the super premium
and premium tiers, down to products that offer basic
beneﬁts at a lower price in the value tier.

We are also making P&G brands available in more retail
channels. Today, we compete in less than 40% of possible
channel segments. Across the seven predominant channels,
the vast majority of our current business is in four of them.
We are executing plans now to increase our presence in
all channels.

We are ﬁlling out product lines to fulﬁll consumers’ regimen
needs. A good example is Pantene in Japan, where we have
recently redesigned our regimen and pricing strategy.
Japanese women are meticulous about caring for their hair.
Many use up to eight steps throughout the day. It starts
with a nighttime shampoo washing, then a conditioner and
in-shower treatment. Then she uses a jar treatment before
bed. In the morning, she uses water to get the frizz out and
applies a leave-in treatment. She carries a tube treatment in
her purse for midday application, and she applies another
treatment when she gets home in the evening. We were
previously serving her in only a few of these subcategories.
By launching a full line, addressing all points in her regimen,
we’ve increased our average sales per unit of Pantene by
nearly 15% and market share has continued to grow.

In addition to entering and creating new markets, we need
to grow our current markets, which we do by driving usage
frequency and trade-up to higher value items. Consider our
position in the diaper market in Egypt. Pampers currently
has roughly an 80% share of the disposable diaper market.
However, only about 10% of changes are done with disposable
diapers. The rest are done with cloth or nothing at all. In India,
Duracell has a share of over 75% of the alkaline battery
market — which sounds good, until you realize that only about
3% of batteries used are alkaline. Our growth in these markets
will not be dependent on growing share. It will be dependent
on growing markets.

Increasing market share by ﬁve points in each of these
three businesses is more than a $20 billion sales
opportunity.

Looked at a different way, we generate annual sales of
about $96 per person in the U.S. today. We generate
about $20 per person in Mexico. Our sales in China
are only about $4 per person. Indonesia is just over $1,
and India and Sub-Saharan Africa are just under $1.
Getting per capita spending on P&G products in these
four big markets up to the level of Mexico would add
more than $60 billion to annual sales.

Economic growth should help. A study released
in November 2010 by the Boston Consulting Group
projected that over the next decade China will add
270 million consumers to its middle-income and
afﬂuent class. This is roughly the same number as
there are in the U.S. today. The study went on to say
that 41% of the current middle-income and afﬂuent
class plans to trade up to more premium products —
especially in packaged goods and clothing.

In 2009, when we established our growth strategy, we
were serving four billion consumers. We established a
goal of increasing the number of consumers we serve
by 1 billion by 2014 / 15. Last year, we served 4.2 billion
consumers — and remain on track to serve 5 billion
by 2015.

Today, consumers purchase a P&G product
about 40 billion times a year. As a result
of the strategy and plans we are executing
currently, we expect to increase those
purchases to about 60 billion a year by the
midpoint of this decade.

8 The Procter & Gamble Company

We have seen ﬁrsthand how fast markets can develop
when we launch new innovation and build broad-based
consumer awareness of our products. For example,
the size of the Greater China diaper market was only
$200 million in the year 2000 — when Pampers was
just starting to gain a foothold. Today, the China diaper
market is $2.8 billion — an increase of 14 times in ten
years. This level of market growth happens when brands
like Pampers innovate in ways that genuinely improve
people’s everyday lives. We know, for example, that
when babies stay dry throughout the night, they sleep
better, which in turn helps them grow and develop.
We innovate based on insights like this and consumers
reward us because they value the improvements our
innovations bring to their lives. We want to bring this
kind of innovation to more consumers in more parts of
the world, and we have abundant opportunity to do
so. In China and India, the average consumer changes
a diaper less than once per day, in Brazil twice per day
and in the U.S. four times per day. Getting China and
India usage levels up to the levels of Brazil represents
not only a $2.5 billion opportunity for Pampers, but also
the chance to improve parents’ and babies’ lives in
very fundamental ways.

In India, the market size for wet shaving systems grew
by 15% in just one year following the launch of our
low-cost Mach3 razor. We’re working to accelerate that
growth with Gillette Guard.

Developed markets can also be stimulated to drive
higher growth as we demonstrated with the Febreze
“I Wish I Could Wash” advertising campaign in Japan,
which restored the growth of the brand in that country.

Clearly, we see huge opportunities for growth, and for
our consumers, behind our Purpose-inspired Growth
Strategy. We are expanding into more categories,
countries, and channels. We are meeting a broader
range of consumer needs. We are stimulating market
growth in developed and developing markets alike.
And our portfolio of businesses presents abundant
opportunity to grow. We have the largest Beauty and
Grooming business in the world, with a market share
of only 18%. We have the second largest consumer
health care business in the world and we have only a
6% share. In Household Care, our oldest and most
developed business, we have only a 27% share.

Leadership Brands
Brands that endure. Innovation for every day.

50 Leadership Brands Worldwide

P&G’s 50 Leadership Brands are some of the world’s most
well known household names.

24 Billion-Dollar Brands

24 of these 50 brands each generate more than one billion dollars
in annual sales.

Innovation Leadership

In the past 16 years, P&G has had 132 products on SymphonyIRI
Group’s list of each year’s 25 most successful new products, more
than our six largest competitors combined.*

*Source: SymphonyIRI Group 2010 New Product Pacesetters™ report (non-food brands), March 22, 2011 (measured as
total year-one dollar sales across food, drug, and mass channels, excluding Walmart).

Generating Sales and Proﬁts

These 50 brands represent 90% of P&G sales and more than
90% of proﬁts.

The Procter & Gamble Company 13

Purposeful Growth
The opportunities described above are a big reason why
I am so conﬁdent in P&G’s growth strategy, but the
most important reason of all is the most fundamental:
Our strategy inspires extraordinary performance by
everyone called upon to help execute it.

When we commit ourselves to touch and improve
everyday life, for ordinary people in every part of the
world at every moment in their day, we inspire higher
levels of performance. A strong sense of Purpose
focuses us on the consumers we serve and inspires
empathy for them that, in turn, leads to insights, big
ideas and innovation that drive growth.

Last year, we established a new measure of organiza-
tional health in our annual Employee Survey —
a measure designed to assess whether P&G people
believe in our Purpose and can connect it directly
to their day-to-day work.

This is important because we know from the Survey
analysis that when employees feel connected to P&G’s
Purpose, they are able to give their best performance
to the Company.

The vast majority of employees tell us
they are inspired by our Purpose and can
see how their day-to-day work touches
and improves lives.

Nearly all cite their pride in being part of the P&G
Family. These are encouraging results. They reafﬁrm my
conviction that people seek meaning in their lives and
their work. They want to be part of something positive,
something bigger than themselves. They want to know
they can use their time and talents to make a lasting
difference in the world.

The opportunity to ﬁnd such meaning, to make such
a difference, is what attracts people of remarkable
character and caliber to P&G. I am proud to stand along-
side them all. I am conﬁdent in their ability to innovate
for everyday life, and to deliver the top- and bottom-line
growth you expect from Procter & Gamble.

Robert A. McDonald
Chairman of the Board, President and Chief Executive Ofﬁcer

See the
P&G Leadership
Brands

14 The Procter & Gamble Company

The Procter & Gamble Company 15

Innovating for Everyday Life

At P&G, we see big potential in the little moments of life. Brushing teeth.

Washing hair. Showering. Shaving. Caring for the baby. Cleaning the

house. Doing the dishes and the laundry. To us, the moments that

help make everyday life possible — across generations and geographic

boundaries — are anything but ordinary. They’re the inspiration for our

innovation, the place where P&G’s Purpose shines brightest in the lives

of people around the world.

16 The Procter & Gamble Company

7to1

P R E F E R R E D

Men in India
prefer
Gillette Guard
7 to 1 to their
double-edge
razors.

To learn more about
how P&G people are
providing a better shave
in India, visit
www.pg.com/ar2011/gillette

The Procter & Gamble Company 17

“Touching lives, improving life is a
two-way experience because it’s not
just about improving the lives of the
consumers. It had a huge impact on
our lives as well.”

Graham Simms, Male Grooming, Research & Development (Retired)

Gillette Guard: Providing a Better Shav
for More Than a Billion Men

In India, nearly half a billion men still shave with a century-old
technology — the double-edge razor — because there’s no safe
alternative they can afford. To add to the inevitable risk of nicks
and cuts, many men shave sitting on the ﬂoor in low light, while
balancing a mirror against a wall. It’s an intense, tedious and
time-consuming process.

Launched in 2010, Gillette Guard is one of the most signiﬁcant
product launches in Gillette’s 110-year history. Designed as a
completely new concept for men in emerging markets, it provides
the perfect combination of safety, ease and affordability — making
it possible for more than a billion men who previously couldn’t
afford it to ﬁnally have a clean, safe shave.

Members of a diverse P&G team traveled to India to get a ﬁrst-
hand look at the men who shave in these conditions every day.
In thousands of interviews, home visits and shopping trips, the
team gained a deep understanding of the role shaving plays in the
lives of Indian men. Their collective understanding directly shaped
the design, manufacturing and marketing of Gillette Guard.

Within 3 months after it launched, Gillette Guard became the
best-selling razor in India. Within the ﬁrst 8 months of launch,
11 million men had tried Gillette Guard, with 78% of men saying
Gillette Guard leaves fewer nicks and cuts and 73% saying they
feel safer using Gillette Guard than double-edge razors. Today,
more than half of the razors sold in India are Gillette Guard —
which is helping to drive the share of our entire lineup of products
sold in India: Mach3, Vector and Guard.

18 The Procter & Gamble Company

“P&G has not only brought innovative
brands to the Brazilian market. We’ve
innovated in the way we communicate
with our consumers. We’re bringing
elements of the Brazilian passion to
our communication.”

Michele Colombo, Corporate Communications and
Reputation Manager, P&G Brazil

Brazil: Improving More Lives
with More P&G Brands

The beauty and warmth of everyday life in Brazil is inspiring.
The people of Brazil are open to new ideas. They are wonderfully
expressive. They are warm, welcoming and hospitable. Quality
family time is a strong value that runs deep in Brazilian households.
At the same time, Brazilian women are among the most beauty-
conscious in the world, and are passionate about their appearance.

Approaching a quarter of a century in the country — and with a
lot of room to grow — P&G’s Brazil business has made great
strides to understand what matters most to the people of Brazil
in order to provide brands that improve their everyday lives.

In 2010 alone, we expanded four of our trusted P&G brands into
the Brazilian market for the very ﬁrst time — Head & Shoulders,
Naturella, Olay and Febreze. In the years leading up to 2010, we

introduced Ariel Liquid Detergent, Gillette, Oral-B toothpaste and
Pantene, which have fast become part of the fabric of everyday
life in Brazil. Pantene has become the #2 shampoo and conditioner
brand in Brazil — and #1 in Rio de Janeiro. Gillette has a more
than 75% share of the Brazilian blades and razors market today.

By simply understanding what matters most to Brazilians and
bringing them brands that improve their everyday lives, P&G has
been able to reach more than 70% of the Brazilian people, with
sevenfold growth in a single decade and strong double-digit
growth in 2011.

The Procter & Gamble Company 19

G R O W T H

P&G Brazil has grown
sevenfold
in a single decade,
with strong
double-digit
growth in 2011.

To learn more about
how P&G people in Brazil
are touching more
Brazilian lives, visit
www.pg.com/ar2011/brazil

20 The Procter & Gamble Company

“It’s about having inner beauty and outer
beauty. She knows she’s beautiful on
the inside, and wants to make sure her
outside matches. We’re letting her be
her best self.”

Niloo Farmand, Western European Paste Brand Manager

Crest 3D White*: Innovating More Completely
for a Smile That Turns Heads

For our most passionate oral care consumers around the world,
having great teeth ranks right up there with great hair and
clothes. They believe that taking good care of their mouth is as
much about beauty as it is about hygiene. Beyond having healthy
teeth, they want a smile that really turns heads.

But conversations and shopping trips with these consumers
revealed that purchasing whitening products can be a confusing
experience. It’s often unclear which products work best — and if
any of them work well together. This insight led to a simple idea:
Combine Crest’s best whitening technologies into one collection
that’s easy to identify at the shelf and provides swift, brilliant results
when used together. The result was Crest 3D White.

From product formulation to packaging, Crest consistently
designed the 3D White regimen to communicate one clear
beneﬁt — a smile that turns heads. Once the platform was well
established in 2010, Crest launched more products under the
3D White name in 2011 that continue to meet consumers’ needs —
like 3D White Floss and 3D White 2-Hour Express Whitestrips.

Crest 3D White is delivering strong results. With nearly a 9%
value share of the U.S. oral care market and expanding into
24 countries around the world, it’s giving 2.3 billion consumers
access to a whiter smile.

*3D White is marketed under the Crest, AZ, Blend-a-Med, Ipana and Oral-B brand names, with
varying offerings under each that include toothpaste, toothbrushes, whitestrips, rinses and ﬂoss.

The Procter & Gamble Company 21

2.3

B I L L I O N
C O N S U M E R S

Crest 3D White
is giving 2.3
billion consumers
worldwide
access to
a whiter smile.

To learn more about
how the Crest 3D White
team is innovating
more completely for smiles
that turn heads, visit
www.pg.com/ar2011/crest

22 The Procter & Gamble Company

~5%

S H A R E

On track to double
its ﬁrst-year sales,
Gain Dish Liquid is
already approaching
a 5% share of the
U.S. hand dish market.

To learn more about
how the Gain Dish team
is bringing the scent of Gain
to the kitchen sink, visit
www.pg.com/ar2011/gain

“With Gain Dish Soap, we’ve given
consumers an opportunity to
be delighted in a different part of
the house.”

Gain Dishwashing Liquid: Bringing a Beloved Scent
to More Parts of the Home

24 The Procter & Gamble Company

10 years

O F G R O W T H

Head & Shoulders
has been growing
for ten consecutive
years and is
the number one
shampoo brand
in the world.

To learn more about
how the Head & Shoulders
team is caring for scalps
around the world, visit
www.pg.com/ar2011/headandshoulders

The Procter & Gamble Company 25

“Beyond giving people care for their
scalp, we’re helping them feel great
about themselves — the way they feel
and the way they look.”

Julie Setser, Associate Director, Global Head & Shoulders
Research and Development

Head & Shoulders: Caring for More Itchy Scalps
Around the World

Many people live with the everyday bother of scalp problems,
such as itch, dryness, or sensitivity. Often, people don´t realize
that the most likely reason for these bothersome signs is that
they have a mild form of dandruff (which is so common that
about 50% of the world´s population has it). This is why they
don´t naturally think of Head & Shoulders, which is best known
for its anti-dandruff performance. However, Head & Shoulders
not only ﬁghts dandruff at the source, but also the variety of
signs of dandruff, including itch, dryness, and sensitivity, which
are frequent scalp complaints.

As the number one shampoo brand in the world — and with ten
consecutive years of growth — Head & Shoulders has been at the
forefront of studying and soothing scalps for 50 years. Based on

the latest scientiﬁc insights on the scalp skin, the brand introduced
a new Scalp Care Collection around the world in 2010 that combines
scalp know-how and a sophisticated formulation technology to
deliver gentle soothing care for a variety of scalp problems.

With its intuitive design and tailored beneﬁts for people with scalp
concerns, the Head & Shoulders Scalp Care Collection is proving
to be a big idea that travels well, helping more people around the
world get their heads to a happier place. Now available in Europe,
Asia, Latin America and North America, it has helped drive
Head & Shoulders’ global shampoo volume up mid-single digits.

26 The Procter & Gamble Company

“We’ve been able to touch our consumer
in a way that has built a relationship
beyond the product. They see Old Spice
as a friend, and a part of their life.”

Kenyata Martin, Global Brand Manager, Old Spice

Old Spice: Touching More Lives
Through Social Media

Guys aren’t impressed with body washes and deodorants that make
them smell like fruit and ﬂowers. And women — who purchase
60% of these products for them — don’t want them to smell that
way either. Old Spice had the products guys wanted — and that
women wanted for their guys. But getting their attention was
anything but easy. Until we discovered a big idea: “Hello, ladies!”

Old Spice created the “Smell Like a Man, Man” campaign —
a movement that would catapult the brand onto the social media
stage and earn unprecedented acclaim and business results.
The brand cast Isaiah Mustafa as a charismatic and suave character
to convince both men and women to choose the manly scent of
Old Spice body wash and deodorant over “lady scented” brands.

The campaign ﬁrst launched in North America in February 2010,
just before the Super Bowl. Since its launch, it has generated
33 million YouTube views and 4 billion total impressions. Within
3 months of the campaign’s ﬁrst appearance, volume of Old Spice
body wash shot up by 40%, and is now at an all-time high for
the brand. The success in North America is being transported to
other parts of the world.

In addition to improving the everyday lives of guys who are
navigating through the seas of manhood, the “Smell Like a Man,
Man” campaign has gained global recognition, winning more
awards than any single P&G brand campaign in history at the
2011 Cannes Lions International Festival of Creativity. The business
results are equally impressive, with double-digit global sales
growth and continued strong share growth over the past year.

The Procter & Gamble Company 27

40%

I N C R E A S E

Within 3 months
of the campaign’s
ﬁrst appearance,
volume of Old Spice
body wash
shot up 40%.

To learn more about
how the Old Spice team is
touching more lives, visit
www.pg.com/ar2011/oldspice

28 The Procter & Gamble Company

Bringing the Basics Back to Everyday Life:
P&G’s Response in Times of Crisis

At P&G, we integrate responsibility for improving lives into every aspect of our business and operations. This responsibility is at
the heart of our Company Purpose and is what drives P&G innovation. It also guides the actions we take to improve the world
around us through philanthropic and other efforts. There is no separation between a company’s proﬁt responsibility and its
social responsibility. The two must be integrally linked.

As a result, when natural disasters disrupt everyday life, P&G and our Brands respond. We work with relief partners around the world
to provide P&G products and services that help people feel more like themselves, that make a temporary shelter feel more like home,
and that help people rebuild their lives. We must do well to do good, but we also know that doing good enables us to do well.
It is a virtuous cycle.

Through the branded services featured below, and through millions of dollars of product and cash donations, we’ve been able
to help people rebuild their lives in Japan, Pakistan, Australia, New Zealand, Haiti and the U.S. over the past year.

P&G Children’s
Safe Drinking Water Program

Duracell
Power Relief

Tide
Loads Of Hope

Our nonproﬁt P&G Children’s Safe

Our Duracell Power Relief program

Tide Loads of Hope is a mobile

Drinking Water program provides

distributes thousands of ﬂashlights

laundromat with over 32 energy-

PUR packets, which can make dirty

and batteries in disaster-stricken areas.

efﬁcient washers and dryers that can

water safe to drink in 30 minutes.

The Power Relief trailer provides

clean over 300 loads of laundry per

In collaboration with relief partners,

electricity and online access, helping

day. Workers wash, dry and fold

we’ve stockpiled PUR packets around

people in places without power to

clothes for families in disaster-stricken

the world, for easier access when

recharge, reconnect and recover.

areas for free.

they’re needed most.

The Procter & Gamble Company 29

Financial Contents

Management’s Responsibility for Financial Reporting
30
Management’s Report on Internal Control over Financial Reporting 31
31
Reports of Independent Registered Public Accounting Firm

Management’s Discussion and Analysis
Overview
Summary of 2011 Results
Forward-Looking Statements
Results of Operations
Segment Results
Financial Condition
Signiﬁcant Accounting Policies and Estimates
Other Information

Audited Consolidated Financial Statements
Consolidated Statements of Earnings
Consolidated Balance Sheets
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

33
36
36
37
40
45
48
50

52
53
54
55
56

30 The Procter & Gamble Company

Management’s Responsibility for Financial Reporting

Exerting rigorous oversight of the business. We continuously review
business results and strategic choices. Our Global Leadership Council
is actively involved – from understanding strategies to reviewing key
initiatives, ﬁnancial performance and control assessments. The intent is
to ensure we remain objective, identify potential issues, continuously
challenge each other and ensure recognition and rewards are appro-
priately aligned with results.

Engaging our Disclosure Committee. We maintain disclosure controls
and procedures designed to ensure that information required to be
disclosed is recorded, processed, summarized and reported timely and
accurately. Our Disclosure Committee is a group of senior-level execu-
tives responsible for evaluating disclosure implications of signiﬁcant
business activities and events. The Committee reports its ﬁndings to the
CEO and CFO, providing an effective process to evaluate our external
disclosure obligations.

Encouraging strong and effective corporate governance from our
Board of Directors. We have an active, capable and diligent Board
that meets the required standards for independence, and we welcome
the Board’s oversight. Our Audit Committee comprises independent
directors with signiﬁcant ﬁnancial knowledge and experience. We
review signiﬁcant accounting policies, ﬁnancial reporting and internal
control matters with them and encourage their independent discussions
with external auditors. Our corporate governance guidelines, as well
as the charter of the Audit Committee and certain other committees
of our Board, are available on our website at www.pg.com.

P&G has a strong history of doing what’s right. Our employees embrace
our Purpose, Values and Principles. We take responsibility for the quality
and accuracy of our ﬁnancial reporting. We present this information
proudly, with the expectation that those who use it will understand our
Company, recognize our commitment to performance with integrity
and share our conﬁdence in P&G’s future.

Robert A. McDonald
Chairman of the Board, President and Chief Executive Ofﬁcer

Jon R. Moeller
Chief Financial Ofﬁcer

At The Procter & Gamble Company, we take great pride in our long
history of doing what’s right. If you analyze what’s made our Company
successful over the years, you may focus on our brands, our marketing
strategies, our organization design and our ability to innovate. But if
you really want to get at what drives our Company’s success, the
place to look is our people. Our people are deeply committed to our
Purpose, Values and Principles. It is this commitment to doing what’s
right that unites us.

This commitment to doing what’s right is embodied in our ﬁnancial
reporting. High-quality ﬁnancial reporting is our responsibility – one we
execute with integrity, and within both the letter and spirit of the law.

High-quality ﬁnancial reporting is characterized by accuracy, objectivity
and transparency. Management is responsible for maintaining an
effective system of internal controls over ﬁnancial reporting to deliver
those characteristics in all material respects. The Board of Directors,
through its Audit Committee, provides oversight. We have engaged
Deloitte & Touche LLP to audit our Consolidated Financial Statements,
on which they have issued an unqualiﬁed opinion.

Our commitment to providing timely, accurate and understandable
information to investors encompasses:

Communicating expectations to employees. Every employee – from
senior management on down – is required to be trained on the
Company’s Worldwide Business Conduct Manual, which sets forth
the Company’s commitment to conduct its business affairs with high
ethical standards. Every employee is held personally accountable for
compliance and is provided several means of reporting any concerns
about violations of the Worldwide Business Conduct Manual, which
is available on our website at www.pg.com.

Maintaining a strong internal control environment. Our system of
internal controls includes written policies and procedures, segregation
of duties and the careful selection and development of employees. The
system is designed to provide reasonable assurance that transactions
are executed as authorized and appropriately recorded, that assets
are safeguarded and that accounting records are sufﬁciently reliable
to permit the preparation of ﬁnancial statements conforming in all
material respects with accounting principles generally accepted in the
United States of America. We monitor these internal controls through
control self-assessments conducted by business unit management.
In addition to performing ﬁnancial and compliance audits around the
world, including unannounced audits, our Global Internal Audit organi-
zation provides training and continuously improves internal control
processes. Appropriate actions are taken by management to correct
any identiﬁed control deﬁciencies.

Executing ﬁnancial stewardship. We maintain speciﬁc programs and
activities to ensure that employees understand their ﬁduciary respon-
sibilities to shareholders. This ongoing effort encompasses ﬁnancial
discipline in strategic and daily business decisions and brings particular
focus to maintaining accurate ﬁnancial reporting and effective controls
through process improvement, skill development and oversight.

The Procter & Gamble Company 31

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate
internal control over ﬁnancial reporting of The Procter & Gamble
Company (as deﬁned in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended). Our internal control over ﬁnancial reporting
is designed to provide reasonable assurance regarding the reliability
of ﬁnancial reporting and the preparation of ﬁnancial statements for
external purposes in accordance with generally accepted accounting
principles in the United States of America.

Strong internal controls is an objective that is reinforced through our
Worldwide Business Conduct Manual, which sets forth our commit-
ment to conduct business with integrity, and within both the letter and
the spirit of the law. The Company’s internal control over ﬁnancial
reporting includes a Control Self-Assessment Program that is conducted
annually by substantially all areas of the Company and is audited by
the internal audit function. Management takes the appropriate action
to correct any identiﬁed control deﬁciencies. Because of its inherent
limitations, any system of internal control over ﬁnancial reporting, no
matter how well designed, may not prevent or detect misstatements
due to the possibility that a control can be circumvented or overrid-
den or that misstatements due to error or fraud may occur that are
not detected. Also, because of changes in conditions, internal control
effectiveness may vary over time.

Management assessed the effectiveness of the Company’s internal
control over ﬁnancial reporting as of June 30, 2011, using criteria
established in Internal Control – Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and concluded that the Company maintained
effective internal control over ﬁnancial reporting as of June 30, 2011,
based on these criteria.

Deloitte & Touche LLP, an independent registered public accounting
ﬁrm, has audited the effectiveness of the Company’s internal control
over ﬁnancial reporting as of June 30, 2011, as stated in their report
which is included herein.

Robert A. McDonald
Chairman of the Board, President and Chief Executive Ofﬁcer

Jon R. Moeller
Chief Financial Ofﬁcer

August 10, 2011

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
The Procter & Gamble Company

We have audited the accompanying Consolidated Balance Sheets of
The Procter & Gamble Company and subsidiaries (the “Company”) as
of June 30, 2011 and 2010, and the related Consolidated Statements
of Earnings, Shareholders’ Equity, and Cash Flows for each of the three
years in the period ended June 30, 2011. These ﬁnancial statements are
the responsibility of the Company’s management. Our responsibility is to
express an opinion on these ﬁnancial statements based on our audits.

We conducted our audits in accordance with the 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the ﬁnancial
statements. An audit also includes 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 Consolidated Financial Statements present fairly,
in all material respects, the ﬁnancial position of the Company at
June 30, 2011 and 2010, and the results of its operations and cash
ﬂows for each of the three years in the period ended June 30, 2011,
in conformity with accounting principles generally accepted in the
United States of America.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the Company’s
internal control over ﬁnancial reporting as of June 30, 2011, based on
the criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated August 10, 2011 expressed an
unqualiﬁed opinion on the Company’s internal control over ﬁnancial
reporting.

Cincinnati, Ohio
August 10, 2011

32 The Procter & Gamble Company

Report of Independent Registered Public Accounting Firm

Because of the inherent limitations of internal control over ﬁnancial
reporting, including the possibility of collusion or improper manage-
ment override of controls, material misstatements due to error or
fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal
control over ﬁnancial reporting to future periods are subject to the
risk that the controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, the Company maintained, in all material respects,
effective internal control over ﬁnancial reporting as of June 30, 2011,
based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.

We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Consolidated Financial Statements of the Company as of and for
the year ended June 30, 2011 and our report dated August 10, 2011
expressed an unqualiﬁed opinion on those ﬁnancial statements.

Cincinnati, Ohio
August 10, 2011

To the Board of Directors and Stockholders of
The Procter & Gamble Company

We have audited the internal control over ﬁnancial reporting of
The Procter & Gamble Company and subsidiaries (the “Company”) as
of June 30, 2011, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company’s manage-
ment is responsible for maintaining effective internal control over
ﬁnancial reporting and for its assessment of the effectiveness of
internal control over ﬁnancial reporting, included in Management’s
Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over
ﬁnancial reporting based on our audit.

We conducted our audit in accordance with the 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 effective internal control over
ﬁnancial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over ﬁnancial
reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other proce-
dures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company’s internal control over ﬁnancial reporting is a process
designed by, or under the supervision of, the company’s principal
executive and principal ﬁnancial ofﬁcers, or persons performing
similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of
ﬁnancial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over
ﬁnancial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately
and fairly reﬂect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of ﬁnancial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the
ﬁnancial statements.

Management’s Discussion and Analysis

The Procter & Gamble Company 33

Management’s Discussion and Analysis

The purpose of this discussion is to provide an understanding of
P&G’s ﬁnancial results and condition by focusing on changes in
certain key measures from year to year. Management’s Discussion
and Analysis (MD&A) is organized in the following sections:

(cid:333)(cid:3) Overview
(cid:333)(cid:3) Summary of 2011 Results
(cid:333)(cid:3) Forward-Looking Statements
(cid:333)(cid:3) Results of Operations
(cid:333)(cid:3) Segment Results
(cid:333)(cid:3) Financial Condition
(cid:333)(cid:3) Signiﬁcant Accounting Policies and Estimates
(cid:333)(cid:3) Other Information

Throughout MD&A, we refer to measures used by management to
evaluate performance, including unit volume growth, net sales and
net earnings. We also refer to a number of ﬁnancial measures that
are not deﬁned under accounting principles generally accepted in the
United States of America (U.S. GAAP), including organic sales growth,
core earnings per share (Core EPS), free cash ﬂow and free cash ﬂow
productivity. Organic sales growth is net sales growth excluding the
impacts of foreign exchange, acquisitions and divestitures. Core EPS is
diluted net earnings per share from continuing operations excluding
certain speciﬁed charges. Free cash ﬂow is operating cash ﬂow less
capital spending. Free cash ﬂow productivity is the ratio of free cash
ﬂow to net earnings. We believe these measures provide investors with
important information that is useful in understanding our business
results and trends. The explanation at the end of MD&A provides more
details on the use and the derivation of these measures.

Management also uses certain market share and market consumption
estimates to evaluate performance relative to competition despite
some limitations on the availability and comparability of share and
consumption information. References to market share and market
consumption in MD&A are based on a combination of vendor-reported
consumption and market size data, as well as internal estimates. All
market share references represent the percentage of sales in dollar terms
on a constant currency basis of our products, relative to all product
sales in the category. In certain situations, we discuss volume share,
which is the percentage of unit volume of our products relative to all
products sold in the category.

Recent Business Developments
Effective February 2011, the Company consolidated the three Global
Business Units (GBUs) into two: Beauty & Grooming and Household
Care. As a result, the Health Care segment largely became part of
P&G’s Beauty and Grooming GBU, while the Snacks and Pet Care
segment became part of P&G’s Household Care GBU.

In October 2009, we sold our global pharmaceuticals business to
Warner Chilcott plc (Warner Chilcott) for $2.8 billion, net of assumed
and transferred liabilities. Under the terms of the agreement, Warner
Chilcott acquired our portfolio of branded pharmaceuticals products,
our prescription drug product pipeline and our manufacturing facili-
ties in Puerto Rico and Germany. The pharmaceuticals business had

historically been part of the Health Care reportable segment. In
accordance with the applicable accounting guidance for the disposal
of long-lived assets, the results of our pharmaceuticals business are
presented as discontinued operations and, as such, have been excluded
from continuing operations and from segment results for all periods
presented.

In November 2008, we completed the divestiture of our coffee
business through the merger of our Folgers coffee subsidiary into
The J.M. Smucker Company (Smucker) in an all-stock Reverse
Morris Trust transaction. In connection with the merger, 38.7 million
shares of P&G common stock were tendered by our shareholders
and exchanged for all shares of Folgers common stock. Pursuant to
the merger, a Smucker subsidiary merged with and into Folgers and
Folgers became a wholly-owned subsidiary of Smucker.

The coffee business had historically been part of the Company’s
Snacks, Coffee and Pet Care reportable segment, as well as the coffee
portion of the away-from-home business which was included in the
Fabric Care and Home Care reportable segment. In accordance with the
applicable accounting guidance for the disposal of long-lived assets,
the results of our coffee business are presented as discontinued
operations and, as such, have been excluded from continuing opera-
tions and from segment results for all periods presented. The Snacks,
Coffee and Pet Care reportable segment was renamed Snacks and
Pet Care to reﬂect this change.

OVERVIEW
The purpose of our business is to provide branded consumer packaged
goods of superior quality and value to our consumers around the
world. This will enable us to execute our Purpose-inspired growth
strategy: to touch and improve more consumers’ lives, in more parts
of the world, more completely. We believe this will result in leadership
sales, earnings and value creation, allowing employees, shareholders
and the communities in which we operate to prosper.

Our products are sold in more than 180 countries primarily through mass
merchandisers, grocery stores, membership club stores, drug stores
and high-frequency stores, the neighborhood stores which serve
many consumers in developing markets. We continue to expand our
presence in other channels, including department stores, perfumeries,
pharmacies, salons and e-commerce. We have on-the-ground opera-
tions in approximately 80 countries.

Our market environment is highly competitive with global, regional
and local competitors. In many of the markets and industry segments
in which we sell our products, we compete against other branded
products as well as retailers’ private-label brands. Additionally, many
of the product segments in which we compete are differentiated by
price (referred to as super-premium, premium, mid-tier and value-tier
products). We are well positioned in the industry segments and markets
in which we operate-often holding a leadership or signiﬁcant market
share position.

34 The Procter & Gamble Company

Management’s Discussion and Analysis

Organizational Structure
Our organizational structure is comprised of two Global Business
Units (GBUs), Global Operations, Global Business Services (GBS) and
Corporate Functions (CF).

GLOBAL BUSINESS UNITS
Effective February 2011, our two GBUs are Beauty & Grooming and
Household Care. The primary responsibility of the GBUs is to develop
the overall strategy for our brands. They identify common consumer
needs, develop new product innovations and upgrades and build our
brands through effective commercial innovations and marketing
plans.

Under U.S. GAAP, the business units comprising the GBUs are aggre-
gated into six reportable segments: Beauty; Grooming; Health Care;
Snacks and Pet Care; Fabric Care and Home Care; and Baby Care and
Family Care. The following provides additional detail on our reportable
segments, businesses and the key product and brand composition
within each.

Beauty: We are a global market leader in the beauty category. Most
of the beauty markets in which we compete are highly fragmented
with a large number of global and local competitors. In female beauty,
we compete with a wide variety of products, ranging from cosmetics
to female blades and razors to skin care, such as the Olay brand, which
is the top facial skin care brand in the world with approximately 10%
of the global market share. In hair care, we compete in both the retail
and salon professional channels. We are the global market leader in
the retail hair care market with over 20% of the global market share
behind Pantene and Head & Shoulders. In the prestige channel, we
compete primarily with prestige fragrances and the SK-II brand. We
are one of the global market leaders in prestige fragrances, primarily
behind the Dolce & Gabbana, Gucci and Hugo Boss fragrance brands.

Grooming: We hold leadership market share in the male blades and
razors market on a global basis and in nearly all of the geographies in
which we compete. Our global male blades and razors market share
is approximately 70%, primarily behind the Gillette franchise including

Fusion and Mach3. We also compete in male personal care with
deodorants, face and shave preparation, hair and skin care and
personal cleansing products. Our electronic hair removal devices and
small home appliances are sold under the Braun brand in a number
of markets around the world, where we compete against both global
and regional competitors. Our primary focus in this area is electric
hair removal devices, such as electric razors and epilators, where we
hold approximately 30% of the male shavers market and 50% of the
female epilators market.

Health Care: We compete in oral care, feminine care and personal
health. In oral care, there are several global competitors in the market,
and we have the number two market share position with over 20%
of the global market. We are the global market leader in the feminine
care category with over 30% of the global market share. In personal
health, we are the market leader in nonprescription heartburn medica-
tions behind Prilosec OTC and in respiratory treatments behind Vicks.

Snacks and Pet Care: In snacks, we compete against both global and
local competitors and have a global market share of almost 10% in
the potato chips market behind our Pringles brand. In pet care, we
compete in several markets around the globe in the premium pet care
segment, with the Iams and Eukanuba brands. The vast majority of our
pet care business is in North America, where we have almost a 10%
share of the market.

Fabric Care and Home Care: This segment is comprised of a variety
of fabric care products, including laundry detergents, additives and
fabric enhancers; home care products, including dishwashing liquids
and detergents, surface cleaners and air fresheners; and batteries. In
fabric care, we generally have the number one or number two share
position in the markets in which we compete and are the global market
leader, with about 30% of the global market share. Our global home
care market share is over 15% across the categories in which we
compete. In batteries, we compete primarily behind the Duracell brand
and have over 25% of the global battery market share.

Reportable Segment

BEAUTY

GROOMING

HEALTH CARE

SNACKS AND PET CARE

FABRIC CARE AND HOME CARE

% of
Net Sales*

% of Net
Earnings*

Categories

24%

24% Cosmetics, Female Antiperspirant and Deodorant, Female

Personal Cleansing, Female Shave Care, Hair Care, Hair
Color, Hair Styling, Pharmacy Channel, Prestige Products,
Salon Professional, Skin Care

14% Electronic Hair Removal Devices, Home Small Appliances,

14%

4%
30%

Male Blades and Razors, Male Personal Care
16% Feminine Care, Gastrointestinal, Incontinence, Rapid

Diagnostics, Respiratory, Toothbrush, Toothpaste, Water
Filtration, Other Oral Care

2% Pet Care, Snacks

27% Laundry Additives, Air Care, Batteries, Dish Care, Fabric

Enhancers, Laundry Detergents, Surface Care

BABY CARE AND FAMILY CARE

19%

17% Baby Wipes, Diapers, Paper Towels, Tissues, Toilet Paper

* Percent of net sales and net earnings from continuing operations for the year ended June 30, 2011 (excluding results held in Corporate).

Billion Dollar Brands

Head & Shoulders, Olay,
Pantene, Wella

Braun, Fusion, Gillette,
Mach3
Always, Crest, Oral-B

Iams, Pringles
Ace, Ariel, Dawn, Downy,
Duracell, Gain, Tide,
Febreze
Bounty, Charmin,
Pampers

Management’s Discussion and Analysis

The Procter & Gamble Company 35

Baby Care and Family Care: In baby care, we compete mainly in
diapers and baby wipes, with approximately 35% of the global market
share. We are the number one or number two baby care competitor
in most of the key markets in which we compete, primarily behind
Pampers, the Company’s largest brand, with annual net sales of
approximately $9 billion. Our family care business is predominantly
a North American business comprised largely of the Bounty paper
towel and Charmin toilet paper brands. U.S. market shares are
approximately 45% for Bounty and over 25% for Charmin.

GLOBAL OPERATIONS
Global Operations is comprised of our Market Development
Organization (MDO), which is responsible for developing go-to-market
plans at the local level. The MDO includes dedicated retail customer,
trade channel and country-speciﬁc teams. It is organized along ﬁve
geographic units: North America, Western Europe, Central & Eastern
Europe/Middle East/Africa (CEEMEA), Latin America and Asia, which
is comprised of Japan, Greater China and ASEAN/Australia/India/
Korea (AAIK). Throughout MD&A, we reference business results in
developing markets, which we deﬁne as the aggregate of CEEMEA,
Latin America, AAIK and Greater China, and developed markets,
which are comprised of North America, Western Europe and Japan.

GLOBAL BUSINESS SERVICES
GBS provides technology, processes and standard data tools to enable
the GBUs and the MDO to better understand the business and better
serve consumers and customers. The GBS organization is responsible
for providing world-class solutions at a low cost and with minimal
capital investment.

CORPORATE FUNCTIONS
CF provides Company-level strategy and portfolio analysis, corporate
accounting, treasury, external relations, governance, human resources
and legal, as well as other centralized functional support.

Strategic Focus
We are focused on strategies that we believe are right for the long-
term health of the Company and will deliver total shareholder return
in the top one-third of our peer group. The Company’s long-term
ﬁnancial targets are:

(cid:333)(cid:3) Grow organic sales 1% to 2% faster than market growth in the

categories and geographies in which we compete,

(cid:333)(cid:3) Deliver Core EPS growth of high single digits to low double digits, and

(cid:333)(cid:3) Generate free cash ﬂow productivity of 90% or greater.

In order to achieve these targets, we have created one over-arching
strategy, inspired by our Purpose. At the heart of this strategy is
innovating to win by touching and improving the lives of:

(cid:333)(cid:3)More Consumers. We are improving more consumers’ lives by

innovating and expanding our product portfolio vertically, up and
down value tiers. We continue to successfully develop and launch
premium innovations focused on improving consumer value through
enhanced performance. We are also serving consumers who are
more price conscious through lower-priced offerings with superior
performance versus other mid-tier and value-tier alternatives.

(cid:333)(cid:3)In More Parts of the World. We are improving lives in more parts
of the world by innovating and expanding our existing product
portfolio geographically into new markets. We are increasing our
presence in developing markets and increasing the amount of sales
from these markets by focusing on affordability, accessibility and
awareness of our brands.

(cid:333)(cid:3)More Completely. We are improving lives more completely by
innovating to improve existing products, creating or entering
adjacent categories and expanding into new channels to reach
consumers where they shop. We are driving regimen use that
broadens the occasions for which our brands can serve the needs
of each consumer. By attracting new consumers into our existing
brand franchises and broadening the products used by our current
consumers, we are able to build scale, reduce costs and proﬁtably
grow market share.

We will leverage P&G’s ﬁve core strengths that create competitive
advantages and are critical to winning in the consumer products
industry: consumer knowledge; innovation; brand-building; go-to-
market capabilities and scale. We are coordinating our activities across
categories and markets, acting more intentionally as one Company.
We are placing particular emphasis on execution, simpliﬁcation and
scale as key improvement areas that will enable P&G to create the
greatest value and competitive advantage. Finally, we are strengthen-
ing the depth, breadth and quality of leadership at all levels of the
Company to make P&G a more demand-driven, real-time, future-
focused organization.

36 The Procter & Gamble Company

Management’s Discussion and Analysis

SUMMARY OF 2011 RESULTS
(cid:333)(cid:3) Net sales increased 5% to $82.6 billion.

– Organic sales increased 4%.
– Unit volume increased 6% versus the prior year, behind double-

digit growth in developing regions and low single-digit growth in
developed regions.

(cid:333)(cid:3) Net earnings from continuing operations increased 8% to $11.8 bil-
lion behind sales growth and a lower effective tax rate, partially
offset by operating margin contraction.
– Operating margin declined 110 basis points behind a reduction in
gross margin, partially offset by a reduction in selling, general
and administrative expenses (SG&A) as a percentage of net sales.
Gross margin declined behind higher commodity costs, partially
offset by manufacturing cost savings. SG&A as a percentage of
net sales declined due to reduced foreign currency exchange
costs and a reduction in overhead spending as a percentage of
net sales due to productivity improvements, partially offset by
increased marketing investments.

(cid:333)(cid:3) Net earnings decreased 7% to $11.8 billion.

– Net earnings from discontinued operations declined $1.8 billion
due to the gains on the sale of the pharmaceutical business in
the prior year.

(cid:333)(cid:3) Diluted net earnings per share from continuing operations

increased 11% to $3.93.
– Diluted net earnings per share declined 4% to $3.93, including a

decline in discontinued operations of $0.58.

– Core EPS grew 8% to $3.95.

(cid:333)(cid:3) Cash ﬂow from operating activities was $13.2 billion.

– Free cash ﬂow was $9.9 billion.
– Free cash ﬂow productivity was 84%.

FORWARD-LOOK ING STATEMENTS
We discuss expectations regarding future performance, events and
outcomes, such as our business outlook and objectives, in annual and
quarterly reports, press releases and other written and oral communi-
cations. All such statements, except for historical and present factual
information, are “forward-looking statements,” and are based on
ﬁnancial data and our business plans available only as of the time the
statements are made, which may become out-of-date or incomplete.
We assume no obligation to update any forward-looking statements as
a result of new information, future events or other factors. Forward-
looking statements are inherently uncertain and investors must recognize
that events could be signiﬁcantly different from our expectations.
For more information on risks that could impact our results, refer to
Item 1A Risk Factors in our most recent 10-Q, 10-K and 8-K ﬁlings.

Ability to Achieve Business Plans. We are a consumer products
company and rely on continued demand for our brands and products.
To achieve business goals, we must develop and sell products that
appeal to consumers and retail trade customers. Our continued success
is dependent on leading-edge innovation with respect to both products
and operations, on the continued positive reputations of our brands
and our ability to successfully maintain trademark protection. This
means we must be able to obtain patents and trademarks, and respond
to technological advances and patents granted to competition. Our
success is also dependent on effective sales, advertising and market-
ing programs. Our ability to innovate and execute in these areas will
determine the extent to which we are able to grow existing sales and
volume proﬁtably, especially with respect to the product categories
and geographic markets (including developing markets) in which we
have chosen to focus. There are high levels of competitive activity in
the environments in which we operate. To address these challenges, we
must respond to competitive factors, including pricing, promotional
incentives, trade terms and product initiatives. We must manage each
of these factors, as well as maintain mutually beneﬁcial relationships with
our key customers, in order to effectively compete and achieve our
business plans. As a company that manages a portfolio of consumer
brands, our ongoing business model involves a certain level of ongoing
acquisition and divestiture activities. We must be able to successfully
manage the impacts of these activities, while at the same time deliv-
ering against base business objectives. Daily conduct of our business
also depends on our ability to maintain key information technology
systems, including systems operated by third-party suppliers.

Cost Pressures. Our costs are subject to ﬂuctuations, particularly due
to changes in commodity prices, raw materials, labor costs, foreign
exchange and interest rates. Therefore, our success is dependent, in
part, on our continued ability to manage these ﬂuctuations through
pricing actions, cost savings projects, sourcing decisions and certain
hedging transactions. We also must manage our debt and currency
exposure, especially in certain countries with currency exchange controls,
such as Venezuela, China and India. We need to maintain key manu-
facturing and supply arrangements, including sole supplier and sole
manufacturing plant arrangements, and successfully manage any
disruptions at Company manufacturing sites. We must implement,
achieve and sustain cost improvement plans, including our outsourcing
projects and those related to general overhead and workforce optimi-
zation. Successfully managing these changes, including identifying,
developing and retaining key employees, is critical to our success.

Global Economic Conditions. Economic changes, terrorist activity,
political unrest and natural disasters, such as the civil unrest in the
Middle East and the impacts of the Japan earthquake and tsunami,
may result in business interruption, inﬂation, deﬂation or decreased
demand for our products. Our success will depend, in part, on our
ability to manage continued global political and/or economic uncer-
tainty, especially in our signiﬁcant geographic markets, due to terrorist
and other hostile activities or natural disasters. We could also be
negatively impacted by a global, regional or national economic crisis,
including sovereign risk in the event of deterioration in the credit
worthiness of a default by local governments, resulting in a disruption

Management’s Discussion and Analysis

The Procter & Gamble Company 37

of credit markets. Such events could negatively impact our ability to
collect receipts due from governments, including refunds of value
added taxes, create signiﬁcant credit risks relative to our local custom-
ers and depository institutions, and/or negatively impact our overall
liquidity.

NET SALES
($ billions)

Regulatory Environment. Changes in laws, regulations and the related
interpretations may alter the environment in which we do business.
This includes changes in environmental, competitive and product-
related laws, as well as changes in accounting standards and taxation
requirements. Our ability to manage regulatory, tax and legal matters
(including product liability, patent, intellectual property, competition
law matters and tax policy) and to resolve pending legal matters within
current estimates may impact our results.

RESULTS OF OPERATIONS

Net Sales
Net sales increased 5% in 2011 to $82.6 billion on a 6% increase in
unit volume. Volume grew behind market and share growth. Global
market growth, in categories that we compete, grew 3% on a constant
currency basis. Volume increased low single digits in developed regions
and double digits in developing regions. All geographic regions
contributed to volume growth, led by double-digit growth in Asia,
high single-digit growth in Latin America and mid-single-digit growth
in CEEMEA and Western Europe. All six of the business segments
contributed to volume growth with high single-digit growth in the
Baby Care and Family Care and Fabric Care and Home Care segments,
mid-single-digit growth in the Beauty and Health Care segments, and
a low single-digit growth in the Grooming and Snacks and Pet Care
segments. Organic volume, which excludes acquisitions and divestitures,
was up 5%. Mix reduced net sales by 2% due mainly to dispropor-
tionate growth in developing regions and mid-tier products, both of
which have lower than Company average selling prices, and declines
in the premium-priced professional salon and prestige categories.
Pricing added 1% to net sales behind price increases to offset higher
commodity costs and foreign exchange. Organic sales were up 4%,
led by high single-digit growth in the Baby and Family Care segment,
as well as mid-single-digit growth across the Grooming and Health
Care segments.

Operating Costs

Comparisons as a percentage of net sales; Years ended June 30

Gross margin
Selling, general and administrative expense
Operating margin
Earnings from continuing operations before income taxes
Net earnings from continuing operations

$82.6

$78.9

$76.7

35%

34%

33%

DEVELOPING MARKETS
(% of net sales)

Net sales increased 3% in 2010 to $78.9 billion on a 4% increase in
unit volume. Volume increased low single digits in developed regions
and mid-single digits in developing regions. All geographic regions
contributed to volume growth, led by high single-digit growth in Asia
and CEEMEA. Volume growth for the reportable segments was mixed,
with low single-digit increases in the Beauty, Grooming and Health
Care segments, a mid-single-digit increase in the Fabric Care and
Home Care segment and a high single-digit increase in the Baby Care
and Family Care segment, partially offset by a low single-digit decline
in the Snacks and Pet Care segment. Price increases added 1% to
net sales as increases taken primarily in developing regions to offset
local currency devaluations were partially offset by price reductions
to improve consumer value. Mix reduced net sales by 1% behind
disproportionate growth in developing regions, which have lower
than Company average selling prices, and relatively weaker shipments
of Salon Professional, Prestige, Personal Health Care and Pet Care,
which have higher than Company average selling prices. Organic sales
were up 3%, led by mid-single-digit growth across the Fabric Care and
Home Care and the Baby Care and Family Care segments. Unfavorable
foreign exchange reduced net sales growth by 1% as the U.S. dollar
strengthened versus key foreign currencies.

2011

50.6%
31.4%
19.2%
18.4%
14.3%

Basis Point
Change

(140)
(30)
(110)
(70)
40

2010

52.0%
31.7%
20.3%
19.1%
13.9%

Basis Point
Change

250
220
30
30
0

2009

49.5%
29.5%
20.0%
18.8%
13.9%

38 The Procter & Gamble Company

Management’s Discussion and Analysis

Gross margin contracted 140 basis points in 2011 to 50.6% of net sales.
The reduction in gross margin was driven mainly by a 225-basis point
increase in commodity and energy costs, along with negative product
mix from disproportionate growth in developing regions and mid-tier
products. These impacts were partially offset by manufacturing cost
savings and the favorable impact of volume scale leverage.

Gross margin expanded 250 basis points in 2010 to 52.0% of net
sales. Manufacturing and logistics cost savings projects and lower
commodity and energy costs positively impacted gross margin by
about 280 basis points. Volume scale leverage and price increases also
contributed to gross margin expansion. These impacts were partially
offset by unfavorable foreign exchange and product mix impacts.

GROSS MARGIN
(% of net sales)

50.6%

52.0%

49.5%

Total selling, general and administrative expenses (SG&A) increased 4%
to $26.0 billion in 2011 behind higher marketing and overhead spend-
ing, which was partially offset by the impact of lower foreign currency
exchange costs. SG&A as a percentage of net sales decreased 30 basis
points to 31.4% due to a reduction in overhead and other operating
expenses as a percentage of net sales, partially offset by increased
marketing investments. Marketing spending as a percentage of net
sales increased 60 basis points due to additional marketing investments
to support innovation and expansion plans. Overhead spending as a
percentage of net sales decreased 50 basis points due to sales leverage,
partially offset by added spending to support growth. Other operating
expenses as a percentage of net sales decreased 40 basis points mainly
due to a decrease in Venezuela-related foreign currency exchange costs
of $548 million (see further discussion in the following paragraphs).
Charges for competition law ﬁnes increased nominally to $303 million
versus the prior year charge of $283 million.

SG&A increased 10% to $25.0 billion in 2010 behind higher market-
ing, overhead and other operating expenses. SG&A as a percentage
of net sales increased 220 basis points to 31.7% due to higher mar-
keting and other operating expenses as a percentage of net sales,
while overhead spending as a percentage of sales was in line with the
prior year. Marketing spending as a percentage of net sales was up
150 basis points as additional marketing investments, primarily to
increase media impressions, and the impact of reduced spending in
the fourth quarter of 2009 were partially offset by media rate savings.
Advertising spending as a percentage of net sales was up 110 basis
points versus 2009 behind investments to support initiatives and
business growth. Overhead spending as a percentage of net sales
was consistent with the prior year as additional spending to support
business growth was offset by productivity improvements and lower
restructuring charges. Other operating expenses as a percentage of
net sales increased 70 basis points mainly due to an increase in

Venezuela-related foreign currency exchange costs of $492 million
(see further discussion in the following paragraph) and charges for
competition law ﬁnes of $283 million.

Because of currency restrictions in Venezuela, payments for certain
imported goods and services have historically been satisﬁed by exchang-
ing Bolivares Fuertes for U.S. dollars through securities transactions in
the parallel market rather than at the more favorable ofﬁcial exchange
rate. At the discretion of management, these securities transactions
can be utilized to manage exposure to currency movements on local
cash balances. A reduction in the availability of foreign currency at
the ofﬁcial exchange rate and an increased spread between the
ofﬁcial and parallel exchange rates during most of ﬁscal 2010 resulted
in increased costs for exchange transactions executed using securities
transactions in the parallel market during 2010. There were minimal
parallel market exchange transactions executed during 2011 due to a
very restrictive parallel market exchange mechanism. For a more
detailed discussion of the impacts of and recent events in Venezuela,
see the section entitled “Venezuela Currency Impacts” at the end of
this Results of Operations section.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
(% of net sales)

31.4%
31.7%

29.5%

We fund a number of restructuring-type activities, primarily related
to manufacturing and workforce optimization efforts, to maintain a
competitive cost structure and to integrate acquired businesses.
Within our results of continuing operations, after-tax charges to fund
restructuring-type activities declined approximately $200 million in 2011,
and were slightly below our ongoing funding level of $300 million to
$400 million, after tax.

Non-Operating Items
Interest expense decreased 12% in 2011 to $831 million due primarily
to a reduction in interest rates on ﬂoating rate debt partially offset by
an increase in debt outstanding. In 2010, interest expense decreased
30% to $946 million due to a reduction in interest rates on ﬂoating
rate debt and a reduction in debt outstanding.

Other non-operating income/(expense) primarily includes divestiture
gains, interest and investment income and the provision for income
attributable to noncontrolling interests. Other non-operating income/
(expense) was a net beneﬁt of $202 million in 2011 versus a net charge
of $28 million in 2010. This $230 million change was primarily due to
the impact of gains on divestitures in the current year (Zest brand in
North America and Infasil brand in Western Europe) and incremental
costs in the prior year period associated with exercising the call option
on an outstanding bond, partially offset by a gain due to the acquisi-
tion of MDVIP in the prior year period. Other non-operating income/
(expense) declined $425 million in 2010 to an expense of $28 million

Management’s Discussion and Analysis

The Procter & Gamble Company 39

mainly due to divestiture gains in ﬁscal 2009, which included gains
on the sale of Thermacare, Noxzema, Infusium and other minor
brands, and incremental costs associated with exercising the call
option on an outstanding bond in 2010.

Income Taxes
The effective tax rate on continuing operations decreased 500 basis
points to 22.3%. This was primarily driven by net favorable discrete
adjustments (primarily driven by favorable audit and litigation settle-
ments for uncertain tax positions in multiple jurisdictions relating to
prior periods), which drove 410 basis points of the effective tax rate
difference. Net adjustments to tax balances for uncertain tax positions
in a number of jurisdictions resulted in a beneﬁt of approximately
$535 million in the current year, including a $252 million beneﬁt from
the settlement of U.S. tax litigation primarily related to the valuation of
technology donations. In 2010, net discrete adjustments resulted in a
charge of $86 million, including a $152 million charge for legislation
which changed the taxation of certain future retiree prescription drug
subsidy payments in the United States. While there will likely be some
level of beneﬁts from discrete adjustments on an ongoing basis, we
do not expect the magnitude of the adjustments experienced in ﬁscal
2011 to be sustainable. The current year tax rate also beneﬁted from
the geographic mix of earnings, which drove a 50-basis point reduction
as an increased proportion of current year earnings were generated in
foreign markets with lower tax rates versus the U.S.

In 2010, the effective tax rate on continuing operations increased
140 basis points to 27.3%. This was primarily due to a $152 million
charge for legislation which changed the taxation of certain future
retiree prescription drug subsidy payments in the United States, the non-
deductibility of a $283 million charge for competition law ﬁnes and a
lower level of net favorable adjustments to reserves for previously
existing uncertain tax positions and foreign tax credits, partially offset
by a more favorable geographic mix of earnings. During 2010, net
adjustments to prior-year reserves balances for uncertain tax positions
beneﬁted the effective tax rate by 40 basis points versus a 130-basis
point beneﬁt in 2009.

Net Earnings
Net earnings from continuing operations were $11.8 billion in 2011,
an increase of 8% versus the prior year due mainly to net sales growth
and a lower effective tax rate, partially offset by operating margin
contraction. Operating margin decreased 110 basis points due to a
decrease in gross margin, partially offset by a decrease in SG&A
spending as a percentage of net sales. Gross margin declined behind
higher commodity costs, partially offset by manufacturing cost savings.
SG&A as a percentage of net sales declined due to reduced foreign
currency exchange costs and a reduction in overhead spending as a
percentage of net sales due to productivity improvements, partially
offset by increased marketing investments. Net earnings from continu-
ing operations were $10.9 billion in 2010, an increase of 2% versus
the prior year due mainly to net sales growth and operating margin
expansion, partially offset by a higher effective tax rate. Operating
margin was up 30 basis points due to an increase in gross margin,
mostly offset by an increase in SG&A as a percentage of net sales.

Net earnings from discontinued operations decreased $1.8 billion in
2011 mainly due to the impact of the gain on the divestiture of the
global pharmaceuticals business in the prior year. In 2010, net earnings
from discontinued operations, declined $1.0 billion to $1.8 billion due
to the loss of contribution from the pharmaceuticals business divested
in October 2009 and coffee business divested in November 2008
and lower gains on the sale of discontinued operations. The gains on
the sale of the global pharmaceuticals business in ﬁscal 2010 were
$1.6 billion versus a $2.0 billion gain on the sale of the coffee business
in ﬁscal 2009.

Diluted net earnings per share from continuing operations in 2011
increased 11% to $3.93 behind higher net earnings from continuing
operations and the reduction in shares outstanding. Diluted net
earnings per share from discontinued operations declined $0.58.
Diluted net earnings per share declined 4% to $3.93 driven by lower
net earnings from discontinued operations, partially offset by higher
net earnings from continuing operations and a reduction in weighted
average shares outstanding resulting from share repurchase activity.
The reduction in the number of shares outstanding was driven by
treasury share repurchases of $7.0 billion, nearly all of which were
made under our publicly announced share repurchase program.

Diluted net earnings per share from continuing operations in 2010
increased 4% to $3.53 behind higher net earnings from continuing
operations and the reduction in shares outstanding. Diluted net
earnings per share from discontinued operations declined $0.29 to
$0.58. Diluted net earnings per share declined 4% to $4.11 driven
by lower net earnings from discontinued operations, partially offset
by higher net earnings from continuing operations and a reduction
in weighted average shares outstanding. The reduction in the number
of shares outstanding was driven by treasury share repurchases
of $6.0 billion, nearly all of which were made under our publicly
announced share repurchase program.

DILUTED NET EARNINGS
(per common share)

$3.93

$4.11

$4.26

Core EPS increased 8% to $3.95 in 2011. Core EPS represents diluted
net earnings per share from continuing operations excluding a current-
year beneﬁt from the settlement of U.S. tax litigation primarily related
to the valuation of technology donations, charges in both 2011 and
2010 for competition law ﬁnes and charges in 2010 for legislation which
changed the taxation of certain future retiree prescription drug subsidy
payments in the United States. Core EPS grew 6% in 2010 to $3.67.

40 The Procter & Gamble Company

Management’s Discussion and Analysis

CORE EARNINGS PER SHARE
(per common share)

$3.95

$3.67

$3.47

Venezuela Currency Impacts
Venezuela was determined to be a highly inﬂationary economy under
U.S. GAAP during ﬁscal 2010. As a result, the U.S. dollar is now the
functional currency for our subsidiaries in Venezuela. Any currency
remeasurement adjustments for non-dollar denominated monetary
assets and liabilities held by these subsidiaries and other transactional
foreign exchange gains and losses are reﬂected in earnings. Also during
ﬁscal 2010, the Venezuelan government devalued the Bolivar Fuerte
relative to the U.S. dollar. The remeasurement of our local balance
sheets in ﬁscal 2010 did not materially impact our results. This was due
to the relatively small non-dollar denominated net monetary asset
position in Venezuela.

The Venezuelan government introduced a number of currency controls
for companies operating in Venezuela. During calendar year 2010,
there were two ofﬁcial exchange rates for imported goods. Those
goods classiﬁed as essential, such as food, medicine and capital
investments, had an exchange rate of 2.6 bolivars to the U.S. dollar,
while payments for other non-essential goods had an exchange rate
of 4.3. Many of our imported products fell into the essential classiﬁ-
cation and qualiﬁed for the 2.6 rate. In January 2011, the Venezuelan
government announced the elimination of the 2.6 exchange rate on
essential goods, resulting in the application of the 4.3 rate to all
qualifying goods. Our overall results in Venezuela are reﬂected in our
Consolidated Financial Statements at the 4.3 rate, which is also
expected to be applicable to dividend repatriations.

There are also exchange controls over securities transactions in what
was the parallel market, which has historically been used to pay for
imported goods and services that do not qualify for exchange in the
ofﬁcial market and is now controlled by authorities. The Central Bank
of Venezuela is now the only legal intermediary to execute foreign
exchange transactions outside of CADIVI (4.3 rate) through the SITME
rate which was approximately 5.3 as of June 30, 2011. The notional
amount of transactions that run through this foreign exchange rate
for non-essential goods is restrictive, which for us has essentially
eliminated our ability to access any foreign exchange rate other than
the CADIVI (4.3) rate to pay for imported goods and/or manage our
local monetary asset balances.

As of June 30, 2011, we had net monetary assets denominated in local
currency of approximately $798 million. Approximately $347 million
of this balance has been remeasured using the parallel rate because
we plan to use that amount of the net assets (largely cash) to satisfy
U.S. dollar denominated liabilities that do not qualify for ofﬁcial rate
dollars. The availability of the parallel market to settle these transactions
is uncertain. The remaining net monetary asset balances are currently
reﬂected within our Consolidated Financial Statements at the 4.3 ofﬁcial
exchange rate. Depending on the future availability of U.S. dollars at
the ofﬁcial rate, our local U.S. dollar needs, our overall repatriation
plans and the creditworthiness of the local depository institutions and
other creditors, we have exposure for our local monetary assets. We
also have devaluation exposure for the differential between the
current and potential future ofﬁcial and parallel exchange rates on
the portion of our local monetary assets reﬂected at the 4.3 ofﬁcial
exchange rate.

Our ability to effectively manage sales and proﬁt levels in Venezuela
will be impacted by several factors, including the Company’s ability to
mitigate the effect of any potential future devaluation, further actions
of the Venezuelan government, economic conditions in Venezuela,
such as inﬂation and consumer spending, the availability of raw
materials, utilities and energy and the future state of exchange con-
trols in Venezuela including the availability of U.S. dollars at the
ofﬁcial foreign exchange rate.

SEGMENT RESULTS
Results for the segments reﬂect information on the same basis we
use for internal management reporting and performance evaluation.
The results of these reportable business segments do not include
certain non-business unit speciﬁc costs such as interest expense,
investing activities and certain restructuring costs. These costs are
reported in our Corporate segment and are included as part of our
Corporate segment discussion. Additionally, as described in Note 11 to
the Consolidated Financial Statements, we have investments in certain
companies over which we exert signiﬁcant inﬂuence, but do not
control the ﬁnancial and operating decisions and, therefore, do not
consolidate these companies for U.S. GAAP purposes (“unconsolidated
entities”). Given that certain of these investments are managed as
integral parts of the Company’s business units, they are accounted for
as if they were consolidated subsidiaries for management and segment
reporting purposes. This means pre-tax earnings in the business
units include 100% of each pre-tax income statement component.
In determining after-tax earnings in the business units, we eliminate
the share of earnings applicable to other ownership interests, in a
manner similar to noncontrolling interest, and apply the statutory tax
rates. Eliminations to adjust each line item to U.S. GAAP are included in
our Corporate segment. All references to net earnings throughout the
discussion of segment results refer to net earnings from continuing
operations.

Management’s Discussion and Analysis

The Procter & Gamble Company 41

Net Sales Change Drivers vs. Year Ago (2011 vs. 2010)

Beauty
Grooming
Health Care
Snacks and Pet Care
Fabric Care and Home Care
Baby Care and Family Care

TOTAL COMPANY

Volume with
Acquisitions
& Divestitures

Volume
Excluding
Acquisitions
& Divestitures

Foreign
Exchange

4%
3%
5%
1%
7%
8%
6%

4%
3%
5%
-2%
5%
8%
5%

1%
0%
0%
1%
-1%
-1%
0%

Price

0%
2%
0%
-1%
0%
1%
1%

Mix/Other

Net Sales
Growth

-2%
0%
0%
0%
-2%
-2%
-2%

3%
5%
5%
1%
4%
6%
5%

Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.

BEAUTY

($ millions)

Volume
Net sales
Net earnings

2011

Change vs.
Prior Year

n/a
$20,157
$ 2,686

+4%
+3%
-1%

2010

n/a
$19,491
$ 2,712

Change vs.
Prior Year

+3%
+3%
+2%

Beauty net sales increased 3% to $20.2 billion on unit volume growth
of 4%. Organic sales also grew 3%. Mix negatively impacted net sales
by 2% behind disproportionate growth in developing regions, which
have lower than segment average selling prices, and declines in the
premium-priced Prestige Products and Salon Professional categories.
Favorable foreign exchange positively impacted net sales growth by 1%.
Volume in developing regions increased double digits, while volume
in developed regions declined low single digits. Volume in Retail Hair
Care grew mid-single digits behind growth in all regions except North
America. Developing regions grew double digits behind initiative activity
on Pantene, Head & Shoulders and Rejoice, distribution expansions
and market growth, which were partially offset by a mid-single-digit
decline in North America due to competitive activity. Global market
share of the hair care category was up slightly. Volume in Female
Beauty was up low single digits primarily due to higher shipments of
Olay, Venus and Safeguard behind initiative activity, and distribution
expansion and market growth in developing markets. Volume in Salon
Professional was down high single digits mainly due to the planned exit
of non-strategic businesses and market size contractions in developed
regions. Volume in Prestige Products declined low single digits primarily
due to the divestiture of minor brands and lower shipments in Western
Europe. Excluding the minor brand divestitures, volume increased low
single digits due to growth of Dolce & Gabbana and Gucci fragrance
brands behind initiative activity.

Net earnings decreased 1% in 2011 to $2.7 billion, as higher net sales
were more than offset by a 60-basis point decrease in net earnings
margin. Net earnings margin decreased due to gross margin contraction
and higher SG&A as a percentage of net sales. Gross margin decreased
primarily due to an increase in commodity costs, partially offset by
manufacturing cost savings and pricing. SG&A as a percentage of net
sales increased due to higher marketing spending, partially offset by
lower overhead spending as a percentage of net sales and reduced
foreign currency exchange costs.

Net sales increased 3% in 2010 to $19.5 billion on unit volume growth
of 3%. Price increases added 1% to net sales growth as earlier price
increases taken in developing regions to offset currency devaluations
more than offset price reductions in Hair Care. Unfavorable geographic
mix reduced net sales 1% due to disproportionate growth in develop-
ing regions, which have lower than segment average selling prices.
Organic sales were up 3% on a 4% increase in organic volume. Volume
growth was driven by high single-digit growth in developing regions,
with developed region volume in line with the prior year. Hair Care
volume grew mid-single digits behind growth of Pantene, Head &
Shoulders and Rejoice primarily in Asia and Latin America. Global share
of the hair care market was in line with 2009. Female Beauty volume
was up low single digits as higher shipments of female skin care and
personal cleansing products in developing regions were partially offset
by the discontinuation of Max Factor in North America, the ﬁscal 2009
divestiture of Noxzema and volume share losses on non-strategic
personal cleansing brands in developed regions. Salon Professional
volume was down double digits mainly due to the exit of non-strategic
businesses and continued market contractions. Prestige volume declined
low single digits due to continued contraction of the fragrance market.

Net earnings increased 2% in 2010 to $2.7 billion driven by net sales
growth, partially offset by a 20-basis point reduction in net earnings
margin. Net earnings margin declined due to higher SG&A as a
percentage of net sales, the impact of divestiture gains in the prior
year and a higher tax rate, partially offset by gross margin expansion.
SG&A as a percentage of net sales was up due to increased marketing
spending and higher foreign currency exchange costs. The tax rate
increase was due to a shift in the geographic mix of earnings to
countries with higher statutory tax rates. Gross margin expansion was
driven primarily by price increases and manufacturing costs savings.

GROOMING

($ millions)

Volume
Net sales
Net earnings

2011

n/a
$8,025
$1,631

Change vs.
Prior Year

+3%
+5%
+10%

2010

n/a
$7,631
$1,477

Change vs.
Prior Year

+1%
+3%
+9%

42 The Procter & Gamble Company

Management’s Discussion and Analysis

Grooming net sales increased 5% to $8.0 billion on volume growth
of 3%. Organic sales were up 5%. Price increases, taken primarily
across blades and razors in Latin America and developed regions,
contributed 2% to net sales growth. Volume grew high single digits
in developing regions and decreased low single digits in developed
regions. Volume in Male Grooming was up low single digits due to
higher shipments of blades and razors, mainly in developing regions
driven by market growth, and deodorants in North America, partially
offset by reduced volume in blades and razors in the developed
regions. Gillette Fusion shipments increased double digits behind the
continued expansion and success of Fusion ProGlide; while Mach3
shipments increased low single digits due to growth in developing
regions, partially offset by decreases in developed markets. Global
market share of the blades and razors category was down about
half a point. Volume in Appliances decreased low single digits due to
competitive activity and a shift from low-tier, high volume products
to higher-tier product offerings. Global market share of the dry shave
category was down half a point.

Net earnings increased 10% to $1.6 billion behind higher net sales and
a 100-basis point increase in net earnings margin. Net earnings margin
increased due to gross margin expansion, a lower effective tax rate
and a decrease in SG&A as a percentage of net sales. Gross margin
increased due to price increases, the favorable impact of volume scale
leverage and manufacturing cost savings. The tax rate decrease was
due to a shift in the geographic mix of earnings to countries with
lower statutory tax rates. SG&A as a percentage of net sales was down
due to lower foreign currency exchange costs and lower overhead
spending as a percentage of net sales due to sales leverage, partially
offset by higher marketing spending.

Net sales increased 3% to $7.6 billion in 2010 on a 1% increase in
unit volume. Price increases, taken primarily in developing regions to
offset currency devaluations and across blades and razors, added 4%
to net sales. Product mix had a negative 2% impact on net sales due
mainly to disproportionate growth in developing regions and of
disposable razors, both of which have lower than segment average
selling prices. Organic sales grew 3%. Volume in developing regions
increased low single digits, while volume in developed regions was in
line with the prior year. Volume in Male Grooming was up low single
digits mainly due to growth of disposable razors in developing regions.
Mach3 shipments declined high single digits, while Gillette Fusion
shipments increased double digits behind the launch of the new Fusion
ProGlide. Global market share of the blades and razors category was
down about half a point versus the prior year. Volume in Appliances
was down low single digits behind a mid-single-digit decline in
developing regions, due mostly to market contractions and volume
share losses in home and hair care appliances. Global value share of
the dry shaving market was up half a point.

Net earnings increased 9% to $1.5 billion in 2010 behind sales growth
and net earnings margin expansion. Net earnings margin increased
100-basis points driven by gross margin expansion and a lower tax rate,
partially offset by higher SG&A as a percentage of net sales. Gross
margin increased mainly due to price increases and manufacturing

cost savings. The reduction in the tax rate was mainly due to a shift in
the geographic mix of earnings to developing regions which generally
have lower statutory tax rates. The increase in SG&A as a percentage
of net sales was driven by higher marketing spending and incremental
foreign currency exchange costs, partially offset by lower overhead
spending as a percentage of net sales.

HEALTH CARE

($ millions)

Volume
Net sales
Net earnings

2011

n/a
$12,033
$ 1,796

Change vs.
Prior Year

2010

Change vs.
Prior Year

+5%
n/a
+5% $11,493
-3% $ 1,860

+3%
+2%
+1%

Health Care net sales increased 5% to $12.0 billion on 5% growth in
unit volume. Organic sales were up 5%. Volume increased high single
digits in developing regions and low single digits in developed regions.
Volume in Oral Care grew mid-single digits behind initiative activity
and incremental merchandising support of Crest and Oral-B. Global
market share of the oral care category was up over half a point.
Volume in Personal Health Care grew low single digits behind higher
shipments of Vicks in North America and the developing regions,
partially offset by continuing decline of Prilosec OTC in North America
due to competitive activity. All-outlet value share of the U.S. personal
health care market increased about half a point. Volume in Feminine
Care was up mid-single digits mainly due to higher shipments of
Naturella, behind expansion into developing regions, and Always,
behind initiative activity in developing regions. Global market share of
the feminine care category was down less than half a point.

Net earnings decreased 3% to $1.8 billion as higher net sales were
more than offset by a 130-basis point decrease in net earnings margin.
Net earnings margin decreased due to lower gross margin, higher
SG&A as a percentage of net sales and a higher effective tax rate.
Gross margin declined due to higher commodity costs and unfavorable
mix due to disproportionate growth in developing regions, partially
offset by manufacturing cost savings. SG&A as a percentage of net
sales increased behind higher marketing spending to support growth,
partially offset by lower foreign currency exchange costs. The tax
rate increase was due to a shift in the geographic mix of earnings to
countries with higher statutory tax rates.

In July 2011, P&G and Teva Pharmaceutical Industries Ltd. reached a
deﬁnitive agreement to create a partnership in consumer health care
by bringing together both companies’ existing over-the-counter
medicine businesses and complementary capabilities. The partnership
is expected to have over $1.0 billion in annual sales, only a portion of
which will be incremental to our Consolidated Financial Statements.
The Company expects the transaction to close by the end of the 2011
calendar year, pending necessary regulatory approvals.

Net sales increased 2% in 2010 to $11.5 billion on unit volume growth
of 3%. Price increases, taken mainly in developing regions to offset
currency devaluations, added 1% to net sales. Unfavorable mix
reduced net sales by 2% mainly due to disproportionate growth in

Management’s Discussion and Analysis

The Procter & Gamble Company 43

developing regions, which have lower than segment average selling
prices. Organic sales increased 2%. Volume grew mid-single digits in
developing regions and low single digits in developed regions. Oral
Care volume grew mid-single digits behind initiative activity in
Western Europe, Latin America and Asia. Personal Health Care volume
was up low single digits behind higher shipments of Vicks and diag-
nostic products, partially offset by a continuing decline of Prilosec OTC
in North America due to increased competitive activity. All-outlet value
share of the U.S. personal health care market declined 1-share point,
led by a 5-share point decline of Prilosec OTC’s share of the upper
stomach remedies segment. Feminine Care volume increased low single
digits behind initiative-driven growth of Always and expansion of
Naturella into China. Global market share of the feminine care category
was down about half a point.

Net earnings increased 1% to $1.9 billion for 2010 on higher net sales,
partially offset by a 10-basis point reduction in net earnings margin. Net
earnings margin contracted due to higher SG&A as a percentage of net
sales, partially offset by higher gross margin. SG&A as a percentage
of net sales increased due to higher marketing and overhead spending
and incremental foreign currency exchange costs. Gross margin grew
behind price increases, lower commodity costs and manufacturing
cost savings.

SNACKS AND PET CARE

($ millions)

Volume
Net sales
Net earnings

2011

Change vs.
Prior Year

n/a
$3,156
$ 241

+1%
+1%
-26%

2010

n/a
$3,135
$ 326

Change vs.
Prior Year

-2%
+1%
+39%

Snacks and Pet Care net sales increased 1% to $3.2 billion on a 1%
increase in unit volume. Organic sales, which exclude the impacts of
foreign exchange and the Natura acquisition, were down 5% on a 2%
decline in organic volume. Price decreases, through higher promo-
tional spending, reduced net sales growth by 1%. Favorable foreign
exchange positively impacted net sales growth by 1%. Snacks volume
increased high single digits mainly due to increased distribution in
CEEMEA and Latin America, as well as initiatives and incremental
merchandising activity. Global market share of the snacks category
was up slightly. Pet Care volume was down mid-single digits mainly
due to the impacts of the recall of select dry pet food products and
the supply constraints resulting from restructuring the supply chain
following the recalls, partially offset by the impact of the Natura
acquisition in June 2010. Excluding the Natura acquisition, Pet Care
volume decreased double digits. Global market share of the pet care
category was down half a point.

Net earnings decreased 26% to $241 million as sales growth was more
than offset by a 280-basis point decrease in net earnings margin.
Net earnings margin decreased due to operating margin contraction
partially offset by a lower effective tax rate. The operating margin
reduction was driven by lower gross margin and increased SG&A as
a percentage of net sales. Gross margin declined behind incremental
costs and reduced scale leverage related to the pet food recall and

supply chain restructuring efforts. SG&A as a percentage of net sales
increased due to costs related to the select dry pet food products
recall. The tax rate decrease was due to a shift in the geographic mix
of earnings to countries with lower statutory tax rates.

In April 2011, we announced plans to divest the Company’s Snacks
business through a merger with Diamond Foods, Inc. in an all-stock
Reverse Morris Trust transaction. The Snacks business had net sales
of approximately $1.5 billion and operating income of approximately
$200 million in ﬁscal 2011. The Company expects the transaction
to close by the end of the 2011 calendar year, pending necessary
regulatory approvals.

Net sales increased 1% in 2010 to $3.1 billion on a 2% decline in unit
volume. Price increases, taken primarily to offset prior-year commodity
cost increases, added 3% to net sales. Favorable foreign exchange
added 1% to net sales. Mix reduced net sales by 1% due to the dis-
continuation of certain premium snack products, which have higher
than segment average selling prices, and higher shipments of large
size pet products, which have lower than segment average selling
prices. Organic sales were in line with the prior year. Volume in Snacks
was down mid-single digits behind volume share losses driven by
lower merchandising activity in North America and the discontinuation
of certain premium snack products. Global market share of the snacks
category was down half a point versus the prior year. Volume in Pet
Care was up low single digits behind the continued success of product
initiatives, increased marketing support and incremental merchandising
activity.

Net earnings increased 39% to $326 million in 2010 driven by higher
net sales and a 290-basis point increase in net earnings margin. Net
earnings margin expanded due to higher gross margin and a lower
tax rate, partially offset by higher SG&A as a percentage of net sales.
Gross margin expanded behind price increases, commodity cost declines
and manufacturing cost savings. The tax rate declined due to a shift
in the geographic mix of earnings to countries with lower statutory
tax rates. SG&A as a percentage of net sales increased due to higher
marketing and overhead spending.

FABRIC CARE AND HOME CARE

($ millions)

Volume
Net sales
Net earnings

2011

n/a
$24,837
$ 3,009

Change vs.
Prior Year

+7%
+4%
-10%

2010

n/a
$23,805
$ 3,339

Change vs.
Prior Year

+6%
+3%
+10%

Fabric Care and Home Care net sales increased 4% to $24.8 billion
on a 7% increase in unit volume. Organic sales were up 3%. Organic
volume, which excludes the impact of the Ambi Pur acquisition,
increased 5%. Mix negatively impacted net sales growth by 2% due
to disproportionate growth of mid-tier product lines and powdered
laundry detergents, which have lower than segment average selling
prices. Unfavorable foreign exchange reduced net sales by 1%. Volume
in developing regions was up high single digits, while volume in
developed regions grew mid-single digits. Fabric Care volume increased

44 The Procter & Gamble Company

Management’s Discussion and Analysis

mid-single digits, led by high single-digit growth in developing regions
behind initiative activity, increased distribution and market growth.
Global market share of the fabric care category increased slightly.
Home Care volume increased double digits due, in part, to the Ambi
Pur acquisition. Organic volume in Home Care was up high single
digits driven mainly by initiative activity, including launches of Gain
hand dishwashing liquid and Febreze Set & Refresh in North America,
and geographic expansion of dish and air care product lines. Global
market share of the home care category was up nearly 1 point.
Batteries volume grew mid-single digits primarily due to price reductions
executed through pack count increases in North America, which were
implemented in January 2010, initiative activity in Western Europe and
market growth and distribution expansion in Asia. Global market share
of the batteries category increased more than half a point.

Net earnings decreased 10% to $3.0 billion as net sales growth was
more than offset by a 190-basis point decrease in net earnings margin.
Net earnings margin decreased mainly due to gross margin contraction.
SG&A as a percentage of net sales and the effective tax rate also
increased. Gross margin decreased mainly due to higher commodity
costs and unfavorable product mix behind disproportionate growth
of developing regions and mid-tier products, partially offset by manu-
facturing cost savings. SG&A as a percentage of net sales increased
behind higher overhead spending to support growth. The tax rate
increased due to a shift in the geographic mix of earnings to countries
with higher statutory tax rates.

Net sales increased 3% to $23.8 billion in 2010 on a 6% increase in
unit volume. Pricing reduced net sales by 1% as the impact of price
reductions to improve consumer value were partially offset by price
increases taken primarily in developing regions to offset currency
devaluations. Mix lowered net sales by 1% due mainly to unfavorable
geographic mix and a shift toward larger size products, which have
lower than segment average selling prices. Unfavorable foreign
exchange reduced net sales by 1%. Organic sales grew 4%. Volume
increased mid-single digits in both developed and developing regions.
Fabric Care volume grew mid-single digits behind new product
launches, price reductions and incremental merchandising activity.
Global market share of the fabric care category was down about half
a point. Home Care volume was up high single digits mainly due to
new product launches, media spending increases and market size
expansion. Global market share of the home care category was up
about half a point versus 2009. Batteries volume increased mid-single
digits primarily due to growth in Greater China, price reductions to
improve consumer value in North America and higher demand from
business customers.

Net earnings increased 10% to $3.3 billion in 2010 due to higher net
sales and a 90-basis point increase in net earnings margin. Net earnings
margin increased due to higher gross margin and a lower tax rate,
partially offset by an increase in SG&A as a percentage of net sales.
Gross margin increased mainly due to lower commodity costs and
manufacturing cost savings, while SG&A as a percentage of net sales
increased due to higher marketing spending. The tax rate declined
due to a shift in the geographic mix of earnings to countries with lower
statutory tax rates.

BABY CARE AND FAMILY CARE

($ millions)

Volume
Net sales
Net earnings

2011

n/a
$15,606
$ 1,978

Change vs.
Prior Year

+8%
+6%
-3%

2010

n/a
$14,736
$ 2,049

Change vs.
Prior Year

+7%
+4%
+16%

Baby Care and Family Care net sales increased 6% to $15.6 billion on
8% volume growth. Organic sales were up 7%. Mix reduced net sales
by 2% driven mainly by disproportionate growth of mid-tier product
lines, larger package sizes and developing regions, all of which have
lower than segment average selling prices. Pricing added 1% to net
sales growth primarily due to price increases executed in Baby Care
to offset higher commodity costs and foreign exchange. Unfavorable
foreign exchange negatively impacted net sales by 1%. Volume grew
double digits in developing regions and mid-single digits in developed
regions. Volume in Baby Care was up high single digits primarily due
to double-digit growth in developing regions behind initiative activity,
market size growth and distribution expansion. Global market share
of the baby care category increased over 1 point. Volume in Family
Care increased high single digits driven by the continued impact of
initiatives launched in prior periods, with high single-digit growth in
North America. In the U.S., all-outlet share of the family care category
increased half a point.

Net earnings decreased 3% to $2.0 billion as sales growth was more
than offset by a 120-basis point reduction in net earnings margin.
Net earnings margin declined mainly due to a lower gross margin,
partially offset by a decrease in SG&A as a percentage of net sales.
The reduction in gross margin was driven by higher commodity costs
and unfavorable product mix, behind disproportionate growth of
mid-tier product lines, larger package sizes and developing regions,
which were only partially offset by the favorable impact of volume
scale leverage and manufacturing cost savings. SG&A as a percentage
of net sales declined due to lower foreign currency exchange costs.

Net sales grew 4% to $14.7 billion in 2010 on 7% volume growth.
Pricing was in line with the prior year as the impact of price increases
primarily taken in developing regions to offset local currency devalua-
tions were offset by price reductions to improve consumer value.
Negative mix reduced net sales by 2% driven mainly by disproportionate
growth of mid-tier product lines, large count packs and developing
regions, all of which have lower than segment average selling prices.
Unfavorable foreign exchange reduced net sales by 1%. Organic sales
increased 5%. Volume grew double digits in developing regions and
mid-single digits in developed regions. Volume in Baby Care increased
high single digits behind incremental initiative activity, market size
expansion and price reductions to improve consumer value, primarily
in CEEMEA. Global share of the baby care market was up over half a
point. Volume in Family Care grew high single digits due to increased
merchandising and initiative activity, market growth and price reductions
to improve consumer value.

Management’s Discussion and Analysis

The Procter & Gamble Company 45

Net earnings increased 16% to $2.0 billion in 2010 behind net sales
growth and 140 basis points of net earnings margin expansion driven
by higher gross margin, partially offset by higher SG&A as a percentage
of net sales. Gross margin increased mainly due to lower commodity
costs and manufacturing cost savings. SG&A as a percentage of net
sales increased primarily behind incremental marketing investments
and higher foreign currency exchange costs.

Corporate
Corporate includes certain operating and non-operating activities not
allocated to speciﬁc business units. These include: the incidental
businesses managed at the corporate level; ﬁnancing and investing
activities; other general corporate items; the historical results of certain
divested brands and categories; and certain restructuring-type activities
to maintain a competitive cost structure, including manufacturing
and workforce optimization. Corporate also includes reconciling items
to adjust the accounting policies used in the segments to U.S. GAAP.
The most signiﬁcant reconciling items include income taxes (to adjust
from statutory rates that are reﬂected in the segments to the overall
Company effective tax rate), adjustments for unconsolidated entities
(to eliminate net sales, cost of products sold and SG&A for entities
that are consolidated in the segments but accounted for using the
equity method for U.S. GAAP) and noncontrolling interest adjustments
for subsidiaries where we do not have 100% ownership. Since certain
unconsolidated entities and less than 100%-owned subsidiaries are
managed as integral parts of the Company, they are accounted for
similar to a wholly-owned subsidiary for management and segment
purposes. This means our segment results recognize 100% of each
income statement component through before-tax earnings in the
segments, with eliminations for unconsolidated entities and noncon-
trolling interests in Corporate. In determining segment net earnings,
we apply the statutory tax rates (with adjustments to arrive at the
Company’s effective tax rate in Corporate) and eliminate the share of
earnings applicable to other ownership interests, in a manner similar
to noncontrolling interest.

Corporate net sales primarily reﬂect the adjustment to eliminate the
sales of unconsolidated entities included in business segment results.
Accordingly, Corporate net sales are generally a negative balance. In
2011, negative net sales in Corporate were down $98 million due to
adjustments required to eliminate sales of unconsolidated entities.
Net income from continuing operations increased $1.3 billion to
$456 million. The increase was due to current-period net discrete
adjustments to reverse reserves for uncertain tax positions, prior-period
charges for the taxation of certain future retiree prescription drug
subsidy payments in the U.S., lower current-period interest expense,
a reduction in restructuring-type charges, and current-year divestiture
gains. Additional discussion of the items impacting net income in
Corporate are included in the Results of Operations section.

In 2010, negative net sales in Corporate were up 2% mainly due to
adjustments required to eliminate sales of unconsolidated entities.
Net expenses from continuing operations increased $603 million to
$817 million. The increase was primarily due to 2010 charges for

competition law ﬁnes and for enacted legislation impacting the
taxation of certain future retiree prescription drug subsidy payments
in the U.S. and the impact of higher prior-period divestiture gains and
tax audit settlements. These impacts were partially offset by lower
interest expense and restructuring charges in 2010.

FINANCIAL CONDITION
We believe our ﬁnancial condition continues to be of high quality, as
evidenced by our ability to generate substantial cash from operations
and ready access to capital markets at competitive rates.

Operating cash ﬂow provides the primary source of funds to ﬁnance
operating needs and capital expenditures. Excess operating cash is
used ﬁrst to fund shareholder dividends. Other discretionary uses
include share repurchases and tack-on acquisitions to complement
our portfolio of brands and geographies. As necessary, we may
supplement operating cash ﬂow with debt to fund these activities.
The overall cash position of the Company reﬂects our strong business
results and a global cash management strategy that takes into account
liquidity management, economic factors and tax considerations.

Operating Activities
Operating cash ﬂow was $13.2 billion in 2011, an 18% decrease versus
the prior year. Operating cash ﬂow resulted primarily from net earnings
adjusted for non-cash items (depreciation and amortization, stock-
based compensation, deferred income taxes and gain on the sale of
businesses), partially offset by an increase in working capital. The net
of accounts receivable, inventory and accounts payable consumed
$569 million of operating cash ﬂow in 2011 mainly due to increases in
inventories and accounts receivables. Inventory consumed $501 million
driven by higher commodity costs, business growth and increased
stock levels in advance of initiatives and sourcing changes. Inventory
days on hand increased by ﬁve days due to the impact of foreign
exchange, higher commodity costs and increased safety stock levels.
Accounts receivable used $426 million primarily to support business
growth. Accounts receivable days sales outstanding were up three
days due to timing of sales and the impact of foreign exchange.
Inventory and accounts receivable increases were partially offset by
accounts payable, accrued and other liabilities, which increased to
support business growth. Other operating assets and liabilities were
also a signiﬁcant use of operating cash ﬂow due primarily to net
reductions in reserves for uncertain tax positions and an increase in
the amount of value added taxes due from various governmental
authorities. In the prior year, working capital was a net source of cash.

Operating cash ﬂow was $16.1 billion in 2010, an 8% increase versus
the prior year. Operating cash ﬂow resulted primarily from net earn-
ings adjusted for non-cash items (depreciation and amortization,
stock-based compensation, deferred income taxes and gain on the
sale of businesses) and a reduction in working capital. The increase in
operating cash ﬂow versus 2009 was primarily due to the 2010
reduction in working capital balances, partially offset by a decline in
earnings versus 2009. The net of accounts receivable, inventory, and
accounts payable contributed $2.5 billion to operating cash ﬂow in

46 The Procter & Gamble Company

Management’s Discussion and Analysis

2010 mainly due to an increase in accounts payable, accrued and other
liabilities. Accounts payable, accrued and other liabilities increased
primarily due to increased expenditures to support business growth,
primarily related to the increased marketing investments. Accounts
receivable days were down year over year due mainly to the global
pharmaceuticals divestiture and improved collection efforts. Inventory
contributed to operating cash ﬂow despite growth in the business
from a reduction in days on hand primarily due to inventory manage-
ment improvement efforts. Cash ﬂow from discontinued operations
contributed $285 million to operating cash ﬂow.

Free Cash Flow. We view free cash ﬂow as an important measure
because it is one factor impacting the amount of cash available for
dividends and discretionary investment. It is deﬁned as operating cash
ﬂow less capital expenditures and is one of the measures used to
evaluate senior management and determine their at-risk compensation.
Free cash ﬂow was $9.9 billion in 2011, a decrease of 24% versus the
prior year. Free cash ﬂow decreased due to lower operating cash ﬂow
and higher capital spending. Free cash ﬂow productivity, deﬁned as
the ratio of free cash ﬂow to net earnings, was 84% in 2011.

In 2010, free cash ﬂow was $13.0 billion an increase of 11% versus the
prior year. Free cash ﬂow increased due to higher operating cash ﬂow
and lower capital spending. Free cash ﬂow productivity was 102% in
2010. This included a negative 23% impact resulting from the global
pharmaceuticals divestiture, which increased net earnings and lowered
operating cash ﬂow due to tax payments on the divestiture gain.

FREE C ASH FLOW PRODUC TIVITY
(% of net earnings)

84%

87%

102%

Investing Activities
Net investing activities consumed $3.5 billion of cash in 2011 and
$597 million in 2010 mainly due to capital spending and acquisitions,
partially offset by proceeds from asset sales, including $3.0 billion in
cash received from the sale of our global pharmaceuticals business
in 2010.

Capital Spending. We view capital spending efﬁciency as a critical
component of our overall cash management strategy. We manage
capital spending to support our business growth plans and have cost
controls to deliver our cash generation targets. Capital expenditures,
primarily to support capacity expansion, innovation and cost savings,
were $3.3 billion in 2011 and $3.1 billion in 2010. The increase in capital
spending resulted primarily from capacity expansions. Capital spending
as a percentage of net sales increased 10 basis points to 4.0% in 2011.
Capital spending as a percentage of net sales decreased 30 basis points
to 3.9% in 2010 behind the scale leverage of net sales growth and a
reduction in capital spending.

CAPITAL SPENDING
(% of net sales)

4.0%

3.9%

4.2%

Acquisitions. Acquisitions used $474 million of cash in 2011 primarily
for the acquisition of Ambi Pur, an air freshener business. In 2010,
acquisitions used $425 million of cash primarily for the acquisition of
Natura, a leading producer and distributor of branded premium
natural pet foods.

Proceeds from Asset Sales. Proceeds from asset sales contributed
$225 million to cash in 2011 mainly due to the sale of our Infasil brand
in Western Europe and Zest brand in North America. In 2010, proceeds
from asset sales contributed $3.1 billion to cash mainly due to the sale
of our global pharmaceuticals business.

Financing Activities
Dividend Payments. Our ﬁrst discretionary use of cash is dividend
payments. Dividends per common share increased 9% to $1.97 per
share in 2011. Total dividend payments to common and preferred
shareholders were $5.8 billion in 2011 and $5.5 billion in 2010. The
increase in dividend payments resulted from increases in our quarterly
dividends per share, partially offset by a reduction in the number of
shares outstanding. In April 2011, the Board of Directors declared an
increase in our quarterly dividend from $0.4818 to $0.525 per share
on Common Stock and Series A and B ESOP Convertible Class A
Preferred Stock. This represents a 9% increase compared to the prior
quarterly dividend and is the 55th consecutive year that our dividend
has increased. We have paid a dividend in every year since our incor-
poration in 1890.

DIVIDENDS
(per common share)

$1.97

$1.80

$1.64

Long-Term and Short-Term Debt. We maintain debt levels we consider
appropriate after evaluating a number of factors, including cash ﬂow
expectations, cash requirements for ongoing operations, investment
and ﬁnancing plans (including acquisitions and share repurchase
activities) and the overall cost of capital. Total debt was $32.0 billion
in 2011 and $29.8 billion in 2010. Our total debt increased in 2011
mainly due to net debt issuances to fund general corporate purposes.

Treasury Purchases. Total share repurchases were $7.0 billion in 2011
and $6.0 billion in 2010.

Management’s Discussion and Analysis

The Procter & Gamble Company 47

Liquidity
Our current liabilities exceeded current assets by $5.3 billion, largely due to our commercial paper program. We anticipate being able to support
our short-term liquidity and operating needs largely through cash generated from operations. We utilize short- and long-term debt to fund
discretionary items such as acquisitions and share repurchases. We have strong short- and long-term debt ratings which have enabled and should
continue to enable us to reﬁnance our debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, we have
agreements with a diverse group of ﬁnancial institutions that, if needed, should provide sufﬁcient credit funding to meet short-term ﬁnancing
requirements.

On June 30, 2011, our short-term credit ratings were P-1 (Moody’s) and A-1+ (Standard & Poor’s), while our long-term credit ratings are Aa3
(Moody’s) and AA- (Standard & Poor’s), both with a stable outlook.

We maintain bank credit facilities to support our ongoing commercial paper program. These facilities can be extended for certain periods of time
as speciﬁed in, and in accordance with, the terms of each credit agreement. The current facility is an $11.0 billion facility split between a $7.0 billion
5-year facility and a $4.0 billion 364-day facility, which expire in August 2016 and August 2012, respectively. We anticipate that these facilities will
remain largely undrawn for the foreseeable future. These credit facilities do not have cross-default or ratings triggers, nor do they have material
adverse events clauses, except at the time of signing. In addition to these credit facilities, we have an automatically effective registration statement
on Form S-3 ﬁled with the SEC that is available for registered offerings of short- or long-term debt securities.

Guarantees and Other Off-Balance Sheet Arrangements
We do not have guarantees or other off-balance sheet ﬁnancing arrangements, including variable interest entities, which we believe could have
a material impact on ﬁnancial condition or liquidity.

Contractual Commitments
The following table provides information on the amount and payable date of our contractual commitments as of June 30, 2011.

($ millions)

RECORDED LIABILITIES
Total debt
Capital leases
Uncertain tax positions (1)

OTHER
Interest payments relating to long-term debt
Operating leases (2)
Minimum pension funding (3)
Purchase obligations (4)

TOTAL CONTRACTUAL COMMITMENTS

Total

Less Than
1 Year

1–3 Years

3–5 Years

$31,494
407
77

$ 9,933
46
77

$ 5,959
89
—

9,897
1,499
1,070
3,012
$47,456

1,002
264
391
1,351
$13,064

1,744
416
679
1,130
$10,017

$5,095
75
—

1,313
314
—
258
$7,055

After
5 Years

$10,507
197
—

5,838
505
—
273
$17,320

(1) As of June 30, 2011, the Company’s Consolidated Balance Sheet reﬂects a liability for uncertain tax positions of $2.4 billion, including $555 million of interest and penalties. Due to the high degree
of uncertainty regarding the timing of future cash outﬂows of liabilities for uncertain tax positions beyond one year, a reasonable estimate of the period of cash settlement beyond twelve months
from the balance sheet date of June 30, 2011 cannot be made.

(2) Operating lease obligations are shown net of guaranteed sublease income.

(3) Represents future pension payments to comply with local funding requirements. The projected payments beyond ﬁscal year 2014 are not currently determinable.

(4) Primarily reﬂects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations

represent future purchases in line with expected usage to obtain favorable pricing. Approximately 26% relates to service contracts for information technology, human resources management and
facilities management activities that have been outsourced. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if
the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do
not include obligations related to other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value
that are part of normal operations and are reﬂected in historical operating cash ﬂow trends. We do not believe such purchase obligations will adversely affect our liquidity position.

48 The Procter & Gamble Company

Management’s Discussion and Analysis

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
In preparing our ﬁnancial statements in accordance with U.S. GAAP,
there are certain accounting policies that may require a choice between
acceptable accounting methods or may require substantial judgment
or estimation in their application. These include income taxes, certain
employee beneﬁts and acquisitions, goodwill and intangible assets.
We believe these accounting policies, and others set forth in Note 1
to the Consolidated Financial Statements, should be reviewed as they
are integral to understanding the results of operations and ﬁnancial
condition of the Company.

in various jurisdictions. Although the resolution of these tax positions
is uncertain, based on currently available information, we believe that
the ultimate outcomes will not have a material adverse effect on our
ﬁnancial position, results of operations or cash ﬂows.

Because there are a number of estimates and assumptions inherent
in calculating the various components of our tax provision, certain
changes or future events such as changes in tax legislation, geographic
mix of earnings, completion of tax audits or earnings repatriation plans
could have an impact on those estimates and our effective tax rate.

The Company has discussed the selection of signiﬁcant accounting
policies and the effect of estimates with the Audit Committee of the
Company’s Board of Directors.

Income Taxes
Our annual tax rate is determined based on our income, statutory tax
rates and the tax impacts of items treated differently for tax purposes
than for ﬁnancial reporting purposes. Tax law requires certain items
be included in the tax return at different times than the items are
reﬂected in the ﬁnancial statements. Some of these differences are
permanent, such as expenses that are not deductible in our tax return,
and some differences are temporary, reversing over time, such as
depreciation expense. These temporary differences create deferred tax
assets and liabilities.

Deferred tax assets generally represent the tax effect of items that
can be used as a tax deduction or credit in future years for which we
have already recorded the tax beneﬁt in our income statement.
Deferred tax liabilities generally represent tax expense recognized in
our ﬁnancial statements for which payment has been deferred, the
tax effect of expenditures for which a deduction has already been
taken in our tax return but has not yet been recognized in our ﬁnancial
statements or assets recorded at fair value in business combinations
for which there was no corresponding tax basis adjustment.

Inherent in determining our annual tax rate are judgments regarding
business plans, planning opportunities and expectations about future
outcomes. Realization of certain deferred tax assets is dependent upon
generating sufﬁcient taxable income in the appropriate jurisdiction prior
to the expiration of the carryforward periods. Although realization is
not assured, management believes it is more likely than not that our
deferred tax assets, net of valuation allowances, will be realized.

We operate in multiple jurisdictions with complex tax policy and
regulatory environments. In certain of these jurisdictions, we may
take tax positions that management believes are supportable, but are
potentially subject to successful challenge by the applicable taxing
authority. These interpretational differences with the respective
governmental taxing authorities can be impacted by the local economic
and ﬁscal environment. We evaluate our tax positions and establish
liabilities in accordance with the applicable accounting guidance on
uncertainty in income taxes. We review these tax uncertainties in light
of changing facts and circumstances, such as the progress of tax audits,
and adjust them accordingly. We have a number of audits in process

Employee Benefits
We sponsor various post-employment beneﬁts throughout the world.
These include pension plans, both deﬁned contribution plans and
deﬁned beneﬁt plans, and other post-employment beneﬁt (OPEB)
plans, consisting primarily of health care and life insurance for retirees.
For accounting purposes, the deﬁned beneﬁt pension and OPEB plans
require assumptions to estimate the projected and accumulated
beneﬁt obligations, including the following variables: discount rate;
expected salary increases; certain employee-related factors, such as
turnover, retirement age and mortality; expected return on assets and
health care cost trend rates. These and other assumptions affect the
annual expense and obligations recognized for the underlying plans.
Our assumptions reﬂect our historical experiences and management’s
best judgment regarding future expectations. As permitted by U.S.
GAAP, the net amount by which actual results differ from our
assumptions is deferred. If this net deferred amount exceeds 10% of
the greater of plan assets or liabilities, a portion of the deferred amount
is included in expense for the following year. The cost or beneﬁt of
plan changes, such as increasing or decreasing beneﬁts for prior
employee service (prior service cost), is deferred and included in
expense on a straight-line basis over the average remaining service
period of the employees expected to receive beneﬁts.

The expected return on plan assets assumption impacts our deﬁned
beneﬁt expense, since many of our deﬁned beneﬁt pension plans and
our primary OPEB plan are funded. The process for setting the expected
rates of return is described in Note 8 to the Consolidated Financial
Statements. For 2011, the average return on assets assumptions for
pension plan assets and OPEB assets were 7.0% and 9.2%, respectively.
A change in the rate of return of 50 basis points for both pension
and OPEB assets would impact annual after-tax beneﬁt expense by
less than $50 million.

Since pension and OPEB liabilities are measured on a discounted basis,
the discount rate impacts our plan obligations and expenses. Discount
rates used for our U.S. deﬁned beneﬁt pension and OPEB plans are
based on a yield curve constructed from a portfolio of high quality bonds
for which the timing and amount of cash outﬂows approximate the
estimated payouts of the plan. For our international plans, the discount
rates are set by benchmarking against investment grade corporate
bonds rated AA or better. The average discount rate on the deﬁned
beneﬁt pension plans of 5.3% represents a weighted average of local
rates in countries where such plans exist. A 50 basis point change in
the discount rate would impact annual after-tax deﬁned beneﬁt pension

Management’s Discussion and Analysis

The Procter & Gamble Company 49

expense by less than $60 million. The average discount rate on the
OPEB plan of 5.7% reﬂects the higher interest rates generally applicable
in the U.S., which is where a majority of the plan participants receive
beneﬁts. A 50 basis point change in the discount rate would impact
annual after-tax OPEB expense by less than $35 million.

Acquisitions, Goodwill and Intangible Assets
We account for acquired businesses using the purchase method of
accounting. Under the purchase method, our Consolidated Financial
Statements reﬂect the operations of an acquired business starting
from the completion of the acquisition. In addition, the assets acquired
and liabilities assumed must be recorded at the date of acquisition
at their respective estimated fair values, with any excess of the pur-
chase price over the estimated fair values of the net assets acquired
recorded as goodwill.

Signiﬁcant judgment is required in estimating the fair value of intan-
gible assets and in assigning their respective useful lives. Accordingly,
we typically obtain the assistance of third-party valuation specialists
for signiﬁcant items. The fair value estimates are based on available
historical information and on future expectations and assumptions
deemed reasonable by management, but are inherently uncertain.

We typically use an income method to estimate the fair value of
intangible assets, which is based on forecasts of the expected future
cash ﬂows attributable to the respective assets. Signiﬁcant estimates
and assumptions inherent in the valuations reﬂect a consideration of
other marketplace participants, and include the amount and timing of
future cash ﬂows (including expected growth rates and proﬁtability),
the underlying product or technology life cycles, economic barriers to
entry, a brand’s relative market position and the discount rate applied
to the cash ﬂows. Unanticipated market or macroeconomic events and
circumstances may occur, which could affect the accuracy or validity
of the estimates and assumptions.

Determining the useful life of an intangible asset also requires judgment.
Certain brand intangibles are expected to have indeﬁnite lives based
on their history and our plans to continue to support and build the
acquired brands. Other acquired intangible assets (e.g., certain trade-
marks or brands, customer relationships, patents and technologies)
are expected to have determinable useful lives. Our assessment as to
brands that have an indeﬁnite life and those that have a determinable
life is based on a number of factors including competitive environment,
market share, brand history, underlying product life cycles, operating
plans and the macroeconomic environment of the countries in which
the brands are sold. Our estimates of the useful lives of determinable-
lived intangibles are primarily based on these same factors. All of our
acquired technology and customer-related intangibles are expected
to have determinable useful lives.

The costs of determinable-lived intangibles are amortized to expense
over their estimated life. The value of indeﬁnite-lived intangible assets
and residual goodwill is not amortized, but is tested at least annually
for impairment. Our impairment testing for goodwill is performed
separately from our impairment testing of indeﬁnite-lived intangibles.

We test goodwill for impairment by reviewing the book value com-
pared to the fair value at the reportable unit level. We test individual
indeﬁnite-lived intangibles by reviewing the individual book values
compared to the fair value. We determine the fair value of our report-
ing units and indeﬁnite-lived intangible assets based on the income
approach. Under the income approach, we calculate the fair value of
our reporting units and indeﬁnite-lived intangible assets based on the
present value of estimated future cash ﬂows. Considerable manage-
ment judgment is necessary to evaluate the impact of operating and
macroeconomic changes and to estimate future cash ﬂows to measure
fair value. Assumptions used in our impairment evaluations, such as
forecasted growth rates and cost of capital, are consistent with internal
projections and operating plans. We believe such assumptions and
estimates are also comparable to those that would be used by other
marketplace participants. When certain events or changes in operating
conditions occur, indeﬁnite-lived intangible assets may be reclassiﬁed
to a determinable life asset and an additional impairment assessment
may be performed. We did not recognize any material impairment
charges for goodwill or intangible assets during the years presented.

Our annual impairment testing for both goodwill and indeﬁnite-lived
intangible assets indicated that all reporting unit and indeﬁnite-lived
intangible asset fair values exceeded their respective recorded values.
However, future changes in the judgments, assumptions and estimates
that are used in our impairment testing for goodwill and indeﬁnite-
lived intangible assets, including discount and tax rates or future cash
ﬂow projections, could result in signiﬁcantly different estimates of the
fair values. A signiﬁcant reduction in the estimated fair values could
result in impairment charges that could materially affect the ﬁnancial
statements in any given year. The recorded value of goodwill and
intangible assets from recently acquired businesses are derived from
more recent business operating plans and macroeconomic environ-
mental conditions and therefore are more susceptible to an adverse
change that could require an impairment charge.

For example, the Gillette intangible and goodwill amounts represent
values as of a relatively more recent acquisition date, and as such,
the amounts are more susceptible to an impairment risk if business
operating results or macroeconomic conditions deteriorate. Gillette
indeﬁnite-lived intangible assets represent approximately 88% of the
$27.8 billion of indeﬁnite-lived intangible assets at June 30, 2011.
Goodwill allocated to stand-alone reporting units consisting primarily
of businesses purchased as part of the Gillette acquisition represents
42% of the $57.6 billion of goodwill at June 30, 2011. This includes
the Male Grooming and Appliance businesses, which are components
of the Grooming segment, and the Batteries business, which is part
of the Fabric Care and Home Care segment.

With the exception of our Appliances and Salon Professional businesses,
all of our other reporting units have fair values that signiﬁcantly
exceed recorded values. As noted above, the Appliances business was
acquired as part of the Gillette acquisition and is a stand-alone good-
will reporting unit. The Salon Professional business, which consists
primarily of operations acquired in the Wella acquisition, became a
new stand-alone goodwill reporting unit as of July 1, 2009, coinciding

50 The Procter & Gamble Company

Management’s Discussion and Analysis

with the organization change to the structure of the Beauty GBU.
These businesses represent some of our more discretionary consumer
spending categories. The Appliances business has goodwill of $1.6 billion,
while the Salon Professional business has goodwill of $885 million.
The estimated fair values of our Appliances and Salon Professional
businesses exceed their carrying values by approximately 10% and
30%, respectively. Because purchases in these categories are more
discretionary in nature, their operations and underlying fair values
were disproportionately impacted by the economic downturn that
began in ﬁscal 2009, which led to a reduction in home and personal
grooming appliance purchases and in visits to hair salons. Our valua-
tion of the Appliances and Salon Professional businesses has them
returning to sales and earnings growth rates consistent with our
long-term business plans. Failure to achieve these business plans or a
further deterioration of the macroeconomic conditions could result
in a valuation that would trigger an impairment of the goodwill and
intangible assets of these businesses.

New Accounting Pronouncements
There were no new accounting pronouncements issued or effective
during the ﬁscal year which have had or are expected to have a
material impact on the Consolidated Financial Statements. For a
discussion of new accounting pronouncements, see Note 1 to our
Consolidated Financial Statements.

OTHER INFORMATION

Hedging and Derivative Financial Instruments
As a multinational company with diverse product offerings, we are
exposed to market risks, such as changes in interest rates, currency
exchange rates and commodity prices. We evaluate exposures on a
centralized basis to take advantage of natural exposure correlation
and netting. Except within ﬁnancing operations, we leverage the
Company’s broadly diversiﬁed portfolio of exposures as a natural hedge
and prioritize operational hedging activities over ﬁnancial market
instruments. To the extent we choose to further manage volatility
associated with the net exposures, we enter into various ﬁnancial
transactions which we account for using the applicable accounting
guidance for derivative instruments and hedging activities. These
ﬁnancial transactions are governed by our policies covering acceptable
counterparty exposure, instrument types and other hedging practices.
Note 5 to the Consolidated Financial Statements includes a detailed
discussion of our accounting policies for ﬁnancial instruments.

Derivative positions can be monitored using techniques including
market valuation, sensitivity analysis and value-at-risk modeling. The
tests for interest rate, currency rate and commodity derivative positions
discussed below are based on the CorporateManager™ value-at-risk
model using a one-year horizon and a 95% conﬁdence level. The
model incorporates the impact of correlation (the degree to which
exposures move together over time) and diversiﬁcation (from holding
multiple currency, commodity and interest rate instruments) and
assumes that ﬁnancial returns are normally distributed. Estimates of
volatility and correlations of market factors are drawn from the

RiskMetrics™ dataset as of June 30, 2011. In cases where data is
unavailable in RiskMetrics™, a reasonable proxy is included.

Our market risk exposures relative to interest rates, currency rates and
commodity prices, as discussed below, have not changed materially
versus the previous reporting period. In addition, we are not aware
of any facts or circumstances that would signiﬁcantly impact such
exposures in the near term.

Interest Rate Exposure on Financial Instruments. Interest rate swaps
are used to hedge exposures to interest rate movement on underlying
debt obligations. Certain interest rate swaps denominated in foreign
currencies are designated to hedge exposures to currency exchange
rate movements on our investments in foreign operations. These
currency interest rate swaps are designated as hedges of the Company’s
foreign net investments.

Based on our overall interest rate exposure as of and during the year
ended June 30, 2011, including derivative and other instruments
sensitive to interest rates, we believe a near-term change in interest
rates, at a 95% conﬁdence level based on historical interest rate
movements, would not materially affect our ﬁnancial statements.

Currency Rate Exposure on Financial Instruments. Because we
manufacture and sell products and ﬁnance operations in a number
of countries throughout the world, we are exposed to the impact
on revenue and expenses of movements in currency exchange rates.
The primary purpose of our currency hedging activities is to manage
the volatility associated with short-term changes in exchange rates.
Corporate policy prescribes the range of allowable hedging activity. We
primarily use forward contracts with maturities of less than 18 months.
In addition, we enter into certain currency swaps with maturities of
up to ﬁve years to hedge our exposure to exchange rate movements
on intercompany ﬁnancing transactions.

Based on our overall currency rate exposure as of and during the year
ended June 30, 2011, we believe, at a 95% conﬁdence level based on
historical currency rate movements, the impact of a near-term change
in currency rates on derivative and other instruments would not
materially affect our ﬁnancial statements.

Commodity Price Exposure on Financial Instruments. We use raw
materials that are subject to price volatility caused by weather, supply
conditions, political and economic variables and other unpredictable
factors. In addition to ﬁxed price contracts, we may use futures,
options and swap contracts to manage the volatility related to the
above exposures.

Based on our overall commodity price exposure as of and during the
year ended June 30, 2011, we believe, at a 95% conﬁdence level based
on historical commodity price movements, the impact of a near-term
change in commodity prices on derivative and other instruments would
not materially affect our ﬁnancial statements.

Management’s Discussion and Analysis

The Procter & Gamble Company 51

provides a more comparable measure of year-on-year earnings per
share growth. Core EPS is also one of the measures used to evaluate
senior management and is a factor in determining their at-risk compen-
sation. The table below provides a reconciliation of reported diluted
net earnings per share from continuing operations to Core EPS:

Years ended June 30

2011

2010

2009

Diluted Net Earnings Per Share —

Continuing Operations

Settlement from U.S. Tax Litigation
Charges for Pending European

Legal Matters

Charge for Taxation of Retiree

Healthcare Subsidy

Incremental Folgers-related
Restructuring Charges

Rounding Impacts

CORE EPS
Core EPS Growth

$ 3.93
(0.08)

$ 3.53
—

$ 3.39
—

0.10

—

—
—
$ 3.95
8%

0.09

0.05

—
—
$ 3.67
6%

—

0.09
(0.01)
$ 3.47

Note — All reconciling items are presented net of tax. Tax effects are calculated consistent with
the nature of the underlying transaction. The signiﬁcant adjustment to an income tax reserve
was tax expense. There was no tax impact on EPS due to the charges for pending European
legal matters.

Free Cash Flow. Free cash ﬂow is deﬁned as operating cash ﬂow less
capital spending. We view free cash ﬂow as an important measure
because it is one factor in determining the amount of cash available
for dividends and discretionary investment. Free cash ﬂow is also one
of the measures used to evaluate senior management and is a factor
in determining their at-risk compensation.

Free Cash Flow Productivity. Free cash ﬂow productivity is deﬁned as
the ratio of free cash ﬂow to net earnings. Free cash ﬂow productivity
is also one of the measures used to evaluate senior management and is
a factor in determining their at-risk compensation.

The following table provides a numerical reconciliation of free cash
ﬂow and free cash ﬂow productivity:

($ millions)

2011
2010
2009

Operating
Cash Flow

$13,231
16,072
14,919

Capital
Spending

Free
Cash Flow

Net
Earnings

$(3,306) $ 9,925 $11,797
12,736
13,005
13,436
11,681

(3,067)
(3,238)

Free
Cash Flow
Productivity

84%
102%
87%

Measures Not Defined By U.S. GAAP
Our discussion of ﬁnancial results includes several “non-GAAP” ﬁnan-
cial measures. We believe these measures provide our investors with
additional information about our underlying results and trends, as
well as insight to some of the metrics used to evaluate management.
When used in MD&A, we have provided the comparable GAAP
measure in the discussion. These measures include:

Organic Sales Growth. Organic sales growth is a non-GAAP measure
of sales growth excluding the impacts of acquisitions, divestitures and
foreign exchange from year-over-year comparisons. We believe this
provides investors with a more complete understanding of underlying
sales trends by providing sales growth on a consistent basis. Organic
sales is also one of the measures used to evaluate senior management
and is a factor in determining their at-risk compensation.

The following tables provide a numerical reconciliation of organic
sales growth to reported net sales growth:

Year ended June 30, 2011

Beauty
Grooming
Health Care
Snacks and Pet Care
Fabric Care and Home Care
Baby Care and Family Care

TOTAL P&G

Year ended June 30, 2010

Beauty
Grooming
Health Care
Snacks and Pet Care
Fabric Care and Home Care
Baby Care and Family Care

TOTAL P&G

Net Sales
Growth

Foreign
Exchange
Impact

Acquisition
/
Divestiture
Impact
*

Organic
Sales
Growth

3%
5%
5%
1%
4%
6%
5%

-1%
0%
0%
-1%
1%
1%
0%

1%
0%
0%
-5%
-2%
0%
-1%

3%
5%
5%
-5%
3%
7%
4%

Net Sales
Growth

Foreign
Exchange
Impact

Acquisition
/
Divestiture
Impact
*

Organic
Sales
Growth

3%
3%
2%
1%
3%
4%
3%

0%
0%
0%
-1%
1%
1%
1%

0%
0%
0%
0%
0%
0%
-1%

3%
3%
2%
0%
4%
5%
3%

* Acquisition/Divestiture Impact includes rounding impacts necessary to reconcile net sales to

organic sales.

Core EPS. This is a measure of the Company’s diluted net earnings
per share from continuing operations excluding certain items that are
not judged to be part of the Company’s sustainable results or trends.
This includes a signiﬁcant beneﬁt in 2011 from the settlement of U.S. tax
litigation primarily related to the valuation of technology donations,
charges in both 2011 and 2010 related to pending European legal
matters, a 2010 charge related to a tax provision for retiree healthcare
subsidy payments in the U.S. healthcare reform legislation, and
incremental restructuring charges in 2009 to offset dilution caused by
the Folgers divestiture. We do not view these items to be part of our
sustainable results. We believe the Core EPS measure provides an
important perspective of underlying business trends and results and

52 The Procter & Gamble Company

Consolidated Statements of Earnings

Amounts in millions except per share amounts; Years ended June 30

2011

2010

2009

NET SALES
Cost of products sold
Selling, general and administrative expense

OPERATING INCOME
Interest expense
Other non-operating income/(expense), net

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
Income taxes on continuing operations

NET EARNINGS FROM CONTINUING OPERATIONS

NET EARNINGS FROM DISCONTINUED OPERATIONS

NET EARNINGS

BASIC NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations
Earnings from discontinued operations

BASIC NET EARNINGS PER COMMON SHARE

DILUTED NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations
Earnings from discontinued operations

DILUTED NET EARNINGS PER COMMON SHARE

DIVIDENDS PER COMMON SHARE

$82,559
40,768
25,973
15,818
831
202
15,189
3,392
11,797
—
$11,797

4.12
—
4.12

3.93
—
3.93
1.97

$78,938
37,919
24,998
16,021
946
(28)
15,047
4,101
10,946
1,790
$12,736

3.70
0.62
4.32

3.53
0.58
4.11
1.80

$76,694
38,690
22,630
15,374
1,358
397
14,413
3,733
10,680
2,756
$13,436

3.55
0.94
4.49

3.39
0.87
4.26
1.64

See accompanying Notes to Consolidated Financial Statements.

Consolidated Balance Sheets

Amounts in millions; June 30

Assets

CURRENT ASSETS
Cash and cash equivalents
Accounts receivable

INVENTORIES

Materials and supplies
Work in process
Finished goods
Total inventories
Deferred income taxes
Prepaid expenses and other current assets

TOTAL CURRENT ASSETS

PROPERTY, PLANT AND EQUIPMENT

Buildings
Machinery and equipment
Land

Total property, plant and equipment

Accumulated depreciation

NET PROPERTY, PLANT AND EQUIPMENT

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill
Trademarks and other intangible assets, net

NET GOODWILL AND OTHER INTANGIBLE ASSETS

OTHER NONCURRENT ASSETS

TOTAL ASSETS

Liabilities and Shareholders’ Equity

CURRENT LIABILITIES
Accounts payable
Accrued and other liabilities
Debt due within one year

TOTAL CURRENT LIABILITIES

LONG-TERM DEBT

DEFERRED INCOME TAXES

OTHER NONCURRENT LIABILITIES

TOTAL LIABILITIES

SHAREHOLDERS’ EQUITY
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)
Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)
Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2011 — 4,007.9, 2010 — 4,007.6)
Additional paid-in capital
Reserve for ESOP debt retirement
Accumulated other comprehensive income/(loss)
Treasury stock, at cost (shares held: 2011 — 1,242.2, 2010 — 1,164.1)
Retained earnings
Noncontrolling interest

TOTAL SHAREHOLDERS’ EQUITY

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

The Procter & Gamble Company 53

2011

2010

2,768 $
6,275

2,879
5,335

2,153
717
4,509
7,379
1,140
4,408
21,970

7,753
32,820
934
41,507
(20,214)
21,293

1,692
604
4,088
6,384
990
3,194
18,782

6,868
29,294
850
37,012
(17,768)
19,244

57,562
32,620
90,182
4,909

54,012
31,636
85,648
4,498
$138,354 $128,172

2011

2010

8,022 $
9,290
9,981
27,293
22,033
11,070
9,957
70,353

7,251
8,559
8,472
24,282
21,360
10,902
10,189
66,733

1,234
—
4,008
62,405
(1,357)
(2,054)
(67,278)
70,682
361
68,001

1,277
—
4,008
61,697
(1,350)
(7,822)
(61,309)
64,614
324
61,439
$138,354 $128,172

See accompanying Notes to Consolidated Financial Statements.

54 The Procter & Gamble Company

Consolidated Statements of Shareholders’ Equity

Dollars in millions/Shares in thousands

BALANCE JUNE 30, 2008
Net earnings
Other comprehensive income:

Financial statement translation
Hedges and investment

securities, net of $452 tax

Defined benefit retirement
plans, net of $879 tax
Total comprehensive income
Cumulative impact for adoption
of new accounting guidance (1)

Dividends to shareholders:

Common
Preferred, net of tax benefits

Treasury purchases
Employee plan issuances
Preferred stock conversions
Shares tendered for Folgers

coffee subsidiary
ESOP debt impacts
Noncontrolling interest
BALANCE JUNE 30, 2009
Net earnings
Other comprehensive income:

Financial statement translation
Hedges and investment

securities, net of $520 tax

Defined benefit retirement
plans, net of $465 tax
Total comprehensive income

Dividends to shareholders:

Common
Preferred, net of tax benefits

Treasury purchases
Employee plan issuances
Preferred stock conversions
ESOP debt impacts
Noncontrolling interest
BALANCE JUNE 30, 2010
Net earnings
Other comprehensive income:

Financial statement translation
Hedges and investment

securities, net of $711 tax
Defined benefit retirement
plans, net of $302 tax
Total comprehensive income

Dividends to shareholders:

Common
Preferred, net of tax benefits

Treasury purchases
Employee plan issuances
Preferred stock conversions
ESOP debt impacts
Noncontrolling interest
BALANCE JUNE 30, 2011

Additional
Common
Paid-In
Shares
Capital
Outstanding
3,032,717 $4,002 $1,366 $60,307

Preferred
Stock

Common
Stock

Reserve for
ESOP Debt
Retirement
$(1,325)

Accumulated
Other
Comprehensive
Income/(loss)
$ 3,746

(6,151)

748

(1,701)

(98,862)
16,841
4,992

(38,653)

(42)

804
7

(15)

2,917,035

4,007

1,324

61,118

(1,340)

(3,358)

(4,194)

867

(1,137)

Treasury
Stock

-
Non
controlling
Total
Interest
$290 $(47,588) $48,986 $69,784
13,436

Retained
Earnings

13,436

(6,151)

748

(1,701)
$ 6,332

(84)

(4,852)
(192)

(6,370)
428
35

(2,466)

(7)
283

(55,961)

57,309
12,736

(4,852)
(192)
(6,370)
1,237
—

(2,466)
—
(7)
63,382
12,736

(4,194)

867

(1,137)
$ 8,272

(96,759)
17,616
5,579

(47)

574
7

(10 )

(6,004)
616
40

2,843,471

4,008

1,277

(2)
61,697

(1,350)

(7,822 )

41
324

(61,309)

(5,239)
(219)

(5,239)
(219)
(6,004)
1,191
—
17
39
64,614
61,439
11,797 11,797

6,493

(1,178)

453

6,493

(1,178)

453
$17,565

(112,729)
29,729
5,266

—

(43)

702
6

—

(7)

2,765,737 $4,008 $1,234 $62,405 $(1,357)

$(2,054)

(5,534)
(233)

(5,534)
(233)
(7,039)
1,735
—
31
37
$361 $(67,278) $70,682 $68,001

(7,039)
1,033
37

(1) Cumulative impact of adopting new accounting guidance relates to split-dollar life insurance arrangements.

See accompanying Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows

Amounts in millions; Years ended June 30

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

OPERATING ACTIVITIES
Net earnings
Depreciation and amortization
Share-based compensation expense
Deferred income taxes
Gain on sale of businesses
Change in accounts receivable
Change in inventories
Change in accounts payable, accrued and other liabilities
Change in other operating assets and liabilities
Other

TOTAL OPERATING ACTIVITIES

INVESTING ACTIVITIES
Capital expenditures
Proceeds from asset sales
Acquisitions, net of cash acquired
Change in investments

TOTAL INVESTING ACTIVITIES

FINANCING ACTIVITIES
Dividends to shareholders
Change in short-term debt
Additions to long-term debt
Reductions of long-term debt
Treasury stock purchases
Impact of stock options and other

TOTAL FINANCING ACTIVITIES

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

CHANGE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, END OF YEAR

SUPPLEMENTAL DISCLOSURE
Cash payments for:

Interest
Income taxes

Assets acquired through non-cash capital leases
Divestiture of coffee business in exchange for shares of P&G stock

The Procter & Gamble Company 55

2011

2010

2009

$ 2,879

$ 4,781

$ 3,313

11,797
2,838
414
128
(203)
(426)
(501)
358
(1,190)
16
13,231

(3,306)
225
(474)
73
(3,482)

12,736
3,108
453
36
(2,670)
(14)
86
2,446
(305)
196
16,072

(3,067)
3,068
(425)
(173)
(597)

13,436
3,082
516
596
(2,377)
415
721
(742)
(758)
30
14,919

(3,238)
1,087
(368)
166
(2,353)

(5,767)
151
1,536
(206)
(7,039)
1,302
(10,023)
163
(111)
$ 2,768

(5,458)
(1,798)
3,830
(8,546)
(6,004)
721
(17,255)
(122)
(1,902)
$ 2,879

(5,044)
(2,420)
4,926
(2,587)
(6,370)
681
(10,814)
(284)
1,468
$ 4,781

806
2,992
13
—

$ 1,184
4,175
20
—

$ 1,226
3,248
8
2,466

See accompanying Notes to Consolidated Financial Statements.

56 The Procter & Gamble Company

Notes to Consolidated Financial Statements

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
The Procter & Gamble Company’s (the “Company,” “we” or “us”)
business is focused on providing branded consumer packaged goods
of superior quality and value. Our products are sold in more than
180 countries primarily through retail operations including mass
merchandisers, grocery stores, membership club stores, drug stores,
department stores, salons and high-frequency stores. We have on-the-
ground operations in approximately 80 countries.

Basis of Presentation
The Consolidated Financial Statements include the Company and its
controlled subsidiaries. Intercompany transactions are eliminated.

Use of Estimates
Preparation of ﬁnancial statements in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP)
requires management to make estimates and assumptions that affect
the amounts reported in the Consolidated Financial Statements and
accompanying disclosures. These estimates are based on manage-
ment’s best knowledge of current events and actions the Company may
undertake in the future. Estimates are used in accounting for, among
other items, consumer and trade promotion accruals, pensions, post-
employment beneﬁts, stock options, valuation of acquired intangible
assets, useful lives for depreciation and amortization of long-lived
assets, future cash ﬂows associated with impairment testing for
goodwill, indeﬁnite-lived intangible assets and other long-lived assets,
deferred tax assets, uncertain income tax positions and contingencies.
Actual results may ultimately differ from estimates, although manage-
ment does not generally believe such differences would materially
affect the ﬁnancial statements in any individual year. However, in regard to
ongoing impairment testing of goodwill and indeﬁnite-lived intangible
assets, signiﬁcant deterioration in future cash ﬂow projections or
other assumptions used in valuation models, versus those anticipated
at the time of the valuations, could result in impairment charges that
may materially affect the ﬁnancial statements in a given year.

Revenue Recognition
Sales are recognized when revenue is realized or realizable and has
been earned. Revenue transactions represent sales of inventory. The
revenue recorded is presented net of sales and other taxes we collect
on behalf of governmental authorities. The revenue includes shipping
and handling costs, which generally are included in the list price to
the customer. Our policy is to recognize revenue when title to the
product, ownership and risk of loss transfer to the customer, which can
be on the date of shipment or the date of receipt by the customer.
A provision for payment discounts and product return allowances is
recorded as a reduction of sales in the same period that the revenue
is recognized.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Trade promotions, consisting primarily of customer pricing allowances,
merchandising funds and consumer coupons, are offered through
various programs to customers and consumers. Sales are recorded net
of trade promotion spending, which is recognized as incurred, generally
at the time of the sale. Most of these arrangements have terms of
approximately one year. Accruals for expected payouts under these
programs are included as accrued marketing and promotion in the
accrued and other liabilities line item in the Consolidated Balance Sheets.

Cost of Products Sold
Cost of products sold is primarily comprised of direct materials and
supplies consumed in the manufacture of product, as well as manu-
facturing labor, depreciation expense and direct overhead expense
necessary to acquire and convert the purchased materials and supplies
into ﬁnished product. Cost of products sold also includes the cost to
distribute products to customers, inbound freight costs, internal transfer
costs, warehousing costs and other shipping and handling activity.

Selling, General and Administrative Expense
Selling, general and administrative expense (SG&A) is primarily comprised
of marketing expenses, selling expenses, research and development
costs, administrative and other indirect overhead costs, depreciation
and amortization expense on non-manufacturing assets and other
miscellaneous operating items. Research and development costs are
charged to expense as incurred and were $2,001 in 2011, $1,950 in
2010 and $1,864 in 2009. Advertising costs, charged to expense as
incurred, include worldwide television, print, radio, internet and
in-store advertising expenses and were $9,315 in 2011, $8,576 in 2010
and $7,519 in 2009. Non-advertising related components of the
Company’s total marketing spending include costs associated with
consumer promotions, product sampling and sales aids, all of which
are included in SG&A, as well as coupons and customer trade funds,
which are recorded as reductions to net sales.

Other Non-Operating Income/(Expense), Net
Other non-operating income/(expense), net, primarily includes net
divestiture gains, interest and investment income and the provision
for income attributable to noncontrolling interests.

Currency Translation
Financial statements of operating subsidiaries outside the United States
of America (U.S.) generally are measured using the local currency as
the functional currency. Adjustments to translate those statements
into U.S. dollars are recorded in other comprehensive income (OCI).
Currency translation adjustments in accumulated OCI were a gain of
$5,632 at June 30, 2011 and a loss of $861 at June 30, 2010. For
subsidiaries operating in highly inﬂationary economies, the U.S. dollar
is the functional currency. Remeasurement adjustments for ﬁnancial
statements in highly inﬂationary economies and other transactional
exchange gains and losses are reﬂected in earnings.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 57

Cash Flow Presentation
The Consolidated Statements of Cash Flows are prepared using the
indirect method, which reconciles net earnings to cash ﬂow from
operating activities. The reconciliation adjustments include the removal
of timing differences between the occurrence of operating receipts
and payments and their recognition in net earnings. The adjustments
also remove cash ﬂows arising from investing and ﬁnancing activities,
which are presented separately from operating activities. Cash ﬂows
from foreign currency transactions and operations are translated at an
average exchange rate for the period. Cash ﬂows from hedging activities
are included in the same category as the items being hedged. Cash
ﬂows from derivative instruments designated as net investment hedges
are classiﬁed as ﬁnancing activities. Realized gains and losses from
non-qualifying derivative instruments used to hedge currency exposures
resulting from intercompany ﬁnancing transactions are also classiﬁed
as ﬁnancing activities. Cash ﬂows from other derivative instruments
used to manage interest, commodity or other currency exposures are
classiﬁed as operating activities. Cash payments related to income taxes
are classiﬁed as operating activities.

Cash Equivalents
Highly liquid investments with remaining stated maturities of three
months or less when purchased are considered cash equivalents and
recorded at cost.

Investments
Investment securities consist of readily marketable debt and equity
securities. Unrealized gains or losses are charged to earnings for
investments classiﬁed as trading. Unrealized gains or losses on securities
classiﬁed as available-for-sale are generally recorded in shareholders’
equity. If an available-for-sale security is other than temporarily
impaired, the loss is charged to either earnings or shareholders’
equity depending on our intent and ability to retain the security until
we recover the full cost basis and the extent of the loss attributable to
the creditworthiness of the issuer. Investments in certain companies
over which we exert signiﬁcant inﬂuence, but do not control the
ﬁnancial and operating decisions, are accounted for as equity method
investments. Other investments that are not controlled, and over
which we do not have the ability to exercise signiﬁcant inﬂuence,
are accounted for under the cost method. Both equity and cost
method investments are included as other noncurrent assets in the
Consolidated Balance Sheets.

Inventory Valuation
Inventories are valued at the lower of cost or market value. Product-
related inventories are primarily maintained on the ﬁrst-in, ﬁrst-out
method. Minor amounts of product inventories, including certain
cosmetics and commodities, are maintained on the last-in, ﬁrst-out
method. The cost of spare part inventories is maintained using the
average cost method.

Property, Plant and Equipment
Property, plant and equipment is recorded at cost reduced by accu-
mulated depreciation. Depreciation expense is recognized over the
assets’ estimated useful lives using the straight-line method. Machinery
and equipment includes ofﬁce furniture and ﬁxtures (15-year life),
computer equipment and capitalized software (3- to 5-year lives) and
manufacturing equipment (3- to 20-year lives). Buildings are depreci-
ated over an estimated useful life of 40 years. Estimated useful lives
are periodically reviewed and, when appropriate, changes are made
prospectively. When certain events or changes in operating conditions
occur, asset lives may be adjusted and an impairment assessment
may be performed on the recoverability of the carrying amounts.

Goodwill and Other Intangible Assets
Goodwill and indeﬁnite-lived brands are not amortized, but are
evaluated for impairment annually or when indicators of a potential
impairment are present. Our impairment testing of goodwill is per-
formed separately from our impairment testing of indeﬁnite-lived
intangibles. The annual evaluation for impairment of goodwill and
indeﬁnite-lived intangibles is based on valuation models that incorporate
assumptions and internal projections of expected future cash ﬂows and
operating plans. We believe such assumptions are also comparable
to those that would be used by other marketplace participants.

We have acquired brands that have been determined to have indeﬁ-
nite lives due to the nature of our business. We evaluate a number of
factors to determine whether an indeﬁnite life is appropriate, including
the competitive environment, market share, brand history, product life
cycles, operating plans and the macroeconomic environment of the
countries in which the brands are sold. When certain events or changes
in operating conditions occur, an impairment assessment is performed
and indeﬁnite-lived brands may be adjusted to a determinable life.

The cost of intangible assets with determinable useful lives is amortized
to reﬂect the pattern of economic beneﬁts consumed, either on a
straight-line or accelerated basis over the estimated periods beneﬁted.
Patents, technology and other intangibles with contractual terms are
generally amortized over their respective legal or contractual lives.
Customer relationships, brands and other non-contractual intangible
assets with determinable lives are amortized over periods generally
ranging from 5 to 30 years. When certain events or changes in oper-
ating conditions occur, an impairment assessment is performed and
lives of intangible assets with determinable lives may be adjusted.

Fair Values of Financial Instruments
Certain ﬁnancial instruments are required to be recorded at fair value.
Changes in assumptions or estimation methods could affect the fair
value estimates; however, we do not believe any such changes would
have a material impact on our ﬁnancial condition, results of operations
or cash ﬂows. Other ﬁnancial instruments, including cash equivalents,
other investments and short-term debt, are recorded at cost, which
approximates fair value. The fair values of long-term debt and ﬁnancial
instruments are disclosed in Note 4 and Note 5, respectively.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

58 The Procter & Gamble Company

Notes to Consolidated Financial Statements

New Accounting Pronouncements and Policies
Other than as described below, no new accounting pronouncement
issued or effective during the ﬁscal year has had or is expected to
have a material impact on the Consolidated Financial Statements.

DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS

AND HEDGING ACTIVITIES
On January 1, 2009, we adopted new accounting guidance on disclo-
sures about derivative instruments and hedging activities. The new
guidance impacted disclosures only and requires additional qualitative
and quantitative information on the use of derivatives and their impact
on an entity’s ﬁnancial position, results of operations and cash ﬂows.
Refer to Note 5 for additional information regarding our risk manage-
ment activities, including derivative instruments and hedging activities.

BUSINESS COMBINATIONS
On July 1, 2009, we adopted new accounting guidance on business
combinations. The new guidance revised the method of accounting
for a number of aspects of business combinations including acquisi-
tion costs, contingencies (including contingent assets, contingent
liabilities and contingent purchase price) and post-acquisition exit
activities of acquired businesses. The adoption of the new guidance
did not have a material effect on our ﬁnancial position, results of
operations or cash ﬂows.

NONCONTROLLING INTERESTS IN CONSOLIDATED

FINANCIAL STATEMENTS
On July 1, 2009, we adopted new accounting guidance on noncontrol-
ling interests in consolidated ﬁnancial statements. The new accounting
guidance requires that a noncontrolling interest in the equity of a
subsidiary be accounted for and reported as equity, provides revised
guidance on the treatment of net income and losses attributable to
the noncontrolling interest and changes in ownership interests in a
subsidiary and requires additional disclosures that identify and
distinguish between the interests of the controlling and noncontrolling
owners. The Company’s retrospective adoption of the new guidance
on July 1, 2009, did not have a material effect on our ﬁnancial position,
results of operations or cash ﬂows. Net expense for income attribut-
able to the noncontrolling interests totaling $130 in 2011, $110 in
2010 and $86 in 2009 is not presented separately in the Consolidated
Statements of Earnings due to immateriality, but is reﬂected within
other non-operating income/(expense), net. After deduction of the
net expense for income attributable to noncontrolling interests, net
earnings represents net income attributable to the Company’s
common shareholders.

NOTE 2

GOODWILL AND INTANGIBLE ASSETS

The change in the net carrying amount of goodwill by reportable segment was as follows:

GOODWILL AT JUNE 30, 2009
Acquisitions and divestitures
Translation and other

GOODWILL AT JUNE 30, 2010
Acquisitions and divestitures
Translation and other

GOODWILL AT JUNE 30, 2011

Beauty

Grooming

Health Care

Snacks and
Pet Care

Fabric Care
and Home
Care

Baby Care
and Family
Care

Corporate

Total
Company

$18,668
18
(1,111)
17,575
(8)
1,501
19,068

$21,391
(35)
(972)
20,384
(6)
1,243
21,621

$8,404
(249)
(296)
7,859
(7)
327
8,179

$2,055
154
(6)
2,203
15
25
2,243

$4,408
(6)
(154)
4,248
100
241
4,589

$1,586
(1)
(140)
1,445
(1)
109
1,553

$ — $56,512
179
(2,679)
54,012
104
3,446
57,562

298
—
298
11
—
309

The increase in goodwill during ﬁscal 2011 was primarily due to currency translation across all reportable segments and the acquisition of Ambi Pur
in our Fabric Care and Home Care reportable segment. The decrease in goodwill during ﬁscal 2010 was primarily due to currency translation
across all reportable segments and the divestiture of the global pharmaceuticals business partially offset by the acquisitions of MDVIP, a physicians’
network focused on preventative medicine, and Natura, a leading producer and distributor of branded premium natural pet foods.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 59

Identiﬁable intangible assets were comprised of:

NOTE 4

2011

2010

Gross
Carrying
Amount

Accumulated
Amortization

Gross
Carrying
Amount

Accumulated
Amortization

June 30

INTANGIBLE ASSETS WITH
DETERMINABLE LIVES

Brands
Patents and technology
Customer relationships
Other

TOTAL

$ 3,392
3,195
2,121
335
9,043

$1,553 $ 3,284
3,140
1,947
304
8,675

1,840
602
217
4,212

$1,318
1,575
460
205
3,558

BRANDS WITH INDEFINITE

LIVES

TOTAL

27,789
36,832

— 26,519
35,194

4,212

—
3,558

The amortization of intangible assets was as follows:

Years ended June 30

Intangible asset amortization

2011

$546

2010

$601

2009

$648

Estimated amortization expense over the next ﬁve years is as follows:

Years ended June 30

2012

2013

2014

2015

2016

Estimated amortization expense

$499 $454 $393 $354 $324

Such estimates do not reﬂect the impact of future foreign exchange
rate changes.

NOTE 3

SUPPLEMENTAL FINANCIAL INFORMATION

Selected components of current and noncurrent liabilities were as
follows:

June 30

2011

2010

ACCRUED AND OTHER LIABILITIES — CURRENT
Marketing and promotion
Compensation expenses
Taxes payable
Legal and environmental
Other

TOTAL

OTHER NONCURRENT LIABILITIES
Pension benefits
Other postretirement benefits
Uncertain tax positions
Other

TOTAL

$3,058
1,874
786
885
2,687
9,290

$4,388
1,887
2,326
1,356
9,957

$ 2,857
1,822
622
500
2,758
8,559

$ 4,701
1,915
2,381
1,192
10,189

SHORT-TERM AND LONG-TERM DEBT

June 30

DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt
Commercial paper
Other
TOTAL

2011

2010

$2,994
6,950
37
9,981

$ 564
7,838
70
8,472

Short-term weighted average interest rates (1)

0.9%

0.4%

(1) Weighted average short-term interest rates include the effects of interest rate swaps

discussed in Note 5.

June 30

2011

2010

LONG-TERM DEBT
1.35% USD note due August 2011
4.88% EUR note due October 2011
1.38% USD note due August 2012
Floating rate note due November 2012
3.38% EUR note due December 2012
4.50% EUR note due May 2014
4.95% USD note due August 2014
3.50% USD note due February 2015
0.95% JPY note due May 2015
3.15% USD note due September 2015
1.80% USD note due November 2015
4.85% USD note due December 2015
5.13% EUR note due October 2017
4.70% USD note due February 2019
4.13% EUR note due December 2020
9.36% ESOP debentures due 2011–2021 (1)
4.88% EUR note due May 2027
6.25% GBP note due January 2030
5.50% USD note due February 2034
5.80% USD note due August 2034
5.55% USD note due March 2037
Capital lease obligations
All other long-term debt
Current portion of long-term debt
TOTAL

$ 1,000 $ 1,000
1,221
1,250
—
1,710
1,832
900
750
1,129
500
—
700
1,344
1,250
733
854
1,221
753
500
600
1,400
401
1,876
(564)
21,360

1,451
1,250
500
2,031
2,176
900
750
1,243
500
1,000
700
1,596
1,250
871
808
1,451
805
500
600
1,400
407
1,838
(2,994)
22,033

Fair value of long-term debt
Long-term weighted average interest rates (2)

23,418
3.4%

23,072
3.6%

(1) Debt issued by the ESOP is guaranteed by the Company and must be recorded as debt of the

Company as discussed in Note 8.

(2) Weighted average long-term interest rates include the effects of interest rate swaps and net

investment hedges discussed in Note 5.

Long-term debt maturities during the next ﬁve years are as follows:

June 30

2012

2013

2014

2015

2016

Debt maturities

$2,994 $3,839 $2,229 $3,021 $2,300

The Procter & Gamble Company fully and unconditionally guarantees
the registered debt and securities issued by its 100% owned ﬁnance
subsidiaries.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

60 The Procter & Gamble Company

Notes to Consolidated Financial Statements

NOTE 5

RISK MANAGEMENT ACTIVITIES AND
FAIR VALUE MEASUREMENTS

As a multinational company with diverse product offerings, we are
exposed to market risks, such as changes in interest rates, currency
exchange rates and commodity prices. We evaluate exposures on a
centralized basis to take advantage of natural exposure correlation and
netting. To the extent we choose to manage volatility associated with
the net exposures, we enter into various ﬁnancial transactions which we
account for using the applicable accounting guidance for derivative
instruments and hedging activities. These ﬁnancial transactions are
governed by our policies covering acceptable counterparty exposure,
instrument types and other hedging practices.

At inception, we formally designate and document qualifying instruments
as hedges of underlying exposures. We formally assess, at inception and
at least quarterly, whether the ﬁnancial instruments used in hedging
transactions are effective at offsetting changes in either the fair value
or cash ﬂows of the related underlying exposure. Fluctuations in the
value of these instruments generally are offset by changes in the value
or cash ﬂows of the underlying exposures being hedged. This offset
is driven by the high degree of effectiveness between the exposure
being hedged and the hedging instrument. The ineffective portion of
a change in the fair value of a qualifying instrument is immediately
recognized in earnings. The amount of ineffectiveness recognized is
immaterial for all years presented.

Credit Risk Management
We have counterparty credit guidelines and generally enter into
transactions with investment grade ﬁnancial institutions. Counterparty
exposures are monitored daily and downgrades in counterparty credit
ratings are reviewed on a timely basis. Credit risk arising from the
inability of a counterparty to meet the terms of our ﬁnancial instrument
contracts generally is limited to the amounts, if any, by which the
counterparty’s obligations to us exceed our obligations to the counter-
party. We have not incurred, and do not expect to incur, material
credit losses on our risk management or other ﬁnancial instruments.

Certain of the Company’s ﬁnancial instruments used in hedging
transactions are governed by industry standard netting agreements
with counterparties. If the Company’s credit rating were to fall below
the levels stipulated in the agreements, the counterparties could
demand either collateralization or termination of the arrangement.
The aggregate fair value of the instruments covered by these con-
tractual features that are in a net liability position as of June 30, 2011,
was $143. The Company has never been required to post collateral as
a result of these contractual features.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Interest Rate Risk Management
Our policy is to manage interest cost using a mixture of ﬁxed-rate and
variable-rate debt. To manage this risk in a cost-efﬁcient manner, we
enter into interest rate swaps whereby we agree to exchange with the
counterparty, at speciﬁed intervals, the difference between ﬁxed and
variable interest amounts calculated by reference to a notional amount.

Interest rate swaps that meet speciﬁc accounting criteria are accounted
for as fair value or cash ﬂow hedges. For fair value hedges, the changes
in the fair value of both the hedging instruments and the underlying
debt obligations are immediately recognized in interest expense. For
cash ﬂow hedges, the effective portion of the changes in fair value
of the hedging instrument is reported in OCI and reclassiﬁed into
interest expense over the life of the underlying debt. The ineffective
portion for both cash ﬂow and fair value hedges, which is not material
for any year presented, is immediately recognized in earnings.

Foreign Currency Risk Management
We manufacture and sell our products and ﬁnance operations in a
number of countries throughout the world and, as a result, are exposed
to movements in foreign currency exchange rates. The purpose of
our foreign currency hedging program is to manage the volatility
associated with short-term changes in exchange rates.

To manage this exchange rate risk, we have historically utilized a
combination of forward contracts, options and currency swaps. As of
June 30, 2011, we had currency swaps with maturities up to ﬁve years,
which are intended to offset the effect of exchange rate ﬂuctuations
on intercompany loans denominated in foreign currencies. These swaps
are accounted for as cash ﬂow hedges. The effective portion of the
changes in fair value of these instruments is reported in OCI and
reclassiﬁed into earnings in the same ﬁnancial statement line item
and in the same period or periods during which the related hedged
transactions affect earnings. The ineffective portion, which is not
material for any year presented, is immediately recognized in earnings.

The change in value of certain non-qualifying instruments used to
manage foreign exchange exposure of intercompany ﬁnancing
transactions and certain balance sheet items subject to revaluation
is immediately recognized in earnings, substantially offsetting the
foreign currency mark-to-market impact of the related exposure.

Net Investment Hedging
We hedge certain net investment positions in foreign subsidiaries.
To accomplish this, we either borrow directly in foreign currencies
and designate all or a portion of foreign currency debt as a hedge of
the applicable net investment position or enter into foreign currency
swaps that are designated as hedges of our related foreign net invest-
ments. Changes in the fair value of these instruments are immediately
recognized in OCI to offset the change in the value of the net
investment being hedged. Currency effects of these hedges reﬂected
in OCI were an after-tax loss of $1,176 and an after-tax gain of $789
in 2011 and 2010, respectively. Accumulated net balances were after-
tax losses of $4,446 and $3,270 as of June 30, 2011 and 2010,
respectively.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 61

Commodity Risk Management
Certain raw materials used in our products or production processes are subject to price volatility caused by weather, supply conditions, political
and economic variables and other unpredictable factors. To manage the volatility related to anticipated purchases of certain of these materials, we
may, on a limited basis, use futures and options with maturities generally less than one year and swap contracts with maturities up to ﬁve years.
These market instruments generally are designated as cash ﬂow hedges. The effective portion of the changes in fair value of these instruments
is reported in OCI and reclassiﬁed into earnings in the same ﬁnancial statement line item and in the same period or periods during which the
hedged transactions affect earnings. The ineffective and non-qualifying portions, which are not material for any year presented, are immediately
recognized in earnings.

Insurance
We self-insure for most insurable risks. However, we purchase insurance for Directors and Ofﬁcers Liability and certain other coverage in situations
where it is required by law, by contract or deemed to be in the best interest of the Company.

Fair Value Hierarchy
Accounting guidance on fair value measurements for certain ﬁnancial assets and liabilities requires that ﬁnancial assets and liabilities carried at
fair value be classiﬁed and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs reﬂecting the reporting entity’s own assumptions or external inputs from inactive markets.

When applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and
minimize the use of unobservable inputs. We calculate the fair value of our Level 1 and Level 2 instruments based on the exchange traded price
of similar or identical instruments where available or based on other observable inputs. The fair value of our Level 3 instruments is calculated as the
net present value of expected cash ﬂows based on externally provided or obtained inputs. Certain Level 3 assets may also be based on sales prices
of similar assets. Our fair value calculations take into consideration the credit risk of both the Company and our counterparties. The Company has
not changed its valuation techniques used in measuring the fair value of any ﬁnancial assets and liabilities during the year.

The following table sets forth the Company’s ﬁnancial assets and liabilities as of June 30, 2011 and 2010 that were measured at fair value on a
recurring basis during the period, segregated by level within the fair value hierarchy:

June 30

ASSETS AT FAIR VALUE:
Investment securities
Derivatives relating to:

Foreign currency hedges
Other foreign currency instruments (1)
Interest rates
Net investment hedges
Commodities

TOTAL ASSETS AT FAIR VALUE (2)

LIABILITIES AT FAIR VALUE:
Derivatives relating to:

Foreign currency hedges
Other foreign currency instruments (1)
Net investment hedges
Commodities

TOTAL LIABILITIES AT FAIR VALUE (3)

Level 1

Level 2

Level 3

Total

2011

2010

2011

2010

2011

2010

2011

2010

$16

$12

$ —

$23

$45

$ 39

$ 57

—
—
—
—
—
16

—
—
—
—
—

—
—
—
—
—
12

—
—
—
—
—

1
182
163
—
4
350

119
43
138
1
301

—
81
191
14
10
296

177
175
23
—
375

—
—
—
—
—
23

—
—
—
—
—

—
—
—
—
—
45

—
—
—
—
—

1
182
163
—
4
389

119
43
138
1
301

—
81
191
14
10
353

177
175
23
—
375

(1) Other foreign currency instruments are comprised of foreign currency ﬁnancial instruments that do not qualify as hedges.

(2) Investment securities are presented in other noncurrent assets and all derivative assets are presented in prepaid expenses and other current assets or other noncurrent assets.

(3) All liabilities are presented in accrued and other liabilities or other noncurrent liabilities.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

62 The Procter & Gamble Company

Notes to Consolidated Financial Statements

The effective portion of gains and losses on derivative instruments
that was recognized in other comprehensive income during the years
ended June 30, 2011 and 2010 is not material. During the next 12
months, the amount of the June 30, 2011, accumulated OCI balance
that will be reclassiﬁed to earnings is expected to be immaterial.

The amounts of gains and losses on qualifying and non-qualifying
ﬁnancial instruments used in hedging transactions for the years ended
June 30, 2011 and 2010 are as follows:

Years ended June 30

DERIVATIVES IN CASH FLOW
HEDGING RELATIONSHIPS

Interest rate contracts
Foreign currency contracts
Commodity contracts

TOTAL

Years ended June 30

DERIVATIVES IN FAIR VALUE

HEDGING RELATIONSHIPS (2)

Interest rate contracts
Debt

TOTAL

DERIVATIVES IN NET INVESTMENT
HEDGING RELATIONSHIPS (2)

Net investment hedges

DERIVATIVES NOT DESIGNATED
AS HEDGING INSTRUMENTS (3)

Foreign currency contracts (4)
Commodity contracts

TOTAL

Amount of Gain/(Loss)
Reclassified from
Accumulated
OCI into Income (1)

2011

2010

$ 7
(77)
20
(50)

(8)
(48)
(76)
(132)

Amount of Gain/(Loss)
Recognized in Income

2011

2010

(28)
31
3

$ 191
(196)
(5)

—

1,359
3
1,362

(814)
1
(813)

(1) The gain or loss on the effective portion of cash ﬂow hedging relationships is reclassiﬁed
from accumulated OCI into net income in the same period during which the related item
affects earnings. Such amounts are included in the Consolidated Statements of Earnings
as follows: interest rate contracts in interest expense, foreign currency contracts in selling,
general and administrative and interest expense, and commodity contracts in cost of
products sold.

(2) The gain or loss on the ineffective portion of interest rate contracts and net investment

hedges, if any, is included in the Consolidated Statements of Earnings in interest expense.

(3) The gain or loss on contracts not designated as hedging instruments is included in the
Consolidated Statements of Earnings as follows: foreign currency contracts in selling,
general and administrative expense and commodity contracts in cost of products sold.

(4) The gain or loss on non-qualifying foreign currency contracts substantially offsets the foreign

currency mark-to-market impact of the related exposure.

The Company recognizes transfers between levels within the fair value
hierarchy, if any, at the end of each quarter. There was no signiﬁcant
activity within the Level 3 ﬁnancial assets and liabilities during the years
presented. There were no signiﬁcant assets or liabilities that were
re-measured at fair value on a non-recurring basis during the years
ended June 30, 2011 and 2010.

Disclosures about Derivative Instruments
The notional amounts and fair values of qualifying and non-qualifying
ﬁnancial instruments used in hedging transactions as of June 30, 2011
and 2010 are as follows:

June 30

2011

2010

2011

2010

Notional Amount

Fair Value Asset/(Liability)

DERIVATIVES IN CASH
FLOW HEDGING
RELATIONSHIPS
Interest rate contracts
Foreign currency contracts
Commodity contracts

TOTAL

— $ — $ — $ —
(177)
10
(167)

(118)
4
(114)

690
43
733

831
16
847

DERIVATIVES IN FAIR
VALUE HEDGING
RELATIONSHIPS
Interest rate contracts

DERIVATIVES IN NET

INVESTMENT HEDGING
RELATIONSHIPS

10,308

7,942

163

191

Net investment hedges

1,540

1,586

(138)

(9)

DERIVATIVES NOT
DESIGNATED
AS HEDGING
INSTRUMENTS

Foreign currency contracts
Commodity contracts

TOTAL

14,957
39
14,996

11,845
19
11,864

139
(1)
138

(94)
—
(94)

The total notional amount of contracts outstanding at the end of the
period is indicative of the level of the Company’s derivative activity
during the period.

June 30

DERIVATIVES IN CASH FLOW
HEDGING RELATIONSHIPS

Interest rate contracts
Foreign currency contracts
Commodity contracts

TOTAL

DERIVATIVES IN NET INVESTMENT

HEDGING RELATIONSHIPS

Net investment hedges

Amount of Gain/(Loss)
Recognized in
Accumulated OCI
on Derivatives
(Effective Portion)

2011

2010

$ 15
32
3
50

$19
23
11
53

(88)

(8)

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 63

NOTE 6

EARNINGS PER SHARE

NOTE 7

STOCK-BASED COMPENSATION

Net earnings less preferred dividends (net of related tax beneﬁts) are
divided by the weighted average number of common shares out-
standing during the year to calculate basic net earnings per common
share. Diluted net earnings per common share are calculated to give
effect to stock options and other stock-based awards (see Note 7)
and assume conversion of preferred stock (see Note 8).

Net earnings and common shares used to calculate basic and diluted
net earnings per share were as follows:

Years ended June 30

2011

2010

2009

NET EARNINGS FROM

CONTINUING OPERATIONS
Preferred dividends, net of tax

benefit

NET EARNINGS FROM

CONTINUING OPERATIONS
AVAILABLE TO COMMON
SHAREHOLDERS

Preferred dividends, net of tax

benefit

DILUTED NET EARNINGS FROM
CONTINUING OPERATIONS
Net earnings from discontinued

operations

NET EARNINGS

$11,797

$10,946

$10,680

(233)

(219)

(192)

11,564

10,727

10,488

233

219

192

11,797

10,946

10,680

—
11,797

1,790
12,736

2,756
13,436

Shares in millions; Years ended June 30

2011

2010

2009

Basic weighted average common

shares outstanding

2,804.0

2,900.8

2,952.2

We have stock-based compensation plans under which we annually
grant stock option, restricted stock, restricted stock unit (RSU) and
performance stock unit (PSU) awards to key managers and directors.
Exercise prices on options granted have been, and continue to be, set
equal to the market price of the underlying shares on the date of the
grant. Since September 2002, the key manager stock option awards
granted are vested after three years and have a 10-year life. The key
manager stock option awards granted from July 1998 through August
2002 vested after three years and have a 15-year life. Key managers
can elect to receive up to 50% of the value of their option award in
RSUs. Key manager RSUs are vested and settled in shares of common
stock ﬁve years from the grant date. The awards provided to the
Company’s directors are in the form of restricted stock and RSUs.
In addition to our key manager and director grants, we make other
minor stock option and RSU grants to employees for which the terms
are not substantially different. In 2011, we implemented a performance
stock program (PSP) and granted PSUs to senior level executives. Under
this program, the number of PSUs that will vest three years after the
respective grant date is based on the Company’s performance relative
to pre-established performance goals during that three year period.

A total of 180 million shares of common stock were authorized for
issuance under stock-based compensation plans approved by share-
holders in 2003 and 2009. The number of shares available for award
under the 2009 plan includes the shares previously authorized but not
awarded under the shareholder approved plan in 2001 and the shares
available for issuance under a plan approved by Gillette shareholders
in 2004. A total of 122 million shares remain available for grant under
the 2003 and 2009 plans.

Effect of dilutive securities
Conversion of preferred

shares (1)

Exercise of stock options and

other unvested equity
awards (2)

DILUTED WEIGHTED AVERAGE

COMMON SHARES
OUTSTANDING

128.5

134.0

139.2

69.4

64.5

62.7

3,001.9

3,099.3

3,154.1

Total stock-based compensation expense for stock option grants was
$358, $417 and $460 for 2011, 2010 and 2009, respectively. Total
compensation cost for restricted stock, RSUs and PSUs was $56, $36
and $56 in 2011, 2010 and 2009, respectively. The total income tax
beneﬁt recognized in the income statement for stock options, restricted
stock, RSUs and PSUs was $117, $118 and $137 in 2011, 2010 and
2009, respectively.

(1) Despite being included currently in diluted net earnings per common share, the actual

conversion to common stock occurs pursuant to the repayment of the ESOPs’ obligations
through 2035.

(2) Approximately 93 million in 2011, 101 million in 2010 and 92 million in 2009 of the

Company’s outstanding stock options were not included in the diluted net earnings per
share calculation because the options were out of the money or to do so would have
been antidilutive (i.e., the total proceeds upon exercise would have exceeded the market
value of the underlying common shares).

In calculating the compensation expense for stock options granted,
we utilize a binomial lattice-based valuation model. Assumptions
utilized in the model, which are evaluated and revised, as necessary,
to reﬂect market conditions and experience, were as follows:

Years ended June 30

2011

2010

2009

Interest rate
Weighted average interest rate
Dividend yield
Expected volatility
Weighted average volatility
Expected life in years

3.7%
2.2%

3.4%
2.4%

0.3–3.7% 0.3–4.0% 0.7–3.8%
3.6%
2.0%
14–18% 15–20% 18–34%
21%
8.7

16%
8.8

18%
8.8

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

64 The Procter & Gamble Company

Notes to Consolidated Financial Statements

NOTE 8

POSTRETIREMENT BENEFITS AND
EMPLOYEE STOCK O WNERSHIP PLAN

We offer various postretirement beneﬁts to our employees.

Defined Contribution Retirement Plans
We have deﬁned contribution plans which cover the majority of our
U.S. employees, as well as employees in certain other countries.
These plans are fully funded. We generally make contributions to
participants’ accounts based on individual base salaries and years of
service. Total global deﬁned contribution expense was $347, $344
and $364 in 2011, 2010 and 2009, respectively.

The primary U.S. deﬁned contribution plan (the U.S. DC plan) com-
prises the majority of the balances and expense for the Company’s
deﬁned contribution plans. For the U.S. DC plan, the contribution rate
is set annually. Total contributions for this plan approximated 15% of
total participants’ annual wages and salaries in 2011, 2010 and 2009.

We maintain The Procter & Gamble Proﬁt Sharing Trust (Trust) and
Employee Stock Ownership Plan (ESOP) to provide a portion of the
funding for the U.S. DC plan and other retiree beneﬁts. Operating
details of the ESOP are provided at the end of this Note. The fair
value of the ESOP Series A shares allocated to participants reduces
our cash contribution required to fund the U.S. DC plan.

Defined Benefit Retirement Plans and Other Retiree Benefits
We offer deﬁned beneﬁt retirement pension plans to certain employ-
ees. These beneﬁts relate primarily to local plans outside the U.S. and,
to a lesser extent, plans assumed in previous acquisitions covering
U.S. employees.

We also provide certain other retiree beneﬁts, primarily health care
and life insurance, for the majority of our U.S. employees who
become eligible for these beneﬁts when they meet minimum age and
service requirements. Generally, the health care plans require cost
sharing with retirees and pay a stated percentage of expenses,
reduced by deductibles and other coverages. These beneﬁts are
primarily funded by ESOP Series B shares and certain other assets
contributed by the Company.

Lattice-based option valuation models incorporate ranges of assump-
tions for inputs and those ranges are disclosed in the preceding table.
Expected volatilities are based on a combination of historical volatility of
our stock and implied volatilities of call options on our stock. We use
historical data to estimate option exercise and employee termination
patterns within the valuation model. The expected life of options
granted is derived from the output of the option valuation model and
represents the average period of time that options granted are expected
to be outstanding. The interest rate for periods within the contractual
life of the options is based on the U.S. Treasury yield curve in effect at
the time of grant.

A summary of options outstanding under the plans as of June 30, 2011,
and activity during the year then ended is presented below:

Options in thousands

Options

Outstanding,

.
Weighted Avg
Exercise Price

Weighted Avg
.
Remaining
Contractual
Life in Years

Aggregate
Intrinsic Value
(in millions)

beginning of year 364,971
29,141
(29,065)
(1,873)

Granted
Exercised
Canceled
OUTSTANDING,
END OF YEAR

363,174
271,096

EXERCISABLE

$50.16
62.85
42.55
57.81

51.75
49.69

5.3
4.2

$4,398
3,837

The weighted average grant-date fair value of options granted was
$11.09, $13.47 and $11.67 per share in 2011, 2010 and 2009, respectively.
The total intrinsic value of options exercised was $628, $342 and
$434 in 2011, 2010 and 2009, respectively. The total grant-date fair
value of options that vested during 2011, 2010 and 2009 was $445,
$563 and $537, respectively. We have no speciﬁc policy to repurchase
common shares to mitigate the dilutive impact of options; however,
we have historically made adequate discretionary purchases, based
on cash availability, market trends and other factors, to satisfy stock
option exercise activity.

At June 30, 2011, there was $372 of compensation cost that has not yet
been recognized related to stock option grants. That cost is expected
to be recognized over a remaining weighted average period of 1.8 years.
At June 30, 2011, there was $98 of compensation cost that has not
yet been recognized related to restricted stock, RSUs and PSUs. That
cost is expected to be recognized over a remaining weighted average
period of 3.0 years.

Cash received from options exercised was $1,237, $703 and $639 in
2011, 2010 and 2009, respectively. The actual tax beneﬁt realized for
the tax deductions from option exercises totaled $188, $89 and $146
in 2011, 2010 and 2009, respectively.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 65

Obligation and Funded Status. The following provides a reconciliation
of beneﬁt obligations, plan assets and funded status of these deﬁned
beneﬁt plans:

Years ended June 30

2011

2010

2011

2010

Pension Benefits (1)

Other Retiree Benefits (2)

The underfunding of pension beneﬁts is primarily a function of the
different funding incentives that exist outside of the U.S. In certain
countries, there are no legal requirements or ﬁnancial incentives
provided to companies to pre-fund pension obligations prior to their
due date. In these instances, beneﬁt payments are typically paid
directly from the Company’s cash as they become due.

CHANGE IN BENEFIT

OBLIGATION

Benefit obligation at

beginning of year (3)

Service cost
Interest cost
Participants’ contributions
Amendments
Actuarial loss/(gain)
Acquisitions/(divestitures)
Curtailments and
settlements

Special termination benefits
Currency translation

and other

Benefit payments
BENEFIT OBLIGATION
AT END OF YEAR (3)

CHANGE IN PLAN ASSETS
Fair value of plan assets
at beginning of year

Actual return on plan assets
Acquisitions/(divestitures)
Employer contributions
Participants’ contributions
Currency translation

and other

ESOP debt impacts (4)
Benefit payments
FAIR VALUE OF PLAN

$11,245 $10,016 $ 4,778 $ 3,928
103
253
58
—
633
—

218
579
19
66
1,738
(13)

146
270
67
7
(235)
—

270
588
21
93
(633)
—

—
—

4
—

—
3

—
14

1,137
(492)

(798)
(584)

89
(239)

30
(241)

12,229

11,245

4,886

4,778

6,562
685
—
555
21

631
—
(492)

6,310
839
(6)
439
19

(455)
—
(584)

2,843
253
—
29
67

2
20
(239)

2,394
596
—
22
58

—
14
(241)

ASSETS AT END OF YEAR

FUNDED STATUS

7,962
(4,267)

6,562
(4,683)

2,975
(1,911)

2,843
(1,935)

(1) Primarily non-U.S.-based deﬁned beneﬁt retirement plans.

(2) Primarily U.S.-based other postretirement beneﬁt plans.

Years ended June 30

2011

2010

2011

2010

Pension Benefits

Other Retiree Benefits

CLASSIFICATION OF NET
AMOUNT RECOGNIZED

Noncurrent assets
168
Current liability
(47)
Noncurrent liability
(4,388)
NET AMOUNT RECOGNIZED (4,267)
AMOUNTS RECOGNIZED IN
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(AOCI)

56 $ — $ —
(20)
(38)
(24)
(1,915)
(4,701)
(1,887)
(1,935)
(4,683)
(1,911)

Net actuarial loss
Prior service cost/(credit)
NET AMOUNTS

RECOGNIZED IN AOCI

CHANGE IN PLAN ASSETS

AND BENEFIT
OBLIGATIONS
RECOGNIZED IN
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(AOCI)

Net actuarial loss/(gain) —

current year

Prior service cost —

current year

Amortization of net
actuarial loss

Amortization of prior service

(cost) / credit

Settlement / curtailment cost
Currency translation and

other

TOTAL CHANGE IN AOCI

2,315
354

3,038
275

2,181
(92)

2,319
(119)

2,669

3,313

2,089

2,200

(827)

1,343

(60)

491

(154)

(18)
—

(91)

(15)
(3)

262
(644)

(190)
1,110

20
(111)

—

(96)

(20)

18
—

21
—

—
492

(3) For the pension beneﬁt plans, the beneﬁt obligation is the projected beneﬁt obligation. For
other retiree beneﬁt plans, the beneﬁt obligation is the accumulated postretirement beneﬁt
obligation.

NET AMOUNTS

RECOGNIZED IN PERIODIC
BENEFIT COST AND AOCI

(106)

1,579

(124)

349

(4) Represents the net impact of ESOP debt service requirements, which is netted against plan

assets for other retiree beneﬁts.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

66 The Procter & Gamble Company

Notes to Consolidated Financial Statements

The accumulated beneﬁt obligation for all deﬁned beneﬁt retirement
pension plans was $10,436 and $9,708 as of June 30, 2011 and 2010,
respectively. Pension plans with accumulated beneﬁt obligations in
excess of plan assets and plans with projected beneﬁt obligations in
excess of plan assets consist of the following:

Accumulated Benefit
Obligation Exceeds the
Fair Value of Plan Assets

Projected Benefit
Obligation Exceeds the
Fair Value of Plan Assets

June 30

2011

2010

2011

2010

Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets

$6,817 $10,577 $10,650 $11,059
9,531
6,320

8,940
6,214

5,923
2,845

9,194
5,900

Net Periodic Beneﬁt Cost. Components of the net periodic beneﬁt
cost were as follows:

Pension Benefits

Other Retiree Benefits

2011

2010

2009

2011

2010

2009

$ 270 $ 218 $ 214 $ 146 $ 103 $ 91
243

270

588

579

551

253

(492)

(437)

(473)

(431)

(429)

(444)

154

(18)

(21)

(23)

—

Years ended June 30

Service cost
Interest cost
Expected return on

plan assets

Prior service cost/(credit)

amortization
Net actuarial loss
amortization

Curtailments,
settlements
and other
GROSS BENEFIT
COST/(CREDIT)
Dividends on ESOP
preferred stock

—

— (79)

(83)

(86)

NET PERIODIC BENEFIT

COST/(CREDIT)

538

469

341

(13)

(143)

(217)

Amounts expected to be amortized from accumulated OCI into net
periodic beneﬁt cost during the year ending June 30, 2012, are as
follows:

Net actuarial loss
Prior service cost/(credit)

Pension
Benefits

$105
23

Other
Retiree
Benefits

$ 99
(20)

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Assumptions. We determine our actuarial assumptions on an annual
basis. These assumptions are weighted to reﬂect each country that
may have an impact on the cost of providing retirement beneﬁts.
The weighted average assumptions for the deﬁned beneﬁt and other
retiree beneﬁt calculations, as well as assumed health care trend rates,
were as follows:

Years ended June 30

2011

2010

2011

2010

Pension Benefits

Other Retiree Benefits

ASSUMPTIONS USED TO
DETERMINE BENEFIT
OBLIGATIONS (1)

Discount rate
Rate of compensation increase
ASSUMPTIONS USED TO

DETERMINE NET PERIODIC
BENEFIT COST (2)

Discount rate
Expected return on plan assets
Rate of compensation increase
ASSUMED HEALTH CARE COST

TREND RATES

Health care cost trend rates
assumed for next year

Rate to which the health care

cost trend rate is assumed to
decline (ultimate trend rate)
Year that the rate reaches the

ultimate trend rate

(1) Determined as of end of year.

5.3% 5.0%
3.5% 3.5%

5.7% 5.4%
—

—

5.0% 6.0%
7.0% 7.1%
3.5% 3.7%

5.4% 6.4%
9.2% 9.1%
—

—

— 8.5% 8.5%

— 5.0% 5.0%

—

2018

2017

Several factors are considered in developing the estimate for the long-
term expected rate of return on plan assets. For the deﬁned beneﬁt
retirement plans, these factors include historical rates of return of
broad equity and bond indices and projected long-term rates of return
obtained from pension investment consultants. The expected long-
term rates of return for plan assets are 8–9% for equities and 5–6%
for bonds. For other retiree beneﬁt plans, the expected long-term rate
of return reﬂects the fact that the assets are comprised primarily of
Company stock. The expected rate of return on Company stock is based
on the long-term projected return of 9.5% and reﬂects the historical
pattern of favorable returns.

Assumed health care cost trend rates could have a signiﬁcant effect
on the amounts reported for the other retiree beneﬁt plans. A one-
percentage point change in assumed health care cost trend rates would
have the following effects:

One-Percentage
Point Increase

One-Percentage
Point Decrease

Effect on total of service and interest cost

components

Effect on postretirement benefit obligation

$ 79
681

$ (61)
(547)

538

469

341

(60)

(131)

(2) Determined as of beginning of year and adjusted for acquisitions.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 67

Plan Assets. Our target asset allocation for the year ended June 30, 2011, and actual asset allocation by asset category as of June 30, 2011 and
2010, were as follows:

Asset Category

Cash
Debt securities
Equity securities

TOTAL

Target Asset Allocation

Actual Asset Allocation at June 30

Pension
Benefits

2%
51%
47%
100%

Other
Retiree
Benefits

2%
8%
90%
100%

Pension Benefits

Other
Retiree Benefits

2011

2%
52%
46%
100%

2010

4%
53%
43%
100%

2011

1%
8%
91%
100%

2010

—
9%
91%
100%

The following table sets forth the fair value of the Company’s plan assets as of June 30, 2011, segregated by level within the fair value hierarchy
(refer to Note 5 for further discussion on the fair value hierarchy and fair value principles):

ASSETS AT FAIR VALUE:
Cash and cash equivalents
Government bonds
Company stock
Common collective trust fund — equity
Common collective trust fund — fixed income
Other

TOTAL ASSETS AT FAIR VALUE

Level 1

Level 2

Level 3

Total

2011

2010

2011

2010

2011

2010

2011

2010

Pension Benefits

$189
68
11
—
—
—
268

$238
62
12
—
—
—
312

$ —
—
—
3,612
4,027
—
7,639

$ —
—
—
2,814
3,380
—
6,194

$ —
—
—
—
—
55
55

$— $ 189
68
11
3,612
4,027
55
7,962

—
—
—
—
56
56

$ 238
62
12
2,814
3,380
56
6,562

Level 1

Level 2

Level 3

Total

2011

2010

2011

2010

2011

2010

2011

2010

Other Retiree Benefits

ASSETS AT FAIR VALUE:
Cash and cash equivalents
Company stock
Common collective trust fund — equity
Common collective trust fund — fixed income
Other

TOTAL ASSETS AT FAIR VALUE

$43
—
—
—
—
43

$14
—
—
—
—
14

$ —
2,655
41
232
—
2,928

$ —
2,535
43
249
—
2,827

$ —
—
—
—
4
4

$— $

43
2,655
41
232
4
2,975

14
2,535
43
249
2
2,843

—
—
—
2
2

There was no signiﬁcant activity within the Level 3 pension and other retiree beneﬁts plan assets during the years presented.

Our investment objective for deﬁned beneﬁt retirement plan assets is to meet the plans’ beneﬁt obligations, while minimizing the potential for
future required Company plan contributions. The investment strategies focus on asset class diversiﬁcation, liquidity to meet beneﬁt payments and
an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by matching the actuarial
projections of the plans’ future liabilities and beneﬁt payments with expected long-term rates of return on the assets, taking into account invest-
ment return volatility and correlations across asset classes. Plan assets are diversiﬁed across several investment managers and are generally
invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets
rebalanced to target allocations on a periodic basis and continual monitoring of investment managers’ performance relative to the investment
guidelines established with each investment manager.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

68 The Procter & Gamble Company

Notes to Consolidated Financial Statements

Cash Flows. Management’s best estimate of cash requirements for
the deﬁned beneﬁt retirement plans and other retiree beneﬁt plans
for the year ending June 30, 2012, is approximately $391 and $25,
respectively. For the deﬁned beneﬁt retirement plans, this is comprised
of $146 in expected beneﬁt payments from the Company directly to
participants of unfunded plans and $245 of expected contributions
to funded plans. For other retiree beneﬁt plans, this is comprised of
expected contributions that will be used directly for beneﬁt payments.
Expected contributions are dependent on many variables, including
the variability of the market value of the plan assets as compared to
the beneﬁt obligation and other market or regulatory conditions. In
addition, we take into consideration our business investment oppor-
tunities and resulting cash requirements. Accordingly, actual funding
may differ signiﬁcantly from current estimates.

Total beneﬁt payments expected to be paid to participants, which
include payments funded from the Company’s assets, as discussed
above, as well as payments from the plans, are as follows:

Years ending June 30

EXPECTED BENEFIT PAYMENTS
2012
2013
2014
2015
2016
2017–2021

Pension
Benefits

$ 534
535
560
573
605
3,494

Other
Retiree
Benefits

$ 207
225
242
259
275
1,631

share is convertible at the option of the holder into one share of the
Company’s common stock. The dividend for the current year was equal
to the common stock dividend of $1.97 per share. The liquidation value
is $12.96 per share.

Our ESOP accounting practices are consistent with current ESOP
accounting guidance, including the permissible continuation of certain
provisions from prior accounting guidance. ESOP debt, which is
guaranteed by the Company, is recorded as debt (see Note 4) with
an offset to the reserve for ESOP debt retirement, which is presented
within shareholders’ equity. Advances to the ESOP by the Company
are recorded as an increase in the reserve for ESOP debt retirement.
Interest incurred on the ESOP debt is recorded as interest expense.
Dividends on all preferred shares, net of related tax beneﬁts, are charged
to retained earnings.

The series A and B preferred shares of the ESOP are allocated to
employees based on debt service requirements, net of advances made
by the Company to the Trust. The number of preferred shares out-
standing at June 30 was as follows:

Shares in thousands

Allocated
Unallocated

TOTAL SERIES A

Allocated
Unallocated

TOTAL SERIES B

2011

52,281
13,006
65,287

20,759
40,090
60,849

2010

54,542
14,762
69,304

20,752
41,347
62,099

2009

56,818
16,651
73,469

20,991
42,522
63,513

Employee Stock Ownership Plan
We maintain the ESOP to provide funding for certain employee beneﬁts
discussed in the preceding paragraphs.

For purposes of calculating diluted net earnings per common share,
the preferred shares held by the ESOP are considered converted from
inception.

The ESOP borrowed $1.0 billion in 1989 and the proceeds were used
to purchase Series A ESOP Convertible Class A Preferred Stock to fund
a portion of the U.S. DC plan. Principal and interest requirements of
the borrowing were paid by the Trust from dividends on the preferred
shares and from advances provided by the Company. The original
borrowing of $1.0 billion has been repaid in full, and advances from the
Company of $144 remain outstanding at June 30, 2011. Each share is
convertible at the option of the holder into one share of the Company’s
common stock. The dividend for the current year was equal to the
common stock dividend of $1.97 per share. The liquidation value is
$6.82 per share.

In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds
were used to purchase Series B ESOP Convertible Class A Preferred Stock
to fund a portion of retiree health care beneﬁts. These shares, net of
the ESOP’s debt, are considered plan assets of the other retiree beneﬁts
plan discussed above. Debt service requirements are funded by pre-
ferred stock dividends, cash contributions and advances provided by
the Company, of which $405 is outstanding at June 30, 2011. Each

NOTE 9

INCOME TAXES

Income taxes are recognized for the amount of taxes payable for the
current year and for the impact of deferred tax assets and liabilities,
which represent future tax consequences of events that have been
recognized differently in the ﬁnancial statements than for tax pur-
poses. Deferred tax assets and liabilities are established using the
enacted statutory tax rates and are adjusted for any changes in such
rates in the period of change.

Earnings from continuing operations before income taxes consisted
of the following:

Years ended June 30

United States
International

TOTAL

2011

2010

2009

$ 8,983
6,206
15,189

$ 8,368
6,679
15,047

$ 8,409
6,004
14,413

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 69

Income taxes on continuing operations consisted of the following:

Years ended June 30

2011

2010

2009

A reconciliation of the beginning and ending liability for uncertain tax
positions is as follows:

CURRENT TAX EXPENSE
U.S. federal
International
U.S. state and local

DEFERRED TAX EXPENSE
U.S. federal
International and other

TOTAL TAX EXPENSE

$1,809
1,188
266
3,263

205
(76)
129
3,392

$2,154
1,616
295
4,065

253
(217)
36
4,101

$1,619
1,268
229
3,116

595
22
617
3,733

A reconciliation of the U.S. federal statutory income tax rate to our
actual income tax rate on continuing operations is provided below:

Years ended June 30

U.S. federal statutory
income tax rate

Country mix impacts of
foreign operations
Changes in uncertain

tax positions

Patient Protection and
Affordable Care Act

Other

EFFECTIVE INCOME TAX RATE

2011

2010

2009

35.0%

(8.0)%

(7.5)%

(7.1)%

(3.5)%

(0.4)%

(1.3)%

0.0%
(1.2)%
22.3%

1.0%
(0.8)%
27.3%

0.0%
(0.7)%
25.9%

Changes in uncertain tax positions represent changes in our net
liability related to prior year tax positions.

In March 2010, the Patient Protection and Affordable Care Act (PPACA)
was signed into law. One of the provisions of the PPACA changed the
taxability of federal subsidies received by plan sponsors that provide
retiree prescription drug beneﬁts at least equivalent to Medicare Part D
coverage. As a result of the change in taxability of the federal subsidy,
we were required to make adjustments to deferred tax asset balances,
resulting in a $152 charge to income tax expense in 2010.

Tax beneﬁts credited to shareholders’ equity totaled $510 and $5 for
the years ended June 30, 2011 and 2010, respectively. These primarily
relate to the tax effects of net investment hedges, excess tax beneﬁts
from the exercise of stock options and the impacts of certain adjust-
ments to pension and other retiree beneﬁt obligations recorded in
shareholders’ equity.

We have undistributed earnings of foreign subsidiaries of approximately
$35 billion at June 30, 2011, for which deferred taxes have not been
provided. Such earnings are considered indeﬁnitely invested in the
foreign subsidiaries. If such earnings were repatriated, additional tax
expense may result, although the calculation of such additional taxes
is not practicable.

BEGINNING OF YEAR
Increases in tax positions for prior years
Decreases in tax positions for prior years
Increases in tax positions for current year
Settlements with taxing authorities
Lapse in statute of limitations
Currency translation

END OF YEAR

2011

2010

2009

$1,797
323
(388)
222
(168)
(94)
156
1,848

$2,003
128
(146)
193
(216)
(45)
(120)
1,797

$2,582
116
(485)
225
(172)
(68)
(195)
2,003

The Company is present in over 150 taxable jurisdictions and, at any
point in time, has 50–60 audits underway at various stages of comple-
tion. We evaluate our tax positions and establish liabilities for uncertain
tax positions that may be challenged by local authorities and may not
be fully sustained, despite our belief that the underlying tax positions
are fully supportable. Uncertain tax positions are reviewed on an
ongoing basis and are adjusted in light of changing facts and circum-
stances, including progress of tax audits, developments in case law
and closing of statute of limitations. Such adjustments are reﬂected in
the tax provision as appropriate. The Company is making a concerted
effort to bring its audit inventory to a more current position. We
have done this by working with tax authorities to conduct audits for
several open years at once. We have tax years open ranging from 2002
and forward. We are generally not able to reliably estimate the ultimate
settlement amounts until the close of the audit. While we do not expect
material changes, it is possible that the amount of unrecognized
beneﬁt with respect to our uncertain tax positions will signiﬁcantly
increase or decrease within the next 12 months related to the audits
described above. At this time, we are not able to make a reasonable
estimate of the range of impact on the balance of uncertain tax
positions or the impact on the effective tax rate related to these items.

Included in the total liability for uncertain tax positions at June 30, 2011,
is $1,424 that, depending on the ultimate resolution, could impact the
effective tax rate in future periods.

We recognize accrued interest and penalties related to uncertain tax
positions in income tax expense. As of June 30, 2011, 2010 and 2009,
we had accrued interest of $475, $622 and $636 and penalties of
$80, $89 and $100, respectively, that are not included in the above
table. During the ﬁscal years ended June 30, 2011, 2010 and 2009,
we recognized $(197), $38 and $119 in interest expense/(beneﬁt) and
$(16), $(8) and $(4) in penalties expense/(beneﬁt), respectively.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

70 The Procter & Gamble Company

Notes to Consolidated Financial Statements

Deferred income tax assets and liabilities were comprised of the
following:

June 30

2011

2010

DEFERRED TAX ASSETS
Pension and postretirement benefits
Stock-based compensation
Loss and other carryforwards
Goodwill and other intangible assets
Accrued marketing and promotion
Fixed assets
Unrealized loss on financial and foreign

exchange transactions
Accrued interest and taxes
Inventory
Other
Valuation allowances

TOTAL

DEFERRED TAX LIABILITIES
Goodwill and other intangible assets
Fixed assets
Other

TOTAL

$ 1,406
1,284
874
298
217
111

$ 1,717
1,257
595
312
216
102

770
28
52
834
(293)
5,581

88
88
35
773
(120)
5,063

12,206
1,742
211
14,159

11,760
1,642
269
13,671

Net operating loss carryforwards were $2,663 and $1,875 at June 30,
2011 and 2010, respectively. If unused, $1,019 will expire between 2012
and 2031. The remainder, totaling $1,644 at June 30, 2011, may be
carried forward indeﬁnitely.

NOTE 10

COMMITMENTS AND CONTINGENCIES

Guarantees
In conjunction with certain transactions, primarily divestitures, we may
provide routine indemniﬁcations (e.g., indemniﬁcation for representa-
tions and warranties and retention of previously existing environmental,
tax and employee liabilities) for which terms range in duration and, in
some circumstances, are not explicitly deﬁned. The maximum obligation
under some indemniﬁcations is also not explicitly stated and, as a
result, the overall amount of these obligations cannot be reasonably
estimated. Other than obligations recorded as liabilities at the time of
divestiture, we have not made signiﬁcant payments for these indem-
niﬁcations. We believe that if we were to incur a loss on any of these
matters, the loss would not have a material effect on our ﬁnancial
position, results of operations or cash ﬂows.

In certain situations, we guarantee loans for suppliers and customers.
The total amount of guarantees issued under such arrangements is
not material.

Off-Balance Sheet Arrangements
We do not have off-balance sheet ﬁnancing arrangements, including
variable interest entities, that have a material impact on our ﬁnancial
statements.

Purchase Commitments and Operating Leases
We have purchase commitments for materials, supplies, services and
property, plant and equipment as part of the normal course of business.
Commitments made under take-or-pay obligations are as follows:

June 30

2012

2013

2014

2015

2016 Thereafter

Purchase obligations $1,351 $762 $368 $154 $104

$273

Such amounts represent future purchases in line with expected usage
to obtain favorable pricing. Approximately 26% of our purchase
commitments relate to service contracts for information technology,
human resources management and facilities management activities
that have been outsourced to third-party suppliers. Due to the propri-
etary nature of many of our materials and processes, certain supply
contracts contain penalty provisions for early termination. We do not
expect to incur penalty payments under these provisions that would
materially affect our ﬁnancial position, results of operations or cash ﬂows.

We also lease certain property and equipment for varying periods.
Future minimum rental commitments under non-cancelable operating
leases, net of guaranteed sublease income, are as follows:

June 30

2012

2013

2014

2015

2016 Thereafter

Operating leases

$264 $224 $192 $173 $141

$505

Litigation
We are subject to various legal proceedings and claims arising out
of our business which cover a wide range of matters such as govern-
mental regulations, antitrust and trade regulations, product liability,
patent and trademark matters, income taxes and other actions.

As previously disclosed, the Company is and has been subject to a
variety of investigations into potential competition law violations in
Europe by the European Commission and national authorities from
a number of countries. These matters involve a number of other
consumer products companies and/or retail customers. The Company’s
policy is to comply with all laws and regulations, including all antitrust
and competition laws, and to cooperate with investigations by relevant
regulatory authorities, which the Company is doing. Competition and
antitrust law inquiries often continue for several years and, if violations
are found, can result in substantial ﬁnes.

In response to the actions of the European Commission and national
authorities, the Company launched its own internal investigations into
potential violations of competition laws. The Company has identiﬁed
violations in certain European countries and appropriate actions
were taken.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 71

Several regulatory authorities in Europe have issued separate complaints
pursuant to their investigations alleging that the Company, along
with several other companies, engaged in violations of competition
laws in those countries. The remaining authorities’ investigations are
in various stages of the regulatory process. As a result of our initial
and on-going analyses of the complaints, as well as ﬁnal decisions
issued by the European Commission and authorities in a number of
other countries in ﬁscal 2011, the Company has reserves totaling
$611 as of June 30, 2011, for ﬁnes for competition law violations.
In accordance with U.S. GAAP, certain of the reserves included in this
amount represent the low end of a range of potential outcomes.
Accordingly, the ultimate resolution of these matters may result in
ﬁnes or costs in excess of the amounts reserved that could materially
impact our income statement and cash ﬂows in the period in which
they are accrued and paid, respectively. We will continue to monitor
developments for all of these investigations and will record additional
charges as appropriate.

With respect to other litigation and claims, while considerable uncer-
tainty exists, in the opinion of management and our counsel, the
ultimate resolution of the various lawsuits and claims will not materially
affect our ﬁnancial position, results of operations or cash ﬂows.

We are also subject to contingencies pursuant to environmental laws
and regulations that in the future may require us to take action to
correct the effects on the environment of prior manufacturing and
waste disposal practices. Based on currently available information, we
do not believe the ultimate resolution of environmental remediation
will have a material adverse effect on our ﬁnancial position, results of
operations or cash ﬂows.

NOTE 11

SEGMENT INFORMATION

The Company has two global business units (GBUs): the Beauty &
Grooming GBU and the Household Care GBU.

Under U.S. GAAP, we have six reportable segments:

(cid:333)(cid:3)Beauty: Cosmetics, Female Antiperspirant and Deodorant, Female
Personal Cleansing, Female Shave Care, Hair Care, Hair Color, Hair
Styling, Pharmacy Channel, Prestige Products, Salon Professional
and Skin Care;

(cid:333)(cid:3)Grooming: Electronic Hair Removal Devices, Home Small

Appliances, Male Blades and Razors and Male Personal Care;

(cid:333)(cid:3)Health Care: Feminine Care, Gastrointestinal, Incontinence, Rapid
Diagnostics, Respiratory, Toothbrush, Toothpaste, Water Filtration
and Other Oral Care;

(cid:333)(cid:3)Snacks and Pet Care: Pet Care and Snacks;

(cid:333)(cid:3)Fabric Care and Home Care: Laundry Additives, Air Care, Batteries,
Dish Care, Fabric Enhancers, Laundry Detergents and Surface Care;

(cid:333)(cid:3)Baby Care and Family Care: Baby Wipes, Diapers, Paper Towels,

Tissues and Toilet Paper.

The accounting policies of the businesses are generally the same as
those described in Note 1. Differences between these policies and
U.S. GAAP primarily reﬂect income taxes, which are reﬂected in the
businesses using applicable blended statutory rates, and the treatment
of certain unconsolidated investees. Certain unconsolidated investees
are managed as integral parts of our business units for management
reporting purposes. Accordingly, these partially owned operations are
reﬂected as consolidated subsidiaries in segment results, with full
recognition of the individual income statement line items through
before-tax earnings. Eliminations to adjust these line items to U.S.
GAAP are included in Corporate. In determining after-tax earnings for
the businesses, we eliminate the share of earnings applicable to other
ownership interests, in a manner similar to noncontrolling interest
and apply statutory tax rates. Adjustments to arrive at our effective
tax rate are also included in Corporate.

Corporate includes certain operating and non-operating activities that
are not reﬂected in the operating results used internally to measure and
evaluate the businesses, as well as eliminations to adjust management
reporting principles to U.S. GAAP. Operating activities in Corporate
include the results of incidental businesses managed at the corporate
level along with the elimination of individual revenues and expenses
generated by certain unconsolidated investees discussed in the pre-
ceding paragraph over which we exert signiﬁcant inﬂuence, but do
not control. Operating elements also include certain employee beneﬁt
costs, the costs of certain restructuring-type activities to maintain a
competitive cost structure, including manufacturing and workforce
rationalization and other general Corporate items. The non-operating
elements in Corporate primarily include interest expense, divestiture
gains and interest and investing income. In addition, Corporate includes
the historical results of certain divested businesses.

Total assets for the reportable segments include those assets managed
by the reportable segment, primarily inventory, ﬁxed assets and intan-
gible assets. Other assets, primarily including cash, accounts receivable,
investment securities and goodwill, are included in Corporate.

The Company had net sales in the U.S. of $30.5 billion, $30.0 billion
and $29.6 billion for the years ended June 30, 2011, 2010 and 2009,
respectively. Assets in the U.S. totaled $70.3 billion and $70.1 billion
as of June 30, 2011 and 2010, respectively.

Our largest customer, Wal-Mart Stores, Inc. and its afﬁliates, accounted
for 15% of consolidated net sales in 2011 and 16% in 2010 and 2009.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

72 The Procter & Gamble Company

Notes to Consolidated Financial Statements

Global Segment Results

BEAUTY

GROOMING

HEALTH CARE

SNACKS AND PET CARE

FABRIC CARE AND HOME CARE

BABY CARE AND FAMILY CARE

CORPORATE (1)

TOTAL COMPANY

Earnings from
Continuing
Operations
Before Income
Taxes

Net Earnings
from Continuing
Operations

Depreciation
and Amortization

$ 3,607
3,648
3,558
2,183
2,007
1,900
2,720
2,809
2,786
356
499
388
4,714
5,076
4,663
3,181
3,270
2,827
(1,572)
(2,262)
(1,709)
15,189
15,047
14,413

$ 2,686
2,712
2,664
1,631
1,477
1,359
1,796
1,860
1,835
241
326
234
3,009
3,339
3,032
1,978
2,049
1,770
456
(817)
(214)
11,797
10,946
10,680

$ 439
503
454
593
625
721
359
385
369
102
92
100
582
604
578
549
612
570
214
287
224
2,838
3,108
3,016

Net Sales

$20,157
19,491
18,924
8,025
7,631
7,408
12,033
11,493
11,288
3,156
3,135
3,114
24,837
23,805
23,186
15,606
14,736
14,103
(1,255)
(1,353)
(1,329)
82,559
78,938
76,694

2011

2010

2009

2011

2010

2009

2011

2010

2009

2011

2010

2009

2011

2010

2009

2011

2010

2009

2011

2010

2009

2011

2010

2009

Total Assets

$ 12,802
11,825
11,987
21,608
21,259
22,205
7,796
7,142
7,206
1,324
1,237
1,123
11,257
9,650
10,419
7,184
6,406
6,259
76,383
70,653
75,634
138,354
128,172
134,833

Capital
Expenditures

$ 542
534
526
335
259
294
409
383
372
143
86
72
850
766
808
912
852
902
115
187
264
3,306
3,067
3,238

(1) The Corporate reportable segment includes the total assets and capital expenditures of the coffee and pharmaceuticals businesses prior to their divestitures in November 2008 and

October 2009, respectively.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

Notes to Consolidated Financial Statements

The Procter & Gamble Company 73

NOTE 12

DISCONTINUED OPERATIONS

In October 2009, the Company completed the divestiture of our global
pharmaceuticals business to Warner Chilcott plc (Warner Chilcott) for
$2.8 billion of cash, net of assumed and transferred liabilities. Under
the terms of the agreement, Warner Chilcott acquired our portfolio
of branded pharmaceutical products, our prescription drug product
pipeline and our manufacturing facilities in Puerto Rico and Germany. In
addition, the majority of the employees working on the pharmaceuticals
business were transferred to Warner Chilcott. The Company recorded
an after-tax gain on the transaction of $1,464, which is included in net
earnings from discontinued operations in the Consolidated Statement
of Earnings for the year ended June 30, 2010.

The pharmaceuticals business had historically been part of the
Company’s Health Care reportable segment. In accordance with the
applicable accounting guidance for the disposal of long-lived assets, the
results of the pharmaceuticals business are presented as discontinued
operations and, as such, have been excluded from both continuing
operations and segment results for all years presented.

In November 2008, the Company completed the divestiture of our
coffee business through the merger of our Folgers coffee subsidiary
into The J.M. Smucker Company (Smucker) in an all-stock Reverse
Morris Trust transaction. In connection with the merger, 38.7 million
shares of common stock of the Company were tendered by share-
holders and exchanged for all shares of Folgers common stock,
resulting in an increase in treasury stock of $2,466. Pursuant to the
merger, a Smucker subsidiary merged with and into Folgers and Folgers
became a wholly owned subsidiary of Smucker. The Company recorded
an after-tax gain on the transaction of $2,011, which is included in net
earnings from discontinued operations in the Consolidated Statement
of Earnings for the year ended June 30, 2009.

The coffee business had historically been part of the Company’s Snacks,
Coffee and Pet Care reportable segment, as well as the coffee portion
of our away-from-home business, which was included in the Fabric
Care and Home Care reportable segment. In accordance with the
applicable accounting guidance for the disposal of long-lived assets,
the results of Folgers are presented as discontinued operations and,
as such, have been excluded from both continuing operations and
segment results for all years presented.

Following is selected ﬁnancial information included in net earnings from discontinued operations for the pharmaceuticals and coffee businesses:

2011

2010

2009

Years Ended June 30

Pharma

Coffee

Total

Pharma

Coffee

Total

Pharma

Coffee

Total

Net Sales
Earnings from discontinued operations
Income tax expense
Gain on sale of discontinued operation
Income tax benefit/(expense) on sale
Net earnings from discontinued operations

$—
—
—
—
—
—

$— $ 751
306
—
(101)
—
2,632
—
— (1,047)
1,790
—

$— $

751
306
—
—
(101)
— 2,632
— (1,047)
— 1,790

$2,335
912
(299)

$ 668
212
(80)
— 1,896
115
—
2,143
613

$3,003
1,124
(379)
1,896
115
2,756

The net gain on the sale of the pharmaceuticals business, in the table above, for the year ended June 30, 2010, also includes an after-tax gain on
the sale of the Actonel brand in Japan which occurred prior to the divestiture to Warner Chilcott.

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

74 The Procter & Gamble Company

Notes to Consolidated Financial Statements

NOTE 13

QUARTERLY RESULTS (UNAUDITED)

Quarters Ended

NET SALES

OPERATING INCOME

GROSS MARGIN

NET EARNINGS:

Earnings from continuing operations

Earnings from discontinued operations

Net earnings

DILUTED NET EARNINGS PER COMMON SHARE:

Earnings from continuing operations

Earnings from discontinued operations

Diluted net earnings per common share

Sept 30

Dec 31

Mar 31

Jun 30

Total Year

2010–2011

2009–2010

2010–2011

2009–2010

2010–2011

2009–2010

2010–2011

2009–2010

2010–2011

2009–2010

2010–2011

2009–2010

$20,122 $21,347
21,027
4,260
4,655
51.8%
53.7%

19,807
4,501
4,448
51.9%
52.6%

$20,230 $20,860
18,926
3,285
2,950
48.3%
49.5%

19,178
3,772
3,968
50.5%
51.9%

$ 3,081
3,027
—
280
3,081
3,307

$ 3,333
3,149
—
1,510
3,333
4,659

$ 2,873 $ 2,510
2,185
—
—
2,510
2,185

2,585
—
—
2,873
2,585

2010–2011

2009–2010

2010–2011

2009–2010

2010–2011

2009–2010

1.02
0.97
—
0.09
1.02
1.06

1.11
1.01
—
0.48
1.11
1.49

0.96 $
0.83
—
—
0.96
0.83

0.84
0.71
—
—
0.84
0.71

$82,559
78,938
15,818
16,021
50.6%
52.0%

$11,797
10,946
—
1,790
11,797
12,736

3.93
3.53
—
0.58
3.93
4.11

Amounts in millions of dollars except per share amounts or as otherwise speciﬁed.

The Procter & Gamble Company 75

Global Leadership Council

Board of Directors

Robert A. McDonald
Chairman of the Board, President
and Chief Executive Ofﬁcer

GLOBAL OPERATIONS
Werner Geissler
Vice Chairman – Global Operations

Deborah A. Henretta
Group President – Asia and Global
Specialty Channel

Shannan Stevenson
President – Greater China

Laurent L. Philippe
Group President – Central & Eastern
Europe, Middle East and Africa and
Global High Frequency Stores Channel

Melanie L. Healey
Group President – North America
and Global Hyper, Super and
Mass Channel

Giovanni Ciserani
Group President – Western Europe
and Global Discounter & Drug/
Pharmacy Channels

Jorge A. Uribe
Group President – Latin America and
Global Club, Cash & Carry Channel

Jeffrey K. Schomburger
President – Global Wal-Mart Team

GLOBAL BUSINESS UNITS
Dimitri Panayotopoulos
Vice Chairman – Global Business Units

Household Care
Jorge S. Mesquita
Group President – Global Fabric Care

Martin Riant
Group President – Global Baby Care

David S. Taylor
Group President – Global Home Care

Mary Lynn Ferguson-McHugh
Group President – Global Family Care

Stassi Anastassov
President – Duracell

Charles E. Pierce
Group President – Global Oral Care

Thomas M. Finn
President – Global Health Care

Daniel S. Rajczak
Senior Vice President – Global Snacks
and Pet Care

Beauty & Grooming
Virginia C. Drosos
Group President – Global Female
Beauty, Beauty & Grooming

Patrice Louvet
President – Global Male Grooming,
Beauty & Grooming

Colleen E. Jay
President – Global Female Beauty,
Beauty & Grooming

John P. Goodwin
President – Global Braun, Beauty &
Grooming

Joanne Crewes
President – Global Prestige, Beauty &
Grooming

Adil Mehboob-Khan
President – Global Salon Professional,
Beauty & Grooming

Steven D. Bishop
Group President – Global Feminine
Care

CORPORATE AND COMPANY
OPERATIONS
Bruce Brown
Chief Technology Ofﬁcer

Shekhar Mitra
Senior Vice President – Corporate
Research & Development, Global
Salon Professional and Global
Prestige

Robert L. Fregolle, Jr.
Global Customer Business
Development Ofﬁcer

Yannis Skoufalos
Global Product Supply Ofﬁcer

Christopher D. Hassall
Global External Relations Ofﬁcer

Deborah P. Majoras
Chief Legal Ofﬁcer and Secretary

Jon R. Moeller
Chief Financial Ofﬁcer

Teri L. List
Senior Vice President & Treasurer

Valarie L. Sheppard
Senior Vice President & Comptroller

Moheet Nagrath
Global Human Resources Ofﬁcer

Kirk L. Perry
President on Special Assignment

Linda W. Clement-Holmes
Senior Vice President–Global Diversity
and Global Business Services

Filippo Passerini
Group President – Global Business
Services and Chief Information Ofﬁcer

Marc S. Pritchard
Global Brand Building Ofﬁcer

Philip J. Duncan
Global Design Ofﬁcer

Joan M. Lewis
Global Consumer & Market
Knowledge Ofﬁcer

Nancy K. Swanson
Vice President – Corporate

The following company ofﬁcers
announced their intention to retire
during the 2011/12 ﬁscal year:

Charles V. Bergh
R. Keith Harrison, Jr.
Robert Jongstra
Edward D. Shirley
Robert A. Steele

Angela F. Braly
Chair of the Board, President and Chief Executive Ofﬁcer of WellPoint, Inc.
(healthcare insurance). Director since 2009. Age 50. Member of the Audit
and Governance & Public Responsibility Committees.

Kenneth I. Chenault
Chairman and Chief Executive Ofﬁcer of the American Express Company
(ﬁnancial services). Director since 2008. Also a Director of International
Business Machines Corporation. Age 60. Member of the Audit and
Compensation & Leadership Development Committees.

Scott D. Cook
Chairman of the Executive Committee of the Board of Intuit Inc. (software
and web services). Director since 2000. Also a Director of eBay Inc. Age 59.
Chair of the Innovation & Technology Committee and member of the
Compensation & Leadership Development Committee.

Susan Desmond-Hellmann
Chancellor and Arthur and Toni Rembe Rock Distinguished Professor,
University of California, San Francisco (“UCSF”). Appointed to the Board
on December 13, 2010. Age 53. Member of the Audit and Innovation &
Technology Committees.

Robert A. McDonald
Chairman of the Board, President and Chief Executive Ofﬁcer of the Company.
Director since 2009. Also a Director of Xerox Corporation. Age 58.

W. James McNerney, Jr.
Chairman of the Board, President and Chief Executive Ofﬁcer of The Boeing
Company (aerospace, commercial jetliners and military defense systems
company). Director since 2003. Also a Director of International Business
Machines Corporation. Age 61. Presiding Director, Chair of the Compensation
& Leadership Development Committee and member of the Governance &
Public Responsibility Committee.

Johnathan A. Rodgers
Retired President and Chief Executive Ofﬁcer of TV One, LLC (media and
communications company). Director since 2001. Also a Director of Nike, Inc.
Age 65. Member of the Innovation & Technology Committee.

Margaret C. Whitman
Part-time Strategic Advisor to Kleiner, Perkins, Caulﬁeld & Byers (a Silicon Valley
venture capital ﬁrm). Appointed to the Board on February 8, 2011. Also a
Director of Hewlett Packard Company and Zipcar. Age 55. Member of the
Compensation & Leadership Development and Innovation & Technology
Committees.

Mary Agnes Wilderotter
Chairman of the Board, President and Chief Executive Ofﬁcer of Frontier
Communications Corporation (communications company specializing in
providing services to rural areas and small and medium-sized towns and cities).
Director since 2009. Also a Director of Xerox Corporation. Age 56. Member
of the Compensation & Leadership Development and Governance & Public
Responsibility Committees.

Patricia A. Woertz
Chairman, Chief Executive Ofﬁcer and President of Archer Daniels Midland
Company (agricultural processors of oilseeds, corn, wheat and cocoa, etc.).
Director since 2008. Age 58. Chair of the Audit Committee and member of
the Governance & Public Responsibility Committee.

Ernesto Zedillo
Former President of Mexico, Director of the Center for the Study of Globalization
and Professor in the ﬁeld of International Economics and Politics at Yale
University. Director since 2001. Also a Director of Alcoa Inc., Citigroup, Inc.
and Grupo PRISA. Age 59. Chair of the Governance & Public Responsibility
Committee and member of the Innovation & Technology Committee.

THE BOARD OF DIRECTORS HAS FOUR COMMITTEES:
– Audit Committee
– Compensation & Leadership Development Committee
– Governance & Public Responsibility Committee
– Innovation & Technology Committee

76 The Procter & Gamble Company

Financial Summary (Unaudited)

Amounts in millions, except per share amounts

2011

2010

2009

2008

2007

2006

Net Sales
Gross Margin
Operating Income
Net Earnings from Continuing Operations
Net Earnings from Discontinued Operations
Net Earnings
Net Earnings Margin from Continuing Operations
Basic Net Earnings per Common Share:
Earnings from continuing operations
Earnings from discontinued operations

Basic Net Earnings per Common Share
Diluted Net Earnings per Common Share:
Earnings from continuing operations
Earnings from discontinued operations
Diluted Net Earnings per Common Share
Dividends per Common Share
Research and Development Expense
Advertising Expense
Total Assets
Capital Expenditures
Long-Term Debt
Shareholders’ Equity

$ 82,559 $ 78,938
41,019
16,021
10,946
1,790
12,736
13.9%

41,791
15,818
11,797
—
11,797
14.3%

$ 76,694 $ 79,257
39,996
15,979
11,291
784
12,075
14.2%

38,004
15,374
10,680
2,756
13,436
13.9%

$ 72,441
37,065
14,485
9,662
678
10,340
13.3%

$ 64,416
32,549
12,551
8,187
497
8,684
12.7%

4.12 $
—
4.12

3.70
0.62
4.32

3.55 $
0.94
4.49

3.61
0.25
3.86

3.01
0.21
3.22

2.63
0.16
2.79

3.93
—
3.93
1.97

2,001 $
9,315
138,354
3,306
22,033
68,001

3.53
0.58
4.11
1.80
1,950
8,576
128,172
3,067
21,360
61,439

3.39
0.87
4.26
1.64

1,864 $
7,519
134,833
3,238
20,652
63,382

3.40
0.24
3.64
1.45
1,946
8,520
143,992
3,046
23,581
69,784

2.84
0.20
3.04
1.28
1,823
7,799
138,014
2,945
23,375
67,012

2.49
0.15
2.64
1.15
1,682
7,010
135,695
2,667
35,976
63,171

Shareholder Return Performance Graphs

MARK ET AND DIVIDEND INFORMATION
P&G has been paying a dividend for 121 consecutive years since its incorporation in 1890 and has increased its dividend for 55 consecutive years
at an annual compound average rate of approximately 9.5%.

DIVIDENDS PER SHARE
(in dollars; split-adjusted)

2.00

1.75

1.50

1.25

1.00

0.75

0.50

0.25

0.00

1956

1970

1984

1998

2011

(in dollars; split-adjusted)

Dividends per Share

1956

1970

1984

1998

2011

$0.01 $0.04 $0.15 $0.51 $1.97

QUARTERLY DIVIDENDS
Quarter Ended

September 30
December 31
March 31
June 30

2010 – 2011 2009 – 2010

$0.4818 $0.4400
0.4400
0.4400
0.4818

0.4818
0.4818
0.5250

COMMON STOCK PRICE RANGE

Quarter Ended

September 30
December 31
March 31
June 30

2010 – 2011

2009 – 2010

High

Low

High

Low

$63.36
65.38
66.95
67.72

$58.92
59.68
59.70
61.47

$58.66
63.48
64.58
64.00

$50.52
56.02
59.01
39.37

Shareholder Return Performance Graphs
(continued)

Recognition

The Procter & Gamble Company 77

SHAREHOLDER RETURN
The following graph compares the cumulative total return of P&G’s
common stock for the 5-year period ending June 30, 2011, against
the cumulative total return of the S&P 500 Stock Index (broad market
comparison) and the S&P 500 Consumer Staples Index (line of business
comparison). The graph and table assume $100 was invested on
June 30, 2006, and that all dividends were reinvested.

COMPARISON OF FIVE-YEAR CUMUL ATIVE
TOTAL SHAREHOLDER RETURN

P&G

S&P 500 Index

S&P 500 Consumer Staples Index

150.0

137.5

125.0

112.5

100.0

87.5

75.0

2006

2007

2008

2009

2010

2011

Company Name / Index

2006

2007

2008

2009

2010

2011

Cumulative Value of $100 Investment, through June 30

P&G
S&P 500 Index
S&P 500 Consumer
Staples Index

$100 $112 $114
105
121

100

$99 $119 $130
88
116

100

115

116

104

118

149

P&G is recognized as a leading global company, including a #5 ranking
on Fortune’s “Global Most Admired Companies,” the #10 ranking
on Barron’s “World’s Most Respected Companies List,” a #25 ranking
on Business Week’s list of “World’s Most Innovative Companies,”
a #3 ranking on the AMR Research Supply Chain Top 25, top rankings
on the Dow Jones Sustainability Index from 2000 to 2011, a ranking on
the list of the Global 100 Most Sustainable Corporations in the World,
and a consistent #1 ranking within our industry on Fortune’s Most
Admired list for 26 of 27 total years and for 14 years in a row. In 2010,
P&G was recognized by SymphonyIRI Group as the most innovative
manufacturer in the consumer packaged goods industry for the last
decade — presenting the Company with its “Outstanding Achievement
in Innovation” award. This year, P&G was again recognized by
SymphonyIRI Group for using innovation to launch four of the ten
most successful new products of 2010.

P&G’s commitment to creating a diverse workplace has been recognized
by the National Association for Female Executives (Top 50 Companies
for Executive Women), Working Mother magazine (Top 20 Best
Companies for Multicultural Women) and DiversityInc (#25 ranking
on the Top 50 Companies for Diversity and #9 ranking on the Top
Companies for Recruitment and Retention).

Supplier diversity is a fundamental business strategy that strengthens
our innovation and go-to-market capabilities and touches and
improves the lives of our diverse suppliers, their employees and the
communities in which they live and work. For the fourth year in a row,
P&G spent more than $2 billion with minority- and women-owned
businesses. Since 2005, P&G has been a member of the Billion Dollar
Roundtable, a forum of 18 corporations that spend more than $1 billion
annually with diverse suppliers.

78 The Procter & Gamble Company

Company and Shareholder Information

P&G’S PURPOSE
We will provide branded products and services of superior quality and
value that improve the lives of the world’s consumers, now and for
generations to come. As a result, consumers will reward us with
leadership sales, proﬁt and value creation, allowing our people, our
shareholders, and the communities in which we live and work to prosper.

BRANDS
For information on our portfolio of leadership brands and our
latest innovations, please visit www.pg.com/brands and
www.pginnovation.com.

SUSTAINABILITY
At P&G, we are focusing our efforts where we can make the most
meaningful difference in both environmental and social sustainability.
To learn more, please visit www.pg.com/sustainability.

CORPORATE HEADQUARTERS
The Procter & Gamble Company
P.O. Box 599, Cincinnati, OH 45201-0599

P&G SHAREHOLDER INVESTMENT PROGRAM
The Procter & Gamble Shareholder Investment Program (SIP) is a
direct stock purchase and dividend reinvestment plan. The SIP is open
to current P&G shareholders as well as new investors and is designed
to encourage long-term investment in P&G by providing a convenient
and economical way to purchase P&G stock and reinvest dividends.
Highlights of the plan include:

(cid:333)(cid:3) Minimum initial investment — $250
(cid:333)(cid:3) Nominal administrative fees, including no enrollment fee, and

no dividend reinvestment fee

(cid:333)(cid:3) Optional Cash Investment — minimum $50
(cid:333)(cid:3) Administered by P&G Shareholder Services Department

For complete information on the SIP, please read the Program
Prospectus. The Prospectus and New Account Application Form are
available at www.pg.com/en_US/investors/investing_in_pg or by
contacting P&G Shareholder Services.

GIVING THE GIFT OF P&G STOCK
Did you know you can give P&G stock to your children, grandchildren,
nieces, nephews and friends? Many of our long-time shareholders
know what a great gift P&G stock makes for a special person on a
special occasion. You can make the gift by transferring shares from
your account or by purchasing shares for the recipient through the SIP.
Please visit www.pg.com/investors or contact P&G Shareholder Services
for details.

The paper utilized in the printing of this annual report is certiﬁed by SmartWood to the FSC
Standards, which promotes environmentally appropriate, socially beneﬁcial and economically viable
management of the world’s forests. The paper contains a mix of pulp that is derived from FSC
certiﬁed well-managed forests; post-consumer recycled paper ﬁbers and other controlled sources.

SHAREHOLDER SERVICES
The Procter & Gamble Shareholder Services Department serves as
transfer and dividend paying agent for P&G Common Stock and
Administrator of the Procter & Gamble Shareholder Investment Program.
Registered shareholders and Program participants needing account
assistance with share transfers, plan purchases/sales, lost stock
certiﬁcates, etc. should contact P&G Shareholder Services at:

Website: www.pg.com/en_US/investors/shareholder_services
E-mail: shareholders.im@pg.com
Personal assistance (M – F, 9a – 4p Eastern): 1-800-742-6253;
1-513-983-3034 (outside U.S. and Canada)
Financial information request line (24 hours): 1-800-764-7483

TRANSFER AGENT
The Procter & Gamble Company
Shareholder Services Department
P.O. Box 5572, Cincinnati, OH 45201-5572

REGISTRAR
The Procter & Gamble Company
P.O. Box 599, Cincinnati, OH 45201-0599

EXCHANGE LISTINGS
New York Stock Exchange, NYSE Euronext-Paris

STOCK SYMBOL
PG

SHAREHOLDERS OF COMMON STOCK
There were approximately 2,259,000 common stock shareowners,
including shareholders of record, participants in the P&G Shareholder
Investment Program, participants in P&G stock ownership plans and
beneﬁcial owners with accounts at banks and brokerage ﬁrms, as of
June 30, 2011.

ANNUAL MEETING
The next annual meeting of shareholders will be held on Tuesday,
October 11, 2011. A full transcript of the meeting will be available
from Susan Felder, Assistant Secretary. Ms. Felder can be reached at
299 East Sixth Street, Cincinnati, Ohio 45202-3315.

FORM 10-K
Shareholders may obtain a copy of P&G’s 2011 report to the
Securities and Exchange Commission on Form 10-K by going to
www.pg.com/investors or by calling 1-800-764-7483. This information
is also available at no charge by sending a request to P&G Shareholder
Services at the address listed.

The most recent certiﬁcations by our Chief Executive and Chief Financial
Ofﬁcers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are
ﬁled as exhibits to our Form 10-K for the ﬁscal year ended June 30, 2011.
We have also ﬁled with the New York Stock Exchange the most recent
Annual CEO certiﬁcation as required by Section 303A.12(a) of the New
York Stock Exchange Listed Company Manual.

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The Procter & Gamble Company 79

Highlighting Our Environmental Vision

P&G is the largest consumer packaged goods company in the
world today. This very fact, coupled with our Purpose-inspired
Growth Strategy — improving the lives of more consumers,
in more parts of the world, more completely — requires us to
continue to grow responsibly.

In September 2010, we announced a long-term environmental
sustainability vision for our Company that establishes future
expectations for our performance.

We won’t reach this vision overnight; in fact, it will take
decades to achieve. So, we have set goals for 2020 to hold
ourselves accountable to making progress toward our vision.

Our Long-Term Environmental Vision includes:

(cid:333)(cid:3) Using 100% renewable or recycled materials for all

products and packaging

(cid:333)(cid:3) Powering our plants with 100% renewable energy

(cid:333)(cid:3) Having zero consumer or manufacturing waste

go to landﬁlls

(cid:333)(cid:3) Designing products to delight consumers while

maximizing the conservation of resources

2 0 2 0 E N V I R O N M E N TA L S U S TA I N A B I L I T Y G O A L S

Products

Replace Petroleum-Based Materials
with Sustainably Sourced
Renewable Materials

25%*

Cold Water Washing

70% of total washing machine loads

Package Reduction

20% (per consumer use)*

Consumer Solid Waste

Pilot studies in both developed and developing
markets to understand how to eliminate
landﬁlled/dumped consumer solid waste

Operations

Renewable Energy
Powering Our Plants

30%

Manufacturing Waste

<0.5% (disposed)

ransportation

Truck T
Reduction

20% (km/unit of volume)*

*vs. 2010 baseline