PG 2010 AnnualReport

Touching & Improving Lives 2010 ANNUAL REPORT
Net Sales
($ billions)
$78.9
$64.4
$76.7
$79.3
$72.4
10
09
08
06
07
Operating Cash Flow
($ billions)
$11.4
$16.1
$13.4
$15.0
$14.9
10
09
08
06
07
Diluted Net Earnings
(per common share)
$2.64
$4.11
$3.64
$4.26
10
09
08
06
07 $3.04
Financial Highlights
(unaudited)

Amounts in millions, except per share amounts 2010 2009 2008 2007 2006
Net Sales $78,938 $76,694 $79,257 $72,441 $64,416
Operating Income 16,021 15,374 15,979 14,485 12,551
Net Earnings 12,736 13,436 12,075 10,340 8,684
Net Earnings Margin from Continuing Operations 13.9% 13.9% 14.2% 13.3% 12.7%
Diluted Net Earnings per Common Share from Continuing Operations $ 3.53 $ 3.39 $ 3.40 $ 2.84 $ 2.49
Diluted Net Earnings Per Common Share 4.11 4.26 3.64 3.04 2.64
Dividends Per Common Share 1.80 1.64 1.45 1.28 1.15
Contents
Letter to Shareholders 1
Leadership Brands 7
Touching & Improving Lives 11
More Consumers 12
More Parts of the World 16
More Completely 20
P&G Innovations 24
Making a Difference 26
Financial Contents 27
Global Leadership Council 75
Board of Directors 75
Financial Summary 76
Company and Shareholder Information 78
Beauty & Grooming
Health and Well-Being
Household Care
By business segment
(% of total business segments)
These results exclude net
sales in Corporate.
34%
48%
18%
North America
Western Europe
Central & Eastern Europe,
Middle East & Africa
Latin America
Asia
By geographic region
42%
21%
9%
15%
13%
Developed
Developing
By market maturity
66%
34%
2010 Net Sales
P&Gs Purposeto touch and
improve lives, now and for generations
to comeis inspiring and pervasive.
Our Purpose is tightly and deliberately
linked to our business and nancial
goals: P&Gs Purpose inspires our
strategic choices; it leads us to bigger
and better innovation; it drives brilliant
execution; and it compels us to make
a difference in areas such as
sustainability and social responsibility
not merely to be a good citizen, but
more importantly, to create future
opportunities to touch and improve
livesand, in so doing, to keep our
Company growing.
Dear Shareholders,
Robert A. McDonald
Chairman of the Board, President and Chief Executive Ofcer
Core earnings per share grew 6%, roughly double our
going-in objective for the year.(
2
)
Adjusted free cash ow was 125% of net earnings,
well above our target level.(
3
)
We also made substantial progress toward protable share
growth, a key priority. A year ago, our global market share
was down about half a point versus prior-year levels; today,
as I write this, our global market share is up nearly half a point
and accelerating. Last year, we were building market share
in businesses accounting for only about 33% of sales; today,
we are building share in brands and countries accounting
for about 66% of sales and P&Gs market share is growing in
14 of our top 17 countries.
In addition, we reached an additional 200 million
consumers, bringing the total served to 4.2 billionon track
toward our goal of reaching 5 billion consumers by scal
2015. Average per capita spending on P&G products increased
in 70% of our top countries, up from 60% in scal 2009. And,
global household penetrationthe percentage of households
using at least one P&G productincreased nearly two
percentage points, to 61%.
On the strength of these results, we paid approximately
$5.5 billion in dividends and returned $6 billion to
shareholders through the repurchase of P&G stock. Based
on our current market capitalization, dividends and share
repurchases provide shareholders with an effective cash
yield of more than 6%, with additional potential for capital
appreciation.
In April, we increased our quarterly dividend by 9.5%,
making this the 120th consecutive year that P&G has paid a
dividend and the 54th consecutive year that the dividend has
increased. Over those 54 years, the dividend has increased at
an annual compound average rate of approximately 9.5%.
Last year, we updated P&Gs growth strategy to connect
it explicitly to our Companys Purpose. We focused on three
specic choices: to grow P&Gs core brands and categories
with an unrelenting focus on innovation; to build our
business with unserved and underserved consumers; and
to continue to grow and develop faster-growing, higher-
margin businesses with global leadership potential.
These strategic choices are unied by one simple, over-
arching growth strategy: to touch and improve the lives
of MORE CONSUMERS in MORE PARTS OF THE WORLD, MORE
COMPLETELY. Weve made this the centerpiece of our
leadership agenda because we believe a Purpose-inspired
growth strategy is intrinsically rewarding and motivating.
It unleashes creativity, commitment and peak performance
in P&G people. It attracts talent and partners. It builds
goodwill with external stakeholders.
We are executing across all three dimensions of this
growth strategy on all of our businesses around the world.
The Companys performance in the 2010 scal year, and the
strength with which we have entered the 2011 scal year,
demonstrate that our Purpose-inspired growth strategy
is working.
Substantial Progress toward Growth Goals
We also renewed our growth goals last year. Our fundamental
objective is the creation of value for shareholders at industry
leadership levels on a consistent basis. More specically,
our goal is to deliver total shareholder return that consistently
ranks P&G among the top-third of our peersthe best
performing consumer products companies in the world.
In addition, we measure our progress through a combination
of consumer and nancial goals. We made substantial
progress in scal 2010:
Organic sales grew 3%, in line with Company expectations.(
1
)
2 The Procter & Gamble Company

Purpose-inspired Growth Strategy: Our path forward
(1) Organic sales growth is sales growth excluding the impacts of acquisitions, divestitures and foreign exchange
from year-over-year comparisons. See page 49 for a reconciliation of organic sales growth to net sales growth.
(2) Core EPS is a measure of the Companys diluted net earnings per share from continuing operations excluding
charges for potential competition law nes, a charge related to a tax provision for retiree healthcare subsidy
payments in the recently enacted U.S. healthcare reform legislation and incremental Corporate restructuring
charges incurred in scal 2009 versus 2008 to offset the dilutive impact of the Folgers divestiture. See page 50
for a reconciliation of Core EPS to diluted net earnings per share from continuing operations.
(3) Adjusted free cash ow productivity is dened as the ratio of adjusted free cash ow to net earnings excluding
the gains on the divestiture of the global pharmaceuticals business. For 2010, adjusted free cash ow of
$13,985 million is operating cash ow of $16,072 million less capital spending of $3,067 million plus the tax
payments made on the gains from the global pharmaceuticals divestitures of $980 million. Adjusted free cash
ow productivity of 125% is adjusted free cash ow of $13,985 million divided by net earnings of $12,736
million less gains of $1,585 million from the global pharmaceuticals divestitures.
ORGANIC SALES GROWTH (1)
CORE EPS GROWTH (2)
ADJUSTED FREE CASH FLOW (3)
FY 2010
3%
6%
125% of net earnings
ANNUAL GROWTH TARGETS
1-2% above global market growth rates
High single to low double digits
90% of net earnings
We are touching and improving MORE CONSUMERS
lives by innovating and expanding vertically, up and down
value tiers.
We are touching and improving lives in MORE PARTS OF
THE WORLD by innovating and expanding geographically,
into new white spaces where we havent been competing.
We are touching and improving consumers lives MORE
COMPLETELY by innovating to improve existing products,
by creating or entering adjacent categories and by driving
regimen use that broadens our product portfolios.
We have a strong multiyear pipeline that will continue to
drive growth in the future. The impact of this innovation
program is already evident. We have featured six examples
in the editorial section that follows this letter, but I want to
share perspective here as well to give you a sense of both
the strength and breadth of innovation coming from P&G.
Ill highlight just three representative businesses to illustrate.
Male Grooming
Fusion has now grown share for 18 consecutive quarters,
and we recently launched Gillette Fusion ProGlide. Consumer
testing shows that men prefer the Fusion ProGlide family at
a ratio of up to 2-to-1 over Gillette Fusion. In the middle
tier, we recently launched a new Mach3 razor specically
designed to better meet the needs of emerging-market
consumers. As a result, Mach3 shares are at record levels in
Argentina, Brazil and India.
In February, we launched a complete line of Gillette
male grooming solutions in Brazil, and are now expanding
in several Latin American countries. In March, we introduced
a scientic face care regimen under the Gillette name in
China. In June, we introduced Gillette Fusion ProSeries in
North America.
This is encouraging performance, inspired by the
Purpose that motivates our people and partners and driven
primarily by our strong, multiyear innovation program. We
are innovating to win in every P&G category, we are investing
behind these innovations to build protable market share
and we are continually increasing productivity that funds our
investments in future growth. This investment allows us to
continually replenish our multiyear innovation pipeline.
Innovating to Win
Innovation has beenand will continue to beat the heart
of our success. In scal 2010, for the fourth consecutive year,
we invested nearly $2 billion in Research & Development. In
fact, we invest about 50% more than our closest competitor
and more than most of our closest competitors combined.
This leadership level of investment is multiplied by our global
network of external innovation partners, which leads to an
effective investment in innovation that far exceeds the
reported spending.
One measure of the strength of our innovation program
is the SymphonyIRI Group New Product Pacesetters report
the annual list of the biggest innovations in our industry as
measured by sales. Over the past 15 years, 125 P&G
innovations have earned a spot on the Top 25 Pacesetters
listmore than our six largest competitors combined.
Based on this track record, SymphonyIRI recognized
P&G as the most innovative manufacturer in the consumer
packaged goods industry for the last decadepresenting
the Company with its Outstanding Achievement in
Innovation award. In 2009, P&G launched 5 of the top
10 most successful non-food innovations as judged by
SymphonyIRI: Tide Total Care, Gillette Venus Embrace,
Bounty Extra Soft, Always Innity and Secret Flawless.
Our innovation program is guided by the Company's
Purpose-inspired growth strategy:
The Procter & Gamble Company 3
SymphonyIRI Group recognized P&G as the most innovative
manufacturer in the consumer packaged goods industry for the last
decade with its Outstanding Achievement in Innovation award.
#
1most innovative
P&G launched 5 of the top 10 most successful new non-food
products in 2009, according to SymphonyIRI Group.
Looking Ahead
Many of our most signicant innovations just launched in
North America between March and June 2010. They will
have a much bigger impact on scal 2011 than they had this
past year as we continue to leverage them in North America
and to expand them to additional markets. And, of course,
we will bring new innovations to market. More specically:
Pampers with Dry Max will expand across Western Europe
this year.
Gillette Fusion ProGlide will roll out to more than
40 countries over the next two years.
The new Pantene formulations will expand globally over
the next two years.
We are aggressively working to merge the product
innovation and geographic expansion plans of Ambi Pur
with the Febreze franchise, following the close of the
Ambi Pur acquisition in early July. Our air care business
now spans 84 countries.
Oral Care is introducing a new Crest Clinical line of
products to treat two of the most common oral care
problems: gingivitis and tooth sensitivity. The Crest Clinical
Sensitivity toothpaste provides the maximum strength
available over the counter. Crest Clinical will start shipping
in North America in August.
In total, P&G competes in 38 product categories globally, but
we are not present in all these categories in all of our priority
markets. For example, as a total Company, we compete in
less than 50% of potential country/category combinations in
our top 50 markets. This presents a tremendous growth
opportunity. Our objective is to ll out our product portfolio
in every category and then expand to the most relevant
geographic markets. This objective is driving clear, strategic
choices about where to innovate and expand to ensure our
total-Company lineup is reaching more consumers in more
parts of the world, more completely.
There are examples in every P&G category. I cite these
few just to provide perspective on the strength and breadth
of our innovation program. We currently have the strongest
multiyear innovation program Ive seen in my 30-year career
at P&G. And as strong as the program has been during this
past scal year, we are equally pleased with the quality of our
pipeline going forward. Its full of innovations that are sure to
touch and improve the lives of consumers for years to come.
Fabric Care
Were expanding our portfolio horizontally with Tide Stain
Release and Ariel Professional in laundry additives, and
Bounce Dryer Bar in the fabric enhancer category. We are
also expanding vertically and into geographic white space.
In Western Europe, we are innovating in the premium tier
with Ariel Excel Gel, a new-to-the-world gel that is consumer
preferred by a margin of 2 to 1. In Japan, our newest laundry
brand, Sarasa, is priced at a 15% premium versus the
category average and is designed for consumers who want
a laundry detergent that cleans well, but also provides
natural and gentle benets.
We introduced Ace in Colombia during the September
quarter and Tide Naturals in India during the December
quarter. Tide Naturals is priced 30% lower than regular
Tide, enabling us to reach a much broader spectrum of
Indian households. Ace is a mid-tier laundry brand that
complements Ariels stain removal equity and Bolds softness
equity. Ace has become P&Gs 23rd billion-dollar brand.
Oral Care
Oral-B toothpaste and toothbrush shares in Brazil continue
to exceed expectations. Based on our in-market success, we
have initiated the second wave of our toothpaste expansion
plan which will take us beyond the pharmacy channel.
The Oral-B toothpaste launch in Belgium and the
Netherlands is also going wellwith Oral-B toothpaste
approaching double-digit shares and driving P&G to overall
Oral Care market share leadership in both countries since
being launched in February 2009.
Crest Pro-Health is off to a strong start in China, helping
to drive Oral Care shipments in China up high single digits in
the nal quarter of the scal year. The Crest Pro-Health
formula is being expanded to other markets around the
world, as well.
In March, we launched Crest 3D White in North America.
3D White is a new regimen comprised of toothpaste, brush,
rinse and Professional Effects whitestrips that work in
combination to clean, whiten and protect teeth while
providing health benets expected from Crest and Oral-B.
The amount we returned to P&G shareholders in 2010
in the form of dividends and share repurchases.
$
11.5 billion
P&G has paid a dividend for 120 consecutive yearsand 2010
marked the 54th consecutive year of dividend increases.
120 years
Investing to Grow, Changing to Lead
We are supporting our innovation program with strong
levels of marketing investment. We delivered a 20% increase
in consumer impressionsthe number of times consumers
hear about our brands and new productsthis scal year,
with most of the increase in the second half of the scal
year behind many of the innovations I just described.
This investment is critical. Decades of experience have
demonstrated that making people aware of our innovation
and motivating them to try our new products is the key to
long-term success. When people experience the innovation
we bring to market, they are frequently delighted, which in
turn drives repurchase and sustainable share growth. This
is the foundation of brand building, and P&G is committed
to investing sufciently and consistently to support
innovation and build brands that thrive for decades.
One of the most important ways we fuel investments
in innovation and brand building is through cost savings and
productivity improvements. P&G is very disciplined about
cash management and cost reduction. We are strengthening
this discipline with a culture that continually simplies the
way we work and increases productivity.
Simplication is a signicant opportunity for us,
particularly given the breadth of our business and brand
portfolios. For example, we have more than 16,000 product
formulas and use more than 4,000 colors in our product
labels and plastic packaging. Over the next two years, we
expect to reduce the number of formulas and package
specications by 30% and to reduce the number of colors
we use by 5075%. Color simplication alone has the
potential to generate up to $50 million in annual savings.
We have simplication projects underway throughout the
Company, led by line management and managed with the
same discipline and integration that we use for global
product launches. This will remain an ongoing priority for us.
Another good example of how were becoming more
productive is the digitization of P&G. With digitization, our
goal is to standardize, automate and integrate systems and
data so we can create a real-time operating and decision-
making environment. We want P&G to be the most
technology-enabled company in the world.
We are targeting a 2025% reduction in some spending
areas and we are looking for a sevenfold increase in
real-time data. By getting the right data to the right decision
makers at the right time, we can become increasingly
efcient and productive.
A good illustration is logistics. We are digitizing our
Transportation Management systems, including what we call
our Control Tower. Think of this as an air trafc control
system for ground transportation. The real-time information
this system provides allows us to coordinate scheduling
and truck movement for all inbound and outbound
transportation. So far, were on track to reduce the number
of deadhead legsor, empty truck shipmentsby more
than 15%. We currently have control tower approaches
in place covering about one-quarter of our business in both
developing and developed markets. We think increasing
the capacity utilization of trucks can save more than
$200 million annually.
Another way we are increasing productivity is by turning
the Companys size into scale and our scale into growth. To
do this, we are increasingly competing as one Company. Our
individual categories, brands, countries and functions are all
critical and each has unique value to add. But at the total-
Company level, we can create scale advantages by allocating
resources more strategically and efciently than any individual
business can do on its own. The combination of the
individual components is greater together as one Company
than the sum of the partsand we are focused on
maximizing this total value.
We are working across our businesses and markets to
leverage P&G scale. A good example is the global sponsorship
agreement we signed in July with the International Olympic
Committee (IOC). The partnership gives P&G global
sponsorship rights for the next ve Olympic Games, from
London 2012 through the 2020 Olympic Games, enabling
the Company to take the Games to the more than 4 billion
consumers worldwide served by P&G brands today. The
breadth of P&Gs portfolio and the depth of our reach
make this the most far-reaching Olympic partnership. It
demonstrates the powerful appeal of our brand portfolio and
its tremendous global scale. No other consumer products
company could create a comparable partnership with the IOC.
The approximate amount P&G invests in innovation each year.
$
2 billion
Never Walk Alone from P&G's Proud Sponsor of Moms campaign
"The best commercial of the [Olympic] Games...Gold." (Stuart Elliott,
Medals for Ads During NBCs Winter Olympics Coverage, New York
Times, March 2, 2010.)
As part of this sponsorship, we also announced the
global expansion of our Proud Sponsor of Moms campaign.
We will build upon the success of our Team USA partnership
at the Vancouver 2010 Olympic Winter Games, which
resulted in increased favorability ratings for P&G and our
brands, greater market share and nearly $100 million in
incremental sales. P&G will leverage the IOC partnership to
deliver on our growth strategy and to help improve the lives
of athletes, moms and their families around the world in
several ways:
We will continue to support families of Olympians,
reapplying on-site activities from the Vancouver 2010
Olympic Winter Games.
As part of the Proud Sponsor of Moms campaign, our
Thank You, Mom program will continue in conjunction
with the IOCs inaugural Youth Olympic Games to be held
in Singapore in August 2010, helping 25 moms of Youth
Olympians from around the world with their travel and
lodging costs so they can be in Singapore with their
children as they compete.
We will produce a documentary video series called Raising
an Olympian, The P&G Momumentary Project to celebrate
the dedication and sacrice of moms, families and their
Olympians. The video series will tell the stories of Olympians
as seen through the eyes of their moms. It will be shown
leading up to and during the London 2012 Olympic Games
and will aim to answer the question, What does it take
to raise an Olympian?
By leveraging P&G scale and competing more effectively as
one Company rather than as individual businesses and
brands alonewe are able to touch and improve more lives
while creating meaningful competitive advantage.
Work to Do
While we are encouraged by the Companys recent
performance, I dont want to imply that we are satised.
Our results were ahead of our going-in expectations in nearly
every area, but we still have some signicant opportunities
for improvement.
Our results on some big brands and in some big
categories have been soft. We are not yet growing share on
every business but we have robust innovation and marketing
plans in place to accelerate share growth across the
portfolio.
We also need to continue our disciplined cost reduction
and cash management efforts. We need to take even more
cost out because there are still more investments we need
to put in to keep driving protable market share growth.
If we build on our successes, address our shortfalls
and implement our strategy with excellencewhich is
precisely what we are focused on doingwe will continue
to accelerate growth on both the top- and bottom-line, and
we expect this to be reected in stronger market share trends.
Inspired to Perform
As I wrote at the beginning of this letter, we have placed
signicant emphasis on P&Gs Purpose because we believe it
inspires people to perform at their peak.
Fullling P&Gs Purpose is not merely a noble ideal. It
is potentially a game-changing growth strategy because it
unleashes creativity and capability. Our purpose as individuals
inspires our performance as professionals. The congruence
of our Company Purpose and our personal purpose captures
our imagination and passion. It 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.
Simply put: Touching and improving peoples lives motivates
peak performance. I believe that to my core.
Everywhere I travel, P&G people and our partners tell
me they are inspired by what we can accomplish together.
They tell me that they are inspired by the thought of what
we can accomplish if we can infuse the work of our entire
organizationall 127,000 of uswith the meaning that
comes from our Purpose. Were inspired by the thought of
serving ve billion people by the middle of this decade, and
perhaps touching and improving the lives of nearly every
person on the planet in our lifetimes. Were inspired to
create new innovations, ideas, services and products that
improve peoples lives in ways weve not yet foreseen.
It is all this, taken together, that drives my condence in
P&Gs future. We have all the elements of a high-performing
organization in place at P&G: passionate leaders at every
level and in every part of our business; sound strategies that
continue to provide abundant opportunities to grow; robust
systems that enable us to operate with discipline and to
collaborate inside and outside the Company; and a culture
that enables, demands and rewards high performance. These
pillars stand on a foundation of technical competence and
the bedrock strength of our Purpose, Values and Principles
that constitute the core of P&G.
I am honored to stand alongside Purpose-inspired
leaders in every part of our organization who ensure that
P&G touches and improves lives every day. It is a privilege
to work with such outstanding people and I thank them for
all they are doing to touch and improve lives and to grow
our business.
Robert A. McDonald
Chairman of the Board, President
and Chief Executive Ofcer
SEE THE
P&G
LEADERSHIP
BRANDS
Leadership brands:
In October 2010, P&G brands will have helped to
make everyday life a little better for 173 years.
173 years
Number of P&G brands that each generate more
than one billion dollars in annual salesincluding our
newest billion-dollar brand, Ace.
23 brands
These brands are some of the worlds most well-known
household namesincluding innovative new products
that comprised ve of the top ten most successful new
introductions in 2009.*
50 leadership brands
These 50 leadership brands account for
90% of P&G sales.
These 50 leadership brands account for
more than 90% of P&G prots.
90
%
of prots 90
%
of sales
*Source: SymphonyIRI Group New Product Pacesetters report (non-food brands),
March 22, 2010 (measured as total year-one dollar sales across food, drug, and mass
channels, excluding Walmart).
125 products
Over the past 15 years, 125 P&G innovations have
earned a spot on SymphonyIRI Groups list of each
years 25 most successful new products more than
our six largest competitors combined.*
P&Gs single, unifying growth strategy is rooted
in our enduring Purpose: We will grow by
touching and improving more consumers lives
in more parts of the worldmore completely.
This strategy is working. Were carrying it out
across all of our businesses, and around the world.
From a rural village in Kenya, to a tight-quartered
concrete home in India, to the bustling urban
centers of the United States, P&Gs growth
strategy guides our decisions, our innovations,
our investments and our everyday actions.
Its a story best told by the people who are
touched by this strategyconsumers around the
world, whose everyday lives have become a little
better through the innovation and ingenuity of
P&G brands and P&G people.
Here are just some of their stories.
more
consumers
more parts of
the world
more
completely
More consumers
Were touching and improving the lives of
more consumers, with innovative products
that expand our category portfolios vertically
up and down value tiersdelivering the
right combination of performance and
value to every consumer.
Delighting Consumers with
Crest in China
We are reaching more consumers in China
with the launch of Crest Pro-Health, P&Gs best
toothpaste technology, designed to address the
seven common oral health issues that dentists
check most.
In China, millions of consumers are tech-savvy,
relying heavily on social media for advice on
making purchase decisions. Crest identied
bloggers across China who were the most
respected voices on matters of lifestyle and oral
health. On November 17, 2009, these bloggers
came to P&G to experience the technology of
Crest Pro-Health and become true experts and
advocates for the brand.
Over the next 3 weeks, 18 blog posts from
14 bloggers reached more than 140 million
current and potential Crest consumers,
generating high awareness and early trial
of the new Crest Pro-Health products. This
innovation is off to a fast start, outperforming
initial sales forecasts by more than 30%
since launch.
Reaching More Laundry
Consumers in India
Reaching more consumers in Indias laundry
market meant developing a detergent with
just the right balance of cleaning performance
and mildness at an affordable price.
About 80% of consumers in India200 million
householdswash their laundry by hand.
With their extremely limited laundry detergent
budgets, most Indian consumers settle for the
lowest priced powders, which can irritate hands
during and after washing.
P&G launched Tide Naturals in India in
December 2009. With unique ingredients
developed at our Beijing Technical Center,
Tide Naturals balances cleaning and mildness
at a price 30% lower than regular Tide. It also
dissolves in waterunlike most competitive
products in the low price range, which leave
gritty materials in the wash water that can be
harsh to hands. And its unique scent containing
natural oils offers an attractive benet to Indian
consumers that other low-cost detergents dont.
With the introduction of Tide Naturals, P&G
now offers laundry detergents at three distinct
performance and pricing levels, delivering a
solid value that is now affordable for more than
70% of Indian consumers. Currently available
in about 600,000 outlets in India, Tide Naturals
is an innovation that is helping P&G improve
the lives of more consumers, like Sandhya,
who are delighted by its many performance
benets and value.
Tide Naturals powder is very niceI really like it! I can use less
of it than my previous powder. Its granules have no harshness,
yet it cleans better. And it has a very nice scent that helps
keep my hands smelling fresh, clean and soft. I no longer need
to use a brush, and dirt comes out of our clothes faster and
easiereven my kids clothes. I dont feel its a chore anymore
to wash clothes. My family also complimented me. My
husband noticed a difference and asked me what powder
I was using. He and my kids say it gives shine to their clothes.
I want to share my experience with Tide Naturals with
everyone, so they can see the difference. If they use it once,
they will continue to use it for life.
SANDHYA, INDIA
For more, watch Sandhya at www.pg.com/ar2010/tide.
More parts of
the world
Were touching and improving lives
in more parts of the world, by
innovating and expanding our business
into new geographies where we didnt
previously compete.
Expanding Olays Presence
in Mexico
As the number one facial skin care brand in
the world, Olay set its sights on reaching more
consumers in Mexicoa market ripe for Olays
unique blend of superior benet and value
over other facial skin care brands.
The November 2009 launch of Olay Regenerist
Micro-Sculpting Cream in Mexico reapplied
proven approaches that had been successful
in other regions around the world to build
excitement before, during and after the
product line launch. Before launch, a pre-
seeding campaign invited consumers to
reserve their sample of Regenerist, which
had an overwhelming response. During the
launch, the Mexico go-to-market organization
made Olay Regenerist the focal point of its
multi-brand retail merchandising programs,
lifting Olays awareness and visibility among
Mexican retailers and consumers alike. A
post-launch campaign featured endorsements
from the Mexican Dermatologist Association,
strengthening Olays credibility and reinforcing
the brands benet and value messages.
The Regenerist Micro-Sculpting Cream launch
has propelled Olay to an 8% share in Mexicos
highly competitive facial moisturizer market.
Olay continues to gain ground, daring to
change the future for the better for more
Mexican women.
Providing Hygiene & Education
in Africa with Always
Five hundred million womenand one out of
every ve teens on the planetlive in Africa.
Today, millions of these girls and women still
do not use pads for protection during their
periods. But this is changing. Through a holistic
campaign, Always is improving the lives of these
women and girls in more places on this vast
and diverse continent.
One element of the campaign expands
Always distribution, which has now reached
450,000 outlets in Africa. This is improving the
commercial availability of Always, not just in
big capital cities, but also in some smaller
towns and rural areas.
Another Always campaign element includes
a puberty education program conducted in
partnership with local public education and
health organizations. Reaching 3 million African
girls and women each year, the program
includes sampling and activities in classrooms
and some mobile clinics, teaching girls about
puberty, the basics of feminine hygiene and
sanitary protection.
Always is improving the lives of some of these
African girls in ways that go beyond the benets
of hygiene alone. Today, many girls in Africa
miss school during their period because they
lack awareness of and access to proper sanitary
protection. This can impact their chance to
complete their education and succeed in life.
By providing access to puberty education and
sanitary protection with Always, we are able
to improve the everyday lives of girls like Jane
in very meaningful ways.
My education is one of the most important
things in my life. I rst learned about Always
from my sister, who told me Always would
help keep me dry and comfortable, even
when I am in class. Today, I buy Always from
the local shop. Without Always, I would
be missing school. Now that I am more
comfortable in class, I can concentrate better
on what the teacher is saying.
JANE, KENYA
For more, watch Jane at www.pg.com/ar2010/always.
More completely
Were touching and improving lives more
completely by innovating to enhance
the performance of existing products, by
creating or entering adjacent categories
and by driving regimen use that broadens
our product portfolios and improves
consumers experiences with our brands.
In ongoing conversations with moms and
dads around the world, the Pampers team hears
a common theme: We want the very best for
our baby. They also hear that improving babies
lives more completely means designing a diaper
that is as comfortable as clothing, with zero
trade-offs in absorbency and dryness.
Launched in scal 2010, Pampers with Dry Max
is the brands biggest innovation in 25 years.
Dry Maxs 20% thinner, exible design wears
more like clothing than ever, and is Pampers
driest diaper ever.
Featured initially in Pampers Swaddlers and
Cruisers in North America, Dry Max was
launched in May 2010 in the Pampers New
Baby and Active Fit lines in the United Kingdom,
where May/June shipments of Active Fit were
up more than 20% versus a year ago. Pampers
is planning to expand Dry Max to more markets
in Europe in scal 2011.
Delighting Babies & Parents
with Pampers
Continually Improving
the Shaving Experience
with Gillette
Even with the great gains Gillette has made
in shaving technology over the past century,
most men still experience some discomfort
during and after shaving, especially when the
blades tug and pull on facial hairs.
In June 2010 we introduced the Gillette
Fusion ProGlide shaving system and Gillette
Fusion ProSeries skin careinnovations that
combine Gillettes 100-year shaving heritage
and P&Gs deep understanding of skin.
The Fusion ProGlide shaving system features
a series of seven innovations, including thinner,
ner-edged blades; a new blade stabilizer;
and a snowplow comfort guard, which
channels away excess shave prep to help
maintain optimal blade contact for a close,
comfortable shave. The Fusion ProSeries
skin care line features the rst mass market
mens thermal facial scrub, as well as a sensitive
skin face wash and cooling lotion to deliver
comfort throughout the shaving process. By
expanding the shaving regimen horizontally
into adjacent categories, were providing
cutting-edge performance and comfort before,
during and after a mans shave.
Fusion ProGlide and ProSeries skin care products
will expand to more than 40 new countries over
the next two years, providing more and more
consumers with the best shave a man can get.
Ive been shaving with Gillette blades
since I got my rst one on my 18th birthday.
Looking back over the years at the progression
from the rst Mach3 to Fusion, the evolution
has been impressive. Last night, I purchased
a sneak preview of the Fusion ProGlide.
Its overall design was enough to catch my
attention, but my delight didnt stop there.
To make a long story short, the Fusion
ProGlide is, hands down, the best Gillette
shave Ive ever had. Keep up the good work.
MARK, UNITED STATES
For more, watch Mark at www.pg.com/ar2010/gillette.
P&G Innovations: The Story Continues
Innovation is and has always been the heart of P&Gs success.
It is the primary way our Company and our brands touch and improve
livesand, as a result, grow our business. Today, we have a strong,
global, multiyear innovation program that is driving protable share
growth around the world.
Visit www.pginnovation.com for the most up-to-date highlights of
innovations coming from P&G across virtually every product category.
Touching and Improving Lives in Times of Crisis
P&Gs commitment to help rebuild lives after disasters is a natural expression of our Purpose to
improve lives. Through our people, our products and our partners, we rely on our strengths and a
disciplined process to ensure that all of our effortsboth immediate and long-termare
making a meaningful difference.
Our global disaster response approach allows us to
respond quickly and effectively. Our rst concern is for the
safety and welfare of our employees. Within hours, we
are also in contact with our humanitarian partners to
understand the scope and impact of the crisis, and how
best to respond.
The most immediate way we often help is to provide PUR
Purier of Water packets. Natural disasters can leave places
that typically have safe drinking water suddenly without it.
These packets transform dirty, unsafe water into clean
drinking water in 30 minutes, so they can be very useful
in times of crisis. We have worked closely with several of
our partners to strategically place depots of PUR packets
around the world, making them more readily available
when needed.
In addition to cash donations, we often provide products.
From our soap and personal hygiene products to our
laundry, diaper and cleaning products, our brands can help
restore a sense of normalcy to the disrupted lives of those
caught in the aftermath of a disaster.
This year found the world facing a large number of natural
disasters, including:
Haiti Earthquake, January 2010: P&G immediately started
working with many disaster relief partners to move PUR
packets into Haiti. Dr. Greg Allgood, Director of our P&G
Childrens Safe Drinking Water program, traveled to Haiti to
help train eld personnel how to use and deploy PUR. Many
of our employees around the world generously contributed
to a special Company-matched fund that was distributed to
these partners for the most urgent needs. We also donated
productsbrands like Pampers, Duracell, Always, Crest,
Oral-B and Pantene. The Tide Loads of Hope program
also committed to help, donating the prots from all Tide
Loads of Hope vintage tees sold in February and March.
The funds are being used to rebuild the laundry rooms of
the National University Hospital of the State of Haiti in Port-
au-Prince, and Zanmi Beni, a home for disabled orphans
and abandoned children.
Chile Earthquake, February 2010: Some P&G employees
worked to provide PUR packets, products and monetary
contributions. Others worked to repair our facilities and
get them operational again in just two weeks. Restoring
our operations back to full function helped our employees,
suppliers and customers get back into the rhythm of
everyday life.
P&G employees participated in many volunteer activities,
including a trip that 56 employees took to Villa Prat, a town
located three hours from Santiago. While there, some of
our employees distributed building materials. Others played
football, danced and painted with the local children to
give their parents a break from the stress of living in
temporary housing.
Managements Responsibility for Financial Reporting 28
Managements Report on Internal Control over Financial Reporting 29
Reports of Independent Registered Public Accounting Firm 29
Managements Discussion and Analysis
Overview 31
Summary of 2010 Results 34
Forward-Looking Statements 34
Results of Operations 35
Segment Results 38
Financial Condition 43
Signicant Accounting Policies and Estimates 46
Other Information 48
Audited Consolidated Financial Statements
Consolidated Statements of Earnings 51
Consolidated Balance Sheets 52
Consolidated Statements of Shareholders Equity 53
Consolidated Statements of Cash Flows 54
Notes to Consolidated Financial Statements 55
Financial Contents
Managements Responsibility for Financial Reporting
At The Procter & Gamble Company, we take great pride in our long
history of doing whats right. If you analyze whats 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 companys 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 whats right that
unites us.
This commitment to doing whats right is embodied in our nancial
reporting. High-quality nancial reporting is our responsibility one we
execute with integrity, and within both the letter and spirit of the law.
High-quality nancial reporting is characterized by accuracy, objectivity
and transparency. Management is responsible for maintaining an
effective system of internal controls over nancial 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 unqualied 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
Companys Worldwide Business Conduct Manual, which sets forth
the Companys 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 sufciently reliable
to permit the preparation of nancial 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 nancial and compliance audits around
the world, including unannounced audits, our Global Internal Audit
organization provides training and continuously improves internal
control processes. Appropriate actions are taken by management to
correct any identied control deciencies.
Executing nancial stewardship. We maintain specic programs and
activities to ensure that employees understand their duciary respon-
sibilities to shareholders. This ongoing effort encompasses nancial
discipline in strategic and daily business decisions and brings particular
focus to maintaining accurate nancial reporting and effective controls
through process improvement, skill development and oversight.
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, nancial 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 con-
trols 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
executives responsible for evaluating disclosure implications of signi-
cant business activities and events. The Committee reports its ndings
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 Boards oversight. Our Audit Committee comprises independent
directors with signicant nancial knowledge and experience. We
review signicant accounting policies, nancial 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 whats right. Our employees
embrace our Purpose, Values and Principles. We take responsibility for
the quality and accuracy of our nancial 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 condence in P&Gs future.
R.A. McDonald
J.R. Moeller
Chief Financial Ofcer
In our opinion, such Consolidated Financial Statements present fairly,
in all material respects, the nancial position of the Company at
June30, 2010 and 2009, and the results of its operations and cash
ows for each of the three years in the period ended June30, 2010,
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 Companys
internal control over nancial reporting as of June 30, 2010, 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 August13, 2010 expressed an
unqualied opinion on the Companys internal control over nancial
reporting.
Cincinnati, Ohio
August 13, 2010
Managements Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
Management is responsible for establishing and maintaining adequate
internal control over nancial reporting of The Procter & Gamble
Company (as dened in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended). Our internal control over nancial reporting
is designed to provide reasonable assurance regarding the reliability
of nancial reporting and the preparation of nancial 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 Companys internal control over nancial
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 identied control deciencies. Because of its inherent
limitations, any system of internal control over nancial reporting, no
matter how well designed, may not prevent or detect misstatements
due to the possibility that a control can be circumvented or overridden
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 Companys internal
control over nancial reporting as of June 30, 2010, 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 nancial reporting as of June 30, 2010, based on these
criteria.
Deloitte & Touche LLP, an independent registered public accounting
rm, has audited the effectiveness of the Companys internal control
over nancial reporting as of June 30, 2010, as stated in their report
which is included herein.
R.A. McDonald
J.R. Moeller
August 13, 2010
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, 2010 and 2009, and the related Consolidated Statements
of Earnings, Shareholders Equity, and Cash Flows for each of the three
years in the period ended June 30, 2010. These nancial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these nancial 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 nancial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the nan-
cial statements. An audit also includes assessing the accounting
principles used and signicant estimates made by management, as
well as evaluating the overall nancial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
We have audited the internal control over nancial reporting of The
Procter & Gamble Company and subsidiaries (the Company) as of
June 30, 2010, based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys manage-
ment is responsible for maintaining effective internal control over
nancial reporting and for its assessment of the effectiveness of internal
control over nancial reporting, included in Managements Report
on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over nancial
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 reason-
able assurance about whether effective internal control over nancial
reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over nancial reporting,
assessing the risk that a material weakness exists, testing and evaluat-
ing the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over nancial reporting is a process
designed by, or under the supervision of, the companys principal
executive and principal nancial ofcers, or persons performing similar
functions, and effected by the companys board of directors, manage-
ment, and other personnel to provide reasonable assurance regarding
the reliability of nancial reporting and the preparation of nancial
statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over nancial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of nancial 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
companys assets that could have a material effect on the nancial
statements.
Because of the inherent limitations of internal control over nancial
reporting, including the possibility of collusion or improper management
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 nancial
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 nancial reporting as of June 30, 2010,
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, 2010 and our report dated August 13, 2010 expressed an
unqualied opinion on those nancial statements.
Cincinnati, Ohio
August 13, 2010
The purpose of this discussion is to provide an understanding of
P&Gs nancial results and condition by focusing on changes in
certain key measures from year to year. Managements Discussion
and Analysis (MD&A) is organized in the following sections:
Overview
Summary of 2010 Results
Forward-Looking Statements
Results of Operations
Segment Results
Financial Condition
Signicant Accounting Policies and Estimates
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 nancial measures that
are not dened 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 ow and free cash ow
productivity. Organic sales growth is sales growth excluding the
impacts of foreign exchange, acquisitions and divestitures. Core EPS is
diluted net earnings per share from continuing operations excluding
certain specied charges. Free cash ow is operating cash ow less
capital spending. Free cash ow productivity is the ratio of free cash
ow to net earnings. We believe these measures provide investors
with important information that is useful in understanding our busi-
ness 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 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
In October 2009, we sold our global pharmaceuticals business to
Warner Chilcott plc (Warner Chilcott) for $2.8billion, 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 facilities
in Puerto Rico and Germany. The pharmaceuticals business had histori-
cally 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 con-
tinuing operations and from segment results for all periods presented.
Effective July 2009, we implemented a number of changes to our
organization structure for the Beauty Global Business Unit (GBU),
which resulted in changes to the components of its segment structure.
As a result, the Beauty GBU became the Beauty and Grooming GBU
and reportable segments under the GBU moved to a new consumer-
oriented alignment. The two reportable segments within the Beauty
and Grooming GBU continue to be Beauty and Grooming. However,
female blades and razors transitioned from Grooming to Beauty. In
addition, certain male-focused brands and businesses, such as Old
Spice and Gillette personal care, moved from Beauty to Grooming.
These changes have been reected in our segment reporting begin-
ning in scal year 2010. Our historical segment reporting, including
both the MD&A and footnotes to the accompanying Consolidated
Financial Statements for the years ended June30, 2009 and 2008,
has also been restated to reect the new structure.
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, 38.7million 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 Companys
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 discontin-
ued operations and, as such, have been excluded from continuing
operations and from segment results for all periods presented. The
Snacks, Coffee and Pet Care reportable segment was renamed Snacks
and Pet Care to reect this change.
OVERVIEW
Our business is focused on providing 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 operations in approximately 80 countries.
Managements Discussion and Analysis
32 The Procter & Gamble Company Managements Discussion and Analysis
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 value and low-tier
economy products). Generally speaking, we compete with super-
premium, premium and mid-tier value products and are well positioned
in the industry segments and markets in which we operate often
holding a leadership or signicant market share position.
Organizational Structure
Our organizational structure is comprised of three Global Business
Units (GBUs), along with Global Operations, Global Business Services
(GBS) and Corporate Functions (CF).
GLOBAL BUSINESS UNITS
Our three GBUs are Beauty and Grooming, Health and Well-Being
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 GBUs
and reportable segments and the key product and brand composition
within each.
Beauty and Grooming
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. Our largest female
beauty brand is Olay, 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 beauty electronics 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 approximately
20% of the global market. We are the global market leader in the
feminine care category with about 35% of the global market share.
In personal health, we are the market leader in nonprescription
heartburn medications behind Prilosec OTC and in respiratory treat-
ments with Vicks.
GBU Reportable Segment
% of
Net Sales*
% of Net
Earnings* Categories Billion Dollar Brands
BEAUTY AND GROOMING
Beauty 24% 23% 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
Head & Shoulders, Olay,
Pantene, Wella
Grooming 10% 13% Beauty Electronics, Home Small
Appliances, Male Blades and Razors,
Male Personal Care
Braun, Fusion, Gillette,
Mach3
HEALTH AND WELL-BEING
Health Care 14% 16% Feminine Care, Gastrointestinal,
Incontinence, Rapid Diagnostics,
Respiratory, Toothbrush, Toothpaste,
Water Filtration, Other Oral Care
Always, Crest, Oral-B
Snacks and Pet Care 4% 3% Pet Care, Snacks Iams, Pringles
HOUSEHOLD CARE
Fabric Care and
Home Care
30% 28% Additives, Air Care, Batteries, Dish Care,
Fabric Enhancers, Laundry, Surface Care
Ace, Ariel, Dawn, Downy,
Duracell, Gain, Tide
Baby Care and
Family Care
18% 17% Baby Wipes, Diapers, Paper Towels,
Tissues, Toilet Paper
Bounty, Charmin,
Pampers
* Percent of net sales and net earnings from continuing operations for the year ended June30, 2010 (excluding results held in Corporate).
Managements Discussion and Analysis The Procter & Gamble Company 33
Snacks and Pet Care: In snacks, we compete against both global and
local competitors and have a global market share of approximately
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 approxi-
mately a 10% share of the market.
Household Care
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 approximately 25% of the global battery market share.
Baby Care and Family Care: In baby care, we compete primarily 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 Companys largest brand, with annual net sales of
approximately $9billion. Our family care business is predominantly a
North American business comprised primarily 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-specic teams. It is organized along ve
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 develop-
ing markets, which we dene 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 Companys long-term
nancial targets are:
Grow organic sales 1% to 2% faster than market growth in the
categories and geographies in which we compete,
Deliver earnings per share (EPS) growth of high single digits to low
double digits, and
Generate free cash ow 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:
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.
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.
More Completely. We are improving lives more completely by
innovating to improve existing products and creating or entering
adjacent categories. 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 con-
sumers, we are able to build scale, reduce costs and protably
grow market share.
To achieve our targets, we will also leverage P&Gs 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,
simplication and scale as key improvement areas that will enable
P&G to create the greatest value and competitive advantage. Finally,
we are strengthening 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.
SUMMARY OF 2010 RESULTS
Net sales increased 3% to $78.9billion.
Organic sales increased 3%.
Unit volume increased 4% versus the prior year, behind mid-
single-digit growth in developing regions and low single-digit
growth in developed regions.
Net earnings decreased 5% to $12.7billion.
Net earnings from continuing operations increased 2% to
$10.9billion behind sales growth and operating margin
expansion, partially offset by a higher effective tax rate.
Operating margin expanded 30 basis points versus the prior
year due to higher gross margins, mostly offset by an increase
in selling, general and administrative expenses (SG&A) as a
percentage of net sales.
Net earnings from discontinued operations declined $1.0billion
to $1.8billion due to the loss of contribution from the divested
pharmaceuticals and coffee businesses and lower current period
gains on the sale of discontinued operations.
Diluted net earnings per share declined 4% to $4.11.
Diluted net earnings per share from continuing operations
increased 4% to $3.53.
Diluted net earnings per share from discontinued operations
declined 33% to $0.58.
Core EPS grew 6% to $3.67.
Cash ow from operating activities was $16.1billion.
Free cash ow was $13.0billion.
Free cash ow productivity was 102% and included a negative
23% impact resulting from the global pharmaceuticals
divestiture.
FORWARD-LOOKING 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
communications. All such statements, except for historical and present
factual information, are forward-looking statements, and are based
on nancial 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 signicantly 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 lings.
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 and on the continued positive reputations of our
brands. This means we must be able to obtain patents and respond
to technological advances and patents granted to competition. Our
success is also dependent on effective sales, advertising and market-
ing programs in an increasingly fragmented media environment.
Our ability to innovate and execute in these areas will determine the
extent to which we are able to grow existing sales and volume prot-
ably, especially with respect to the product categories and geographic
markets (including developing markets) in which we have chosen to
focus. We operate in an increasingly volatile economic environment
with high levels of competitive activity. To address these challenges,
we must respond to competitive factors, including pricing, promo-
tional incentives, trade terms and product initiatives. We must manage
each of these factors, as well as maintain mutually benecial relation-
ships 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 delivering against base business objectives. Our success will also
depend on our ability to maintain key information technology systems.
Cost Pressures. Our costs are subject to uctuations, particularly due
to changes in commodity prices, raw materials, cost of labor, foreign
exchange and interest rates. Therefore, our success is dependent, in
part, on our continued ability to manage these uctuations 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 manufacturing and supply arrangements, including sole supplier
and sole manufacturing plant arrangements. We must implement,
achieve and sustain cost improvement plans, including our outsourc-
ing projects and those related to general overhead and workforce
optimization. Successfully managing these changes, including identi-
fying, developing and retaining key employees, is critical to our success.
Global Economic Conditions. Economic changes, terrorist activity
and political unrest may result in business interruption, ination,
deation or decreased demand for our products. Our success will
depend, in part, on our ability to manage continued global political
and/or economic uncertainty, especially in our signicant geographic
markets, as well as any political or economic disruption due to terror-
ist and other hostile activities.
Regulatory Environment. Changes in laws, regulations and the related
interpretations and enforcement actions may alter the environment
in which we do business. This includes changes in environmental,
competitive and product-related laws, as well as changes in account-
ing standards, taxation requirements and enforcement penalties. 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 3% in 2010 to $78.9billion 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 more recent
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.
$79.3
$78.9
$76.7
10
08
09
NET SALES
($ billions)
32%
34%
33%
10
08
09
DEVELOPING MARKETS
(% of net sales)
Net sales decreased 3% in 2009 to $76.7billion behind a 3% decline
in unit volume. Unfavorable foreign exchange reduced net sales by
4% as many foreign currencies weakened versus the U.S. dollar. Price
increases, taken across all segments, primarily to offset higher com-
modity costs and foreign exchange impacts, added 5% to net sales.
Negative product mix reduced net sales by 1% mainly due to dispro-
portionate volume declines in our more discretionary categories and
channels (primarily Prestige, Salon Professional and Appliances), along
with Personal Health Care, all of which have higher than Company
average selling prices. Every reportable segment except Baby Care and
Family Care reported volume declines led by mid-single-digit declines
in Grooming and Snacks and Pet Care. Volume in both developed and
developing regions was below previous year levels. Organic volume,
which excludes the impact of acquisitions and divestitures, declined
2%. Organic sales increased 2% behind the net benet of pricing and
mix. Net sales levels in 2009 were negatively impacted by the global
economic downturn and credit crisis that began during that period
which, along with the aforementioned price increases, contributed to
market contractions, trade inventory reductions and share declines in
certain businesses. These impacts were more pronounced in our more
discretionary categories.
Operating Costs
Comparisons as a percentage of net sales; Years ended June 30 2010
Basis Point
Change 2009
Basis Point
Change 2008
Gross margin 52.0% 250 49.5% (100) 50.5%
Selling, general and administrative expense 31.7% 220 29.5% (80) 30.3%
Operating margin 20.3% 30 20.0% (20 ) 20.2%
Earnings from continuing operations before income taxes 19.1% 30 18.8% 0 18.8%
Net earnings from continuing operations 13.9% 0 13.9% (30 ) 14.2%
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 unfavor-
able foreign exchange and product mix impacts.
Gross margin declined 100 basis points to 49.5% of net sales in
2009. Higher commodity and energy costs, partially offset by savings
projects on raw and packing materials, negatively impacted gross
margin by about 250 basis points. Unfavorable foreign exchange and
incremental restructuring charges also negatively impacted gross
margin. These impacts were partially offset by price increases and
manufacturing and logistics cost savings.
50.5%
52.0%
49.5%
10
08
09
GROSS MARGIN
(% of net sales)
Total selling, general and administrative expenses (SG&A) increased
10% to $25.0billion in 2010 behind higher marketing, overhead and
other operating expenses. SG&A as a percentage of net sales increased
220 basis points to 31.7% due to higher marketing and other operat-
ing expenses as a percentage of net sales, while overhead spending as
a percentage of sales was in line with the prior year. Marketing spend-
ing 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 $492million (see further discussion in the follow-
ing paragraphs) and charges for potential competition law nes of
$283million.
Because of currency restrictions in Venezuela, payments for certain
imported goods and services have historically been satised by
exchanging Bolivares Fuertes for U.S. dollars through securities trans-
actions in the parallel market rather than at the more favorable ofcial
exchange rate. At the discretion of management, these securities
transactions can be utilized to manage exposure to currency move-
ments on local cash balances. A reduction in the availability of foreign
currency at the ofcial exchange rate and an increased spread between
the ofcial and parallel exchange rates during most of scal 2010
resulted in increased costs for exchange transactions executed using
securities transactions in the parallel market during 2010. 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.
SG&A decreased 6% to $22.6billion in 2009 driven primarily by foreign
currency impacts and cost reduction efforts. SG&A as a percentage of
net sales was down 80 basis points due to lower marketing expenses
and the impact of foreign currency transaction gains on working
capital balances caused by strengthening of the U.S. dollar. Marketing
expenses were down as a percentage of net sales for the total
Company and for most reportable segments mainly due to media rate
reductions, foreign exchange and reductions in the amount of media
purchased primarily in the fourth scal quarter. Overhead spending as
a percentage of net sales was up 30 basis points versus the prior year
as productivity improvements were more than offset by the negative
impacts of sales deleverage and incremental restructuring charges.
30.3%
31.7%
29.5%
10
08
09
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
(% of net sales)
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 $220million in
2010. In 2009, we executed approximately $270million after-tax of
additional restructuring-type activities versus 2008 in order to offset
the dilution caused by the disposition of our coffee business.
Non-Operating Items
Interest expense decreased 30% in 2010 to $946million due primarily
to a reduction in interest rates on oating rate debt and a reduction in
debt outstanding. In 2009, interest expense decreased 7% to $1.4bil-
lion primarily driven by a reduction in U.S. dollar interest rates, partially
offset by a higher debt level primarily to fund share repurchases.
Other non-operating income/(expense), net primarily includes divesti-
ture gains, interest and investment income and the provision for
income attributable to noncontrolling interests. Other non-operating
income/(expense), net declined $425million in 2010 to an expense
of $28million mainly due to divestiture gains in the prior year, which
included gains on the sale of Thermacare, Noxzema, Infusium and
other minor brands, and incremental costs in the current year associ-
ated with exercising the call option on an outstanding bond. In 2009,
other non-operating income increased $24million mainly due to
higher divestiture gains.
Income Taxes
The effective tax rate on continuing operations increased 140 basis
points to 27.3%. This was primarily due to a $152million charge for
recently enacted legislation which changed the taxation of certain
future retiree prescription drug subsidy payments in the United States,
the non-deductibility of the aforementioned $283million charge for
potential competition law nes and a lower current-year level of net
favorable adjustments to reserves for previously existing uncertain tax
positions and foreign tax credits, partially offset by a more favorable
current-year geographic mix of earnings. During the current year, net
adjustments to prior-year reserves balances for uncertain tax positions
benetted the effective tax rate by 40 basis points versus a 130-basis
point benet in the prior year. In 2009, the effective tax rate from
continuing operations was up 180 basis points to 25.9% primarily
due to a lower level of net favorable adjustments to reserves for
previously existing uncertain tax positions and geographic mix of
earnings across all reporting segments resulting from a weakening of
key foreign currencies versus the U.S. dollar, partially offset by the
utilization of tax credits. Net adjustments to reserves for uncertain tax
positions benetted the effective tax rate by 130 basis points, versus
a benet of 340 basis points in 2008.
Net Earnings
Net earnings from continuing operations were $10.9billion 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 continuing operations decreased 5%
to $10.7billion in 2009 mainly due to lower net sales and a higher
effective tax rate. Operating margin was down 20 basis points
behind a commodity-driven decline in gross margin, partially offset
by lower SG&A as a percentage of net sales.
Net earnings from discontinued operations declined $1.0billion to
$1.8billion in 2010 primarily 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 discontin-
ued operations. The gains on the sale of the global pharmaceuticals
business in scal 2010 were $1.6billion versus a $2.0billion gain on
the sale of the coffee business in scal 2009. In 2009, net earnings
from discontinued operations, which included the results of the coffee
and pharmaceuticals businesses, increased $2.0billion due to the gain
on the sale of the coffee business. The loss of earnings contribution
from the coffee business in 2009 was mostly offset by an increase in
earnings of the pharmaceuticals business.
Diluted net earnings per share declined 4% to $4.11 in 2010 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. Diluted net earnings per share from continuing operations
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. The reduction in the number of shares outstanding was driven
by treasury share repurchases of $6.0billion, nearly all of which were
made under our publicly announced share repurchase program. This
share repurchase program expired on June30, 2010.
Diluted net earnings per share in 2009 increased 17% to $4.26. The
increase was due mainly to the gain on the sale of our coffee business,
partially offset by lower net earnings from continuing operations.
Diluted net earnings per share from continuing operations in 2009
decreased $0.01 to $3.39. Diluted net earnings per share from discon-
tinued operations was $0.87, comprised primarily of the gain on the
sale of the coffee business and operating earnings of the pharmaceuti-
cals business. Diluted net earnings per share was positively impacted
by fewer shares outstanding as a result of share repurchase activity
and shares tendered in the Folgers coffee transaction. Treasury shares
in the amount of $6.4billion were repurchased in 2009, nearly all of
which were made under our publicly announced share repurchase
program.
$3.64
$4.11
$4.26
10
08
09
DILUTED NET EARNINGS
(per common share)
Core EPS was up 6% to $3.67 in 2010. Core EPS represents diluted
net earnings per share from continuing operations excluding charges
in 2010 for potential competition law nes and recently enacted
legislation which changed the taxation of certain future retiree pre-
scription drug subsidy payments in the United States, the 2009 impact
of incremental restructuring charges incurred to offset the dilutive
impact of the Folgers divestiture and the 2008 impact of signicant
adjustments to tax reserves. Core EPS grew 6% in 2009 to $3.47.
$3.67
$3.26
$3.47
10
08
09
CORE EARNINGS PER SHARE
(per common share)
Venezuela Currency Impacts
On January1, 2010, Venezuela was designated as a highly inationary
economy under U.S. GAAP. As a result, the U.S. dollar became the
functional currency for our subsidiaries in Venezuela. Beginning in our
third scal quarter, currency remeasurement adjustments for non-dollar
denominated monetary assets and liabilities held by these subsidiaries
and other transactional foreign exchange gains and losses are being
reected in earnings and will continue to be reected in earnings on
an ongoing basis. Through December31, 2009 (prior to being desig-
nated as highly inationary), translation adjustments were reected in
Shareholders Equity as part of accumulated other comprehensive
income.
On January8, 2010, the Venezuelan government announced its
intention to devalue the Bolivar Fuerte relative to the U.S. dollar. The
ofcial exchange rate for imported goods classied as essential, such
as food, medicine and capital investments, changed from 2.15 to 2.6,
while payments for other non-essential goods moved to an exchange
rate of 4.3. Many of our imported products fall into the essential
classication and qualify for the 2.6 rate. However, our overall results
in Venezuela are reected in our Consolidated Financial Statements at
the 4.3 rate expected to be applicable to dividend repatriations.
The remeasurement of our local balance sheets in the third scal
quarter to reect the impact of the devaluation did not materially
impact our results. This was due to the relatively small non-dollar
denominated net monetary asset position in Venezuela. There will be
an ongoing impact related to measuring our income statement at the
new exchange rates. Moving from the 2.15 rate to 4.3 will reduce
future total Company reported sales by less than 2% on a going basis.
For the year ended June30, 2010, the impact was about 1%. This
does not impact our organic sales growth rate, which excludes the
impact of foreign currency changes. Versus our original business plans,
the exchange rate change reduced our reported earnings per share by
approximately $0.08 in 2010, with a similar impact expected in 2011.
This impact includes the devaluation impact on Venezuela-related
foreign currency exchange costs.
In our fourth scal quarter, the Venezuelan government introduced
additional exchange controls over securities transactions in the parallel
market. They established the Central Bank of Venezuela as the only
legal intermediary through which parallel market transactions can
be executed and established government control over the parallel
exchange rate (which was approximately 5.3 at June30, 2010). At
the same time, they signicantly reduced the notional amount of
transactions that run through this parallel market mechanism, which
has eliminated our ability to access the parallel market to pay for
imported goods and/or manage our local monetary asset balances.
As of June30, 2010, we had net monetary assets denominated in
local currency of approximately $350million. Approximately $170
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
ofcial rate dollars. The availability of the parallel market to settle these
transactions is uncertain. The remaining net monetary asset balances
are currently reected within our Consolidated Financial Statements
at the 4.3 ofcial exchange rate. Depending on the future availability
of U.S. dollars at the ofcial rate, our local U.S. dollar needs and our
overall repatriation plans, we have exposure for the differential
between the ofcial and parallel exchange rates on this portion of
our local monetary assets.
Over time, we will attempt to restore the sales and prot levels
achieved prior to the devaluation. However, our ability to do so will be
impacted by several factors, including the Companys ability to mitigate
the effect of the devaluation, further actions of the Venezuelan
government, economic conditions in Venezuela such as ination and
consumer spending, the availability of raw materials, utilities and energy
and the future state of exchange controls in Venezuela including the
availability of U.S. dollars at the ofcial foreign exchange rate.
SEGMENT RESULTS
Results for the segments reect information on the same basis we
use for internal management reporting and performance evaluation.
Within the Beauty and Grooming GBU, we provide data for the
Beauty and the Grooming reportable segments. In the Health and
Well-Being GBU, we provide data for the Health Care and the Snacks
and Pet Care reportable segments. In the Household Care GBU, we
provide data for the Fabric Care and Home Care and the Baby Care
and Family Care reportable segments. All references to net earnings
throughout the discussion of segment results refer to net earnings
from continuing operations.
The results of these reportable business segments do not include
certain non-business unit specic 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 Note11
to the Consolidated Financial Statements, we have investments in
certain companies over which we exert signicant inuence, but
do not control the nancial and operating decisions and, therefore, do
not consolidate these companies for U.S. GAAP purposes (unconsoli-
dated entities). Given that certain of these investments are managed
as integral parts of the Companys business units, they are accounted
for as if they were consolidated subsidiaries for management and
segment reporting purposes. This means pretax earnings in the business
units include 100% of each pretax 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.
Net Sales Change Drivers vs. Year Ago (2010 vs. 2009)
Volume with
Acquisitions &
Divestitures
Volume
Excluding
Acquisitions &
Divestitures
Foreign
Exchange Price Mix/Other
Net Sales
Growth
BEAUTY AND GROOMING
Beauty 3% 4% 0% 1% -1% 3%
Grooming 1% 1% 0% 4% -2% 3%
HEALTH AND WELL-BEING
Health Care 3% 3% 0% 1% -2% 2%
Snacks and Pet Care -2% -2% 1% 3% -1% 1%
HOUSEHOLD CARE
Fabric Care and Home Care 6% 6% -1% -1% -1% 3%
Baby Care and Family Care 7% 7% -1% 0% -2% 4%
TOTAL COMPANY 4% 4% -1% 1% -1% 3%
Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.
Beauty and Grooming
BEAUTY
($millions) 2010
Change vs.
Prior Year 2009
Change vs.
Prior Year
Volume n/a +3% n/a -2%
Net sales $19,491 +3% $18,924 -4%
Net earnings $ 2,712 +2% $ 2,664 -6%
Beauty net sales increased 3% in 2010 to $19.5billion 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 more recent price reductions in Hair
Care. Unfavorable geographic mix reduced net sales 1% due to
disproportionate growth in developing 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 on a constant currency basis 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 scal 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 con-
tinued contraction of the fragrance market.
Net earnings increased 2% in 2010 to $2.7billion driven by net sales
growth, partially offset by a 20-basis point reduction in net earnings
margin. Net earnings margins 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 in the current year, 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.
Beauty net sales decreased 4% in 2009 to $18.9billion on a 2%
decline in unit volume. Price increases to offset higher commodity
costs added 2% to net sales. Unfavorable foreign exchange reduced
net sales by 4%. Organic sales increased 1% versus the prior year
behind price increases. Volume in developed regions declined mid-
single digits, while volume in developing regions grew low single
digits. Hair Care volume in the retail channel grew low single digits
behind growth of Pantene, Head & Shoulders and Rejoice. Salon
Professional volume declined mid-single digits mainly due to market
contractions and trade inventory reductions. Volume in Female
Beauty declined mid-single digits primarily due to competitive activity
affecting shipments of Olay and lower shipments of personal cleansing
products driven by trade inventory reductions, market contractions
and the divestiture of Noxzema. Prestige volume declined high single
digits primarily due to market contractions and trade inventory
reductions of prestige fragrances. Our market shares in key categories
within Beauty were generally consistent with the prior year. Net
earnings decreased 6% in 2009 to $2.7billion mainly due to lower
net sales and reduced net earnings margin. Net earnings margin
contracted 30 basis points due to reduced gross margin and a higher
effective tax rate, partially offset by reduced SG&A as a percentage
of net sales. Gross margin declined due to higher commodity costs,
which were only partially offset by price increases and manufacturing
cost savings. SG&A was down primarily due to lower marketing
spending as a percentage of net sales.
The economic downturn which began in scal 2009 resulted in a
disproportionate decline in the Salon Professional business, given the
more discretionary nature of salon visits and purchases. Over time,
we believe the Salon Professional business will return to sales and
earnings growth rates consistent with our long-term business plans.
Failure to achieve these business plans or a further deterioration of
the macroeconomic conditions could result in an impairment of the
goodwill and intangible assets of the Salon Professional business.
See the discussion of Acquisitions, Goodwill and Intangibles in the
Signicant Accounting Policies and Estimates section for additional
information.
GROOMING
($millions) 2010
Change vs.
Prior Year 2009
Change vs.
Prior Year
Net sales $7,631 +3% $7,408 -9%
Net earnings $1,477 +9% $1,359 -14%
Grooming net sales increased 3% to $7.6billion 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. On a constant currency basis, 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 on a
constant currency basis.
Net earnings increased 9% to $1.5billion 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.
Grooming net sales declined 9% in 2009 to $7.4billion on a 5%
decline in unit volume. Unfavorable foreign exchange reduced net
sales by 6%. Product mix had a negative 2% impact on net sales as
favorable product mix from growth of the premium-priced Gillette
Fusion brand was more than offset by a disproportionate decline of
Appliances, both of which have higher than segment average selling
prices. Price increases, taken across most product lines and in part to
offset foreign exchange impacts in developing regions, added 4% to
net sales. Organic sales were down 2% versus the prior year on a 5%
decline in organic volume, mainly due to the sharp decline of the
Appliances business. Volume in both developed and developing regions
declined mid-single digits. Male Grooming volume declined low
single digits primarily driven by market contractions in developed
regions and trade inventory reductions. Growth of Gillette Fusion was
more than offset by declines in legacy shaving systems. Global value
share of male blades and razors was up less than half a point versus
the prior year. Volume in Appliances was down double digits due to
market contractions, trade inventory reductions and the exits of the
U.S. home appliance and Tassimo coffee appliance businesses. Global
value share of the male dry shaving market was down less than half a
point. Net earnings were down 14% in 2009 to $1.4billion primarily
on the decline in net sales and a 120-basis point reduction in net
earnings margin. Net earnings margin was down due to a higher
effective tax rate and reduced gross margin, partially offset by lower
SG&A as a percentage of net sales. Gross margin declined due to
unfavorable product mix resulting from disproportionate growth of
disposable razors, higher commodity costs and volume scale delever-
age which were partially offset by price increases and manufacturing
cost savings.
The economic downturn in scal 2009 resulted in a disproportionate
decline in the Appliances business, particularly in developing geogra-
phies, given the more discretionary nature of home and personal
grooming appliance purchases. Over time, we believe the Appliances
business will return to sales and earnings growth rates consistent with
our long-term business plans. Failure to achieve these business plans
or a further deterioration of the macroeconomic conditions could
result in an impairment of the goodwill and intangible assets of the
Appliance business. See the discussion of Acquisitions, Goodwill and
Intangibles in the Signicant Accounting Policies and Estimates section
for additional information.
HEALTH CARE
($millions) 2010
Change vs.
Prior Year 2009
Change vs.
Prior Year
Net sales $11,493 +2% $11,288 -7%
Net earnings $ 1,860 +1% $ 1,835 -9%
Health Care net sales increased 2% in 2010 to $11.5billion 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 disproportion-
ate growth of 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 diagnostic 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 has
declined 1 point, led by a 5-share point decline of Prilosec OTCs 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 on a constant
currency basis.
Net earnings increased 1% to $1.9billion 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.
Health Care net sales were down 7% to $11.3billion in 2009 on a
3% decline in unit volume. Unfavorable foreign exchange reduced
net sales by 5%. Negative product mix from disproportionately higher
volume declines of Personal Health Care, which have higher than
segment average selling prices, reduced net sales by 2%. These
negative impacts were partially offset by positive pricing impacts of
3%. Organic sales were down 1% versus scal 2008. Volume declined
mid-single digits in developed regions and low single digits in devel-
oping regions. Personal Health Care volume was down double digits
due to the loss of marketplace exclusivity of Prilosec OTC in North
America, the impact of a mild cold and u season on Vicks and the
divestiture of Thermacare. All-outlet value share of the U.S. personal
health care market has declined over 2 points, including a double-digit
share decline of Prilosec OTC. Oral Care volume declined low single
digits behind trade inventory reductions and market contractions in
North America and CEEMEA. Our global market share of oral care
was in line with the prior year. Feminine Care volume was down low
single digits mainly due to trade inventory reductions and market
contractions in North America and CEEMEA. Our global feminine care
market share was down half a point versus the prior year. Net earnings
declined 9% to $1.8billion in 2009 mainly due to lower net sales.
Net earnings margin was down 50 basis points due primarily to lower
gross margin and higher overhead spending as a percentage of net
sales, partially offset by a reduction in marketing spending as a
percentage of net sales. The decline in gross margin was driven by
higher commodity costs, which were partially offset by price increases
and manufacturing cost savings.
SNACKS AND PET CARE
($millions) 2010
Change vs.
Prior Year 2009
Change vs.
Prior Year
Volume n/a -2% n/a -6%
Net sales $3,135 +1% $3,114 -3%
Net earnings $ 326 +39% $ 234 -10%
Snacks and Pet Care net sales increased 1% in 2010 to $3.1billion
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 discontinuation 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.
On a constant currency basis, 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 $326million 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.
Snacks and Pet Care net sales decreased 3% to $3.1billion in 2009
on a 6% decline in unit volume. Price increases to offset higher
commodity costs added 9% to net sales. Product mix reduced net
sales by 2% due to lower shipments of Eukanuba and premium snack
products, which have higher than segment average selling prices.
Unfavorable foreign exchange reduced net sales by 4%. Organic sales
increased 1%. Snacks volume decreased high single digits due to
lower merchandising support and trade inventory levels, a high base
period, which included the Rice Infusion, Extreme Flavors and Stix
product launches and volume share declines following price increases.
Our global snacks market share declined about 1 point versus the
prior year. Volume in Pet Care declined mid-single digits mainly due
to declines in the premium nutrition business following multiple price
increases. Net earnings in 2009 were down 10% to $234million on
lower net sales and a 60-basis point reduction in net earnings margin.
A reduction in gross margin and a higher effective tax rate each
reduced net earnings margin. These impacts were partially offset by
lower SG&A as a percentage of net sales. Gross margin declined due
to higher commodity costs, partially offset by higher selling prices
and manufacturing cost savings. SG&A as a percentage of net sales
declined due to reductions in both marketing and overhead spending.
Household Care
FABRIC CARE AND HOME CARE
($millions) 2010
Change vs.
Prior Year 2009
Change vs.
Prior Year
Net sales $23,805 +3% $23,186 -2%
Net earnings $ 3,339 +10% $ 3,032 -11%
Fabric Care and Home Care net sales increased 3% to $23.8billion 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 merchandis-
ing activity. Global market share of the fabric care category was down
about half a point on a constant currency basis. During 2010, the
Ace laundry brand became the Companys 23rdbillion-dollar brand.
Home Care volume was up high single digits mainly due to new
product launches, media spending increases and market size expan-
sion. On a constant currency basis, 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 $3.3billion 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 manufac-
turing 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.
Fabric Care and Home Care net sales were down 2% in 2009 to
$23.2billion on a 3% decline in unit volume. Price increases, taken
primarily to offset higher commodity costs, added 6% to net sales,
while unfavorable foreign exchange reduced net sales by 5%. Organic
sales increased 3%. Fabric Care, Home Care and Batteries unit volume
were each down in both developed and developing regions. Volume in
Fabric Care declined low single digits due to trade inventory reductions
and net market volume share declines following price increases. Lower
shipments of premium-priced Tide and Ariel were only partially offset
by growth of Gain and Downy. Global value share of the fabric care
market was down less than half a point behind declines in U.S. all-
outlet shares of Tide and Downy, partially offset by share growth of
Gain. Home Care volume was down low single digits due to market
contractions and trade inventory reductions. Batteries volume declined
high single digits due to market contractions, trade inventory reduc-
tions and competitive activity, which drove a 1-point market share
decline of general purpose batteries. Net earnings declined 11% to
$3.0billion primarily due to reduced net earnings margin and lower
net sales. Net earnings margin contracted 130 basis points due to a
commodity-driven decline in gross margin, which was partially offset
by price increases and manufacturing cost savings. Lower marketing
spending as a percentage of net sales was largely offset by higher
overhead spending as a percentage of net sales.
In July2010, we acquired Ambi Pur, a leading air care brand with
presence in 80 countries, as well as several toilet care products from
the Sara Lee Corporation for approximately $400million. This business
will be integrated into Home Care and will be reected in the results
of operations of the Fabric Care and Home Care segment beginning in
scal 2011. This acquisition is not expected to have a material impact
on the results of operations for the Company or the reportable segment.
BABY CARE AND FAMILY CARE
($millions) 2010
Change vs.
Prior Year 2009
Change vs.
Prior Year
Volume n/a +7% n/a +1%
Net sales $14,736 +4% $14,103 +1%
Net earnings $ 2,049 +16% $ 1,770 +2%
Baby Care and Family Care net sales grew 4% to $14.7billion 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 devaluations 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 on a constant currency basis. Volume
in Family Care grew high single digits due to increased merchandising
and initiative activity, market growth and price reductions to improve
consumer value.
Net earnings increased 16% to $2.0billion 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.
Baby Care and Family Care net sales increased 1% to $14.1billion in
2009 on 1% volume growth. Pricing to help recover higher commodity
and energy costs contributed 5% to net sales growth. Unfavorable
foreign exchange reduced net sales by 4%. Negative product mix from
higher shipments of mid-tier brands, which have lower than segment
average selling prices, reduced net sales by 1%. Organic sales were
up 7% on a 2% increase in organic volume. Volume growth was
driven by low single-digit growth in developing regions, while volume
in developed regions was in line with the prior year. Baby Care volume
increased low single digits due to growth of Pampers primarily in
developing regions and double-digit growth of Luvs in North America.
Our global market share of baby care was up nearly half a point.
Family Care volume was down low single digits due to the Western
European family care divestiture. Organic volume for Family Care was
up low single digits behind double-digit growth of Charmin Basic and
Bounty Basic. U.S. market share on Bounty was up nearly 1 point,
while Charmin market share remained consistent with the prior year.
Net earnings were up 2% versus the prior year to $1.8billion due to
net sales growth and higher net earnings margin. Net earnings margin
increased 10 basis points as higher gross margin was partially offset
by an increase in SG&A as a percentage of net sales and a higher
effective tax rate. Gross margin improved due to the impact of price
increases, manufacturing cost savings and more positive product mix
following the Western European family care divestiture, which more
than offset higher commodity and energy costs. SG&A as a percent-
age of net sales increased due to the higher current period overhead
spending and base period reimbursements for services related to
the Western European family care divestiture, partially offset by lower
marketing spending.
Corporate
Corporate includes certain operating and non-operating activities not
allocated to specic business units. These include: the incidental
businesses managed at the corporate level; nancing 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 manufac-
turing and workforce optimization. Corporate also includes reconciling
items to adjust the accounting policies used in the segments to U.S.
GAAP. The most signicant reconciling items include income taxes
(to adjust from statutory rates that are reected in the segments to
the overall Company effective tax rate), adjustments for unconsoli-
dated 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 noncontrolling interests in Corporate. In determining
segment after-tax net earnings, we apply the statutory tax rates (with
adjustments to arrive at the Companys 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 reect the adjustment to eliminate the
sales of unconsolidated entities included in business segment results.
Accordingly, Corporate net sales is generally a negative balance. In
2010, negative net sales in Corporate were up 2% mainly due to
changes in reconciling items needed to adjust the accounting policies
used in the segments to U.S. GAAP. Net expenses from continuing
operations increased $603million to $817million. The increase was
primarily due to current period charges for potential competition law
nes and for recently enacted legislation impacting the taxation of
certain future retiree prescription drug subsidy payments and the impact
of higher prior-period divestiture gains and tax audit settlements.
These impacts were partially offset by lower current-period interest
expense and restructuring charges. Additional discussion of the items
impacting net expenses in Corporate can be found in the Results of
Operations section.
In 2009, negative net sales in Corporate declined $86million primarily
driven by lower adjustments to eliminate the sales of unconsolidated
entities included in business segment results. These adjustments
decreased due to lower net sales of existing unconsolidated entities.
Net expenses from continuing operations decreased $325million to
$214million. The decrease was primarily due to corporate hedging
impacts, lower interest expense and higher current period divestiture
gains, partially offset by higher restructuring spending.
FINANCIAL CONDITION
We believe our nancial 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 ow provides the primary source of funds to nance
operating needs and capital expenditures. Excess operating cash is used
rst to fund shareholder dividends. Other discretionary uses include
share repurchases and tack-on acquisitions to complement our port-
folio of brands and geographies. As necessary, we may supplement
operating cash ow with debt to fund these activities. The overall
cash position of the Company reects 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 ow was $16.1billion in 2010, an 8% increase versus
the prior year. Operating cash ow 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) and a reduction in working capital. The increase in operating
cash ow was primarily due to the current year reduction in working
capital balances, partially offset by a decline in earnings versus 2009.
Working capital reductions contributed $2.5billion to operating cash
ow in 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 ow despite growth in the
business due to a reduction in days on hand due primarily to inven-
tory management improvement efforts. Cash ow from discontinued
operations contributed $285million to operating cash ow.
In 2009, operating cash ow was $14.9billion, a decrease of 1% versus
the prior year total of $15.0billion. Operating cash ow resulted
primarily from net earnings adjusted for non-cash items. The decrease
in operating cash ow versus 2008 was primarily due to a decline in
net earnings from continuing operations. A net decrease in working
capital also added to cash ow as lower accounts receivable and
inventory balances were partially offset by a decline in accounts payable.
The decrease in working capital was primarily due to the impact of
lower net sales and our ability to adequately adjust production to better
meet unit volume requirements. Accounts receivable days declined
primarily due to improved collection efforts. Inventory and accounts
payable days declined due in part to the optimization of our manu-
facturing process and inventory levels and a moderation of commodity
costs late in the year. Other operating assets and liabilities reduced
cash ow primarily due to changes in postretirement benet plans.
Cash ow from discontinued operations contributed $662million to
operating cash ow.
Free Cash Flow. We view free cash ow as an important measure
because it is one factor impacting the amount of cash available for
dividends and discretionary investment. It is dened as operating cash
ow less capital expenditures and is one of the measures used to
evaluate senior management and determine their at-risk compensation.
Free cash ow was $13.0billion in 2010, an increase of 11% versus
the prior year. Free cash ow increased due to higher operating cash
ow and lower capital spending. Free cash ow productivity, dened
as the ratio of free cash ow to net earnings, was 102% in 2010. This
includes a negative 23% impact resulting from the global pharmaceu-
ticals divestiture, which increased net earnings and lowered operating
cash ow due to tax payments on the divestiture gain.
In 2009, free cash ow was $11.7billion, compared to $12.0billion in
2008. Free cash ow decreased as a result of higher capital spending
and lower operating cash ow. Free cash ow productivity was 87%
in 2009. This was below our 90% target primarily due to the gain on
the Folgers coffee transaction which lowered productivity by approxi-
mately 15% because the gain is included in net earnings but had no
material impact on operating cash ow.
99%
102%
87%
10
08
09
FREE CASH FLOW PRODUCTIVITY
(% of net earnings)
Investing Activities
Net investing activities consumed $597million of cash in 2010 and
$2.4billion in 2009 mainly due to capital spending and acquisitions,
partially offset by proceeds from asset sales, including $3.0billion in
cash received from the sale of our global pharmaceuticals business
in 2010. Discontinued operations consumed $1million of cash from
investing activities in 2010 and contributed $69million in 2009.
Capital Spending. We view capital spending efciency 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. Our target for capital
spending is 4% of net sales. Capital expenditures, primarily to support
capacity expansion, innovation and cost savings, were $3.1billion in
2010 and $3.2billion in 2009. The decline in capital spending resulted
primarily from cost control efforts and capacity expansion of our
Family Care business in 2009, partially offset by the construction of
new manufacturing facilities in 2010. Capital spending as a percentage
of net sales improved 30 basis points to 3.9% in 2010 behind the
scale leverage of net sales growth and a reduction in capital spending.
Capital spending as a percentage of net sales in 2009 increased 40basis
points versus the prior year to 4.2% primarily due to capacity expan-
sion of our Family Care business in North America as well as increased
spending to support innovation in Beauty. Capital spending for our
discontinued coffee and pharmaceuticals businesses was $1million in
2010 and $11million in 2009.
3.9%
3.8%
4.2%
10
08
09
CAPITAL SPENDING
(% of net sales)
Acquisitions. Acquisitions used $425million of cash in 2010 primarily
for the acquisition of Natura, a holistic and naturals pet products
company. In 2009, acquisitions used $368million of cash mainly for
the acquisition of Nioxin, a leader in the scalp care professional hair
care market.
Proceeds from Asset Sales. Proceeds from asset sales contributed
$3.1billion to cash in 2010 mainly due to the sale of our global
pharmaceuticals business. In 2009, proceeds from asset sales were
$1.1billion from the sale of our coffee business, Thermacare and a
number of other minor brands. Of these proceeds, $350million related
to debt issued in connection with the Folgers coffee transaction.
The underlying debt obligation was transferred to The J.M. Smucker
Company pursuant to the transaction. No cash was received from
Smucker in the exchange transaction. Proceeds from asset sales within
discontinued operations were $81million in 2009.
Financing Activities
Dividend Payments. Our rst discretionary use of cash is dividend
payments. Dividends per common share increased 10% to $1.80 per
share in 2010. Total dividend payments to both common and preferred
shareholders were $5.5billion in 2010 and $5.0billion in 2009. 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 2010, the Board of Directors declared an
increase in our quarterly dividend from $0.44 to $0.4818 per share on
Common Stock and Series A and B ESOP Convertible Class A Preferred
Stock. This represents a 9.5% increase compared to the prior quarterly
dividend and is the 54th consecutive year that our dividend has
increased. We have paid a dividend in every year since our incorporation
in 1890.
$1.45
$1.80
$1.64
10
08
09
DIVIDENDS
(per common share)
Long-Term and Short-Term Debt. We maintain debt levels we consider
appropriate after evaluating a number of factors, including cash ow
expectations, cash requirements for ongoing operations, investment
and nancing plans (including acquisitions and share repurchase
activities) and the overall cost of capital. Total debt was $29.8billion
in 2010, $37.0billion in 2009 and $36.7billion in 2008. Our total
debt decreased in 2010 mainly due to repayments funded by operat-
ing cash ow and cash provided by the global pharmaceuticals
divestiture.
Treasury Purchases. In 2007, we began to acquire outstanding
shares under a publicly announced three-year share repurchase plan,
which expired on June30, 2010. We acquired $22.3billion of shares
under this repurchase plan. Total share repurchases were $6.0billion
in 2010 and $6.4billion in 2009, nearly all of which were made under
the publicly announced plan. We currently expect share repurchases
of $6 8billion in 2011.
In November 2008, we completed the divestiture of our Folgers coffee
subsidiary. In connection with this divestiture, 38.7million shares of
P&G common stock were tendered by shareholders and exchanged
for all shares of Folgers common stock, resulting in an increase of
treasury stock of $2.5billion.
Liquidity
Our current liabilities exceeded current assets by $5.5billion. We
utilize short- and long-term debt to fund discretionary items such as
acquisitions and share repurchases. We anticipate being able to
support our short-term liquidity and operating needs largely through
cash generated from operations. We have strong short- and long-term
debt ratings which have enabled and should continue to enable us to
renance 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 nancial institutions that, if needed, should provide
sufcient credit funding to meet short-term nancing requirements.
On June30, 2010, our short-term credit ratings were P-1 (Moodys) and
A-1+ (Standard & Poors), while our long-term credit ratings are Aa3
(Moodys) and AA- (Standard & Poors), both with a stable outlook.
We maintain three bank credit facilities: a $6billion 5-year facility and
a $3billion 5-year facility which expire in August 2012 and a $2billion
364-day facility which expires in August 2011. The credit facilities are
in place to support our ongoing commercial paper program. These
facilities can be extended for certain periods of time as specied in, and
in accordance with, the terms of each credit agreement. 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 led 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 nancing
arrangements, including variable interest entities, which we believe
could have a material impact on nancial condition or liquidity.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
In preparing our nancial 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 benets and acquisitions, goodwill and intangible assets.
We believe these accounting policies, and others set forth in Note1
to the Consolidated Financial Statements, should be reviewed as they
are integral to understanding the results of operations and nancial
condition of the Company.
The Company has discussed the selection of signicant accounting
policies and the effect of estimates with the Audit Committee of the
Companys 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 nancial reporting purposes. Tax law requires certain items
to be included in the tax return at different times than the items are
reected in the nancial 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.
Contractual Commitments
The following table provides information on the amount and payable date of our contractual commitments as of June30, 2010.
($millions) Total
Less Than
1 Year 1 3 Years 3 5 Years After 5 Years
RECORDED LIABILITIES
Total debt $29,283 $ 8,429 $5,215 $4,611 $11,028
Capital leases 401 44 95 76 186
Uncertain tax positions
(1)
127 127
OTHER
Interest payments relating to long-term debt 10,292 922 1,745 1,413 6,212
Operating leases
(2)
1,514 282 433 313 486
Minimum pension funding
(3)
1,298 441 857
Purchase obligations
(4)
2,694 896 1,096 401 301
TOTAL CONTRACTUAL COMMITMENTS 45,609 11,141 9,441 6,814 18,213
(1) As of June30, 2010, the Companys Consolidated Balance Sheet reects a liability for uncertain tax positions of $2.5billion, including $711million of interest and penalties. Due to the high degree
of uncertainty regarding the timing of future cash outows 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 June30, 2010, 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 scal year 2013 are not currently determinable.
(4) Primarily reects 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 45% 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 reected in historical operating cash ow trends. We do not believe such purchase obligations will adversely affect our liquidity position.
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 benet in our income statement.
Deferred tax liabilities generally represent tax expense recognized in
our nancial 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 nancial
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 sufcient taxable income in the appropriate jurisdiction
prior to the expiration of the carry-forward 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 scal 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 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 nancial position, results of operations or cash ows.
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.
Employee Benefits
We sponsor various post-employment benets throughout the world.
These include pension plans, both dened contribution plans and
dened benet plans, and other post-employment benet (OPEB) plans,
consisting primarily of health care and life insurance for retirees. For
accounting purposes, the dened benet pension and OPEB plans
require assumptions to estimate the projected and accumulated
benet 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 reect our historical experiences and manage-
ments best judgment regarding future expectations. In accordance
with 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
benet of plan changes, such as increasing or decreasing benets 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 benets.
The expected return on plan assets assumption is important, since
many of our dened benet pension plans and our primary OPEB plan
are funded. The process for setting the expected rates of return is
described in Note8 to the Consolidated Financial Statements. For
2010, the average return on assets assumptions for pension plan
assets and OPEB assets were 7.1% and 9.1%, respectively. A change
in the rate of return of 0.5% for both pension and OPEB assets would
impact annual after-tax benet expense by less than $45million.
Since pension and OPEB liabilities are measured on a discounted basis,
the discount rate is a signicant assumption. Discount rates used for
our U.S. dened benet 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 outows 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 dened benet
pension plans of 5.0% represents a weighted average of local rates in
countries where such plans exist. A 0.5% change in the discount rate
would impact annual after-tax dened benet pension expense by
less than $65million. The average discount rate on the OPEB plan of
5.4% reects the higher interest rates generally applicable in the U.S.,
which is where a majority of the plan participants receive benets.
A 0.5% change in the discount rate would impact annual after-tax
OPEB expense by less than $30million.
Certain dened contribution pension and OPEB benets in the U.S. are
funded by the Employee Stock Ownership Plan (ESOP), as discussed in
Note8 to the Consolidated Financial Statements.
Acquisitions, Goodwill and Intangible Assets
We account for acquired businesses using the purchase method of
accounting. Under the purchase method, our Consolidated Financial
Statements reect 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 purchase
price over the estimated fair values of the net assets acquired
recorded as goodwill.
Signicant 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 signicant 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 ows attributable to the respective assets. Signicant estimates
and assumptions inherent in the valuations reect a consideration of
other marketplace participants, and include the amount and timing
of future cash ows (including expected growth rates and protability),
the underlying product or technology life cycles, economic barriers to
entry, a brands relative market position and the discount rate applied
to the cash ows. 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 judg-
ment. Certain brand intangibles are expected to have indenite lives
based on their history and our plans to continue to support and build
the acquired brands. Other acquired intangible assets (e.g., certain
trademarks or brands, customer relationships, patents and technologies)
are expected to have determinable useful lives. Our assessment as to
brands that have an indenite 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 indenite-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 indenite-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
indenite-lived intangibles by reviewing the individual book values
compared to the fair value. We determine the fair value of our report-
ing units and indenite-lived intangible assets based on the income
approach. Under the income approach, we calculate the fair value of
our reporting units based on the present value of estimated future
cash ows. Considerable management judgment is necessary to
evaluate the impact of operating and macroeconomic changes and
to estimate future cash ows 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, indenite-
lived intangible assets may be reclassied to a determinable life asset
and an additional impairment assessment may be performed. We did
not recognize any material impairment charges for goodwill or intan-
gible assets during the years presented.
Our annual impairment testing for both goodwill and indenite-lived
intangible assets indicated that all reporting unit and 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 indenite-lived intangible
assets, including discount and tax rates or future cash ow projections,
could result in signicantly different estimates of the fair values. A
signicant reduction in the estimated fair values could result in impair-
ment charges that could materially affect the nancial 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 environmental conditions
and therefore are more susceptible to an adverse change that could
require an impairment charge.
For example, because the Gillette intangible and goodwill amounts
represent values as of a relatively more recent acquisition date, such
amounts are more susceptible to an impairment risk if business
operating results or macroeconomic conditions deteriorate. Gillette
indenite-lived intangible assets represent approximately 89% of the
$26.5billion of indenite-lived intangible assets at June30, 2010.
Goodwill allocated to stand-alone reporting units consisting primarily
of businesses purchased as part of the Gillette acquisition represents
42% of the $54.0billion of goodwill at June30, 2010. 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 signicantly exceed
recorded values. As noted above, the Appliances business was acquired
as part of the Gillette acquisition and is a stand-alone goodwill
reporting unit. The Salon Professional business consists primarily of
operations acquired in the Wella acquisition and is part of the Beauty
segment. As a result of the organization changes to the structure of
the Beauty GBU effected on July1, 2009 (see the Recent Business
Developments section and Note11 to our Consolidated Financial
Statements), the Salon Professional business recently became a new
stand-alone goodwill reporting unit. These businesses represent some
of our more discretionary consumer spending categories. The Appliances
business has goodwill of $1.5billion, while the Salon Professional
business has a goodwill balance of $809million. The estimated fair
values of our Appliances and Salon Professional businesses exceed
their carrying values by 18% and 20%, respectively. Because these
businesses are more discretionary in nature, their operations and
underlying fair values were disproportionately impacted by the eco-
nomic downturn that began in scal 2009, which led to a reduction
in home and personal grooming appliance purchases and in visits to
hair salons. Our valuation 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 scal 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 Note1 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 netting and
correlation. Except within nancing operations, we leverage the
Companys broadly diversied portfolio of exposures as a natural hedge
and prioritize operational hedging activities over nancial market
instruments. To the extent we choose to further manage volatility
associated with the net exposures, we enter into various nancial
transactions which we account for using the applicable accounting
guidance for derivative instruments and hedging activities. These
nancial transactions are governed by our policies covering acceptable
counterparty exposure, instrument types and other hedging practices.
Note5 to the Consolidated Financial Statements includes a detailed
discussion of our accounting policies for nancial 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% condence level. The
model incorporates the impact of correlation (the degree to which
exposures move together over time) and diversication (from holding
multiple currency, commodity and interest rate instruments) and
assumes that nancial returns are normally distributed. Estimates of
volatility and correlations of market factors are drawn from the
RiskMetrics
dataset as of June30, 2010. 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 signicantly 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 Companys foreign
net investments.
Based on our overall interest rate exposure as of and during the year
ended June30, 2010, including derivative and other instruments
sensitive to interest rates, we believe a near-term change in interest
rates, at a 95% condence level based on historical interest rate
movements, would not materially affect our nancial statements.
Currency Rate Exposure on Financial Instruments. Because we
manufacture and sell products and nance 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 reduce the
risk that our nancial position will be adversely affected by 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 ve years to hedge our exposure
to exchange rate movements on intercompany nancing transactions.
Based on our overall currency rate exposure as of and during the year
ended June30, 2010, we believe, at a 95% condence 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 nancial 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 xed 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 June30, 2010, we believe, at a 95% condence 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 nancial statements.
Measures Not Defined By U.S. GAAP
Our discussion of nancial results includes several non-GAAP nan-
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 measures sales growth
excluding the impacts of foreign exchange, acquisitions and divestitures
from year-over-year comparisons. We believe this provides investors
with a more complete understanding of underlying results and trends
by providing sales growth on a consistent basis.
The following tables provide a numerical reconciliation of organic
sales growth to reported net sales growth:
Year ended June 30, 2010
Net Sales
Growth
Foreign
Exchange
Impact
Acquisition/
Divestiture
Impact*
Organic
Sales
Growth
Beauty 3% 0% 0% 3%
Grooming 3% 0% 0% 3%
Health Care 2% 0% 0% 2%
Snacks and Pet Care 1% -1% 0% 0%
Fabric Care and Home Care 3% 1% 0% 4%
Baby Care and Family Care 4% 1% 0% 5%
TOTAL P&G 3% 1% -1% 3%
Year ended June 30, 2009
Net Sales
Growth
Foreign
Exchange
Impact
Acquisition/
Divestiture
Impact*
Organic
Sales
Growth
Beauty -4% 4% 1% 1%
Grooming -9% 6% 1% -2%
Health Care -7% 5% 1% -1%
Snacks and Pet Care -3% 4% 0% 1%
Fabric Care and Home Care -2% 5% 0% 3%
Baby Care and Family Care 1% 4% 2% 7%
TOTAL P&G -3% 4% 1% 2%
* Acquisition/Divestiture Impact includes rounding impacts necessary to reconcile net sales to
organic sales.
Core EPS. Core EPS is a measure of the Companys diluted net earnings
per share growth from continuing operations excluding certain items
that are not judged to be part of the Companys sustainable results or
trends. This includes charges for potential competition law nes, a
charge related to recently enacted legislation which changed the
taxation of certain future retiree prescription drug subsidy payments
in the United States and the impact of incremental Corporate
restructuring charges incurred in scal 2009 versus 2008 to offset the
dilutive impact of the Folgers divestiture. We believe the Core EPS
measure provides an important perspective of underlying business
trends and results and 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 compensation. The tables below provide reconciliations
of reported diluted net earnings per share from continuing operations
to Core EPS:
Years ended June 30 2010 2009 2008
Diluted Net Earnings Per Share
Continuing Operations $3.53 $3.39 $3.40
Significant Adjustments to
Tax Reserves (0.14)
Incremental Folgers-related
Restructuring Charges 0.09
Charge for Taxation of Retiree
Healthcare Subsidy 0.05
Charges for Potential Competition
Law Fines 0.09
Rounding Impacts (0.01)
CORE EPS 3.67 3.47 3.26
Core EPS Growth 6% 6%
Note All reconciling items are presented net of tax. Tax effects are calculated consistent with
the nature of the underlying transaction. The tax impact on the incremental Folgers-related
restructuring charges was ($0.02) for 2009. The entire amount of the charge for taxation of
retiree healthcare subsidy and signicant adjustments to tax reserves are tax expense. There is
no tax impact on earnings per share due to the charges for potential competition law nes.
Free Cash Flow. Free cash ow is dened as operating cash ow less
capital spending. We view free cash ow as an important measure
because it is one factor in determining the amount of cash available
for dividends and discretionary investment. Free cash ow is also one
of the measures used to evaluate senior management and is a factor
in determining their at-risk compensation.
Free Cash Flow Productivity. Free cash ow productivity is dened as
the ratio of free cash ow to net earnings. Our target is to generate
free cash ow at or above 90% of net earnings. Free cash ow produc-
tivity is one of the measures used to evaluate senior management and
is a factor in determining their at-risk compensation.
The following table provides a numerical reconciliation of free cash ow:
($millions)
Operating
Cash Flow
Capital
Spending
Free
Cash Flow
Net
Earnings
Free
Cash Flow
Productivity
2010 $16,072 $(3,067) $13,005 $12,736 102%
2009 14,919 (3,238) 11,681 13,436 87%
2008 15,008 (3,046) 11,962 12,075 99%
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Earnings
Amounts in millions except per share amounts; Years ended June 30 2010 2009 2008
NET SALES $78,938 $76,694 $79,257
Cost of products sold 37,919 38,690 39,261
Selling, general and administrative expense 24,998 22,630 24,017
OPERATING INCOME 16,021 15,374 15,979
Interest expense 946 1,358 1,467
Other non-operating income/(expense), net (28) 397 373
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 15,047 14,413 14,885
Income taxes on continuing operations 4,101 3,733 3,594
NET EARNINGS FROM CONTINUING OPERATIONS 10,946 10,680 11,291
NET EARNINGS FROM DISCONTINUED OPERATIONS 1,790 2,756 784
NET EARNINGS $12,736 $13,436 $12,075
BASIC NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations $ 3.70 $ 3.55 $ 3.61
Earnings from discontinued operations 0.62 0.94 0.25
BASIC NET EARNINGS PER COMMON SHARE 4.32 4.49 3.86
DILUTED NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations 3.53 3.39 3.40
Earnings from discontinued operations 0.58 0.87 0.24
DILUTED NET EARNINGS PER COMMON SHARE 4.11 4.26 3.64
DIVIDENDS PER COMMON SHARE $ 1.80 $ 1.64 $ 1.45
Consolidated Balance Sheets
Amounts in millions; June 30
Assets 2010 2009
CURRENT ASSETS
Cash and cash equivalents $ 2,879 $ 4,781
Accounts receivable 5,335 5,836
INVENTORIES
Materials and supplies 1,692 1,557
Work in process 604 672
Finished goods 4,088 4,651
Total inventories 6,384 6,880
Deferred income taxes 990 1,209
Prepaid expenses and other current assets 3,194 3,199
TOTAL CURRENT ASSETS 18,782 21,905
PROPERTY, PLANT AND EQUIPMENT
Buildings 6,868 6,724
Machinery and equipment 29,294 29,042
Land 850 885
Total property, plant and equipment 37,012 36,651
Accumulated depreciation (17,768) (17,189)
NET PROPERTY, PLANT AND EQUIPMENT 19,244 19,462
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill 54,012 56,512
Trademarks and other intangible assets, net 31,636 32,606
NET GOODWILL AND OTHER INTANGIBLE ASSETS 85,648 89,118
OTHER NONCURRENT ASSETS 4,498 4,348
TOTAL ASSETS $ 128,172 $ 134,833
Liabilities and Shareholders Equity 2010 2009
CURRENT LIABILITIES
Accounts payable $ 7,251 $ 5,980
Accrued and other liabilities 8,559 8,601
Debt due within one year 8,472 16,320
TOTAL CURRENT LIABILITIES 24,282 30,901
LONG-TERM DEBT 21,360 20,652
DEFERRED INCOME TAXES 10,902 10,752
OTHER NONCURRENT LIABILITIES 10,189 9,146
TOTAL LIABILITIES 66,733 71,451
SHAREHOLDERS EQUITY
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized) 1,277 1,324
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: 2010 4,007.6, 2009 4,007.3) 4,008 4,007
Additional paid-in capital 61,697 61,118
Reserve for ESOP debt retirement (1,350) (1,340)
Accumulated other comprehensive income (loss) (7,822) (3,358)
Treasury stock, at cost (shares held: 2010 1,164.1, 2009 1,090.3) (61,309) (55,961)
Retained earnings 64,614 57,309
Noncontrolling interest 324 283
TOTAL SHAREHOLDERS EQUITY 61,439 63,382
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 128,172 $ 134,833
Consolidated Statements of Shareholders Equity
Dollars in millions/Shares in thousands
Common
Shares
Outstanding
Common
Stock
Preferred
Stock
Additional
Paid-In
Capital
Reserve for
ESOP Debt
Retirement
Accumulated
Other
Comprehensive
Income (loss)
Non-
controlling
Interest
Treasury
Stock
Retained
Earnings Total
BALANCE JUNE 30, 2007 3,131,946 $3,990 $1,406 $59,030 $(1,308) $ 617 $252 $(38,772) $41,797 $67,012
Net earnings 12,075 12,075
Other comprehensive income:
Financial statement translation 6,543 6,543
Hedges and investment securities,
net of $1,664 tax (2,906) (2,906)
Defined benefit retirement plans,
net of $120 tax (508) (508)
Total comprehensive income $15,204
Cumulative impact for adoption of
new accounting guidance
(1)
(232) (232)
Dividends to shareholders:
Common (4,479) (4,479)
Preferred, net of tax benefits (176) (176)
Treasury purchases (148,121) (10,047) (10,047)
Employee plan issuances 43,910 12 1,272 1,196 2,480
Preferred stock conversions 4,982 (40) 5 35
ESOP debt impacts (17) 1 (16)
Noncontrolling interest 38 38
BALANCE JUNE 30, 2008 3,032,717 4,002 1,366 60,307 (1,325) 3,746 290 (47,588) 48,986 69,784
Financial statement translation (6,151) (6,151)
Hedges and investment
securities, net of $452 tax 748 748
Defined benefit retirement
plans, net of $879 tax (1,701) (1,701)
Total comprehensive income $ 6,332
Cumulative impact for adoption
of new accounting guidance
(1)
(84) (84)
Common (4,852) (4,852)
Employee plan issuances 16,841 5 804 428 1,237
Shares tendered for Folgers
coffee subsidiary (38,653) (2,466) (2,466)
ESOP debt impacts (15) 15
Noncontrolling interest (7) (7)
BALANCE JUNE 30, 2009 2,917,035 4,007 1,324 61,118 (1,340) (3,358) 283 (55,961) 57,309 63,382
Financial statement translation (4,194) (4,194)
Hedges and investment
securities, net of $520 tax 867 867
Defined benefit retirement
plans, net of $465 tax (1,137) (1,137)
Total comprehensive income $ 8,272
Common (5,239) (5,239)
Employee plan issuances 17,616 1 574 616 1,191
ESOP debt impacts (10) 27 17
Noncontrolling interest (2) 41 39
BALANCE JUNE 30, 2010 2,843,471 $4,008 $1,277 $61,697 $(1,350) $(7,822) $324 $(61,309) $64,614 $61,439
(1) Cumulative impact of adopting new accounting guidance relates to: 2008 uncertainty in income taxes; 2009 split-dollar life insurance arrangements.
Consolidated Statements of Cash Flows
Amounts in millions; Years ended June 30 2010 2009 2008
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 4,781 $ 3,313 $ 5,354
OPERATING ACTIVITIES
Net earnings 12,736 13,436 12,075
Depreciation and amortization 3,108 3,082 3,166
Share-based compensation expense 453 516 555
Deferred income taxes 36 596 1,214
Gain on sale of businesses (2,670) (2,377) (284)
Change in accounts receivable (14) 415 432
Change in inventories 86 721 (1,050)
Change in accounts payable, accrued and other liabilities 2,446 (742) 297
Change in other operating assets and liabilities (305) (758) (1,270)
Other 196 30 (127)
TOTAL OPERATING ACTIVITIES 16,072 14,919 15,008
INVESTING ACTIVITIES
Capital expenditures (3,067) (3,238) (3,046)
Proceeds from asset sales 3,068 1,087 928
Acquisitions, net of cash acquired (425) (368) (381)
Change in investments (173) 166 (50)
TOTAL INVESTING ACTIVITIES (597) (2,353) (2,549)
FINANCING ACTIVITIES
Dividends to shareholders (5,458) (5,044) (4,655)
Change in short-term debt (1,798) (2,420) 2,650
Additions to long-term debt 3,830 4,926 7,088
Reductions of long-term debt (8,546) (2,587) (11,747)
Treasury stock purchases (6,004) (6,370) (10,047)
Impact of stock options and other 721 681 1,867
TOTAL FINANCING ACTIVITIES (17,255) (10,814) (14,844)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (122) (284) 344
CHANGE IN CASH AND CASH EQUIVALENTS (1,902) 1,468 (2,041)
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,879 $ 4,781 $ 3,313
SUPPLEMENTAL DISCLOSURE
Cash payments for:
Interest $ 1,184 $ 1,226 $ 1,373
Income Taxes 4,175 3,248 3,499
Assets acquired through non-cash capital leases 20 8 13
Divestiture of coffee business in exchange for shares of P&G stock 2,466
Amounts in millions of dollars except per share amounts or as otherwise specied.
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Procter& Gamble Companys (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 nancial 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 managements
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 benets, stock options, valuation of acquired intangible
assets, useful lives for depreciation and amortization of long-lived assets,
future cash ows associated with impairment testing for goodwill,
indenite-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 management
does not generally believe such differences would materially affect
the nancial statements in any individual year. However, in regard to
ongoing impairment testing of goodwill and indenite-lived intangible
assets, signicant deterioration in future cash ow 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 nancial statements in a given year.
Revenue Recognition
Sales are recognized when revenue is realized or realizable and has
been earned. Most 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.
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 nished 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 $1,950 in 2010, $1,864
in 2009 and $1,946 in 2008. Advertising costs, charged to expense
as incurred, include worldwide television, print, radio, internet and
in-store advertising expenses and were $8,576 in 2010, $7,519 in
2009 and $8,520 in 2008. Non-advertising related components of
the Companys 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 loss of
$861 at June30, 2010 and a gain of $3,333 at June30, 2009. For
subsidiaries operating in highly inationary economies, the U.S. dollar
is the functional currency. Remeasurement adjustments for nancial
statements in highly inationary economies and other transactional
exchange gains and losses are reected in earnings.
Notes to Consolidated Financial Statements
56 The Procter & Gamble Company Notes to Consolidated Financial Statements
Cash Flow Presentation
The Consolidated Statements of Cash Flows are prepared using the
indirect method, which reconciles net earnings to cash ow 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 ows arising from investing and nancing activities,
which are presented separately from operating activities. Cash ows
from foreign currency transactions and operations are translated at
an average exchange rate for the period. Cash ows from hedging
activities are included in the same category as the items being hedged.
Cash ows from derivative instruments designated as net investment
hedges are classied as nancing activities. Realized gains and losses
from non-qualifying derivative instruments used to hedge currency
exposures resulting from intercompany nancing transactions are also
classied as nancing activities. Cash ows from other derivative
instruments used to manage interest, commodity or other currency
exposures are classied as operating activities. Cash payments related
to income taxes are classied 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 classied as trading. Unrealized gains or losses on securities
classied 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 signicant inuence, but do not control the
nancial and operating decisions, are accounted for as equity method
investments and are classied as other noncurrent assets. Other
investments that are not controlled, and over which we do not have
the ability to exercise signicant inuence, are accounted for under
the cost method.
Inventory Valuation
Inventories are valued at the lower of cost or market value. Product-
related inventories are primarily maintained on the rst-in, rst-out
method. Minor amounts of product inventories, including certain
cosmetics and commodities, are maintained on the last-in, rst-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 ofce furniture and xtures (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 indenite-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 performed
separately from our impairment testing of indenite-lived intangibles.
The annual evaluation for impairment of goodwill and indenite-lived
intangibles is based on valuation models that incorporate assumptions
and internal projections of expected future cash ows 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 indenite
lives due to the nature of our business. We evaluate a number of
factors to determine whether an indenite 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 indenite-lived brands may be adjusted to a deter-
minable life.
The cost of intangible assets with determinable useful lives is amortized
to reect the pattern of economic benets consumed, either on a
straight-line or accelerated basis over the estimated periods beneted.
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.
Notes to Consolidated Financial Statements The Procter & Gamble Company 57
Fair Values of Financial Instruments
Certain nancial 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 nancial condition, results of opera-
tions or cash ows. Other nancial instruments, including cash equiv-
alents, other investments and short-term debt, are recorded at cost,
which approximates fair value. The fair values of long-term debt and
nancial instruments are disclosed in Note 4 and Note 5, respectively.
New Accounting Pronouncements and Policies
Other than as described below, no new accounting pronouncement
issued or effective during the scal year has had or is expected to
have a material impact on the Consolidated Financial Statements.
FAIR VALUE MEASUREMENTS
On July1, 2008, we adopted new accounting guidance on fair value
measurements. The new guidance denes fair value, establishes a
framework for measuring fair value under U.S. GAAP and expands
disclosures about fair value measurements. It was effective for the
Company beginning July1, 2008, for certain nancial assets and
liabilities and, beginning July1, 2009, for certain non-nancial assets
and liabilities. Refer to Note 5 for additional information regarding
our fair value measurements for nancial and non-nancial assets and
liabilities.
DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES
On January1, 2009, we adopted new accounting guidance on disclo-
sures about derivative instruments and hedging activities. The new
guidance impacts disclosures only and requires additional qualitative
and quantitative information on the use of derivatives and their impact
on an entitys nancial position, results of operations and cash ows.
Refer to Note 5 for additional information regarding our risk manage-
ment activities, including derivative instruments and hedging activities.
BUSINESS COMBINATIONS
On July1, 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 acquisition
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 nancial position, results of operations or
cash ows.
NONCONTROLLING INTERESTS IN
CONSOLIDATED FINANCIAL STATEMENTS
On July1, 2009, we adopted new accounting guidance on noncontrol-
ling interests in consolidated nancial 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 subsid-
iary and requires additional disclosures that identify and distinguish
between the interests of the controlling and noncontrolling owners.
The Companys retrospective adoption of the new guidance on
July1, 2009 did not have a material effect on our nancial position,
results of operations or cash ows. Net expense for income attributable
to the noncontrolling interests totaling $110 in 2010, $86 in 2009 and
$78 in 2008 is not presented separately in the Consolidated Statements
of Earnings due to immateriality, but is reected within other non-
operating income/(expense), net. After deduction of the net expense
for income attributable to noncontrolling interests, net earnings repre-
sents net income attributable to the Companys common shareholders.
NOTE 2
GOODWILL AND INTANGIBLE ASSETS
The change in the net carrying amount of goodwill by Global
Business Unit (GBU) was as follows:
2010 2009
BEAUTY & GROOMING GBU
Beauty, beginning of year $ 18,668 $ 19,662
Acquisitions and divestitures 18 66
Translation and other (1,111) (1,060)
GOODWILL, JUNE 30 17,575 18,668
Grooming, beginning of year 21,391 22,553
Acquisitions and divestitures (35) (214)
Translation and other (972) (948)
GOODWILL, JUNE 30 20,384 21,391
HEALTH & WELL-BEING GBU
Health Care, beginning of year 8,404 8,750
GOODWILL, JUNE 30 7,859 8,404
Snacks and Pet Care, beginning of year 2,055 2,434
Acquisitions and divestitures 154 (356)
HOUSEHOLD CARE GBU
Fabric Care and Home Care, beginning of year 4,408 4,655
Baby Care and Family Care, beginning of year 1,586 1,713
CORPORATE
Corporate, beginning of year
Acquisitions and divestitures 298
Translation and other
GOODWILL, JUNE 30 298
GOODWILL, beginning of year 56,512 59,767
Acquisitions and divestitures 179 (638)
Translation and other (2,679) (2,617)
GOODWILL, JUNE 30 54,012 56,512
The decrease in goodwill during scal 2010 was primarily due to
currency translation across all GBUs. Acquisitions and divestitures reect
the acquisition of MDVIP, a physicians network focused on preventative
medicine, and Natura, a leading producer and distributor of branded
premium natural pet foods, partially offset by the divestiture of the
global pharmaceuticals business. The decrease in goodwill during
scal 2009 was primarily due to currency translation across all GBUs
and the divestiture of the Coffee business.
Identiable intangible assets were comprised of:
2010 2009
June 30
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
INTANGIBLE ASSETS WITH
DETERMINABLE LIVES
Brands $ 3,284 $1,318 $ 3,580 $1,253
Patents and technology 3,140 1,575 3,168 1,332
Customer relationships 1,947 460 1,853 411
Other 304 205 320 210
TOTAL 8,675 3,558 8,921 3,206
BRANDS WITH
INDEFINITE LIVES 26,519 26,891
TOTAL 35,194 3,558 35,812 3,206
The amortization of intangible assets was as follows:
Intangible Asset Amortization $601 $648 $649
Estimated amortization expense over the next ve years is as follows:
Years ended June 30 2011 2012 2013 2014 2015
Estimated Amortization Expense $530 $490 $470 $434 $401
Such estimates do not reect 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 2010 2009
ACCRUED AND OTHER LIABILITIES CURRENT
Marketing and promotion $ 2,857 $2,378
Compensation expenses 1,822 1,983
Taxes payable 622 722
Other 3,258 3,518
TOTAL 8,559 8,601
OTHER NONCURRENT LIABILITIES
Pension benefits $ 4,701 $3,798
Other postretirement benefits 1,915 1,516
Uncertain tax positions 2,381 2,705
Other 1,192 1,127
TOTAL 10,189 9,146
NOTE 4
SHORT-TERM AND LONG-TERM DEBT
June 30 2010 2009
DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt $ 564 $ 6,941
Commercial paper 7,838 5,027
Other 70 4,352
TOTAL 8,472 16,320
Short-term weighted average interest rates
(1)
0.4% 2.0%
(1) Weighted average short-term interest rates include the effects of interest rate swaps
discussed in Note 5.
June 30 2010 2009
LONG-TERM DEBT
1.35% USD note due August 2011 $ 1,000 $
4.88% EUR note due October 2011 1,221 1,411
1.38% USD note due August 2012 1,250
3.38% EUR note due December 2012 1,710 1,975
4.50% EUR note due May 2014 1,832 2,116
4.95% USD note due August 2014 900 900
3.50% USD note due February 2015 750 750
0.95% JPY note due May 2015 1,129
3.15% USD note due September 2015 500
4.85% USD note due December 2015 700 700
5.13% EUR note due October 2017 1,344 1,552
4.70% USD note due February 2019 1,250 1,250
4.13% EUR note due December 2020 733 846
9.36% ESOP debentures due 2010 2021
(1)
854 896
4.88% EUR note due May 2027 1,221 1,411
6.25% GBP note due January 2030 753 832
5.50% USD note due February 2034 500 500
5.80% USD note due August 2034 600 600
5.55% USD note due March 2037 1,400 1,400
Capital lease obligations 401 392
All other long-term debt 1,876 10,062
Current portion of long-term debt (564) (6,941)
TOTAL 21,360 20,652
Fair value of long-term debt 23,072 21,514
Long-term weighted average interest rates
(2)
3.6% 4.9%
(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 ve years are as follows:
June 30 2011 2012 2013 2014 2015
Debt maturities $564 $2,304 $3,051 $1,924 $2,897
The Procter& Gamble Company fully and unconditionally guarantees
the registered debt and securities issued by its 100% owned nance
subsidiaries.
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 netting and
correlation. To the extent we choose to manage volatility associated
with the net exposures, we enter into various nancial transactions
which we account for using the applicable accounting guidance for
derivative instruments and hedging activities. These nancial transac-
tions are governed by our policies covering acceptable counterparty
exposure, instrument types and other hedging practices.
At inception, we formally designate and document qualifying instru-
ments as hedges of underlying exposures. We formally assess, at
inception and at least quarterly, whether the nancial instruments
used in hedging transactions are effective at offsetting changes in
either the fair value or cash ows of the related underlying exposure.
Fluctuations in the value of these instruments generally are offset by
changes in the value or cash ows 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 nancial 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 nancial
instrument contracts generally is limited to the amounts, if any, by
which the counterpartys obligations to us exceed our obligations to
the counterparty. We have not incurred, and do not expect to incur,
material credit losses on our risk management or other nancial
instruments.
Certain of the Companys nancial instruments used in hedging
transactions are governed by industry standard netting agreements
with counterparties. If the Companys 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 contrac-
tual features that are in a net liability position as of June30, 2010
was $226. The Company has never been required to post collateral
as a result of these contractual features.
Interest Rate Risk Management
Our policy is to manage interest cost using a mixture of xed-rate and
variable-rate debt. To manage this risk in a cost-efcient manner, we
enter into interest rate swaps whereby we agree to exchange with the
counterparty, at specied intervals, the difference between xed and
variable interest amounts calculated by reference to an agreed-upon
notional amount.
Interest rate swaps that meet specic accounting criteria are accounted
for as fair value or cash ow 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 ow hedges, the effective portion of the changes in
fair value of the hedging instrument is reported in OCI and reclassied
into interest expense over the life of the underlying debt. The ineffective
portion for both cash ow 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 nance 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
June30, 2010, we had currency swaps with maturities up to ve years,
which are intended to offset the effect of exchange rate uctuations
on intercompany loans denominated in foreign currencies. These swaps
are accounted for as cash ow hedges. The Company may utilize
and designate forward contracts and options to offset the effect of
exchange rate uctuations on forecasted sales, inventory purchases
and intercompany royalties denominated in foreign currencies. The
effective portion of the changes in fair value of these instruments is
reported in OCI and reclassied into earnings in the same nancial
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 nancing trans-
actions, income from international operations 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 major 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 investments.
Changes in the fair value of these instruments are immediately
recognized in OCI to offset the change in the value of the net invest-
ment being hedged. Currency effects of these hedges reected in OCI
were after-tax gains of $789 and $964 in 2010 and 2009, respectively.
Accumulated net balances were after-tax losses of $3,270 and $4,059
as of June30, 2010 and 2009, respectively.
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 use futures and options with maturities
generally less than one year and swap contracts with maturities up
to ve years. These market instruments generally are designated as
cash ow hedges. The effective portion of the changes in fair value
for these instruments is reported in OCI and reclassied into earnings
in the same nancial 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 Ofcers 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 nancial
assets and liabilities requires that nancial assets and liabilities carried
at fair value be classied 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 reecting the reporting entitys 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 instruments. The fair value of our Level 3
instruments is calculated as the net present value of expected cash
ows based on externally provided or obtained inputs. Certain assets
may also be based on sales prices of similar assets. These valuations
take into consideration the credit risk of both the Company and our
counterparties. The Company has not changed its valuation techniques
in measuring the fair value of any nancial assets and liabilities during
the year.
The following table sets forth the Companys nancial assets and liabilities as of June30, 2010 and 2009 that were measured at fair value on a
recurring basis during the period, segregated by level within the fair value hierarchy:
Level 1 Level 2 Level 3 Total
June 30 2010 2009 2010 2009 2010 2009 2010 2009
ASSETS AT FAIR VALUE:
Investment securities $12 $ $ $174 $45 $38 $ 57 $212
Derivatives relating to:
Other foreign currency instruments
(1)
81 300 81 300
Interest rates 191 191
Net investment hedges 14 83 14 83
Commodities 3 10 25 10 28
TOTAL ASSETS AT FAIR VALUE
(2)
12 3 296 582 45 38 353 623
LIABILITIES AT FAIR VALUE:
Derivatives relating to:
Foreign currency hedges 177 103 177 103
Other foreign currency instruments
(1)
175 39 175 39
Interest rates 13 13
Net investment hedges 23 85 23 85
Commodities 2 96 3 101
TOTAL LIABILITIES AT FAIR VALUE
(3)
2 375 336 3 375 341
(1) Other foreign currency instruments are comprised of foreign currency nancial 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.
The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There was no signicant
activity within the Level 3 nancial assets and liabilities during the years presented.
On July1, 2009, we adopted the provisions of the fair value measurement accounting and disclosure guidance related to non-nancial assets
and liabilities recognized or disclosed at fair value on a non-recurring basis. Assets and liabilities subject to this new guidance primarily include
goodwill, indenite-lived intangible assets and other long-lived assets measured at fair value for impairment assessments and non-nancial assets
and liabilities measured at fair value in business combinations. There were no signicant assets or liabilities that were re-measured at fair value on
a non-recurring basis during the scal year ended June30, 2010.
Disclosures about Derivative Instruments
The notional amounts and fair values of qualifying and non-qualifying
nancial instruments used in hedging transactions as of June30,
2010 and 2009 are as follows:
Notional Amount Fair Value Asset (Liability)
June 30 2010 2009 2010 2009
DERIVATIVES IN CASH
FLOW HEDGING
RELATIONSHIPS
Interest rate contracts $ $ 4,000 $ $ (13)
Foreign currency contracts 690 690 (177) (103)
Commodity contracts 43 503 10 (73)
TOTAL 733 5,193 (167) (189)
DERIVATIVES IN FAIR
VALUE HEDGING
RELATIONSHIPS
Interest rate contracts 7,942 191
DERIVATIVES IN NET
INVESTMENT HEDGING
RELATIONSHIPS
Net investment hedges 1,586 2,271 (9) (2)
DERIVATIVES NOT
DESIGNATED AS
HEDGING
INSTRUMENTS
Foreign currency contracts 11,845 12,348 (94) 261
Commodity contracts 19
TOTAL 11,864 12,348 (94) 261
The total notional amount of contracts outstanding at the end of the
period is indicative of the level of the Companys derivative activity
during the period.
Amount of Gain
(Loss) Recognized in
Accumulated OCI
on Derivatives
(Effective Portion)
June 30 2010 2009
DERIVATIVES IN CASH
FLOW HEDGING
RELATIONSHIPS
Interest rate contracts $ 19 $ 18
Foreign currency contracts 23 26
Commodity contracts 11 (62)
TOTAL 53 (18)
DERIVATIVES IN NET
INVESTMENT HEDGING
RELATIONSHIPS
Net investment hedges (8) (2)
During the next 12 months, the amount of the June30, 2010 accu-
mulated OCI balance that will be reclassied to earnings is expected
to be immaterial.
The amounts of gains and losses on qualifying and non-qualifying
nancial instruments used in hedging transactions for the years ended
June30, 2010 and 2009 are as follows:
Amount of Gain (Loss)
Reclassified from
Accumulated
OCI into Income
(1)
Years ended June 30 2010 2009
DERIVATIVES IN CASH FLOW
HEDGING RELATIONSHIPS
Interest rate contracts $ (8 ) $ (56 )
Foreign currency contracts (48 ) (66 )
Commodity contracts (76 ) (170)
TOTAL (132 ) (292)
Amount of Gain (Loss)
Recognized in Income
Years ended June 30 2010 2009
DERIVATIVES IN FAIR VALUE
(2)
Interest rate contracts $ 191 $
Debt (196)
TOTAL (5)
DERIVATIVES IN NET INVESTMENT
(2)
Net investment hedges 3 (5)
DERIVATIVES NOT DESIGNATED
AS HEDGING INSTRUMENTS
(3)
Foreign currency contracts (814) (1,047)
Commodity contracts 1 (5)
TOTAL (813) (1,052)
(1) The gain or loss on the effective portion of cash ow hedging relationships is reclassied
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 expense 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.
NOTE 6
EARNINGS PER SHARE
Net earnings less preferred dividends (net of related tax benets) 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:
NET EARNINGS FROM
CONTINUING OPERATIONS $ 10,946 $ 10,680 $ 11,291
Preferred dividends, net of tax
benefit (219) (192) (176)
NET EARNINGS FROM
CONTINUING OPERATIONS
AVAILABLE TO COMMON
SHAREHOLDERS 10,727 10,488 11,115
Preferred dividends, net of tax
benefit 219 192 176
DILUTED NET EARNINGS FROM
CONTINUING OPERATIONS 10,946 10,680 11,291
Net earnings from discontinued
operations 1,790 2,756 784
NET EARNINGS 12,736 13,436 12,075
Shares in millions; Years ended June 30 2010 2009 2008
Basic weighted average common
shares outstanding 2,900.8 2,952.2 3,080.8
Effect of dilutive securities
Conversion of preferred
shares
(1)
134.0 139.2 144.2
Exercise of stock options and
other unvested equity
awards
(2)
64.5 62.7 91.8
DILUTED WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 3,099.3 3,154.1 3,316.8
(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 101 million in 2010, 92 million in 2009 and 40 million in 2008 of the
Companys 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).
NOTE 7
STOCK-BASED COMPENSATION
We have stock-based compensation plans under which we annually
grant stock option and restricted stock 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 restricted stock units (RSUs). Key manager RSUs are
vested and settled in shares of common stock ve years from the grant
date. The awards provided to the Companys 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.
A total of 180million 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 share-
holders in 2004. A total of 155million shares remain available for
grant under the 2003 and 2009 plans.
Total stock-based compensation expense for stock option grants was
$417, $460 and $522 for 2010, 2009 and 2008, respectively. Total
compensation cost for restricted stock, RSUs and other stock-based
grants was $36, $56 and $33 in 2010, 2009 and 2008, respectively.
The total income tax benet recognized in the income statement for
stock options, restricted stock, RSUs and other stock-based grants
was $118, $137 and $147 in 2010, 2009 and 2008, respectively.
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 reect market conditions and experience, were as follows:
Interest rate 0.3 4.0% 0.7 3.8% 1.3 3.8%
Weighted average interest rate 3.7% 3.6% 3.4%
Dividend yield 2.2% 2.0% 1.9%
Expected volatility 15 20% 18 34% 19 25%
Weighted average volatility 18% 21% 20%
Expected life in years 8.8 8.7 8.3
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 termina-
tion 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 June30,
2010, and activity during the year then ended is presented below:
Options in thousands Options
Weighted Avg.
Exercise Price
Weighted Avg.
Remaining
Contractual
Life in Years
Aggregate
Intrinsic Value
(in millions)
Outstanding,
beginning of year 357,317 $48.83
Granted 26,581 62.49
Exercised (17,147) 40.98
Canceled (1,780) 55.23
OUTSTANDING,
END OF YEAR 364,971 50.16 5.7 $3,999
EXERCISABLE 273,279 47.30 4.7 3,587
The weighted average grant-date fair value of options granted was
$13.47, $11.67 and $15.91 per share in 2010, 2009 and 2008,
respectively. The total intrinsic value of options exercised was $342,
$434 and $1,129 in 2010, 2009 and 2008, respectively. The total
grant-date fair value of options that vested during 2010, 2009 and
2008 was $563, $537 and $532, respectively. We have no specic
policy to repurchase common shares to mitigate the dilutive impact
of options; however, we have historically made adequate discretion-
ary purchases, based on cash availability, market trends and other
factors, to satisfy stock option exercise activity.
At June30, 2010, there was $474 of compensation cost that has not
yet been recognized related to stock awards. That cost is expected to
be recognized over a remaining weighted average period of 2 years.
Cash received from options exercised was $703, $639 and $1,837 in
2010, 2009 and 2008, respectively. The actual tax benet realized for
the tax deductions from option exercises totaled $89, $146 and $318
in 2010, 2009 and 2008, respectively.
NOTE 8
POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK
OWNERSHIP PLAN
We offer various postretirement benets to our employees.
Defined Contribution Retirement Plans
We have dened 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 dened contribution expense was $344, $364 and $290 in
2010, 2009 and 2008, respectively.
The primary U.S. dened contribution plan (the U.S. DC plan) comprises
the majority of the balances and expense for the Companys dened
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 2010, 2009 and 2008.
We maintain The Procter& Gamble Prot 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 benets. 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 dened benet retirement pension plans to certain employees.
These benets 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 benets, primarily health care and
life insurance, for the majority of our U.S. employees who become
eligible for these benets 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 deduct-
ibles and other coverages. These benets are primarily funded by ESOP
Series B shares and certain other assets contributed by the Company.
Obligation and Funded Status. The following provides a reconciliation
of benet obligations, plan assets and funded status of these plans:
Pension Benefits
(1)
Other
Retiree Benefits
(2)
Years ended June 30 2010 2009 2010 2009
CHANGE IN BENEFIT
OBLIGATION
Benefit obligation at
beginning of year
(3)
$ 10,016 $ 10,095 $ 3,928 $ 3,553
Service cost 218 214 103 91
Interest cost 579 551 253 243
Participants contributions 19 15 58 55
Amendments 66 47
Actuarial loss 1,738 456 633 186
Acquisitions (divestitures) (13) (3) (17)
Curtailments and
settlements 4 3
Special termination benefits 3 14 16
Currency translation and
other (798) (867) 30 27
Benefit payments (584) (498) (241) (226)
BENEFIT OBLIGATION AT
END OF YEAR
(3)
11,245 10,016 4,778 3,928
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 6,310 7,225 2,394 3,225
Actual return on plan assets 839 (401) 596 (678)
Acquisitions (divestitures) (6)
Employer contributions 439 657 22 18
Participants contributions 19 15 58 55
other (455) (688) (4)
ESOP debt impacts
(4)
14 4
Benefit payments (584) (498) (241) (226)
FAIR VALUE OF PLAN
ASSETS AT END OF YEAR 6,562 6,310 2,843 2,394
FUNDED STATUS (4,683) (3,706) (1,935) (1,534)
(1) Primarily non-U.S.-based dened benet retirement plans.
(2) Primarily U.S.-based other postretirement benet plans.
(3) For the pension benet plans, the benet obligation is the projected benet obligation.
For other retiree benet plans, the benet obligation is the accumulated postretirement
benet obligation.
(4) Represents the net impact of ESOP debt service requirements, which is netted against
plan assets for other retiree benets.
The underfunding of pension benets 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 nancial incentives
provided to companies to pre-fund pension obligations. In these
instances, benet payments are typically paid directly from the
Companys cash as they become due.
Pension Benefits Other Retiree Benefits
Years ended June 30 2010 2009 2010 2009
CLASSIFICATION OF NET
AMOUNT RECOGNIZED
Noncurrent assets $ 56 $ 133 $ $
Current liability (38) (41) (20) (18)
Noncurrent liability (4,701) (3,798) (1,915) (1,516)
NET AMOUNT RECOGNIZED (4,683) (3,706) (1,935) (1,534)
AMOUNTS RECOGNIZED IN
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(AOCI)
Net actuarial loss 3,038 1,976 2,319 1,860
Prior service cost (credit) 275 227 (119) (152)
NET AMOUNTS
RECOGNIZED IN AOCI 3,313 2,203 2,200 1,708
CHANGE IN PLAN ASSETS
AND BENEFIT OBLIGA-
TIONS RECOGNIZED IN
ACCUMULATED OTHER
COMPREHENSIVE INCOME
(AOCI)
Net actuarial loss
current year 1,343 1,335 491 1,309
Prior service cost
current year 66 47
Amortization of net actuarial
loss (91) (29) (20) (2)
Amortization of prior service
(cost) / credit (15) (14) 21 23
Settlement / curtailment
cost (3)
other (190) (64) (25)
TOTAL CHANGE IN AOCI 1,110 1,275 492 1,305
NET AMOUNTS
RECOGNIZED IN PERIODIC
BENEFIT COST AND AOCI 1,579 1,616 349 1,088
The accumulated benet obligation for all dened benet retirement
pension plans was $9,708 and $8,637 as of June30, 2010 and 2009,
respectively. Pension plans with accumulated benet obligations in
excess of plan assets and plans with projected benet 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 2010 2009 2010 2009
Projected benefit obligation $10,577 $6,509 $11,059 $9,033
Accumulated benefit obligation 9,194 5,808 9,531 7,703
Fair value of plan assets 5,900 3,135 6,320 5,194
Net Periodic Benet Cost. Components of the net periodic benet
cost were as follows:
Years ended June 30 2010 2009 2008 2010 2009 2008
Service cost $ 218 $ 214 $ 263 $ 103 $ 91 $ 95
Interest cost 579 551 539 253 243 226
Expected return on plan
assets (437) (473) (557) (429) (444) (429)
Prior service cost
(credit) amortization 15 14 14 (21) (23) (21)
Net actuarial loss
amortization 91 29 9 20 2 7
Curtailments,
settlements and
other 3 6 (36) 14 (1)
GROSS BENEFIT COST
(CREDIT) 469 341 232 (60) (131) (123)
Dividends on ESOP
preferred stock (83) (86) (95)
NET PERIODIC BENEFIT
COST (CREDIT) 469 341 232 (143) (217) (218)
Amounts expected to be amortized from accumulated OCI into net
periodic benet cost during the year ending June30, 2011, are as
follows:
Pension
Benefits
Other
Retiree
Benefits
Net actuarial loss $146 $ 95
Prior service cost (credit) 17 (21)
Assumptions. We determine our actuarial assumptions on an annual
basis. These assumptions are weighted to reect each country that
may have an impact on the cost of providing retirement benets.
The weighted average assumptions for the dened benet and other
retiree benet calculations, as well as assumed health care trend
rates, were as follows:
Years ended June 30 2010 2009 2010 2009
ASSUMPTIONS USED TO
DETERMINE BENEFIT
OBLIGATIONS
(1)
Discount rate 5.0% 6.0% 5.4% 6.4%
Rate of compensation increase 3.5% 3.7%
ASSUMPTIONS USED TO
DETERMINE NET PERIODIC
BENEFIT COST
(2)
Discount rate 6.0% 6.3% 6.4% 6.9%
Expected return on plan assets 7.1% 7.4% 9.1% 9.3%
Rate of compensation increase 3.7% 3.7%
ASSUMED HEALTH CARE COST
TREND RATES
Health care cost trend rates
assumed for next year 8.5% 8.5%
Rate to which the health care
cost trend rate is assumed to
decline (ultimate trend rate) 5.0% 5.0%
Year that the rate reaches the
ultimate trend rate 2017 2016
(1) Determined as of end of year.
(2) Determined as of beginning of year and adjusted for acquisitions.
Several factors are considered in developing the estimate for the
long-term expected rate of return on plan assets. For the dened
benet 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 benet plans, the
expected long-term rate of return reects 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 reects the historical pattern of favorable returns.
Assumed health care cost trend rates could have a signicant effect
on the amounts reported for the other retiree benet 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 $ 63 $ (50)
Effect on postretirement benefit obligation 718 (577)
Plan Assets. Our target asset allocation for the year ended June30,
2010, and actual asset allocation by asset category as of June30,
2010 and 2009, were as follows:
Target Asset Allocation
Asset Category
Pension
Benefits
Other
Retiree
Benefits
Equity securities
(1)
42% 91%
Debt securities 58% 9%
TOTAL 100% 100%
Actual Asset Allocation at June 30
Asset Category 2010 2009 2010 2009
Equity securities
(1)
43% 42% 91% 93%
Debt securities 53% 51% 9% 7%
Cash 4% 6%
Real estate 1%
TOTAL 100% 100% 100% 100%
(1) Equity securities for other retiree benet plan assets include Company stock, net of Series B
ESOP debt, of $2,535 and $2,084 as of June 30, 2010 and 2009, respectively.
The following table sets forth the fair value of the Companys plan
assets as of June30, 2010 segregated by level within the fair value
hierarchy (refer to Note 5 for further discussion on the fair value
hierarchy and fair value principles):
Pension Benefits
Cash and cash equivalents $238 $ $ $ 238
Government bonds 62 62
Company stock 12 12
Common collective trust
fund equity 2,814 2,814
fund fixed income 3,380 3,380
Other 56 56
TOTAL ASSETS AT FAIR VALUE 312 6,194 56 6,562
Other Retiree Benefits
Cash and cash equivalents $ 14 $ $ $ 14
Company stock 2,535 2,535
fund equity 43 43
fund fixed income 249 249
Other 2 2
TOTAL ASSETS AT FAIR VALUE 14 2,827 2 2,843
There was no signicant activity within the Level 3 pension and other
retiree benets plan assets during the year ended June30, 2010.
Our investment objective for dened benet retirement plan assets is
to meet the plans benet obligations, while minimizing the potential
for future required Company plan contributions. The investment
strategies focus on asset class diversication, liquidity to meet benet
payments and an appropriate balance of long-term investment return
and risk. Target ranges for asset allocations are determined by match-
ing the actuarial projections of the plans future liabilities and benet
payments with expected long-term rates of return on the assets,
taking into account investment return volatility and correlations across
asset classes. Plan assets are diversied 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.
Cash Flows. Managements best estimate of cash requirements for
the dened benet retirement plans and other retiree benet plans
for the year ending June30, 2011 is approximately $441 and $25,
respectively. For the dened benet retirement plans, this is comprised
of $120 in expected benet payments from the Company directly to
participants of unfunded plans and $321 of expected contributions
to funded plans. For other retiree benet plans, this is comprised of
expected contributions that will be used directly for benet payments.
Expected contributions are dependent on many variables, including
the variability of the market value of the plan assets as compared to
the benet 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 signicantly from current estimates.
Total benet payments expected to be paid to participants, which
include payments funded from the Companys assets, as discussed
above, as well as payments from the plans, are as follows:
Years ending June 30
Pension
Benefits
Other
Retiree
Benefits
EXPECTED BENEFIT PAYMENTS
2011 $ 494 $ 195
2012 487 213
2013 500 230
2014 524 245
2015 537 261
2016 2020 3,063 1,530
Employee Stock Ownership Plan
We maintain the ESOP to provide funding for certain employee
benets discussed in the preceding paragraphs.
The ESOP borrowed $1.0billion in 1989 and the proceeds were used
to purchase Series A ESOP Convertible ClassA 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 $1.0billion has been repaid in full, and advances from
the Company of $160 remain outstanding at June30, 2010. Each
share is convertible at the option of the holder into one share of the
Companys common stock. The dividend for the current year was
equal to the common stock dividend of $1.80 per share. The liquidation
value is $6.82 per share.
In 1991, the ESOP borrowed an additional $1.0billion. The proceeds
were used to purchase Series B ESOP Convertible ClassA Preferred
Stock to fund a portion of retiree health care benets. These shares,
net of the ESOPs debt, are considered plan assets of the other retiree
benets plan discussed above. Debt service requirements are funded by
preferred stock dividends, cash contributions and advances provided
by the Company, of which $336 is outstanding at June30, 2010. Each
share is convertible at the option of the holder into one share of the
Companys common stock. The dividend for the current year was equal
to the common stock dividend of $1.80 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 guaran-
teed by the Company, is recorded as debt (see Note 4) with an offset to
the reserve for ESOP debt retirement, which is presented within share-
holders 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 benets, 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
outstanding at June30 was as follows:
Shares in thousands 2010 2009 2008
Allocated 54,542 56,818 58,557
Unallocated 14,762 16,651 18,665
TOTAL SERIES A 69,304 73,469 77,222
Allocated 20,752 20,991 21,134
Unallocated 41,347 42,522 43,618
TOTAL SERIES B 62,099 63,513 64,752
For purposes of calculating diluted net earnings per common share,
the preferred shares held by the ESOP are considered converted from
inception.
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 liabilities and assets,
which represent future tax consequences of events that have been
recognized differently in the nancial statements than for tax purposes.
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:
United States $ 8,368 $ 8,409 $ 8,167
International 6,679 6,004 6,718
TOTAL 15,047 14,413 14,885
Income taxes on continuing operations consisted of the following:
CURRENT TAX EXPENSE
U.S. federal $ 2,154 $ 1,619 $ 670
International 1,616 1,268 1,515
U.S. state and local 295 229 188
4,065 3,116 2,373
DEFERRED TAX EXPENSE
U.S. federal 253 595 1,272
International and other (217) 22 (51)
36 617 1,221
TOTAL TAX EXPENSE 4,101 3,733 3,594
A reconciliation of the U.S. federal statutory income tax rate to our
actual income tax rate on continuing operations is provided below:
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
Country mix impacts of foreign
operations -7.5% -7.1% -6.8%
Income tax reserve adjustments -0.4% -1.3% -3.4%
Patient Protection and Affordable
Care Act 1.0% 0.0% 0.0%
Other -0.8% -0.7% -0.7%
EFFECTIVE INCOME TAX RATE 27.3% 25.9% 24.1%
Income tax reserve adjustments represent changes in our net liability
for uncertain tax positions 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 benets at least equivalent to Medicare PartD
coverage. As a result of the change in taxability of the federal subsidy,
we were required to make adjustments to deferred tax asset bal-
ances, resulting in a $152 charge to income tax expense.
Tax benets credited to shareholders equity totaled $5 and $556 for
the years ended June30, 2010 and 2009, respectively. These primarily
relate to the tax effects of net investment hedges, excess tax benets
from the exercise of stock options and the impacts of certain adjust-
ments to pension and other retiree benet obligations recorded in
shareholders equity.
We have undistributed earnings of foreign subsidiaries of approxi-
mately $30billion at June30, 2010, for which deferred taxes have
not been provided. Such earnings are considered indenitely 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.
On July1, 2007, we adopted accounting guidance on the accounting
for uncertainty in income taxes. The adoption of the guidance resulted
in a decrease to retained earnings as of July1, 2007 of $232, which
was reected as a cumulative effect of a change in accounting principle
with a corresponding increase to the net liability for uncertain tax
positions. The impact primarily reects the accrual of additional statutory
interest and penalties as required by accounting guidance, partially
offset by adjustments to existing balances for uncertain tax positions
to comply with measurement principles. The implementation of the
guidance also resulted in a reduction in our net tax liabilities for uncer-
tain tax positions related to prior acquisitions accounted for under
purchase accounting, resulting in an $80 decrease to goodwill.
A reconciliation of the beginning and ending liability for uncertain tax
positions is as follows:
2010 2009 2008
BEGINNING OF YEAR $ 2,003 $ 2,582 $ 2,971
Increases in tax positions for prior years 128 116 164
Decreases in tax positions for prior years (146) (485) (576)
Increases in tax positions for current year 193 225 375
Settlements with taxing authorities (216) (172) (260)
Lapse in statute of limitations (45) (68) (200)
Currency translation (120) (195) 108
END OF YEAR 1,797 2,003 2,582
The Company is present in over 150 taxable jurisdictions and, at any
point in time, has 50 60 audits underway at various stages of
completion. 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
circumstances, including progress of tax audits, developments in
case law and closing of statute of limitations. Such adjustments are
reected 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 con-
duct audits for several open years at once. We have tax years open
ranging from 1997 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 benet with respect to our uncertain tax
positions will signicantly 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 June30, 2010
is $1,318 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 June30, 2010 and 2009,
we had accrued interest of $622 and $636 and penalties of $89 and
$100, respectively, that are not included in the above table. During
the scal years ended June30, 2010 and 2009, we recognized $38
and $119 in interest and $(8) and $(4) in penalties, respectively.
Deferred income tax assets and liabilities were comprised of the
following:
June 30 2010 2009
DEFERRED TAX ASSETS
Pension and postretirement benefits $ 1,717 $ 1,395
Stock-based compensation 1,257 1,182
Loss and other carryforwards 595 439
Goodwill and other intangible assets 312 331
Accrued marketing and promotion 216 167
Fixed assets 102 114
Unrealized loss on financial and foreign
exchange transactions 88 577
Accrued interest and taxes 88 120
Advance payments 16 15
Inventory 35 97
Other 757 885
Valuation allowances (120) (104)
TOTAL 5,063 5,218
DEFERRED TAX LIABILITIES
Goodwill and other intangible assets 11,760 11,922
Fixed assets 1,642 1,654
Other 269 146
TOTAL 13,671 13,722
Net operating loss carryforwards were $1,875 and $1,428 at June30,
2010 and 2009, respectively. If unused, $567 will expire between 2011
and 2030. The remainder, totaling $1,308 at June30, 2010, may be
carried forward indenitely.
NOTE 10
COMMITMENTS AND CONTINGENCIES
Guarantees
In conjunction with certain transactions, primarily divestitures, we may
provide routine indemnications (e.g., indemnication 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 dened. The maximum obliga-
tion under some indemnications 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 signicant payments for these indem-
nications. 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 nancial
position, results of operations or cash ows.
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 nancing arrangements, including
variable interest entities, that have a material impact on our nancial
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 2011 2012 2013 2014 2015 Thereafter
Purchase obligations $896 $568 $528 $281 $120 $301
Such amounts represent future purchases in line with expected usage
to obtain favorable pricing. Approximately 45% 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 proprietary
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 nancial position, results of operations or cash ows.
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 2011 2012 2013 2014 2015 Thereafter
Operating leases $282 $229 $204 $164 $149 $486
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 subject to a variety of inves-
tigations 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 Companys 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 nes.
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
identied violations in certain European countries and appropriate
actions were taken.
Several countries in Europe 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 Company will have the opportunity to respond to these
complaints. As a result of our initial and on-going analyses of these
complaints, the Company has reserves totaling $245 as of June30,
2010 for potential nes for competition law violations. The ultimate
resolution of these matters could result in nes or costs signicantly in
excess of the amounts reserved.
The remaining matters involving the European Commission and various
other countries are in various stages of the investigatory process. It is
still too early for us to reasonably estimate the nes to which the
Company will be subject as a result of these competition law issues.
The ultimate resolution of these matters will likely result in nes or
other costs that could materially impact our income statement and
cash ows in the period in which they are accrued and paid, respec-
tively. In other industries, these nes have amounted to hundreds of
millions of dollars. 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 nancial position, results of operations or cash ows.
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 nancial position, results of
operations or cash ows.
NOTE 11
SEGMENT INFORMATION
Effective July1, 2009, the Company implemented a number of
changes to the organization structure of the Beauty GBU, which
resulted in changes to the components of its reportable segment
structure. The following discussion and segment information reect
the organizational changes for all periods presented. We are orga-
nized under three GBUs as follows:
The Beauty and Grooming GBU includes the Beauty and the
Grooming businesses. The Beauty business is comprised of female
beauty products (including cosmetics, deodorants, female blades
and razors, personal cleansing and skin care), hair care (including
both retail and salon professional) and prestige fragrances. The
Grooming business includes electric hair removal devices, home
appliances, male blades and razors and male personal care products
(including deodorants, face and shave products, hair care and
personal cleansing).
The Health and Well-Being GBU includes the Health Care and the
Snacks and Pet Care businesses. The Health Care business includes
feminine care, oral care and personal health care. The Snacks and
Pet Care business includes snacks and pet food.
The Household Care GBU includes the Fabric Care and Home Care
as well as the Baby Care and Family Care businesses. The Fabric
Care and Home Care business includes air care, batteries, dish care,
fabric care and surface care. The Baby Care and Family Care business
includes baby wipes, bath tissue, diapers, facial tissue and paper
towels.
Under U.S. GAAP, we have six reportable segments: Beauty;
Grooming; Health Care; Snacks and Pet Care; Fabric Care and Home
Care; and Baby Care and Family Care. 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 reect
income taxes, which are reected 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 reected as consoli-
dated 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 reected in the operating results used internally to measure
and evaluate the businesses, as well as eliminations to adjust manage-
ment 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 signicant inuence, but do
not control. Operating elements also include certain employee benet
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 and xed 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 $30.0billion, $29.6billion
and $29.7billion for the years ended June30, 2010, 2009 and 2008,
respectively. Assets in the U.S. totaled $70.1billion and $71.9billion
as of June30, 2010 and 2009, respectively.
Our largest customer, Wal-Mart Stores, Inc. and its afliates,
accounted for 16% of consolidated net sales in 2010, 2009 and 2008.
Global Segment Results Net Sales
Earnings from
Continuing
Operations
Before
Income Taxes
Net Earnings
from
Continuing
Operations
Depreciation
and
Amortization Total Assets
(2)
Capital
Expenditures
BEAUTY AND GROOMING GBU
BEAUTY 2010 $ 19,491 $ 3,648 $ 2,712 $ 503 $ 11,825 $ 534
2009 18,924 3,558 2,664 454 11,987 526
2008 19,666 3,673 2,827 450 12,760 462
GROOMING 2010 7,631 2,007 1,477 625 21,259 259
2009 7,408 1,900 1,359 721 22,205 294
2008 8,103 2,154 1,582 743 23,302 308
HEALTH AND WELL-BEING GBU
HEALTH CARE 2010 11,493 2,809 1,860 385 7,142 383
2009 11,288 2,786 1,835 369 7,206 372
2008 12,087 3,030 2,021 372 8,088 420
SNACKS AND PET CARE 2010 3,135 499 326 92 1,237 86
2009 3,114 388 234 100 1,123 72
2008 3,204 409 261 102 1,303 78
HOUSEHOLD CARE GBU
FABRIC CARE AND HOME CARE 2010 23,805 5,076 3,339 604 9,650 766
2009 23,186 4,663 3,032 578 10,419 808
2008 23,714 5,060 3,411 599 11,387 763
BABY CARE AND FAMILY CARE 2010 14,736 3,270 2,049 612 6,406 852
2009 14,103 2,827 1,770 570 6,259 902
2008 13,898 2,700 1,728 612 6,821 763
CORPORATE
(1)
2010 (1,353) (2,262) (817) 287 70,653 187
2009 (1,329) (1,709) (214) 224 75,634 264
2008 (1,415) (2,141) (539) 181 80,331 252
TOTAL COMPANY 2010 78,938 15,047 10,946 3,108 128,172 3,067
2009 76,694 14,413 10,680 3,016 134,833 3,238
2008 79,257 14,885 11,291 3,059 143,992 3,046
(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.
(2) Prior years total assets have been updated to reect a change in management accountability for certain items, primarily accounts receivable, from the reportable segments to Corporate.
NOTE 12
DISCONTINUED OPERATIONS
In October 2009, the Company completed the divestiture of our
global pharmaceuticals business to Warner Chilcott plc (Warner Chilcott)
for $2.8billion 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 June30, 2010.
The pharmaceuticals business had historically been part of the
Companys 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, 38.7million
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 June30, 2009.
The coffee business had historically been part of the Companys 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 nancial information included in net earnings from discontinued operations for the pharmaceuticals and coffee businesses:
2010 2009 2008
Years Ended June 30 Pharma Coffee Total Pharma Coffee Total Pharma Coffee Total
Net sales $ 751 $ $ 751 $ 2,335 $ 668 $ 3,003 $ 2,491 $ 1,754 $ 4,245
Earnings from discontinued operations 306 306 912 212 1,124 747 446 1,193
Income tax expense (101) (101) (299) (80) (379) (240) (169) (409)
Gain on sale of discontinued operation 2,632 2,632 1,896 1,896
Income tax benefit (expense) on sale (1,047) (1,047) 115 115
Net earnings from discontinued operations 1,790 1,790 613 2,143 2,756 507 277 784
The net gain on the sale of the pharmaceuticals business, in the table above, for the year ended June30, 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.
NOTE 13
QUARTERLY RESULTS (UNAUDITED)
Quarters Ended Sept 30 Dec 31 Mar 31 Jun 30 Total Year
NET SALES 2009 2010 $19,807 $21,027 $19,178 $18,926 $78,938
2008 2009 20,983 19,763 17,864 18,084 76,694
OPERATING INCOME 2009 2010 4,448 4,655 3,968 2,950 16,021
2008 2009 4,386 4,055 3,553 3,380 15,374
GROSS MARGIN 2009 2010 52.6% 53.7% 51.9% 49.5% 52.0%
2008 2009 49.7% 50.4% 49.0% 49.0% 49.5%
NET EARNINGS:
Earnings from continuing operations 2009 2010 $ 3,027 $ 3,149 $ 2,585 $ 2,185 $10,946
2008 2009 3,115 2,813 2,429 2,323 10,680
Earnings from discontinued operations 2009 2010 280 1,510 1,790
2008 2009 233 2,191 184 148 2,756
Net earnings 2009 2010 3,307 4,659 2,585 2,185 12,736
2008 2009 3,348 5,004 2,613 2,471 13,436
DILUTED NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations 2009 2010 $ 0.97 $ 1.01 $ 0.83 $ 0.71 $ 3.53
2008 2009 0.96 0.89 0.78 0.75 3.39
Earnings from discontinued operations 2009 2010 0.09 0.48 0.58
2008 2009 0.07 0.69 0.06 0.05 0.87
Diluted net earnings per common share 2009 2010 1.06 1.49 0.83 0.71 4.11
2008 2009 1.03 1.58 0.84 0.80 4.26
Robert A. McDonald
Chairman of the Board, President
and Chief Executive Ofcer
GLOBAL OPERATIONS
Werner Geissler
Vice Chairman Global Operations
Deborah A. Henretta
Group President Asia
Shannan Stevenson
President Greater China
Laurent L. Philippe
Group President CEEMEA
Melanie L. Healey
Group President North America
Giovanni Ciserani
President Western Europe
Jorge A. Uribe
President Latin America
Jeffrey K. Schomburger
President Global Wal-Mart Team
GLOBAL HOUSEHOLD CARE
Dimitri Panayotopoulos
Vice Chairman
Global 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
President Family Care
Mark Bertolami
President Duracell
GLOBAL BEAUTY & GROOMING
Edward D. Shirley
Vice Chairman
Global Beauty & Grooming
Charles V. Bergh
Group President Global Male
Grooming, Beauty & Grooming
Virginia C. Drosos
Group President Global Female
Beauty, Beauty & Grooming
Colleen E. Jay
President Global Female Beauty,
Beauty & Grooming
John P. Goodwin
President Global Braun,
Beauty & Grooming
Robert Jongstra
President Global Professional Salon,
Beauty & Grooming
Patrice Louvet
President Global Prestige
GLOBAL HEALTH AND WELL-BEING
Robert A. Steele
Vice Chairman
Global Health and Well-Being
Charles E. Pierce
Group President Global Oral Care
Steven D. Bishop
President Global Feminine Care
Thomas M. Finn
President Global Health Care
Daniel S. Rajczak
Senior Vice President Global Snacks
& Pet Care
CORPORATE AND
COMPANY OPERATIONS
Bruce Brown
Chief Technology Ofcer
Shekhar Mitra
Senior Vice President Corporate
R&D, Materials Science & Technology
and Global Beauty & Grooming
Robert L. Fregolle, Jr.
Global Customer Business
Development Ofcer
R. Keith Harrison, Jr.
Global Product Supply Ofcer
Christopher D. Hassall
Global External Relations Ofcer
Deborah P. Majoras
Chief Legal Ofcer & Secretary
Jon R. Moeller
Teri L. List
Senior Vice President & Treasurer
Valarie Sheppard
Senior Vice President & Comptroller
and Global Household Care Finance
and Accounting
Moheet Nagrath
Global Human Resources Ofcer
Linda W. Clement-Holmes
Senior Vice President Global Diversity
and Global Business Services
Filippo Passerini
President Global Business Services
& Chief Information Ofcer
Marc S. Pritchard
Global Brand Building Ofcer
Philip J. Duncan
Global Design Ofcer
Joan M. Lewis
Global Consumer & Market
Knowledge Ofcer
Nancy K. Swanson
Vice President Corporate
The following company ofcers
have announced their intention
to retire during the 2010/11
scal year:
Steven W. Jemison
Ofcer on Special Assignment
Christopher de Lapuente
Group President on Special
Assignment
Global Leadership Council
Angela F. Braly
Chair of the Board, President and Chief Executive Ofcer of WellPoint, Inc.
(healthcare insurance). Appointed to the Board on December8, 2009.
Age49. Member of the Audit and Governance & Public Responsibility
Committees.
Kenneth I. Chenault
Chairman and Chief Executive Ofcer of the American Express Company
(nancial services). Director since 2008. Also a Director of International
Business Machines Corporation. Age59. 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 eBayInc.
Age58. Chair of the Innovation & Technology Committee and member of
the Compensation & Leadership Development Committee.
Rajat K. Gupta
Senior Partner Emeritus at McKinsey & Company (international consulting).
Director since 2007. Also a Director of American Airlines, Genpact,Ltd.,
and Harman International Industries, Inc. Age61. Member of the Audit and
Innovation & Technology Committees.
Robert A. McDonald
Chairman of the Board, President and Chief Executive Ofcer of the Company.
Named Chairman of the Board effective January1, 2010. Director since 2009.
Also a Director of Xerox Corporation. Age57.
W. James McNerney, Jr.
Chairman of the Board, President and Chief Executive Ofcer of The Boeing
Company (aerospace, commercial jetliners and military defense systems
company). Director since 2003. Also a Director of International Business
Machines Corporation. Age61. Presiding Director, Chair of the Compensation
& Leadership Development Committee and member of the Governance &
Public Responsibility Committee.
Johnathan A. Rodgers
President and Chief Executive Ofcer of TVOne, LLC (media and communi-
cations company). Director since 2001. Also a Director of Nike,Inc. Age64.
Member of the Innovation & Technology Committee.
Mary Agnes Wilderotter
Chairman, President and Chief Executive Ofcer 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. Age55. Member of the
Compensation & Leadership Development and Governance & Public
Responsibility Committees.
Patricia A. Woertz
Chairman, Chief Executive Ofcer and President of Archer Daniels Midland
Company (agricultural processors of oilseeds, corn, wheat and cocoa, etc.).
Director since 2008. Age57. 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 eld of International Economics and
Politics at Yale University. Director since 2001. Also a Director of AlcoaInc.
and Citigroup, Inc. Age58. 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
Board of Directors
Financial Summary (Unaudited)
Amounts in millions, except per share amounts 2010 2009 2008 2007 2006 2005
Net Sales $ 78,938 $ 76,694 $ 79,257 $ 72,441 $ 64,416 $53,210
Gross Margin 41,019 38,004 39,996 37,065 32,549 26,391
Operating Income 16,021 15,374 15,979 14,485 12,551 9,666
Net Earnings from Continuing Operations 10,946 10,680 11,291 9,662 8,187 6,384
Net Earnings from Discontinued Operations 1,790 2,756 784 678 497 539
Net Earnings 12,736 13,436 12,075 10,340 8,684 6,923
Net Earnings Margin from Continuing Operations 13.9% 13.9% 14.2% 13.3% 12.7% 12.0%
Basic Net Earnings per Common Share:
Earnings from continuing operations $ 3.70 $ 3.55 $ 3.61 $ 3.01 $ 2.63 $ 2.48
Earnings from discontinued operations 0.62 0.94 0.25 0.21 0.16 0.22
Basic Net Earnings per Common Share 4.32 4.49 3.86 3.22 2.79 2.70
Diluted Net Earnings per Common Share:
Earnings from continuing operations 3.53 3.39 3.40 2.84 2.49 2.33
Earnings from discontinued operations 0.58 0.87 0.24 0.20 0.15 0.20
Diluted Net Earnings per Common Share 4.11 4.26 3.64 3.04 2.64 2.53
Dividends per Common Share 1.80 1.64 1.45 1.28 1.15 1.03
Research and Development Expense $ 1,950 $ 1,864 $ 1,946 $ 1,823 $ 1,682 $ 1,538
Advertising Expense 8,576 7,519 8,520 7,799 7,010 5,804
Total Assets 128,172 134,833 143,992 138,014 135,695 61,527
Capital Expenditures 3,067 3,238 3,046 2,945 2,667 2,181
Long-Term Debt 21,360 20,652 23,581 23,375 35,976 12,887
Shareholders Equity 61,439 63,382 69,784 67,012 63,171 18,655
Shareholder Return Performance Graphs
MARKET AND DIVIDEND INFORMATION
P&G has been paying a dividend for 120 consecutive years since its incorporation in 1890 and has increased its dividend for 54 consecutive years
at an annual compound average rate of approximately 9.5%.
COMMON STOCK PRICE RANGE
2009 2010 2008 2009
Quarter Ended High Low High Low
September 30 $58.66 $50.52 $73.57 $60.05
December 31 63.48 56.02 71.94 53.77
March 31 64.58 59.01 62.97 43.93
June 30 64.00 39.37 54.77 46.29
QUARTERLY DIVIDENDS
Quarter Ended 2009 2010 2008 2009
September 30 $0.4400 $0.4000
December 31 0.4400 0.4000
March 31 0.4400 0.4000
June 30 0.4818 0.4400
(in dollars; split-adjusted) 1956 1970 1984 1998 2010
Dividends per Share $0.01 $0.04 $0.15 $0.51 $1.80
1984 1956
0.00
0.60
0.30
0.90
1.20
1.50
1.80
2010 1998 1970
DIVIDENDS PER SHARE
(in dollars; split-adjusted)
P&G is recognized as a leading global company, including a #6 ranking
on Fortunes Global Most Admired Companies, the #2 ranking on
Fortunes Top Companies for Leaders survey, the #3 ranking on
Barrons Worlds Most Respected Companies List, a #12 ranking on
Bloomberg Businessweeks list of Worlds Most Innovative Companies,
a ranking among Bloomberg Businessweek/Hay Groups Twenty Best
Companies for Leadership, a #2 ranking on the AMR Research Supply
Chain Top 25 and the only company to have been in the Top 5 for six
consecutive years, top rankings on the Dow Jones Sustainability Index
from 2000 to 2010, a #13 ranking on the list of the Global 100 Most
Sustainable Corporations in the World, and a consistent #1 ranking
within our industry on Fortunes Most Admired list for 25 of 26 total
years and for 13 years in a row. P&G was recognized during the year
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.
P&Gs commitment to creating a diverse workplace has been recog-
nized by the National Association for Female Executives (Top 50
Companies for Executive Women), Working Mother magazine (100
Best Companies for Working Mothers and Top 20 Best Companies for
Multicultural Women), Black Enterprise magazine (40 Best Companies
for Diversity), and Diversity Inc. (#18 ranking on the Top 50
Companies for Diversity and #6 ranking on the Top 10 Companies for
Global Diversity).
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. In 2010, 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 17 corporations that spend more than $1 billion annually
with diverse suppliers.
Recognition
SHAREHOLDER RETURN
The following graph compares the cumulative total return of P&Gs
common stock for the 5-year period ending June30, 2010, against
the cumulative total return of the S&P500 Stock Index (broad market
comparison) and the S&P500 Consumer Staples Index (line of business
comparison). The graph and table assume $100 was invested on
June30, 2005, and that all dividends were reinvested.
Shareholder Return Performance Graphs
(continued)
Cumulative Value of $100 Investment, through June 30
Company Name / Index 2005 2006 2007 2008 2009 2010
P&G $100 $108 $121 $123 $106 $128
S&P 500 Index 100 109 131 114 84 96
S&P 500 Consumer
Staples Index 100 108 124 125 112 128
80
90
100
110
120
130
140
P&G
2010 2009 2008 2007 2005 2006
COMPARISON OF FIVE-YEAR CUMULATIVE
TOTAL SHAREHOLDER RETURN
S&P 500 Consumer Staples Index S&P 500 Index
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
certicates, 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
Shareholder Services Department
P.O. Box 5572, Cincinnati, OH 45201-5572
REGISTRAR
EXCHANGE LISTINGS
New York Stock Exchange, NYSE Euronext-Paris
STOCK SYMBOL
PG
SHAREHOLDERS OF COMMON STOCK
There were approximately 2,311,000 common stock shareowners,
including shareholders of record, participants in the P&G Shareholder
Investment Program, participants in P&G stock ownership plans and
benecial owners with accounts at banks and brokerage rms, as of
June 30, 2010.
ANNUAL MEETING
The next annual meeting of shareholders will be held on Tuesday,
October12, 2010. 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&Gs 2010 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 certications by our Chief Executive and Chief Financial
Ofcer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are
led as exhibits to our Form 10-K for the scal year ended June30,
2010. We have also led with the New York Stock Exchange the most
recent Annual CEO certication as required by Section 303A.12(a) of the
New York Stock Exchange Listed Company Manual.
D
e
s
i
g
n
:

V
S
A

P
a
r
t
n
e
r
s
,

I
n
c
.
Company and Shareholder Information
P&GS PURPOSE
We will provide branded products and services of superior quality and
value that improve the lives of the worlds consumers, now and for
generations to come. As a result, consumers will reward us with
leadership sales, prot 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
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:
Minimum initial investment $250
Nominal administrative fees, including no enrollment fee, and
no dividend reinvestment fee
Optional Cash Investment minimum $50
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 certied by SmartWood to the FSC
Standards, which promotes environmentally appropriate, socially benecial and economically viable
management of the worlds forests. The paper contains a mix of pulp that is derived from FSC
certied well-managed forests; post-consumer recycled paper bers and other controlled sources.
Now and for generations to come.
Since establishing our ve specic sustainability strategies
and goals in 2007, we have made good progress against
these targets. Weve created substantial efciencies in
running our operations with less water and energy, and
generating less CO
2
and waste. Weve introduced new
products that have more favorable environmental proles.
Weve increased our employee engagement and external
partnerships. Our social responsibility programs continue
to improve the lives of children in need around the world.
GOAL: Deliver an
additional 20%
reduction (per unit
of production) in
CO2 emissions,
energy consumption,
water consumption
and disposed
waste from P&G
plants, leading to a
total reduction over
the decade of at
least 50%.
GOAL: Develop
and market at
least $50 billion
in cumulative sales
of sustainable
innovation
products, which
are products that
have an improved
environmental
prole.
(1)
GOAL: Enable 300
million children to
Live, Learn and
Thrive.
(2)
Prevent
160 million days of
disease and save
20,000 lives by
delivering 4 billion
liters of clean water
in our Childrens
Safe Drinking Water
program.
(3)
Strategy 1:
Products
Delight the consumer
with sustainable
innovations that
improve the
environmental prole
of our products.
Strategy 2:
Operations
Improve the
environmental
prole of P&Gs
own operations.
Strategy 3:
Social
Responsibility
Improve childrens
lives through P&Gs
social responsibility
programs.
Strategy 4:
Employees
Engage and equip
all P&G employees
to build sustainability
thinking and
practices into their
everyday work.
Strategy 5:
Stakeholders
Shape the future by
working transparently
with our stakeholders
to enable continued
freedom to innovate
in a responsible way.
Sustainability at P&G is fully integrated into our growth strategy of improving more
consumers lives, in more parts of the world, more completely. In order to responsibly achieve
our growth goals behind this strategy, we must grow sustainably.
The future will be challenging for all of us as the worlds
challenges grow more complex. At P&G, we are
committed to implementing each of our strategies to
their fullest, continuing to make meaningful progress
toward achieving our goals.
To learn more, visit www.pg.com/sustainability.
(1) Sustainable Innovation Products are included if they have launched in market since July 1, 2007, and
have a >10% reduction in one or more of the following indicators without negatively impacting the overall
sustainability prole of the product: A. Energy, B. Water, C. Transportation, D. Amount of material used in
packaging or products, E. Substitution of nonrenewable energy or materials with renewable sources.
(2) Live, Learn and Thrive (LLT) is P&Gs global cause that focuses our social investments on efforts that
improve the lives of children in need ages 0 13.
(3) Within Live, Learn and Thrive, our signature program is Childrens Safe Drinking Water. Methodology
for calculating diarrheal days and mortality was developed with Population Services International and
Aquaya Institute. Details are provided in P&G's Sustainability Report found at www.pg.com/sustainability.
2010 Procter & Gamble
00046011
P
&
G

2
0
1
0

A
n
n
u
a
l

R
e
p
o
r
t

PG 2010 AnnualReport

Uploaded by

Copyright:

Available Formats

PG 2010 AnnualReport

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PG 2010 AnnualReport

Uploaded by

Copyright:

Available Formats

Touching & Improving Lives 2010 ANNUAL REPORT

dataset as of June30, 2010. In cases where data is

, a reasonable proxy is included.

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.