10-K

THE PROCTER & GAMBLE COMPANY
AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K
TO THE
SECURITIES AND EXCHANGE COMMISSION
FOR THE
YEAR ENDED JUNE 30, 2007

******************************************

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

þ ANNUAL REPORT ON FORM 10-K PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 1-434

THE PROCTER & GAMBLE COMPANY

One Procter & Gamble Plaza, Cincinnati, Ohio 45202

Telephone (513) 983-1100
IRS Employer Identification No. 31-0411980
State of Incorporation: Ohio

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each Exchange on which registered
Common Stock, without Par Value	New York, Paris

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer þ           Accelerated filer o           Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o           No þ

The aggregate market value of the voting stock held by non-affiliates amounted to $203 billion on December 31, 2006.

There were 3,120,750,759 shares of Common Stock outstanding as of July 31, 2007.

Documents Incorporated By Reference

Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 2007 are incorporated by reference into Part I, Part II and Part IV of this report to the extent described herein.

Portions of the Proxy Statement for the 2007 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent described herein.

TABLE OF CONTENTS

PART I
	Item 1. Business
	Item 1A. Risk Factors
	Item 1B. Unresolved Staff Comments
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accounting Fees and Services
PART IV
	Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
EX-10.1
EX-10.10
EX-10.13
EX-10.29
EX-11
EX-12
EX-13
EX-21
EX-23
EX-31
EX-32
EX-99.1

PART I

Item 1. Business.

     Additional information required by this item is incorporated herein by reference to Management’s Discussion and Analysis, which appears on pages 31-48; Note 1, Summary of Significant Accounting Policies, which appears on pages 54-56; Note 2, Acquisitions, which appears on pages 56-57; and Note 12, Segment Information, which appears on pages 67-68 of the Annual Report to Shareholders for the fiscal year ended June 30, 2007. Unless the context indicates otherwise, the terms the “Company,” “P&G,” “we,” “our” or “us” as used herein refers to The Procter & Gamble Company (the registrant) and its subsidiaries.

     The Procter & Gamble Company is focused on providing branded consumer goods products of superior quality and value to improve the lives of the world’s consumers. The Company was incorporated in Ohio in 1905, having been built from a business founded in 1837 by William Procter and James Gamble. Today, we market our products in more than 180 countries.

     Throughout this Form 10-K, we incorporate by reference information from other documents filed with the Securities and Exchange Commission (SEC).

     The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K are filed electronically with the SEC. The SEC maintains an internet site that contains these reports at: http://www.sec.gov. You can also access these reports through links from our website at: www.pg.com/investors/sectionmain.jhtml.

     Copies of these reports are also available, without charge, by contacting The Procter & Gamble Company, Shareholder Services Department, P.O. Box 5572, Cincinnati, Ohio 45201-5572.

Financial Information About Segments

     In fiscal year 2007, the Company was organized into three Global Business Units: Beauty and Health; Household Care; and Gillette GBU. We had seven reportable segments under U.S. GAAP: Beauty; Health Care; Fabric Care and Home Care; Snacks, Coffee and Pet Care; Baby Care and Family Care; Blades and Razors; and Duracell and Braun. Many of the factors necessary for an understanding of these businesses are similar. Operating margins of the individual businesses vary slightly due to the nature of materials and processes used to manufacture the products, the capital intensity of the businesses and differences in selling, general and administrative expenses as a percentage of net sales. Net sales growth by business is also expected to vary slightly due to the underlying growth of the markets of each business and products. None of our businesses are highly seasonal except our Duracell and Braun businesses which have a disproportionately high level of sales in the December quarter due to the December holiday season. In addition, anticipation or occurrence of natural disasters, such as hurricanes, can drive unusually high demand for batteries.

     We recently announced a number of changes to our organization structure and certain of our key leadership positions, which resulted in changes to our GBU and segment structure, effective fiscal year 2008. Specifically, our fiscal 2008 structure is comprised of three GBUs with a total of six reportable segments:

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Global Business Units	Reportable Segments
Beauty	• Beauty
	• Grooming
Health and Well Being	• Health Care
	• Snacks, Coffee and Pet Care
Household Care	• Fabric Care and Home Care
	• Baby Care and Family Care

     The businesses that previously comprised the Gillette GBU will now be included within the Beauty and Household Care GBUs. As a result of these moves, the Duracell and Braun businesses will no longer comprise a separate reportable segment. The Braun business will be managed and combined with the Blades and Razors business to form the “Grooming” reportable segment within the Beauty GBU. The Grooming reportable segment will also include all shave prep products currently being reported within the Beauty reportable segment. The Duracell business will be moved to our Household Care GBU and will be reported as part of our Fabric Care and Home Care reportable segment. Finally, our feminine care business, which was part of our Beauty GBU and reportable segment, will now be moved to our Health and Well Being GBU and will be managed and reported as part of the Health Care reportable segment.

     These changes were effective as of July 1, 2007. They will be reflected in our segment reporting beginning in fiscal year 2008, at which time our historical segment reporting will also be restated to reflect the new structure. The GBU and segment discussion in this Form 10-K reflects the organizational structure that existed through June 30, 2007.

     Additional information about our businesses can be found in Management’s Discussion and Analysis, pages 31-48, and Note 12, Segment Information, which appears on pages 67-68 of the Annual Report to Shareholders for the fiscal year ended June 30, 2007.

Narrative Description of Business

     Business Model. Our business model relies on the continued growth and success of existing brands and products, as well as the creation of new products. The markets and industry segments in which we offer our products are highly competitive. Our products are sold in over 180 countries around the world primarily through mass merchandisers, grocery stores, membership club stores and drug stores. We have also expanded our presence in “high-frequency stores,” the neighborhood stores which serve many consumers in developing markets. We work collaboratively with our customers to improve the in-store presence of our products and win the “first moment of truth” — when a consumer is shopping in the store. We must also win the “second moment of truth” — when a consumer uses the product, evaluates how well it met his or her expectations and whether it was a good value. We believe we must continue to provide new, innovative products and branding to the consumer in order to grow our business. Research and product development activities, designed to enable sustained organic growth, continued to carry a high priority during the past fiscal year. While many of the benefits from these efforts will not be realized until future years, we believe these activities demonstrate our commitment to future growth.

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     Key Product Categories. In 2007, one product category accounted for 10% or more of consolidated net sales. The laundry category constituted approximately 16% of net sales for fiscal years 2007 and 2006 and 17% of net sales in fiscal year 2005. In fiscal year 2005, we had three product categories, including the laundry category described above, that accounted for 10% or more of consolidated net sales. The diaper category represented approximately 11% of net sales in fiscal year 2005. The retail hair care category accounted for approximately 10% of net sales in fiscal year 2005. Fiscal year 2006 net sales percentages for the above categories decreased due to the addition of The Gillette Company on October 1, 2005.

     Key Customers. Our customers include mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores. Sales to Wal-Mart Stores, Inc. and its affiliates represent approximately 15% of our total revenue in both 2007 and 2006 and 16% of total revenue in 2005. No other customer represents more than 10% of our net sales. Our top ten customers account for approximately 30% of total unit volume in 2007, compared to 31% in 2006 and 32% in 2005. The nature of our business results in no material backlog orders or contracts with the government. We believe our practices related to working capital items for customers and suppliers are consistent with the industry segments in which we compete.

     Sources and Availability of Materials. Almost all of the raw and packaging materials used by the Company are purchased from others, some of whom are single-source suppliers. We produce raw materials, primarily chemicals, for further use in the manufacturing process. In addition, fuel and natural gas are important commodities used in our plants and in the trucks used to deliver our products to customers. The prices we pay for materials and other commodities are subject to fluctuation. When prices for these items change, we may or may not pass on the change to our customers, depending on the magnitude and expected duration of the change. The Company purchases a substantial variety of raw and packaging materials, no one of which is material to our business taken as a whole.

     Trademarks and Patents. We own or have licenses under patents and registered trademarks which are used in connection with our activity in all businesses. Some of these patents or licenses cover significant product formulation and processes used to manufacture our products. The trademarks of all major products in each business are registered. In part, our success can be attributed to the existence and continued protection of these trademarks, patents and licenses.

     Competitive Condition. The markets in which our products are sold are highly competitive. Our products compete against similar products of many large and small companies, including well-known global competitors. We market our products with advertising, promotions and other vehicles to build awareness of our brands in conjunction with an extensive sales force. We believe this combination provides the most efficient method of marketing for these types of products. Product quality, performance, value and packaging are also important competitive factors.

     Research and Development Expenditures. Research and development expenditures enable P&G to develop technologies and obtain patents across all categories in order to meet the needs and improve the lives of its consumers. Total research and development expenses were $2,112 million in 2007, $2,075 million in 2006 and $1,940 million in 2005.

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     Expenditures for Environmental Compliance. Expenditures for compliance with federal, state and local environmental laws and regulations are fairly consistent from year to year and are not material to the Company. No material change is expected in fiscal year 2008.

     Employees. The Company has approximately 138,000 employees. During the fiscal year, approximately 2,200 employee positions were eliminated from the Company as a result of the Gillette integration. This brings the total positions eliminated as a result of the Gillette integration to approximately 5,000.

Financial Information About Foreign and Domestic Operations

     Net sales in the United States account for approximately 42% of total net sales. No other individual country had net sales exceeding 10% of total net sales. Operations outside the United States are generally characterized by the same conditions discussed in the description of the business above and may also be affected by additional factors including changing currency values, different rates of inflation, economic growth and political and economic uncertainties and disruptions. Our sales by geography for the fiscal years ended June 30 were as follows:

	2007			2006			2005
North America		46	%		47	%		48	%
Western Europe		23	%		23	%		24	%
Northeast Asia		4	%		4	%		5	%
Developing Markets		27	%		26	%		23	%

     Developing markets include Latin America, Central & Eastern Europe/Middle East and Africa, Greater China, and ASEAN/Australasia/India.

     Net sales and assets in the United States and internationally were as follows (in millions):

	Net Sales (for the year ended June 30)						Assets (as of June 30)
	2007		2006		2005		2007		2006		2005
United States	$	31,946	$	29,462	$	25,342	$	73,527	$	75,444	$	25,399
International		44,530		38,760		31,399		64,487		60,251		36,128

Development of the Business

     The discussion below provides insight to the general development of our business, including the material acquisitions and disposition of assets over the past five years.

     Gillette Acquisition. On October 1, 2005, we completed the acquisition of The Gillette Company. Pursuant to the acquisition agreement, which provided for the exchange of 0.975 shares of The Procter & Gamble Company common stock, on a tax-free basis, for each share of The Gillette Company, we issued 962 million shares of The Procter & Gamble Company common stock. The value of these shares was determined using the average of Company stock prices beginning two days before and ending two days after January 28, 2005, the date the acquisition was announced. We also issued 79 million stock options in exchange for The Gillette Company’s outstanding stock options. Under the purchase method of accounting, the total consideration was approximately $53.43 billion including common stock, the fair value of vested stock options and acquisition costs.

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     The acquisition of The Gillette Company provides us with global market leadership in male grooming, selected female grooming products, alkaline batteries and in manual and power toothbrushes. Total sales for The Gillette Company during its most recent pre-acquisition year ended December 31, 2004 were $10.5 billion.

     In order to obtain regulatory approval of the transaction, we were required to divest certain overlapping businesses. We completed the divestiture of the Spinbrush toothbrush business, Rembrandt (a Gillette oral care product line) and Right Guard and other Gillette deodorant brands during the fiscal year ended June 30, 2006.

     Juice Divestiture. In August 2004 the Company completed the divestiture of its Juice business.

     Wella Acquisition. In September 2003, the Company acquired a controlling interest in Wella. Through a stock purchase agreement with the majority shareholders of Wella and a tender offer made on the remaining shares, we acquired approximately 81% of the outstanding Wella shares (99% of the voting class shares and 45% of the preference shares). In June 2004, the Company and Wella entered into a Domination and Profit Transfer Agreement (the Domination Agreement). Under the Domination Agreement, we are entitled to exercise full operating control and receive 100% of the future earnings of Wella. As consideration for the Domination Agreement, we will pay the remaining shareholders of Wella a guaranteed annual dividend payment. Alternatively, the remaining Wella shareholders may elect to tender their shares to the Company for an agreed price. The fair value of the total guaranteed annual dividend payments was $1.11 billion, which is the approximate cost if all remaining shares were tendered. During the year ended June 30, 2006, a portion of the remaining shares were tendered, resulting in a $944 million reduction in our liability under the Domination Agreement.

     The total purchase price for Wella, including acquisition costs, was $6.27 billion based on exchange rates at the acquisition dates. The acquisition was financed by a mixture of available cash balances, debt and the liability recorded under the Domination Agreement.

     Hutchison Acquisition. In June 2004, we purchased the remaining 20% stake of our China venture from our partner, Hutchison Whampoa China Ltd. (Hutchison), giving us full ownership of our operations in China. The net purchase price was $1.85 billion, which is the purchase price of $2.00 billion net of minority interest and certain obligations that were eliminated as a result of the transaction. The acquisition was funded by debt.

Item 1A. Risk Factors.

     We discuss our expectations regarding future performance, events and outcomes, such as our business outlook and objectives in this Form 10-K, the Annual Report to shareholders, quarterly reports, press releases and other written and oral communications. All statements, except for historical and present factual information, are “forward-looking statements” and are based on financial data and 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 significantly differ from our expectations.

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     The following discussion of “risk factors” identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with Management’s Discussion and Analysis (MD&A) and the consolidated financial statements and related notes incorporated by reference into this report. The following discussion of risks is not all inclusive but is designed to highlight what we believe are important factors to consider when evaluating our expectations. These factors could cause our future results to differ from those in the forward-looking statements and from historical trends.

A material change in consumer demand for our products could have a significant impact on our business.

     We are a consumer products company and rely on continued global demand for our brands and products. To achieve business goals, we must develop and sell products that appeal to consumers. This is dependent on a number of factors including our ability to develop effective sales, advertising and marketing programs in an increasingly fragmented media environment. We expect to achieve our financial targets, in part, by shifting our portfolio towards faster growing, higher margin businesses. If demand and growth rates fall substantially below expected levels or our market share declines significantly in these businesses, our results could be negatively impacted. This could occur due to unforeseen negative economic or political events or to changes in consumer trends and habits. In addition, our continued success is dependent on leading-edge innovation, with respect to both products and operations. This means we must be able to obtain patents that lead to the development of products that appeal to our consumers across the world.

The ability to achieve our business objectives is dependent on how well we can respond to our local and global competitors.

     Across all of our categories, we compete against a wide variety of global and local competitors. As a result, there are ongoing competitive product and pricing pressures in the environments in which we operate, as well as challenges in maintaining profit margins. To address these challenges, we must be able to successfully respond to competitive factors, including pricing, promotional incentives and trade terms, as well as technological advances and patents granted to competition.

Our ability to successfully integrate key acquisitions, primarily Gillette, could impact our business results.

     Since our goals include a growth component tied to acquisitions, we must be able to successfully manage and integrate key acquisitions, such as the acquisition of The Gillette Company. Specifically, we must be able to integrate acquisitions without any significant disruption to our ability to manage and execute business plans on our base businesses. In addition, our financial results could be adversely impacted if we are not able to deliver the expected cost and growth synergies associated with our acquisitions.

Our businesses face cost pressures which could affect our business results.

     Our costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials, cost of labor, foreign exchange and interest rates. Our costs in 2007 were impacted by higher commodity costs and this trend is likely to continue in 2008. Therefore, our success is dependent, in part, on our continued ability to manage these fluctuations through pricing actions, cost savings projects (including outsourcing projects), sourcing decisions and certain hedging transactions. In the manufacturing and general overhead areas, we need to maintain key

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manufacturing and supply arrangements, including sole supplier and sole manufacturing plant arrangements.

We face risks associated with significant international operations.

     We conduct business across the globe with a significant portion of our sales outside the United States. We expect to achieve our financial targets, in part, by achieving disproportionate growth in developing regions. Should growth rates or our market share fall substantially below expected levels in these regions, our results could be negatively impacted. In addition, economic changes, terrorist activity and political unrest may result in business interruption, inflation, deflation or decreased demand for our products. Our success will depend in part on our ability to manage continued global political and/or economic uncertainty, especially in our significant geographical markets, as well as any political or economic disruption due to terrorist and other hostile activities.

Our business is subject to regulation in the U.S. and abroad.

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

If the reputation of one or more of our leading brands erodes significantly, it could have a material impact on our financial results.

     Our Company’s financial success is directly dependent on the success of our brands, particularly our billion-dollar brands. The success of these brands can suffer if our marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract consumers. Further, our Company’s results could be impacted if one of our leading brands suffers a substantial impediment to its reputation due to real or perceived quality issues.

A material change in customer relationships or in customer demand for our products could have a significant impact on our business.

     Our success is dependent on our ability to successfully manage relationships with our retail trade customers. This includes our ability to offer trade terms that are acceptable to our customers and are aligned with our pricing and profitability targets. Our business could suffer if we cannot reach agreement with a key customer based on our trade terms and principles. Further, there is a continuing trend towards retail trade consolidation and this leads to more complex work across broader geographic boundaries for both us and key retailers. This can be particularly difficult when major customers are addressing local trade pressures or local law and regulation changes. Further, our business would be negatively impacted if a key customer were to significantly reduce the range or inventory level of our products.

Item 1B. Unresolved Staff Comments.

     None.

Item 2. Properties.

     In the United States, we own and operate 39 manufacturing facilities located in 23 different states. In addition, we own and operate 105 manufacturing facilities in 41 other countries. Many of the domestic and international facilities produce products for multiple businesses.

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Beauty products are manufactured at 52 of these locations; Health Care products are manufactured at 21 of these locations; Fabric Care and Home Care products at 42; Baby Care and Family Care products at 33; Pet Care, Snacks and Coffee products at 15; Blades and Razors at 8; and Duracell and Braun products at 12. Management believes that the Company’s production facilities are adequate to support the business efficiently and that the properties and equipment have been well maintained.

Item 3. Legal Proceedings.

     The Company is subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, and taxes. In July 2006, French authorities, in connection with an inquiry into potential competition law violations in France, entered the premises of a number of consumer products companies operating there, including two of the Company’s French subsidiaries, and seized a variety of documents. No formal claim has been made against the Company or our French subsidiaries in connection with the seizure of these documents. The Company cannot predict what, if any, financial impact may result from this situation. The Company’s policy is to comply with all laws and regulations, including all antitrust and competition laws.

Item 4. Submission of Matters to a Vote of Security Holders.

     Not Applicable.

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Executive Officers of the Registrant

     The names, ages and positions held by the executive officers of the Company on August 28, 2007 are:

				Elected to
Name	Position	Age		Officer Position
Alan G. Lafley	Chairman of the Board and Chief Executive Officer Director since June 8, 2000		60		1992
Bruce L. Byrnes	Vice Chairman of the Board - Global Brand Building Training Director since April 8, 2002		59		1991
Susan E. Arnold	President – Global Business Units		53		2004
Robert A. McDonald	Chief Operating Officer		54		1999
Clayton C. Daley, Jr.	Vice Chairman & Chief Financial Officer		55		1998
Werner Geissler	Vice Chairman – Global Operations		54		2007
E. Dimitri Panayoptopoulos	Vice Chairman – Global Household Care		55		2007
Robert A. Steele	Vice Chairman – Global Health & Well Being		52		2007
Richard L. Antoine	Global Human Resources Officer		61		1998
G. Gilbert Cloyd	Chief Technology Officer		61		2000
R. Keith Harrison, Jr.	Global Product Supply Officer		59		2001
James J. Johnson	Chief Legal Officer and Secretary		60		1991
Mariano Martin	Global Customer Business Development Officer		54		2003
Charlotte R. Otto	Global External Relations Officer		54		1996
Filippo Passerini	Chief Information Officer and Global Services Officer		50		2003
Valarie L. Sheppard	Vice President and Comptroller		43		2005
James R. Stengel	Global Marketing Officer		52		2001

All of the Executive Officers named above have been employed by the Company for more than five years.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

ISSUER PURCHASES OF EQUITY SECURITIES

							Approximate dollar
					Total Number of		value of shares that
					Shares Purchased as		may yet be purchased
					Part of Publicly		under our share
	Total Number of		Average Price		Announced Plans or		repurchase program
Period	Shares Purchased(1)		Paid per Share(2)		Programs (3)		($ in Billions) (3)
4/1/07-4/30/07		4,822,807	$	63.33		0		0
5/1/07-5/31/07		6,355,841	$	62.75		0		0
6/1/07-6/30/07		12,994,545	$	62.35		0		0

(1)	None of these transactions were made pursuant to a publicly announced repurchase plan. All transactions were made in the open market or pursuant to a block purchase. The number of shares purchased was 24,173,193 for the quarter. This includes 77,523 shares acquired by the Company under various compensation and benefit plans. This table excludes shares withheld from employees to satisfy minimum tax withholding requirements on option exercises and other equity-based transactions. The Company administers cashless exercises through an independent, third party broker and does not repurchase stock in connection with cashless exercise.
(2)	Average price paid per share is calculated on a settlement basis and excludes commission.
(3)	The Company’s share repurchases are made on a discretionary basis as part of the Company’s overall cash management strategy, which also includes capital expenditures, dividends, debt service, and strategic acquisitions.

     Additional information required by this item is incorporated by reference to Shareholder Information, which appears on page 72 of the Annual Report to Shareholders for the fiscal year ended June 30, 2007, and Part III, Item 12 of this Form 10-K.

Item 6. Selected Financial Data.

     The information required by this item is incorporated by reference to Note 1, Summary of Significant Accounting Policies, which appears on pages 54-56; Note 12, Segment Information, which appears on pages 67-68; and Financial Summary, which appears on page 73 of the Annual Report to Shareholders for the fiscal year ended June 30, 2007.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The information required by this item is incorporated by reference to Management’s Discussion and Analysis, which appears on pages 31-48; Note 1, Summary of Significant Accounting Policies, which appears on pages 54-56; Note 2, Acquisitions, which appears on pages 56-57; Note 11, Commitments and Contingencies, which appears on pages 66-67; and Note 12, Segment Information, which appears on pages 67-68

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of the Annual Report to Shareholders for the fiscal year ended June 30, 2007.

     The Company has made certain forward-looking statements in the Annual Report to Shareholders for the fiscal year ended June 30, 2007 and in other contexts relating to volume and net sales growth, increases in market shares, financial goals and cost reduction, among others.

     These forward-looking statements are based on assumptions and estimates regarding competitive activity, pricing, product introductions, economic conditions, customer and consumer trends, technological innovation, currency movements, governmental action and the development of certain markets available at the time the statements are made. There are a number of key factors that could cause our actual results to materially differ from the forward-looking statements made herein and in other contexts. Please see Item 1A “Risk Factors” of this Form 10-K for a discussion of these important factors.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     The information required by this item is incorporated by reference to the section entitled Other Information, which appears on pages 47-48, and Note 6, Risk Management Activities, which appears on pages 59-60 of the Annual Report to Shareholders for the fiscal year ended June 30, 2007.

Item 8. Financial Statements and Supplementary Data.

     The financial statements and supplementary data are incorporated by reference to pages 49-69 and 72-73 of the Annual Report to Shareholders for the fiscal year ended June 30, 2007, but excluding the section entitled Shareholder Return Performance Graphs on page 73.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

     Not applicable.

Item 9A. Controls and Procedures.

     Evaluation of Disclosure Controls and Procedures.

     The Company’s Chairman of the Board and Chief Executive Officer, A. G. Lafley, and the Company’s Chief Financial Officer, Clayton C. Daley, Jr., performed an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) as of the end of the period covered by this Annual Report on Form 10-K.

     Messrs. Lafley and Daley have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including Messrs. Lafley and Daley, to allow their timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting.

     Management’s annual report on internal control over financial reporting and the report of the independent registered public accounting firm are incorporated by reference to page 29 of the Annual Report to Shareholders for the fiscal year ended June 30, 2007.

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Changes in Internal Control Over Financial Reporting.

     There were no changes in our internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

     Not applicable.

13

PART III

Item 10. Directors and Executive Officers of the Registrant.

     The Board of Directors has determined that Mr. John F. Smith, Jr., Chairman of the Audit Committee, and Mr. Charles R. Lee, Audit Committee member, are both independent and are audit committee financial experts, as defined by SEC guidelines.

     The information required by this item is incorporated by reference to pages 4-10, up to but not including the section entitled Board and Committee Meeting Attendance; to the section entitled Code of Ethics, which appears on page 11; and to the section entitled Section 16(a) Beneficial Ownership Reporting Compliance, which appears on page 48 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2007, pursuant to Regulation 14A which involved the election of directors. Pursuant to Instruction 3 of Item 401(b) of Regulation S-K, Executive Officers of the Registrant are reported in Part I of this report.

Item 11. Executive Compensation.

     The information required by this item is incorporated by reference to pages 14-46 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2007, pursuant to Regulation 14A which involved the election of directors, up to but not including the section entitled Security Ownership of Management and Certain Beneficial Owners.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

     The following table gives information about the Company’s common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s equity compensation plans as of June 30, 2007. The table includes the following plans: The 1968 Procter & Gamble Plan for the Use of Shares in Payment of Remuneration; The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1992 Stock Plan (Belgian Version); The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan; The Procter & Gamble Future Shares Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan; The Gillette Company 1971 Stock Option Plan and The Gillette Company 2004 Long-Term Incentive Plan.

					Number of securities
					remaining available for
	Number of securities to be		Weighted-average exercise		future issuance under
	issued upon exercise of		price of outstanding		equity compensation plans
	outstanding options,		options, warrants and		(excluding securities
Plan Category	warrants and rights		rights		reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders (1)		288,196,574	$	46.67		73,276,087
Equity compensation plans not approved by security holders (2)		70,589,629	$	44.08		18,687,872
Total		358,786,203	$	46.16		91,963,959

⁽¹⁾ Includes The 1968 Procter & Gamble Plan for the Use of Shares in Payment of Remuneration; The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; and The Procter & Gamble 2003 Non-Employee Directors' Stock Plan.

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⁽²⁾ Includes The Procter & Gamble 1992 Stock Plan (Belgian Version) and The Procter & Gamble Future Shares Plan; The Gillette Company 1971 Stock Option Plan; The Gillette Company 2004 Long-Term Incentive Plan.

The Procter & Gamble 1992 Stock Plan (Belgian Version)

     No further grants can be made under the plan, although unexercised stock options previously granted under this plan remain outstanding. This plan was approved by the Company’s Board of Directors on February 14, 1997. Although the plan has not been submitted to shareholders for approval, it is nearly identical to The Procter & Gamble 1992 Stock Plan, approved by the Company’s shareholders on October 13, 1992, except for a few minor changes designed to comply with the Belgian tax laws.

     The plan was designed to attract, retain and motivate key Belgian employees. Under the plan, eligible participants were: (i) granted or offered the right to purchase stock options, (ii) granted stock appreciation rights and/or (iii) granted shares of the Company’s common stock. Except in the case of death of the recipient, all stock options and stock appreciation rights must vest in no less than one year from the date of grant and must expire no later than fifteen years from the date of grant. The exercise price for all stock options granted under the plan is the average price of the Company’s stock on the date of grant. If a recipient of a grant leaves the Company while holding an unexercised option or right, any unexercisable portions immediately become void, except in the case of death, and any exercisable portions become void within one month of departure, except in the case of death or retirement. Any common stock awarded under the plan may be subject to restrictions on sale or transfer while the recipient is employed, as the committee administering the plan may determine.

The Procter & Gamble Future Shares Plan

     On October 14, 1997, the Company’s Board of Directors approved The Procter & Gamble Future Shares Plan pursuant to which options to purchase shares of the Company’s common stock may be granted to employees worldwide. The purpose of this plan is to advance the interests of the Company by giving substantially all employees a stake in the Company’s future growth and success and to strengthen the alignment of interests between employees and the Company’s shareholders through increased ownership of shares of the Company’s stock. The plan has not been submitted to shareholders for approval.

     Subject to adjustment for changes in the Company’s capitalization, the number of shares to be granted under the plan is not to exceed 17 million shares. Under the plan’s regulations, recipients are granted options to acquire 100 shares of the Company’s common stock at an exercise price equal to the average price of the Company’s common stock on the date of the grant. These options vest five years after the date of grant and expire ten years following the date of grant. If a recipient leaves the employ of the Company prior to the vesting date for a reason other than disability, retirement or special separation (as defined in the plan), then the award is forfeited.

     At the time of the first grant following Board approval of the plan, each employee of the Company not eligible for an award under the 1992 Stock Plan was granted options for 100 shares. From the date of this first grant through June 30, 2003, each new employee of the Company has also received options for 100 shares. Following the grant of options on June 30,

15

2003, the Company suspended this part of the plan and intends to make no further grants under this part of the plan. The plan will terminate on October 13, 2007.

     In addition to the grants above, annual grants of options for 100 shares are granted to approximately 3,000 employees who are not eligible for participation in the 2001 Stock and Incentive Compensation Plan in recognition of outstanding performance. The Company’s key managers are not eligible for such grants.

The Gillette Company 1971 Stock Option Plan

     No further grants can be made under the plan after April 25, 2005, although unexercised stock options previously granted under this plan remain outstanding. The plan was approved by shareholders of The Gillette Company and assumed by the Company upon the merger between The Procter & Gamble Company and The Gillette Company. All options became immediately vested and exerciseable on October 1, 2005 as a result of the merger. After the merger, all outstanding options became options to purchase shares of The Procter & Gamble Company subject to an exchange ratio of .975 shares of P&G stock per share of Gillette stock.

     The plan was designed to attract, retain and motivate key salaried employees of The Gillette Company and non-employee members of its Board of Directors. Under the plan, eligible participants receive the option to purchase Company stock at a pre-determined price which cannot be less than 100% of the fair market value per share at the time that the option is granted. The period of any option may not exceed ten years from the date of grant. Subject to adjustment for changes in the Company’s capitalization, the number of shares granted under the plan was not to exceed 198,000,000 shares.

     If a recipient leaves the employ of the Company for any reason other than death or discharge for cause, the recipient is permitted to exercise any vested options granted under the for a period between thirty days and five years after termination, depending on the circumstances of his/her departure. If a participant is discharged for cause, all options are immediately cancelled. If a participant dies while holding options, the options are exerciseable for a period of one to three years depending on the date of grant. In addition, the plan allows Gillette employees whose employment is terminated for “Good Reason” within two years after the effective date of the merger the ability to exercise remaining options for the shorter of five years following their termination date or the original life of the grant. Employees terminated for “Good Reason” who are also eligible to retire under a Company plan are allowed to exercise their options subject to the original terms of the grant.

The Gillette Company 2004 Long-Term Incentive Plan

     Shareholders of The Gillette Company approved The Gillette Company 2004 Long Term Incentive Plan on May 20, 2004, and the plan was assumed by the Company upon the merger between The Procter & Gamble Company and The Gillette Company. All options became immediately vested and exerciseable on October 1, 2005 as a result of the merger. After the merger, all outstanding options became options to purchase shares of The Procter & Gamble Company subject to an exchange ratio of .975 shares of P&G stock per share of Gillette stock. Only employees previously employed by the Gillette Company prior to October 1, 2005 are eligible to receive grants under this plan.

     The plan was designed to attract, retain and motivate employees of The Gillette Company, and until the effective date of the merger between The Gillette Company and The

16

Procter & Gamble Company, non-employee members of the Gillette Board of Directors. Under the plan, eligible participants are: (i) granted or offered the right to purchase stock options, (ii) granted stock appreciation rights and/or (iii) granted shares of the Company’s common stock or restricted stock units (and dividend equivalents). Subject to adjustment for changes in the Company’s capitalization and the addition of any shares authorized but not issued or redeemed under The Gillette Company 1971 Stock Option Plan, the number of shares to be granted under the plan is not to exceed 19,000,000 shares.

     Except in the case of death of the recipient, all stock options and stock appreciation rights must expire no later than ten years from the date of grant. The exercise price for all stock options granted under the plan must be equal to or greater than the fair market value of the Company’s stock on the date of grant. Any common stock awarded under the plan may be subject to restrictions on sale or transfer while the recipient is employed, as the committee administering the plan may determine.

     If a recipient of a grant leaves the Company while holding an unexercised option or right: (1) any unexercisable portions immediately become void, except in the case of death, retirement, special separation (as those terms are defined in the plan) or any grants as to which the Compensation Committee of the Board of Directors has waived the termination provisions; and (2) any exercisable portions immediately become void, except in the case of death, retirement, special separation, voluntary resignation that is not for Good Reason (as those terms are defined in the plan) or any grants as to which the Compensation Committee of the Board of Directors has waived the termination provisions. In addition, the plan allows Gillette employees whose employment was terminated for “Good Reason” within two years of the effective date of the merger the ability to exercise their options for the shorter of five years following their termination date or the original life of the grant. Employees terminated for “Good Reason” who are also eligible to retire under a Company plan are allowed to exercise their options subject to the original terms of the grant.

     Additional information required by this item is incorporated by reference to pages 46-48, beginning with the section entitled Security Ownership of Management and Certain Beneficial Owners and up to but not including the section entitled Section 16(a) Beneficial Ownership Reporting Compliance, of the Proxy Statement filed since the close of the fiscal year ended June 30, 2007, pursuant to Regulation 14A which involved the election of directors, including footnotes referenced therein.

Item 13. Certain Relationships and Related Transactions.

     The information required by this item is incorporated by reference to the sections entitled Director Independence, Review and Approval of Transactions with Related Persons and Transactions with Related Persons, which appear on pages 10-12 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2007, pursuant to Regulation 14A which involved the election of directors.

Item 14. Principal Accounting Fees and Services.

     The information required by this item is incorporated by reference to pages 49-51 of the Proxy Statement filed since the close of the fiscal year ended June 30, 2007, pursuant to Regulation 14A which involved the election of directors, beginning with the section entitled Report of the Audit Committee up to but not including the section entitled Proposal to Ratify Appointment of the Independent Registered Public Accounting Firm.

17

PART IV

Item 15. Exhibits and Financial Statement Schedules.

1.	Financial Statements:
	The following Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries, management’s report and the reports of the independent registered public accounting firm are incorporated by reference in Part II, Item 8 of this Form 10-K.

– Management’s Report on Internal Control over Financial Reporting

– Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

– Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

– Consolidated Statements of Earnings — for years ended June 30, 2007, 2006 and 2005

– Consolidated Balance Sheets — as of June 30, 2007 and 2006

– Consolidated Statements of Shareholders’ Equity — for years ended June 30, 2007, 2006 and 2005

– Consolidated Statements of Cash Flows — for years ended June 30, 2007, 2006 and 2005

– Notes to Consolidated Financial Statements

2.	Financial Statement Schedules:
	These schedules are omitted because of the absence of the conditions under which they are required or because the information is set forth in the financial statements or notes thereto.
	Exhibits:

Exhibit (3-1) —	Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company’s Form 10-Q for the quarter ended September 30, 2005).
(3-2) —	Regulations (as amended by shareholders at the annual meeting on October 10, 2006) (Incorporated by reference to Exhibit (3-2) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
Exhibit (4) —	Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission.
Exhibit (10-1) —	The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended on October 10, 2006) which was adopted by shareholders at the annual meeting on October 9, 2001 (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-Q for the quarter ended September 30, 2006), and related correspondence and terms and conditions.*

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(10-2) —	The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001) which was adopted by the shareholders at the annual meeting on October 12, 1992 (Incorporated by reference to Exhibit (10-2) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(10-3) —	The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(10-4) —	The Procter & Gamble Deferred Compensation Plan for Directors (as amended December 12, 2006) which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended December 31, 2006).*
(10-5) —	The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan (as amended September 10, 2002) which was adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-6) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(10-6) —	The Procter & Gamble 1992 Stock Plan (Belgian Version) (as amended December 11, 2001) which was adopted by the Board of Directors on February 14, 1997 (Incorporated by reference to Exhibit (10-7) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).*
(10-7) —	The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004) which was adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended March 31, 2005).*
(10-8) —	The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan (as adjusted for the stock split effective May 21, 2004) which was adopted by the shareholders at the annual meeting on October 14, 2003 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended March 31, 2005), and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-9) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2004).*
(10-9) —	The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-1)

19

	of the Company’s Form 10-Q for the quarter ended December 31, 2005).*
(10-10) —	Summary of the Company’s Short Term Achievement Reward Program and related correspondence and terms and conditions.*
(10-11) —	Summary of the Company’s Business Growth Program and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended March 31, 2007).*
(10-12) —	Company’s Form of Separation Agreement & Release (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended March 31, 2007).*
(10-13) —	Summary of personal benefits available to certain officers and non-employee directors.*
(10-14) —	$24,000,000,000 Revolving Credit Agreement among Procter & Gamble International S.a.r.l and a syndicate of banks led by Citigroup (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended December 31, 2006).
(10-15) —	The Gillette Company 1971 Stock Option Plan (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended December 31, 2005).*
(10-16) —	The Gillette Company 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended December 31, 2005).*
(10-17) —	Amended and Restated Employment Agreement, dated December 23, 2004, between The Gillette Company and James M. Kilts (Incorporated by reference to Exhibit 10(g) of the Annual Report on Form 10-K filed by The Gillette Company for the year ended December 31, 2004, Commission File No. 1-922).*
(10-18) —	Amendment No. 1 to the Amended and Restated Employment Agreement dated as of December 23, 2004, entered into as of January 27, 2005, between The Gillette Company and James M. Kilts (Incorporated by reference to Exhibit 10.2 of the Form 8-K filed by The Gillette Company on January 28, 2005, Commission File No. 1-922).*
(10-19) —	Stock Option Agreement, dated January 19, 2001, between The Gillette Company and James M. Kilts, filed as Exhibit A to the

20

	Amended and Restated Employment Agreement between The Gillette Company and James M. Kilts (Incorporated by reference to Exhibit 10(g) of the Annual Report on Form 10-K filed by The Gillette Company for the year ended December 31, 2004, Commission File No. 1-922).*
(10-20) —	The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-4) of the Company’s Form 10-Q for the quarter ended September 30, 2006).*
(10-21) —	The Gillette Company Personal Financial Planning Reimbursement Program (Incorporated by reference to Exhibit (10-5) of the Company’s Form 10-Q for the quarter ended September 30, 2006).*
(10-22) —	The Gillette Company Senior Executive Financial Planning Program (Incorporated by reference to Exhibit (10-6) of the Company’s Form 10-Q for the quarter ended September 30, 2006).*
(10-23) —	The Gillette Company Estate Preservation Plan (Incorporated by reference to Exhibit (10-7) of the Company’s Form 10-Q for the quarter ended September 30, 2006).*
(10-24) —	The Gillette Company Deferred Compensation Plan (Incorporated by reference to Exhibit (10-8) of the Company’s Form 10-Q for the quarter ended September 30, 2006).*
(10-25) —	Employment Agreement dated July 28, 2006 between The Procter & Gamble Company and Mark M. Leckie (Incorporated by reference to Exhibit (10-24) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2006).*
(10-26) —	Form of Commercial Paper Dealer Agreement in connection with the $10 Billion commercial paper program initiated by Procter & Gamble International Funding S.C.A. (Incorporated by reference to Exhibit (10-9) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-27) —	Form of Issuing and Paying Agent Agreement in connection with the $10 Billion commercial paper program initiated by Procter & Gamble International Funding S.C.A. (Incorporated by reference to Exhibit (10-10) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-28) —	Senior Executive Recoupment Policy (Incorporated by referenced to Exhibit 99 of the Company’s Form 8-K filed on December 15, 2006).*

21

(10-29) —	The Gillette Company Deferred Compensation Plan (for salary deferrals prior to January 1, 2005) as amended through August 21, 2006.*
Exhibit (11) —	Computation of earnings per share.
Exhibit (12) —	Computation of ratio of earnings to fixed charges.
Exhibit (13) —	Annual Report to Shareholders (pages 1-74).
Exhibit (21) —	Subsidiaries of the registrant.
Exhibit (23) —	Consent of Independent Registered Public Accounting Firm.
Exhibit (31) —	Rule 13a-14(a)/15d-14(a) Certifications.
Exhibit (32) —	Section 1350 Certifications.
Exhibit (99-1) —	Summary of Directors and Officers Insurance Program.

* Compensatory plan or arrangement

22

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Cincinnati, State of Ohio.

	THE PROCTER & GAMBLE COMPANY
	By	A.G. LAFLEY
		(A.G. Lafley)
August 28, 2007		Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
A.G. LAFLEY (A.G. Lafley)	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)
CLAYTON C. DALEY, JR. (Clayton C. Daley, Jr.)	Chief Financial Officer (Principal Financial Officer)
VALARIE L. SHEPPARD (Valarie L. Sheppard)	Vice President and Comptroller (Principal Accounting Officer)
BRUCE L. BYRNES (Bruce L. Byrnes)	Director	August 28, 2007
SCOTT D. COOK (Scott D. Cook)	Director
JOSEPH T. GORMAN (Joseph T. Gorman)	Director
RAJAT K. GUPTA (Rajat K. Gupta)	Director

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Signature	Title	Date
CHARLES R. LEE (Charles R. Lee)	Director
LYNN M. MARTIN (Lynn M. Martin)	Director
W. JAMES MCNERNEY, JR. (W. James McNerney, Jr.)	Director
JOHNATHAN A. RODGERS (Johnathan A. Rodgers)	Director	August 28, 2007
JOHN F. SMITH, JR. (John F. Smith, Jr.)	Director
RALPH SNYDERMAN, M.D. (Ralph Snyderman, M.D.)	Director
MARGARET C. WHITMAN (Margaret C. Whitman)	Director
ERNESTO ZEDILLO (Ernesto Zedillo)	Director

24

EXHIBIT INDEX

Exhibit (3-1) —	Amended Articles of Incorporation (Incorporated by reference to Exhibit (3-1) of the Company’s Form 10-Q for the quarter ended September 30, 2005).
(3-2) —	Regulations (as amended by shareholders at the annual meeting on October 10, 2006) (Incorporated by reference to Exhibit (3-2) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
Exhibit (4) —	Registrant agrees to file a copy of documents defining the rights of holders of long-term debt upon request of the Commission.
Exhibit (10-1) —	The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended on October 10, 2006) which was adopted by shareholders at the annual meeting on October 9, 2001 (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-Q for the quarter ended September 30, 2006), and related correspondence and terms and conditions.
(10-2) —	The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001) which was adopted by the shareholders at the annual meeting on October 12, 1992 (Incorporated by reference to Exhibit (10-2) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
(10-3) —	The Procter & Gamble Executive Group Life Insurance Policy (each executive officer is covered for an amount equal to annual salary plus bonus) (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
(10-4) —	The Procter & Gamble Deferred Compensation Plan for Directors (as amended December 12, 2006) which was adopted by the Board of Directors on September 9, 1980 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended December 31, 2006).
(10-5) —	The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan (as amended September 10, 2002) which was adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-6) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).

(10-6) —	The Procter & Gamble 1992 Stock Plan (Belgian Version) (as amended December 11, 2001) which was adopted by the Board of Directors on February 14, 1997 (Incorporated by reference to Exhibit (10-7) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2003).
(10-7) —	The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004) which was adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended March 31, 2005).
(10-8) —	The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan (as adjusted for the stock split effective May 21, 2004) which was adopted by the shareholders at the annual meeting on October 14, 2003 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended March 31, 2005), and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-9) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2004).
(10-9) —	The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10- 1) of the Company’s Form 10-Q for the quarter ended December 31, 2005).
(10-10) —	Summary of the Company’s Short Term Achievement Reward Program, and related correspondence and terms and conditions.
(10-11) —	Summary of the Company’s Business Growth Program and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended March 31, 2007).
(10-12) —	Company’s Form of Separation Agreement & Release (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended March 31, 2007).
(10-13) —	Summary of personal benefits available to certain officers and non-employee directors.
(10-14) —	$24,000,000,000 Revolving Credit Agreement among Procter & Gamble International S.a.r.l and a syndicate of banks led by Citigroup (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended December 31, 2006).

(10-15) —	The Gillette Company 1971 Stock Option Plan (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended December 31, 2005).
(10-16) —	The Gillette Company 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended December 31, 2005).
(10-17) —	Amended and Restated Employment Agreement, dated December 23, 2004, between The Gillette Company and James M. Kilts (Incorporated by reference to Exhibit 10(g) of the Annual Report on Form 10-K filed by The Gillette Company for the year ended December 31, 2004, Commission File No. 1-922).
(10-18) —	Amendment No. 1 to the Amended and Restated Employment Agreement dated as of December 23, 2004, entered into as of January 27, 2005, between The Gillette Company and James M. Kilts (Incorporated by reference to Exhibit 10.2 of the Form 8-K filed by The Gillette Company on January 28, 2005, Commission File No. 1-922).
(10-19) —	Stock Option Agreement, dated January 19, 2001, between The Gillette Company and James M. Kilts, filed as Exhibit A to the Amended and Restated Employment Agreement between The Gillette Company and James M. Kilts (Incorporated by reference to Exhibit 10(g) of the Annual Report on Form 10-K filed by The Gillette Company for the year ended December 31, 2004, Commission File No. 1-922).
(10-20) —	The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-4) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-21) —	The Gillette Company Personal Financial Planning Reimbursement Program (Incorporated by reference to Exhibit (10-5) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-22) —	The Gillette Company Senior Executive Financial Planning Program (Incorporated by reference to Exhibit (10-6) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-23) —	The Gillette Company Estate Preservation Plan (Incorporated by reference to Exhibit (10-7) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-24) —	The Gillette Company Deferred Compensation Plan (Incorporated by reference to Exhibit (10-8) of the Company’s Form 10-Q for the quarter ended September 30, 2006).

(10-25) —	Employment Agreement dated July 28, 2006 between The Procter & Gamble Company and Mark M. Leckie (Incorporated by reference to Exhibit (10-24) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2006).
(10-26) —	Form of Commercial Paper Dealer Agreement in connection with the $10 Billion commercial paper program initiated by Procter & Gamble International Funding S.C.A. (Incorporated by reference to Exhibit (10-9) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-27) —	Form of Issuing and Paying Agent Agreement in connection with the $10 Billion commercial paper program initiated by Procter & Gamble International Funding S.C.A. (Incorporated by reference to Exhibit (10-10) of the Company’s Form 10-Q for the quarter ended September 30, 2006).
(10-28) —	Senior Executive Recoupment Policy (Incorporated by referenced to Exhibit 99 of the Company’s Form 8-K filed on December 15, 2006).
(10-29) —	The Gillette Company Deferred Compensation Plan (for salary deferrals prior to January 1, 2005) as amended through August 21, 2006.
Exhibit (11) —	Computation of earnings per share.
Exhibit (12) —	Computation of ratio of earnings to fixed charges.
Exhibit (13) —	Annual Report to Shareholders (pages 1-74).
Exhibit (21) —	Subsidiaries of the registrant.
Exhibit (23) —	Consent of Independent Registered Public Accounting Firm.
Exhibit (31) —	Rule 13a-14(a)/15d-14(a) Certifications.
Exhibit (32) —	Section 1350 Certifications.
Exhibit (99-1) —	Summary of Directors and Officers Insurance Program.

EX-10.1

EXHIBIT (10-1)

RELATED CORRESPONDENCE AND TERMS AND CONDITIONS

[GRANT_DATE]            [GLOBALID]

[FIRST_NAME] [MIDDLE_NAME] [LAST_NAME]]

Subject: NON-STATUTORY STOCK OPTION SERIES 07-AA

In recognition of your contributions to the future success of the business, the Company hereby grants you an option to purchase, in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan (including any applicable sub-plan) (the “Plan”), the Regulations of the Compensation and Leadership Development Committee of the Board of Directors and the Exercise Instructions in place as may be revised from time to time, shares of Procter & Gamble Common Stock as follows:

Grant Value:	$[DELIVERED_GRANT_VALUE]
Option Price per Share:	$[STOCK_PRCE]
Number of Shares:	[SHARES]
Date of Grant:	[GRANT_DATE]
Expiration of Option:	[EXPIRATION DATE]
Option Vest Date:	[VEST DATE]
Acceptance Deadline:	[ACCEPTANCE DEADLINE]

You may access, download and/or print the terms, or any portion thereof, of the Plan by activating this hyperlink: The Procter & Gamble 2001 Stock and Incentive Compensation Plan. Specific portions of the Plan are also hyperlinked below for your ease in reviewing. Nonetheless, if you would prefer to receive a paper copy of The Procter & Gamble 2001 Stock and Incentive Compensation Plan, please send a written request via email to Execcomp.IM@pg.com. Please understand that you will continue to receive future Plan materials and information via electronic mail even though you may have requested a paper copy.

The option is not transferable other than by will or the laws of descent and distribution and is exercisable during your life only by you. This option will become void upon any separation (including retirement) from the Company or any of its subsidiaries within 6 months of the grant date. This option may also become void upon separation from the Company or any of its subsidiaries at any time later than 6 months after the grant date (see Article G, paragraph 4 of the Plan). For the purposes of this option, separation from the Company or any of its subsidiaries and termination of employment will be effective as of the date that you are no longer actively employed and will not be extended by any notice period required under local law.

Please note that when the issue or transfer of the Common Stock covered by this option may, in the opinion of the Company, conflict or be inconsistent with any applicable law or regulation of any governmental agency, the Company reserves the right to refuse to issue or transfer said Common Stock

and that any outstanding options may be suspended or terminated if you engage in actions that are significantly contrary to the best interests of the Company or any of its subsidiaries.

This option to purchase shares of Common Stock of the Company is subject to the Employee Acknowledgement and Consent Form below and to the terms of the Plan, with which you acknowledge you are familiar by accepting this award, including the non-compete provision and other terms of Article F. The option is also subject to and bound by the actions of the Compensation and Leadership Development Committee and of the Company’s Board of Directors. This option grant and the Plan together constitute an agreement between the Company and you in accordance with the terms thereof and hereof, and no other understandings and/or agreements have been entered by you with the Company regarding this specific stock option grant. Any legal action related to this option, including Article F, may be brought in any federal or state court located in Hamilton County, Ohio, USA, and you hereby agree to accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this option grant.

Under IRS standards of professional practice, certain tax advice must meet requirements as to form and substance. To assure compliance with these standards, we disclose to you that this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties or promoting, marketing, or recommending to another party any transaction or matter addressed herein.

THE PROCTER & GAMBLE COMPANY

James J. Johnson

Secretary for the Compensation and Leadership
Development Committee

ATTACHMENTS

To Accept Your Stock Option
Read and check each of the boxes below:

o	I have read, understand and agree to be bound by each of:	the terms of this letter; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; and the Employee Acknowledgement and Consent Form (below).
o	I accept the stock option grant detailed above. (To accept this option, you must also check the box above.)

To Reject Your Stock Option
Read and check the box below:

o I have read and understand the terms noted above. I do not agree to be bound by these terms, and hereby reject the stock option grant detailed above.

Employee Acknowledgement and Consent Form

I understand that I am eligible to receive a grant of stock options under The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the “Plan”).

Data Privacy

I hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of my personal data as described in this document by and among, as applicable, my employer (“Employer”) and The Procter & Gamble Company and its subsidiaries and affiliates (“P&G”) for the exclusive purpose of implementing, administering and managing my participation in the Plan.

I understand that P&G and my Employer hold certain personal information about me, including, but not limited to, my name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in P&G, details of all options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in my favor, for the purpose of implementing, administering and managing the Plan (“Data”). I understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in my country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than my country. I understand that I may request a list with the names and addresses of any potential recipients of the Data by contacting my local human resources representative. I authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing my participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom I may elect to deposit any shares of stock acquired upon exercise of the option. I understand that Data will be held only as long as is necessary to implement, administer and manage my participation in the Plan. I understand that I may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing my local human resources representative. I understand, however, that refusing or withdrawing my consent may affect my ability to participate in the Plan. For more information on the consequences of my refusal to consent or withdrawal of consent, I understand that I may contact my local human resources representative.

Nature of Grant

By completing this form and accepting the grant of the stock option evidenced hereby, I acknowledge that: i) the Plan is established voluntarily by The Procter & Gamble Company, it is discretionary in nature and it may be amended, suspended or terminated at any time; ii) the grant of options under the Plan is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past; iii) all decisions with respect to future grants of options, if any, will be at the sole discretion of P&G; iv) my participation in the Plan is voluntary; v) the option is an extraordinary item and not part of normal or expected compensation or salary for any purposes including, but not limited to, calculating any termination, severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; vi) in the event that my employer is not P&G, the grant of options will not be interpreted to form an employment relationship with P&G; and furthermore, the grant of options will not be interpreted to form an employment contract with my Employer; vii) the future value of the shares purchased under the Plan is unknown and cannot be predicted with certainty, may increase or decrease in value, even below the exercise price and, if the underlying shares do not increase in value, the option will have no value; iix) my participation in the Plan shall not create a right to further employment with my Employer and shall not interfere with the ability of my Employer to terminate my employment relationship at any time, with or without cause; ix) and no claim or entitlement to compensation or damages arises from the termination of the option or the diminution in value of the option or shares purchased and I irrevocably release P&G and my Employer from any such claim that may arise.

Responsibility for Taxes

Regardless of any action P&G or my Employer takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), I acknowledge that the ultimate liability for all Tax-Related Items is and remains my responsibility and that P&G and/or my Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the option grant, including the grant, vesting or exercise of the option, the subsequent sale of shares acquired pursuant to such exercise and the receipt of any dividends or the potential impact of current or future tax legislation in any jurisdiction; and (2) do not commit to structure the terms of the grant or any aspect of the option to reduce or eliminate my liability for Tax-Related Items.

Prior to exercise of the option, I shall pay or make adequate arrangements satisfactory to P&G and/or my Employer to satisfy all withholding and payment on account obligations of P&G and/or my Employer. In this regard, I authorize P&G and/or my Employer to withhold all applicable Tax-Related Items from my wages or other cash compensation paid to me by P&G and/or my Employer or from proceeds of the sale of the shares. Alternatively, or in addition, if permissible under local law, P&G may (1) sell or arrange for the sale of shares that I acquire to meet the withholding obligation for Tax-Related Items, and/or (2) withhold in shares, provided that P&G only withholds the amount of shares necessary to satisfy the minimum withholding amount. Finally, I shall pay to P&G or my Employer any amount of Tax-Related Items that P&G or my Employer may be required to withhold as a result of my participation in the Plan or my purchase of shares that cannot be satisfied by the means previously described. P&G may refuse to honor the exercise and refuse to deliver the shares if I fail to comply with my obligations in connection with the Tax-Related Items as described in this section.

FORM RRS
9/11/01

PROCTER & GAMBLE

STATEMENT OF CONDITIONS AND RESTRICTIONS

THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN

     The shares of Common Stock of The Procter & Gamble Company (the “Restricted Shares”) awarded to you as stated in the accompanying letter have been transferred to you on the express condition that these Restricted Shares, and your ownership thereof, are subject to the following conditions and restrictions:

1. Restrictions and Conditions on Shares —

     (a) Neither these Restricted Shares nor any of your interest therein may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time except as specifically permitted or otherwise required by the terms of this Statement.

     (b) In the event that your employment with Procter & Gamble terminates, except as the result of your death or disability or your retirement under circumstances permitted by the terms of a Procter & Gamble retirement plan in which you are then a participant, you will be deemed to have received on the date of the termination of your employment a written demand by the Company to sell to the Company within ten (10) days these Restricted Shares at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. For the purpose of this subparagraph, your employment with Procter & Gamble shall not be deemed to terminate by reason of your being on leave of absence for any purpose approved in writing by the Company.

     (c) In the event that you shall at any time attempt to sell, exchange, transfer, pledge, hypothecate, give or otherwise dispose of any of the Restricted Shares, or any interest therein, in violation of the terms and conditions of this Statement, you will be required, within ten (10) days after delivery to you of a written demand by the Company made within ninety (90) days after the occurrence of such event, to sell to the Company all Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided.

     (d)   (i) The determination as to whether an event has occurred requiring a sale of Restricted Shares to the Company in accordance with any provision of this paragraph 1, paragraph 7 following or any other provision of this Statement shall be made by the Compensation Committee (the “Committee”) in its sole discretion, and all determinations of the Committee with respect thereto shall in all respects be conclusive upon you and any persons claiming under or through you.

          (ii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to any provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, you shall, effective on the date of the delivery of the Company’s demand to you, cease to have any rights as a shareholder with respect to the Restricted Shares so required to be sold, or any interest therein; and, without limitation, you shall cease to be entitled to receive any future dividends upon such Restricted Shares with record dates occurring after the date of delivery of such demand; and in the event that for any reason you shall receive any such dividends upon such Restricted Shares you will be required to repay the Company an amount equal to such dividends.

This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933.

          (iii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to the provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, and if within thirty (30) days after delivery to you of the Company’s demand you have not delivered a stock power or other instrument of transfer appropriately executed in blank, together with any certificates which you may hold representing such Restricted Shares to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201, the Company may thereupon cause to be mailed to you, in the manner and at the address specified in paragraph 8(b) following, its check payable to your order in the amount of the purchase price for such shares provided for in this Statement and direct the Transfer Agent and Registrar of the Company’s Common Stock to make appropriate entries upon their records showing the cancellation of such certificates and return the shares represented thereby to the Company.

2. Shareholder Rights —

     Effective upon the date of award of these Restricted Shares you shall for all purposes be a holder of record of these Restricted Shares and shall thereafter have all rights of a common shareholder with respect to such shares (including the right to vote such shares at any meeting of common shareholders of The Procter & Gamble Company and the right to receive all dividends paid with respect to such shares), subject only to the conditions and restrictions imposed by this Statement. Until such conditions and restrictions have lapsed with respect to any restricted Shares, any certificate for such shares will bear a legend to the effect that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Statement.

3. Adjustments in Case of Stock Dividends, Stock Splits, etc. —

     In the event that, as the result of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, or other event, you shall, as the owner of Restricted Shares, be entitled to new, additional or different shares or securities: (a) such new, additional or different shares or securities shall for all purposes be deemed “Restricted Shares,” (b) all of the terms of this Statement shall be applicable thereto as modified by this paragraph 3, (c) the purchase price of ten cents ($.10) per share and all of the computations provided for in this Statement shall, if and to the extent required, be appropriately adjusted, and (d) any certificates or other instruments evidencing such new, additional or different shares or securities shall bear the legend referred to in paragraph 2; provided, however, any fractional shares and any pre-emptive or other rights or warrants to purchase securities issued to you as a holder of Restricted Shares in connection with a public offering will be issued to you free and clear of all conditions and restrictions imposed by this Statement.

4. Lapse of Conditions and Restrictions —

     (a) The conditions and restrictions set forth in paragraph 1 above shall lapse in their entirety on the earliest of

          (i) the date your employment with Procter & Gamble terminates as the result of your death or disability or your retirement under circumstances permitted by the terms of a Procter & Gamble retirement plan in which you are then a participant, provided, however, that the Treasurer of The Procter & Gamble Company may agree to extend the restrictions to a date after retirement to provide for expiration (a) on a date not later than December 15 of the year of retirement; (b) on January 15 of the year following retirement; or (c) in five or ten annual installments beginning on January 15 of the year following retirement, with any such extension to be agreed to only upon your written request made prior to January 1 of the year of your retirement and your agreement not to engage in competitive employment (as defined in Article F(1) of The Procter & Gamble 2001 Stock and Incentive Compensation Plan following retirement until expiration of the restrictions without first obtaining written permission from the Company; or

          (ii) there is a “change in control” (as defined in the Plan) of Procter & Gamble; or

          (iii) the date the Committee, in its sole discretion, accepts in writing your written request to accelerate the lapse of conditions and restrictions due to Company approval in writing of your planned retirement under circumstances permitted by the terms of a Procter & Gamble retirement plan in which you are then a participant. In no case will the Committee accept your request to accelerate the lapse of conditions and restrictions prior to October 1 of the calendar year preceding the calendar year of your approved retirement.

     (b) The Committee may accelerate the lapse of conditions and restrictions on all or any part of the Restricted Shares in the case of hardship which in the sole judgment of the Committee justifies such action.

     (c) When the conditions and restrictions lapse with respect to Restricted Shares pursuant to this paragraph 4, the Company will deliver to you, or your legal representative in case of death, promptly after surrender of any certificate(s) for such Restricted Shares to the Treasurer of The Procter & Gamble Company, Cincinnati, Ohio 45201, one or more certificates for a like number of shares, free of any legend.

5. Company Right to Terminate Employment and Other Remedies —

     Nothing provided herein shall be construed to affect in any way the right or power of the Company to terminate your employment at any time for any reason with or without cause, nor to preclude the Company from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part.

6. Definitions —

     (a) The term “Company” as used in this Statement shall mean the corporation which awarded the Restricted Shares to you.

     (b) The term “Procter & Gamble” as used in this Statement shall include The Procter & Gamble Company and all corporations, more than 50% of whose capital stock entitled to vote for the election of directors is owned or controlled, directly or indirectly, by The Procter & Gamble Company or by any corporation so controlled by The Procter & Gamble Company, if and as long as such corporations are so controlled.

7. Additional Documents —

     a It is the intention of the Company that this transaction shall meet the requirements of, and result in the application of, the rules prescribed by Section 83 of the Internal Revenue Code of 1986, as in effect at the date hereof, and applicable Regulations thereunder. Accordingly, each and every provision shall be construed and interpreted in such manner as to conform with such intention and the Company reserves the right to execute and to require you to execute any further agreements or other instruments which may be effective as of the date of award of these Restricted Shares, including, but without limitation, an instrument modifying or correcting any provision hereof, or of the letter advising you of the award or any action taken hereunder or contemporaneously herewith, and to take any other action, which may be effective as of the date of award of these Restricted Shares, that, in the opinion of counsel for the Company, may be necessary or desirable to carry out such intention.

     (b) If you fail, refuse or neglect to execute and deliver any instrument or document or to take any action requested by the Company or Committee to be executed or taken by you pursuant to the provisions of paragraph 7(a) above for a period of thirty (30) days after the date of such request, the Committee may require you, within ten (10) days after delivery to you of a written demand by the Company, to sell to the Company all of the Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as herein provided.

8. Notices —

     (a) Any notice to the Company under or pursuant to the conditions and restrictions of this Statement shall be deemed to have been delivered to the Company when delivered in person to the Secretary of the Company or when deposited in the mails, by certified or registered mail, addressed to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201, or such other address as the Company may from time to time designate in writing by notice to you given pursuant to paragraph 8(b) hereof.

     (b) Any notice or demand to you under or pursuant to any provisions of this Statement shall be deemed to have been delivered to you when delivered to you in person or when deposited in the mails, by certified or registered mail, addressed to you at the address on record in the Shareholder Services Department or such other address as you may from time to time designate in writing by notice to the Company given pursuant to paragraph 8(a) above.

9. The Procter & Gamble 2001 Stock and Incentive Compensation Plan —

     The Restricted Shares have been awarded to you pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan adopted and approved by the shareholders of The Procter & Gamble Company on October 9, 2001, and such shares and your ownership thereof shall be in all respects subject to the terms of such Plan, the terms and provisions of which are incorporated herein by reference as applicable.

10. Successors and Assigns —

     The provisions of this Statement shall be binding upon and inure to the benefit of

     (a) the Company, its successors and assigns, and

     (b) you and, to the extent applicable, your legal representative.

11. Governing Law —

     The validity, interpretation, performance and enforcement of the conditions and restrictions contained in this Statement and your rights in, to and under the Restricted Shares shall for all purposes be governed by the laws of the State of Ohio.

12. Additional Information Concerning Common Stock —

     The following information which appears on certificates representing shares of the Common Stock of the Company is provided pursuant to Section 1701.24(F) of the Ohio Revised Code as pertinent to Restricted Shares awarded or held without issuance of certificates:

     (a) The Procter & Gamble Company is organized under the laws of the State of Ohio.

     (b) The Restricted Shares are fully paid and non-assessable shares of the Common Stock without par value of the Company.

     (c) The name of the person to whom the shares are issued and the number of shares so issued and made subject to this Statement of Conditions and Restrictions are set forth in the accompanying letter.

     (d) A copy of the express terms of such shares and of all other classes and series of shares authorized will be mailed to any shareholder without charge within five (5) days after receipt from such shareholder of a written request therefor addressed to the Secretary of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201.

FORM SRS
6/10/03

PROCTER & GAMBLE

STATEMENT OF CONDITIONS AND RESTRICTIONS

THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN

     The shares of Common Stock of The Procter & Gamble Company (the “Restricted Shares”) awarded to you as stated in the accompanying letter have been transferred to you on the express condition that these Restricted Shares, and your ownership thereof, are subject to the following conditions and restrictions:

1. Restrictions and Conditions on Shares —

     (a) Neither these Restricted Shares nor any of your interest therein may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time except as specifically permitted or otherwise required by the terms of this Statement.

     (b) In the event that your employment with Procter & Gamble terminates for any reason except as set forth in Section 4(a)(ii) below prior to the vesting date shown in the accompanying letter, you will be deemed to have received delivery on the date of the termination of your employment a written demand by the Company to sell to the Company within ten (10) days any of these Restricted Shares where the conditions and restrictions have not lapsed as set forth in paragraph 4 below at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided. For the purpose of this subparagraph, your employment with Procter & Gamble shall not be deemed to terminate by reason of your being on leave of absence for any purpose approved in writing by the Company.

     (c) In the event that you shall at any time attempt to sell, exchange, transfer, pledge, hypothecate, give or otherwise dispose of any of the Restricted Shares, or any interest therein, in violation of the terms and conditions of this Statement, you will be required, within ten (10) days after delivery to you of a written demand by the Company made within ninety (90) days after the occurrence of such event, to sell to the Company all Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as hereinafter provided.

     (d)   (i) The determination as to whether an event has occurred requiring a sale of Restricted Shares to the Company in accordance with any provision of this paragraph 1, paragraph 7 following or any other provision of this Statement shall be made by the Compensation Committee (the “Committee”) in its sole discretion, and all determinations of the Committee with respect thereto shall in all respects be conclusive upon you and any persons claiming under or through you.

          (ii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to any provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, you shall, effective on the date of the delivery or deemed delivery of the Company’s demand to you, cease to have any rights as a shareholder with respect to the Restricted Shares so required to be sold, or any interest therein; and, without limitation, you shall cease to be entitled to receive any future dividends upon such Restricted Shares with record dates occurring after the date of delivery of such demand; and in the event that for any reason you shall receive any such dividends upon such Restricted Shares you will be required to repay the Company an amount equal to such dividends.

This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933.

          (iii) If you shall at any time be required to sell any or all of these Restricted Shares to the Company pursuant to the provisions of this paragraph 1, paragraph 7 following or any other provision in this Statement, and if within thirty (30) days after delivery or deemed delivery to you of the Company’s demand you have not delivered a stock power or other instrument of transfer appropriately executed in blank, together with any certificates which you may hold representing such Restricted Shares to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P. O. Box 599, Cincinnati, Ohio 45201, the Company may thereupon cause to be mailed to you, in the manner and at the address specified in paragraph 8(b) following, its check payable to your order in the amount of the purchase price for such shares provided for in this Statement and direct the Transfer Agent and Registrar of the Company’s Common Stock to make appropriate entries upon their records showing the cancellation of such certificates and return the shares represented thereby to the Company.

2. Shareholder Rights —

     Effective upon the date of award of these Restricted Shares you shall for all purposes be a holder of record of these Restricted Shares and shall thereafter have all rights of a common shareholder with respect to such shares (including the right to vote such shares at any meeting of common shareholders of The Procter & Gamble Company and the right to receive all dividends paid with respect to such shares), subject only to the conditions and restrictions imposed by this Statement. Until such conditions and restrictions have lapsed with respect to any restricted Shares, any certificate for such shares will bear a legend to the effect that they were issued or transferred subject to, and may be sold or otherwise disposed of only in accordance with, the terms of this Statement.

3. Adjustments in Case of Stock Dividends, Stock Splits, etc. —

     In the event that, as the result of a stock dividend, stock split, recapitalization, merger, consolidation, reorganization, or other event, you shall, as the owner of Restricted Shares, be entitled to new, additional or different shares or securities: (a) such new, additional or different shares or securities shall for all purposes be deemed “Restricted Shares,” (b) all of the terms of this Statement shall be applicable thereto as modified by this paragraph 3, (c) the purchase price of ten cents ($.10) per share and all of the computations provided for in this Statement shall, if and to the extent required, be appropriately adjusted, and (d) any certificates or other instruments evidencing such new, additional or different shares or securities shall bear the legend referred to in paragraph 2; provided, however, any fractional shares and any pre-emptive or other rights or warrants to purchase securities issued to you as a holder of Restricted Shares in connection with a public offering will be issued to you free and clear of all conditions and restrictions imposed by this Statement.

4. Lapse of Conditions and Restrictions —

     (a) The conditions and restrictions set forth in paragraph 1 above shall lapse as follows:

          (i) The conditions and restrictions on the Restricted Shares shall lapse on the dates set forth in the accompanying letter.

          (ii) In the event your employment with Procter & Gamble terminates as a result of your death or permanent disability, the conditions and restrictions on these Restricted Shares shall lapse in their entirety.

     (b) The Committee may accelerate the lapse of conditions and restrictions on all or any part of the Restricted Shares in the case of hardship which in the sole judgment of the Committee justifies such action.

     (c) When the conditions and restrictions lapse with respect to Restricted Shares pursuant to this paragraph 4, the Company will deliver to you, or your legal representative in case of death, promptly after surrender of any certificate(s) for such Restricted Shares to the Treasurer of The Procter & Gamble Company, Cincinnati, Ohio 45201, one or more certificates for a like number of shares, free of any legend.

5. Company Right to Terminate Employment and Other Remedies —

     Nothing provided herein shall be construed to affect in any way the right or power of the Company to terminate your employment at any time for any reason with or without cause, nor to preclude the Company from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part.

6. Definitions —

     (a) The term “Company” as used in this Statement shall mean the corporation which awarded the Restricted Shares to you.

     (b) The term “Procter & Gamble” as used in this Statement shall include The Procter & Gamble Company and all corporations, more than 50% of whose capital stock entitled to vote for the election of directors is owned or controlled, directly or indirectly, by The Procter & Gamble Company or by any corporation so controlled by The Procter & Gamble Company, if and as long as such corporations are so controlled.

7. Additional Documents —

     a It is the intention of the Company that this grant of Restricted Shares shall meet the requirements of, and result in the application of, the rules prescribed by Section 83 of the Internal Revenue Code of 1986, as in effect at the date hereof, and applicable Regulations thereunder. Accordingly, each and every provision shall be construed and interpreted in such manner as to conform with such intention and the Company reserves the right to execute and to require you to execute any further agreements or other instruments which may be effective as of the date of award of these Restricted Shares, including, but without limitation, an instrument modifying or correcting any provision hereof, or of the letter advising you of the award or any action taken hereunder or contemporaneously herewith, and to take any other action, which may be effective as of the date of award of these Restricted Shares, that, in the opinion of counsel for the Company, may be necessary or desirable to carry out such intention.

     (b) If you fail, refuse or neglect to execute and deliver any instrument or document or to take any action requested by the Company or Committee to be executed or taken by you pursuant to the provisions of paragraph 7(a) above for a period of thirty (30) days after the date of such request, the Committee may require you, within ten (10) days after delivery to you of a written demand by the Company, to sell to the Company all of the Restricted Shares then registered in your name with respect to which the conditions and restrictions set forth in this Statement are still in effect at a price of ten cents ($.10) per share, which price is subject to adjustment as herein provided.

8. Notices —

     (a) Any notice to the Company under or pursuant to the conditions and restrictions of this Statement shall be deemed to have been delivered to the Company when delivered in person to the Secretary of the Company or when deposited in the mails, by certified or registered mail, addressed to the Secretary of the Company at the Executive Offices of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201, or such other address as the Company may from time to time designate in writing by notice to you given pursuant to paragraph 8(b) hereof.

     (b) Any notice or demand to you under or pursuant to any provisions of this Statement shall be deemed to have been delivered to you when delivered to you in person or when deposited in the mails, by certified or registered mail, addressed to you at the address on record in the Shareholder Services Department or such other address as you may from time to time designate in writing by notice to the Company given pursuant to paragraph 8(a) above.

9. The Procter & Gamble 2001 Stock and Incentive Compensation Plan —

     The Restricted Shares have been awarded to you pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan adopted and approved by the shareholders of The Procter & Gamble Company on October 9, 2001, and such shares and your ownership thereof shall be in all respects subject to the terms of such Plan, the terms and provisions of which are incorporated herein by reference as applicable.

10. Successors and Assigns —

     The provisions of this Statement shall be binding upon and inure to the benefit of

     (a) the Company, its successors and assigns, and

     (b) you and, to the extent applicable, your legal representative.

11. Governing Law —

     The validity, interpretation, performance and enforcement of the conditions and restrictions contained in this Statement and your rights in, to and under the Restricted Shares shall for all purposes be governed by the laws of the State of Ohio.

12. Additional Information Concerning Common Stock —

     The following information which appears on certificates representing shares of the Common Stock of the Company is provided pursuant to Section 1701.24(F) of the Ohio Revised Code as pertinent to Restricted Shares awarded or held without issuance of certificates:

     (a) The Procter & Gamble Company is organized under the laws of the State of Ohio.

     (b) The Restricted Shares are fully paid and non-assessable shares of the Common Stock without par value of the Company.

     (c) The name of the person to whom the shares are issued and the number of shares so issued and made subject to this Statement of Conditions and Restrictions are set forth in the accompanying letter.

     (d) A copy of the express terms of such shares and of all other classes and series of shares authorized will be mailed to any shareholder without charge within five (5) days after receipt from such shareholder of a written request therefor addressed to the Secretary of The Procter & Gamble Company, P.O. Box 599, Cincinnati, Ohio 45201.

\

Form OPN

[INSERT DATE]                     

[INSERT NAME]

Subject: Award of Restricted Stock Units

This is to advise you that The Procter & Gamble Company, an Ohio corporation, is awarding you with Restricted Stock Units, on the dates and in the amounts listed below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and subject to the attached Statement of Terms and Conditions Form OPN.

Grant Date:	[INSERT DATE OF GRANT]
Original Settlement Date:	[INSERT DATE RSUs BECOME SHARES]
Number of Restricted Stock Units:	[INSERT NUMBER GRANTED]

Paragraph 3(a) of Statement of Terms and Conditions Form OPN [is/is not] waived.

As you will see from the Statement of Terms and Conditions Form OPN, under certain circumstances you may agree with The Procter & Gamble Company to delay the settlement of your Restricted Stock Units beyond the Original Settlement Date. You may want to consult your personal tax advisor before making a decision about this matter.

THE PROCTER & GAMBLE COMPANY

James J. Johnson, Secretary

For the Compensation Committee

o I hereby accept the Award of Restricted Stock Units set forth above in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan and the attached Statement of Terms and Conditions for Restricted Stock Units, with which I am familiar. I agree that the Award of Restricted Stock Units, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and the attached Statement of Terms and Conditions for Restricted Stock Units together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this Award of Restricted Stock Units may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this Award of Restricted Stock Units.

o I hereby reject the Award of Restricted Stock Units set forth above.

Date Signature P&G E-mail Address

Form OPN

THE PROCTER & GAMBLE COMPANY

STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS

THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN

     The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your “Award Letter”), and your ownership thereof, are subject to the following terms and conditions.

1. Definitions.

     For purposes of this Statement of Terms and Conditions for Restricted Stock Units (“Terms and Conditions”), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the “Plan”), and the following terms will have the following meanings.

(a) “Agreed Settlement Date” has the meaning described in Section 2(b);

(b) “Data” has the meaning described in Section 10;

(c) “Disability” means termination of employment under the permanent disability provision of any retirement plan of Procter & Gamble;

(d) “Dividend Equivalents” has the meaning described in Section 4;

(e) “Grant Date” means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter;

(f) “Original Settlement Date” is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2;

(g) “Procter & Gamble” means the Company and/or its Subsidiaries;

(h) “Restricted Stock Unit” means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the later of the Original Settlement Date or the Agreed Settlement Date.

(i) “Settlement Period” means the period from the Grant Date until the later of the Original Settlement Date or the Agreed Settlement Date.

2. Transfer and Restrictions.

(a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit, whether voluntary or involuntary on your part, will result in the immediate forfeiture to the Company, and cancellation, of the Restricted Stock Unit (including all rights to Dividend Equivalents).

(b) At any time at least one calendar year prior to the Original Settlement Date, you and the Company may agree to postpone the date on which you are entitled to receive

one share of Common Stock for each Restricted Stock Unit you hold, according to the deferral terms in place at the time, and provided the new date (the “Agreed Settlement Date”) is at least five years from the Original Settlement Date. During the Settlement Period, if you leave your employment with Procter & Gamble for any reason other than: (i) Disability; (ii) Special Separation; or (iii) retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your termination of employment. In the event of your Disability or Special Separation during the Settlement Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your Disability or Special Separation, as applicable. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Settlement Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions.

(c) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable.

(d) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, to agree to an Agreed Settlement Date, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so.

(e) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units.

3. Confidentiality and Non-Competition

(a) In order to better protect the goodwill of Procter & Gamble and to prevent the disclosure of Procter & Gamble’s trade secrets and confidential information, and thereby help ensure the long-term success of Procter & Gamble’s business, in consideration of your being awarded Restricted Stock Units, you (without prior written consent of Procter & Gamble), will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, advisor, consultant or otherwise, for a period of three (3) years following the date your employment with Procter & Gamble is terminated in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of Procter & Gamble (including both existing products as well as products known to you, as a consequence of your employment with Procter & Gamble, to be in development):

(i) with respect to which your work has been directly concerned at any time during the two (2) years preceding the termination of your employment with Procter & Gamble; or

(ii) with respect to which, during the two (2) years preceding the termination of your employment with Procter & Gamble, you, as a consequence of your job

performance and duties, acquired knowledge of trade secrets or other confidential information of Procter & Gamble.

For purposes of this Section 3(a), it will be conclusively presumed that you have knowledge of information you were directly exposed to through actual receipt or review of memoranda or documents containing such information, or through attendance at meetings at which such information was discussed or disclosed.

(b) The provisions of Section 3(a) are not in lieu of, but are in addition to your continuing obligation (which you acknowledge by accepting an award of Restricted Stock Units) to not use or disclose Procter & Gamble’s trade secrets or confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). As used in this Section 3(b), “generally known” means known throughout the domestic United States industry or, if you have job responsibilities partially or entirely outside of the United States, the appropriate domestic United States and/or appropriate foreign country or countries’ industry(ies). Information regarding products in development, in test marketing, or being marketed or promoted in a discrete geographic region, which information Procter & Gamble is considering for broader use, will not be deemed to be “generally known” until such broader use is actually commercially implemented. As used in this Section, “trade secrets or other confidential information” also includes personnel knowledge about a manager, or managers, of Procter & Gamble or its subsidiaries gained in the course of your employment with Procter & Gamble or its subsidiaries (including personnel ratings or rankings, manager or peer evaluations, performance records, special skills or abilities, compensation, work and development plans, training, nature of specific project and work assignments, or specialties developed as a result of such assignments) which directly or indirectly affords you a confidential basis to solicit, encourage, or participate in soliciting any manager, or managers, of Procter & Gamble or any subsidiary to terminate his or her relationship with Procter & Gamble or that subsidiary.

(c) By accepting an award of Restricted Stock Units, you agree that, if you were, without authority, to use or disclose Procter & Gamble’s trade secrets or confidential information or threaten to do so, Procter & Gamble would be entitled to injunctive and other appropriate relief to prevent you from doing so. You further agree that the harm caused to Procter & Gamble by the breach or anticipated breach of this Section 3(c) is, by its nature, irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. You agree that any interim or final equitable relief entered by a court of competent jurisdiction will, at the request of Procter & Gamble, be entered on consent and enforced by any court having jurisdiction over you, without prejudice to any rights you or Procter & Gamble may have to appeal from the proceedings which resulted in any grant of such relief.

(d) If any of the provisions contained in Sections 3(a) through (c) are for any reason, whether by application of existing law or law which may develop after your acceptance of an award of Restricted Stock Units, determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, then by accepting an award of Restricted Stock Units you agree to join Procter & Gamble in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then-applicable law. If any one or more of the provisions contained in Section 3(a) through (c) are determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the provisions will remain in full force and effect and will not be affected, impaired or invalidated in any way.

4. Dividend Equivalents.

     As a holder of Restricted Stock Units, during the Settlement period, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units (“Dividend Equivalents”). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units.

5. Voting and Other Shareholder Rights.

     A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold.

6. Adjustments in Case of Stock Dividends, Stock Splits, Etc.

     In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights.

7. Tax Withholding.

     To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However, regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability.

8. Suspension Periods and Termination.

     The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate.

9. Procter & Gamble Right to Terminate Employment and Other Remedies.

(a) Nothing in these Terms and Conditions, or the fact that you have been awarded Restricted Stock Units, affects in any way the right or power of Procter & Gamble to terminate your employment at any time for any reason, with or without cause, or

precludes Procter & Gamble from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. Without limiting the previous sentence, the Committee may, for example, suspend or terminate any outstanding Restricted Stock Units for actions taken by you if the Committee determines that you have acted significantly contrary to the best interests of Procter & Gamble or its subsidiaries. For purposes of this paragraph, an action taken “significantly contrary to the best interests of Procter & Gamble or its subsidiaries” includes without limitation any action taken or threatened by you that the Committee determines has, or is reasonably likely to have, a significant adverse impact on the reputation, goodwill, stability, operation, personnel retention and management, or business of Procter & Gamble or any subsidiary. This paragraph is in addition to any remedy Procter & Gamble or a subsidiary may have at law or in equity, including without limitation injunctive and other appropriate relief.

(b) By accepting a Restricted Stock Unit, you acknowledge that: (i) the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or terminated at any time; (ii) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past; (iii) all decisions with respect to future Restricted Stock Unit awards, if any, will be at the sole discretion of the Company; (iv) your participation in the Plan is voluntary; (v) Restricted Stock Units are an extraordinary item and not part of normal or expected compensation or salary for any purpose, including without limitation calculating any termination, severance, resignation, redundancy, or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (vi) in the event that your employer is not the Company, the award of Restricted Stock Units will not be interpreted to form an employment relationship with the Company; and, furthermore, the award of Restricted Stock Units will not be interpreted to form an employment contract with any Procter & Gamble entity; (vii) the future value of Common Stock is unknown and cannot be predicted with certainty; and (viii) no claim or entitlement to compensation or damages arises from termination or forfeiture of Restricted Stock Units, or diminution in value of Restricted Stock Units or Common Stock received in settlement thereof, and you irrevocably release Procter & Gamble from any such claim that may arise.

10. Data Privacy.

     By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and

transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

11. Notices.

(a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to:

The Procter & Gamble Company
ATTN: Corporate Secretary’s Office
P.O. Box 599
Cincinnati, OH 45201

or such other address as Procter & Gamble may from time to time provide to you in writing.

(b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble.

12. Successors and Assigns.

     These Terms and Conditions are binding on, and inure to the benefit of, (a) the Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate.

13. Governing Law.

     The validity, interpretation, performance and enforcements of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction’s conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A.

14. The Plan.

     All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions; however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions.

15. Effect of These Terms and Conditions.

     These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

Form RTD

[INSERT DATE]                      

[INSERT NAME]

Subject: Award of Restricted Stock Units

This is to advise you that The Procter & Gamble Company, an Ohio corporation, is awarding you with Restricted Stock Units, on the dates and in the amounts listed below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and subject to the attached Statement of Terms and Conditions Form RTD.

Grant Date:	[INSERT DATE OF GRANT]
Forfeiture Date:	[INSERT DATE FORFEITURE ENDS]
Original Settlement Date:	[INSERT DATE RSUs BECOME SHARES]
Number of Restricted Stock Units:	[INSERT NUMBER GRANTED]

Paragraph 3(a) of Statement of Terms and Conditions Form RTD [is/is not] waived.

As you will see from the Statement of Terms and Conditions Form RTD, under certain circumstances you may agree with The Procter & Gamble Company to delay the settlement of your Restricted Stock Units beyond the Original Settlement Date. You may want to consult your personal tax advisor before making a decision about this matter.

THE PROCTER & GAMBLE COMPANY

James J. Johnson, Secretary

For the Compensation Committee

o I hereby accept the Award of Restricted Stock Units set forth above in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan and the attached Statement of Terms and Conditions for Restricted Stock Units, with which I am familiar. I agree that the Award of Restricted Stock Units, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and the attached Statement of Terms and Conditions for Restricted Stock Units together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this Award of Restricted Stock Units may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this Award of Restricted Stock Units.

o I hereby reject the Award of Restricted Stock Units set forth above.

Date Signature P&G E-mail Address

THE PROCTER & GAMBLE COMPANY

STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS

THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN

     The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your “Award Letter”), and your ownership thereof, are subject to the following terms and conditions.

1. Definitions.

     For purposes of this Statement of Terms and Conditions for Restricted Stock Units (“Terms and Conditions”), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the “Plan”), and the following terms will have the following meanings.

(a) “Agreed Settlement Date” has the meaning described in Section 2(c);

(b) “Data” has the meaning described in Section 10;

(c) “Disability” means termination of employment under the permanent disability provision of any retirement plan of Procter & Gamble;

(d) “Dividend Equivalents” has the meaning described in Section 4;

(e) “Forfeiture Date” is the date identified as such in your Award Letter;

(f) “Forfeiture Period” means the period from the Grant Date until the Forfeiture Date.

(g) “Grant Date” means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter;

(h) “Original Settlement Date” is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2;

(i) “Post-Forfeiture Period” means the period from the Forfeiture Date until the later of the Original Settlement Date or the Agreed Settlement Date;

(j) “Procter & Gamble” means the Company and/or its Subsidiaries;

(k) “Restricted Stock Unit” means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the later of the Original Settlement Date or the Agreed Settlement Date.

2. Transfer and Restrictions.

(a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit, whether voluntary or involuntary on your part, will result in the

immediate forfeiture to the Company, and cancellation, of the Restricted Stock Unit (including all rights to Dividend Equivalents).

(b) During the Forfeiture Period, your Restricted Stock Units (including all rights to receive Dividend Equivalents) will be forfeited and cancelled if you leave your employment with Procter & Gamble for any reason, except due to: (i) your Disability; (ii) your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble; or (iii) in certain circumstances, your Special Separation. In the event of your Disability during the Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your Disability. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions. In the event of your Special Separation during the Forfeiture Period, your Restricted Stock Units will be forfeited and cancelled unless otherwise agreed to in writing by the Company.

(c) At any time at least one calendar year prior to the Original Settlement Date, you and the Company may agree to postpone the date on which you are entitled to receive one share of Common Stock for each Restricted Stock Unit you hold, according to the deferral terms in place at the time, and provided the new date (the “Agreed Settlement Date”) is at least five years from the Original Settlement Date. During the Post-Forfeiture Period, if you leave your employment with Procter & Gamble for any reason other than: (i) Disability; (ii) Special Separation; or (iii) retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your termination of employment. In the event of your Disability or Special Separation during the Post-Forfeiture period, unless otherwise agreed to in writing by the Company, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your Disability or Special Separation, as applicable. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Post-Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions.

(d) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable.

(e) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, to agree to an Agreed Settlement Date, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so.

(f) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units.

3. Confidentiality and Non-Competition

(a) In order to better protect the goodwill of Procter & Gamble and to prevent the disclosure of Procter & Gamble’s trade secrets and confidential information, and thereby help ensure the long-term success of Procter & Gamble’s business, in consideration of your being awarded Restricted Stock Units, you (without prior written consent of Procter & Gamble), will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, advisor, consultant or otherwise, for a period of three (3) years following the date your employment with Procter & Gamble is terminated in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of Procter & Gamble (including both existing products as well as products known to you, as a consequence of your employment with Procter & Gamble, to be in development):

(i) with respect to which your work has been directly concerned at any time during the two (2) years preceding the termination of your employment with Procter & Gamble; or

(ii) with respect to which, during the two (2) years preceding the termination of your employment with Procter & Gamble, you, as a consequence of your job performance and duties, acquired knowledge of trade secrets or other confidential information of Procter & Gamble.

For purposes of this Section 3(a), it will be conclusively presumed that you have knowledge of information you were directly exposed to through actual receipt or review of memoranda or documents containing such information, or through attendance at meetings at which such information was discussed or disclosed.

(b) The provisions of Section 3(a) are not in lieu of, but are in addition to your continuing obligation (which you acknowledge by accepting an award of Restricted Stock Units) to not use or disclose Procter & Gamble’s trade secrets or confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). As used in this Section 3(b), “generally known” means known throughout the domestic United States industry or, if you have job responsibilities partially or entirely outside of the United States, the appropriate domestic United States and/or appropriate foreign country or countries’ industry(ies). Information regarding products in development, in test marketing, or being marketed or promoted in a discrete geographic region, which information Procter & Gamble is considering for broader use, will not be deemed to be “generally known” until such broader use is actually commercially implemented. As used in this Section, “trade secrets or other confidential information” also includes personnel knowledge about a manager, or managers, of Procter & Gamble or its subsidiaries gained in the course of your employment with Procter & Gamble or its subsidiaries (including personnel ratings or rankings, manager or peer evaluations, performance records, special skills or abilities, compensation, work and development plans, training, nature of specific project and work assignments, or specialties developed as a result of such assignments) which directly or indirectly affords you a confidential basis to solicit, encourage, or participate in soliciting any manager, or managers, of Procter & Gamble or any subsidiary to terminate his or her relationship with Procter & Gamble or that subsidiary.

(c) By accepting an award of Restricted Stock Units, you agree that, if you were, without authority, to use or disclose Procter & Gamble’s trade secrets or confidential information or threaten to do so, Procter & Gamble would be entitled to injunctive and other appropriate relief to prevent you from doing so. You further agree that the harm caused to Procter & Gamble by the breach or anticipated breach of this Section 3(c) is,

by its nature, irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. You agree that any interim or final equitable relief entered by a court of competent jurisdiction will, at the request of Procter & Gamble, be entered on consent and enforced by any court having jurisdiction over you, without prejudice to any rights you or Procter & Gamble may have to appeal from the proceedings which resulted in any grant of such relief.

(d) If any of the provisions contained in Sections 3(a) through (c) are for any reason, whether by application of existing law or law which may develop after your acceptance of an award of Restricted Stock Units, determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, then by accepting an award of Restricted Stock Units you agree to join Procter & Gamble in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then-applicable law. If any one or more of the provisions contained in Section 3(a) through (c) are determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the provisions will remain in full force and effect and will not be affected, impaired or invalidated in any way.

4. Dividend Equivalents.

     As a holder of Restricted Stock Units, during the period from the Grant Date until the Original Settlement Date or the Agreed Settlement Date, whichever is later, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units (“Dividend Equivalents”). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units.

5. Voting and Other Shareholder Rights.

     A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold.

6. Adjustments in Case of Stock Dividends, Stock Splits, Etc.

     In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights.

7. Tax Withholding.

     To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However,

regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability.

8. Suspension Periods and Termination.

     The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate.

9. Procter & Gamble Right to Terminate Employment and Other Remedies.

(a) Nothing in these Terms and Conditions, or the fact that you have been awarded Restricted Stock Units, affects in any way the right or power of Procter & Gamble to terminate your employment at any time for any reason, with or without cause, or precludes Procter & Gamble from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. Without limiting the previous sentence, the Committee may, for example, suspend or terminate any outstanding Restricted Stock Units for actions taken by you if the Committee determines that you have acted significantly contrary to the best interests of Procter & Gamble or its subsidiaries. For purposes of this paragraph, an action taken “significantly contrary to the best interests of Procter & Gamble or its subsidiaries” includes without limitation any action taken or threatened by you that the Committee determines has, or is reasonably likely to have, a significant adverse impact on the reputation, goodwill, stability, operation, personnel retention and management, or business of Procter & Gamble or any subsidiary. This paragraph is in addition to any remedy Procter & Gamble or a subsidiary may have at law or in equity, including without limitation injunctive and other appropriate relief.

(b) By accepting a Restricted Stock Unit, you acknowledge that: (i) the Plan is established voluntarily by The Procter & Gamble Company, is discretionary in nature, and may be amended, suspended or terminated at any time; (ii) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past; (iii) all decisions with respect to future Restricted Stock Unit awards, if any, will be at the sole discretion of the Company; (iv) your participation in the Plan is voluntary; (v) Restricted Stock Units are an extraordinary item and not part of normal or expected compensation or salary for any purpose, including without limitation calculating any termination, severance, resignation, redundancy, or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (vi) in the event that your employer is not the Company, the award of Restricted Stock Units will not be interpreted to form an employment relationship with the Company; and, furthermore, the award of Restricted Stock Units will not be interpreted to form an employment contract with any Procter & Gamble entity; (vii) the future value of Common Stock is unknown and cannot be predicted with certainty; and (viii) no claim or entitlement to compensation or damages arises from termination or forfeiture of Restricted Stock Units, or diminution in value of Restricted Stock Units or Common Stock received in settlement thereof, and you irrevocably release Procter & Gamble from any such claim that may arise.

10. Data Privacy.

     By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

11. Notices.

(a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to:

The Procter & Gamble Company
ATTN: Corporate Secretary’s Office
P.O. Box 599
Cincinnati, OH 45201

or such other address as Procter & Gamble may from time to time provide to you in writing.

(b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble.

12. Successors and Assigns.

     These Terms and Conditions are binding on, and inure to the benefit of, (a) The Procter & Gamble Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate.

13. Governing Law.

     The validity, interpretation, performance and enforcement of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction’s conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A.

14. The Plan.

     All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions; however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions.

15. Effect of These Terms and Conditions.

     These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

Form RTD-A

[INSERT DATE]                     

[INSERT NAME]

Subject: Award of Restricted Stock Units

This is to advise you that The Procter & Gamble Company, an Ohio corporation, is awarding you with Restricted Stock Units, on the dates and in the amounts listed below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and subject to the attached Statement of Terms and Conditions Form RTD-A.

Grant Date:	[INSERT DATE OF GRANT]
Forfeiture Date:	[INSERT DATE FORFEITURE ENDS]
Original Settlement Date:	[INSERT DATE RSUs BECOME SHARES]
Number of Restricted Stock Units:	[INSERT NUMBER GRANTED]

Paragraph 3(a) of Statement of Terms and Conditions Form RTD-A [is/is not] waived.

As you will see from the Statement of Terms and Conditions Form RTD-A, under certain circumstances you may agree with The Procter & Gamble Company to delay the settlement of your Restricted Stock Units beyond the Original Settlement Date. You may want to consult your personal tax advisor before making a decision about this matter.

THE PROCTER & GAMBLE COMPANY

James J. Johnson, Secretary

For the Compensation Committee

o I hereby accept the Award of Restricted Stock Units set forth above in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan and the attached Statement of Terms and Conditions for Restricted Stock Units, with which I am familiar. I agree that the Award of Restricted Stock Units, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and the attached Statement of Terms and Conditions for Restricted Stock Units together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this Award of Restricted Stock Units may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this Award of Restricted Stock Units.

o I hereby reject the Award of Restricted Stock Units set forth above.

Date Signature P&G E-mail Address

THE PROCTER & GAMBLE COMPANY

STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS

THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN

     The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your “Award Letter”), and your ownership thereof, are subject to the following terms and conditions.

1. Definitions.

     For purposes of this Statement of Terms and Conditions for Restricted Stock Units (“Terms and Conditions”), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the “Plan”), and the following terms will have the following meanings.

(a) “Agreed Settlement Date” has the meaning described in Section 2(c);

(b) “Data” has the meaning described in Section 10;

(c) “Disability” means termination of employment under the permanent disability provision of any retirement plan of Procter & Gamble;

(d) “Dividend Equivalents” has the meaning described in Section 4;

(e) “Forfeiture Date” is the date identified as such in your Award Letter;

(f) “Forfeiture Period” means the period from the Grant Date until the Forfeiture Date.

(g) “Grant Date” means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter;

(h) “Original Settlement Date” is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2;

(i) “Post-Forfeiture Period” means the period from the Forfeiture Date until the later of the Original Settlement Date or the Agreed Settlement Date;

(j) “Procter & Gamble” means the Company and/or its Subsidiaries;

(k) “Restricted Stock Unit” means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the later of the Original Settlement Date or the Agreed Settlement Date.

2. Transfer and Restrictions.

(a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit, whether voluntary or involuntary on your part, will result in the

immediate forfeiture to the Company, and cancellation, of the Restricted Stock Unit (including all rights to Dividend Equivalents).

(b) During the Forfeiture Period, your Restricted Stock Units (including all rights to receive Dividend Equivalents) will be forfeited and cancelled if you leave your employment with Procter & Gamble for any reason, except due to: (i) your Disability, or

(ii) in certain circumstances, your Special Separation. In the event of your Disability during the Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your Disability. In the event of your Special Separation during the Forfeiture Period, your Restricted Stock Units will be forfeited and cancelled unless otherwise agreed to in writing by the Company.

(c) At any time at least one calendar year prior to the Original Settlement Date, you and the Company may agree to postpone the date on which you are entitled to receive one share of Common Stock for each Restricted Stock Unit you hold, according to the deferral terms in place at the time, and provided the new date (the “Agreed Settlement Date”) is at least five years from the Original Settlement Date. During the Post-Forfeiture Period, if you leave your employment with Procter & Gamble for any reason other than: (i) Disability; (ii) Special Separation; or (iii) retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your termination of employment. In the event of your Disability or Special Separation during the Post-Forfeiture period, unless otherwise agreed to in writing by the Company, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your Disability or Special Separation, as applicable. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Post-Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions.

(d) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date or Agreed Settlement Date, as applicable, will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable.

(e) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, to agree to an Agreed Settlement Date, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so.

(f) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units.

3. Confidentiality and Non-Competition

(a) In order to better protect the goodwill of Procter & Gamble and to prevent the disclosure of Procter & Gamble’s trade secrets and confidential information, and thereby help ensure the long-term success of Procter & Gamble’s business, in consideration of your being awarded Restricted Stock Units, you (without prior written consent of Procter & Gamble), will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, advisor, consultant or otherwise, for a period of three (3) years following the date your employment with Procter & Gamble is terminated in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of Procter & Gamble (including both existing products as well as products known to you, as a consequence of your employment with Procter & Gamble, to be in development):

(i) with respect to which your work has been directly concerned at any time during the two (2) years preceding the termination of your employment with Procter & Gamble; or

(ii) with respect to which, during the two (2) years preceding the termination of your employment with Procter & Gamble, you, as a consequence of your job performance and duties, acquired knowledge of trade secrets or other confidential information of Procter & Gamble.

For purposes of this Section 3(a), it will be conclusively presumed that you have knowledge of information you were directly exposed to through actual receipt or review of memoranda or documents containing such information, or through attendance at meetings at which such information was discussed or disclosed.

(b) The provisions of Section 3(a) are not in lieu of, but are in addition to your continuing obligation (which you acknowledge by accepting an award of Restricted Stock Units) to not use or disclose Procter & Gamble’s trade secrets or confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). As used in this Section 3(b), “generally known” means known throughout the domestic United States industry or, if you have job responsibilities partially or entirely outside of the United States, the appropriate domestic United States and/or appropriate foreign country or countries’ industry(ies). Information regarding products in development, in test marketing, or being marketed or promoted in a discrete geographic region, which information Procter & Gamble is considering for broader use, will not be deemed to be “generally known” until such broader use is actually commercially implemented. As used in this Section, “trade secrets or other confidential information” also includes personnel knowledge about a manager, or managers, of Procter & Gamble or its subsidiaries gained in the course of your employment with Procter & Gamble or its subsidiaries (including personnel ratings or rankings, manager or peer evaluations, performance records, special skills or abilities, compensation, work and development plans, training, nature of specific project and work assignments, or specialties developed as a result of such assignments) which directly or indirectly affords you a confidential basis to solicit, encourage, or participate in soliciting any manager, or managers, of Procter & Gamble or any subsidiary to terminate his or her relationship with Procter & Gamble or that subsidiary.

(c) By accepting an award of Restricted Stock Units, you agree that, if you were, without authority, to use or disclose Procter & Gamble’s trade secrets or confidential information or threaten to do so, Procter & Gamble would be entitled to injunctive and other appropriate relief to prevent you from doing so. You further agree that the harm caused to Procter & Gamble by the breach or anticipated breach of this Section 3(c) is,

by its nature, irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. You agree that any interim or final equitable relief entered by a court of competent jurisdiction will, at the request of Procter & Gamble, be entered on consent and enforced by any court having jurisdiction over you, without prejudice to any rights you or Procter & Gamble may have to appeal from the proceedings which resulted in any grant of such relief.

(d) If any of the provisions contained in Sections 3(a) through (c) are for any reason, whether by application of existing law or law which may develop after your acceptance of an award of Restricted Stock Units, determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, then by accepting an award of Restricted Stock Units you agree to join Procter & Gamble in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then-applicable law. If any one or more of the provisions contained in Section 3(a) through (c) are determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the provisions will remain in full force and effect and will not be affected, impaired or invalidated in any way.

4. Dividend Equivalents.

     As a holder of Restricted Stock Units, during the period from the Grant Date until the Original Settlement Date or the Agreed Settlement Date, whichever is later, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units (“Dividend Equivalents”). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units.

5. Voting and Other Shareholder Rights.

     A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold.

6. Adjustments in Case of Stock Dividends, Stock Splits, Etc.

     In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights.

7. Tax Withholding.

     To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However,

regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability.

8. Suspension Periods and Termination.

     The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate.

9. Procter & Gamble Right to Terminate Employment and Other Remedies.

(a) Nothing in these Terms and Conditions, or the fact that you have been awarded Restricted Stock Units, affects in any way the right or power of Procter & Gamble to terminate your employment at any time for any reason, with or without cause, or precludes Procter & Gamble from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. Without limiting the previous sentence, the Committee may, for example, suspend or terminate any outstanding Restricted Stock Units for actions taken by you if the Committee determines that you have acted significantly contrary to the best interests of Procter & Gamble or its subsidiaries. For purposes of this paragraph, an action taken “significantly contrary to the best interests of Procter & Gamble or its subsidiaries” includes without limitation any action taken or threatened by you that the Committee determines has, or is reasonably likely to have, a significant adverse impact on the reputation, goodwill, stability, operation, personnel retention and management, or business of Procter & Gamble or any subsidiary. This paragraph is in addition to any remedy Procter & Gamble or a subsidiary may have at law or in equity, including without limitation injunctive and other appropriate relief.

(b) By accepting a Restricted Stock Unit, you acknowledge that: (i) the Plan is established voluntarily by The Procter & Gamble Company, is discretionary in nature, and may be amended, suspended or terminated at any time; (ii) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past; (iii) all decisions with respect to future Restricted Stock Unit awards, if any, will be at the sole discretion of the Company; (iv) your participation in the Plan is voluntary; (v) Restricted Stock Units are an extraordinary item and not part of normal or expected compensation or salary for any purpose, including without limitation calculating any termination, severance, resignation, redundancy, or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (vi) in the event that your employer is not the Company, the award of Restricted Stock Units will not be interpreted to form an employment relationship with the Company; and, furthermore, the award of Restricted Stock Units will not be interpreted to form an employment contract with any Procter & Gamble entity; (vii) the future value of Common Stock is unknown and cannot be predicted with certainty; and (viii) no claim or entitlement to compensation or damages arises from termination or forfeiture of Restricted Stock Units, or diminution in value of Restricted Stock Units or Common Stock received in settlement thereof, and you irrevocably release Procter & Gamble from any such claim that may arise.

10. Data Privacy.

     By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

11. Notices.

(a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to:

The Procter & Gamble Company
ATTN: Corporate Secretary’s Office
P.O. Box 599
Cincinnati, OH 45201

or such other address as Procter & Gamble may from time to time provide to you in writing.

(b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble.

12. Successors and Assigns.

     These Terms and Conditions are binding on, and inure to the benefit of, (a) The Procter & Gamble Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate.

13. Governing Law.

     The validity, interpretation, performance and enforcement of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction’s conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A.

14. The Plan.

     All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions; however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions.

15. Effect of These Terms and Conditions.

     These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

Form RTN

[INSERT DATE]                      

[INSERT NAME]

Subject: Award of Restricted Stock Units

This is to advise you that The Procter & Gamble Company, an Ohio corporation, is awarding you with Restricted Stock Units, on the dates and in the amounts listed below, pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and subject to the attached Statement of Terms and Conditions Form RTN.

Grant Date:	[INSERT DATE OF GRANT]
Forfeiture Date:	[INSERT DATE FORFEITURE ENDS]
Original Settlement Date:	[INSERT DATE RSUs BECOME SHARES]
Number of Restricted Stock Units:	[INSERT NUMBER GRANTED]

Paragraph 3(a) of Statement of Terms and Conditions Form RTN [is/is not] waived.

THE PROCTER & GAMBLE COMPANY

James J. Johnson, Secretary

For the Compensation Committee

o I hereby accept the Award of Restricted Stock Units set forth above in accordance with and subject to the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan and the attached Statement of Terms and Conditions for Restricted Stock Units, with which I am familiar. I agree that the Award of Restricted Stock Units, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, and the attached Statement of Terms and Conditions for Restricted Stock Units together constitute an agreement between the Company and me in accordance with the terms thereof and hereof, and I further agree that any legal action related to this Award of Restricted Stock Units may be brought in any federal or state court located in Hamilton County, Ohio, USA, and I hereby accept the jurisdiction of these courts and consent to service of process from said courts solely for legal actions related to this Award of Restricted Stock Units.

o I hereby reject the Award of Restricted Stock Units set forth above.

Date Signature P&G E-mail Address

THE PROCTER & GAMBLE COMPANY

STATEMENT OF TERMS AND CONDITIONS FOR RESTRICTED STOCK UNITS

THE PROCTER & GAMBLE 2001 STOCK AND INCENTIVE COMPENSATION PLAN

     The Restricted Stock Units awarded to you as set forth in the letter you received from the Company (your “Award Letter”), and your ownership thereof, are subject to the following terms and conditions.

1. Definitions.

     For purposes of this Statement of Terms and Conditions for Restricted Stock Units (“Terms and Conditions”), all capitalized terms not defined in these Terms and Conditions will have the meanings described in The Procter & Gamble 2001 Stock and Incentive Compensation Plan (the “Plan”), and the following terms will have the following meanings.

(a) “Data” has the meaning described in Section 10;

(b) “Disability” means termination of employment under the permanent disability provision of any retirement plan of Procter & Gamble;

(c) “Dividend Equivalents” has the meaning described in Section 4;

(d) “Forfeiture Date” is the date identified as such in your Award Letter;

(e) “Forfeiture Period” means the period from the Grant Date until the Forfeiture Date.

(f) “Grant Date” means the date a Restricted Stock Unit was awarded to you, as identified in your Award Letter;

(g) “Original Settlement Date” is the date identified as such in your Award Letter, as adjusted, if applicable, by Section 2;

(h) “Post-Forfeiture Period” means the period from the Forfeiture Date until the Original Settlement Date;

(i) “Procter & Gamble” means the Company and/or its Subsidiaries;

(j) “Restricted Stock Unit” means an unfunded, unsecured promise by the Company, in accordance with these Terms and Conditions and the provisions of the Plan, to issue to you one share of Common Stock on the Original Settlement Date.

2. Transfer and Restrictions.

(a) Neither Restricted Stock Units nor your interest in them may be sold, exchanged, transferred, pledged, hypothecated, given or otherwise disposed of by you at any time, except by will or by the laws of descent and distribution. Any attempted transfer of a Restricted Stock Unit, whether voluntary or involuntary on your part, will result in the immediate forfeiture to the Company, and cancellation, of the Restricted Stock Unit (including all rights to receive Dividend Equivalents).

(b) During the Forfeiture Period, your Restricted Stock Units (including all rights to receive Dividend Equivalents) will be forfeited and cancelled if you leave your employment with Procter & Gamble for any reason, except due to: (i) your Disability; or (ii) in certain circumstances, your Special Separation. In the event of your Disability during the Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your Disability. In the event of your Special Separation during the Forfeiture Period, your Restricted Stock Units will be forfeited and cancelled unless otherwise agreed to in writing by the Company.

(c) During the Post-Forfeiture Period, if you leave your employment with Procter & Gamble for any reason other than: (i) Disability; (ii) Special Separation; or (iii) retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your termination of employment. In the event of your Disability or Special Separation during the Post-Forfeiture Period, unless otherwise agreed to in writing by the Company, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your Disability or Special Separation, as applicable. In the event of your retirement in accordance with the provisions of any appropriate retirement plan of Procter & Gamble during the Post-Forfeiture Period, you will retain your Restricted Stock Units subject to the Plan and these Terms and Conditions.

(d) Upon your death or the occurrence of a Change in Control at any time while you hold Restricted Stock Units and/or Dividend Equivalents, your Original Settlement Date will automatically and immediately become, without any further action by you or the Company, the date of your death or of the Change in Control, as applicable.

(e) From time to time, the Company and/or the Committee may establish procedures with which you must comply in order to accept an award of Restricted Stock Units, or to settle your Restricted Stock Units, including requiring you to do so by means of electronic signature, or charging you an administrative fee for doing so.

(f) Once your Restricted Stock Units have been settled by delivery to you of an equivalent number of shares of Common Stock, the Restricted Stock Units will have no further value, force or effect and you will cease to receive Dividend Equivalents associated with the Restricted Stock Units.

3. Confidentiality and Non-Competition

(a) In order to better protect the goodwill of Procter & Gamble and to prevent the disclosure of Procter & Gamble’s trade secrets and confidential information, and thereby help ensure the long-term success of Procter & Gamble’s business, in consideration of your being awarded Restricted Stock Units, you (without prior written consent of Procter & Gamble), will not engage in any activity or provide any services, whether as a director, manager, supervisor, employee, advisor, consultant or otherwise, for a period of three (3) years following the date your employment with Procter & Gamble is terminated in connection with the manufacture, development, advertising, promotion, or sale of any product which is the same as or similar to or competitive with any products of Procter & Gamble (including both existing products as well as products known to you, as a consequence of your employment with Procter & Gamble, to be in development):

(i) with respect to which your work has been directly concerned at any time during the two (2) years preceding the termination of your employment with Procter & Gamble; or

(ii) with respect to which, during the two (2) years preceding the termination of your employment with Procter & Gamble, you, as a consequence of your job performance and duties, acquired knowledge of trade secrets or other confidential information of Procter & Gamble.

For purposes of this Section 3(a), it will be conclusively presumed that you have knowledge of information you were directly exposed to through actual receipt or review of memoranda or documents containing such information, or through attendance at meetings at which such information was discussed or disclosed.

(b) The provisions of Section 3(a) are not in lieu of, but are in addition to your continuing obligation (which you acknowledge by accepting an award of Restricted Stock Units) to not use or disclose Procter & Gamble’s trade secrets or confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). As used in this Section 3(b), “generally known” means known throughout the domestic United States industry or, if you have job responsibilities partially or entirely outside of the United States, the appropriate domestic United States and/or appropriate foreign country or countries’ industry(ies). Information regarding products in development, in test marketing, or being marketed or promoted in a discrete geographic region, which information Procter & Gamble is considering for broader use, will not be deemed to be “generally known” until such broader use is actually commercially implemented. As used in this Section, “trade secrets or other confidential information” also includes personnel knowledge about a manager, or managers, of Procter & Gamble or its subsidiaries gained in the course of your employment with Procter & Gamble or its subsidiaries (including personnel ratings or rankings, manager or peer evaluations, performance records, special skills or abilities, compensation, work and development plans, training, nature of specific project and work assignments, or specialties developed as a result of such assignments) which directly or indirectly affords you a confidential basis to solicit, encourage, or participate in soliciting any manager, or managers, of Procter & Gamble or any subsidiary to terminate his or her relationship with Procter & Gamble or that subsidiary.

(c) By accepting an award of Restricted Stock Units, you agree that, if you were, without authority, to use or disclose Procter & Gamble’s trade secrets or confidential information or threaten to do so, Procter & Gamble would be entitled to injunctive and other appropriate relief to prevent you from doing so. You further agree that the harm caused to Procter & Gamble by the breach or anticipated breach of this Section 3(c) is, by its nature, irreparable because, among other things, it is not readily susceptible of proof as to the monetary harm that would ensue. You agree that any interim or final equitable relief entered by a court of competent jurisdiction will, at the request of Procter & Gamble, be entered on consent and enforced by any court having jurisdiction over you, without prejudice to any rights you or Procter & Gamble may have to appeal from the proceedings which resulted in any grant of such relief.

(d) If any of the provisions contained in Sections 3(a) through (c) are for any reason, whether by application of existing law or law which may develop after your acceptance of an award of Restricted Stock Units, determined by a court of competent jurisdiction to be overly broad as to scope of activity, duration, or territory, then by accepting an award of Restricted Stock Units you agree to join Procter & Gamble in requesting such court to construe such provision by limiting or reducing it so as to be enforceable to the extent compatible with then-applicable law. If any one or more of the provisions contained in

Section 3(a) through (c) are determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the provisions will remain in full force and effect and will not be affected, impaired or invalidated in any way.

4. Dividend Equivalents.

     As a holder of Restricted Stock Units, during the period from the Grant Date until the Original Settlement Date, each time a cash dividend or other cash distribution is paid with respect to Common Stock, you will receive additional Restricted Stock Units (“Dividend Equivalents”). The number of such additional Restricted Stock Units will be determined as follows: multiply the number of Restricted Stock Units currently held by the per share amount of the cash dividend or other cash distribution on the Common Stock, and then divide the result by the price of the Common Stock on the date of the dividend or distribution. These Dividend Equivalent Restricted Stock Units will be subject to the same terms and conditions as the original Restricted Stock Units that gave rise to them, including forfeiture and settlement terms, except that if there is a fractional number of Dividend Equivalent Restricted Stock Units on the date they are to be settled, you will receive one share of Common Stock for the fractional Dividend Equivalent Restricted Stock Units.

5. Voting and Other Shareholder Rights.

     A Restricted Stock Unit is not a share of Common Stock, and thus you are not entitled to any voting, dividend or other rights as a shareholder of the Company with respect to the Restricted Stock Units you hold.

6. Adjustments in Case of Stock Dividends, Stock Splits, Etc.

     In the event of a future reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering, share exchange, reclassification, distribution, spin-off, or other change affecting the corporate structure, capitalization or Common Stock, the number of Restricted Stock Units you hold will be adjusted appropriately and equitably to prevent dilution or enlargement of your rights.

7. Tax Withholding.

     To the extent Procter & Gamble is required to withhold federal, state, local or foreign taxes in connection with your Restricted Stock Units or Dividend Equivalents, the Committee may require you to make such arrangements as Procter & Gamble may deem appropriate for the payment of such taxes required to be withheld, including without limitation, relinquishment of some of the shares of Common Stock that would otherwise be given to you. However, regardless of any action taken by Procter & Gamble with respect to any income tax, social insurance, payroll tax, or other tax, by accepting a Restricted Stock Unit or Dividend Equivalent, you acknowledge that the ultimate liability for any such tax owed by you is and remains your responsibility, and that Procter & Gamble makes no representations about the tax treatment of your Restricted Stock Units or Dividend Equivalents, and does not commit to structure any aspect of the Restricted Stock Units or Dividend Equivalents to reduce or eliminate your tax liability.

8. Suspension Periods and Termination.

     The Company reserves the right from time to time to temporarily suspend your right to settle your Restricted Stock Units for shares of Common Stock where such suspension is deemed by the Company as necessary or appropriate.

9. Procter & Gamble Right to Terminate Employment and Other Remedies.

(a) Nothing in these Terms and Conditions, or the fact that you have been awarded Restricted Stock Units, affects in any way the right or power of Procter & Gamble to terminate your employment at any time for any reason, with or without cause, or precludes Procter & Gamble from taking any action or enforcing any remedy available to it with respect to any action or conduct on your part. Without limiting the previous sentence, the Committee may, for example, suspend or terminate any outstanding Restricted Stock Units for actions taken by you if the Committee determines that you have acted significantly contrary to the best interests of Procter & Gamble or its subsidiaries. For purposes of this paragraph, an action taken “significantly contrary to the best interests of Procter & Gamble or its subsidiaries” includes without limitation any action taken or threatened by you that the Committee determines has, or is reasonably likely to have, a significant adverse impact on the reputation, goodwill, stability, operation, personnel retention and management, or business of Procter & Gamble or any subsidiary. This paragraph is in addition to any remedy Procter & Gamble or a subsidiary may have at law or in equity, including without limitation injunctive and other appropriate relief.

(b) By accepting a Restricted Stock Unit, you acknowledge that: (i) the Plan is established voluntarily by The Procter & Gamble Company, is discretionary in nature, and may be amended, suspended or terminated at any time; (ii) the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been awarded repeatedly in the past; (iii) all decisions with respect to future Restricted Stock Unit awards, if any, will be at the sole discretion of the Company; (iv) your participation in the Plan is voluntary; (v) Restricted Stock Units are an extraordinary item and not part of normal or expected compensation or salary for any purpose, including without limitation calculating any termination, severance, resignation, redundancy, or end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; (vi) in the event that your employer is not the Company, the award of Restricted Stock Units will not be interpreted to form an employment relationship with the Company; and, furthermore, the award of Restricted Stock Units will not be interpreted to form an employment contract with any Procter & Gamble entity; (vii) the future value of Common Stock is unknown and cannot be predicted with certainty; and (viii) no claim or entitlement to compensation or damages arises from termination or forfeiture of Restricted Stock Units, or diminution in value of Restricted Stock Units or Common Stock received in settlement thereof, and you irrevocably release Procter & Gamble from any such claim that may arise.

10. Data Privacy.

     By accepting a Restricted Stock Unit, you explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, any Procter & Gamble entity or third party for the purpose of implementing, administering and managing your participation in the Plan. You understand that Procter & Gamble holds certain personal information about you, including without limitation your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in a Procter & Gamble entity, details of all options, Restricted Stock Units, or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the purpose of implementing, administering and managing the Plan (“Data”). You understand that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be

located in your country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of Data by contacting your local human resources representative. You authorize the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing your participation in the Plan, including any requisite transfer of such Data to any broker or other third party with whom you may elect to deposit any shares of Common Stock in connection with the settlement of your Restricted Stock Units. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data, or refuse or withdraw the consents contained in this paragraph, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

11. Notices.

(a) Any notice to Procter & Gamble that is required or appropriate with respect to Restricted Stock Units held by you must be in writing and addressed to:

The Procter & Gamble Company
ATTN: Corporate Secretary’s Office
P.O. Box 599
Cincinnati, OH 45201

or such other address as Procter & Gamble may from time to time provide to you in writing.

(b) Any notice to you that is required or appropriate with respect to Restricted Stock Units held or to be awarded to you will be provided to you in written or electronic form at any physical or electronic mail address for you that is on file with Procter & Gamble.

12. Successors and Assigns.

     These Terms and Conditions are binding on, and inure to the benefit of, (a) the Company and its successors and assigns; and (b) you and, if applicable, the representative of your estate.

13. Governing Law.

     The validity, interpretation, performance and enforcement of these Terms and Conditions, the Plan and your Restricted Stock Units will be governed by the laws of the State of Ohio, U.S.A. without giving effect to any other jurisdiction’s conflicts of law principles. With respect to any dispute concerning these Terms and Conditions, the Plan and your Restricted Stock Units, you consent to the exclusive jurisdiction of the federal or state courts located in Hamilton County, Ohio, U.S.A.

14. The Plan.

     All Restricted Stock Units awarded to you have been awarded under the Plan. Certain provisions of the Plan may have been repeated or emphasized in these Terms and Conditions;

however, all terms of the Plan apply to you and your Restricted Stock Units whether or not they have been called out in these Terms and Conditions.

15. Effect of These Terms and Conditions.

     These Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, describe the contractual rights awarded to you in the form of Restricted Stock Units, and the obligations imposed on you in connection with those rights. No right exists with respect to Restricted Stock Units except as described in these Terms and Conditions and the Plan.

EX-10.10

EXHIBIT (10-10)

Short Term Achievement Reward Program

The Short Term Achievement Reward (“STAR”) Program is The Procter & Gamble Company’s (the “Company” or “P&G”) annual incentive program designed to support outstanding business results of the Company and its subsidiaries. Awards are made pursuant to the authority delegated by the Board of Directors to the Compensation & Leadership Development Committee (the “Committee”) for awarding additional remuneration and the 2001 Stock and Incentive Compensation Plan and/or the 2004 Gillette Long Term Incentive Plan.

I. ELIGIBILITY

Eligibility is based on job level and the requirement of working at least four weeks during the fiscal year. STAR participants who do not work a full schedule (leaves of absence, disability, and less-than-full time schedules) in the fiscal year in which the award is payable may have awards pro-rated.

II. CALCULATION

The individual STAR Award Calculation is: (STAR Target) x (Business Unit Performance Factor) x (Corporate Adjustment Factor) x (Gillette Factor)

• The STAR Target for each participant is calculated as: (Base Salary) x (STAR Target percent)

Base Salary as of the end of June is used to calculate the STAR award. If a participant’s level changes, the highest band level and salary during the fiscal year is used to determine the STAR Target.

The STAR Target Percent is dependent on job level in the organization and will fall between 8% and 170%.

Job Band	STAR Target as % of Base
Band 3		8	%
Band 4 - Associate Director		15	%
Band 5 - Director		25	%
Band 6 - Vice President		45	%
Band 7 - President		70	%
Band 7 - Group Presidents and Function Heads		75	%
Band 8 – Vice Chair		90	%
Band 9 – President GBU’s, COO, CFO		115	%
Band 10 - CEO		170	%

An individual’s STAR target may vary from the Job Band target identified above in certain limited circumstances, including but not limited to, organizationally driven band reductions or certain corporate actions that result in specific employment obligations.

• The Business Unit Performance Factor is assigned to each STAR business unit as a measure of success for the fiscal year. The factors range from 53% to 167% with the target at 100%. A STAR Committee, comprised of a small number of senior executives (who do not determine their own awards), conducts a retrospective assessment of the performance of each business unit according to one or more of the following measures and makes a recommendation to the Compensation & Leadership Development

Committee: Operating Total Shareholder Return, Key Competitor Comparison, After Tax Profit, Operating Cash Flow, Value Share, Volume, Net Outside Sales, Value Contribution, Organization Head Self Assessment, and Cross Organization Assessment. There may also be other factors significantly affecting unit results positively or negatively.

• The Corporate Adjustment Factor measures the total Company success and ranges from 80% to 130%, with a 100% target. The same Corporate Adjustment Factor is applied to all STAR award calculations. It is determined by a matrix that measures P&G’s market total shareholder return (“TSR”) ranking for the fiscal year relative to a competitive peer group and diluted earnings per share (“EPS”) growth for the fiscal year.

The Committee may add additional factors with clear performance metrics (such as the Gillette factor described below) for supporting business needs.

• The Gillette Factor is derived from a review and recommendation by the STAR Committee based on the results of the success of the Gillette integration. The factor ranges from 80% to 130% with 100% as the target. The same Gillette Factor will apply to all STAR award calculations. It will be determined by assessing performance during the fiscal year on various metrics including: sustaining the overall health of both the P&G and Gillette businesses during this period (based on market share and earnings progress); achieving sales, research and administrative budget and synergy objectives; meeting enrollment targets; and staying within integration cost and restructuring estimates. The Gillette Factor was applied starting with the results of fiscal year 2005/06 and will remain a factor as long as applicable.

The STAR Committee makes recommendations to the Compensation & Leadership Development Committee regarding the performance factor percentages to be applied to all STAR awards (except those for the STAR Committee). The final award amounts for the principal officers are approved by the Compensation & Leadership Development Committee. Pursuant to a delegation from that Committee, awards for other employees are approved by the Chief Executive. STAR Awards for members of the Star Committee are determined exclusively by the Committee without any recommendation from the STAR Committee.

III. TIMING AND FORM

STAR awards are determined after the close of the fiscal year and are paid on or about September 15. The award form choices and relevant considerations are explained in payment preference materials generally in the form of Appendix 1. Participants receive written notice of their award detailing the calculation, generally in the form of Appendix 2. The grant letters are generally in the form of Appendix 3.

Generally, STAR awards are paid in cash. However, before the end of the calendar year preceding the year of the award date, participants on record can choose their upcoming award in forms other than cash, such as stock options, local deferral programs in some countries, or restricted stock units or deferred compensation, (for participants also in the Business Growth Program), depending on local regulations. To pay a STAR award in stock options, the Company compares current cash value to stock option value with a conversion factor that is reviewed annually. Any STAR award paid in stock options, restricted stock units or other equity shall be awarded pursuant to this program and the terms and conditions of the 2001 Stock and Incentive Compensation Plan, the 2004 Gillette Long Term Incentive Plan or any successor stock plan approved in accordance with applicable listing standards, as they may be revised from time to time.

IV. SEPARATION FROM THE COMPANY

• Retirement, Death or Special Separation with a Separation Package: If participant worked at least 4 weeks, award is pro-rated based on the number of weeks worked in the fiscal year for which the award is payable, divided by 52.

• Voluntary Resignation or Termination for cause: Separating employees must be active as of June 30 (the close of the fiscal year for which the award is payable) to receive an award.

Eligible participants who have left the Company will receive a cash payment (equity such as stock options and RSUs can be issued to active employees only) on the same timing as STAR awards or as soon thereafter as possible.

V. CHANGE IN CONTROL

Notwithstanding the foregoing, if there is a Change in Control in any fiscal year, STAR awards will be calculated in accordance with Section II above, but each factor will be calculated for the period from the beginning of the fiscal year in which a Change in Control occurred up to and including the date of such Change in Control (“CIC Period”). “Change in Control” shall have the same meaning as defined in the 2001 Stock and Incentive Compensation Plan.

VI. GENERAL TERMS AND CONDITIONS

While any STAR award amount received by one individual for any year shall be considered as earned remuneration in addition to salary paid, it shall be understood that this plan does not give to any officer or employee any contract rights, express or implied, against any Company for any STAR award or for compensation in addition to the salary paid to him or her, or any right to question the action of the Board of Directors or the Committee.

Each award to the Chief Executive, Vice-Chairs, Group Presidents, Presidents, Global Function Heads and Senior Vice Presidents and equivalents, made pursuant to this plan, is subject to the Senior Executive Recoupment Policy adopted by the Committee in December 2006.

This program document may be amended at any time by the Committee.

2/13/07

EX-10.13

EXHIBIT (10-13)

ADDITIONAL PROGRAMS AVAILABLE TO CERTAIN OFFICERS AND NON-EMPLOYEE DIRECTORS

I. Certain Officer Programs

The following is a summary of programs that are available to employees at the President level or higher (“Eligible Employees”).

Financial Counseling

The Financial Counseling Program is a reimbursement program designed to address the special financial planning needs of Eligible Employees. The Company provides a one-time initial reimbursement of up to $12,500 for program set-up, to include initial consultations with tax and financial experts and tax and financial counseling for the initial year in which the employee participates in the program. Thereafter, the company reimburses Eligible Employees up to $8,500 annually for tax and financial counseling services.

The amounts described above are maximum reimbursement levels and may be used only for eligible expenses. Reimbursements may not be used for broker, portfolio management or similar fees, and the Company does not make cash payouts of any unused allowances. In addition, services provided by the Company’s independent auditor are not reimbursable under this program.

Executive Physical

The Company will reimburse the cost of an annual physical examination for each Eligible Employee.

Club Membership

Cincinnati, Ohio-based Eligible Employees are authorized to join the Metropolitan Club or Banker’s Club at the Company’s expense. The Metropolitan and Banker’s clubs are private social/dining clubs, where the annual membership fees for each Eligible Employee are currently no more than $2,000 per club. For Eligible Employees based outside of Cincinnati, Ohio, the Company will reimburse the costs of joining a local social/dining club. The primary purpose of these memberships is to facilitate business-related entertaining and networking. However, these are full memberships and as such Eligible Employees are able to use these memberships for personal use as well. Apart from the annual membership fee, the Company does not reimburse or otherwise cover any personal use of these memberships. This program will be discontinued effective January 1, 2008.

Personal Security

The Company provides personal security services such as home security systems/monitoring and secured workplace parking to the Chief Executive Officer, Chief Operating Officer, President-Global Business Units, Chief Financial Officer and the Vice-Chairs of the Company, at Company expense. In addition, The Global Human

Resources Officer may approve personal security services to other Company Employees where appropriate, again at Company expense.

Spouse and Personal Travel

The purpose of the spouse travel program is to familiarize the spouse with the business issues and demands facing Eligible Employees and to meet other P&G employees and spouses.

The Company allows spouses (or significant others) of Eligible Employees to accompany the relevant Eligible Employee on up to two international business trips per year and up to one domestic business trip per year, at Company expense. This element of the program is being discontinued effective January 1, 2008.

In addition, the Company holds two or three senior management meetings each year when executives are encouraged to bring a spouse (or significant other). In these situations, the Company pays reasonable air and ground transportation, sight-seeing tour, other incidental costs. Other similar Company-paid travel is subject to approval by the head of the relevant Global Business Unit, the head of the Global MDO, or the Global Human Resources Officer, as appropriate.

While Company aircraft is generally used for Company business only, for security reasons the Chief Executive Officer is required to us Company aircraft for all air travel, including personal travel and travel to outside board meetings. While traveling on Company aircraft the Chief Executive may bring a limited number of guests to accompany him. If a Company aircraft flight is already scheduled for business purposes and can accommodate additional passengers, the Chief Operating Officer, President-Global Business Units, Chief Financial Officer and the Vice-Chairs of the Company may use the aircraft for personal travel and guest accompaniment. These individuals may also use the Company aircraft for travel to outside board meetings. Outside boards typically provide some level of reimbursement to the Company for these trips. To the extent travel to outside board meetings or personal or guest travel results in imputed income to the executive, the Company does not provide gross-up payments to cover the executive’s personal income tax due on such imputed income.

Limited Local Transportation

To increase efficiency, Eligible Employees are provided limited local transportation within Cincinnati.

II. Non-Employee Director Programs

This paragraph summarizes a travel program available to spouses, significant others and family members (collectively, “Guests”) who accompany non-employee directors (“Directors”). The purpose of these policies is to familiarize the Guests with the business issues and demands facing the Directors and to meet other Guests and employee spouses (or significant others).

Generally, Guests are permitted to accompany Directors to regular Board meetings and other Board activities, so long as the Director is using Company aircraft and the Guests do not cause incremental aircraft costs. No more than once per year, the Board holds a multi-day offsite meeting, often in a location outside the United States. Guests are also permitted to accompany Directors to these offsite meetings. In some of these cases, the Guests’ travel costs may be considered incremental or may involve commercial flights. The Company arranges and pays for sight-seeing tour, and other incidental costs for Directors and Guests while Directors attend both regular and off-site Board meetings and other Board activities.

EX-10.29

EXHIBIT (10-29)

THE GILLETTE COMPANY
DEFERRED COMPENSATION PLAN
(for salary deferrals prior to January 1, 2005)
(as amended and restated effective January 1, 2005)
(with amendments adopted through August 21, 2006)

1.	Purpose. The Gillette Company Deferred Compensation Plan (the “Plan”) has been adopted by The Gillette Company (the “Company”) to enable certain executive employees of the Company and its Participating Subsidiaries to defer a portion of their compensation on a tax-effective basis in addition to their eligible savings under The Gillette Company Employees’ Savings Plan (the “Savings Plan”) and The Gillette Company Supplemental Savings Plan.
	The Plan is intended to constitute an unfunded plan of deferred compensation described in Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and in Sections 3121(v)(2) and 3306(r)(2) of the Internal Revenue Code of 1986, as amended (“Code”).
	Under the terms of the Plan as approved by the Company’s Board of Directors, eligible employees may elect to defer salary and incentive bonus. This document, which is effective June 1, 2004, addresses the salary deferral feature of the Plan. Amounts deferred under this Plan are intended to be grandfathered for purposes of Section 409A of the Code.
2.	Eligible Employees. Employees of the Company and Participating Subsidiaries who are full-time or part-time regular employees, have a job grade or a personal grade of 21 or above, and who are generally treated by The Gillette Company as a United States employee for employment and benefit purposes, are eligible to participate in this Plan for any calendar year.
3.	Plan Features. Eligible employees who elect to participate in the Plan (“Participants”) may defer a portion of their salary (“Deferred Salary”).
4.	Recordkeeper. The day-to-day recordkeeping and administrative functions with respect to the Plan shall be performed by a person or persons appointed by the Committee (“Recordkeeper”). In accordance with procedures determined by the Committee, Participants’ elections under the Plan may be made by way of written, telephonic or electronic instruction to the Recordkeeper.
5.	Administration. The Plan shall be administered by the Savings Plan Committee appointed by the Board of Directors of the Company (the “Committee”), which shall have the discretionary power and authority to construe and interpret the provisions of the Plan, to determine the eligibility of employees to participate in the Plan and the amount and timing of payment of any benefits due under the Plan, and to determine all other matters in carrying out the intended purposes of the Plan. In administering this Plan, including but not limited to considering

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	appeals from the denial of claims for benefits and issuing decisions thereon, rules and procedures substantially similar to those set forth in the Savings Plan shall govern.
	Subsequent to a Change in Control of the Company, the Plan shall be administered by the trustee of the trust established by the Company for the purposes of satisfying the Company’s payment obligations under the Plan (the “Trustee”). The Trustee shall be appointed by and serve at the pleasure of the Committee, but may not be removed following a Change in Control of the Company until all the Company’s obligations under the Plan have been satisfied.
6.	Construction of Terms. Except as expressly provided in this Plan to the contrary, capitalized terms referenced herein shall have the same meanings as are applied to such terms in the Savings Plan as in effect from time to time. Notwithstanding the foregoing, to the extent necessary to comply with Section 409A of the Code, in the case of any payment hereunder that in the determination of the Committee would be considered “nonqualified deferred compensation” subject to Section 409A and as to which, in the determination of the Committee, the requirements of Section 409A(a)(2)(A)(v) of the Code would apply, an event or occurrence described as a Change of Control within the Savings Plan shall be considered a “Change of Control” in this Plan only if it also constitutes a change in ownership or effective control of the Company, or a change in ownership of the Company’s assets, described in Section 409A(a)(2)(A)(v) of the Code.
7.	Deferred Salary.

(a)	An eligible employee may elect to defer, in whole percentages, up to 60% of his or her gross salary.
(b)	A Participant may defer his or her salary on a pre-tax basis until termination of employment or a later elected date as provided in this Plan if termination is by reason of retirement or determination of Total and Permanent Disability status.
(c)	The Deferred Salary will be recorded in an account maintained by the Recordkeeper, entitled the “Deferred Salary Account”. A Participant shall always be fully vested in amounts credited to the Deferred Salary Account maintained for such Participant.
(d)	A salary deferral election will become effective as of the next practicable payroll period following receipt by the Recordkeeper in such time and manner as prescribed by the Committee.
(e)	A Participant may at any time change or discontinue his or her salary deferral election, effective as of the next practicable payroll period following receipt by the Recordkeeper in such time and manner as prescribed by the Committee.

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(f) Such change in salary deferral election shall operate prospectively and shall have no effect on prior deferrals under this Plan. An individual who has previously participated in the Plan shall be considered a Participant for the purposes of the Plan until final distribution is made of amounts credited to his or her Deferred Salary Account.

8. Additional Credits to Deferred Salary Accounts.

(a)	The Committee shall, from time to time, select one or more of the Investment Funds from the Savings Plan (“Investment Fund”) for Participants to elect to have their Deferred Salary deemed invested.
(b)	Each Participant, upon electing to participate in the Plan, shall designate the Investment Fund or Funds with respect to which such Participant’s Deferred Salary shall be deemed invested, in such a time and manner prescribed by the Committee for such purpose. The election shall be in whole percentage increments of each such Investment Fund. A Participant’s election shall remain in effect with respect to all future Deferred Salary unless and until changed by the Participant in accordance with Section 8(c) below.
	If a Participant fails to make an election hereunder, all of his or her Deferred Salary shall be deemed invested in a Money Market Fund until the Participant makes an election hereunder.
(c)	A Participant may change the Investment Fund or Funds in which his or her future Deferred Salary is deemed to be invested. Such change in election shall be effective as of the close of the Business Day on which the Recordkeeper receives such instruction or, if such instruction is received after the close of a Business Day, as of the close of the next following Business Day.
(d)	Amounts recorded in the Deferred Salary Account maintained for each Participant shall be credited or debited with amounts equivalent to gains or losses realized by the Investment Funds in which the Participant elects to have his or her Deferred Salary deemed invested from time to time.
(e)	Subject to the limitations set forth in paragraphs (i) and (ii) below, a Participant may elect at any time to have amounts credited to his or her Deferred Salary Account transferred from any Investment Fund to any of the other Investment Funds, by designating the percentage of the Deferred Salary Account invested in the transferring Investment Fund to be transferred (in whole percentage increments) and the percentage of such transferred amount to be invested in the receiving Investment Fund or Funds (in whole percentage increments). Such transfer election shall be effective, and the applicable Investment Funds shall be valued for the purpose of implementing such election, as of the close of the Business Day on which

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the Recordkeeper receives such instruction or, if such instruction is received after the close of a Business Day, as of the close of the next following Business Day.

Elections by Participants under this Section 8(e) shall be limited in the following respects:

(i)	The minimum amount that may be deemed transferred from any Investment Fund shall be $250 or, if less, the entire balance of the Participant’s Deferred Salary Account deemed invested in such Investment Fund.
(ii)	The Committee may in its discretion limit the number of transfers that may be made to or from any Investment Fund at any time. The Committee also shall have the discretionary right to suspend the availability of transfers among any or all of the Investment Funds at any time without prior notice to Participants.

(f) Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, the Trustee shall have the authority to prescribe alternative investment funds in which Participants’ accounts under this Plan shall be deemed invested; provided, however, that (i) if Participants retain the right to designate the investment funds for deemed investment of their respective accounts, then the investment funds selected by the Trustee shall include at least an Equity Index Fund and a Money Market Fund, and (ii) if Participants are no longer entitled to designate the investment funds for deemed investment of their respective accounts, then all accounts under this Plan shall automatically be deemed invested in a Money Market Fund pending distribution in accordance with Section 9 below.

9. Payments from Deferred Salary Account.

(a)

Except as otherwise provided in this Section, no amounts shall be payable under the Plan to any Participant while he or she is employed by the Company or any Participating Subsidiary. Unless an election is made in accordance with Section 9(b) or (c) below or unless Section 9(d) below applies, all amounts credited to a Participant’s Deferred Salary Account shall be paid in a single lump sum as soon as practicable following the termination of the Participant’s employment with the Company and all Participating Subsidiaries, valued as of the first business day following such termination date.

(b)

A Participant may elect to defer payment of his or her Deferred Salary Account to the first business day of the month coincident with or next following the 1st to 10th anniversary of the Participant’s termination of employment with the Company and all Participating Subsidiaries, provided (i) the Participant’s termination of employment is on account of Retirement

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	or Total and Permanent Disability, and (ii) the Participant’s deferral election is made at least twelve months prior to the Participant’s Release Date (although any deferral election made prior to December 6, 2005, which is also made at least six months prior to the Release Date, shall be deemed to have been made at least twelve months prior to the Release Date). For purposes of this Section, Release Date is defined as the date the Participant ceases to be regularly employed by the Company or a subsidiary on a full-time or part-time basis. Such deferred payment shall be valued as of the first business day following the 1st to 10th anniversary, as applicable, of the Participant’s termination of employment, and shall be made in a single lump sum as soon as practicable thereafter. Pending final distribution, the Participant’s Deferred Salary Account shall continue to be credited or debited with amounts equivalent to gains and losses realized by the Investment Funds in which such account is invested from time to time.
(c)	A Participant may elect to receive payment of his Deferred Salary Account in the form of two to ten annual installments commencing in the calendar year following the year of the Participant’s termination of employment with the Company and all Participating Subsidiaries, provided (i) the Participant’s termination of employment is on account of Retirement or Total and Permanent Disability, and (ii) the Participant’s installment payment election is made at least 12 months prior to the Participant’s Release Date (although any deferral election made prior to December 6, 2005, which is also made at least six months prior to the Release Date, shall be deemed to have been made twelve months prior to the Release Date). Each installment payment shall be valued as of the close of the first business day of the month following the applicable anniversary of the Participant’s termination of employment, and shall be paid as soon as practicable thereafter. Pending final distribution, the remaining balance in the Participant’s Deferred Salary Account shall continue to be credited or debited with amounts equivalent to gains and losses realized by the Investment Funds in which such account is invested from time to time.
(d)	Prior to the occurrence of a Change of Control, in accordance with rules prescribed by the Committee, a Participant making a deferral election pursuant to Section 9(b) above or an installment election pursuant to Section 9(c) above may provide for the revocation of such deferral or installment election in the event of a Change of Control and for the payment by the Company of the Participant’s Deferred Salary Account in a single lump sum as soon as practicable following the Change of Control valued as of the close of the Business Day on which the Change of Control occurs, or another date if so directed by the Committee or the Trustee.
	In the absence of a Participant’s affirmative direction to retain a deferral or installment election, in the event of a Change of Control the Participant’s Deferred Salary Account will be paid by the Company in a single lump sum as soon as practicable following the Change of Control valued as of the

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	close of the Business Day on which the Change of Control occurs, or another date if so directed by the Committee or the Trustee.
(e)	In the event of the death of a Participant, whether or not then employed by the Company or a Participating Subsidiary, all amounts credited to the Participant’s Deferred Salary Account shall be paid to the Participant’s estate in a single lump sum valued the first business day of the month following the date of death.
(f)	All determinations of value of Participants’ Deferred Salary Accounts shall be made in accordance with the relevant provisions of the Savings Plan.
(g)	All payments under the Plan shall be subject to any required withholding of Federal, state and local taxes.
(h)	The opportunity provided to a Participant to defer payment of his or her compensation beyond termination of employment shall serve as partial consideration for a settlement of all claims which the Participant may have against the Company, its Subsidiaries, employees and agents and shall be subject to execution by the Participant of a release and settlement agreement in a form prescribed by the Committee.

10. Source of Payments. All amounts payable under the Plan shall be paid by the Company and Participating Subsidiaries from their general assets. No Participant shall have any right to or interest in any assets of the Company or any Participating Subsidiary other than as an unsecured general creditor, and no separate fund shall be established in which any Participant has any right or interest. The foregoing shall not prevent the Company or any Subsidiary from establishing one or more funds from which payments under the Plan shall be made, including but not limited to circumstances under which payments are to be made following a Change of Control.

11. Plan Amendment and Termination. The Plan may be amended or terminated by the Company at any time and in any manner prior to the happening of any event in connection with or in anticipation of a Change of Control that actually occurs, provided that no amendment or termination shall adversely affect the rights and benefits of Participants with respect to Compensation deferred pursuant to the Plan prior to such action. After the happening of any event in connection with or in anticipation of a Change of Control that actually occurs: (a) no amendment shall be made which adversely affects the rights and benefits of Participants with respect to compensation deferred or benefits accrued pursuant to the Plan prior to such amendment; and (b) no amendment may be made with respect to any provision of the Plan which becomes operative upon a Change of Control. Notwithstanding the foregoing, the Company may amend the Plan (whether before or after a Change of Control) to the extent it reasonably deems necessary to comply with the requirements of Section 409A of the Code.

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12. No Right of Employment. The adoption and operation of this Plan shall not create in any Participant a right of continued employment with the Company or any Subsidiary.

13. No Assignment of Interest. The interest of any Participant under the Plan may not be assigned, alienated, encumbered or otherwise transferred, and shall not be subject to attachment, garnishment, execution or levy; and any attempted assignment, alienation, encumbrance, transfer, attachment, garnishment, execution or levy shall be void and of no force or effect.

THE GILLETTE COMPANY
By:	/s/ Edward E. Guillet
	Senior Vice President – Human Resources
	[reflects amendments adopted through August 21, 2006]

EX-11

EXHIBIT (11)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

Computation of Earnings Per Share

Amounts in millions except per share amounts

	Years Ended June 30
	2007		2006		2005		2004		2003
BASIC NET EARNINGS PER SHARE
Net earnings	$	10,340	$	8,684	$	6,923	$	6,156	$	4,788
Preferred dividends, net of tax benefit		161		148		136		131		125
Net earnings available to common shareholders	$	10,179	$	8,536	$	6,787	$	6,025	$	4,663
Basic weighted average common shares outstanding		3,159.0		3,054.9		2,515.6		2,580.1		2,593.2
Basic net earnings per common share	$	3.22	$	2.79	$	2.70	$	2.34	$	1.80
DILUTED NET EARNINGS PER SHARE
Net earnings	$	10,340	$	8,684	$	6,923	$	6,156	$	4,788
Deduct preferred dividend impact on funding of ESOP		0		0		1		4		9
Diluted net earnings	$	10,340	$	8,684	$	6,922	$	6,152	$	4,779
Basic weighted average common shares outstanding		3,159.0		3,054.9		2,515.6		2,580.1		2,593.2
Add potential effect of:
Conversion of preferred shares		149.6		154.1		158.3		164.0		170.2
Exercise of stock options and other unvested equity awards		90.0		76.9		63.2		55.3		40.3
Diluted weighted average common shares outstanding		3,398.6		3,285.9		2,737.1		2,799.4		2,803.7
Diluted net earnings per common share	$	3.04	$	2.64	$	2.53	$	2.20	$	1.70

(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 ESOP debt through 2021.
(2)	Approximately 41 million in 2007, 44 million in 2006 and 48 million in 2005 of the Company’s outstanding stock options were not included in the diluted net earnings per share calculation because 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).

EX-12

EXHIBIT (12)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

Computation of Ratio of Earnings to Fixed Charges

Amounts in millions

	Years Ended June 30
	2007			2006			2005			2004			2003
EARNINGS, AS DEFINED
Earnings from operations before income taxes and before adjustments for minority interests in consolidated subsidiaries and after eliminating undistributed earnings of equity method investees	$	14,746		$	12,419		$	9,954		$	9,010		$	7,219
Fixed charges, excluding capitalized interest		1,428			1,242			924			719			657
TOTAL EARNINGS, AS DEFINED	$	16,174		$	13,661		$	10,878		$	9,729		$	7,876
FIXED CHARGES, AS DEFINED
Interest expense (including capitalized interest)	$	1,374		$	1,153		$	869		$	629		$	561
1/3 of rental expense (1)		124			122			90			90			96
TOTAL FIXED CHARGES, AS DEFINED	$	1,498		$	1,275		$	959		$	719		$	657
RATIO OF EARNINGS TO FIXED CHARGES		10.8	x		10.7	x		11.3	x		13.5	x		12.0	x

⁽¹⁾ Considered to be representative of interest factor in rental expense.

EX-13

EXHIBIT (13)

Annual Report to Shareholders
(pages 1-74)

P&G

Contents

Letter to Shareholders	2
Designed to Grow	8
Designed to Win	14
Designed to Deliver	18
Designed to Lead	22
Financial Contents	27
Corporate Officers	70
Board of Directors	71
Shareholder Information	72
11-Year Financial Summary	73
P&G at a Glance	74

Financial Highlights

FINANCIAL SUMMARY (UNAUDITED)

Amounts in millions, except per share amounts	2007			2006			2005			2004			2003
Net Sales	$	76,476		$	68,222		$	56,741		$	51,407		$	43,377
Operating Income		15,450			13,249			10,469			9,382			7,312
Net Earnings		10,340			8,684			6,923			6,156			4,788
Net Earnings Margin		13.5	%		12.7	%		12.2	%		12.0	%		11.0	%
Basic Net Earnings Per Common Share	$	3.22		$	2.79		$	2.70		$	2.34		$	1.80
Diluted Net Earnings Per Common Share		3.04			2.64			2.53			2.20			1.70
Dividends Per Common Share		1.28			1.15			1.03			0.93			0.82

P&G is a company designed for long-term sustainable growth. We’ve designed P&G’s business portfolio to Grow consistently and reliably. We’ve designed the core strengths we need to Win in our industry. We’ve designed strategic, operational and financial processes that ensure discipline to Deliver. We’ve designed a management team and organization to Lead.

P&G is Designed to Grow.

2     The Procter & Gamble Company

Fellow Shareholders:

We’ve grown P&G sales from $39 billion to $76 billion in the past seven years. We’ve more than doubled the number of brands that generate $1 billion or more in sales each year, and now have 23 of these leading billion-dollar brands in our portfolio. We’ve more than quadrupled the number of brands that generate at least $500 million in sales, and now have 18 of these brands poised to be our next billion-dollar brands. We’ve nearly doubled the number of countries in which P&G generates a billion dollars or more in sales each year, and now have 12 billion-dollar countries. We do more than a billion dollars in sales each year with seven retail customers, up from two in 2001. We’ve generated more than $43 billion in net earnings and $50 billion in free cash flow. P&G’s market capitalization has increased more than $100 billion since 2001, and today the Company is among the ten most valuable companies in the U.S.

The critical question now for P&G shareholders, prospective investors, and Company management is: “How do we keep a company of P&G’s size growing?”

A company must be designed to grow, and we’ve done that at P&G.

We’ve designed a diversified business portfolio to grow consistently and reliably. We’ve designed the core strengths we need to win in our industry. We’ve designed strategic, operational and financial processes that ensure discipline to deliver. And we’ve designed a management team and organization to lead. With clear choices, smart and sufficient investments, and an unwavering focus on the long-term health of our business, we have designed P&G to meet or exceed its growth targets reliably year after year.

FISCAL 2007 RESULTS

2007 was a good example of how P&G’s design for growth works. It was the most demanding year we’ve faced since the beginning of the decade. Energy and commodity costs continued to rise. Competitive pressure intensified. We had to complete the vast majority of work to integrate Gillette. And yet, we continued to grow well within the Company’s target growth range.

• Net sales increased 12%, to $76 billion. Organic sales increased 5%.

Note: An explanation and reconciliation of free cash flow and organic sales for 2007 is provided on pages 47-48.

The Procter & Gamble Company     3

• Diluted net earnings per share increased 15%, to $3.04.

• Free cash flow from operating activities was $10.5 billion, or 101% of net earnings.

The growth was broad-based.

• Fabric and Home Care grew organic sales 8%, with double-digit growth in developing markets and mid-single-digit growth in developed regions. Key growth drivers included Tide Simple Pleasures, Gain Joyful Expressions, and Febreze Noticeables.

• Blades and Razors organic sales increased 8%, behind the continued expansion of the Fusion razor system and growth on Mach3 in countries where Fusion has not launched.

• Beauty organic sales increased 5%, led by strong growth in feminine care, prestige fragrances and hair care. Billion-dollar brands Always, Olay, and Head & Shoulders each grew sales double-digits for the year.

• Health Care organic sales increased 6%, driven by very strong growth in oral care. In the U.S., Crest extended its category market leadership to 38% behind the success of the Pro-Health line.

• Baby and Family Care organic sales increased 4%. This growth was driven by continuing expansion into developing markets and strong results on Pampers Baby Stages of Development and Baby Dry Caterpillar Flex products in North America.

Growth was also broad-based across geographic regions, led by mid-single-digit organic volume growth in North America and double-digit organic growth in developing markets.

In addition to solid business growth, we made excellent progress on the integration of Gillette. This was the largest acquisition and the most complex integration in the consumer products industry and in P&G history—and we’re about a year ahead of schedule.

We measure integration success by tracking progress in four areas: business momentum, integration financials, project management, and fielding the best team from both Gillette and P&G.

• Business Momentum. Our fiscal 2007 results demonstrate that we were not distracted by the integration. We delivered sales growth in line with our growth targets behind continuing product innovation and expansion into new markets.

• Integration Financials. The dilution impact on earnings per share was $0.10 to $0.12 per share. This is better than the low end of our guidance range, which was $0.12 to $0.18 per share. The acquisition remains on track and is expected to be neutral to earnings per share in fiscal 2008. We expect cost synergies to be at the top end of the $1 billion to $1.2 billion target range and revenue synergies to be on target at about $750 million next fiscal year.

P&G REPORT CARD

Progress Against P&G’s Goals and Strategies

GROWTH RESULTS

Average annual	Goals			2007			2001-2007
Organic Sales Growth (1)		4-6	%		5	%		6	%
Earnings-per-Share Growth		10	%+		15	%		12	%(2)
Free Cash Flow Productivity (3)		90	%+		101	%		120	%

GROWTH STRATEGIES (2001-2007)

Grow from the core:

Leading Brands, Big Markets, Top Customers

Volume up 7%, on average, for P&G’s 23 billion-dollar brands ⁽⁴⁾ Volume up 8%, on average, for P&G’s top 16 countries ⁽⁵⁾ Volume up 8%, on average, for P&G’s top 10 retail customers ⁽⁵⁾

Develop faster-growing, higher-margin, more asset-efficient businesses

Beauty sales doubled to $23 billion; profit more than doubled to $3. 5 billion Health Care sales more than doubled to $9 billion; profit increased 6-fold to $1.5 billion Home Care sales up nearly 85%; profit more than tripled

Accelerate growth in developing markets and among low-income consumers

Developing market sales up
18% per year Over one-third of total-company sales growth from developing markets Developing market profit margins comparable to developed- market margins

(1)	Organic sales exclude the impacts of acquisitions, divestitures and foreign exchange, which where were 6%, on average, in 2001-2007.
(2)	2001 EPS excludes a negative SO.61 per share impact from Organization 2005 restructuring program charges and amortization of goodwill and intangible assets.
(3)	Free cash flow productivity is the ratio of free cash flow to net earnings.
(4)	Excludes the impact of adding newly acquired billion-dollar brands to the portfolio.
(5)	Excludes impact of adding Gillette.

4     The Procter & Gamble Company

• Project Management. We completed the integration of our sales force, distribution networks, and billing systems. Since integration work began, we’ve added more than 50,000 new product codes and 100,000 new shipping points to P&G systems. This enables us to go to market as one company and to fully leverage P&G’s scale.

• Fielding the Best Team. Our management and employee team is comprised of the best of both companies. Several of our key management positions have been filled by Gillette employees, and retention is ahead of the target we established at close. Importantly, our employee survey results indicate that Gillette employees are positive about their integration with P&G.

P&G’S GROWTH CHALLENGE

Our performance in fiscal 2007 meets or exceeds the Company’s growth goals, which are:

• Organic sales growth of 4% to 6%

• Diluted net earnings per share growth of 10% or better

• Free cash flow productivity of 90% or greater

These growth goals are realistic yet demanding. The categories in which we compete grow about 3% a year. If we maintain market shares—which is always a challenge in our highly competitive industry—we grow along with the categories. But we need another 1 % to 3% growth to meet our goals. The only way to achieve this growth is to increase market shares, expand into new geographic markets, and create new brands and categories. And then, of course, we have to turn sales growth into double-digit earnings-per-share growth, which requires consistent margin expansion of 50 to 75 basis points per year.

In addition to the ongoing challenges of sustaining growth, there are specific challenges in the year ahead. We expect raw material and energy costs to increase again in fiscal 2008, roughly in line with the impact we saw in fiscal 2007. We’ll need to offset these increased costs with a combination of pricing and cost-savings projects. Competitive pressure will also remain a challenge. We compete against some of the best companies in the world. Many have restructured and are spending restructuring savings to regain lost market share, which makes it even more important for us to deliver industry-leading innovation and superior consumer value in every category where we compete.

Sustaining growth despite these challenges is not easy, but we believe the growth we’re targeting is achievable on a consistent, sustainable basis because we have designed P&G to grow reliably and consistently, year after year.

THE BEST PORTFOLIO IN THE CONSUMER PRODUCTS INDUSTRY

The first element of P&G’s design is a portfolio that balances growth and consistency.

In the 1990s, two businesses accounted for 85% of all the value created by P&G through the decade. Today, we have a much stronger and more robust portfolio of businesses. We’re competing in 22 categories that include a balanced mix of faster-growing, higher-margin, asset-efficient businesses, such as beauty or home care, and large, foundation categories, such as laundry or baby care.

We also have an attractive geographic mix, with about half of the Company’s sales coming from North America and half coming from the rest of the world. We’re focusing on achieving disproportionate growth in fast-growing developing markets. These markets have contributed more than a third of the Company’s top-line growth over the past five years, and their contribution has been accelerating. Nearly 40% of P&G’s sales growth came from developing markets this past fiscal year, and we expect the contribution to be even greater in the year ahead.

P&G’s diversified portfolio reduces exposure to single economic and competitive events, and maximizes future growth opportunities. Traditional businesses, like fabric care and baby care, are strong and growing in their own right, and they create scale that makes our beauty and health care businesses more competitive. Geographically, our North America home base is rock solid, with dependable growth that allows us to invest in developing markets.

In addition, the breadth and diversity of P&G’s businesses and the breadth and diversity of the technological expertise that supports these businesses enable us to transfer technologies from one business to another. For example, Crest Whitestrips was created by combining bleach stabilization technology from laundry care with film technology from corporate R&D to provide in-home teeth whitening. The Swiffer Wet Jet pad combines absorbent cores from feminine care with flexible surface layers from baby care. Olay Daily Facials combines structured paper from family care with skin conditioning and mild cleansing from beauty to provide a mini-facial in the home. Our ability to combine technologies from so many diverse businesses is unrivaled in the industry because no other consumer products company has the scope of science and technology found at P&G.

Our business portfolio is not static. We use operating total shareholder return (TSR) delivered by each business to continuously ensure our portfolio is maximizing shareholder value. TSR is a cash flow return on investment (CFROI) model that measures sales growth, earnings growth and cash flow to determine the rate of return that each business earns. Any business that cannot deliver sales growth at least at the low end of our target range, upper-single-digit or better operating profit

The Procter & Gamble Company     5

Designed for Growth                                        

growth, and operating TSR well above the cost of capital becomes a candidate for divestiture. Our portfolio is stronger today than it was at the beginning of the decade but it’s not as strong as it will be by the end of the decade. We have more work to do to strengthen our mix of businesses and we will do it.

THE STRENGTHS REQUIRED TO WIN

The second element of P&G’s design for growth is our combination of core strengths. Early in the decade, we determined that P&G did not have sufficient competitive advantage in the five areas that are critical to winning in consumer products: consumer understanding, brand-building, innovation, go-to-market capability, and scale. We’ve invested substantially in every area, and it’s paying off.

For example, we’ve invested more than a billion dollars in consumer understanding since 2001. We’ve transformed one of the industry’s more traditional market research organizations into a consumer understanding powerhouse. Our external benchmarking indicates that P&G has the industry’s strongest suite of proprietary consumer research tools and methodologies. These tools help us learn faster and more effectively, and they help us discover the often-unarticulated needs and aspirations that lead to breakthrough innovation.

Innovation has always been P&G’s lifeblood, and we’ve created significant advantage in this area. We have best-in-class expertise in about a dozen technology areas that are the foundation for innovation in our industry, including enzymes, perfumes and flavors, polymers, structured substrates, and surfactants. We’ve multiplied this internal capability through an effort we call “connect + develop,” which is proving to be an enormous source of innovation and competitive advantage. We have about 8,500 researchers within P&G, but there are another 1.5 million researchers and entrepreneurs around the world working in areas that are relevant to our business. We’re establishing P&G as the preferred commercialization partner for these external innovators, and it’s making a huge impact. We’re innovating faster, better and more cost effectively as a result of external partnerships. More than half of the new products in our pipeline today include at least one external component.

Our strengthened ability to innovate is most evident in the net present value of our innovation pipeline and the organic incremental sales growth generated by innovation. Innovation-driven value creation for shareholders and incremental sales growth from innovation have nearly doubled in this same time period.

These are just two examples of how we have designed an institutional capability to grow. Our core strengths create sustainable competitive advantages, and we are continuing to get stronger in every area.

THE DISCIPLINE TO DELIVER

The third element of P&G’s design for growth is the disciplined way we manage our business. Discipline is part of P&G’s DNA and we apply it to every aspect of the business: strategic, operational and financial. We set and stick with clear strategies. We do our homework before going to market with new products and ideas, and we sweat the details that determine how well we execute. Most importantly, we focus on shareholder value creation as the primary measure of business and financial performance.

Three examples of P&G’s disciplined approach to value creation are how we manage our innovation portfolio, the way we reliably increase margins, and the approach we’ve taken to ongoing, internally funded restructuring.

6     The Procter & Gamble Company

About 90% of the Company’s organic sales growth comes from innovation. This means our innovation pipeline must add about $4 billion a year to our top line. To ensure the pipeline is sufficiently robust, we set organic growth goals for each category and business unit. We then look out over five years on a probability-adjusted basis to ensure each business can achieve its goals. Where potential gaps emerge, we drill deep to understand issues and determine which actions to take. By considering market uncertainties and competitive threats in this disciplined way, we ensure that we have the innovation necessary to meet growth goals reliably year after year.

We also create value by earning higher margins. Since 2001, despite the run-up in commodity and energy costs, we’ve improved operating margins by more than 400 basis points*.

P&G OPERATING MARGIN TREND

(percentage)	2007		2006		2005		2004		2003		2002		2001
Operating Margin*		20.2		19.4		18.5		18.3		18.6		17.5		15.5

* Excludes the impact ot Organization 2005 restructuring charges, which reduced operating margin by 460, 240 and 170 basis points in 2001, 2002, and 2003, respectively.

We expect to continue improving margins 50 to 75 basis points per year, on top of the remaining cost synergies from the Gillette acquisition. This should come in the form of increased gross margins and lower overhead costs as a percent of sales.

Reducing overhead costs is simply a matter of management discipline to drive productivity improvement. If we hold overhead growth to half the rate of sales growth, we pick up 25 to 50 basis points of margin improvement per year. This creates the opportunity for more than 200 basis points of operating margin expansion over the next five years.

Three of the most important opportunities for future productivity improvement are in Global Business Services (GBS), Product Supply and Research and Development (R&D). We’ve delivered nearly $400 million in cost savings through GBS and we believe we can achieve another $300 million by the end of the decade as we move more business activities into GBS. In Product Supply, we’re concentrating on applying our purchasing expertise and scale to more segments of our spending pools, which we believe can generate significant savings over the next three years. We’ll also continue to improve R&D productivity by generating more value from our “connect + develop” innovation partnerships and by leveraging innovation productivity technologies such as virtual modeling and simulation tools that take months out of product development programs and greatly reduce the required investments.

Another example of P&G discipline is the way we manage business and organizational restructuring. We accept ongoing restructuring as a routine cost of doing business, and we are highly disciplined about how we absorb these costs. We fund restructuring costs with a corporate budget rather than launching large, disruptive restructuring programs every few years. Funding restructuring costs this way enables us to make productivity investments on a timely basis, and therefore capture savings sooner. It’s also more transparent for shareholders because it provides a clearer picture of year-to-year financial progress and is far less confusing than reporting results excluding these costs.

Designing discipline into the way we manage our business is a critical element of our growth model. Our portfolio and core strengths create the opportunity and capability for growth; discipline ensures we deliver it.

THE CAPABILITY TO LEAD

The fourth way we’ve designed P&G to grow is by ensuring the caliber and continuity of our leadership team.

Getting the right people into the right jobs at the right time is always a primary responsibility of management. But equally important and more difficult is the need to anticipate leadership capabilities that will be required in the future—and ensuring that managers get the experiences and coaching they need to be ready.

Leadership development has long been a P&G strength. One of the most visible illustrations of our ability to develop strong leaders is the number of former P&G employees who are now CEOs of major companies. Less visible is the rigorous, intentional way we’ve built leadership development into our design for growth.

For example, I’m personally involved in career planning for the top 500 development candidates at P&G. I review their assignment plans, assess their strengths and weaknesses, and determine where I can help them grow. I’m also involved in succession planning for every organization in the Company. We review succession plans and the progress of key leaders with the Board once a year, and with our senior management team three times a year.

This focused and highly disciplined approach is paying off. Today, our leadership team is the most diverse and the most experienced in P&G history. About one-third are from outside the U.S. Our top 45 leaders hail from a dozen countries. The vast majority of senior managers have experience in developed and developing regions. They know how to compete in markets where P&G is not the leader, and they know how to leverage the leadership and scale of our most developed businesses and markets. Their diversity and experience result in more creative and critical thinking, more innovation, and better choices.

None of the elements of P&G’s design is sufficient on its own to ensure sustainable growth, but together as a unified design, our diversified portfolio, core strengths, rigorous discipline, and strong leaders enable P&G to create and capture opportunities for growth.

The Procter & Gamble Company     7

ROOM TO GROW

Opportunities for growth remain substantial in each of our strategic focus areas.

• P&G’s Core. We are widening P&G’s share advantages versus competition. For example, in fabric care, we were the number two player globally in the early 1990s. Today, P&G has a 34% share of the global fabric care market, nearly double the next competitor, and we’ve grown share for six consecutive years. We have a lot of opportunity to keep growing all of P&G’s billion-dollar brands. We’re proving in category after category that a leading share, even a relatively high share, is not a barrier to growth. We will continue to leverage our brand lineup and category-leading innovation to keep core businesses healthy and growing.

• Faster-Growing, Higher-Margin Businesses. We have even greater upside in businesses such as beauty and health care. The beauty and health categories in which P&G competes are a combined $360 billion market today, and are projected to grow 3% to 4% a year for the balance of the decade. P&G has nearly doubled its share of beauty and health over the past decade, and yet P&G’s share of this combined market is only about 10% globally.

• Developing Markets and Lower-Income Consumers. We can still grow substantially in developing markets by increasing household penetration and consumer usage frequency, and by entering categories where we’re not yet competing. For example, the average U.S. household buys five to ten times as much P&G product per year as the average household in developing markets. In addition, there is a large number of households in developing regions that do not yet purchase any P&G product. Closing this gap, which we’re confident we can do over time, will continue to drive strong growth for years to come.

There are significant bottom-line growth opportunities, as well. We’ll continue to leverage P&G’s scale. We’ll reduce overhead costs by simplifying the way we work and eliminating duplication between global business units and market development organizations. We’ll be more effective and efficient in how we manage our smaller country organizations and brands. And we’ll continue to increase productivity in every one of our businesses.

We’ll also continue to improve gross margins. The Company’s current gross margin is about 52%. We can earn a higher total-company margin by achieving best-in-class margins in more categories and business units. Based on industry benchmarking, we believe that only about half of P&G businesses have gross margins better than their competitive peer set. As we get more of our businesses to best-in-class levels, we’ll increase our total-company margin.

A COMPANY DESIGNED TO GROW

We’re focused on these opportunities, realistic about challenges, and confident P&G’s design for growth will enable us to keep P&G growing. Over the next few years, our portfolio will continue to shift toward faster-growing, higher-margin businesses. We’ll extend the advantages we’ve created with our core strengths. We’ll make the disciplined choices required to create even more shareholder value. We’ll continue to develop the industry’s strongest, broadest and deepest leadership bench.

And we’ll continue to focus on inspiring and enabling P&G people to fulfill our Company’s Purpose: improving consumers’ lives in small but always meaningful ways every day. This is critical. Our design for growth reflects the management choices we’ve made to create the opportunities and capability for growth — but it’s P&G people who deliver it. Their performance in fiscal 2007 was outstanding once again, and their capability, creativity and potential will ensure P&G out-performs the consumer products industry year after year.

A.G. Lafley
Chairman of the Board and Chief Executive Officer
August 14, 2007

8     The Procter & Gamble Company

Designed to Grow

From our core...

We’re focused on growing P&G’s leading brands in our largest countries with winning retail partners. Keeping P&G’s core businesses healthy and growing is critical to delivering the Company’s long-term growth objectives.

In advantaged categories...

We are continuing to shift P&G’s product portfolio toward faster-growing, higher-margin, more asset- efficient businesses such as beauty, health, personal care, and home care, and we strengthened P&G’s leadership in these areas with the acquisition of Gillette The market for these categories is growing 20% faster than the balance of the portfolio with nearly 30% higher margins for P&G.

Where consumers are...

Virtually all of the world’s population growth is occurring in developing markets, and these markets have contributed about 35% of P&G’s sales growth over the past five years. We expect this trend to continue. Developing markets represented about 20% of Company sales at the beginning of the decade, and we expect them to grow to about 30% of sales by the end of the decade.

Leading Brands More than 80% of P&G’s total sales and profits comes from its 41 largest brands — the brands that each generate more than $500 million in annual sales.
Advantaged Categories In the past five years, we’ve doubled sales and tripled profits in our beauty, health and home care businesses through a combination of organic growth and strategic acquisitions.

The Procter & Gamble Company     9

Developing Markets and Low-Income Consumers

P&G generated over $20 billion in sales from developing markets in 2007, more than double the sales level at the beginning of the decade.

SALES FROM DEVELOPING MARKETS

(in billions of dollars) Ol| $8

07 $21

10     The Procter & Gamble Company

23 Billion-Dollar Brands...

P&G’s billion-dollar brands are the core of the company’s product portfolio, representing about two-thirds of annual sales and a greater percentage of profit. These brands are leaders in their respective categories and platforms for innovation that will be the source of organic growth for years to come.

#1 Feminine Care Brand in the World

Always

Always Clean and Always Fresh innovations have propelled the brand to an all-time high market share of more than 55% in the U.S.

Second Largest Shampoo Brand

Head & Shoulders

Head & Shoulders has nearly doubled its annual sales in just four years, making it the second largest shampoo brand in the world.

#1 Toothpaste Brand in the U.S.

Crest

Leading innovations such as Pro-Health and Nature’s Expressions have helped make Crest the #1 toothpaste brand in the U.S.

Newest Billion-Dollar Brand

Gain

Gain has doubled sales over the last five years by delighting scent-seeking consumers.

#1 Hair Care Brand in the World

Pantene

Pantene, the world’s leading hair care brand, is sold in about 100 countries and is fast approaching $3 billion in annual sales.

#1 Baby Care Brand in the World

Pampers

By continuing to reach more consumers in markets such as China and India, Pampers has become P&G’s first $7 billion brand.

#1 Retail Skin Care Brand in the World

Olay

Olay has more than doubled sales in the past four years behind industry-leading innovations such as Olay Regenerist and Olay Definity.

#1 Laundry Detergent Brand in the World

Tide

Already the world’s leading laundry detergent brand, Tide widened its lead by posting high-single digit sales growth in fiscal year 2007.

...and counting.

P&G’s portfolio includes 18 brands with $500 million to $1 billion in annual sales, many of which have the potential to join the billion-dollar club in the next few years.

#1 Men’s Shaving Brand in the World

Mach3

Mach3 delivered double-digit sales growth in developing markets last year.

Fusion

Fusion and Fusion Power shaving systems are truly the best a man can get. These revolutionary products achieved over $500 million in sales in just the first fiscal year after launch.

Herbal Essences

Global annual sales of Herbal Essences have grown 40% since P&G acquired the brand in fiscal year 2002.

The Procter & Gamble Company     13

#1 Floor Cleaning Systems Brand in the World

Swiffer

Swiffer reinvented surface cleaning with innovative technology and design. Swiffer sales have more than doubled over the past five years.

#1 Tampon Brand in the World

Tampax

After just four years in the market, Tampax Pearl has boosted the brand to market-leading share above 50% in the U.S.

#1 Fabric Freshener Brand in the World

Febreze

Febreze, the U.S. air care category leader, has averaged more than 25% annual sales growth over the last four years.

14     The Procter & Gamble Company

Designed to Win

Where it counts

P&G’s five core strengths are consumer understanding, brand-building, innovation, go-to-market capability, and scale. While each of these strengths is important, it’s the combination of strengths that creates the greatest competitive advantage.

By strengthening our strengths

We are building additional capability in each of our five core strengths. By the end of the decade, we’ll have deeper, more insightful consumer and shopper knowledge. We’ll be better brand-builders, more productive innovators, and better go-to-market partners with retailers. We’ll have even greater company, category and country scale that we can use to create even more consumer, customer and shareholder value.

With increasing margins of competitive advantage

As P&G grows stronger in each of its core strengths, our margins of competitive advantage will grow as well. No other company in the industry can leverage all five areas simultaneously at the level that P&G can.

Consumer Understanding

More than $1 billion invested in consumer research since the beginning of the decade

Brand-Building

7,000 marketers formally certified in P&G’s brand-building discipline

Innovation

1,100 Ph.D. researchers networked through 27 global technical centers

Go-to-Market Capability

Rated best supplier by U.S. retailers in every critical area in independent surveys

Scale

The scale leader in 15 of P&Gs top 16 countries

The Procter & Gamble Company     15

Consumer Understanding and Brand-Building:

P&G’s competitive advantages in consumer understanding and brand-building come from the scope and scale of our consumer knowledge and the strength and breadth of P&G’s leading brand portfolio. We have proprietary tools and methodologies that help us identify unique consumer insights and systemic processes to build brands that consumers trust.

GETTING STRONGER

We are improving our ability to identify target consumers, to create stronger brand equities, and to reach consumers when and where they are most receptive to messages about our brands. These are critical improvements because the brands with the clearest definition of target consumers, the strongest brand equities, and marketing plans developed with qualified brand-building tools tend to grow five percentage points faster than average. We now have more than 7,000 marketers certified in P&G’s proprietary approach to brand-building.

Olay

Olay has become the world’s leading retail skin care brand by delighting “anti-aging” consumers with a portfolio of innovative products targeted to highly precise consumer segments.

Total Effects

Olay Total Effects appeals to women who are seeking to repair the multiple signs of aging and to restore their skin to its natural condition.

Regenerist

Olay Regenerist appeals to women who use a regimen of products to care for their skin. They are very aware of ingredients and the chemistry behind the benefits.

Definity

Olay Definity appeals to women looking for many of the attributes found in Regenerist, but who are also concerned with the tone and texture of their skin.

16     The Procter & Gamble Company

Innovation

Innovation is P&G’s lifeblood. The Company has competitive advantage from our depth and breadth of expertise in about a dozen core technologies. We multiply the power of our internal innovation capability by connecting it to our vast external network of scientists, inventors and technology problem-solvers. P&G is getting greater productivity from its R&D investment by treating innovation as a process that can be continually refined to make it more robust, reliable and systematic.

GETTING STRONGER

We are extending our competitive innovation advantage by “innovating how we innovate.”

•  We are focusing on how we can create winning holistic consumer experiences, not just products that perform better.

•  We are working to become an even better partner for external entrepreneurs, and increasing the number of innovations in our pipeline that benefit from our “connect + develop” efforts.

•  We are driving greater innovation-spending productivity by doing more simulation, modeling and design research in the virtual world.

•  Finally, we are focusing on cost innovation to provide consumers with a better brand experience at a lower cost, which also yields higher returns for P&G’s shareholders.

These ongoing improvements will help keep P&G on innovation offense and enhance the Company’s ability to deliver its organic growth goals consistently for years to come.

Innovation that Delights Consumers and Protects the Planet

We created Tide Coldwater, which is specifically designed to deliver optimal performance at lower temperatures. This is an innovation breakthrough because 80% to 85% of the energy used in the laundry process is for heating water. Since its introduction in 2005, Tide Coldwater has been used by more than seven million households in the U.S. If every U.S. household used cold water, the energy savings in the U.S. would be 70 to 90 billion kilowatt hours per year. That’s three percent of total household energy consumption, or up to 29 million tons of carbon dioxide per year not released into the environment— 6% of the Kyoto target for the U.S.

The Procter & Gamble Company      17

Go-to-Market Capability

P&G’s competitive go-to-market advantage comes from the strength of our customer relationships, our supply-chain innovation leadership and our organizational structure that simultaneously enables global scale and local responsiveness. In addition, we are combining P&G and Gillette brand portfolios and best practices to make this strength even stronger.

GETTING STRONGER

P&G’s Go-to-Market Reinvention (G2MR) program is focused on making step-change improvements in our supply chain efficiency, our ability to create in-store demand, and data systems that support business planning. With the addition of Gillette, P&G’s increased importance to retail customers in countries such as India and Brazil should continue to result in improved sales growth. We also expect increased sales of Gillette brands in developing countries such as China, Russia and Mexico, where P&G has already established a deep distribution network. In total, we expect G2MR to account for 2% points of sales growth over the next four years.

Scale Leverage

P&G’s competitive advantages include cost advantages that result in superior value for consumers, value creation for retail customers and superior returns for shareholders. We purchase materials and media at best-in-class costs. We are market leaders in nearly every category where we compete. We have tremendous knowledge scale in consumer understanding, research and development, and marketing. And we are always finding new ways to reap benefits from P&G’s scale.

GETTING STRONGER

We are better leveraging global purchasing scale to reduce the cost of global business services as a percentage of sales. For example, we are applying professional buying approaches to indirect spending pools such as office supplies. We are also working to improve knowledge transfer from category-to-category and market-to-market to ensure our leading-edge work processes are being applied consistently and thoroughly across the Company.

Gillette has enhanced P&G’s Go-to-Market Capability and Scale Benefits

With our combined portfolio of category-leading brands and go-to-market best practices, Gillette has helped P&G extend these critical competitive advantages. We are now working on the next generation of improvement efforts to help P&G create more value jointly with retail customers and for P&G’s shareholders.

18     The Procter & Gamble Company

Designed to Deliver

By staying on course...

We made three clear growth choices at the beginning of the decade: to grow P&G’s core businesses, to expand our presence in faster-growing, higher-margin businesses, and to win with lower-income consumers and in developing markets. We haven’t changed course. Our strategic discipline has led to 6% average organic sales growth since the beginning of the decade.

Sweating the details...

We have highly detailed work processes that force discipline and focus throughout critical business activities such as the development and launch of new products, building marketing plans, enhancing brand equities, and developing joint business plans with retail customers. We instill strict operational discipline to ensure best practices are consistently applied from brand to brand around the world.

Creating value...

To create shareholder value at the company level, we ensure each business within P&G’s portfolio is contributing at least its fair share of growth and value creation. We measure the value contribution of an individual business using operating Total Shareholder Return (TSR). Operating TSR is driven by sales growth, profit margin improvement and asset efficiency. Importantly, since operating TSR is highly correlated with the Company’s stock price performance, focusing on maximizing TSR ensures management is exercising financial discipline and making decisions that create value for P&G shareholders.

The Procter & Gamble Company     19

Strategic Discipline

P&G’s strategic discipline is rooted deep within the Company. We follow a rigorous annual process to develop growth goals for the company and for each individual business in the portfolio. With clear goals and a well-articulated description of its role in the portfolio, each business evaluates its innovation pipeline and brand building strategies to test the sufficiency of its plans. When the strategies are set for each business, we test the overall financial sufficiency of the plans to ensure we are on track to deliver our sales, profit and cash generation goals.

1. Sustainable Growth Goals

We set short- and long-term financial goals for each category based on its specific industry dynamics and its role within P&G’s portfolio. Sales growth expectations are naturally higher for some categories and disproportionate cash returns are expected from others. Each business’s goals are stretching but achievable, and we ensure the sum of the goals supports P&G’s overall growth targets.

2. Industry & Business Unit Strategy

Each year, we conduct a thorough strategic review of every P&G business. We examine how external markets are evolving and what competitors are doing. We develop growth strategies that take advantage of these trends and leverage P&G’s unique competitive advantages. And, if necessary, we make the hard choice to exit a business that has low potential to consistently deliver its value creation goals.

3. Innovation Pipeline Assessment

Our businesses are constantly evaluating their innovation pipeline to ensure plans are sufficient to deliver value-creation goals. These reviews look forward to promising technologies that may not reach the market for three to five years, and explore potential gaps that need to be closed. This ensures we are investing in the biggest ideas and re-directing resources away from those with less commercial potential.

4. Brand Equity Health Check

We work regularly with consumers to test the strength of our brand equities relative to competition. The results tell us which attributes consumers associate with our brands and which messages we need to enhance to build consumer loyalty. The combination of our marketing plans and product innovations are the foundation of our brand-building philosophy: “Promises Made. Promises Kept.”

5. Financial Plan

We review current-year and long-term financial plans throughout the year. If we see a surplus, we evaluate how best to deploy those resources for the long-term benefit of the business and P&G shareholders. If we identify gaps versus goals, our management team works together to fill them. We view our financial goals as commitments, and we are intent on delivering the consistent, reliable results shareholders expect from P&G.

6. Talent Review

An important element of P&G’s strategic discipline is our rigorous approach to talent development. The Global Leadership Council meets three times per year to identify top talent, to align on management succession planning for each business unit, geographic organization and functional organization, and to ensure the Company is achieving its diversity goals.

7. Results

2001-2007 COMPOUND AVERAGE GROWTH RATE

* 2001 EPS excludes a negative $0.61 per share impact from Organization 2005 restructuring program charges and amortization of goodwill and intangible assets.

20     The Procter & Gamble Company

Operational Discipline

Winning in the consumer products industry is heavily dependent on executing critical work processes with excellence. This requires the discipline to make hard choices at each step of the process. We have proprietary tools to guide these key work processes and assist our business leaders in making hard choices. When we follow our proven success models with rigor, the results can be outstanding. The development and launch of Crest Pro-Health is a prime example.

Crest Pro-Health

Crest Pro-Health has been one of P&G’s most successful oral care product initiatives since the addition of fluoride in 1950, but its development required tough choices, hard work and patience along the way.

Breakthrough Benefits

The Crest team knew it had a winning idea. Their research identified seven specific areas dentists check most to ensure their patients have a healthy mouth and beautiful smile. P&G product researchers worked for several years to develop a successful formula, but there were significant challenges along the way, such as delivering gingivitis benefits and whitening effects, and delivering performance benefits and great taste.

In fact, the oral care management team chose to launch Crest Pro-Health mouth rinse more than a year ahead of the toothpaste launch as the toothpaste formula was not quite meeting the strict consumer acceptance criteria we had set. The toothpaste launch was delayed even further when initial consumer advertising test results came in slightly below our high target levels.

Worth the Wait

Only when all the pieces were in place did we launch Crest Pro-Health toothpaste into the market, and the results have been outstanding. It generated well above $100 million in retail sales in its first year and has been a key driver in the Crest brand’s U.S. market-share growth. The operational discipline of the Crest management team has definitely paid off for P&G.

The Procter & Gamble Company     21

Financial Discipline

Total Shareholder Return (TSR) is a key measure of business performance and management evaluation and compensation. It is a cash flow return on investment (CFROI) tool that ensures P&G’s businesses are focused on the key drivers of shareholder value creation: sales growth, profit margin improvement and asset efficiency.

Sales Growth

We grow sales organically by building market share where brands are currently sold, expanding existing products into new markets and creating entirely new consumer product categories. In addition, we regularly make strategic acquisitions that enhance our product portfolio and provide new opportunities for growth.

Margin Improvement

We improve profit margin by driving out costs and complexities that do not add value for consumers or retail customers. We do this by leveraging P&G’s significant manufacturing and purchasing scale, by maximizing the return on marketing investments and by constantly improving organizational effectiveness and productivity.

Asset Efficiency

We improve the return on assets by making disciplined choices about where to invest cash and how to maximize the productivity of our assets. In manufacturing, we optimize production line capacity utilization rates. In working capital, we lower inventory levels, increase payables, and maintain our industry-leading receivables levels.

22     The Procter & Gamble Company

Designed to Lead

With global diversity

We have the most diverse and broadly experienced leadership team in P&G’s history. Our top 45 leaders hail from a dozen countries, and the vast majority have experience leading businesses in both developed and developing markets.

A renowned leadership bench

We’re proud that P&G has been recognized as one of the world’s best leadership development companies. Chief Executive magazine and the Hay Group ranked P&G as one of the three best companies for leaders. Human Resources Executive magazine ranked P&G as the best company among the Fortune Most Admired for “management quality.”

“Graduate School” for leaders

We’ve developed advanced leadership training for senior managers. Our new General Manager College is targeted to the 135 general managers who run P&G businesses around the word. GM College focuses on Purpose and Values, leadership, strategy, capabilities, systems, and culture. We’ve also designed a sequel to GM College that we call our Executive Leadership Program. This program is targeted to the most-senior managers in the Company and focuses on agility and flexibility, embracing and leading change, and sustaining growth.

New management structure

Effective July 1, 2007, P&G established three new global business units (GBUs): Beauty, Global Health & Well-Being, and Household Care. All GBUs now report to Susan Arnold, president— global business units. Ms. Arnold reports to Chairman of the Board and Chief Executive Officer A.G. Lafley.

The Company also established the role of Chief Operating Officer (COO) to oversee all global operations and functions along with responsibility for go-to-market operational activities. Bob McDonald was elected COO and reports to Chairman of the Board and Chief Executive Officer A.G. Lafley.

The Procter & Gamble Company     27

Financial Contents

Management’s Responsibility for Financial Reporting	28
Management’s Report on Internal Control over Financial Reporting	29
Reports of Independent Registered Public Accounting Firm	29
Management’s Discussion and Analysis
Overview	31
Summary of 2007 Results	34
Forward-looking Statements	34
Results of Operations	35
Segment Results	37
Financial Condition	42
Significant Accounting Policies and Estimates	44
Other Information	47
Audited Consolidated Financial Statements
Consolidated Statements of Earnings	49
Consolidated Balance Sheets	50
Consolidated Statements of Shareholders’ Equity	52
Consolidated Statements of Cash Flows	53
Notes to Consolidated Financial Statements	54

28     The Procter & Gamble Company

Management’s Responsibility for Financial Reporting

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

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

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

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

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

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

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

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

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

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

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

A.G. Lafley	Clayton C. Daley, Jr.
Chairman of the Board and Chief Executive Officer	Vice Chairman and Chief Financial Officer

The Procter & Gamble Company     29

Management’s Report on Internal Control over Financial Reporting

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

Strong internal controls is an objective that is reinforced through our Worldwide Business Conduct Manual, which sets forth our commitment to conduct business with integrity, and within both the letter and the spirit of the law. The Company’s internal control over financial reporting includes a Control Self-Assessment Program that is conducted annually by substantially all areas of the Company and is audited by the internal audit function. Management takes the appropriate action to correct any identified control deficiencies. Because of its inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or 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 Company’s internal control over financial reporting as of June 30, 2007, using criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the Company maintained effective internal control over financial reporting as of June 30, 2007, based on these criteria.

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting and management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2007, as stated in their report which is included herein.

A.G. Lafley	Clayton C. Daley, Jr.
Chairman of the Board and Chief Executive Officer	Vice Chairman and Chief Financial Officer
August 14, 2007

Report of Independent Registered Public Accounting Firm

Deloitte

To the Board of Directors and Shareholders 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, 2007 and 2006, and the related Consolidated Statements of Earnings, Shareholders’ Equity, and Cash Flows for each of the three years in the period ended June 30, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company at June 30, 2007 and 2006, and the results of its operations and cash flows for each of the three years in the period ended June 30, 2007, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R),” effective June 30, 2007.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of June 30, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 14, 2007, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Cincinnati, Ohio
August 14, 2007

30     The Procter & Gamble Company

Report of Independent Registered Public Accounting Firm

Deloitte

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

We have audited management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting, that The Procter & Gamble Company and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of June 30, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

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

Because of the inherent limitations of internal control over financial 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 financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of June 30, 2007, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2007, 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 as of and for the year ended June 30, 2007, of the Company and our report dated August 14, 2007, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R),” effective June 30, 2007.

Cincinnati, Ohio
August 14, 2007

The Procter & Gamble Company     31

Management’s Discussion and Analysis

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

• Overview

• Summary of 2007 Results

• Forward-looking Statements

• Results of Operations

• Segment Results

• Financial Condition

• Significant Accounting Policies and Estimates

• Other Information

Throughout MD&A, we refer to measures used by management to evaluate performance including unit volume growth, net outside sales and after-tax profit. We also refer to organic sales growth, free cash flow and free cash flow productivity. These financial measures are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP). The explanation of these measures 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 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.

On October 1, 2005, we completed the acquisition of The Gillette Company for $53.4 billion. Our Consolidated Financial Statements for 2006 and the related discussion of the total Company results within MD&A include the results of the Gillette business for the nine-month period from October 1, 2005 (the acquisition date) through June 30, 2006. In order to provide our investors with more insight into the results of the Blades and Razors and the Duracell and Braun reportable segments, we previously provided supplemental pro forma net sales and earnings data for these segments for each of the quarters in the year ended June 30, 2005, and for the quarter ended September 30, 2005 (as presented in our Form 8-K releases on October 4, 2005 and November 22, 2005). Management’s discussion of the current year results of these two segments is in relation to the comparable prior year results including pro forma net sales and earnings for the July to September 2005 period and reported results for the October 2005 to June 2006 period. Management’s discussion of the fiscal year 2006 results of these segments covers the nine-month post-acquisition period from October 1, 2005, to June 30, 2006, and is in relation to such comparable prior year pro forma net sales and earnings data. Results of Gillette’s personal care and oral care businesses were subsumed within the Beauty and Health Care reportable segments, respectively.

OVERVIEW

P&G’s business is focused on providing branded consumer goods products. Our goal is to provide products of superior quality and value to improve the lives of the world’s consumers. We believe this will result in leadership sales, profits 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 and drug stores. We continue to expand our presence in “high frequency stores,” the neighborhood stores which serve many consumers in developing markets. We have on-the-ground operations in over 80 countries.

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

Organizational Structure

In fiscal 2007, our organizational structure was comprised of three Global Business Units (GBUs) and a Global Operations group. The Global Operations group consisted of the Market Development Organization (MDO) and Global Business Services (GBS). The heads of the three GBUs and Global Operations each reported to the Chief Executive Officer.

GLOBAL BUSINESS UNITS

Through 2007, our three GBUs were Beauty and Health, Household Care and Gillette GBU. 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 build our brands through effective commercial innovations, marketing and sales.

Under U.S. GAAP, the business units comprising the GBUs are aggregated into seven reportable segments: Beauty; Health Care; Fabric Care and Home Care; Baby Care and Family Care; Snacks, Coffee and Pet Care; Blades and Razors; and Duracell and Braun. The following provides additional detail on the reportable segments and brand composition of each of our three GBUs:

 32       The Procter & Gamble Company  Management’s Discussion and Analysis

	Reportable	% of			% of Net
GBU	Segment	Net Sales*			Earnings*			Key Products	Billion-Dollar Brands
BEAUTY AND HEALTH	Beauty		30	%		31	%	Cosmetics, Deodorants, Feminine Care, Fine Fragrances, Hair Care, Personal Cleansing, Skin Care	Always, Head & Shoulders, Olay, Pantene, Wella
	Health Care		12	%		13	%	Oral Care, Personal Health Care, Pharmaceuticals	Actonel, Crest, Oral-B
HOUSEHOLD CARE	Fabric Care and Home Care		24	%		25	%	Fabric Care, Air Care, Dish Care, Surface Care	Ariel, Dawn, Downy, Gain, Tide
	Baby Care and Family Care		16	%		13	%	Diapers, Baby Wipes, Bath Tissue, Facial Tissue, Paper Towels	Bounty, Charmin, Pampers
	Snacks, Coffee and Pet Care		6	%		4	%	Coffee, Pet Food, Snacks	Folgers, lams, Pringles
GILLETTE GBU	Blades and Razors		7	%		11	%	Men’s and Women’s Blades and Razors	Gillette, Mach3
	Duracell and Braun		5	%		3	%	Batteries, Electric Razors, Small Appliances	Braun, Duracell

* Percent of net sales and net earnings for the year ended June 30, 2007 (excluding results held in Corporate).

Beauty and Health

Beauty: We are a global market leader in beauty and compete in markets which comprise over $230 billion in global retail sales. We are the global market leader in hair care with approximately one-fourth of the global market share. We are also the global market leader in the feminine care category with over one-third of the global market share.

Health Care: We compete in oral care, pharmaceuticals and personal health. In oral care, there are several global competitors in the market and we have the number two share position. In pharmaceuticals and personal health, we have approximately one-third of the global bisphosphonates market for the treatment of osteoporosis under the Actonel brand. We are the market leader in nonprescription heartburn medications and in respiratory treatments behind Prilosec OTC and Vicks, respectively.

Household Care

Fabric Care and Home Care: This segment is comprised of a variety of products including laundry products, fabric conditioners, dish care, air fresheners and household cleaners. We generally have the number one or number two share position in the markets in which we compete and are the global market leader in fabric care, with over one-third of the global market share. Our global home care market share is over 20% across the categories in which we compete.

Baby Care and Family Care: In baby care, we compete primarily in diapers, training pants and baby wipes, with over one-third of the global market share. We are the number one or number two baby care competitor in most of the key markets in which we compete, primarily behind Pampers, the Company’s largest brand, with annual net sales of approximately $7 billion. Our family care business is predominantly a North American business comprised primarily of the Bounty paper towel and Charmin toilet tissue brands, with U.S. market shares of over 40% and over 25%, respectively.

Snacks, Coffee and Pet Care: In snacks, we compete against both global and local competitors and have a global market share of over 10% in the potato chips market behind our Pringles brand. Our coffee business competes almost solely in North America, where we hold a leadership position with approximately one-third of the U.S. market, primarily behind our Folgers brand. In pet care, we compete in several markets around the globe, primarily in the premium pet care segment, behind the lams and Eukanuba brands. The vast majority of our pet care business is in North America, where we have about a 12% share of the market.

Gillette GBU

The Gillette GBU was added on October 1, 2005, as a result of the acquisition of The Gillette Company. This GBU is comprised of the Blades and Razors and the Duracell and Braun reportable segments.

Blades and Razors: We hold leadership market share in the blades and razors market on a global basis and in almost all of the geographies in which we compete. Our global market share is over 70%, primarily behind Mach3, Fusion, Venus and the Gillette franchise.

Duracell and Braun: In the batteries category, we have approximately 45% of the global alkaline battery market share. We generally have the number one or number two market share position in the markets in which we compete behind the Duracell brand. Our Braun brand spans across electric razors and small electrical appliances. Our products are sold in a number of markets around the world, and we compete against both global and regional competitors.

FISCAL YEAR 2008 CHANGES TO GLOBAL BUSINESS UNIT STRUCTURE

We recently announced a number of changes to our organization structure and certain of our key leadership positions, which resulted in changes to our GBU and segment structure. Specifically, our new structure is comprised of three GBUs with a total of six reportable segments:

Global Business Units	Reportable Segments
Beauty	Beauty Grooming
Health and Well-Being	Health Care Snacks, Coffee and Pet Care
Household Care	Fabric Care and Home Care   Baby Care and Family Care

Management’s Discussion and Analysis  The Procter & Gamble Company       33

The businesses that previously comprised the Gillette GBU will now be included within the Beauty and Household Care GBUs. As a result of these moves, the Duracell and Braun business will no longer comprise a separate reportable segment. The Braun business will be combined and managed with the Blades and Razors business to form the Grooming reportable segment within the Beauty GBU. The Grooming reportable segment will also include all shave prep products currently reported within the Beauty reportable segment. The Duracell business will be moved to our Household Care GBU and will be reported as part of our Fabric Care and Home Care reportable segment. Finally, our feminine care business, which was part of our Beauty GBU and reportable segment, will now be moved to our Health and Well-Being GBU and will be reported as part of the Health Care reportable segment.

These changes were effective as of July 1, 2007. They will be reflected in our segment reporting beginning in fiscal year 2008, at which time our historical segment reporting will also be restated to reflect the new structure. The GBU and segment discussion in MD&A and accompanying statements and footnotes reflect the organizational structure that existed through June 30, 2007.

GLOBAL OPERATIONS

Market Development Organization

Our MDO is responsible for developing go-to-market plans at the local level. The MDO includes dedicated retail customer, trade channel and country-specific teams. It is organized along seven geographic regions: North America, Western Europe, Northeast Asia, Central & Eastern Europe/Middle East/Africa, Latin America, ASEAN/Australia/ India and Greater China. Throughout MD&A, we reference business results in developing markets, which we define as the aggregate of Central & Eastern Europe/Middle East/Africa, Latin America, ASEAN/ Australia/India and Greater China, and developed markets, which are comprised of North America, Western Europe and Northeast Asia.

Global Business Services

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

Strategic Focus

P&G is focused on strategies that we believe are right for the long-term health of the Company and will increase returns for our shareholders. The Company’s annual financial targets through 2010 are:

• Organic sales growth of 4% to 6%. This is comprised of:

o 3% to 5% pre-Gillette organic sales target, plus

o 1% of growth acceleration through 2010 behind revenue synergies associated with the Gillette acquisition.

• Diluted net earnings per share (EPS) growth of 10% or better, excluding the net impact of Gillette dilution.

• Free cash flow productivity of 90% or greater (defined as the ratio of operating cash flow less capital expenditures to net earnings).

In order to achieve these targets, we focus on our core strengths of consumer understanding, branding, innovation, go-to-market capability and global scale and scope against the following growth areas:

• Grow our leading brands in our biggest markets and with our winning customers.

• Shift our portfolio mix to faster-growing businesses with higher gross margins that are less asset-intensive.

• Grow disproportionately in developing markets and with lower-income consumers.

Sustainability

To sustain consistent and reliable sales and earnings growth in line with our financial targets, we have identified four key enablers:

• Building a diversified and balanced portfolio consisting of foundation businesses and higher growth businesses. Foundation businesses include many of our established product categories, such as baby care and family care. These businesses provide a base for steady growth and strong operating cash flows. We are focused on building leadership market share in these categories through innovative products, offering our brands in more parts of the world and tailoring our products to meet the needs of more consumers (including lower-income consumers). Our foundation businesses are complemented with our portfolio of higher growth businesses, such as many of our beauty and health care businesses. These higher growth businesses generally have higher gross margins and lower capital requirements than the balance of the Company’s portfolio and tend to have faster market growth rates than our foundation businesses. Over the past several years, we have increased the size of our higher growth business portfolio by growing base beauty and health care brands and through acquisitions, including Clairol in 2001, Wella in 2003 and Gillette in 2005.

• Investing in innovation and core P&G capabilities and strengths to enable us to reach more of the world’s consumers with quality, affordable products. This includes expanding our presence in markets and reaching more consumers where we are underrepresented, including lower-income and value-conscious consumers.

• Leveraging the Company’s organizational structure to drive clear focus, accountability and improved go-to-market capability. We have an organizational structure that works together to leverage our knowledge and scale at the global level with a deep understanding of the consumer and customer at the local level.

o The GBU organizations leverage their consumer understanding to develop the overall strategy for our brands. They identify common consumer needs, develop new products and build our brands through effective marketing innovations. The GBU is focused on winning the “second moment of truth” — when the consumer uses the product and evaluates how well the product meets his or her expectations.

 34       The Procter & Gamble Company  Management’s Discussion and Analysis

o The MDO develops go-to-market plans at the local level, leveraging their understanding of the local consumers and customers. The MDO is focused on winning the “first moment of truth” — when a consumer stands in front of the shelf and chooses a product from among many competitive offerings.

o Global Business Services operates as the “back office” for the GBUs and the MDO, providing cost-effective world-class technology, processes and standard data tools to better understand the business and better serve consumers and customers. GBS personnel, or highly efficient and effective third-party partners, provide these services.

• Focusing relentlessly to improve costs and generate cash. Each organization is evaluated on its ability to support the Company’s financial goals and increase total shareholder return. This includes an evaluation of net sales growth, earnings growth, profit margin expansion and cash productivity. Our organizations are evaluated on their ability to generate cash, for example, by increasing capacity utilization and meeting capital spending targets or by reducing working capital required to run the business.

SUMMARY OF 2007 RESULTS

For the fiscal year ended June 30, 2007, we delivered our sixth consecutive year of sales growth and free cash flow productivity at or above our stated targets.

• Net sales increased 12% to $76.5 billion.

o Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, increased 5%, in line with our post-Gillette organic sales growth target range of 4% to 6%.

o Every reportable segment delivered year-on-year organic sales growth.

• Diluted net earnings per share increased 15% to $3.04.

o Lower Gillette dilution in 2007 contributed approximately 4% to EPS growth.

• Cash flow from operating activities was $13.4 billion.

o Free cash flow productivity was 101%, ahead of our 90% target.

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 financial data and our business plans available only as of the time the statements are made, which may become out-of-date or incomplete. We assume no obligation to update any forward-looking statements as a result of new information, future events or other factors. Forward-looking statements are inherently uncertain, and investors must recognize that events could be significantly different from our expectations.

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 marketing 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 profitably, especially with respect to the product categories and geographic markets (including developing markets) in which we have chosen to focus. There are high levels of competitive activity in the environments in which we operate. To address these challenges, we must respond to competitive factors, including pricing, promotional incentives and trade terms. We must manage each of these factors, as well as maintain mutually beneficial relationships with our key customers, in order to effectively compete and achieve our business plans. Since our goals include a growth component tied to acquisitions, we must manage and integrate key acquisitions, such as the Gillette and Wella acquisitions, including achieving the cost and growth synergies in accordance with stated goals.

Cost Pressures. Our costs are subject to fluctuations, 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 fluctuations through pricing actions, cost savings projects, sourcing decisions and certain hedging transactions. We also must manage our debt and currency exposure, especially in volatile countries. 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 outsourcing projects and those related to general overhead and workforce rationalization.

Global Economic Conditions. Economic changes, terrorist activity and political unrest may result in business interruption, inflation, deflation or decreased demand for our products. Our success will depend in part on our ability to manage continued global political and/or economic uncertainty, especially in our significant geographic markets, as well as any political or economic disruption due to terrorist and other hostile activities.

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

Management’s Discussion and Analysis  The Procter & Gamble Company       35

RESULTS OF OPERATIONS

Net Sales

Net sales increased 12% in 2007 to $76.5 billion. Sales were up behind 9% unit volume growth, including the impact of an extra three months of Gillette results in the current year. Organic volume, which excludes the impact of acquisitions and divestitures, increased 5%. Organic volume growth was broad-based, with 15 of our top 16 countries posting year-on-year growth. Developing regions continued to lead the growth with double-digit increases for the year. All reportable segments increased organic volume for the year except the Snacks, Coffee and Pet Care segment. Higher pricing, primarily in coffee and Health Care, contributed 1% to sales growth. Product mix had no net impact on sales as a more premium product mix driven by the additional three months of Gillette results in the current year was offset by the negative mix impact of disproportionate growth in developing markets, where the average unit sales price is lower than the Company average. Favorable foreign exchange contributed 2% to sales growth. Organic sales increased 5% versus the prior year with each reportable segment posting year-on-year growth.

Net sales in 2006 were $68.2 billion, an increase of 20% versus the prior year including the impact of adding the Gillette business on October 1, 2005. Unit volume increased 19%, while organic volume increased 6%. Growth was broad-based across our top markets and on our top brands. Each region delivered organic volume growth, led by double-digit growth in developing regions. Every reportable segment delivered organic volume growth with all but one delivering mid-single digit or higher growth. Price increases taken across most of our business segments added 1% to sales growth. A more premium product mix, driven in part by the addition of the Gillette business, more than offset the mix impact of disproportionate growth in developing markets, resulting in a positive mix impact of 1% on sales growth. Foreign exchange had a negative 1% impact on sales growth. Organic sales increased 7% versus the prior year.

Operating Costs

Gross margin was 52.0% in 2007, an increase of 60-basis points versus the prior year. Higher commodity costs had a negative impact of approximately 60-basis points on gross margin. These were more than offset by scale leverage from organic volume growth, higher pricing and cost savings projects. The additional three months of the Gillette business in 2007, which has a higher gross margin than the base P&G business, drove additional gross margin improvement of approximately 30-basis points.

Gross margin was 51.4% in 2006, an increase of 50-basis points versus the prior year. Higher commodity costs had a negative impact of over 100-basis points on gross margin. These were largely offset by gross margin improvement on the base business (P&G excluding Gillette) behind organic volume growth, cost savings projects and price increases across nearly every business segment. The addition of the Gillette business drove the remaining gross margin improvement of approximately 80-basis points.

Total selling, general and administrative expense (SG&A) increased 11%, or $2.5 billion, in 2007. SG&A increased primarily due to the additional three months of Gillette in the current year and to support business growth, partially offset by overhead and media purchasing synergies from the Gillette integration. The additional three months of Gillette in the current year accounted for approximately $1.1 billion of the increase, including approximately $160 million of incremental acquisition-related expenses. The incremental acquisition-related expenses were comprised of three additional months of intangible asset amortization resulting from revaluing intangible assets in the opening balance sheet of the acquired Gillette business, costs to restructure the business post-acquisition and other integration-related expenses.

				Basis Point						Basis Point
Comparisons as a percentage of net sales; Years ended June 30	2007			Change			2006			Change			2005
Gross margin		52.0	%		60			51.4	%		50			50.9	%
Selling, general and administrative		31.8	%		(20	)		32.0	%		(40	)		32.4	%
Operating margin		20.2	%		80			19.4	%		90			18.5	%
Earnings before income taxes		19.2	%		100			18.2	%		60			17.6	%
Net earnings		13.5	%		80			12.7	%		50			12.2	%

 36       The Procter & Gamble Company  Management’s Discussion and Analysis

SG&A as a percentage of net sales was 31.8% in 2007, an improvement of 20-basis points versus 2006. Overhead expenses as a percentage of net sales were down due to volume scale leverage, overhead cost control and synergies from the Gillette integration. Marketing spending as a percentage of net sales in 2007 was roughly in line with prior-year levels despite media purchasing synergies generated by the Gillette acquisition and a continued focus on marketing return-on-investment (ROI) programs.

SG&A in 2006 increased 19%, or $3.4 billion. The addition of Gillette drove approximately $3.1 billion of the increase, including approximately $570 million of acquisition-related expenses. The acquisition-related expenses included $352 million of intangible asset amortization resulting from revaluing intangible assets in the opening balance sheet of the acquired Gillette business. The balance of the acquisition-related expenses was due to incremental integration and overhead expenses such as legal and consulting fees, as well as costs related to the elimination of selling, general and administrative overlap between the two companies. SG&A as a percentage of net sales was 32.0% in 2006, down 40-basis points versus 2005. Overhead and marketing spending both increased on our base businesses, but were down as a percentage of net sales due to scale leverage from organic sales growth, a focus on cost control and initial synergy savings, including media purchasing synergies generated by the Gillette acquisition.

Non-Operating Items

Non-operating items primarily include interest expense, divestiture gains and interest and investment income. Interest expense increased 17% in 2007 to $1.3 billion. In 2006, interest expense increased 34% to $1.1 billion. The increases in both 2007 and 2006 were primarily due to the financing costs associated with the debt issued to fund the publicly announced share repurchase program in conjunction with the acquisition of Gillette in October 2005. The repurchase program was completed in July 2006 with cumulative repurchases since the inception of the program of $20.1 billion. We repurchased $19.8 billion of P&G shares under the program through 2006 and the remaining $0.3 billion in 2007.

Other non-operating income increased $281 million in 2007 to $564 million primarily due to higher divestiture gains in the current year. Divestiture gains in 2007 included the gain on the sale of Pert in North America, Sure and several minor non-strategic Beauty brands. Divestiture gains in 2006 included the gain on the sale of Spinbrush. Other non-operating income in 2006 was down 18% versus 2005 to $283 million primarily due to the gain on the sale of our Juice business in 2005.

Our effective tax rate in 2007 was 29.7%, down 30-basis points versus 2006 primarily due to a more favorable country mix impact in the current period, partially offset by higher levels of reserve releases in the base period. The effective income tax rate in 2006 was down 60-basis points versus 2005 to 30.0% primarily due to an accrual in 2005 for estimated taxes in anticipation of repatriating special dividends from the Company’s non-U.S. subsidiaries, pursuant to the American Jobs Creation Act of 2004 (see Note 10 to Consolidated Financial Statements), which increased the 2005 tax rate by 280-basis points. The year-on-year impact of this accrual was partially offset by a less favorable country mix impact in 2006 and the impact of reserve reversals related to tax uncertainties, which were lower in 2006 than in 2005. Adjustments for tax uncertainties are based on specific facts and circumstances in individual tax jurisdictions, including progress on tax audits, legal developments and closing of statutes of limitation.

Net Earnings

Net earnings in 2007 increased 19% to $10.3 billion behind sales growth, including the additional three months of Gillette results, and earnings margin expansion. Net earnings margin expanded 80-basis points primarily behind gross margin improvement. In 2006, net earnings increased 25% to $8.7 billion behind the addition of Gillette, sales growth on our base business and earnings margin expansion.

Diluted net earnings per share in 2007 increased 15% to $3.04 primarily behind earnings growth, partially offset by the impact of a net increase in the weighted average shares outstanding in 2007 versus 2006 resulting from the incremental shares issued in conjunction with the Gillette acquisition on October 1, 2005.

The Gillette acquisition had a negative impact on our earnings per share in 2007 and 2006 as a result of the increase in P&G common shares outstanding following the acquisition. When we acquired Gillette in October 2005, we exchanged 0.975 common shares of P&G stock for each share of Gillette stock. This increased the number of P&G common shares outstanding by 962 million shares. The negative impact of the incremental shares was partially offset by the addition of Gillette’s earnings, cost and revenue synergies and by our share repurchase activity. In 2007, the dilutive impact of Gillette was approximately $0.10 —$0.12 per share versus $0.20-$0.23 per share in 2006. This improvement, driven primarily by improved Gillette business unit results, higher Gillette synergies and the completion of our share repurchase program, contributed approximately 4% to our earnings per share growth in 2007.

Diluted net earnings per share in 2006 were $2.64, an increase of 4% versus the prior year. The impact of the Gillette acquisition reduced our earnings per share growth in 2006 by approximately 8%-9%.

Management’s Discussion and Analysis  The Procter & Gamble Company       37

SEGMENT RESULTS

Results for the segments reflect information on the same basis we use for internal management reporting and performance evaluation. Within the Beauty and Health GBU, we provide data for the Beauty and the Health Care reportable segments. In the Household Care GBU, we provide data for the Fabric Care and Home Care, the Baby Care and Family Care and the Snacks, Coffee and Pet Care reportable segments. In the Gillette GBU, we provide data for the Blades and Razors and the Duracell and Braun reportable segments.

The results of these reportable business segments do not include certain non-business unit specific costs such as interest expense, investing activities and certain restructuring costs. These costs are reported in our Corporate segment and are discussed below as part of our Corporate segment discussion. Additionally, as described in Note 12 to the Consolidated Financial Statements, we have investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions and, therefore, do not consolidate them (“unconsolidated entities”). Since certain of these investments are managed as integral parts of the Company’s business units, they are accounted for as if they were consolidated subsidiaries for management and segment reporting purposes. This means 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 minority interest, and apply the statutory tax rates. Eliminations to adjust each line item to U.S. GAAP are included in our Corporate segment.

Beauty and Health

BEAUTY

			Changes vs.					Change vs.
(in millions of dollars)	2007		Prior Year*			2006*		Prior Year*
Volume		n/a		+5	%		n/a		+8	%
Net sales	$	22,981		+9	%	$	21,126		+7	%
Net earnings	$	3,492		+12	%	$	3,106		+13	%

* Fiscal 2006 figures include results of Gillette oral care for the nine months ended June 30, 2006

Beauty net sales increased 9% to $23.0 billion in 2007, behind 5% unit volume growth. Volume growth was driven by initiative activity across categories and continued expansion in developing regions, where volume increased double-digits. Prestige fragrances volume was up double-digits behind The One, Boss Selection and Boss Femme fragrance initiatives and the addition of Dolce & Gabbana. Skin care volume was up high-single digits behind the Olay Definity and Regenerist product initiatives. Feminine care volume was up high-single digits, led by double-digit growth in developing regions. Successful initiative activity in North America on the Always Clean and Fresh initiatives and product upgrades on Tampax Pearl more than offset the impact of strong competitive activity in Western Europe and Northeast Asia, resulting in a 1 point increase in our global feminine care market share. Hair care volume grew mid-single digits as a result of product initiatives on Pantene, Head & Shoulders and Herbal Essences and continued expansion in developing regions. Beauty sales benefited from a 1% positive mix impact primarily due to disproportionate growth in prestige fragrances, which has a higher than segment average unit selling price. Favorable foreign exchange contributed an additional 3% to sales. Organic sales were up 5%, including a negative 1% impact from the sales disruption in Asia resulting from the voluntary temporary suspension of SK-II shipments in China early in the fiscal year.

Net earnings increased 12% in 2007 to $3.5 billion behind sales growth and earnings margin improvement. Earnings margin increased 50-basis points primarily due to lower SG&A as a percentage of net sales and divestiture gains on several minor Beauty brands, partially offset by the negative mix impact from the SK-II disruption. SG&A improved as higher marketing spending as a percentage of net sales to support initiative activity was more than offset by lower overhead expenses as a percentage of net sales resulting from volume scale leverage and Gillette-related synergy savings.

				Volume
	Volume with			Excluding
	Acquisitions			Acquisitions			Foreign									Net Sales
Net Sales Change Drivers vs. Year Ago (2007 vs. 2006)	& Divestitures			& Divestitures			Exchange			Price			Mix/Other			Growth
BEAUTY AND HEALTH
Beauty		5	%		5	%		3	%		0	%		1	%		9	%
Health Care		9	%		4	%		2	%		2	%		1	%		14	%
HOUSEHOLD CARE
Fabric Care and Home Care		8	%		8	%		3	%		0	%		0	%		11	%
Baby Care and Family Care		5	%		5	%		2	%		0	%		-1	%		6	%
Snacks, Coffee and Pet Care		0	%		0	%		2	%		1	%		1	%		4	%
GILLETTE GBU
Blades and Razors		n/a			n/a			n/a			n/a			n/a			n/a
Duracell and Braun		n/a			n/a			n/a			n/a			n/a			n/a
TOTAL COMPANY		9	%		5	%		2	%		1	%		0	%		12	%

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

 38       The Procter & Gamble Company  Management’s Discussion and Analysis

Beauty net sales in 2006 increased 7% to $21.1 billion. Sales grew behind 8% unit volume growth, including a positive 2% impact from nine months of Gillette personal care results. Volume growth was driven by initiative activity and expansion of our brands in developing regions, where volume increased double-digits during the year. Skin care volume increased double-digits behind continued growth and initiative activity on the Olay brand. Hair care volume increased high-single digits behind growth on Pantene, Head & Shoulders and Rejoice. Feminine care volume grew high-single digits behind new product innovations on Always/Whisper and continued growth on Naturella. Cosmetics volume declined due to reduced Max Factor distribution and a base period on Cover Girl with significant initiative pipeline shipments. Foreign exchange had a negative 1% impact on sales growth. Net earnings increased 13% in 2006 to $3.1 billion behind sales growth and a 75-basis point net earnings margin expansion primarily driven by lower overhead expenses as a percentage of net sales. Margin improvements from scale benefits of volume growth and manufacturing cost savings initiatives offset higher commodity costs.

HEALTH CARE

			Change vs.					Change vs.
(in millions of dollars)	2007		Prior Year*			2006*		Prior Year*
Volume		n/a		+9	%		n/a		+26	%
Net sales	$	8,964		+14	%	$	7,852		+29	%
Net earnings	$	1,453		+25	%	$	1,167		+44	%

* Fiscal 2006 figures include results of Gillette oral care for the nine months ended June 30, 2006.

Health Care net sales increased 14% in 2007 to $9.0 billion behind a 9% increase in unit volume. Sales and volume were up as a result of three additional months of Gillette oral care results in the current fiscal year and growth on the base P&G business. Health Care organic sales increased 6% on 4% organic volume growth. Oral care organic volume grew mid-single digits behind double-digit growth in developing regions, high-single digit growth on Oral-B and the launch of Crest Pro-Health toothpaste in North America. Pharmaceuticals and personal health volume increased low-single digits behind growth on Prilosec OTC, partially offset by lower volume on Actonel due to strong competitive activity in the osteoporosis market. Our U.S. market share on Prilosec OTC increased about 1 point during the year. Pricing, primarily in pharmaceuticals and personal health, contributed 2% to segment sales growth. A more premium product mix added an additional 1% to sales as disproportionate growth on Crest Pro-Health in North America more than offset the negative impact from higher relative growth in developing regions. Foreign exchange had a positive 2% impact on sales.

Net earnings grew 25% to $1.5 billion in 2007 behind organic sales growth, the additional three months of Gillette oral care results and earnings margin expansion. Earnings margin increased 135-basis points as lower product costs on our base business and lower SG&A as a percentage of net sales more than offset the negative mix impact from the additional three months of the Gillette oral care business in the current year. SG&A improved primarily due to lower overhead expenses as a percentage of net sales resulting from volume scale leverage, Gillette synergy savings and lower research and development costs in our pharmaceuticals business driven by further leveraging external R&D networks and higher clinical milestone payments in the base period.

Health Care net sales in 2006 increased 29% to $7.9 billion. Sales were up behind 26% unit volume growth, including nine months of Gillette oral care results. Organic sales grew 9% on 7% organic volume growth. Pharmaceuticals and personal health organic volume increased high-single digits behind double-digit growth on Prilosec OTC and Actonel. Prilosec OTC volume increased as a result of market share growth and a suppressed base period which included several months of shipment allocations. Oral care organic volume grew mid-single digits as a result of market share increases across the globe, especially in the U.S. and in Central and Eastern Europe. Price increases, primarily on Actonel and Prilosec OTC, added 2% to sales growth. Favorable product mix, driven largely by the addition of the Gillette oral care business, contributed 2% to sales growth. Foreign exchange had a negative 1% impact on sales growth. Net earnings increased 44% to $1.2 billion in 2006 behind sales growth and a 150-basis point earnings margin expansion. Net earnings margin expanded primarily due to lower overhead and marketing spending as a percentage of net sales.

Household Care
FABRIC CARE AND HOME CARE

			Change vs.					Change vs.
(in millions of dollars)	2007		Prior Year			2006		Prior Year
Volume		n/a		+8	%		n/a		+8	%
Net sales	$	18,971		+11	%	$	17,149		+9	%
Net earnings	$	2,793		+18	%	$	2,369		+11	%

Fabric Care and Home Care net sales increased 11% in 2007 to $19.0 billion behind 8% unit volume growth. Volume growth was broad-based across regions with mid-single digit or higher increases in every region, led by double-digit growth in developing regions. Volume was up high-single digits in both fabric care and home care behind product initiatives such as Tide Simple Pleasures, Gain Joyful Expressions, Febreze Noticeables, upgrades on Swiffer and the launch of Fairy auto-dishwashing in Western Europe. Our market share in both fabric care and home care increased by about 1 point globally during the year. Favorable foreign exchange had a positive 3% impact on sales.

Net earnings were up 18% to $2.8 billion behind sales growth and a 90-basis point improvement in net earnings margin. Earnings margin improved behind higher gross margin and lower SG&A as a percentage of net sales. The gross margin improvement was driven by scale benefits of volume growth and cost savings projects that more than offset higher commodity costs. SG&A improved behind lower overhead expenses as a percentage of net sales resulting from volume scale leverage and Gillette synergy savings.

Management’s Discussion and Analysis  The Procter & Gamble Company       39

Fabric Care and Home Care net sales in 2006 increased 9% to $17.1 billion driven by an 8% increase in unit volume. Volume growth was broad-based, with high-single digit growth in fabric care and mid-single digit growth in home care. Volume growth was driven by approximately 1 point of market share expansion on both fabric care and home care behind product innovations such as Tide with Febreze, Gain Joyful Expressions, Bounce with Febreze, Bold Liquid Tabs, Dawn Direct Foam and Febreze Noticeables. Every region delivered mid-single digit or higher volume growth, led by double-digit growth in developing regions. Price increases, primarily in Latin America fabric care and North America dish care to offset rising commodity costs, added 2% to sales growth. Foreign exchange reduced sales by 1%. Net earnings increased 11% to $2.4 billion in 2006. Earnings margin improved by 35-basis points as volume scale leverage, price increases and cost savings initiatives more than offset commodity cost increases. Overhead and marketing spending increased year-on-year on an absolute basis, but were down slightly as a percentage of net sales.

BABY CARE AND FAMILY CARE

			Change vs.					Change vs.
(in millions of dollars)	2007		Prior Year			2006		Prior Year
Volume		n/a		+5	%		n/a		+3	%
Net sales	$	12,726		+6	%	$	11,972		+3	%
Net earnings	$	1,440		+11	%	$	1,299		+9	%

Baby Care and Family Care net sales increased 6% in 2007 to $12.7 billion behind 5% unit volume growth. Baby care volume grew mid-single digits with developing regions up double-digits. In developed regions, baby care volume was up low-single digits as growth on Pampers Baby Stages of Development and Baby Dry Caterpillar Flex more than offset softness on Pampers in Western Europe and Luvs in North America from lower competitor pricing of both branded and private label products. Family care volume increased mid-single digits behind product performance upgrades on Bounty and continued growth on Bounty and Charmin Basic products. Disproportionate growth on baby care in developing regions and on the Basic tier products, which have a lower average selling price, led to a negative 1% mix impact. Favorable foreign exchange contributed 2% to sales growth.

Net earnings in Baby Care and Family Care increased 11% to $1.4 billion behind sales growth and a 50-basis point improvement in net earnings margin. Earnings margin increased as lower SG&A as a percentage of net sales more than offset a reduction in gross margin. Gross margin was down slightly as manufacturing cost savings and volume scale leverage were more than offset by the impact of higher pulp costs and a less profitable product mix. SG&A improved as a percentage of net sales due to lower overhead expenses from volume scale leverage and a reduction in marketing expenses as a percentage of net sales.

We have reached an agreement to sell our Western European family care business, which comprises approximately $650 million in segment net sales. The sale is subject to regulatory approval and is expected to close in the first half of fiscal 2008.

Baby Care and Family Care net sales were up 3% to $12.0 billion in 2006. Unit volume increased 3%, with organic volume up 4%. Baby care volume increased mid-single digits led by double-digit increases in developing regions. In developed regions, baby care volume declined slightly as growth on Pampers Baby Stages of Development and Kandoo was more than offset by softness on Baby Dry as well as on Luvs in North America, primarily due to pricing pressure from private label competitors. Family care organic volume grew mid-single digits, largely behind growth on the Bounty and Charmin Basic initiative. Price increases in North America baby care, coupled with a mid-year increase in North America family care, added 2% to sales growth. Disproportionate growth in mid-tier products and in developing regions, where average unit selling price is below the segment average, resulted in a negative 1% mix impact on segment sales. Foreign exchange also had a negative 1% impact on sales. Baby Care and Family Care net earnings increased 9% in 2006 to $1.3 billion behind sales growth and a 60-basis point earnings margin improvement. Scale benefits of volume growth and price increases more than offset the increase in commodity and energy costs. In addition, SG&A was down as a percentage of net sales due to reductions in both overhead and marketing spending as a percentage of net sales.

SNACKS, COFFEE AND PET CARE

			Change vs.					Change vs.
(in millions of dollars)	2007		Prior Year			2006		Prior Year
Volume		n/a		+0	%		n/a		+0	%
Net sales	$	4,537		+4	%	$	4,383		+2	%
Net earnings	$	477		+24	%	$	385		-13	%

Snacks, Coffee and Pet Care net sales increased 4% in 2007 to $4.5 billion. Unit volume was in line with the prior year as growth in coffee was offset by a decline in pet care. Snacks volume was in line with the prior year. Coffee volume was up high-single digits primarily due to a low base period that included a reduction in the coffee business from Hurricane Katrina and current period volume from the launches of Folgers Simply Smooth and Gourmet Selections. Pet care volume was down mid-single digits versus the year-ago period due to strong competitive activity and the impacts of a voluntary recall. In March 2007, we voluntarily recalled certain lams and Eukanuba wet pet foods to help ensure maximum pet safety following the discovery of contaminated materials at a pet food supplier. Price increases in coffee and favorable product mix from disproportionate coffee growth each had a positive 1% impact on sales. Foreign exchange had a positive 2% impact on sales.

Net earnings increased 24% to $477 million. Earnings increased behind sales growth and base period costs related to Hurricane Katrina, which more than offset a decline in the current year gross margin from the impacts of higher commodity costs and expenses associated with the pet food recall.

 40       The Procter & Gamble Company  Management’s Discussion and Analysis

Snacks, Coffee and Pet Care net sales increased 2% to $4.4 billion in 2006. Unit volume was flat despite a high-single digit decline in our coffee volume caused by shipment disruptions following Hurricane Katrina in August 2005. Our primary coffee manufacturing and warehousing facilities, located in New Orleans, incurred significant disruption from Hurricane Katrina. We were unable to manufacture and ship at full capacity for several months in 2006, resulting in a temporary decline in our U.S. market share of approximately 2 points. Pet care volume declined slightly during the year due to strong competitive activity, particularly in North America and Western Europe. These declines were offset by mid-single digit growth in snacks behind Pringles. Price increases in coffee added 2% to sales growth. Earnings declined 13% to $385 million in 2006 as costs incurred during the fiscal year related to Hurricane Katrina, higher green coffee prices and lower pet care earnings more than offset the impact of pricing in coffee and earnings growth in snacks.

Gillette GBU

As disclosed in Note 2 to the Consolidated Financial Statements, we completed the acquisition of The Gillette Company on October 1, 2005. This acquisition resulted in two new reportable segments for the Company: the Blades and Razors and the Duracell and Braun reportable segments. The Gillette oral care and personal care businesses were subsumed within the existing Health Care and Beauty reportable segments, respectively.

Because the acquisition was completed in October 2005, there are no results for the two new reportable segments in the 2005 fiscal year period. In order to provide our investors with more insight into the results of the Blades and Razors and the Duracell and Braun reportable segments, we previously provided supplemental pro forma net sales and earnings data for these segments for each of the quarters in the year ended June 30, 2005, and for the quarter ended September 30, 2005 (as presented in our Form 8-K releases on October 4, 2005 and November 22, 2005). Management’s discussion of the current year results of these two segments is in relation to the comparable prior year results including pro forma net sales and earnings for the July to September 2005 period and reported results for the October 2005 to June 2006 period. Management’s discussion of the fiscal year 2006 results of these segments covers the nine-month post-acquisition period from October 1, 2005 to June 30, 2006, and is in relation to such comparable prior year pro forma net sales and earnings data. With respect to the earnings data, the analyses for both periods are based on earnings before income taxes. The previously disclosed Blades and Razors and Duracell and Braun pro forma information reconciled “Profit from Operations,” the measure used by Gillette in its historical filings, to Earnings before Income Taxes, the comparable measure used by P&G. Gillette did not allocate income tax expense to its reportable segments.

BLADES AND RAZORS

			Change vs.				Change vs.
(in millions of dollars)	2007		Prior Year*		2006*		Prior Year*
Volume		n/a		n/a		n/a		n/a
Net sales	$	5,229		n/a	$	3,499		n/a
Net earnings	$	1,222		n/a	$	781		n/a

* The Gillette business was acquired on October 1, 2005. Therefore, fiscal 2006 only includes results for the nine-month period that P&G owned the business.

Net sales in Blades and Razors increased 12% in 2007 to $5.2 billion versus 2006 full-year pro forma results. Sales increased primarily behind the continued expansion of the Fusion razor system and growth on Mach3 in countries where Fusion has not yet launched. Fusion was launched in North America in fiscal 2006 and expanded into other markets including Western Europe in fiscal 2007. Overall, volume/mix contributed 7% to sales growth while price increases taken across most shaving systems added 1%. Favorable foreign exchange had a positive 4% impact on sales.

Earnings before income taxes increased 14% in 2007 to $1.7 billion versus the comparable 2006 full-year pro forma results. Earnings growth was driven by sales growth and integration-driven synergy savings, partially offset by higher marketing investment behind Fusion and incremental acquisition-related charges. We incurred $63 million of incremental acquisition-related charges in the current fiscal year. The incremental acquisition-related charges are comprised of amortization charges from revaluing intangible assets in the opening balance sheet, partially offset by base period product costs related to revaluing Gillette’s opening inventory balance. Amortization charges are higher in the current fiscal year due to the extra three months of Gillette post-acquisition results in the current period (amortization charges are not included in the pro forma results for the quarter ended September 30, 2005). Net earnings in 2007 were $1.2 billion.

In 2006, Blades and Razors net sales for the nine-month post-acquisition period increased 1% to $3.5 billion versus the comparable prior year period pro forma results, including a negative 1% foreign exchange impact. Mid-single digit sales growth in North America behind the launch of Fusion, coupled with double-digit growth in Latin America and Central & Eastern Europe, was largely offset by declines in Western Europe and Asia. Sales in Western Europe were negatively impacted by a base period which included the launch of M3Power as well as a current year period with significant retailer inventory reductions. In several developing markets in Asia, sales declined as a result of reduced distributor inventory levels following integration of Gillette into existing P&G distributors. Global consumption in blades and razors increased 5% during the year. Price increases contributed 2% to sales growth. Earnings before income taxes declined 13% to $1.1 billion, including $294 million of acquisition-related charges that negatively impacted earnings by 24% during the period. The acquisition-related charges included $277 million of increased amortization expense as a result of revaluing Gillette’s intangible assets to fair market value. The balance of the charges were primarily due to higher product costs from revaluing opening inventory balances at fair value. Earnings were also impacted by an increase in

Management’s Discussion and Analysis  The Procter & Gamble Company       41

marketing investment in 2006 behind the launch of Fusion in North America, offset by synergy savings from cost reductions and base period charges for severance and other exit charges associated with Gillette’s Functional Excellence program, the European Manufacturing Realignment program and other asset write-downs. Net earnings were $781 million for the nine-month period after the acquisition closed on October 1, 2005.

DURACELL AND BRAUN

			Change vs.				Change vs.
(in millions of dollars)	2007		Prior Year*		2006*		Prior Year*
Volume		n/a		n/a		n/a		n/a
Net sales	$	4,031		n/a	$	2,924		n/a
Net earnings	$	394		n/a	$	273		n/a

* The Gillette business was acquired on October 1, 2005. Therefore, fiscal 2006 only includes results for the nine-month period that P&G owned the business.

Net sales in Duracell and Braun increased 5% in 2007 to $4.0 billion versus 2006 full-year pro forma results. In Duracell, sales increased high-single digits globally driven by double-digit developing region growth from expanded distribution in high-frequency stores in Latin America. In developed regions, Duracell organic sales were up low-single digits as the impact of higher pricing was largely offset by market share declines resulting from high levels of competitive activity from both private label and branded competitors. Our global market share in batteries was down about 1 point for the year. In Braun, sales increased 3%. The impact of the launches of 360 Complete and Contour razors in North America and Pulsonic razors in Germany and Japan was largely offset by lower volume on household appliances in Europe and the divestiture of thermometer and blood pressure devices. Overall, volume/mix in the Duracell and Braun segment contributed 1% to sales growth and price increases in Duracell added an additional 1%. Favorable foreign exchange had a positive 3% impact.

Earnings before income taxes increased 6% in 2007 to $588 million versus 2006 full-year pro forma results. Earnings were up behind sales growth and lower year-on-year acquisition-related expenses, partially offset by higher overhead expenses resulting from the inclusion of Gillette into P&G’s corporate overhead allocations systems in 2007 (this had no net impact on the Company’s total overhead expense as the offsetting reductions are spread across the Beauty and Health and the Household Care GBUs). Acquisition-related charges were down $17 million primarily due to base period product costs related to revaluing Gillette opening inventory balances, which more than offset the impact of an additional three months of amortization charges in current year period from revaluing intangible assets in the opening balance sheet. Net earnings in 2007 were $394 million.

In 2006, net sales for Duracell and Braun were $2.9 billion for the nine-month post-acquisition period, in line with the comparable prior year period pro forma results, including a negative 2% foreign exchange impact. In the Duracell business, market share growth in North America and the impacts of price increases to compensate for rising commodity costs were offset by sales declines in Western Europe due to competitive activity. Braun sales increased low-single digits globally as double-digit growth in Central & Eastern Europe/Middle East/Africa and new product initiatives were largely offset by declines in Western Europe due to strong competitive activity and in North America due to a base period that included pipeline shipments for the Braun Activator launch. Earnings before income taxes increased 9% to $400 million in 2006, including acquisition-related charges of $60 million that negatively impacted earnings by 16% in the period. The acquisition-related charges primarily represented increased amortization expense of $39 million as a result of revaluing Gillette’s intangible assets to fair market value. The balance of the charges were primarily due to increased product costs for revaluing opening inventory balances at fair value. Earnings growth was favorably impacted by base period charges for severance and other exit costs associated with Gillette’s Functional Excellence program, including charges related to the shutdown of a manufacturing facility, as well as synergy savings from cost reductions. Net earnings were $273 million for the nine-month period after the acquisition closed on October 1, 2005.

Corporate

Corporate includes certain operating and non-operating activities not allocated to specific business units. These include: the incidental businesses managed at the corporate level, financing and investing activities, other general corporate items, the historical results of certain divested brands and categories, including certain Gillette brands that were divested as required by the regulatory authorities in relation to the Gillette acquisition, and certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce rationalization. Corporate also includes reconciling items to adjust the accounting policies used in the segments to U.S. GAAP. The most significant reconciling items include income taxes (to adjust from statutory rates that are reflected in the segments to the overall Company effective tax rate), adjustments for unconsolidated entities (to eliminate 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 minority interest adjustments for subsidiaries where we do not have 100% ownership. Since both 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 in Corporate. In determining segment net earnings, we apply the statutory tax rates (with adjustments to arrive at the Company’s effective tax rate in Corporate) and eliminate the share of earnings applicable to other ownership interests, in a manner similar to minority interest.

 42       The Procter & Gamble Company  Management’s Discussion and Analysis

Corporate net sales primarily reflect the adjustment to eliminate the sales of unconsolidated entities included in business unit results. Corporate segment net earnings declined $235 million in 2007 primarily due to higher interest expenses and higher Gillette integration costs. Interest expense was up $185 million primarily due to the financing costs associated with the debt issued to fund the share repurchase program announced in conjunction with the Gillette acquisition. We expect ongoing corporate restructuring spending to increase to approximately $300-$400 million after-tax, versus our historical levels of $150-$200 million after-tax.

In 2006, net earnings in the Corporate segment declined by $286 million primarily due to an increase in net interest expense for debt to fund the share repurchase program and the gain on the sale of the Juice business in 2005.

FINANCIAL CONDITION

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

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

Operating Activities

Operating cash flow in 2007 increased 18% to $13.4 billion. Operating cash flow increased as a result of higher net earnings, including the benefit of an additional three months of Gillette in 2007. Net earnings, adjusted for non-cash items (primarily depreciation and amortization, share-based compensation and deferred income taxes) was partially offset by cash used to fund working capital. Working capital increased in 2007 primarily to support business growth. Accounts receivable increased by one day largely due to disproportionate growth in our Western European prestige fragrance business, which has longer payment terms than the balance of our business. Inventory increased during the year, primarily to support business growth. Accounts payable, accrued and other liabilities was a net use of cash as higher accounts payables, resulting from increased levels of marketing investments late in the fiscal year and extended payment terms on certain types of purchases, were more than offset by reduced tax accruals driven by the timing of tax payments.

Operating cash flow in 2006 was $11.4 billion compared to $8.7 billion in 2005, an increase of 31%. Operating cash flow increased behind higher net earnings, including the benefit of adding Gillette, and lower working capital as improvements in inventory and accounts payable more than offset an increase in accounts receivable.

Free Cash Flow. We view free cash flow as an important measure because it is one factor impacting the amount of cash available for dividends and discretionary investment. It is defined as operating cash flow less capital expenditures and is one of the measures used to evaluate senior management and determine their at-risk compensation. In 2007, free cash flow was $10.5 billion, compared to $8.7 billion in 2006. Free cash flow increased primarily as a result of higher operating cash flow. Capital expenditures were in line with the prior year at 3.9% of net sales. Free cash flow productivity, defined as the ratio of free cash flow to net earnings, was 101% in 2007, ahead of the Company’s 90% target.

In 2006, free cash flow was $8.7 billion compared to $6.5 billion in 2005 as a result of higher operating cash flow. Free cash flow productivity was 100% of net earnings in 2006.

Investing Activities

Net investing activities in 2007 used $2.5 billion of cash compared to $730 million of cash in the prior year. In the base year, investing cash activities benefited from cash balances received in the Gillette acquisition, representing Gillette’s cash on hand as of the acquisition date. In addition, current year investing cash outflows increased as a result of higher capital expenditures and lower proceeds from asset sales.

Acquisitions. Acquisitions used $492 million of cash in 2007 for several minor transactions, primarily in Beauty and Health Care. Acquisitions were a net source of cash of $171 million during 2006, as $1.6 billion of cash balances received in the Gillette acquisition were partially offset by several minor acquisitions and the settlement of a major portion of the Wella Domination and Profit Transfer Agreement liability, which was initially created in June 2004 when we completed a Domination and Profit Transfer Agreement with Wella shareholders.

Capital Spending. We view capital spending efficiency as a critical component of our overall cash management strategy. Capital expenditures in 2007 were $2.9 billion, compared to $2.7 billion in 2006 and $2.2 billion in 2005. The increase in capital spending was driven by the addition of the Gillette business and to support business growth. Capital spending as a percentage of net sales was 3.9% in 2007, in line with the prior year level despite the impact of adding Gillette, which historically maintained higher levels of capital spending as a percentage of net sales than the average base P&G businesses.

Management’s Discussion and Analysis  The Procter & Gamble Company       43

Proceeds from Asset Sales. Proceeds from asset sales in 2007 were $281 million primarily due to the divestitures of Pert in North America, Sure and several nonstrategic minor Beauty brands. In 2006, proceeds from asset sales were $882 million primarily due to the divestitures of Spinbrush, Rembrandt and Right Guard, all required by regulatory authorities in relation to the Gillette acquisition, and our Korean paper businesses.

Financing Activities

Dividend Payments. Our first discretionary use of cash is dividend payments. Dividends per common share increased 11% to $1.28 per share in 2007. This increase represents the 51st consecutive fiscal year the Company has increased its common share dividend. Total dividend payments to both common and preferred shareholders were $4.2 billion, $3.7 billion and $2.7 billion in 2007, 2006 and 2005, respectively

Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt was $35.4 billion in 2007, $38.1 billion in 2006 and $24.3 billion in 2005. The decrease in debt in 2007 was primarily due to the utilization of operating cash flow to pay down existing balances. Debt increased in 2006 primarily due to additional debt used to finance the share repurchase program announced in conjunction with the Gillette acquisition.

Liquidity. Our primary source of liquidity is cash generated from operations. We believe internally generated cash flows adequately support business operations, capital expenditures and shareholder dividends, as well as a level of other discretionary cash uses (e.g., for minor acquisitions or share repurchases).

We are able to supplement our short-term liquidity, if necessary, with broad access to capital markets and three bank credit facilities. Broad access to financing includes commercial paper programs in multiple markets at favorable rates given our strong credit ratings (including separate U.S. dollar and Euro multi-currency programs).

We maintain three bank facilities: a $24 billion three-year facility expiring in July 2008, a $1.8 billion facility expiring in August 2010 and a $1 billion facility expiring in July 2009. The credit facilities are for general corporate purposes, including refinancing needs associated with the share buyback plan announced concurrently with the Company’s acquisition of Gillette and to support our on-going commercial paper program. Beyond some residual refinancing requirements on the debt related to acquisition of Gillette, we anticipate that these facilities will remain largely undrawn beyond June 2008. We periodically change our facility structure to take advantage of more favorable financing rates and to support our longer term financing needs.

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. While not considered material to the overall financial condition of the Company, there is a covenant in the $1 billion credit facility stating the ratio of net debt to earnings before interest expense, income taxes, depreciation and amortization cannot exceed 4.0 at the time of a draw on the facility. As of June 30, 2007, we are comfortably below this level, with a ratio of approximately 1.6.

In addition to these credit facilities, long-term borrowing available under our current shelf registration statement was $2.2 billion at June 30, 2007.

The Company’s Moody’s and Standard & Poor’s (S&P) short-term credit ratings are P-1 and A-1+, respectively. Our Moody’s and S&P long-term credit ratings are Aa3 with a negative outlook and AA- with a stable outlook, respectively.

Treasury Purchases. Total share repurchases in 2007 were $5.6 billion, of which $0.3 billion were made as part of our publicly announced share repurchase plan in connection with the Gillette acquisition. Total share repurchases in 2006 were $16.8 billion, nearly all of which were made as part of our publicly announced share repurchase plan. We completed the announced share buyback program in July 2006 and purchased a total of $20.1 billion of shares under this program. In fiscal years 2008 to 2010, we expect to repurchase $24-$30 billion of Company shares at a rate of $8-$10 billion per year.

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

 44       The Procter & Gamble Company  Management’s Discussion and Analysis

Contractual Commitments. The table below provides information on our contractual commitments as of June 30, 2007.

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with U.S. GAAP, there are certain accounting policies that are particularly important. These include revenue recognition, income taxes, certain employee benefits, acquisitions, and goodwill and intangible assets. We believe these accounting policies, and others set forth in Note 1 to the Consolidated Financial Statements, should be reviewed as they are integral to understanding the results of operations and financial condition of the Company. In the case of revenue recognition, these policies simply represent required accounting and there is minimal judgment or estimation involved. In other areas, they may represent a choice between acceptable accounting methods or may require substantial judgment or estimation in their application.

Due to the nature of our business, these estimates generally are not considered highly uncertain at the time of estimation, meaning they are not expected to result in changes that would materially affect our results of operations or financial condition in any given year.

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

Revenue Recognition

Most of our revenue transactions represent sales of inventory, and we recognize revenue when title, 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. The revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities and includes shipping and handling costs, which generally are included in the list price to the customer. A provision for payment discounts and product return allowances is recorded as a reduction of sales within the same period that the revenue is recognized. We offer sales incentives to customers and consumers through various programs, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons. The cost of these programs is recognized as incurred and recorded as a reduction of sales. Given the nature of our business, revenue recognition practices do not contain estimates that materially affect results of operations.

Income Taxes

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

Deferred tax assets generally represent items that can be used as a tax deduction or credit in future years for which we have already recorded the tax benefit in our income statement. Deferred tax liabilities generally represent tax expense recognized in our financial statements for which payment has been deferred, or expenditures for which we have already taken a deduction in our tax return but have not yet been recognized in our financial statements.

Inherent in determining our annual tax rate are judgments regarding business plans, planning opportunities and expectations about future outcomes. Realization of certain deferred tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the 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.

CONTRACTUAL COMMITMENTS AS OF JUNE 30, 2007

			Less Than						After
(in millions of dollars)	Total		1 Year		1-3 Years		3-5 Years		5 Years
RECORDED LIABILITIES
Total debt	$	34,854	$	11,888	$	7,555	$	1,859	$	13,552
Capital leases		628		229		116		85		198
OTHER
Interest payments relating to long-term debt		13,131		1,272		1,782		1,444		8,633
Operating leases(1)		1,446		316		446		276		408
Minimum pension funding (2)		1,439		468		971		—		—
Purchase obligations(3)		4,421		1,360		1,548		853		660
TOTAL CONTRACTUAL COMMITMENTS		55,919		15,533		12,418		4,517		23,451

(1)	Operating lease obligations are shown net of guaranteed sublease income.
(2)	Represents future pension payments to comply with local funding requirements. The projected payments beyond fiscal year 2010 are not currently determinable.
(3)	Primarily reflects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represent future purchases in line with expected usage to obtain favorable pricing. Approximately 44% relates to service contracts for information technology, human resources management and facilities management activities that were outsourced in recent years. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include obligations related to other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historic operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.

Management’s Discussion and Analysis  The Procter & Gamble Company       45

Changes in existing tax laws, tax rates and their related interpretations may also affect our ability to successfully manage the impacts on taxes of regulatory matters around the world. We establish reserves for certain tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority. We review these tax uncertainties in light of the changing facts and circumstances, such as the progress of tax audits, and adjust them when significant changes in risk warrant it. 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 results of operations, financial condition or cash flows.

Our accounting represents management’s best estimate of future events that can be appropriately reflected in the accounting estimates. 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 our estimates and effective tax rate.

Employee Benefits

We sponsor various post-employment benefits throughout the world. These include pension plans, both defined contribution plans and defined benefit plans, and other post-employment benefit (OPEB) plans, consisting primarily of health care and life insurance for retirees. For accounting purposes, the defined benefit and OPEB plans require assumptions to estimate the projected and accumulated benefit obligations, including the following variables: discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected return on assets and health care cost trend rates. These and other assumptions affect the annual expense and obligations recognized for these plans. Our assumptions reflect our historical experiences and management’s 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 benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the employees expected to receive benefits.

The expected return on plan assets assumption is important, since many of our defined benefit plans and our primary OPEB plan are funded. The process for setting the expected rates of return is described in Note 9 to the Consolidated Financial Statements. For 2007, the average return on assets assumption for pension plan assets and OPEB assets was 7.2% and 9.3%, respectively. A change in the rate of return of 0.5% for both pension and OPEB assets would impact annual benefit expense by less than $40 million after tax.

Since pension and OPEB liabilities are measured on a discounted basis, the discount rate is a significant assumption. Discount rates used for our U.S. defined benefit and OPEB plans are based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA or better. The average discount rate on the defined benefit pension plans of 5.5% 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 benefit expense by less than $45 million. The rate on the OPEB plan of 6.3% reflects the higher interest rates generally applicable in the U.S., which is where a majority of the plan participants receive benefits. A 0.5% change in the discount rate would impact annual after-tax OPEB expense by less than $10 million.

Certain defined contribution pension and OPEB benefits in the U.S. are funded by the Employee Stock Ownership Plan (ESOP), as discussed in Note 9 to the Consolidated Financial Statements.

Acquisitions

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

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

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

 46       The Procter & Gamble Company  Management’s Discussion and Analysis

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

Other significant estimates associated with the accounting for acquisitions include exit costs. Provided certain criteria are met, exit costs related to acquired operations are treated as assumed liabilities. If those criteria are not met, the costs are treated as operating expenses of the combined company as incurred. Exit costs, consisting primarily of severance costs, facility closure and other exit costs related to redundant manufacturing, selling, general and administrative functions, are based upon plans that have been committed to by management but which are subject to refinement. Significant estimates and assumptions inherent in the calculation of exit costs relate to the number of employees that will be terminated, future costs to operate and eventually vacate duplicate facilities and costs to terminate agreements. These estimates and assumptions may change as we execute approved plans. Decreases to the estimated costs are generally recorded as an adjustment to goodwill. Increases to the estimates are generally recorded as an adjustment to goodwill during the purchase price allocation period (generally within one year of the acquisition date) and as operating expenses thereafter.

Goodwill and Intangible Assets

Acquired intangible assets may represent indefinite-lived assets (e.g., certain trademarks or brands), determinable-lived intangibles (e.g., patents and technologies) or residual goodwill. Of these, only the costs of determinable-lived intangibles are amortized to expense over their estimated life. The value of indefinite-lived intangible assets and residual goodwill is not amortized, but is tested at least annually for impairment. Our impairment testing for goodwill is performed separately from our impairment testing of indefinite-lived intangibles. We test goodwill for impairment, at least annually, by reviewing the book value compared to the fair value at the reportable unit level. We test individual indefinite-lived intangibles at least annually by reviewing the individual book values compared to the fair value. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair value. Assumptions used in the Company’s 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 market participants.

When certain events or changes in operating conditions occur, indefinite-lived intangible assets may be adjusted to a determinable life and an additional impairment assessment may be performed. We did not recognize any material impairment charges for goodwill or intangible assets during the years presented.

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. Indefinite-lived intangible assets totaled $27.0 billion at June 30, 2007, of which $23.9 billion represent recently acquired Gillette intangible assets. The Gillette indefinite-lived intangible assets were recorded at estimated fair values as of the acquisition date. Total goodwill is $56.6 billion at June 30, 2007, of which $35.3 billion results from the Gillette acquisition. Such goodwill reflects the residual amount from a purchase price allocation as of the acquisition date. Because the Gillette intangible and goodwill amounts represent current values as of the relatively recent acquisition date, such amounts are more susceptible to an impairment risk if business operating results or macroeconomic conditions deteriorate.

New Accounting Pronouncements

As more fully discussed in Notes 1 and 9 to the Consolidated Financial Statements, we adopted SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R),” at June 30, 2007. SFAS 158 requires companies to recognize the over-funded and under-funded status of defined benefit pension and other postretirement plans as assets or liabilities on their balance sheets and to recognize previously unrecognized changes in that funded status, in the year in which changes occur, through other comprehensive income in shareholders’ equity.

In July 2006, the FASB issued FASB Interpretation (FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 addresses the accounting and disclosure of uncertain tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We will adopt FIN 48 on July 1, 2007. We estimate that the adoption of FIN 48 will result in a net decrease to beginning retained earnings of approximately $200-$250 million, primarily related to the accrual of additional interest and penalties on unrecognized tax benefits.

No other new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the Consolidated Financial Statements.

Management’s Discussion and Analysis  The Procter & Gamble Company       47

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. To manage the volatility related to these exposures, we evaluate our exposures on a global basis to take advantage of the direct netting opportunities and of currency, interest rate and commodity correlations that exist within the portfolio. For the remaining exposures, we enter into various derivative transactions in accordance with the Company’s hedging policies that are designed to partially, or entirely, offset changes in the underlying exposures being hedged. We do not hold or issue derivative financial instruments for speculative trading purposes. Note 6 to the Consolidated Financial Statements includes a detailed discussion of our accounting policies for financial instruments.

Derivative positions are monitored using techniques including market valuation, sensitivity analysis and value-at-risk modeling. The tests for interest rate, currency rate and commodity price exposures discussed below are based on the CorporateManager™ value-at-risk model using a one-year horizon and a 95% confidence level. The model incorporates the impact of correlation (the degree to which exposures move together over time) and diversification (from holding multiple currency, commodity and interest rate instruments) and assumes that financial returns are normally distributed. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics™ dataset as of June 30, 2007. In cases where data is unavailable in RiskMetrics™, a reasonable proxy is included.

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

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

Based on our overall interest rate exposure as of and during the year ended June 30, 2007, including derivative and other instruments sensitive to interest rates, we believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would not materially affect our financial statements.

Currency Rate Exposure. Because we manufacture and sell products 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 financial 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 and options with maturities of less than 18 months.

In addition, we enter into certain currency swaps with maturities of up to five years to hedge our exposure to exchange rate movements on intercompany financing transactions. We also use purchased currency options with maturities of generally less than 18 months and forward contracts to hedge against the effect of exchange rate fluctuations on intercompany royalties and to offset a portion of the effect of exchange rate fluctuations on income from international operations.

Based on our overall currency rate exposure as of and during the year ended June 30, 2007, we believe, at a 95% confidence level based on historical currency rate movements, the impact of a near-term change in currency rates on derivative and other instruments would not materially affect our financial statements.

Commodity Price Exposure. We use raw materials that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. In addition to fixed price contracts, we use futures, options and swap contracts to manage the volatility related to the above exposures. The impact of commodity hedging activity is not considered material to our financial statements.

Measures Not Defined By U.S. GAAP

Our discussion of financial results includes several “non-GAAP” financial 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. The Company believes this provides investors with a more complete understanding of underlying results and trends by providing sales growth on a consistent basis.

 48       The Procter & Gamble Company  Management’s Discussion and Analysis

The following table provides a numerical reconciliation of organic sales growth to reported net sales growth for fiscal 2007:

										Fabric			Baby
	Total									Care and			Care and			Blades
	Company			Beauty			Health Care			Home Care			Family Care			and Razors
Reported net sales growth		12	%		9	%		14	%		11	%		6	%		49	%
Less: Acquisitions & divestitures impact		-5	%		-1	%		-6	%		0	%		0	%		-37	%
Less: Foreign exchange impact		-2	%		-3	%		-2	%		-3	%		-2	%		-4	%
ORGANIC SALES GROWTH		5	%		5	%		6	%		8	%		4	%		8	%

The following table provides a numerical reconciliation of organic sales growth to reported net sales growth for fiscal 2006:

	Total
	Company			Health Care
Reported net sales growth		20	%		29	%
Less: Acquisitions & divestitures impact		-14	%		-21	%
Less: Foreign exchange impact		1	%		1	%
ORGANIC SALES GROWTH		7	%		9	%

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

Free Cash Flow Productivity. Free cash flow productivity is defined as the ratio of free cash flow to net earnings. The Company’s target is to generate free cash flow at or above 90% of net earnings. Free cash flow productivity 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 flow:

										Free
	Operating		Capital			Free		Net		Cash Flow
	Cash Flow		Spending			Cash Flow		Earnings		Productivity
2007	$	13,435	$	(2,945	)	$	10,490	$	10,340		101	%
2006		11,375		(2,667	)		8,708		8,684		100	%

The Procter & Gamble Company       49

Consolidated Statements of Earnings

Amounts in millions except per share amounts; Years ended June 30	2007		2006		2005
NET SALES	$	76,476	$	68,222	$	56,741
Cost of products sold		36,686		33,125		27,872
Selling, general and administrative expense		24,340		21,848		18,400
OPERATING INCOME		15,450		13,249		10,469
Interest expense		1,304		1,119		834
Other non-operating income, net		564		283		346
EARNINGS BEFORE INCOME TAXES		14,710		12,413		9,981
Income taxes		4,370		3,729		3,058
NET EARNINGS	$	10,340	$	8,684	$	6,923
BASIC NET EARNINGS PER COMMON SHARE	$	3.22	$	2.79	$	2.70
DILUTED NET EARNINGS PER COMMON SHARE	$	3.04	$	2.64	$	2.53
DIVIDENDS PER COMMON SHARE	$	1.28	$	1.15	$	1.03

See accompanying Notes to Consolidated Financial Statements.

50       The Procter & Gamble Company

Consolidated Balance Sheets

Assets

Amounts in millions; June 30	2007			2006
CURRENT ASSETS
Cash and cash equivalents	$	5,354		$	6,693
Investment securities		202			1,133
Accounts receivable		6,629			5,725
Inventories
Materials and supplies		1,590			1,537
Work in process		444			623
Finished goods		4,785			4,131
Total inventories		6,819			6,291
Deferred income taxes		1,727			1,611
Prepaid expenses and other current assets		3,300			2,876
TOTAL CURRENT ASSETS		24,031			24,329
PROPERTY, PLANT AND EQUIPMENT
Buildings		6,380			5,871
Machinery and equipment		27,492			25,140
Land		849			870
		34,721			31,881
Accumulated depreciation		(15,181	)		(13,111	)
NET PROPERTY, PLANT AND EQUIPMENT		19,540			18,770
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill		56,552			55,306
Trademarks and other intangible assets, net		33,626			33,721
NET GOODWILL AND OTHER INTANGIBLE ASSETS		90,178			89,027
OTHER NONCURRENT ASSETS		4,265			3,569
TOTAL ASSETS	$	138,014		$	135,695

See accompanying Notes to Consolidated Financial Statements.

The Procter & Gamble Company       51

Consolidated Balance Sheets
Liabilities and Shareholders’ Equity

Amounts in millions; June 30	2007			2006
CURRENT LIABILITIES
Accounts payable	$	5,710		$	4,910
Accrued and other liabilities		9,586			9,587
Taxes payable		3,382			3,360
Debt due within one year		12,039			2,128
TOTAL CURRENT LIABILITIES		30,717			19,985
LONG-TERM DEBT		23,375			35,976
DEFERRED INCOME TAXES		12,015			12,354
OTHER NONCURRENT LIABILITIES		5,147			4,472
TOTAL LIABILITIES		71,254			72,787
SHAREHOLDERS’ EQUITY
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)		1,406			1,451
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; issued: 2007—3,989.7, 2006—3,975.8)		3,990			3,976
Additional paid-in capital		59,030			57,856
Reserve for ESOP debt retirement		(1,308	)		(1,288	)
Accumulated other comprehensive income		617			(518	)
Treasury stock, at cost (shares held: 2007—857.8, 2006—797.0)		(38,772	)		(34,235	)
Retained earnings		41,797			35,666
TOTAL SHAREHOLDERS’ EQUITY		66,760			62,908
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	138,014		$	135,695

See accompanying Notes to Consolidated Financial Statements.

52      The Procter & Gamble Company

Consolidated Statements of Shareholders’ Equity

															Accumulated
	Common								Additional			Reserve for			Other												Total
	Shares			Common		Preferred			Paid-in			ESOP Debt			Comprehensive			Treasury			Retained						Comprehensive
Dollars in millions/Shares in thousands	Outstanding			Stock		Stock			Capital			Retirement			Income			Stock			Earnings			Total			Income
BALANCE JUNE 30, 2004		2,543,838		$	2,976	$	1,526		$	2,454		$	(1,283	)	$	(1,545	)	$	(12,925	)	$	26,987		$	18,190
Net earnings																						6,923			6,923		$	6,923
Other comprehensive income:
Financial statement translation																118									118			118
Net investment hedges, net of $81 tax																135									135			135
Other, net of tax benefits																(274	)								(274	)		(274	)
Total comprehensive income																											$	6,902
Dividends to shareholders:
Common																						(2,595	)		(2,595	)
Preferred, net of tax benefits																						(136	)		(136	)
Treasury purchases		(93,308	)																(5,026	)					(5,026	)
Employee plan issuances		17,524			1					569									721			(175	)		1,116
Preferred stock conversions		4,880					(43	)		7									36						—
Change in ESOP debt reserve													24												24
BALANCE JUNE 30, 2005		2,472,934			2,977		1,483			3,030			(1,259	)		(1,566	)		(17,194	)		31,004			18,475
Net earnings																						8,684			8,684		$	8,684
Other comprehensive income:
Financial statement translation																1,316									1,316			1,316
Net investment hedges, net of $472 tax																(786	)								(786	)		(786	)
Other, net of tax benefits																518									518			518
Total comprehensive income																											$	9,732
Dividends to shareholders:
Common																						(3,555	)		(3,555	)
Preferred, net of tax benefits																						(148	)		(148	)
Treasury purchases		(297,132	)							(9	)								(16,821	)					(16,830	)
Employee plan issuances		36,763			16					1,308									887			(319	)		1,892
Preferred stock conversions		3,788					(32	)		5									27						—
Gillette acquisition		962,488			983					53,522									(1,134	)					53,371
Change in ESOP debt reserve													(29	)											(29	)
BALANCE JUNE 30, 2006		3,178,841			3,976		1,451			57,856			(1,288	)		(518	)		(34,235	)		35,666			62,908
Net earnings																						10,340			10,340		$	10,340
Other comprehensive income:
Financial statement translation																2,419									2,419			2,419
Net investment hedges, net of $488 tax																(835	)								(835	)		(835	)
Other, net of tax benefits																(116	)								(116	)		(116	)
Total comprehensive income																											$	11,808
Adjustment to initially apply SFAS 158, net of tax																(333	)								(333	)
Dividends to shareholders:
Common																						(4,048	)		(4,048	)
Preferred, net of tax benefits																						(161	)		(161	)
Treasury purchases		(89,829	)																(5,578	)					(5,578	)
Employee plan issuances		37,824			14					1,167									1,003						2,184
Preferred stock conversions		5,110					(45	)		7									38						—
Change in ESOP debt reserve													(20	)											(20	)
BALANCE JUNE 30, 2007		3,131,946		$	3,990	$	1,406		$	59,030		$	(1,308	)	$	617		$	(38,772	)	$	41,797		$	66,760

See accompanying Notes to Consolidated Financial Statements.

The Procter & Gamble Company       53

Consolidated Statements of Cash Flows

Amounts in millions; Years ended June 30	2007			2006			2005
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	$	6,693		$	6,389		$	4,232
OPERATING ACTIVITIES
Net earnings		10,340			8,684			6,923
Depreciation and amortization		3,130			2,627			1,884
Share-based compensation expense		668			585			524
Deferred income taxes		253			(112	)		564
Change in accounts receivable		(729	)		(524	)		(86	)
Change in inventories		(389	)		383			(644	)
Change in accounts payable, accrued and other liabilities		(273	)		230			(101	)
Change in other operating assets and liabilities		(157	)		(508	)		(498	)
Other		592			10			113
TOTAL OPERATING ACTIVITIES		13,435			11,375			8,679
INVESTING ACTIVITIES
Capital expenditures		(2,945	)		(2,667	)		(2,181	)
Proceeds from asset sales		281			882			517
Acquisitions, net of cash acquired		(492	)		171			(572	)
Change in investment securities		673			884			(100	)
TOTAL INVESTING ACTIVITIES		(2,483	)		(730	)		(2,336	)
FINANCING ACTIVITIES
Dividends to shareholders		(4,209	)		(3,703	)		(2,731	)
Change in short-term debt		8,981			(8,627	)		2,016
Additions to long-term debt		4,758			22,545			3,108
Reductions of long-term debt		(17,929	)		(5,282	)		(2,013	)
Impact of stock options and other		1,499			1,319			521
Treasury purchases		(5,578	)		(16,830	)		(5,026	)
TOTAL FINANCING ACTIVITIES		(12,478	)		(10,578	)		(4,125	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		187			237			(61	)
CHANGE IN CASH AND CASH EQUIVALENTS		(1,339	)		304			2,157
CASH AND CASH EQUIVALENTS, END OF YEAR	$	5,354		$	6,693		$	6,389
SUPPLEMENTAL DISCLOSURE
Cash payments for:
Interest	$	1,330		$	1,045		$	783
Income taxes		4,116			2,869			2,644
Assets acquired through noncash capital leases		41			363			68
Gillette acquisition funded by share issuance		—			53,371			—

See accompanying Notes to Consolidated Financial Statements.

54       The Procter & Gamble Company

Notes to Consolidated Financial Statements

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Procter & Gamble Company’s (the “Company,” “we” or “us”) business is focused on providing branded consumer goods products 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 and high-frequency stores. We have on-the-ground operations in over 80 countries.

Basis of Presentation

The Consolidated Financial Statements include The Procter & Gamble Company and its controlled subsidiaries. Intercompany transactions are eliminated.

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, consumer and trade promotion accruals, pensions, post-employment benefits, stock options, valuation of acquired intangible assets, useful lives for depreciation and amortization, future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and long-lived assets, deferred tax assets, potential income tax assessments and contingencies. Actual results may ultimately differ from estimates, although management does not believe such differences would materially affect the financial statements in any individual 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 and 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 manufacturing labor, depreciation expense and direct overhead expense necessary to acquire and convert the purchased materials and supplies into finished product. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A) expense is primarily comprised of marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Research and development costs are charged to expense as incurred and were $2,112 in 2007, $2,075 in 2006, and $1,940 in 2005. Advertising costs, charged to expense as incurred, include worldwide television, print, radio, Internet and in-store advertising expenses and were $7,937 in 2007, $7,122 in 2006, and $5,929 in 2005. The composition of amounts included in advertising costs have been changed for the current and historical periods to reflect evolving advertising strategies. Non-advertising related components of the Company’s total marketing spending include costs associated with consumer promotions, product sampling and sales aids, all of which are included in SG&A expense, as well as coupons and customer trade funds, which are recorded as reductions to net sales.

Other Non-Operating Income, Net

Other non-operating income, net primarily includes divestiture gains and interest and investment income.

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. Currency translation adjustments in accumulated other comprehensive income were gains of $2,941 and $522 at June 30, 2007 and 2006, respectively. For subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Remeasurement adjustments for financial statements in highly inflationary economies and other transactional exchange gains and losses are reflected in earnings.

Cash Flow Presentation

The Statement of Cash Flows is prepared using the indirect method, which reconciles net earnings to cash flow from operating activities. These adjustments include the removal of timing differences between the occurrence of operating receipts and payments and their recognition in net earnings. The adjustments also remove cash flows from operating activities arising from investing and financing activities, which are presented separately from operating activities. Cash flows from foreign currency transactions and operations are translated at an average exchange rate for the period. Cash flows from hedging activities are

Millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company       55

Notes to Consolidated Financial Statements

included in the same category as the items being hedged. Cash flows from derivative instruments designated as net investment hedges are classified as financing activities. Cash flows from other derivative instruments used to manage interest, commodity or currency exposures are classified as operating activities.

Cash Equivalents

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

Investments

Investment securities consist of auction rate securities that approximate fair value, readily marketable debt and equity securities that are classified as trading with unrealized gains or losses charged to earnings, and available-for-sale securities with unrealized gains or losses charged to shareholders’ equity.

Investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions, are accounted for as equity method investments. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method and are included in other noncurrent assets.

Inventory Valuation

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

Property, Plant and Equipment

Property, plant and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets’ estimated useful lives using the straight-line method. Machinery and equipment includes office furniture and fixtures (15-year life), computer equipment and capitalized software (3- to 5-year lives) and manufacturing equipment (3- to 20-year lives). Buildings are depreciated 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

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

Goodwill and indefinite-lived brands are not amortized, but are evaluated annually for impairment or when indicators of a potential impairment are present. Our impairment testing of goodwill is performed separately from our impairment testing of individual indefinite-lived intangibles. The annual evaluation for impairment of goodwill and indefinite-lived intangibles is based on valuation models that incorporate internal projections of expected future cash flows and operating plans.

The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships and other noncontractual intangible assets with determinable lives are amortized over periods generally ranging from 5 to 40 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

Fair Values of Financial Instruments

Certain financial instruments are required to be recorded at fair value. The estimated fair values of such financial instruments (including certain debt instruments, investment securities and derivatives) have been determined using market information and valuation methodologies, primarily discounted cash flow analysis. Changes in assumptions or estimation methods could affect the fair value estimates. However, we do not believe any such changes would have a material impact on our financial condition or results of operations. Other financial instruments, including cash equivalents, other investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and derivative instruments are disclosed in Note 5 and Note 6, respectively.

New Accounting Pronouncements and Policies

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

ADOPTION OF SFAS 158, “EMPLOYERS’ ACCOUNTING FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS, AN AMENDMENT OF FASB STATEMENTS NO. 87, 88, 106, AND 132(R)”

In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS 158 requires companies to recognize the over-funded and under-funded status of defined benefit pension and other postretirement plans as assets or liabilities on their balance sheets. In addition, changes in the funded status must be recognized through other comprehensive income in shareholders’ equity in the year in which the changes occur. We adopted SFAS 158 on June 30, 2007. In accordance with the transition rules in SFAS 158, this standard is being adopted on a prospective basis. The adoption of SFAS 158 resulted in an adjustment to our balance sheet, but had no impact on our net earnings or cash flow, nor did it impact any debt covenants.

Millions of dollars except per share amounts or as otherwise specified.

56     The Procter & Gamble Company Notes to Consolidated Financial Statements

SFAS 158 had no impact on our measurement date, which continues to be as of our fiscal year end. Refer to Note 9 for additional information regarding our pension and postretirement plans.

The following table reflects the effect of the adoption of SFAS 158 on our Consolidated Balance Sheets:

	Before					After
	Application		SFAS 158			Application
June 30, 2007	of SFAS 158		Adjustments			of SFAS 158
Other noncurrent assets	$	4,432	$	(167	)	$	4,265
TOTAL ASSETS		138,181		(167	)		138,014
Deferred income taxes		12,214		(199	)		12,015
Other noncurrent liabilities		4,782		365			5,147
TOTAL LIABILITIES		71,088		166			71,254
Accumulated other comprehensive income		950		(333	)		617
TOTAL SHAREHOLDERS’ EQUITY		67,093		(333	)		66,760
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		138,181		(167	)		138,014

FASB INTERPRETATION 48, “ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES”

In July 2006, the FASB issued FASB Interpretation (FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 addresses the accounting and disclosure of uncertain tax positions. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We will adopt FIN 48 on July 1, 2007. We estimate that the adoption of FIN 48 will result in a net decrease to beginning retained earnings of approximately $200-$250, primarily related to the accrual of additional interest and penalties on unrecognized tax benefits.

NOTE 2
ACQUISITIONS

Gillette Acquisition

On October 1, 2005, we completed our acquisition of The Gillette Company. Pursuant to the acquisition agreement, which provided for the exchange of 0.975 shares of The Procter & Gamble Company common stock, on a tax-free basis, for each share of The Gillette Company, we issued 962 million shares of The Procter & Gamble Company common stock. The value of these shares was determined using the average Company stock prices beginning two days before and ending two days after January 28, 2005, the date the acquisition was announced. We also issued 79 million stock options in exchange for Gillette’s outstanding stock options. Under the purchase method of accounting, the total consideration was approximately $53.4 billion including common stock, the fair value of vested stock options and acquisition costs. This acquisition resulted in two new reportable segments: Blades and Razors, and Duracell and Braun. The Gillette oral care and personal care businesses were subsumed within the Health Care and Beauty reportable segments, respectively. The operating results of the Gillette businesses are reported in our financial statements beginning October 1, 2005.

The Gillette Company is a market leader in several global product categories including blades and razors, oral care and batteries. Total sales for Gillette during its most recent pre-acquisition year ended December 31, 2004, were $10.5 billion.

In order to obtain regulatory approval of the transaction, we were required to divest certain overlapping businesses. We completed the divestiture of the Spin brush toothbrush business, Rembrandt (a Gillette oral care product line), Right Guard and other Gillette deodorant brands during the fiscal year ended June 30, 2006.

In connection with this acquisition, we also announced a share buyback plan under which we planned to acquire up to $22.0 billion of Company common shares through the open market or from private transactions. We completed this share buyback plan in July 2006 with cumulative purchases of $20.1 billion. The repurchases were financed by borrowings under a $24.0 billion three-year credit facility with a syndicate of banks (see Note 5).

The following table provides pro forma results of operations for the years ended June 30, 2006 and 2005, as if Gillette had been acquired as of the beginning of each fiscal year presented. The pro forma results include certain purchase accounting adjustments such as the changes in depreciation and amortization expense on acquired tangible and intangible assets. However, pro forma results do not include any anticipated cost savings or other effects of the integration activities of Gillette. Accordingly, such amounts are not necessarily indicative of the results if the acquisition had occurred on the date indicated or that may result in the future.

Millions of dollars except per share amounts or as otherwise specified.

Notes to Consolidated Financial Statements The Procter & Gamble Company     57

Pro forma results; Years ended June 30	2006		2005
Net sales	$	71,005	$	67,920
Net earnings		8,871		8,522
Diluted net earnings per common share	$	2.51	$	2.29

During the three months ended September 30, 2006, we completed the allocation of the purchase price to the individual assets acquired and liabilities assumed. To assist management in the allocation, we engaged valuation specialists to prepare independent appraisals. The following table presents the completed allocation of purchase price for the Gillette business as of the date of the acquisition.

Current assets	$	5,681
Property, plant and equipment		3,655
Goodwill		35,298
Intangible assets		29,707
Other noncurrent assets		382
TOTAL ASSETS ACQUIRED		74,723
Current liabilities		5,346
Noncurrent liabilities		15,951
TOTAL LIABILITIES ASSUMED		21,297
NET ASSETS ACQUIRED		53,426

The Gillette acquisition resulted in $35.3 billion in goodwill, allocated primarily to the segments comprising the Gillette businesses (Blades and Razors, Duracell and Braun, Health Care and Beauty). A portion of the goodwill has also been allocated to the other segments on the basis that certain cost synergies will benefit these businesses.

The purchase price allocation to the identifiable intangible assets included in these financial statements is as follows:

			Weighted
			average life
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands	$	1,627		20
Patents and technology		2,716		17
Customer relationships		1,436		27
BRANDS WITH INDEFINITE LIVES		23,928	Indefinite
TOTAL INTANGIBLE ASSETS		29,707

The majority of the intangible asset valuation relates to brands. Our assessment as to brands that have an indefinite life and those that have a determinable life was based on a number of factors, including the competitive environment, market share, brand history, product life cycles, operating plan and macroeconomic environment of the countries in which the brands are sold. The indefinite-lived brands include Gillette, Venus, Duracell, Oral-B and Braun. The determinable-lived brands include certain brand sub-names, such as Mach3 and Sensor in the blades and razors business, and other regional or local brands. The determinable-lived brands have asset lives ranging from 10 to 40 years. The patents and technology intangibles are concentrated in the blades and razors and oral care businesses and have asset lives ranging from 5 to 20 years. The customer relationship intangible asset useful lives ranging from 20 to 30 years reflect the very low historical and projected customer attrition rates among Gillette’s major retailer and distributor customers.

We also completed our analysis of integration plans, pursuant to which the Company is incurring costs primarily related to the elimination of selling, general and administrative overlap between the two companies in areas like Global Business Services, corporate staff and go-to-market support, as well as redundant manufacturing capacity. We recognized an assumed liability for Gillette exit costs of $1.2 billion, including $854 in separations related to approximately 5,500 people, $55 in employee relocation costs and $320 in other exit costs. As of June 30, 2007, the remaining liability was $608. Total integration plan charges against the assumed liability were $438 and $204 for the years ended June 30, 2007 and 2006, respectively. We expect such activities to be substantially complete by June 30, 2008.

Other minor business purchases and intangible asset acquisitions totaled $540, $395 and $572 in 2007, 2006 and 2005, respectively.

Millions of dollars except per share amounts or as otherwise specified.

58     The Procter & Gamble Company Notes to Consolidated Financial Statements

NOTE 3
GOODWILL AND INTANGIBLE ASSETS

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

June 30	2007			2006
BEAUTY AND HEALTH
Beauty, beginning of year	$	17,870		$	14,580
Acquisitions and divestitures		(13	)		2,807
Translation and other		445			483
End of year		18,302			17,870
Health Care, beginning of year		6,090			1,683
Acquisitions and divestitures		—			4,318
Translation and other		78			89
End of year		6,168			6,090
HOUSEHOLD CARE
Fabric Care and Home Care, beginning of year		1,850			644
Acquisitions		13			1,180
Translation and other		38			26
End of year		1,901			1,850
Baby Care and Family Care, beginning of year		1,563			955
Acquisitions and divestitures		9			672
Translation and other		51			(64	)
End of year		1,623			1,563
Snacks, Coffee and Pet Care, beginning of year		2,396			1,954
Acquisitions		5			437
Translation and other		6			5
End of year		2,407			2,396
GILLETTE GBU
Blades and Razors, beginning of year		21,539			—
Acquisitions		200			21,174
Translation and other		292			365
End of year		22,031			21,539
Duracell and Braun, beginning of year		3,998			—
Acquisitions		68			3,930
Translation and other		54			68
End of year		4,120			3,998
GOODWILL NET, beginning of year		55,306			19,816
Acquisitions and divestitures		282			34,518
Translation and other		964			972
End of year		56,552			55,306

Acquisitions and divestitures in 2006 primarily reflect the Gillette acquisition, and in 2007 primarily reflect the finalization of the Gillette purchase price allocation. Gillette goodwill has been allocated primarily to the segments comprising the Gillette businesses (Blades and Razors, Duracell and Braun, Health Care and Beauty). A portion of the Gillette goodwill has also been allocated to the other segments on the basis that certain cost synergies will benefit these businesses.

Identifiable intangible assets were comprised of:

	2007				2006
	Grass				Gross
	Carrying		Accumulated		Carrying		Accumulated
June 30	Amount		Amortization		Amount		Amortization
INTANGIBLE ASSETS WITH DETERMINABLI LIVES
Brands	$	3,317	$	710	$	3,135	$	540
Patents and technology		3,135		776		3,098		425
Customer relationships		1,738		237		1,695		135
Other		377		188		333		183
		8,567		1,911		8,261		1,283
BRANDS WITH INDEFINITE LIVES		26,970		—		26,743		—
		35,537		1,911		35,004		1,283

The amortization of intangible assets for the years ended June 30, 2007, 2006 and 2005, was $640, $587 and $198, respectively. Estimated amortization expense over the next five years is as follows: 2008-$618; 2009-$594; 2010-$556; 2011-$513 and 2012-$480. Such estimates do not reflect the impact of future foreign exchange rate changes.

NOTE 4
SUPPLEMENTAL FINANCIAL INFORMATION

Selected components of current and noncurrent liabilities were as follows:

June 30	2007		2006
ACCRUED AND OTHER CURRENT LIABILITIES
Marketing and promotion	$	2,538	$	2,357
Liability under Wella Domination Agreement		218		207
Compensation expenses		1,390		1,471
Accrued Gillette exit costs		608		929
Other		4,832		4,623
		9,586		9,587
OTHER NONCURRENT LIABILITIES
Pension benefits(1)		2,898		2,550
Other postretirement benefits (1)		503		374
Other		1,746		1,548
		5,147		4,472

(1) 2007 amounts include adoption impact of SFAS 158. Refer to Notes 1 and 9 for additional information.

Millions of dollars except per share amounts or as otherwise specified.

Notes to Consolidated Financial Statements The Procter & Gamble Company     59

NOTE 5
SHORT-TERM AND LONG-TERM DEBT

June 30	2007		2006
SHORT-TERM DEBT
Current portion of long-term debt	$	2,544	$	1,930
USD commercial paper		9,410		—
Other		85		198
		12,039		2,128

The weighted average short-term interest rates were 5.0% and 5.3% as of June 30, 2007 and 2006, respectively, including the effects of interest rate swaps discussed in Note 6.

June 30	2007			2006
LONG-TERM DEBT
3.50% USD note due October 2007	$	500		$	500
6.1 3% USD note due May 2008		500			500
Bank credit facility expires July 2008		4,537			19,555
4.30% USD note due August 2008		500			500
3.50% USD note due December 2008		650			650
6.88% USD note due September 2009		1,000			1,000
Bank credit facility expires August 2010		1,830			1,857
3.38% EUR note due December 2012		1,882			1,779
4.50% EUR note due May 2014		2,016			—
4.95% USD note due August 2014		900			900
4.85% USD note due December 2015		700			700
4.1 3% EUR note due December 2020		806			763
9.36% ESOP debentures due 2007-2021 (1)		968			1,000
4.88% EUR note due May 2027		1,344			—
6.25% GBP note due January 2030		1,001			917
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			—
Capital lease obligations		628			632
All other long-term debt		3,657			5,553
Current portion of long-term debt		(2,544	)		(1,930	)
		23,375			35,976

(1) Debt issued by the ESOP is guaranteed by the Company and must be recorded as debt of the Company as discussed in Note 9.

Long-term weighted average interest rates were 3.3% and 3.6% as of June 30, 2007 and 2006, respectively, including the effects of interest rate swaps and net investment hedges discussed in Note 6.

The fair value of the long-term debt was $23,122 and $36,027 at June 30, 2007 and 2006, respectively. Long-term debt maturities during the next five years are as follows: 2008-$2,544; 2009-$5,751; 2010-$1,982; 2011-$1,877 and 2012-$67.

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

NOTE 6
RISK MANAGEMENT ACTIVITIES

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. To manage the volatility related to these exposures, we evaluate exposures on a consolidated basis to take advantage of logical exposure netting and correlation. For the remaining exposures, we enter into various financial transactions, which we account for under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted. The utilization of these financial transactions is governed by our policies covering acceptable counterparty exposure, instrument types and other hedging practices. We do not hold or issue derivative financial instruments for speculative trading purposes.

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

Credit Risk

We have established strict counterparty credit guidelines and normally enter into transactions with investment grade financial institutions. Counterparty exposures are monitored daily and downgrades in credit rating are reviewed on a timely basis. Credit risk arising from the inability of a counterparty to meet the terms of our financial instrument contracts generally is limited to the amounts, if any, by which the counterparty’s obligations 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 financial instruments.

Interest Rate Management

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

Interest rate swaps that meet specific criteria under SFAS 133 are accounted for as fair value and cash flow hedges. For fair value hedges, the changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in interest expense as equal and offsetting gains and losses. There were no fair value hedging instruments at June 30, 2007. The fair value of fair value hedging instruments was a liability of $32 at June 30, 2006. All fair value hedges were 100% effective and as a result, there was no impact

Millions of dollars except per share amounts or as otherwise specified.

60     The Procter & Gamble Company Notes to Consolidated Financial Statements

on earnings from hedge ineffectiveness. For cash flow hedges, the effective portion of the changes in fair value of the hedging instrument is reported in other comprehensive income (OCI) and reclassified into interest expense over the life of the underlying debt. The ineffective portion, which is not material for any year presented, is immediately recognized in earnings. The fair value of these cash flow hedging instruments was an asset of $53 and $225 at June 30, 2007 and 2006, respectively. During the next 12 months, $33 of the June 30, 2007 OCI balance will be reclassified to earnings consistent with the timing of the underlying hedged transactions.

Foreign Currency Management

We manufacture and sell our products 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 reduce the risk caused by short-term changes in exchange rates.

To manage this exchange rate risk, we primarily utilize forward contracts and options with maturities of less than 18 months and currency swaps with maturities up to five years. These instruments are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases, intercompany royalties and intercompany loans denominated in foreign currencies and are therefore accounted for as cash flow hedges. The fair value of these instruments at June 30, 2007 and 2006, was $34 and $25 in assets and $2 and $58 in liabilities, respectively. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion, which is not material for any year presented, is immediately recognized in earnings.

Certain instruments used to manage foreign exchange exposure of intercompany financing transactions, income from international operations and other balance sheet items subject to revaluation do not meet the requirements for hedge accounting treatment. In these cases, the change in value of the instruments is designed to offset the foreign currency impact of the related exposure. The fair value of these instruments at June 30, 2007 and 2006, was $ 110 and $17 in assets and $78 and $19 in liabilities, respectively. The change in value of these instruments is immediately recognized in earnings. The net impact of such instruments, included in selling, general and administrative expense, was $56, $87 and $18 of gains in 2007, 2006 and 2005, respectively, which substantially offset foreign currency transaction and translation losses of the exposures being hedged.

Net Investment Hedging

We hedge certain net investment positions in major foreign subsidiaries. To accomplish this, we either borrow directly in foreign currency 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. Under SFAS 133, changes in the fair value of these instruments are immediately recognized in OCI to offset the change in the value of the net investment being hedged. Currency effects of these hedges reflected in OCI were after-tax losses of $835 and $786 in 2007 and 2006, respectively, and a $135 after-tax gain in 2005. Accumulated net balances were $2,072 and $1,237 after-tax losses as of June 30, 2007 and 2006, respectively.

Commodity Price Management

Certain raw materials utilized 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 use futures and options with maturities generally less than one year and swap contracts with maturities up to five years. These market instruments generally are designated as cash flow hedges under SFAS 133. The effective portion of the changes in fair value for these instruments is reported in OCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the hedged transactions affect earnings. The ineffective portion, which is not material for any year presented, is immediately recognized in earnings. The fair value of these cash flow hedging instruments was an asset of $70 and $32 at June 30, 2007 and 2006, respectively. During the next 12 months, $14 of the June 30, 2007 OCI balance will be reclassified to earnings consistent with the timing of the underlying hedged transactions.

Insurance

The Company purchases limited discretionary insurance to cover catastrophic property damage, business interruption, and liability risk of loss exposures. Deductibles and loss sharing will likely increase over time, recognizing the Company’s ability to cost-effectively fund losses from internal cash flow generation and access to capital markets.

NOTE 7
EARNINGS PER SHARE

Net earnings less preferred dividends (net of related tax benefits) are divided by the weighted average number of common shares outstanding 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 8) and assume conversion of preferred stock (see Note 9).

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

Years ended June 30	2007			2006			2005
NET EARNINGS	$	10,340		$	8,684		$	6,923
Preferred dividends, net of tax benefit		(161	)		(148	)		(136	)
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS		10,179			8,536			6,787
Preferred dividends, net of tax benefit		161			148			136
Preferred dividend impact on funding of ESOP		—			—			(1	)
DILUTED NET EARNINGS		10,340			8,684			6,922

Millions of dollars except per share amounts or as otherwise specified.

Notes to Consolidated Financial Statements The Procter & Gamble Company     61

Shares in millions; Years ended June 30	2007		2006		2005
Basic weighted average common shares outstanding		3,159.0		3,054.9		2,515.6
Effect of dilutive securities
Conversion of preferred shares (1)		149.6		154.1		158.3
Exercise of stock options and other unvested equity awards (2)		90.0		76.9		63.2
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		3,398.6		3,285.9		2,737.1

(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 41 million in 2007, 44 million in 2006 and 48 million in 2005 of the Company’s outstanding stock options were not included in the diluted net earnings per share calculation because 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 8
STOCK-BASED COMPENSATION

We have a primary stock-based compensation plan under which stock options are granted annually to key managers and directors with exercise prices equal to the market price of the underlying shares on the date of grant. A total of 229 million shares of common stock were authorized for issuance under plans approved by shareholders in 2001 and 2003, of which 73 million remain available for grant. An additional 20 million shares of common stock were authorized for issuance under a plan approved by Gillette shareowners in 2004 and assumed by the Company in conjunction with the acquisition of The Gillette Company in October 2005. A total of 14 million of the shares remain available for grant under this plan. There are also five million shares available for grant under the Future Shares Plan approved by the Board of Directors in 1997. This plan will terminate in October 2007. Grants issued under P&G shareholder approved plans since September 2002 are vested after three years and have a 10-year life. Grants issued under these plans from July 1998 through August 2002 are vested after three years and have a 15-year life, while grants issued prior to July 1998 are vested after one year and have a 10-year life. In addition to our key manager and director grants, we make other minor stock option grants to employees for which vesting terms and option lives are not substantially different.

Total stock-based compensation expense for stock option grants was $612, $526 and $459 for 2007, 2006 and 2005, respectively. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $163, $140 and $125 for 2007, 2006 and 2005, respectively. We also make minor grants of restricted stock, restricted stock units and other stock-based grants to certain employees. Total compensation cost for these restricted stock, restricted stock units and other stock-based grants, which are generally expensed at grant date, was $56, $59 and $65 in 2007, 2006 and 2005, respectively.

In calculating the compensation expense for options granted, we estimated the fair value of each grant issued through December 31, 2004, using the Black-Scholes option-pricing model. Effective January 1, 2005, we utilize a binomial lattice-based model for the valuation of stock option grants. The utilization of the binomial lattice-based model did not have a significant impact on the valuation of stock options as compared to the Black-Scholes model. Assumptions utilized in the model, which are evaluated and revised, as necessary, to reflect market conditions and experience, were as follows:

Years ended June 30	2007			2006			2005
Interest rate		4.3%–4.8	%		4.5%–4.7	%		3.2%–4.5	%
Weighted average interest rate		4.5	%		4.6	%		4.4	%
Dividend yield		1.9	%		1 .9	%		1 .9	%
Expected volatility		16%–20	%		15%–20	%		15%–20	%
Weighted average volatility		19	%		19	%		20	%
Expected life in years		9			9			9

Because lattice-based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed in the preceding table. Expected volatilities are based on a combination of historical volatility of our stock and implied volatilities of call options on our stock. We use historical data to estimate option exercise and employee termination patterns within the valuation model. The expected term 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 under the plans as of June 30, 2007, and activity during the year then ended is presented below:

						Weighted Avg.
						Remaining		Aggregate
				Weighted Avg.		Contractual		Intrinsic Value
Options in thousands	Options			Exercise Price		Life in Years		(in millions)
Outstanding, beginning of year		362,352		$	43.71
Granted		33,091			63.33
Exercised		(37,658	)		37.77
Canceled		(2,779	)		51.66
OUTSTANDING, END OF YEAR		355,006			46.10		7.5	$	5,424
EXERCISABLE		257,171			41.22		7.0		5,132

The weighted average grant-date fair value of options granted was $17.29, $16.30 and $14.34 per share in 2007, 2006 and 2005, respectively. The total intrinsic value of options exercised was $894, $815 and $526 in 2007, 2006 and 2005, respectively. The total grant-date fair value of options that vested during 2007, 2006 and 2005 was $552, $388 and $532, respectively. We have no specific policy to repurchase common shares to mitigate the dilutive impact of options; however, we have historically made adequate discretionary purchases, based on cash availability, market trends and other factors, to satisfy stock option exercise activity.

Millions of dollars except per share amounts or as otherwise specified.

62     The Procter & Gamble Company Notes to Consolidated Financial Statements

At June 30, 2007, there was $622 of compensation cost that has not yet been recognized related to nonvested stock-based awards. That cost is expected to be recognized over a remaining weighted average period of 1.9 years.

Cash received from options exercised was $1,422, $1,229 and $455 in 2007, 2006 and 2005, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $265, $242 and $149 in 2007, 2006 and 2005, respectively.

NOTE 9
POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN

We offer various postretirement benefits to our employees.

Defined Contribution Retirement Plans

We have defined contribution plans which cover the majority of our U.S. employees, as well as employees in certain other countries. These plans are fully funded. We generally make contributions to participants’ accounts based on individual base salaries and years of service. The primary U.S. defined contribution plan (the U.S. DC plan) comprises the majority of the balances and expense for the Company’s defined contribution plans. For the U.S. DC plan, the contribution rate is set annually. Total contributions for this plan approximated 15% of total participants’ annual wages and salaries in 2007, 2006 and 2005.

We maintain The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. DC plan, as well as other retiree benefits. Operating details of the ESOP are provided at the end of this Note. The fair value of the ESOP Series A shares allocated to participants reduces our cash contribution required to fund the U.S. DC plan. Total defined contribution expense was $273, $249 and $215 in 2007, 2006 and 2005, respectively.

Defined Benefit Retirement Plans and Other Retiree Benefits

We offer defined benefit retirement pension plans to certain employees. These benefits relate primarily to local plans outside the U.S., and to a lesser extent, plans assumed in the Gillette acquisition covering U.S. employees. These acquired Gillette plans will be frozen effective January 1, 2008.

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

As discussed in Note 1, we adopted SFAS 158 on June 30, 2007, on the required prospective basis. Our June 30, 2007 disclosure is in accordance with the new requirements.

Obligation and Funded Status. We use a June 30 measurement date for our defined benefit retirement plans and other retiree benefit plans. The following provides a reconciliation of benefit obligations, plan assets and funded status of these plans:

	Pension Benefits (1)						Other Retiree Benefits (2)
Years ended June 30	2007			2006			2007			2006
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year (3)	$	9,244		$	5,626		$	3,286		$	3,079
Service cost		279			265			85			97
Interest cost		476			383			206			179
Participants’ contributions		19			19			55			35
Amendments		24			65			12			—
Actuarial (gain) loss		1			(754	)		80			(466	)
Acquisitions (divestitures)		(8	)		3,744			—			506
Curtailments and settlements		(163	)		(9	)		(1	)		—
Special termination benefits		1			—			2			1
Currency translation and other		431			247			35			22
Benefit payments		(485	)		(342	)		(202	)		(167	)
BENEFIT OBLIGATION AT END OF YEAR(3)		9,819			9,244			3,558			3,286
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year		6,203			2,572			3,091			2,700
Actual return on plan assets		736			481			429			234
Acquisitions (divestitures)		(2	)		2,889			—			288
Employer contributions		565			427			30			21
Participants’ contributions		19			19			55			35
Currency translation and other		314			157			1			(1	)
ESOP debt impacts (4)		—			—			(14	)		(19	)
Benefit payments		(485	)		(342	)		(202	)		(167	)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR		7,350			6,203			3,390			3,091
FUNDED STATUS		(2,469	)		(3,041	)		(168	)		(195	)

(1)	Primarily non-U.S.-based defined benefit retirement plans.
(2)	Primarily U.S.-based other postretirement benefit plans.
(3)	For the pension benefit plans, the benefit obligation is the projected benefit obligation.
	For other retiree benefit plans, the benefit obligation is the accumulated postretirement benefit obligation.
(4)	Represents increases in the ESOP’s debt, which is netted against plan assets for Other Retiree Benefits.

Millions of dollars except per share amounts or as otherwise specified.

Notes to Consolidated Financial Statements The Procter & Gamble Company     63

	Pension Benefits						Other Retiree Benefits
Years ended June 30	2007			2006			2007			2006
CALCULATION OF NET AMOUNT RECOGNIZED
Funded status at end of year	$	(2,469	)	$	(3,041	)	$	(168	)	$	(195	)
Unrecognized net actuarial loss		n/a			672			n/a			275
Unrecognized transition amount		n/a			7			n/a			—
Unrecognized prior service cost		n/a			146			n/a			(220	)
NET AMOUNT RECOGNIZED		(2,469	)		(2,216	)		(168	)		(140	)
CLASSIFICATION OF NET AMOUNT RECOGNIZED
Noncurrent assets-prepaid benefit cost		469			386			347			255
Current liability-accrued benefit cost		(40	)		(216	)		(12	)		(21	)
Noncurrent liability-accrued benefit cost		(2,898	)		(2,550	)		(503	)		(374	)
Intangible asset		n/a			74			n/a			—
Accumulated other comprehensive income-minimum pension liability		n/a			90			n/a			—
NET AMOUNT RECOGNIZED		(2,469	)		(2,216	)		(168	)		(140	)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
Net actuarial loss		379			—			337			—
Prior service cost (credit)		172			—			(185	)		—
Minimum pension liability		n/a			90			n/a			—
NET AMOUNTS RECOGNIZED IN AOCI		551			90			152			—

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

The accumulated benefit obligation for all defined benefit retirement pension plans was $8,611 and $8,013 at June 30, 2007, and June 30, 2006, respectively. Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consist of the following:

	Accumulated Benefit				Projected Benefit
	Obligation Exceeds the				Obligation Exceeds the
	Fair Value of Plan Assets				Fair Value of Plan Assets
Years ended June 30	2007		2006		2007		2006
Projected benefit obligation	$	4,813	$	5,597	$	6,763	$	7,695
Accumulated benefit obligation		4,294		4,912		5,792		6,544
Fair value of plan assets		1,973		2,684		3,825		4,498

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

	Pension Benefits									Other Retiree Benefits
Years ended June 30	2007			2006			2005			2007			2006			2005
Service cost	$	279		$	265		$	162		$	85		$	97		$	67
Interest cost		476			383			241			206			179			146
Expected return on plan assets		(454	)		(353	)		(185	)		(407	)		(372	)		(333	)
Amortization of deferred amounts		13			7			6			(22	)		(22	)		(22	)
Curtailment and settlement (gain) loss		(176	)		(4	)		13			(1	)		—			—
Recognized net actuarial loss		45			76			31			2			6			1
GROSS BENEFIT COST (CREDIT)		183			374			268			(137	)		(112	)		(141	)
Dividends on ESOP preferred stock		—			—			—			(85	)		(78	)		(73	)
NET PERIODIC BENEFIT COST (CREDIT)		183			374			268			(222	)		(190	)		(214	)

Pursuant to plan revisions adopted during 2007, Gillette’s U.S. defined benefit retirement pension plans will be frozen effective January 1, 2008, at which time Gillette employees in the U.S. will move into the P&G defined contribution Profit Sharing Trust and Employee Stock Ownership Plan. This revision resulted in a $154 curtailment gain for the year ended June 30, 2007.

Amounts expected to be amortized from accumulated other comprehensive income into net period benefit cost during the year ending June 30, 2008, are as follows:

			Other
	Pension		Retiree
	Benefits		Benefits
Net actuarial loss	$	25	$	6
Prior service cost (credit)		14		(21	)

Millions of dollars except per share amounts or as otherwise specified.

64     The Procter & Gamble Company Notes to Consolidated Financial Statements

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

	Pension Benefits						Other Retiree Benefits
Years ended June 30	2007			2006			2007			2006
ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATIONS (1)
Discount rate		5.5	%		5.2	%		6.3	%		6.3	%
Rate of compensation increase		3.1	%		3.0	%		—			—
ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST (2)
Discount rate		5.2	%		4.7	%		6.3	%		5.2	%
Expected return on plan assets		7.2	%		7.3	%		9.3	%		9.2	%
Rate of compensation increase		3.0	%		3.2	%		—			—
ASSUMED HEALTH CARE COST TREND RATES
Health care cost trend rates assumed for next year		—			—			9.0	%		10.0	%
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate)		—			—			5.1	%		5.1	%
Year that the rate reaches the ultimate trend rate		—			—			2013			2012

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

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

	One-Percentage		One-Percentage
	Point Increase		Point Decrease
Effect on total of service and interest cost components	$	51	$	(41	)
Effect on postretirement benefit obligation		526		(426	)

Plan Assets. Our target asset allocation for the year ending June 30, 2008, and actual asset allocation by asset category as of June 30, 2007 and 2006, are as follows:

	Target Asset Allocation
Asset Category	Pension Benefits			Other Retiree Benefits
Equity securities (1)		57	%		96	%
Debt securities		41	%		4	%
Real estate		2	%		—
TOTAL		100	%		100	%

	Asset Allocation at June 30
	Pension Benefits						Other Retiree Benefits
Asset Category	2007			2006			2007			2006
Equity securities (1)		56	%		59	%		96	%		96	%
Debt securities		39	%		39	%		4	%		4	%
Cash		3	%		0	%		—			—
Real estate		2	%		2	%		—			—
TOTAL		100	%		100	%		100	%		100	%

(1) Equity securities for other retiree plan assets include Company stock, net of Series B ESOP debt of $2,932 and $2,693 as of June 30, 2007 and 2006, respectively.

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

Cash Flows. Management’s best estimate of our cash requirements for the defined benefit retirement plans and other retiree benefit plans for the year ending June 30, 2008, is $468 and $42, respectively. For the defined benefit retirement plans, this is comprised of $147 in expected benefit payments from the Company directly to participants of unfunded plans and $321 of expected contributions to funded plans. For other retiree benefit plans, this is comprised of expected contributions that will be used directly for benefit payments. Expected contributions are dependent on many variables, including the variability of the market value of the plan assets as compared to the benefit obligation and other market or regulatory conditions. In addition, we take into consideration our business investment opportunities and resulting cash requirements. Accordingly, actual funding may differ significantly from current estimates.

Millions of dollars except per share amounts or as otherwise specified.

Notes to Consolidated Financial Statements The Procter & Gamble Company     65

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

			Other
Years ended June 30	Pension Benefits		Retiree Benefits
EXPECTED BENEFIT PAYMENTS
2008	$	473	$	199
2009		439		216
2010		454		233
2011		468		249
2012		474		263
2013-2017		2,654		1,523

Employee Stock Ownership Plan

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

The ESOP borrowed $1.0 billion in 1989 and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the U.S. DC plan. Principal and interest requirements of the borrowing were paid by the Trust from dividends on the preferred shares and from advances from the Company. The original borrowing of $1.0 billion has been repaid in full, and advances from the Company of $216 remain outstanding at June 30, 2007. Each share is convertible at the option of the holder into one share of the Company’s common stock. The dividend for the current year was equal to the common stock dividend of $1.28 per share. The liquidation value is $6.82 per share.

In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares, net of the ESOP’s debt, are considered plan assets of the Other Retiree Benefits plan discussed above. Debt service requirements are funded by preferred stock dividends, cash contributions and advances from the Company, of which $ 123 is outstanding at June 30, 2007. Each share is convertible at the option of the holder into one share of the Company’s common stock. The dividend for the current year was equal to the common stock dividend of $ 1.28 per share. The liquidation value is $12.96 per share.

As permitted by SOP 93-6, “Employers Accounting for Employee Stock Ownership Plans,” we have elected, where applicable, to continue our practices, which are based on SOP 76-3, “Accounting Practices for Certain Employee Stock Ownership Plans.” ESOP debt, which is guaranteed by the Company, is recorded as debt (see Note 5). Preferred shares issued to the ESOP are offset by the Reserve for ESOP Debt Retirement in the Consolidated Balance Sheets and the Consolidated Statements of Shareholders’ Equity. Advances to the ESOP are recorded as an increase in the Reserve for ESOP Debt Retirement. Interest incurred on the ESOP debt is recorded as interest expense. Dividends on all preferred shares, net of related tax benefits, are charged to retained earnings.

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

Shares in thousands	2007		2006		2005
Allocated		60,402		61,614		61,904
Unallocated		20,807		23,125		25,623
TOTAL SERIES A		81,209		84,739		87,527
Allocated		21,105		21,733		21,989
Unallocated		44,642		45,594		46,338
TOTAL SERIES B		65,747		67,327		68,327

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

In connection with the Gillette acquisition, we assumed the Gillette ESOP, which was established to assist Gillette employees in financing retiree medical costs. These ESOP accounts are held by participants and must be used to reduce the Company’s other retiree benefit obligations. Such accounts reduced our obligation by $245 at June 30, 2007.

NOTE 10
INCOME TAXES

Under SFAS 109, “Accounting for 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 financial 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.

Management judgment is required in evaluating tax positions and other items that factor into determining tax provisions. Management believes its tax positions and related provisions reflected in the Consolidated Financial Statements are fully supportable. We establish reserves for additional income taxes related to 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. In such cases, the reserves for additional taxes are based on management’s best estimate of the ultimate outcome. These reserves are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress on tax audits, changes in interpretations of tax laws, developments in case law and closing of statutes of imitation. Our tax provision includes the impact of recording reserves and any changes thereto. We have a number of tax audits in process and have open tax years with various significant taxing jurisdictions that range primarily from 1997 to 2007. Based on currently available information, we do not believe the ultimate outcome of these tax audits and other tax positions related to open tax years, when finalized, will have a material adverse effect on our financial position, results of operations or cash flows.

Millions of dollars except per share amounts or as otherwise specified.

66       The Procter & Gamble Company Notes to Consolidated Financial Statements

Earnings before income taxes consisted of the following:

Years ended June 30	2007		2006		2005
United States	$	9,138	$	7,410	$	6,266
International		5,572		5,003		3,715
		14,710		12,413		9,981

The income tax provision consisted of the following:

Years ended June 30	2007		2006		2005
CURRENT TAX EXPENSE
U.S. federal	$	2,667	$	1,961	$	1,466
International		1,325		1,702		886
U.S. state and local		125		178		142
		4,117		3,841		2,494

DEFERRED TAX EXPENSE

U.S. federal	231	226		215
International and other	22	(338	)	349
	253	(112	)	564
TOTAL TAX EXPENSE	4,370	3,729		3,058

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

Years ended June 30	2007			2006			2005
U.S. federal statutory income tax rate		35.0	%		35.0	%		35.0	%
Country mix impacts of foreign operations		-4.3	%		-3.6	%		-4.8	%
AJCA repatriation tax charge		—			—			2.8	%
Income tax reserve adjustments		-0.3	%		-1.5	%		-2.3	%
Other		-0.7	%		0.1	%		-0.1	%
EFFECTIVE INCOME TAX RATE		29.7	%		30.0	%		30.6	%

Income tax reserve adjustments represent changes in estimated exposures related to prior year tax positions. Tax benefits credited to shareholders’ equity totaled $1,066 and $174 for the years ended June 30, 2007 and 2006, respectively. These primarily relate to the tax effects of net investment hedges, excess tax benefits from the exercise of stock options and the impacts of certain adjustments to pension and other retiree benefit obligations recorded in shareholders’ equity, including the impact of adopting SFAS 158 in 2007.

The American Jobs Creation Act of 2004 (the AJCA) permitted U.S. corporations to repatriate earnings of foreign subsidiaries at a one-time favorable effective federal statutory tax rate of 5.25% as compared to the highest corporate tax rate of 35%. For the year ended June 30, 2006, we repatriated $7.2 billion in earnings previously considered indefinitely invested. We provided for $295 of deferred income tax expense associated with this repatriation in the year ended June 30, 2005.

We have undistributed earnings of foreign subsidiaries of approximately $17 billion at June 30, 2007, for which deferred taxes have not been provided. Such earnings are considered indefinitely invested in the foreign subsidiaries. If such earnings were repatriated, additional tax expense may result, although the calculation of such additional taxes is not practicable.

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

June 30	2007			2006
DEFERRED TAX ASSETS
Stock-based compensation	$	1,132		$	1,063
Unrealized loss on financial and foreign exchange transactions		723			507
Pension and postretirement benefits		560			547
Loss and other carryforwards		439			615
Goodwill and other intangible assets		249			19
Advance payments		183			219
Accrued marketing and promotion expense		161			183
Accrued Gillette exit costs		138			173
Fixed assets		85			87
Other		1,076			1,025
Valuation allowances		(190	)		(398	)
		4,556			4,040

DEFERRED TAX LIABILITIES

Goodwill and other intangible assets	12,102	12,036
Fixed assets	1,884	1,861
Other	132	436
	14,118	14,333

Net operating loss carryforwards were $1,442 and $2,134 at June 30, 2007 and 2006, respectively. If unused, $663 will expire between 2008 and 2027. The remainder, totaling $779 at June 30, 2007, may be carried forward indefinitely.

NOTE 11

COMMITMENTS AND CONTINGENCIES

Guarantees

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

Millions of dollars except per share amounts or as otherwise specified.

Notes to Consolidated Financial Statements The Procter & Gamble Company       67

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

Off-Balance Sheet Arrangements

We do not have off-balance sheet financing arrangements, including variable interest entities, under FIN 46, “Consolidation of Variable Interest Entities,” that have a material impact on our financial statements.

Purchase Commitments

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: 2008-$1,360; 2009-$914; 2010-$634; 2011 -$459; 2012-$394 and $660 thereafter. Such amounts represent future purchases in line with expected usage to obtain favorable pricing. Approximately 44% of our purchase commitments relate to service contracts for information technology, human resources management and facilities management activities that were outsourced in recent years. 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 financial condition, cash flows or results of operations.

Operating Leases

We lease certain property and equipment for varying periods. Future minimum rental commitments under noncancelable operating leases are as follows: 2008-$316; 2009-$238; 2010-$208; 2011 -$174; 2012 —$102 and $408 thereafter. Operating lease obligations are shown net of guaranteed sublease income.

Litigation

We are subject to various lawsuits and claims with respect to matters such as governmental regulations, income taxes and other actions arising out of the normal course of business. While considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsuits and claims will not materially affect our financial condition, cash flows or results of operations.

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

NOTE 12

SEGMENT INFORMATION

Through fiscal year 2007, we were organized under three Global Business Units as follows:

• Beauty and Health includes the Beauty and the Health Care businesses. Beauty includes retail and professional hair care, skin care, feminine care, cosmetics, prestige fragrances, deodorants, and personal cleansing. Health Care includes oral care, persona health care and pharmaceuticals.

• Household Care includes the Fabric Care and Home Care, the Baby Care and Family Care and the Snacks, Coffee and Pet Care businesses. Fabric Care and Home Care includes laundry detergents, fabric enhancers, dish care, surface care, air care and commercia products. Baby Care and Family Care includes diapers, baby wipes, bath tissue and kitchen towels. Snacks, Coffee and Pet Care includes snacks, coffee and pet food.

• Gillette GBU includes the Blades and Razors and the Duracell and Braun businesses. Blades and Razors includes men’s and women’s blades and razors. Duracell and Braun includes batteries, electric razors and small appliances.

Under U.S. GAAP, we have seven reportable segments: Beauty; Health Care; Fabric Care and Home Care; Baby Care and Family Care; Snacks, Coffee and Pet Care; Blades and Razors; and Duracell and Braun. The accounting policies of the businesses are generally the same as those described in Note 1. Differences between these policies and U.S. GAAP primarily reflect: income taxes, which are reflected in the businesses using applicable blended statutory rates; the recording of fixed assets at historical exchange rates in certain high-inflation economies and the treatment of certain unconsolidated investees. Certain unconsolidated investees are managed as integral parts of our business units for management reporting purposes. Accordingly, these partially owned operations are reflected as consolidated subsidiaries in segment results, with 100% 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 minority interest, and apply statutory tax rates. Adjustments to arrive at our effective tax rate are also included in Corporate.

Corporate includes certain operating and non-operating activities that are not reflected in the operating results used internally to measure and evaluate the businesses, as well as eliminations to adjust management reporting principles to U.S. GAAP. Operating activities in Corporate include the results of incidental businesses managed at the corporate level along with the elimination of individual revenues and expenses generated by certain unconsolidated investees discussed in the preceding paragraph over which we exert significant influence, but do not control. Operating elements also comprise certain employee benefit costs, the costs of certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce

Millions of dollars except per share amounts or as otherwise specified.

68       The Procter & Gamble Company Notes to Consolidated Financial Statements

rationalization, and other general corporate items. The non-operating elements primarily include interest expense, divestiture gains and interest and investing income. In addition, Corporate includes the historical results of certain divested businesses, including certain Gillette brands that were divested in 2006 as required by the regulatory authorities in relation to the Gillette acquisition and the Juice business, which was divested in August of 2004. Corporate assets primarily include cash, investment securities and all goodwill.

We had net sales in the U.S. of $31.9, $29.5 and $25.3 billion for the years ended June 30, 2007, 2006 and 2005, respectively. Assets in the U.S. totaled $73.5 and $75.4 billion as of June 30, 2007 and 2006, respectively.

Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 15% of consolidated net sales in both 2007 and 2006, and 16% of consolidated net sales in 2005.

					Before-Tax						Depreciation &				Capital
Global Segment Results		Net Sales			Earnings			Net Earnings			Amortization		Total Assets		Expenditures
BEAUTY AND HEALTH
BEAUTY	2007	$	22,981		$	4,794		$	3,492		$	577	$	14,470	$	641
	2006		21,126			4,359			3,106			535		13,498		577
	2005		19,721			3,977			2,752			535		11,494		535
HEALTH CARE	2007		8,964			2,148			1,453			279		7,321		189
	2006		7,852			1,740			1,167			234		7,644		162
	2005		6,078			1,210			811			161		2,536		112
HOUSEHOLD CARE
FABRIC CARE AND HOME CARE	2007		18,971			4,156			2,793			453		7,649		654
	2006		17,149			3,553			2,369			435		6,928		567
	2005		15,796			3,186			2,129			391		6,845		647
BABY CARE AND FAMILY CARE	2007		12,726			2,291			1,440			671		7,731		769
	2006		11,972			2,071			1,299			612		7,339		739
	2005		11,652			1,924			1,197			580		7,272		684
SNACKS, COFFEE AND PET CARE	2007		4,537			759			477			164		2,176		141
	2006		4,383			627			385			159		2,122		150
	2005		4,314			714			444			162		2,197		142
GILLETTE GBU(1)
BLADES AND RAZORS (1)	2007		5,229			1,664			1,222			657		24,160		210
	2006		3,499			1,076			781			489		24,575		271
	2005		—			—			—			—		—		—
DURACELL AND BRAUN (1)	2007		4,031			588			394			194		6,998		135
	2006		2,924			400			273			155		7,384		108
	2005		—			—			—			—		—		—
CORPORATE	2007		(963	)		(1,690	)		(931	)		135		67,509		206
	2006		(683	)		(1,413	)		(696	)		8		66,205		93
	2005		(820	)		(1,030	)		(410	)		55		31,183		61
TOTAL COMPANY	2007		76,476			14,710			10,340			3,130		138,014		2,945
	2006		68,222			12,413			8,684			2,627		135,695		2,667
	2005		56,741			9,981			6,923			1,884		61,527		2,181

(1) 2006 data reflects information for the nine months ended June 30, 2006.

Millions of dollars except per share amounts or as otherwise specified.

Notes to Consolidated Financial Statements The Procter & Gamble Company      69

NOTE 13

QUARTERLY RESULTS (UNAUDITED)

Quarters ended		Sept 30			Dec 31			Mar 31			Jun 30			Total Year
NET SALES	2006-2007	$	18,785		$	19,725		$	18,694		$	19,272		$	76,476
	2005-2006		14,793			18,337			17,250			17,842			68,222
OPERATING INCOME	2006-2007		4,054			4,350			3,646			3,400			15,450
	2005-2006		3,057			3,892			3,351			2,949			13,249
GROSS MARGIN	2006-2007		52.8	%		52.9	%		51.6	%		50.8	%		52.0	%
	2005-2006		51.6	%		52.4	%		51.7	%		50.2	%		51.4	%
NET EARNINGS	2006-2007		2,698			2,862			2,512			2,268			10,340
	2005-2006		2,029			2,546			2,211			1,898			8,684
DILUTED NET EARNINGS PER COMMON SHARE	2006-2007	$	0.79		$	0.84		$	0.74		$	0.67		$	3.04
	2005-2006		0.77			0.72			0.63			0.55			2.64

Millions of dollars except per share amounts or as otherwise specified.

70       The Procter & Gamble Company

Corporate Officers⁽¹⁾

CORPORATE & COMPANY OPERATIONS
A.G. Lafley
Chairman of the Board and Chief Executive Officer

Susan E. Arnold
President—
Global Business Units

Robert A. McDonald
Chief Operating Officer

Clayton C. Daley, Jr.
Vice Chairman and
Chief Financial Officer

Richard L. Antoine
Global Human Resources
Officer

G. Gilbert Cloyd
Chief Technology Officer

R. Keith Harrison, Jr.
Global Product Supply Officer

James J. Johnson
Chief Legal Officer and
Secretary

Mariano Martin
Global Customer Business
Development Officer

Charlotte R. Otto
Global External Relations
Officer

Filippo Passerini
Chief Information &
Global Services Officer

Marc S. Pritchard
President—
Strategy Productivity
& Growth

James R. Stengel
Global Marketing Officer

Steven W. Jemison
Deputy General Counsel

Jon R. Moeller
Vice President and Treasurer

Valarie L. Sheppard
Vice President and
Comptroller

GLOBAL
BEAUTY
Charles V. Bergh
Group President—
Global Personal Care

Christopher de
Lapuente
Group President—
Global Hair Care

Bracken Darrell
President—
Braun

Virginia C. Drosos
President—
Global Personal Beauty

Robert Jongstra
President—
Global Professional Care

Hartwig Langer
President—
Global Prestige Products

GLOBAL
OPERATIONS
Werner Geissler
Vice Chairman—
Global Operations

Deborah A. Henretta
Group President—
Asia

Laurent L. Philippe
Group President—
Central & Eastern Europe,
Middle East & Africa

Edward D. Shirley
Group President—
North America

Stephen D. Bishop
President—
North America
Market Operations

Ravi Chaturvedi
President—
Northeast Asia

Giovanni Ciserani
President—
Western Europe

Daniela Riccardi
President—
Greater China

Jeffrey K. Schomburger
President—
Global Wal-Mart Team

Jorge A. Uribe
President—
Latin America

THE FOLLOWING COMPANY OFFICERS HAVE ANNOUNCED THEIR INTENTION
TO RETIRE DURING THE 2007/08 FISCAL YEAR:

Bruce L. Byrnes
Vice Chairman of the
Board and Global Brand
Building Training

Mark M. Leckie
Group President

A. Bruce Cleverly
President

Mark A. Collar
President

Paolo De Cesare
President

Fabrizio Freda
President

Mary Ann Pesce
President

Richard G. Pease
Senior Vice President

Nabil Y. Sakkab
Senior Vice President

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

Joseph F. Dooley
President—
Duracell

Mary Lynn Ferguson-
McHugh
President—
Family Care

Sharon J. Mitchell
Senior Vice President—
Research & Development,
Global Fabric Care

GLOBAL HEALTH
& WELL-BEING
Robert A. Steele
Vice Chairman—
Global Health and
Well-Being

Melanie Healey
Group President—
Global Feminine and
Health Care

Charles E. Pierce
Group President—
Global Oral Care and Coffee/Snacks

Jamie Egasti
President—
Coffee and Snacks

Thomas M. Finn
President—
Global Health Care

(1) Reflects organization structure changes effective July 1, 2007.

The Procter & Gamble Company       71

Board of Directors

Norman R. Augustine

Retired Chairman and Chief Executive Officer, Lockheed Martin Corporation (aerospace, electronics, telecommunications and information management). Director since 1989. Also a Director of The Black and Decker Corporation and ConocoPhillips. Age 72. Mr. Augustine retired from the Board of Directors following the Company’s August, 2007 Board meeting. Chairman of the Compensation & Leadership Development Committee and member of the Innovation and Technology Committee.

Bruce L. Byrnes

Vice Chairman of the Board —Global Brand Building Training. Director since 2002. Also a Director of Cincinnati Bell Inc. Age 59.

Scott D. Cook

Chairman of the Executive Committee of the Board, Intuit Inc. (a software and web services firm). Director since 2000. Also a Director of Intuit Inc. and eBay Inc. Age 55. Member of the Compensation & Leadership Development and Innovation and Technology Committees.

Joseph T. Gorman

Retired Chairman and Chief Executive Officer, TRW Inc. (automotive, aerospace and information systems) and Chairman and Chief Executive Officer, Moxahela Enterprises, LLC (venture capital). Director since 1993. Also a Director of Alcoa Inc., Imperial Chemical Industries plc, Tonsberg Magnesium Group International AB and Vector Intersect Security Acquisition Corporation. Age 69. Mr. Gorman has announced his intention to retire from the Board of Directors effective at the Company’s October, 2007 Board meeting. Chairman of the Finance Committee and member of the Compensation & Leadership Development Committee.

Rajat K. Gupta

Senior Partner at McKinsey & Company. Mr. Gupta was appointed to the Board on June 12, 2007. Also a Director of Goldman Sachs. Age 58.

A.G. Lafley

Chairman of the Board and Chief Executive Officer of the Company. Director since 2000. Also a Director of General Electric Company and Dell Inc. Age 60.

Charles R. Lee

Retired Chairman of the Board and Co-Chief Executive Officer of Verizor Communications Inc. (telecommunication services). Director since 1994. Also a Director of The DIRECTV Group, Inc., Marathon Oil Corporation United Technologies Corporation and US Steel Corporation. Age 67. Chairman of the Governance & Public Responsibility Committee and member of the Audit and Compensation & Leadership Development Committees.

Lynn M. Martin

Former Professor at the J.L. Kellogg Graduate School of Management, Northwestern University and former Chair of the Council for the Advancement of Women and Advisor to the firm of Deloitte & Touche LLP for Deloitte’s internal human resources and minority advancement matters. Director since 1994. Also a Director of AT&T Inc., Ryder System, Inc., Dreyfus Funds and Constellation Energy Group, Inc. Age 67. Member of the Finance and Governance & Public Responsibility Committees.

W. James McNerney, Jr.

Chairman of the Board, President and Chief Executive Officer of The Boeing Company (aerospace, commercial jetliners and military defense systems). Director since 2003. Also Director of The Boeing Company. Age 58. Chairman of the Compensation & Leadership Development Committee and member of the Audit and Finance Committees.

Johnathan A. Rodgers

President and Chief Executive Officer, TV One, LLC (media and communications). Director since 2001. Also a Director of Nike, Inc. Age 61. Member of the Innovation and Technology Committee.

John F. Smith, Jr.

Retired Chairman of the Board and Chief Executive Officer, Genera Motors Corporation (automobile and related businesses), and retired Chairman of the Board of Delta Air Lines, Inc. Director since 1995. Also a Director of Swiss Reinsurance Company. Age 69. Chairman of the Audit Committee and member of the Governance & Public Responsibility Committee.

Ralph Snyderman, M.D.

Chancellor Emeritus, James B. Duke Professor of Medicine at Duke University. Director since 1995. Also a Director of Targacept, Inc. and a Venture Partner of NEA. Age 67. Chairman of the Innovation & Technology Committee and member of the Audit and Finance Committees.

Margaret C. Whitman

President and Chief Executive Officer, eBay Inc. Director since 2003. Also a Director of eBay Inc. and Dreamworks Animation SKG, Inc. Age 51. Member of the Compensation & Leadership Development and Governance & Public Responsibility Committees.

Ernesto Zedillo

Former President of Mexico and Director of the Center for the Study of Globalization and Professor in the field of International Economics and Politics at Yale University. Director since 2001. Also a Director of Alcoa Inc. Age 55. Member of the Finance and Governance & Public Responsibility Committees.

THE BOARD OF DIRECTORS HAS FIVE COMMITTEES:

Audit Committee
Compensation & Leadership Development Committee
Finance Committee
Governance & Public Responsibility
Innovation & Technology Committee

72      The Procter & Gamble Company

Shareholder Information

IF ...

• You need online access or help with your account

• You want to save costs by receiving future P&G annual reports electronically

• You are interested in our certificate safekeeping service

• You want to arrange for direct deposit of dividends

• You have a lost, stolen or destroyed stock certificate

CALL PERSON-TO-PERSON

•	Shareholder Services representatives are available
	Monday-Friday, 9-4 EST at 1-800-742-6253
	(call 1-513-983-3034 outside the USA and Canada)
•	Automated service available after USA business hours

CONTACT P&G —24 HOURS A DAY

• Visit us online at www.pg.com/investor where you can get stock purchase information, transaction forms, Company annual reports and webcasts

• E-mail us at shareholders.im@pg.com

• Call for financial information at 1-800-764-7483 (call 1-513-945-9990 outside the USA and Canada)

COMMON STOCK PRICE RANGE AND DIVIDENDS

	Price Range
	2006-2007			2006-2007			2005-2006			2005-2006
Quarter Ended	High			Low			High			Low
September 30		$	62.85		$	55.25		$	59.46		$	51.91
December 31			64.73			61.50			59.70			54.62
March 31			66.30			60.42			62.50			57.00
June 30			64.75			60.76			58.73			52.75

	Dividends
Quarter Ended	2006-2007		2005-2006
September 30	$	0.310	$	0.280
December 31		0.310		0.280
March 31		0.310		0.280
June 30		0.350		0.310

DIVIDEND HISTORY

P&G has paid dividends without interruption since its incorporation in 1890, and has increased dividends each year for the past 51 years. Over the past 51 years, P&G’s compound annual dividend growth has exceeded 9%.

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

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

REGISTRAR
The Bank of New York Trust Company, N.A.
Corporate Trust Division
525 Vine Street, Suite 900
Cincinnati, OH 45202

EXCHANGE LISTING
New York, Paris

STOCK SYMBOL
PG

SHAREHOLDERS OF COMMON STOCK

There were approximately 2,220,000 common stock shareowners, including shareholders of record, participants in the Shareholder Investment Program, participants in P&G stock ownership plans and beneficial owners with accounts at banks and brokerage firms, as of June 30, 2007.

FORM 10-K

Shareholders may obtain a copy of P&G’s 2007 report to the Securities and Exchange Commission on Form 10-K by going to www.pg.com/investor or by calling us at 1-800-764-7483. This information is also available at no charge by sending a request to Shareholder Services at the address listed above.

The most recent certifications by our Chief Executive and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to our Form 10-K for the fiscal year ended June 30, 2007. We have also filed with the New York Stock Exchange the most recent Annual CEO certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.

ANNUAL MEETING

The next annual meeting of shareholders will be held on Tuesday, October 9, 2007. A full transcript of the meeting will be available from Susan Felder, Assistant Secretary. Ms. Felder can be reached at One P&G Plaza, Cincinnati, Ohio 45202-3315.

The Procter & Gamble Company       73

Financial Summary (Unaudited)

Amounts in
millions, except
per share amounts	2007			2006			2005			2004			2003			2002			2001			2000			1999			1998			1997
Net sales	$	76,476		$	68,222		$	56,741		$	51,407		$	43,377		$	40,238		$	39,244		$	39,951		$	38,125		$	37,154		$	35,764
Gross margin		39,790			35,097			28,869			26,264			21,155			19,159			17,071			18,395			16,901			16,019			15,229
Operating income		15,450			13,249			10,469			9,382			7,312			6,073			4,260			5,678			6,130			5,581			5,318
Net earnings		10,340			8,684			6,923			6,156			4,788			3,910			2,612			3,363			3,683			3,472			3,305
Net earnings margin		13.5	%		12.7	%		12.2	%		12.0	%		11.0	%		9.7	%		6.7	%		8.4	%		9.7	%		9.3	%		9.2	%
Basic net earnings per common share	$	3.22		$	2.79		$	2.70		$	2.34		$	1.80		$	1.46		$	0.96		$	1.24		$	1.35		$	1.25		$	1.18
Diluted net earnings per common share		3.04			2.64			2.53			2.20			1.70			1.39			0.92			1.17			1.27			1.18			1.10
Dividends per common share		1.28			1.15			1.03			0.93			0.82			0.76			0.70			0.64			0.57			0.51			0.45
Restructuring program charges’(1)	$	—		$	—		$	—		$	—		$	751		$	958		$	1,850		$	814		$	481		$	—		$	—
Research and development expense		2,112			2,075			1,940			1,802			1,665			1,601			1,769			1,899			1,726			1,546			1,469
Advertising expense		7,937			7,122			5,929			5,466			4,487			3,782			3,729			3,906			3,542			3,638			3,414
Total assets		138,014			135,695			61,527			57,048			43,706			40,776			34,387			34,366			32,192			31,042			27,598
Capital expenditures		2,945			2,667			2,181			2,024			1,482			1,679			2,486			3,018			2,828			2,559			2,129
Long-term debt		23,375			35,976			12,887			12,554			11,475			11,201			9,792			9,012			6,265			5,774			4,159
Shareholders’ equity		66,760			62,908			18,475			18,190			17,025			14,415			12,560			12,673			12,352			12,493			12,139

(1) Restructuring program charges, on an after-tax basis, totaled $538, $706, $1,475, $688 and $285 for 2003, 2002, 2001, 2000 and 1999, respectively.

Shareholder Return Performance Graphs

The following graphs compare the five-year and ten-year cumulative total return of P&G’s common stock as compared with the S&P 500 Stock Index, the Dow Jones Industrial Average Index, and a composite group comprised of the S&P Household Products Index, the S&P Paper Products Index, the S&P Personal Products Index, the S&P Health Care Index and the S&P Food Index. The composite group is weighted based on P&G’s current fiscal year revenues. The graphs assume that $100 was invested on June 30, 2002, and June 30, 1997, in each of the investment options and that all dividends were reinvested.

74  The Procter & Gamble Company      

P&G at a Glance

				Net Sales by
				GBU (1)
GBU	Reportable Segment	Key Products	Billion-Dollar Brands	(in billions)
BEAUTY AND HEALTH	Beauty	Cosmetics, Deodorants, Feminine Care,	Always, Head & Shoulders, Olay	$	31.9
		Fine Fragrances, Hair Care,	Pantene, Wella
		Personal Cleansing, Skin Care,
	Health Care	Oral Care, Personal Health Care,	Actonel, Crest, Oral-B
		Pharmaceuticals
HOUSEHOLD CARE	Fabric Care and	Fabric Care, Air Care, Dish Care,	Ariel, Dawn, Downy, Gain, Tide	$	36.2
	Home Care	Surface Care
	Baby Care and	Diapers, Baby Wipes, Bath Tissue,	Bounty, Charmin, Pampers
	Family Care	Facial Tissue, Paper Towels
	Snacks, Coffee	Coffee, Pet Food, Snacks	Folgers, lams, Pringles
	and Pet Care
GILLETTE GBU	Blades and Razors	Men’s and Women’s Blades and Razors	Gillette, Mach3	$	9.3
	Duracell and Braun	Batteries, Electric Razors, Small Appliances	Braun, Duracell

(1) Partially offset by net sales in corporate to eliminate the sales of unconsolidated entities included in business unit results.

2007 NET SALES

(% of total business segments)

RECOGNITION

P&G is recognized as a leading Global Company, including a #3 ranking on Fortune’s Global Most Admired Companies, “Top Ten” on the Harris Interactive/Wall Street Journal list of Companies with the world’s best reputation, the #1 ranking in Fortune’s U.S. Household & Personal Products most admired list, a #2 ranking on the Hay Group list of Best Companies for Leaders, and the Market Sector Leader for Household Products in the Dow Jones Sustainability Index.

P&G ranks among the top companies for Executive Women (National Association for Female Executives), African Americans (Working Mother and Women of Color Magazines), Working Mothers (Working Mother Magazine), and Best Corporate Citizens (Business Ethics Magazine).

Supplier diversity is a fundamental business strategy at P&G. In 2007, P&G spent over $1.9 billion with minority- and women-owned businesses. P&G is a member of the Billion Dollar Roundtable, a forum of 14 corporations that spend more than $1 billion annually with diverse suppliers.

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

	P&G Global Sustainability
	Improving quality of life, now and for generations to come

P&G is committed to helping to solve the world’s sustainability challenges. We do this through product innovations that enhance and improve environmental profile with no performance and value trade-offs (see page 16 to learn about one example, Tide Coldwater). We do this by reducing the environmental footprint of our operations. And we do this through our contributions to helping children in need. We know companies like P&G can be a force for good in the world. This is a responsibility and an opportunity that we embrace.

A.G. Lafley

Chairman of the Board
and Chief Executive Officer

We are inspired and motivated by the world’s sustainability challenges and are committed to using our technologies, human capital, global scale and experience to ensure a sustainable world now and for generations to come.

One example of how we are committed to this effort is through our global cause, P&G Live, Learn and Thrive™, which focuses on improving life for children in need from birth to age 13. Through our cause, we are reaching more than 50 million children in need every year with programs that help them get off to a healthy start, receive access to education, and build their skills for life.

The signature program for Live, Learn and Thrive is our Children’s Safe Drinking Water program. The goal of this program is to reduce the illness and death of children that results from drinking contaminated water. To date, 70 million packets of P&G’s PUR™ Purifier of Water have been provided around the world for emergency relief and social markets—enough to produce 700 million liters of safe drinking water.

Please find our Global Sustainability and Philanthropy Report at www.pg.com/sr.

Live
P&G’s Pampers brand, in partnership with UNICEF, is improving life in Latin America by providing low-income families with nutrition programs and training on child development to help children get off to a healthy start.
Learn
India has the world’s largest number of children without access to education. P&G is working with Child Rights and You to provide infrastructure and community economic development to enable more than 65,000 children to attend school for the first time.
Thrive
P&G employees devote time and talent to the community in Saudi Arabia through camps dedicated to orphan children. The camps focus on building self-esteem and teaching life success skills that will have a sustainable impact for the children.

EX-21

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

AB Tudor Hellesens [Sweden]

Adipar, Ltd. [Delaware]

AG für Aetherische Oele [Switzerland]

Agile Pursuits, Inc. [Ohio]

Alejandro Llauro E. Hijos S.A.I.C. [Argentina]

Anjali (HK) Corporation Limited [Hong Kong]

An-Pro Company [Ohio]

Arab Orient Holding [Lebanon]

Atkinsons of London Ltd. [Great Britain]

B&C International Co. (BVI) Ltd. [British Virgin Islands]

B.V.B.A. Intercosmetic S.P.R.L. [Belgium]

Baraca Planet, Sociedad Limitada [Spain]

Beauty Center AG [Russia]

Becruz, S.A. de C.V. [Mexico]

Belcosa Distribuidora de Cosmétic [Brazil]

Belfam Industria Cosmetic S.A. [Brazil]

Belvedere USA Corp. [Delaware]

Betrix Cosmetic GmbH [Germany]

Braun (Shanghai) Co., Ltd. [China]

Braun (Shanghai) International Trading Co., Ltd. [China]

Braun (U.K.) Limited [U.K.]

Braun de Mexico GmbH [Germany]

Braun de Mexico y Compania de C.V. [Mexico]

Braun Espanola, Sociedad Anonima [Spain]

Braun GmbH [Germany]

Braun Oral-B Ireland Limited [Ireland]

CAMADA Grundstücks-GmbH & Co. OHG [Germany]

Celtic Insurance Company Limited [Bermuda]

Chemlog LLC [Ohio]

Chemo Laboratories Manufacturing [Malaysia]

China Battery Limited [Hong Kong]

Clairol (China) Ltd. [China]

Clairol Brasil Higiene e Cosmeticos Ltda [Brazil]

Clairol Limited [U.K.]

Clivia Publicidade Ltda. [Brazil]

Colfax Laboratories (India) Ltd. [India]

Colonia S.p.A. [Italy]

Colton Razor Blade Company [Massachusetts]

Compania Giva, S.A. [Delaware]

Compania Interamericana Gillette, S.A. [Panama]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Compania Procter & Gamble Mexico, S. de R.L. de C.V. [Mexico]

Compañia Quimica S.A. [Argentina]

Computehair Ltd. [Great Britain]

Consul GmbH [Germany]

Consumer Studies, Inc. [Massachusetts]

CONTAKTE GmbH, Friseur Management [Germany]

Corporativo Procter & Gamble, S. de R.L. de C.V. [Mexico]

Corpydes S.A. de C.V. [Mexico]

Corvatsch Trust reg. [Liechtenstein]

Cosmetic Products Pty., Ltd. [Australia]

Cosmetic Suppliers Pty., Ltd. [Australia]

Cosmetics Beauty Inc. [New Jersey]

Cosmital S.A. [Switzerland]

Cosmochem Chemische Vertriebsges. [Germany]

Cosmonor Distribuidora de Cosméti [Brazil]

Cosmopolitan Cosmetics (Pty) Ltd. [South Africa]

Cosmopolitan Cosmetics GmbH [Germany]

Cosmopolitan Cosmetics Internatio [Germany]

Cosmopolitan Cosmetics International GmbH & Co. oHG [Germany]

Cosmopolitan Cosmetics K.K. [Japan]

Cosmopolitan Cosmetics Korea Co., [Republic of Korea]

Cosmopolitan Cosmetics Ltd. [Hong Kong]

Cosmopolitan Cosmetics S.A. [Argentina]

Cosmopolitan Cosmetics S.A. [Portugal]

Cosmopolitan Cosmetics S.r.l. [Italy]

Cosmopolitan Cosmetics Scandinavia A/S [Denmark]

Cosmoresearch Co. Ltd. [Japan]

Crest Toothpaste Inc. [Canada]

Detergent Products A.G. [Switzerland]

Deutsche Procter & Gamble Unternehmensbeteiligungs GmbH [Germany]

Dicosma Distribuidora de Cosmétic [Brazil]

Dictus Grundstücks-Verwaltungsges [Germany]

District Pet Imaging, LLC [Ohio]

Duracell (1993) Ltd. [U.K.]

Duracell (China) Ltd. [China]

Duracell Batteries B.V.B.A. [Belgium]

Duracell Batteries Ltd. [U.K.]

Duracell do Brasil Industria e Comercio Ltda. [Brazil]

Eastern European Supply Company [Ukraine]

Eau de Cologne- & Parfumerie-Fabrik GmbH [Germany]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Ecopan Inc. [Panama]

Empresa de elaboracion, importacion, y venta de productos Gillette, S.A. de C.V. [Guatemala]

Ensambles de Silleria de Mexico S.A. de C.V. [Mexico]

Escada Cosmetics Ltd [Republic of Korea]

Eurocos Cosmetic GmbH [Germany]

EURO-Juice G.m.b.H. Import und Vertrieb [Germany]

European Beauty Products (U.K.) Limited [U.K.]

FBV Friseurbetriebe-Verwaltungsge [Germany]

FBV Service GmbH & Co. Beteiligun [Germany]

FBV Service GmbH & Co. Holding OH [Germany]

Ferraris BT [Hungary]

Fincay [U.K.]

FINCO DO BRASIL FOMENTO COMERCIAL [Brazil]

FINCO HOLDINGS (BVI) Inc. [British Virgin Islands]

Fincorp [U.K.]

Fine Beauty Care (Pte) Ltd. [Namibia]

FINPAR-Finco do Brasil Participac [Brazil]

Finpark [U.K.]

Finusa S.A. [Argentina]

F-Net Co., Ltd. [Japan]

Foreign Company “Procter & Gamble” [Belarus]

Fountain Square Music Publishing Co., Inc. [Ohio]

Fruehling Cosmetics Co. Ltd. [Thailand]

Fujian Nanping Nanfu Battery Co., Ltd. [China]

Gala Cosmetics International Limited [U.K.]

Gala Marketing [Ukraine]

Gala of London Limited [U.K.]

Garrity Industries Inc. [Connecticut]

Gilfin B.V. [Netherlands]

Gilfin Holding B.V. [Netherlands]

Gillette (China) Ltd. [China]

Gillette (Malaysia) Sdn. Bhd. [Malaysia]

Gillette (Philippines) Inc. [Philippines]

Gillette (PPI) 2000 [U.K.]

Gillette (Shanghai) Ltd. [China]

Gillette (Shanghai) Sales Company Limited [China]

Gillette (Thailand) Limited [Thailand]

Gillette Aesop Ltd. [U.K.]

Gillette Argentina Holding LLC [Delaware]

Gillette Argentina S.A. [Argentina]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Gillette Asia, Inc. [Delaware]

Gillette Australia Pty. Ltd. [Australia]

Gillette Bangladesh Private Ltd. [Bangladesh]

Gillette Belgium Holding LLC [Delaware]

Gillette Berlin Holding GmbH [Germany]

Gillette Beteiligungs GmbH [Germany]

Gillette Brasil Holding B.V. [Netherlands]

Gillette Canada Holdings, Inc. [Delaware]

Gillette Canada Overseas Holding Company [Canada]

Gillette CEEMEA Holding, LLC [Ohio]

Gillette Central Services Limited [U.K.]

Gillette China Investment Ltd. [Bermuda]

Gillette Commercial Operations North America [Massachusetts]

Gillette Czech and Ukraine Holding, LLC [Ohio]

Gillette de Mexico Holding, LLC [Ohio]

Gillette de Mexico, Inc. [Delaware]

Gillette de Mexico, S. de R.L. de C.V. [Mexico]

Gillette del Uruguay, S.A. [Uruguay]

Gillette Deutschland GmbH & Co. oHG [Germany]

Gillette Distribuidora Holding, LLC [Ohio]

Gillette Distribution Ltd. [Egypt]

Gillette Diversified Operations Pvt. Ltd. [India]

Gillette Dominicana, S.A. [Dominican Republic]

Gillette Egypt S.A.E. [Egypt]

Gillette European Services Centre Ltd. [U.K.]

Gillette Financial Holding B.V. [Netherlands]

Gillette Fountain LLC [Delaware]

Gillette Global Trading S.a.r.l. [Switzerland]

Gillette GOK Holding LLC [Ohio]

Gillette Group (Europe) Holding B.V. [Netherlands]

Gillette Group (S.E.A.) Pte. Ltd. [Singapore]

Gillette Group Belgium BVBA [Belgium]

Gillette Group India Private Limited [India]

Gillette Group LLC [Russia]

Gillette Group U.K. Ltd. [U.K.]

Gillette Gruppe Deutschland GmbH [Germany]

Gillette Holding Company, Inc. [Delaware]

Gillette Holding GmbH [Germany]

Gillette Hong Kong Limited [Hong Kong]

Gillette India Limited [India]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Gillette Industries Ltd. [U.K.]

Gillette International B.V. [Netherlands]

Gillette Ireland Limited [Ireland]

Gillette Japan, LLC [Delaware]

Gillette Korea Holding B.V. [Netherlands]

Gillette Lanka (Private) Ltd. [Sri Lanka]

Gillette Latin America Holding B.V. [Netherlands]

Gillette Management (S.E.A.) Pte. Ltd. [Singapore]

Gillette Management LLC [Delaware]

Gillette Management Services Ltd. [U.K.]

Gillette Manufactura Holding LLC [Ohio]

Gillette Manufactura, SdeRL de CV [Mexico]

Gillette Morocco SAS [Morocco]

Gillette Nova Scotia Company [Canada]

Gillette Pakistan Limited [Pakistan]

Gillette Petersburg Investment Inc. [Delaware]

Gillette Poland International sp. z.o.o. [Poland]

Gillette Poland S.A. [Poland]

Gillette Products Private Limited [India]

Gillette Puerto Rico LLC [Puerto Rico]

Gillette Russia Holding LLC [Ohio]

Gillette Safety Razor Company [Massachusetts]

Gillette Sanayi ve Ticaret A.S. [Turkey]

Gillette Singapore Pte. Ltd. [Singapore]

Gillette Southern Cone,A233 LLC [Ohio]

Gillette Stationery Benelux B.V. [Netherlands]

Gillette Taiwan, LLC [Delaware]

Gillette U.K. Limited [U.K.]

Gillette Ukraine LLC [Ukraine]

Gillette Verwaltungs GmbH [Germany]

Gillette Worldwide Holding LLC [Delaware]

Giorgio Beverly Hills, Inc. [Delaware]

Global Business Services de Costa Rica Limitada [Costa Rica]

Graham Webb International, Inc. [Delaware]

Gresham Cosmetics Pty Ltd [Australia]

Grupo Gillette Holding, LLC [Ohio]

Grupo Gillette, S. de R.L. de C.V. [Mexico]

Handelmaatschappij van Ravensberg [Netherlands]

HDS Cosmetics Lab Inc. [Delaware]

Herman Lepsøe A/S [Norway]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Herve Leger Parfums GmbH [Germany]

Hikari Biyo Kagaku Co. Ltd. [Japan]

Humatro Corporation [Delaware]

Hyginett KFT [Hungary]

Iams Argentina S.A. [Argentina]

Iams Australia/New Zealand Pty. Ltd. [Australia]

Iams Chile Limitada [Chile]

Iams do Brasil Comercial, Exportadora e Importadora Ltda. [Brazil]

Iams Europe B.V. [Netherlands]

Iams Global, Inc. [Ohio]

Iams Japan K.K. [Japan]

Iams Mexico, S. de R.L. de C.V. [Mexico]

Iams New Zealand Limited [New Zealand]

Iams Pet Food International N.V. [Netherlands]

Iams Pet Imaging, Inc. [Ohio]

Iams Pet Imaging, LLC [Ohio]

Iams S. Africa Pty. [S. Africa]

Iams Servicios, S. de R.L. de C.V. [Mexico]

Iams U.K. Limited [U.K.]

Industrias Modernas, S.A. [Guatemala]

Industries Marocaines Modernes [Morocco]

Inmobiliaria Procter & Gamble de Venezuela, S.C.S. [Venezuela]

Inmobiliaria Procter & Gamble de Venezuela, S.R.L.[Venezuela]

Intercosmetic BVBA [Belgium]

Interkosmetik Gesellschaft m.b.H. [Austria]

Intpropco S.A. [Switzerland]

Inversiones Industrias Mammi, S.C.A. [Venezuela]

Inversiones Industrias Mammi-1, S.R.L. [Venezuela]

Inversiones Procter & Gamble de Venezuela, S.C.A. [Venezuela]

Inversiones Procter & Gamble de Venezuela-1, S.R.L. [Venezuela]

Inverta Verwaltungsgesellschaft m [Germany]

Ipse Beteiligungsgesellschaft mbH [Germany]

Juvian Fabric Care Corporation [Ohio]

Kadabell GmbH & Co. KG [Germany]

Kadabell GmbH [Germany]

Kasmare Ltd. [Great Britain]

Komal Manufacturing Chemists Ltd. [India]

Kosinus Beteiligungs-GmbH [Germany]

Laboratorios Vicks, S.L. [Spain]

Liberty Street Music Publishing Company, Inc. [Ohio]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

LLC “Procter & Gamble Manufacturing Istra” [Russia]

LLC “Procter & Gamble Novomoskovsk” [Russia]

LLC “Procter & Gamble Services” [Russia]

LLC “Procter & Gamble” [Russia]

Londa GmbH [Germany]

Londa Kosmetika SAO [Russia]

Londa Rothenkirchen Produktions G [Germany]

Lustrasilk International U.K. Limited [U.K.]

Malabar (HK) Corporation Limited [Hong Kong]

Marcosma Distribuidora de Cosméti [Brazil]

Marcvenca Inversiones, C.A. [Venezuela]

Max Factor & Co. (U.K.) Ltd. [Bermuda]

Max Factor & Co. [Delaware]

Max Mara Parfums France S.A.S. [France]

Merveille S.A. [Switzerland]

Metropolitan Cosmetics GmbH [Germany]

Metropolitan Cosmetics Pte. Ltd. [Singapore]

Midway Holdings Ltd. [Cayman Islands]

Millstone Coffee, Inc. [Washington]

Mining Consultants (India) Private Ltd. [India]

Mir Kosmetiki [Russia]

Modern Hairdressing Supplies (Pty) [South Africa]

Modern Holdings (Pty) Ltd. [South Africa]

Modern Industrial Products FZE [United Arab Emirates]

Modern Industries Company — Dammam [Saudi Arabia]

Modern Industries Company — Jeddah [Saudi Arabia]

Modern Products Company — Jeddah [Saudi Arabia]

Moorgate Industries Sdn. Bdh. [Malaysia]

Muelhens GmbH & Co. KG [Germany]

Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal]

Nexus Mercantile Private Ltd. [India]

Noon-in-China, LLC [Delaware]

North Carolina Pet Imaging, LLC [Ohio]

Noxell Corporation [Maryland]

Olay Company, Inc. [Delaware]

Olay LLC [Puerto Rico]

Ondabel S.A. [Argentina]

Ondal France E.u.r.l. [France]

Ondal Industrietechnik GmbH [Germany]

Ondal USA Inc. [Delaware]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Ondal USA Inc. [Virginia]

Ondawel (G.B.) Ltd. [Great Britain]

Ondelle S.A.(Pty) Ltd. [South Africa]

OOO “Capella” [Russia]

OOO “Russwell” [Russia]

OOO P&G Distribution Co. [Russia]

Oral-B (Shanghai) Ltd. [China]

Oral-B Laboratories [Delaware]

Oral-B Laboratories Dublin LLC [Delaware]

Oral-B Laboratories International LLC [Delaware]

Oral-B Laboratories Islands Ltd. [Cayman Islands]

Oral-B Laboratories Newbridge LLC [Delaware]

Oral-B Laboratories U.K. [U.K.]

P & G Prestige Beauté GmbH [Germany]

P&G Asia Holding B.V. [Netherlands]

P&G BATH LUXERIES LIMITED [Great Britain]

P&G Holding B.V. [Netherlands]

P&G Holding Company S.R.L. [Argentina]

P&G Indochina [Vietnam]

P&G Industrial Peru S.R.L. [Peru]

P&G Inversiones S.A. [Argentina]

P&G Investments Limited [Costa Rica]

P&G Israel M.D.O. Ltd. [Israel]

P&G K.K. [Japan]

P&G Kobe Yugen Kaisha [Japan]

P&G Northeast Asia Pte. Ltd. [Singapore]

P&G Prestige Beaute Cosmetic Warenvertrieb GmbH [Austria]

P&G Prestige Beaute GmbH [Germany]

P&G Prestige Beaute S.A.R.L. [Switzerland]

P&G Prestige Products [Russia]

P&G Prestige Products A/S [Denmark]

P&G Prestige Products AG [Switzerland]

P&G Prestige Products B.V. [Netherlands]

P&G Prestige Products GmbH [Austria]

P&G Prestige Products GmbH [Germany]

P&G Prestige Products Ltd. [U.K.]

P&G Prestige Products NV [Belgium]

P&G Prestige Products S.A.S. [France]

P&G Prestige Products, Inc. [Connecticut]

P&G Rokko Yugen Kaisha [Japan]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

P&G Servicios S.A. [Argentina]

P&G South African Trading (Pty.) Ltd [South Africa]

P&G-Clairol, Inc. [Delaware]

P.T. Gillette Indonesia [Indonesia]

P.T. Mawar Sejati [Indonesia]

P.T. Procter & Gamble Home Products Indonesia [Indonesia]

PADOS Grundstücks-Vermietungsgese [Germany]

Palo Co. Ltd. [Japan]

Papierhygiene GmbH [Germany]

Parfums Rochas S.A. [France]

Parkfin Limited [U.K.]

Person Verwaltungs-GmbH & Co. OHG [Germany]

Petersburg Products International ZAO [Russia]

PFX Worldwide Sales Inc. [Ohio]

PL Battery BVBA [Belgium]

PPProducts SARL [Switzerland]

PPS Hairwear Australia Pty Ltd [Australia]

Procter & Gamble (Chengdu) Ltd. [China]

Procter & Gamble (China) Ltd. [China]

Procter & Gamble (East Africa) Limited [Kenya]

Procter & Gamble (Egypt) Manufacturing Company [Egypt]

Procter & Gamble (Enterprise Fund) Limited [U.K.]

Procter & Gamble (Guangzhou) Ltd. [China]

Procter & Gamble (Health & Beauty Care) Limited [U.K.]

Procter & Gamble (L&CP) Limited [U.K.]

Procter & Gamble (Malaysia) Sdn. Berhad [Malaysia]

Procter & Gamble (Manufacturing) Ireland Limited [Ireland]

Procter & Gamble (NBD) Pty. Ltd. [Australia]

Procter & Gamble (Shanghai) International Trade Company Ltd. [China]

Procter & Gamble (Vietnam) Ltd. [Vietnam]

Procter & Gamble (Yemen) Ltd [Yemen]

Procter & Gamble Acquisition GmbH [Germany]

Procter & Gamble Albania Ltd. [Albania]

Procter & Gamble Algeria EURL [Algeria]

Procter & Gamble Amazon Holding B.V. [Netherlands]

Procter & Gamble Amiens S.A.S. [France]

Procter & Gamble Argentina Sociedad Colectiva [Argentina]

Procter & Gamble Asia Pacific Ltd. [Hong Kong]

Procter & Gamble Asia Pte. Ltd. [Singapore]

Procter & Gamble Australia Holding, LLC [Ohio]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Procter & Gamble Australia Proprietary Limited [Australia]

Procter & Gamble Austria GmbH [Austria]

Procter & Gamble Azerbaijan Services [Azerbaijan]

Procter & Gamble Bangladesh Private Ltd. [Bangladesh]

Procter & Gamble Belize Ltda. [Belize]

Procter & Gamble Beverages GmbH [Germany]

Procter & Gamble Blois S.A.S. [France]

Procter & Gamble Bolivia S.R.L. [Bolivia]

Procter & Gamble Braun de Mexico Holding, LLC [Ohio]

Procter & Gamble Brazil Holdings B.V. [Netherlands]

Procter & Gamble Bulgaria EOOD [Bulgaria]

Procter & Gamble Business Services Canada Company [Canada]

Procter & Gamble Canada Holding B.V. [Netherlands]

Procter & Gamble Central & Eastern Europe GmbH [Germany]

Procter & Gamble Central Europe Holding B.V. [Netherlands]

Procter & Gamble Chemical Services Pte. Ltd. [Singapore]

Procter & Gamble Chile Holding Ltda. [Chile]

Procter & Gamble Chile, Inc. [Ohio]

Procter & Gamble China Distribution Company [China]

Procter & Gamble Colombia Ltda. [Colombia]

Procter & Gamble Comercial Limitada [Chile]

Procter & Gamble Commercial de Cuba, S.A. [Cuba]

Procter & Gamble Commercial LLC [Puerto Rico]

Procter & Gamble Czech Holding B.V. [Netherlands]

Procter & Gamble Czech Republic [Czech Republic]

Procter & Gamble d.o.o. za trgovinu [Croatia]

Procter & Gamble Danmark ApS [Denmark]

Procter & Gamble de Nicaragua y Compania Ltda. [Nicaragua]

Procter & Gamble de Venezuela, S.C.A. [Venezuela]

Procter & Gamble de Venezuela, S.R.L. [Venezuela]

Procter & Gamble Detergent (Beijing) Ltd. [China]

Procter & Gamble Development Company A.G. [Switzerland]

Procter & Gamble Distributing (HK) Limited [Hong Kong]

Procter & Gamble Distributing (Philippines) Inc. [Philippines]

Procter & Gamble Distributing New Zealand [New Zealand]

Procter & Gamble Distribution Company (Europe) BVBA [Belgium]

Procter & Gamble Distribution S.R.L. [Romania]

Procter & Gamble Distributorskaya Compania [Russia]

Procter & Gamble do Brasil S/A [Brazil]

Procter & Gamble do Brazil, LLC [Delaware]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Procter & Gamble DS Polska Spolka z.o.o.[Poland]

Procter & Gamble Eastern Europe, LLC [Ohio]

Procter & Gamble Ecuador Cia. Ltda. [Ecuador]

Procter & Gamble Egypt [Egypt]

Procter & Gamble Egypt Distribution [Egypt]

Procter & Gamble Egypt Holding [Egypt]

Procter & Gamble Egypt Supply [Egypt]

Procter & Gamble Energy Company LLC [Ohio]

Procter & Gamble Espana S.A. [Spain]

Procter & Gamble Estonia Ltd. [Estonia]

Procter & Gamble Eurocor N.V. [Belgium]

Procter & Gamble Europe N.V. [Belgium]

Procter & Gamble Europe SA [Switzerland]

Procter & Gamble European Services SARL [Switzerland]

Procter & Gamble European Supply Company BVBA [Belgium]

Procter & Gamble European Technical Center BVBA [Belgium]

Procter & Gamble Export Operations SARL [Switzerland]

Procter & Gamble Export-FZE [U.A.E.]

Procter & Gamble Far East, Inc. [Ohio]

Procter & Gamble Finance (Canada) Limited Partnership [Canada]

Procter & Gamble Finance (U.K.) Ltd. [U.K.]

Procter & Gamble Financial Services Holding Sarl [Luxembourg]

Procter & Gamble Financial Services Ltd. [Ireland]

Procter & Gamble Finland OY [Finland]

Procter & Gamble Food Products SARL [Switzerland]

Procter & Gamble France S.A.S. [France]

Procter & Gamble FSC (Barbados) Inc. [Barbados]

Procter & Gamble Ghana, Ltd. [Ghana]

Procter & Gamble Global Holdings Ltd. [Bermuda]

Procter & Gamble GmbH [Germany]

Procter & Gamble Grundstucks-und Vermogensverwaltungs GmbH & Co. KG [Germany]

Procter & Gamble Gulf FZE [United Arab Emirates]

Procter & Gamble Hair Care, LLC [Delaware]

Procter & Gamble Health and Beauty Care-Europe Limited [U.K.]

Procter & Gamble Hellas A.E. [Greece]

Procter & Gamble Higiene e Cosmeticos Limitada [Brazil]

Procter & Gamble Holding (HK) Limited [Hong Kong]

Procter & Gamble Holding (Thailand) Limited [Thailand]

Procter & Gamble Holding Denmark ApS [Denmark]

Procter & Gamble Holding France S.A.S. [France]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Procter & Gamble Holding GmbH [Germany]

Procter & Gamble Holding S.r.l. [Italy]

Procter & Gamble Holdings (U.K.) Ltd. [U.K.]

Procter & Gamble Holdings Limited [Ireland]

Procter & Gamble Holdings Singapore Pte. Ltd. [Singapore]

Procter & Gamble Home Products Limited [India]

Procter & Gamble Hong Kong Limited [Hong Kong]

Procter & Gamble Hungary Wholesale Trading Partnership (KKT) [Hungary]

Procter & Gamble Hygiene & Health Care Limited [India]

Procter & Gamble Inc. [Ontario, Canada]

Procter & Gamble India Holdings B.V. [Netherlands]

Procter & Gamble India Holdings, Inc. [Ohio]

Procter & Gamble Industrial 1, S.R.L. [Venezuela]

Procter & Gamble Industrial de Guatemala, S.A. [Guatemala]

Procter & Gamble Industrial e Comercial Ltda.[Brazil]

Procter & Gamble Industrial S.C.A. [Venezuela]

Procter & Gamble Interamericas de Costa Rica, Limitada [Costa Rica]

Procter & Gamble Interamericas de El Salvador, Limitada de Capital Variable [El Salvador]

Procter & Gamble Interamericas de Guatemala, Limitada [Guatemala]

Procter & Gamble Interamericas de Honduras, S. de R.L. [Honduras]

Procter & Gamble Interamericas de Panama, S. de R.L. [Panama]

Procter & Gamble International Finance Funding General Management S.a.r.l. [Luxembourg]

Procter & Gamble International Finance SCA [Luxembourg]

Procter & Gamble International Operations Pte. Ltd. [Singapore]

Procter & Gamble International Operations S.A. [Switzerland]

Procter & Gamble International S.a.r.l. [Luxembourg]

Procter & Gamble Investment Company (UK) Ltd. [U.K.]

Procter & Gamble Investment GmbH [Germany]

Procter & Gamble Investments Limited [Ireland]

Procter & Gamble Ireland Limited [Ireland]

Procter & Gamble Iron Horse Holding B.V. [Netherlands]

Procter & Gamble Italia, S.p.A. [Italy]

Procter & Gamble Jamaica Ltd. [Jamaica]

Procter & Gamble Japan K.K. [Japan]

Procter & Gamble Kazakhstan [Kazakhstan]

Procter & Gamble Korea IE, Co. [Korea]

Procter & Gamble Korea Inc. [Korea]

Procter & Gamble Korea S&D Co. [Korea]

Procter & Gamble Latin America Holding B.V. [Netherlands]

Procter & Gamble Leasing LLC [Ohio]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Procter & Gamble Levant S.A.L. [ Lebanon]

Procter & Gamble Limited [U.K.]

Procter & Gamble Limited Liability Company [Uzbekistan]

Procter & Gamble Luxembourg Finance S.a.r.l. [Luxembourg]

Procter & Gamble Luxembourg Global S.a.r.l. [Luxembourg]

Procter & Gamble Manufactura, S. de R.L. de C.V. [Mexico]

Procter & Gamble Manufacturing (Thailand) Limited [Thailand]

Procter & Gamble Manufacturing (Tianjin) Co. Ltd. [PRC]

Procter & Gamble Manufacturing Belgium N.V. [Belgium]

Procter & Gamble Manufacturing GmbH [Germany]

Procter & Gamble Manufacturing Pty. Ltd. [Australia]

Procter & Gamble Manufacturing Ukraine [Ukraine]

Procter & Gamble Marketing & Commercial Activities d.o.o. [Slovenia]

Procter & Gamble Marketing and Services d.o.o. [Serbia and Montenegro]

Procter & Gamble Marketing DOOEL Skopje [Macedonia]

Procter & Gamble Marketing Latvia Ltd. [Latvia]

Procter & Gamble Marketing Romania SRL [Romania]

Procter & Gamble Maroc [Morocco]

Procter & Gamble Mataro, S.L. [Spain]

Procter & Gamble Materials Management Czech Republic s.r.o. [Czech Republic]

Procter & Gamble Materials Management Romania S.R.L. [Romania]

Procter & Gamble Max Factor Godo Kaisha [Japan]

Procter & Gamble Mexico Holding B.V. [Netherlands]

Procter & Gamble Moldova SRL [Moldova]

Procter & Gamble N.S. Holding Company [Canada]

Procter & Gamble Nederland B.V. [Netherlands]

Procter & Gamble Netherland Services B.V. [Netherlands]

Procter & Gamble Neuilly S.A.S. [France]

Procter & Gamble Nigeria Limited [Nigeria]

Procter & Gamble Nordic LLC [Ohio]

Procter & Gamble Norge AS [Norway]

Procter & Gamble NPD, Inc. [Ohio]

Procter & Gamble Operations Polska-Spolka z o.o. [Poland]

Procter & Gamble Orleans S.A.S. [France]

Procter & Gamble Overseas Canada B.V. [Netherlands]

Procter & Gamble Overseas India B.V. [Netherlands]

Procter & Gamble Overseas Ltd. [U.K.]

Procter & Gamble Pakistan (Private) Limited [Pakistan]

Procter & Gamble Peru S.R.L. [Peru]

Procter & Gamble Pharmaceuticals [Germany]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Procter & Gamble Pharmaceuticals Canada, Inc. [Canada]

Procter & Gamble Pharmaceuticals France [France]

Procter & Gamble Pharmaceuticals Iberia, S.L. [Spain]

Procter & Gamble Pharmaceuticals Longjumeau S.A.S. [France]

Procter & Gamble Pharmaceuticals N.V. [Belgium]

Procter & Gamble Pharmaceuticals Nederland B.V. [Netherlands]

Procter & Gamble Pharmaceuticals Puerto Rico LLC [Puerto Rico]

Procter & Gamble Pharmaceuticals Puerto Rico, Inc. [Delaware]

Procter & Gamble Pharmaceuticals SARL [Switzerland]

Procter & Gamble Pharmaceuticals U.K. Limited [U.K.]

Procter & Gamble Pharmaceuticals, Inc. [Ohio]

Procter & Gamble Pharmaceuticals-Germany GmbH [Germany]

Procter & Gamble Philippines, Inc. [Philippines]

Procter & Gamble Platform, Inc. [Ohio]

Procter & Gamble Polska-Spolka zo.o [Poland]

Procter & Gamble Porto, Lda. [Portugal]

Procter & Gamble Portugal S.A. [Portugal]

Procter & Gamble Prestige Product [Portugal]

Procter & Gamble Prestige Product [Spain]

Procter & Gamble Prestige Products S.A. [Spain]

Procter & Gamble Product Supply (U.K.) Limited [U.K.]

Procter & Gamble Productions, Inc. [Ohio]

Procter & Gamble Quimica Ltda. [Brazil]

Procter & Gamble reflect.com, Inc. [Ohio]

Procter & Gamble RHD, Inc. [Ohio]

Procter & Gamble RSC Regional Service Company Ltd. [Hungary]

Procter & Gamble S.A. [Chile]

Procter & Gamble S.r.l. [Italy]

Procter & Gamble Satis ve Dagitim Ltd. Sti. [Turkey]

Procter & Gamble Service GmbH [Germany]

Procter & Gamble Services (Switzerland) SA [Switzerland]

Procter & Gamble Services Company N.V. [Belgium]

Procter & Gamble Services LT [Lithuania]

Procter & Gamble Services Ltd. [Kenya]

Procter & Gamble Services Neuilly S.A.S. [France]

Procter & Gamble Servicios Latinoamerica, S.C.A. [Venezuela]

Procter & Gamble Servicios Latinoamerica-1, S.R.L. [Venezuela]

Procter & Gamble Singapore Investment Pte. Ltd. [Singapore]

Procter & Gamble Singapore Pte. Ltd. [Singapore]

Procter & Gamble South Africa Proprietary Limited [South Africa]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Procter & Gamble South America Holding B.V. [Netherlands]

Procter & Gamble Sri Lanka Private Ltd. [Sri Lanka]

Procter & Gamble Sverige AB [Sweden]

Procter & Gamble Switzerland SARL [Switzerland]

Procter & Gamble Taiwan Limited [Taiwan]

Procter & Gamble Technical Centers Limited [U.K.]

Procter & Gamble Technology (Beijing) Co., Ltd. [PRC]

Procter & Gamble Tenedora, S.A. [Venezuela]

Procter & Gamble Trading (Thailand) Limited [Thailand]

Procter & Gamble Trading International S.a.r.l. [Switzerland]

Procter & Gamble Trading Ukraine Ltd. [Ukraine]

Procter & Gamble Trgovaeko Drustvo d.o.o. Sarajevo [Bosnia]

Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey]

Procter & Gamble U.K. [U.K.]

Procter & Gamble Ukraine [Ukraine]

Procter & Gamble Unternehmensbeteiligungs GmbH & Co. Operations oHG [Germany]

Procter & Gamble Valores, S.A. [Venezuela]

Procter & Gamble Verwaltungs GmbH [Germany]

Procter & Gamble, Spol. s r.o. (Ltd.) [Slovak Republic]

Procter & Gamble-Rakona s.r.o. [Czech Republic]

Productos Sanitarios Sociedad Colectiva [Argentina]

Productos Cosméticos S.L. [Spain]

Professional Care Logistics, S.L. [Spain]

Progam Realty & Development Corporation [Philippines]

Progasud S.r.l. [Italy]

Promotora de Bienes y Valores, S. de R.L. de C.V. [Mexico]

PUR Water Purification Products, Inc. [Ohio]

Redmond Products, Inc. [Minnesota]

Reflect.com Corporation [Delaware]

Richardson-Vicks Real Estate Inc. [Ohio]

Riverfront Music Publishing Co., Inc. [Ohio]

Röhm Pharma GmbH Wien [Austria]

Rosemount Corporation [Delaware]

RPI Management, Inc. [Nevada]

R-V Chemicals Holdings Ltd. [Ireland]

S.C. Detergenti S.A. [Romania]

S.P.F. Beauté S.A.S. [France]

Salon Debut [Russia]

Salon Service Genova SrL [Italy]

San Francisco Pet Imaging, Inc. [California]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

San Francisco Pet Imaging, LLC [Ohio]

Scannon GmbH [Germany]

Scannon S.A. [France]

Sebastian Deutschland GmbH [Germany]

Sebastian Europe GmbH [Germany]

Sebastian International, Inc. [California]

Secato Friseurbedarf GmbH [Germany]

Series Acquisition B.V. [Netherlands]

Series International CV [Netherlands]

Series Overseas Investment Ltd. [Bermuda]

Serventi (Design) Ltd. [Great Britain]

Shulton (Great Britain) Ltd. [U.K.]

Shulton S.A. [Guatemala]

Shulton, Inc. [New Jersey]

Sigma Cosmetica International S.A [Uruguay]

Società Commerciale Profumi S.r.l [Italy]

Societe Immobiliere Les Colombettes, S.A. [Switzerland]

SsangYong Paper Co. Ltd. [Korea]

Star Parfums GmbH [Germany]

Star Parfums Verwaltungs GmbH [Germany]

Sulcosma Distribuidora de Cosméti [Brazil]

Surfac S. R. Ltda. [Peru]

Sycamore Productions, Inc. [Ohio]

Tambrands France S.A.S. [France]

Tambrands Inc. [Delaware]

Tambrands Industria e Comercia Ltda. [Brazil]

Tambrands Ireland Limited [Ireland]

Tambrands Limited [U.K.]

Tambrands Ukraine Ltd. [Ukraine]

Tefa Holdings (Pty) Ltd. [South Africa]

Temple Trees Impex & Investment Private Limited [India]

The Dover Wipes Company [Ohio]

The Folger Coffee Company [Ohio]

The Gillette Company [Delaware]

The Iams Company [Ohio]

The Malabar Company [Delaware]

The Procter & Gamble Company of South Africa (Proprietary) Limited [S. Africa]

The Procter & Gamble Distributing LLC [Delaware]

The Procter & Gamble GBS Company [Ohio]

The Procter & Gamble Global Finance Company [Ohio]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

The Procter & Gamble International Insurance Company, Limited [Ireland]

The Procter & Gamble iVentures Company [Ohio]

The Procter & Gamble Manufacturing Company [Ohio]

The Procter & Gamble Paper Products Company [Ohio]

The Procter & Gamble U.S. Business Services Company [Ohio]

The Wella Corporation [Delaware]

Thomas Hedley & Co. Limited [U.K.]

Tondeo-Werk GmbH [Germany]

Transcosmetics Holdings Sdn. Bhd. [Malaysia]

Universal Beauty Supply Corp. [Puerto Rico]

US CD LLC [Delaware]

Valbonne S.A. [Switzerland]

Vick International Corporation [Delaware]

Vidal Sassoon (Shanghai) Academy [PRC]

Vidal Sassoon Co. [Ohio]

WEBA Betriebsrenten-Verwaltungsgesellschaft mbH [Germany]

Wella (Ireland) Ltd. [Ireland]

Wella (U.K.) Holdings Ltd. [Great Britain]

Wella (U.K.) Ltd. [Great Britain]

Wella AB [Sweden]

Wella AG [Germany]

Wella Beteiligungen AG [Switzerland]

Wella Beteiligungen GmbH [Switzerland]

Wella Canada Inc. [Canada]

Wella Chile S.A. [Chile]

Wella Cosmetics China Ltd. Co. [China]

Wella Denmark A/S [Denmark]

Wella de México, S.de R.L. de C.V [Mexico]

Wella France S.A.S. [France]

Wella Hongkong Limited [Hong Kong]

Wella India Haircosmetics Private [India]

Wella Intercosmetic GmbH [Germany]

Wella Japan Co. Ltd. [Japan]

Wella Laboratories Inc. [Delaware]

Wella Management GmbH [Germany]

Wella Manufacturing GmbH [Germany]

Wella Manufacturing of Virginia, Inc. [Virginia]

Wella Nordamerika Beteiligungen GmbH [Germany]

Wella Paraguay S.A. [Paraguay]

Wella Personal Care of North America, Inc. [Delaware]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
Subsidiaries of the Registrant

Wella Philippines Inc. [Philippines]

Wella Portugal Sociedade Unipesso [Portugal]

Wella Salon Einrichtungen GmbH [Germany]

Wella Service GmbH [Germany]

Wella Suisse GmbH [Switzerland]

Wella Taiwan Co. Ltd. [Taiwan]

Wella Ukraina [Ukraine]

Yardley London Ltd. [U.K.]

Zogi SRL [Italy]

Zooth de Mexico, S. de R.L. de C.V. [Mexico]

Zooth, Inc. [Texas]

[    ] Brackets indicate state or country of incorporation and do not form part of corporate name

EX-23

EXHIBIT (23)

Independent Registered Public Accounting Firm’s Consent

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following documents of our reports dated August 14, 2007, relating to the consolidated financial statements of The Procter & Gamble Company and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”) and management’s report on the effectiveness of internal control over financial reporting, incorporated by reference in the Annual Report on Form 10-K of The Procter & Gamble Company and subsidiaries for the year ended June 30, 2007.

1.	Amendment No. 1 on Form S-8 Registration Statement No. 33-31855 on Form S-4 (now S-8) for the 1982 Noxell Employees’ Stock Option Plan and the 1984 Noxell Employees’ Stock Option Plan;
2.	Post-Effective Amendment No. 1 to Registration Statement No. 33-49289 on Form S-8 for The Procter & Gamble 1992 Stock Plan;
3.	Registration Statement No. 33-47656 on Form S-8 for The Procter & Gamble International Stock Ownership Plan;
4.	Registration Statement No. 33-50273 on Form S-8 for The Procter & Gamble Commercial Company Employees’ Savings Plan;
5.	Registration Statement No. 33-51469 on Form S-8 for The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan;
6.	Registration Statement No. 333-05715 on Form S-8 for The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan;
7.	Post-Effective Amendment No. 2 to Registration Statement No. 33-59257 on Form S-3 for The Procter & Gamble Shareholder Investment Program;
8.	Registration Statement No. 333-14381 on Form S-8 for Profit Sharing Retirement Plan of The Procter & Gamble Commercial Company;
9.	Registration Statement No. 333-14397 on Form S-8 for Procter & Gamble Subsidiaries Savings Plan;
10.	Registration Statement No. 333-21783 on Form S-8 for The Procter & Gamble 1992 Stock Plan (Belgian Version);
11.	Registration Statement No. 333-37905 on From S-8 for The Procter & Gamble Future Shares Plan;

12.	Registration Statement No. 333-51213 on Form S-8 for Group Profit Sharing, Incentive, and Employer Contribution Plan (France);
13.	Registration Statement No. 333-51219 on Form S-8 for Procter & Gamble Ireland Employees Share Ownership Plan;
14.	Registration Statement No. 333-51221 on Form S-8 for Employee Stock Purchase Plan (Japan);
15.	Registration Statement No. 333-51223 on Form S-8 for Savings and Thrift Plan (Saudi Arabia);
16.	Registration Statement No. 333-34606 on Form S-8 for The Procter & Gamble Future Shares Plan;
17.	Registration Statement No. 333-40264 on Form S-8 for Savings and Thrift Plan Saudi Arabia;
18.	Registration Statement No. 333-44034 on From S-8 for The Procter & Gamble International Stock Ownership Plan;
19.	Registration Statement No. 333-47132 on Form S-8 for Employee Stock Purchase Plan (Japan);
20.	Registration Statement No. 333-49764 on Form S-3 for The Procter & Gamble U.K. Share Investment Scheme;
21.	Registration Statement No. 333-75030 on Form S-8 for The Procter & Gamble 2001 Stock and Incentive Compensation Plan;
22.	Registration Statement No. 333-100561 on Form S-8 for The Procter & Gamble (U.K.) 1-4-1 Plan;
23.	Registration Statement No. 333-108753 on Form S-8 for The Procter & Gamble Profit Sharing Trust and Employee Stock Ownership Plan;
24.	Registration Statement No. 333-108991 on Form S-8 for The Procter & Gamble 1992 Stock Plan (Belgian Version);
25.	Registration Statement No. 333-108992 on Form S-8 for Savings and Thrift Plan (Saudi Arabia);
26.	Registration Statement No. 333-108993 on Form S-8 for Employee Stock Purchase Plan (Japan);

27.	Registration Statement No. 333-108994 on Form S-8 for Procter & Gamble Ireland Employees Share Plan;
28.	Registration Statement No. 333-108995 on Form S-8 for Group Profit Sharing, Incentive, and Employer Contribution Plan (France);
29.	Registration Statement No. 333-108997 on Form S-8 for The Procter & Gamble International Stock Ownership Plan;
30.	Registration Statement No. 333-108998 on Form S-8 for The Procter & Gamble 1993 Non-Employee Directors’ Stock Plan;
31.	Registration Statement No. 333-108999 on Form S-8 for The Procter & Gamble 1992 Stock Plan;
32.	Registration Statement No. 333-111304 on Form S-8 for The Procter & Gamble 2003 Non-Employee Directors’ Stock Plan;
33.	Registration Statement No. 333-111305 on Form S-8 for The Procter & Gamble U.K. Share Investment Scheme;
34.	Amendment No. 1 to Registration Statement No. 333-113515 on Form S-3 for The Procter & Gamble Company Debt Securities and Warrants;
35.	Amendment No. 3 to Registration Statement No. 333-123309 on Form S-4 for The Procter & Gamble Company; and
36.	Registration Statement No. 333-128859 on Form S-8 for certain employee benefit plans of The Gillette Company (2004 Long –Term Incentive Plan of The Gillette Company; 1971 Stock Option Plan of The Gillette Company; James M. Kilts Non-Statutory Stock Option Plan; The Gillette Company Employees’ Savings Plan; The Gillette Company Supplemental Savings Plan; The Gillette Company Global Employee Stock Ownership Plan (GESOP))
37.	Registration Statement No. 333-143801 on Form S-8 for The Procter & Gamble Savings Plan.

DELOITTE & TOUCHE LLP
Deloitte & Touche LLP

Cincinnati, Ohio
August 28, 2007

EX-31

EXHIBIT (31)

Rule 13a-14(a)/15d-14(a) Certifications

Rule 13a-14(a)/15d-14(a) Certifications

I, A.G. Lafley, certify that:

(1)	I have reviewed this annual report on Form 10-K of The Procter & Gamble Company;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s

auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

A.G. LAFLEY (A.G. Lafley)

Chairman of the Board

and Chief Executive Officer

August 28, 2007

Date

Rule 13a-14(a)/15d-14(a) Certifications

I, Clayton C. Daley, Jr., certify that:

(1)	I have reviewed this annual report on Form 10-K of The Procter & Gamble Company;
(2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s

auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

CLAYTON C. DALEY, JR. (Clayton C. Daley, Jr.)
Chief Financial Officer

August 28, 2007 Date

EX-32

EXHIBIT (32)

Section 1350 Certifications

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble Company (the “Company”) certifies to his knowledge that:

(1)	The Annual Report on Form 10-K of the Company for the year ended June 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

A.G. LAFLEY (A.G. Lafley)

Chairman of the Board

and Chief Executive Officer

August 28, 2007 Date

Section 1350 Certifications

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble Company (the “Company”) certifies to his knowledge that:

(1)	The Annual Report on Form 10-K of the Company for the year ended June 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

CLAYTON C. DALEY, JR. (Clayton C. Daley, Jr.)

Chief Financial Officer

August 28, 2007 Date

EX-99.1

EXHIBIT (99-1)

Summary of Directors and Officers Insurance Program

P&G Directors & Officers Insurance Program Summary

This summary states the general effect of the Company’s Directors & Officers Insurance Program for the policy period effective for June 30, 2007 to June 30, 2008.

INSURANCE		LIMIT		UNDERLYING
COMPANY	COVER	($MILL)		($MILL)
Corporate Officers & Directors Assurance Ltd.	Side A		25	nil
XL Insurance (Bermuda) Ltd.	Side A		25		25
ACE Bermuda Insurance Ltd.	Side A,B,C		15		50
Zurich American Insurance Company	Side A,B,C		15		65
Allied World Assurance Company Ltd.	Side A,B,C		20		80
Arch Insurance (Bermuda)	Side A,B,C		25		100
Max Bermuda Ltd.	Side A,B,C		15		125
National Union Fire Insurance Company of Pittsburgh , Pa	Side A,B,C		10		140
Starr Excess Liability Insurance International Limited	Side A,B,C		25		150
Axis Specialty Limited Bermuda	Side A,B,C		25		175
Corporate Officers & Directors Assurance Ltd.	Side A		25		200
XL Insurance (Bermuda) Ltd.	Side A		15		225
Starr Excess Liability Insurance International Limited	Side A		10		240
TOTAL			250

Note- “Side A coverage” refers to Directors & Officers (“D&O”) insurance coverage that provides direct coverage to insured directors and officers for claims for which the insured company is unable or unwilling to indemnify the insured individuals. For example, the law in many states prohibits a company from indemnifying its directors or officers for shareholder derivative claims. “Side B coverage” refers to D&O coverage that indemnifies the insured company or corporation, typically in excess of a deductible, for sums that the company or corporation spends to indemnify insured directors or officers for allegedly wrongful acts covered by the terms of D&O insurance. “Side C coverage” refers to direct entity coverage provided to the insured company or corporation itself when a claim is brought against the company or corporation itself for allegedly wrongful acts covered by the terms of D&O insurance.