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, 2009

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark one)

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

For the Fiscal Year Ended June 30, 2009

OR

¨ 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 Stock Exchange, NYSE Euronext-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  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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.  ¨

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

Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

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

The aggregate market value of the voting stock held by non-affiliates amounted to $181 billion on December 31, 2008.

There were 2,918,890,075 shares of Common Stock outstanding as of July 31, 2009.

Documents Incorporated by Reference

Portions of the Annual Report to Shareholders for the fiscal year ended June 30, 2009, (2009 Annual Report) 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 2009 Annual Meeting of Shareholders which will be filed within one hundred and twenty days of the fiscal year ended June 30, 2009, (2009 Proxy Statement) are incorporated by reference into Part III of this report to the extent described herein.

PART I

Item 1. Business.

Additional information required by this item is incorporated herein by reference to Management’s Discussion and Analysis (MD&A), which appears on pages 31-48; Note 1, Summary of Significant Accounting Policies, which appears on pages 54-56; and Note 11, Segment Information, which appears on pages 69-70 of the 2009 Annual Report. 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 packaged goods 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.shtml.

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

As of June 30, 2009, the Company was organized into three Global Business Units: Beauty; Health and Well-Being; and Household Care. We had six reportable segments under U.S. GAAP: Beauty; Grooming; Health Care; Snacks and Pet Care; Fabric Care and Home Care; and Baby Care and Family Care. 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. While none of our reportable segments are highly seasonal, components within certain of our reportable segments, such as Batteries (Fabric Care and Home Care), Braun (Grooming) and Prestige Fragrances (Beauty) are seasonal. In addition, anticipation or occurrence of natural disasters, such as hurricanes, can drive unusually high demand for batteries.

Additional information about our businesses can be found in MD&A and Note 11, Segment Information, which appear on pages 31-48 and 69-70, respectively, of the 2009 Annual Report.

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. Many of the product segments in which we compete are differentiated by price (referred to as super-premium, premium, mid-tier value and low-tier economy products). Generally speaking, we compete with super-premium, premium and mid-tier value products. Our products are sold in more than 180 countries around the world primarily through mass merchandisers, grocery stores, membership club stores, drug

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stores and 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.

Key Product Categories. In 2009, two product categories accounted for 10% or more of consolidated net sales. The laundry category constituted approximately 17% of net sales in 2009 and 16% for the fiscal years 2008 and 2007. The diaper category constituted approximately 11% of net sales for fiscal year 2009 and 10% in 2008.

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 2009, 2008 and 2007. No other customer represents more than 10% of our net sales. Our top ten customers account for approximately 30% of our total unit volume in 2009, compared to 31% of total unit volume in 2008 and 30% in 2007. 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, natural gas and derivative products are important commodities used in our plants, products 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 other 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 are important to the overall marketing and branding of our products. All major products and trademarks 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. 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. We are well positioned in the industry segments and markets in which we operate—often holding a leadership or significant market share position. 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 us to develop technologies and obtain patents across all categories in order to meet the needs and improve the lives of our consumers. Total research and development expenses were $2,044 million in 2009, $2,212 million in 2008 and $2,100 million in 2007.

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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 2010.

Employees. The Company has approximately 135,000 employees.

Financial Information about Foreign and Domestic Operations

Net sales in the United States account for approximately 39% 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:

	2009		2008		2007
North America	43	%	42	%	44	%
Western Europe	21	%	24	%	24	%
Japan	4	%	3	%	3	%
Developing Markets	32	%	31	%	29	%

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

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)
	2009		2008		2007		2009		2008		2007
United States	$	31,080	$	31,314	$	30,316	$	71,891	$	73,751	$	73,527
International		47,949		50,434		44,516		62,942		70,241		64,487

Development of the Business

The discussion below provides insight to the general development of our business, including the material acquisitions and disposition of assets since the beginning of fiscal 2009.

Coffee Divestiture. In November 2008, the Company completed the divestiture of our Coffee business through the merger of our Folgers coffee subsidiary into The J.M. Smucker Company (Smucker) in an all-stock reverse Morris Trust transaction. In connection with the merger, 38.7 million shares of common stock of the Company were tendered by shareholders and exchanged for all shares of Folgers common stock, resulting in an increase of treasury stock of $2.5 billion. Pursuant to the merger, a Smucker subsidiary merged with and into Folgers and Folgers became a wholly owned subsidiary of Smucker. The Company recorded an after-tax gain on the transaction of $2.0 billion.

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

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statements are inherently uncertain, and investors must recognize that events could significantly differ from our expectations.

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 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 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. 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 manufacturing and supply arrangements, including any key 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. As a result, we are subject to a number of risks, including, but not limited to, changes in exchange rates for foreign currencies, which may reduce the U.S. dollar value of revenues and earnings received and/or balances held by or invested in our foreign subsidiaries, as well as exchange controls and other limits on our ability to repatriate earnings from outside the U.S. that can increase our exposure. We have sizable businesses and maintain local currency cash balances in a number of foreign countries with exchange controls, including, but not limited to, Venezuela, China and India. Our results of operations and/or financial condition could be adversely impacted if we are unable to successfully manage these risks. Further, we expect to achieve our financial targets, in part, by

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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.

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

Our 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 results could be negatively impacted if one of our leading brands suffers a substantial impediment to its reputation due to real or perceived quality issues.

Our ability to successfully adapt to ongoing organizational change could impact our business results.

We have executed a number of significant business and organizational changes including acquisitions, divestitures and workforce optimization projects to support our growth strategies. We expect these types of changes to continue for the foreseeable future. Successfully managing these changes, including retention of key employees, is critical to our business success. In addition, we are generally a build-from-within company, and our success is dependent on identifying, developing and retaining key employees to provide uninterrupted leadership and direction for our business. Further, our financial targets assume a consistent level of productivity improvement. If we are unable to deliver expected productivity improvements, while continuing to invest in business growth, our financial results could be adversely impacted.

Our ability to successfully manage ongoing acquisition and divestiture activities could impact our business results.

As a company that manages a portfolio of consumer brands, our ongoing business model involves a certain level of acquisition and divestiture activities. We must be able to successfully manage the impacts of these activities, while at the same time delivering against base business objectives. Specifically, our financial results could be adversely impacted if: 1) we are not able to deliver the expected cost and growth synergies associated with our acquisitions, 2) changes in the cash flows or other market-based assumptions cause the value of acquired assets to fall below book value or 3) we are unable to offset the dilutive impacts from the loss of revenue streams associated with divested brands.

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), and to resolve pending legal matters without significant liability, including the competition law and antitrust investigations described in Part I, Item 3 of this Form 10-K, which could require us to take significant reserves or pay significant fines during a reporting period, may materially impact our results. In addition, as a U.S. based multinational company we are also subject to tax regulations in the U.S. and multiple foreign jurisdictions, some of which are interdependent. For example, certain income that is earned and taxed in countries outside the U.S. is not taxed in the U.S., provided those earnings are indefinitely reinvested outside the U.S. If these or other tax regulations should change, our financial results could be impacted.

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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, which can create significant cost and margin pressure and could lead 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. In addition, our business would be negatively impacted if a key customer were to significantly reduce the range or inventory level of our products.

We face risks related to the current credit crisis.

We currently generate significant operating cash flows, which combined with access to the credit markets provides us with significant discretionary funding capacity. However, current uncertainty in global economic conditions, resulting from disruptions in credit markets, poses a risk to the overall economy that could impact consumer and customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers and creditors, including financial institutions. If the current situation deteriorates significantly, our business could be negatively impacted, including such areas as reduced demand for our products from a slow-down in the general economy, supplier or customer disruptions resulting from tighter credit markets and/or temporary interruptions in our ability to conduct day-to-day transactions through our financial intermediaries involving the payment to or collection of funds from our customers, vendors and suppliers. If the current credit crisis were to continue to worsen such that we were unable to access the credit market, it could impair our ability to fund discretionary spending.

A failure of a key information technology system, process or site could have a material adverse impact on our ability to conduct business.

We rely extensively on information technology systems, some of which are managed by third-party service providers, to interact with internal and external stakeholders. These interactions include, but are not limited to, ordering and managing materials from suppliers, converting materials to finished products, shipping product to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, and other processes necessary to manage the business. If our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively compensate on a timely basis, we may suffer interruptions in our ability to manage operations which may adversely impact our results of operations and/or financial condition.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

In the U.S., we own and operate 36 manufacturing facilities located in 22 different states. In addition, we own and operate 105 manufacturing facilities in 43 other countries. Many of the domestic and international facilities produce products for multiple businesses. Beauty products are manufactured at 43 of these locations; Grooming products at 14; Fabric Care and Home Care products at 51; Baby Care and Family Care products at 29; Pet Care and Snacks products at 11; and Health Care products at 35. 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.

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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.

The Company is subject to a variety of investigations into potential competition law violations in Europe. In July 2006, French authorities, in connection with an inquiry into potential competition law violations in France, entered the premises of two of the Company’s French subsidiaries and seized a variety of documents. In April 2008, authorities in the United Kingdom (UK) initiated an investigation concerning potential antitrust violations in the UK involving one of the Company’s subsidiaries. In June 2008, European Commission officials, with the assistance of the national authorities from a variety of countries, started an investigation into potential competition law violations in a variety of countries across the European Union. Around the same time, the national authorities in Spain, Italy and the Czech Republic initiated additional investigations into potential antitrust concerns within those countries. In connection with these investigations, a number of the Company’s subsidiaries were visited and documents seized. The Company or its subsidiaries are also involved in other competition law investigations in Belgium, Romania, Switzerland, France and Greece, as well as some other countries. We believe that all of the above matters involve a number of other consumer products companies and/or retail customers.

The Company’s policy is to comply with all laws and regulations, including all antitrust and competition laws, and to cooperate with investigations by relevant regulatory authorities, which the Company is doing. Competition and antitrust law investigations often continue for several years and, if violations are found, can result in substantial fines. In other industries, fines have amounted to hundreds of millions of dollars. During the fiscal year ended June 30, 2008, certain of the Company’s subsidiaries in Germany received a formal complaint alleging violations of the antitrust laws. We are now discussing the situation with the German authorities. At this point, no other formal claims have been made against the Company or any of our subsidiaries in connection with any of the above inquiries.

In response to the actions of the Commission and national authorities, the Company has launched its own internal investigations into potential violations of competition laws, some of which are ongoing. The Company has identified violations in certain European countries and appropriate actions are being taken. It is still too early for us to reasonably estimate the fines to which the Company will be subject as a result of these competition law issues. However, we have taken and will take reserves as appropriate. Please refer to the Company’s Risk Factors in Item 1A of this Form 10-K for additional information.

In December 2008, the Company became aware of an investigation by Italian authorities into an environmental accident at the site of a contractor which provides services to one or more of the Company’s European affiliates. The accident involved the explosion of certain pressurized cans and resulted in the death of one worker and serious injuries to another. Italian authorities are formally investigating whether the Company’s affiliates complied with Italian laws related to the proper classification and disposal of their products. Should they find that these entities violated the law, the Italian authorities could levy fines in excess of $100 thousand against the Company’s European affiliate(s).

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 14, 2009, are:

Name	Position	Age	Elected to Officer Position
Robert A. McDonald	President and Chief Executive Officer	56	1999
	Director since July 1, 2009
Alan G. Lafley	Chairman of the Board Director since June 8, 2000	62	1992
Jon R. Moeller	Chief Financial Officer	45	2009
Werner Geissler	Vice Chairman—Global Operations	56	2007
E. Dimitri Panayotopoulos	Vice Chairman—Global Household Care	57	2007
Edward D. Shirley	Vice Chairman—Global Beauty & Grooming	52	2008
Robert A. Steele	Vice Chairman—Global Health and Well-Being	54	2007
Bruce Brown	Chief Technology Officer	51	2008
Robert L. Fregolle, Jr.	Global Customer Business Development Officer	52	2009
R. Keith Harrison, Jr.	Global Product Supply Officer	61	2001
Christopher D. Hassall	Global External Relations Officer	55	2009
Steven W. Jemison	Chief Legal Officer and Secretary	58	2008
Moheet Nagrath	Global Human Resources Officer	50	2008
Filippo Passerini	President—Global Business Services and Chief Information Officer	52	2003
Marc S. Pritchard	Global Brand Building Officer	49	2008
Valarie L. Sheppard	Senior Vice President & Comptroller and Global Household Care Finance and Accounting	45	2005

All of the Executive Officers named above, excluding Mr. Shirley, have been employed by the Company for more than five years. During the previous five years, Mr. Shirley held the following positions within the Company: Vice Chairman—Global Beauty and Grooming (July 1, 2008 – present), Group President—North America (April 17, 2006 – June 30, 2008) and President—Commercial Operations—Gillette International (October 11, 2005 – April 16, 2006). Prior to the Company’s acquisition of The Gillette Company in October 2005, Mr. Shirley was President—Gillette International Commercial Operations (June 2004 – October 11, 2005).

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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

Period	Total Number of Shares Purchased (in thousands) (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3)	Approximate Dollar Value of Shares That May Yet Be Purchased Under our Share Repurchase Program ($ in billions) (3) (4)
4/1/09 - 4/30/09	3,216	$	49.11	0	$	13.7
5/1/09 - 5/31/09	5,549	$	51.19	0	$	13.7
6/1/09 - 6/30/09	7,769	$	53.09	0	$	13.7

(1) The total number of shares purchased was 16,534 for the quarter. All transactions were made in the open market or pursuant to prepaid forward agreements with large financial institutions. Under these agreements, the Company prepaid large financial institutions to deliver shares at a future date in exchange for a discount. The number of shares purchased other than through a publicly announced repurchase plan was 16,534 for the quarter. These shares were 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) On August 3, 2007, the Company announced a share repurchase plan. Pursuant to the share repurchase plan, the Board of Directors authorized the Company and its subsidiaries to acquire in open market and/or private transactions $24 to $30 billion of shares of Company common stock over the subsequent three years (through June 30, 2010) to be financed by issuing a combination of long-term and short-term debt. Certain purchases were made prior to the announcement of the program but are considered purchases against the program.

(4) The dollar values listed in this column include commissions to be paid to brokers to execute the transactions.

Additional information required by this item is incorporated by reference to Shareholder Information, which appears on page 72; and Shareholder Return Performance Graphs, which appears on page 74 of the 2009 Annual Report, and can be found in 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 11, Segment Information, which appears on pages 69-70; and Financial Summary, which appears on page 73 of the 2009 Annual Report.

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 10, Commitments and Contingencies, which appears on pages 68-69; and Note 11, Segment Information, which appears on pages 69-70 of the 2009 Annual Report.

The Company has made certain forward-looking statements in the 2009 Annual Report and in other contexts relating to volume and net sales growth, increases in market shares, financial goals and cost reduction, among others.

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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 5, Risk Management Activities and Fair Value Measurements, which appears on pages 58-61 of the 2009 Annual Report.

Item 8. Financial Statements and Supplementary Data.

		Amounts Previously Reported (1)
Quarters Ended		Sept 30			Dec 31			Mar 31			Jun 30
NET SALES	2008 - 2009	$	22,026		$	20,368		$	18,417		$	18,662
	2007 - 2008		20,199			21,575			20,463			21,266
OPERATING INCOME	2008 - 2009		4,685			4,251			3,730			3,573
	2007 - 2008		4,418			4,714			4,111			3,840
GROSS MARGIN	2008 - 2009		50.5	%		51.6	%		50.3	%		50.3	%
	2007 - 2008		52.9	%		51.8	%		51.3	%		49.2	%
		Impact of Folgers Presentation in Discontinued Operations
Quarters Ended		Sept 30			Dec 31			Mar 31			Jun 30
NET SALES	2008 - 2009	$	(444	)	$	—		$	—		$	—
	2007 - 2008		(400	)		(537	)		(437	)		(381	)
OPERATING INCOME	2008 - 2009		(116	)		—			—			—
	2007 - 2008		(120	)		(124	)		(98	)		(104	)
GROSS MARGIN	2008 - 2009		0.3	%		0.0	%		0.0	%		0.0	%
	2007 - 2008		0.3	%		0.5	%		0.4	%		0.2	%
		Amounts Currently Reported
Quarters Ended		Sept 30			Dec 31			Mar 31			Jun 30
NET SALES	2008 - 2009	$	21,582		$	20,368		$	18,417		$	18,662
	2007 - 2008		19,799			21,038			20,026			20,885
OPERATING INCOME	2008 - 2009		4,569			4,251			3,730			3,573
	2007 - 2008		4,298			4,590			4,013			3,736
GROSS MARGIN	2008 - 2009		50.8	%		51.6	%		50.3	%		50.3	%
	2007 - 2008		53.2	%		52.3	%		51.7	%		49.4	%

⁽¹⁾ Amounts reported before December 31, 2008, included the results of the Folgers coffee subsidiary divested in November 2008. In accordance with applicable accounting guidance, the results of Folgers are currently presented as discontinued operations and, as such, have been removed from the results of continuing operations.

11

Additional information required by this item is incorporated by reference to pages 49-71 and 73 of the 2009 Annual Report.

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 President and Chief Executive Officer, Robert A. McDonald, and the Company’s Chief Financial Officer, Jon R. Moeller, 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. McDonald and Moeller 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. McDonald and Moeller, 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 pages 29-30 of the 2009 Annual Report.

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.

12

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The Board of Directors has determined that the following members of the Audit Committee are independent and are audit committee financial experts as defined by SEC rules: Mr. Charles R. Lee (Chairman), Mr. Rajat K. Gupta and Ms. Patricia A. Woertz.

The information required by this item is incorporated by reference to the following sections of the 2009 Proxy Statement filed pursuant to Regulation 14A: the sections entitled Election of Directors, Nominees for Election of Directors with Terms Expiring in 2010, The Board of Directors and Committees of the Board, up to but not including the section entitled Board and Committee Meeting Attendance; the section entitled Code of Ethics; and the section entitled Section 16(a) Beneficial Ownership Reporting Compliance. 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 the 2009 Proxy Statement filed pursuant to Regulation 14A, beginning with the section entitled Director Compensation 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 information required by this item is incorporated by reference to the following sections of the 2009 Proxy Statement filed pursuant to Regulation 14A: the section entitled Security Ownership of Management and Certain Beneficial Owners up to but not including the section entitled Section 16(a) Beneficial Ownership Reporting Compliance; and the subsection entitled Additional Equity Compensation Plan Information, up to but not including the subsection entitled Approval and Adoption, contained within the Proposal to Approve The Procter & Gamble 2009 Stock and Incentive Compensation Plan.

Item 13. Certain Relationships and Related Transactions and Director Independence.

The information required by this item is incorporated by reference to the following sections of the 2009 Proxy Statement filed pursuant to Regulation 14A: the sections entitled Director Independence and Review and Approval of Transactions with Related Persons.

Item 14. Principal Accounting Fees and Services.

The information required by this item is incorporated by reference to the 2009 Proxy Statement filed pursuant to Regulation 14A, beginning with the section entitled Report of the Audit Committee and ending with the section entitled Services Provided by Deloitte.

13

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, 2009, 2008 and 2007

– Consolidated Balance Sheets—as of June 30, 2009 and 2008

– Consolidated Statements of Shareholders’ Equity—for years ended June 30, 2009, 2008 and 2007

– Consolidated Statements of Cash Flows—for years ended June 30, 2009, 2008 and 2007

– 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 (as amended by shareholders at the annual meeting on October 14, 2008) (Incorporated by reference to Exhibit (3-1) of the Company’s Form 10-Q for the quarter ended December 31, 2008).
(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 August 17, 2007) which was originally 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 March 31, 2008), and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-Q for the quarter ended December 31, 2008).*
(10-2) —	The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001) which was originally 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, 2008).*
(10-3) —	The Procter & Gamble Executive Group Life Insurance Policy (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2008).*

14

(10-4) —	The Procter & Gamble Deferred Compensation Plan for Directors (as amended December 12, 2006), which was originally 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 originally adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-5) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2008).*
(10-6) —	The Procter & Gamble 1992 Stock Plan (Belgian Version) (as amended December 11, 2001) which was originally adopted by the Board of Directors on February 14, 1997 (Incorporated by reference to Exhibit (10-6) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2008).*
(10-7) —	The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004) which was originally 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 amended in August 2007) which was originally adopted by the shareholders at the annual meeting on October 14, 2003, and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended September 30, 2007).*
(10-9) —	The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended December 31, 2008).*
(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.*
(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 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended September 30, 2008).*
(10-14) —	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).*
(10-15) —	The Gillette Company 2004 Long-Term Incentive Plan (as amended on August 14, 2007) (Incorporated by reference to Exhibit (10-4) of the Company’s Form 10-Q for the quarter ended September 30, 2007).*
(10-16) —	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).*

15

(10-17) —	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).*
(10-18) —	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).*
(10-19) —	The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-4) of the Company’s 10-Q for the quarter ended September 30, 2006).*
(10-20) —	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).*
(10-21) —	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).*
(10-22) —	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).*
(10-23) —	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).*
(10-24) —	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).*
(10-25) —	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).
(10-26) —	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).
(10-27) —	Senior Executive Recoupment Policy (Incorporated by referenced to Exhibit 99 of the Company’s Form 8-K filed on December 15, 2006).*
(10-28) —	The Gillette Company Deferred Compensation Plan (for salary deferrals prior to January 1, 2005) as amended through August 21, 2006. (Incorporated by reference to Exhibit (10-29) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2007).*
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).

16

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

17

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	/s/    ROBERT A. MCDONALD
	(Robert A. McDonald) President and Chief Executive Officer August 14, 2009

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
/S/    ROBERT A. MCDONALD         (Robert A. McDonald)	President and Chief Executive Officer (Principal Executive Officer)	August 14, 2009
/S/    A.G. LAFLEY         (A.G. Lafley)	Chairman of the Board	August 14, 2009
/S/    JON R. MOELLER         (Jon R. Moeller)	Chief Financial Officer (Principal Financial Officer)	August 14, 2009
/S/    VALARIE L. SHEPPARD         (Valarie L. Sheppard)	Senior Vice President & Comptroller and Global Household Care Finance and Accounting (Principal Accounting Officer)	August 14, 2009
/S/    KENNETH I. CHENAULT         (Kenneth I. Chenault)	Director	August 14, 2009
/S/    SCOTT D. COOK         (Scott D. Cook)	Director	August 14, 2009
/S/    RAJAT K. GUPTA         (Rajat K. Gupta)	Director	August 14, 2009
/S/    CHARLES R. LEE         (Charles R. Lee)	Director	August 14, 2009
/S/    LYNN M. MARTIN         (Lynn M. Martin)	Director	August 14, 2009
/S/    W. JAMES MCNERNEY, JR.         (W. James McNerney, Jr.)	Director	August 14, 2009

18

Signature	Title	Date
/S/    JOHNATHAN A. RODGERS         (Johnathan A. Rodgers)	Director	August 14, 2009
/S/    RALPH SNYDERMAN, M.D.         (Ralph Snyderman, M.D.)	Director	August 14, 2009
/S/    PATRICIA A. WOERTZ         (Patricia A. Woertz)	Director	August 14, 2009
/S/    ERNESTO ZEDILLO         (Ernesto Zedillo)	Director	August 14, 2009

19

EXHIBIT INDEX

Exhibit     (3-1) —	Amended Articles of Incorporation (as amended by shareholders at the annual meeting on October 14, 2008) (Incorporated by reference to Exhibit (3-1) of the Company’s Form 10-Q for the quarter ended December 31, 2008).
(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 August 17, 2007) which was originally 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 March 31, 2008), and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1) of the Company’s Form 10-Q for the quarter ended December 31, 2008).
(10-2) —	The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001) which was originally 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, 2008).
(10-3) —	The Procter & Gamble Executive Group Life Insurance Policy (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2008).
(10-4) —	The Procter & Gamble Deferred Compensation Plan for Directors (as amended December 12, 2006), which was originally 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 originally adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-5) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2008).
(10-6) —	The Procter & Gamble 1992 Stock Plan (Belgian Version) (as amended December 11, 2001) which was originally adopted by the Board of Directors on February 14, 1997 (Incorporated by reference to Exhibit (10-6) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2008).
(10-7) —	The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004) which was originally 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 amended in August 2007) which was originally adopted by the shareholders at the annual meeting on October 14, 2003, and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended September 30, 2007).
(10-9) —	The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-2) of the Company’s Form 10-Q for the quarter ended December 31, 2008).

(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.
(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 (Incorporated by reference to Exhibit (10-3) of the Company’s Form 10-Q for the quarter ended September 30, 2008).
(10-14) —	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).
(10-15) —	The Gillette Company 2004 Long-Term Incentive Plan (as amended on August 14, 2007) (Incorporated by reference to Exhibit (10-4) of the Company’s Form 10-Q for the quarter ended September 30, 2007).
(10-16) —	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).
(10-17) —	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).
(10-18) —	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).
(10-19) —	The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-4) of the Company’s 10-Q for the quarter ended September 30, 2006).
(10-20) —	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).
(10-21) —	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).
(10-22) —	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).
(10-23) —	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).
(10-24) —	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).
(10-25) —	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).

(10-26) —	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).
(10-27) —	Senior Executive Recoupment Policy (Incorporated by referenced to Exhibit 99 of the Company’s Form 8-K filed on December 15, 2006).
(10-28) —	The Gillette Company Deferred Compensation Plan (for salary deferrals prior to January 1, 2005) as amended through August 21, 2006. (Incorporated by reference to Exhibit (10-29) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2007).
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-10.10

EXHIBIT (10-10)

Summary of the Company’s Short Term Achievement Reward Program and related correspondence and terms and conditions.

SHORT TERM ACHIEVEMENT REWARD PROGRAM

The Short Term Achievement Reward (“STAR”) Program is The Procter & Gamble Company’s (the “Company”) annual bonus program designed to motivate and reward employees for achieving outstanding short term business results for the Company and its subsidiaries. STAR awards are made pursuant to authority delegated to the Compensation & Leadership Development Committee (the “C&LD Committee”) by the Board of Directors for awarding compensation to the Company’s principal officers and for making awards under the Procter & Gamble 2001 Stock and Incentive Compensation Plan (the “2001 Plan”) and/or the 2004 Gillette Long Term Incentive Plan (the “Gillette Plan”) or any successor stock plan(s) approved in accordance with applicable listing standards.

I. ELIGIBILITY

Employees at Band 3 or above and who worked at least 28 days (four calendar weeks) during the applicable fiscal year are eligible to participate. Eligible employees who do not work a full schedule (e.g., 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 is calculated as follows:

(STAR Target) x (Business Unit Performance Factor) x (Total Company Performance Factor)

• The STAR Target for each participant is calculated as:

(Base Salary) x (STAR Target percent)

Base Salary at the end of the applicable fiscal year is used to calculate the STAR award.

Generally, the STAR Target Percent is dependent on the individual’s position and level (Band) in the organization. The STAR Target percent for participants at Band 7 or above is set by the C&LD Committee. The STAR Target percent for all other participants is set by the Chief Executive Officer, with the concurrence of the Global Human Resources Officer, pursuant to authority delegated to them by the C&LD Committee. If an individual’s position and/or level changes during a fiscal year, and that change results in a new STAR Target Percent, the STAR Target Percent is pro-rated according to the amount of time in each position/level during the fiscal year.

• The Business Unit Performance Factor is based on the fiscal year success for the appropriate STAR business unit. The STAR business units are defined by the Global Human Resources Officer and may consist of business categories, segments, geographies, functions, organizations or a combination of one or more of these items. The STAR business units will be defined within ninety (90) days of the beginning of the fiscal year, but may be adjusted as necessary to reflect business and/or organizational changes (e.g., reorganization, acquisition, merger, divestiture, etc.). The Business Unit Performance Factors can range from 53% to 167% with a target of 100%. In general, a committee consisting of at least two of the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Global Human Resources Officer and/or the Chief Operating Officer (the “STAR Committee”), conducts a comprehensive retrospective assessment of the fiscal year performance of each STAR business unit against previously established goals for one or more of the following measures: 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. The STAR Committee makes a recommendation of an appropriate Business Unit Performance Factor to the C&LD Committee. There may also be other factors significantly affecting STAR business unit results positively or negatively which can be considered by the STAR Committee when making its recommendation. No member of the STAR Committee makes any recommendation or determination as to their own STAR award. As a result, there are certain instances in which a Business Unit Performance Factor recommendation to the C&LD Committee must be made exclusively by the Chief Executive Officer.

• The Total Company Performance Factor is based on the total Company’s success during the fiscal year and ranges from 80% to 130%, with a target of 100%. The same Total Company Performance Factor is applied to all STAR award calculations, regardless of STAR business unit. It is determined using a matrix which measures results against pre-established goals for fiscal year organic sales growth and core earnings per share (“EPS”) growth for the fiscal year.

While the STAR Committee makes recommendations to the C&LD Committee regarding the Business Unit and Total Company performance factors to be applied to all STAR awards (except those for the STAR Committee members), only the final award amounts for principal officers are approved specifically by the C&LD Committee. The C&LD Committee has delegated the approval of STAR awards for other participants to the Chief Executive Officer. The C&LD Committee has discretion to use, increase or decrease the performance factors recommended by the STAR Committee and/or to choose not to pay STAR awards during a given year.

Each year the C&LD Committee approves a cash pool for STAR awards equal to a percentage of profit, and the C&LD Committee sets a limit on the portion of that pool which can be awarded to each of the Named Executives subject to Section 162(m) of the Internal Revenue Service code. This ensures that any STAR awards paid to such executives are fully tax deductible by the Company.

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 used for those employees who elect to receive awards in stock options or restricted stock units 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 award date, eligible participants can elect to receive their STAR award in forms other than cash. Alternatives to cash include stock options, local deferral programs (depending on local regulations in some countries), or restricted stock units and/or deferred compensation (for participants also in the Business Growth Program). The Company converts cash to other forms of payment (e.g., stock options, restricted stock units, etc.) using a conversion factor that is reviewed and approved by the C&LD Committee annually. Any STAR award paid in stock options, restricted stock units or other form of equity shall be awarded pursuant to this program and the terms and conditions of the 2001 Plan, the Gillette 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 a participant worked at least 28 days (4 calendar weeks) during the fiscal year, the STAR award is pro-rated by dividing the number of calendar days the participant was an “active employee” during the fiscal year by 365.

• Voluntary Resignation or Termination for cause: Separating employees must have been active employees 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 only be issued to active employees) 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 Plan or any successor stock 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 C&LD or STAR Committees.

Each award to the Chairman of the Board, Chief Executive Officer, 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 C&LD Committee in December 2006.

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

Appendix 1: Payment Preference Materials for STAR Awards

[DATE]

[NAME]

Subject: Preferences for [YEAR] STAR Payments and Deferred Compensation Choices

Your choices for the awards are:

September [YEAR] STAR Award

• Cash

• Stock Options

• Restricted Stock Units (for BGP participants only) – no forfeiture provision

• Deferred Compensation (for BGP participants only)

Attached you will find an election form to be returned to [NAME].

Please keep the following in mind as you consider your choices:

• It is recommended that you consult legal/tax/financial advisors to determine the appropriate award form(s) for your personal situation.

• While your selection will be given consideration, it is not binding on the Company until approved by the Compensation & Leadership Development Committee of the Board of Directors.

IF YOU MISS THE [DATE] DEADLINE, YOU WILL RECEIVE THE DEFAULT (CASH).

[NAME]

[YEAR] EXECUTIVE COMPENSATION AWARD FORM PREFERENCES

[YEAR] STAR Award Payable [DATE] [YEAR] Preference Selection

Cash		%
Stock Options		%
Restricted Stock Units		%	(Select year you want shares delivered, e.g., [YEAR], or one year after retirement)
Deferred Compensation		%
Total	100	%

• You must be an active employee as of the award date to receive any non-cash award.

• Any election by you to delay the settlement date of your RSUs does not in any way alter or amend the terms of The Procter & Gamble 2001 Stock and Incentive Compensation Plan, any successor plan(s) under which awards are granted and/or the Statement of Terms and Conditions for Restricted Stock Units pursuant to which the subject RSUs were granted.

• Your signature below indicates your agreement that any awards granted or paid pursuant to the STAR and/or BGP programs will be subject to the terms of the Senior Executive Officer Recoupment Policy. This Policy provides that in the event of a significant restatement of financial results, if compensation paid pursuant to STAR and/or BGP would have been lower based on restated results, the Compensation and Leadership Development Committee may seek to recoup from the senior executive officers some or all of the compensation paid pursuant to STAR and/or BGP. A copy of the policy is available from [NAME].

• All elections are irrevocable after [DATE].

Signature Date

Return form to [NAME]

Appendix 2: STAR Award Letter

[DATE]

Fellow P&G Leaders:

I am pleased to announce the average STAR award for [YEAR] is [NUMBER] % of target. STAR awards are a determined based on your individual Business Unit Performance Factor and a Total Company Factor. Business Unit Performance Factors are decided by the STAR Committee based on a retrospective assessment of each unit’s performance. The Total Company Factor is calculated based on P&G’s organic sales growth and earnings per share. [EXPLANATION OF COMPANY RESULTS and COMPARISON TO PREVIOUS YEAR]

Actual STAR awards as a percentage of target [HISTORICAL COMPARISON OF RESULTS TO PREVIOUS YEAR(S)]

By remaining choiceful, focused and disciplined, we can look forward to future success. Well done! Thanks.

[NAME]

Personal & Confidential

Individual Award Summary

[NAME]

Your STAR Award is [NUMBER] payable in [FORM]

[Number]	x	[Number]%	x	[Number]%	=	Number
STAR Target	x	Business Unit Performance Factor	x	Total Company Performance Factor	=	STAR Award

STAR Target

Based on	June 30 [YEAR] Base Salary:	[NUMBER]
	Band Level(s) during [YEAR]:	[NUMBER]
	STAR Target Percent:	[NUMBER]
	(Adjusted and/or prorated, as appropriate)
	Base x STAR Target Percent:	[NUMBER]
	Your STAR Target:	[NUMBER]

Business Unit Performance Factor

Business Unit	Weight	Performance Factor
[Business Unit]	[NUMBER]	[NUMBER] %

Total Company Performance Factor

Organic Sales Growth	[NUMBER]
Earnings Per Share	[NUMBER]
Total Company Performance Factor	[NUMBER] %

Your STAR Award is [NUMBER] % of STAR Target

Appendix 3: Cover letter for STAR Grant

in Stock Options and Stock Appreciation Rights

TO: Short Term Achievement Reward (STAR) Recipients of P&G Stock Options and Stock Appreciation Rights*

The attached stock option grant letter refers to your STAR award. The grant was determined by dividing the gross award amount to be paid in stock options (shown on your award summary previously distributed) by the [DATE] closing stock price of $ [NUMBER]. The result was multiplied by [NUMBER] and then rounded up to the next full share. No further action to accept this grant is required.

You may retain these STAR stock options until their expiration date in [NUMBER] years even if you leave the Company, as long as you are in good standing. This is true for STAR stock options only as they represent payment for the award that you have already earned. These options will vest in [NUMBER] years.

Stock options are granted under the terms and conditions of the 2001 Procter & Gamble Stock and Incentive Compensation Plan. The updated plan prospectus is available via the [WEBSITE].

Please keep a copy of the grant letter for your records. If you have any questions about the award granted, please direct them to [NAME]. Questions related to the exercise process should be directed to [NAME].

[NAME]

* Recipients of stock appreciation rights should see their subsidiary Chief Financial Officer regarding the procedure for redeeming such rights.

Grant Letter for STAR Award in Stock Options

and Stock Appreciation Rights

[DATE]

[NAME]

Subject:            Non-Statutory Stock Option Series xx-STAR-xx

In recognition of your contributions to the success of the business, the Procter & Gamble Company (“Company”) hereby grants to you an option to purchase shares of the Procter & Gamble Common Stock as follows:

Grant Value:	[NUMBER]
Option Price per Share:	[NUMBER]
Number of Shares:	[NUMBER]
Date of Grant:	[DATE]
Expiration of Option:	[DATE]
Option Exercisable:	[NUMBER]% after [DATE]

This stock option is granted 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 & Leadership Development Committee of the Board of Directors (the “Committee”), and the Exercise Instructions in place as may be revised from time to time.

You may access, download and/or print the terms, or any portion thereof, of the Plan by activating this hyperlink [LINK]. 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 [EMAIL ADDRESS]. 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.

This option is not transferable other than by will or the laws of descent and distribution and is exercisable during your life only by you. The Compensation & Leadership Development Committee has waived the provisions of Article G, paragraph 4 in the event of separation from the Company.

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 stock 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.

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.

You do not need to do anything further to accept this award under the terms of the 2001 Stock Plan.

The Procter & Gamble Company

[NAME]

Grant Letter for STAR Award in RSUs

[DATE]

[NAME]

Subject:            Award of Restricted Stock Units (STAR)

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 [CODE]

Grant Date:	[DATE]
Original Settlement Date:	[DATE]
Number of Restricted Stock Units:	[NUMBER]

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

As you will see from the Statement of Terms and Conditions Form [CODE], 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

                [NAME]

¨ 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.

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

Date                                                                 Signature

EX-10.11

EXHIBIT (10-11)

Summary of the Company’s Business Growth Program and related correspondence and terms and conditions.

BUSINESS GROWTH PROGRAM SUMMARY

The Business Growth Program (“BGP”) is a part of The Procter & Gamble Company’s (the “Company”) long-term incentive compensation and is designed to provide additional focus on key Company measures for top executives with senior management responsibility for total Company results. BGP Awards are made pursuant to authority delegated to the Compensation & Leadership Development Committee (the “C&LD Committee”) by the Board of Directors for determining compensation for the Company’s principal officers and for making awards under the Procter & Gamble 2001 Stock and Incentive Compensation Plan (the “2001 Plan”) and successor stock plans.

I. ELIGIBILITY

The Chairman of the Board and Chief Executive Officer and those principal officers at Band 7 or above recommended by management and approved by the C&LD Committee are eligible to participate.

II. CALCULATION

BGP Three-Year Awards are based on a three-year performance period starting on July 1 and ending on June 30 three years later (“Performance Period”). The total BGP Three-Year Award will be made in up to three payments with the possibility of Interim Payments at the conclusion of the first and/or second years of any Performance Period and a Final Payment at the end of the Performance Period. The amount of each BGP Three-Year Award (including any Interim or Final Payments) is based on the Company’s performance in each of the following categories (each a “Performance Category”):

Earnings per share (EPS) growth

Organic sales growth

Before-tax operating profit

Free cash flow efficiency

The C&LD Committee compares the Company’s results in each Performance Category for the first year, for cumulative results of the first two years and for cumulative results of the entire Performance Period to certain pre-established targets set by the C&LD Committee based on the fiscal year preceding the Performance Period (the “Performance Goals”). Based on these comparisons, the C&LD Committee creates a performance factor (a “Performance Factor”) for each Performance Category between 0% to 200% (e.g., an “EPS Factor,” “Sales Factor,” “Profit Factor” and “Cash Flow Factor,” respectively).

In all cases, the C&LD Committee retains discretion to determine whether certain of the Performance Categories should be included or excluded from BGP payment calculations. The C&LD Committee also has discretion to change the duration of the Performance Period, as appropriate, and may reduce any payment if it determines that such payout is inconsistent with long-term shareholders’ interests.

• BGP Three-Year Awards are calculated so that each Performance Category has equal weighting and pays out individually using the formula set forth below.

• BGP Target Awards are based on a multiple of each participant’s base salary at the beginning of any Performance Period. For the Chairman of the Board and Chief Executive Officer, the Target Award is equal to twice base salary multiplied by three. For all others, the Target Award is annual base salary multiplied by three. Individuals who become eligible for BGP during a Performance Period will participate for one, two or three years depending on the timing of their eligibility. Their BGP Target Award will be determined as described above using base salary when participation begins, and multiplied by the number of years of participation in that Performance Period. Each BGP Three-Year Award is calculated in four separate segments as follows:

1/4 of BGP Target Award	×	EPS Factor	=	EPS Award
1/4 of BGP Target Award	×	Sales Factor	=	Sales Award
1/4 of BGP Target Award	×	Profit Factor	=	Profit Award
1/4 of BGP Target Award	×	Cash Flow Factor	=	Cash Flow Award

• Interim Payments may be made at the end of the first year of the Performance Period and/or at the end of the first two years of the Performance Period combined, depending on the Company’s performance results during those periods. Interim Payments are calculated using the same Performance Categories described above, however the Performance Factor will be zero if performance is below target and 100% if performance is at or above target. No Interim Payments will be made for any Performance Category that does not meet or exceed the Performance Goal for that Performance Category during the applicable interim period.

Interim Payment 1 for the first year and Interim Payment 2 for cumulative results of years 1 and 2 will be calculated as:

1/4 of BGP Target Award	×	EPS Factor (0 or 100%)	=		EPS Award
1/4 of BGP Target Award	×	Sales Factor (0 or 100%)	=	+	Sales Award
1/4 of BGP Target Award	×	Profit Factor (0 or 100%)	=	+	Profit Award
1/4 of BGP Target Award	×	Cash Flow Factor (0 or 100%)	=	+	Cash Flow Award
					Total
				÷	3
					Interim Payment

• Final BGP Payment for the cumulative results of the Performance Period:

1/4 of BGP Target Award	×	EPS Factor	=		EPS Award
1/4 of BGP Target Award	×	Sales Factor	=	+	Sales Award
1/4 of BGP Target Award	×	Profit Factor	=	+	Profit Award
1/4 of BGP Target Award	×	Cash Flow Factor	=	+	Cash Flow Award
Prorated if separated prior to the end of the Performance Period (see Section V below)				g	Total
				-	value of Interim Payment 1 on its payment date
				-	value of Interim Payment 2 on its payment date
					Final Payment

If the calculated BGP Three-Year Award is less than the sum of the Interim Payments, each participant will be required to return the overpayment to the Company.

At the beginning of the Performance Period, the C&LD Committee approves a BGP annual award pool for each fiscal year of that Performance Period with a cash value equal to a percentage of basic net earnings multiplied by the number of common shares outstanding, and the C&LD Committee sets a limit on the portion of that pool which can be awarded to each of the Named Executive Officers subject to Section 162(m) of the Internal Revenue Service code. This ensures that any BGP payments made to such executives are fully tax deductible by the Company.

III. TIMING AND FORM

The Final BGP Payments are delivered on or about September 15^th following the Performance Period and Interim Payments, if any, are delivered on or about September 15^th following the fiscal year just completed. Interim Payments will be delivered in 25% cash and 75% restricted stock units that are forfeitable until the payment date following expiration of the Performance Period after which time they will deliver in shares unless the participant has elected to defer receipt of shares. The Final BGP Payment, if payable, will be delivered in cash. Participants may elect, in lieu of the cash portion of Interim Payments or the Final BGP Payment, to receive restricted stock units, deferred compensation, or stock options (for special situations approved by the Committee). Any Payments or portion of a BGP Payment paid in restricted stock units, stock options, or other equity shall be awarded pursuant to this program and subject to the terms and conditions of the 2001 Plan or any successor stock plan approved in accordance with applicable listing standards, as they may be revised from time to time.

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.

IV. INTERIM PAYMENTS ARE SUBJECT TO RECOUPMENT

In general, any Interim Payments are subject to recoupment if the BGP Three-Year Award calculated for an individual, based on the Company’s results during the Performance Period, is less than the total of the Interim Payments. To recoup this money, the Company will first cancel a sufficient number of outstanding RSUs awarded pursuant to BGP. If there are not enough outstanding RSUs to recoup the monies owed, the Company will require the individual to repay the difference in cash. The value of RSUs to be recouped will be the value of those RSUs on or about September 15^th following the Performance Period.

V. SEPARATION FROM THE COMPANY

No Interim Payments will be made to any individual after separation from the Company. If the BGP Three-Year Award prorated for an individual who has separated from the Company exceeds the amount of Interim Payments received, any Final Payment will be made in cash. The BGP Three-Year Award will be prorated based on the number of years of participation in a Performance Period as follows:

• Retirement, death or disability:

• The individual receives a year of participation credit for any fiscal year completed.

• The Chairman of the Board and Chief Executive Officer may allow a full year participation credit for any fiscal year not completed (typically receive participation credit if worked more than six months in the year).

• The individual will retain any RSUs awarded pursuant to BGP until the payment date following the end of the Performance Period, at which time some or all may be forfeited if the recoupment of Interim Payments is necessary pursuant to Section IV above. If no recoupment is necessary, these RSUs will deliver in shares.

• Special Separation (less than age 55 and therefore not eligible for regular retirement):

• The individual only receives a year of participation credit for any fiscal year completed.

• The individual will retain any RSUs awarded pursuant to BGP until the payment date following the end of the Performance Period, at which time some or all may be forfeited if the recoupment of Interim Payments is necessary pursuant to Section IV above. If no recoupment is necessary, these RSUs will deliver in shares.

• Voluntary resignation or termination for cause:

• The individual is only eligible for a BGP Three-Year Award if they work until the end of the Performance Period.

• If the individual separates prior to the end of the Performance Period, no further payments will be made, and all outstanding RSUs for that Performance Period will be forfeited. Recoupment of any Interim Payments will be made pursuant to Section IV above.

VI. CHANGE IN CONTROL

Notwithstanding the foregoing, if there is a Change in Control in any fiscal year, BGP Three-Year Awards and Interim Payments will be calculated in accordance with Section II above, but each Performance Factor will be calculated using 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”) and each target will be prorated at the time of Change in Control. “Change in Control” shall have the same meaning as defined in the 2001 Stock and Incentive Compensation Plan.

VII. GENERAL TERMS AND CONDITIONS

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 BGP Three-Year Award, Interim Payment, or future Interim Payment or BGP Three-Year 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 C&LD Committee.

Each award made to individuals at Band 7 and above 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 C&LD Committee.

September 22, 2008

Appendix 1: Payment Materials for BGP Awards

[DATE]

[NAME]

Subject: Preferences for [YEAR] BGP Payments and Deferred Compensation Choices

Your choices for the awards are:

September [YEAR] BGP Award

Year 1 or 2 of Performance Period (Interim Payments)

• [    ]-Year Restricted Stock Units (75% of Interim Payment required in this form)

• Cash, Restricted Stock Units – no forfeiture provision, or Deferred Compensation (25% of Interim Payment subject to this election)

Year 3 of Performance Period (Final Payment)

• Cash, Restricted Stock Units – no forfeiture provision, or Deferred Compensation (100% of Final Payment subject to this election)

Attached you will find an election form to be returned to [NAME].

Please keep the following in mind as you consider your choices:

• It is recommended that you consult legal/tax/financial advisors to determine the appropriate award form(s) for your personal situation.

• While your selection will be given consideration, it is not binding on the Company until approved by the Compensation & Leadership Development Committee of the Board of Directors.

IF YOU MISS THE [DATE] DEADLINE, YOU WILL RECEIVE THE DEFAULT (CASH).

[NAME]

[YEAR] BGP AWARD FORM PREFERENCES

[YEAR] Payment BGP Award Payable [YEAR] Preference Selection

(Complete for 25% of Interim Payment for Year 1 or 2 of Performance Period)

[    ] – Year Restricted Stock Units (if you leave The Company within [    ] years of grant due to Voluntary resignation or termination for Cause, you forfeit these units)	75% (required)	(Select year you want shares delivered, e.g., [    ] years after grant date, any year later than [    ] years after grant date, or one year after retirement)
Cash	%
Restricted Stock Units	%	(Select year you want shares delivered, e.g., [YEAR], or one year after retirement)
Deferred Compensation	%
Total	100%
[YEAR] Payment BGP Award Payable [YEAR] Preference Selection (Complete for 100% of Final Payment for Year 3 of Performance Period)
[    ] – Year Restricted Stock Units	%	(Select year you want shares delivered, e.g., [    ] years after grant date, any year later than [    ] years after grant date, or one year after retirement)
Cash	%
Restricted Stock Units	%	(Select year you want shares delivered, e.g., [YEAR], or one year after retirement)
Deferred Compensation	%
Total	100%

• You must be an active employee as of the award date to receive any non-cash award.

• Any election by you to delay the settlement date of your RSUs does not in any way alter or amend the terms of The Procter & Gamble Stock and Incentive Compensation Plan and/or the Statement of Terms and Conditions for Restricted Stock Units pursuant to which the subject RSUs were granted.

• Your signature below indicates your agreement that any awards granted or paid pursuant to the STAR and/or BGP programs will be subject to the terms of the Senior Executive Officer Recoupment Policy. This Policy provides that in the event of a significant restatement of financial results, if compensation paid pursuant to STAR and/or BGP would have been lower based on restated results, the Compensation and Leadership Development Committee may seek to recoup from the senior executive officers some or all of the compensation paid pursuant to STAR and/or BGP. A copy of the policy is available from [NAME].

• All elections are irrevocable after [DATE].

Signature Date

Return form to [NAME]

Appendix 2: BGP Award Letter (Three-Year Award example)

[DATE]

TO: [NAME]

Final BGP Payment for the cumulative results of the Performance Period:

1/4 of BGP Target Award	×	EPS Factor	=		EPS Award
1/4 of BGP Target Award	×	Sales Factor	=	+	Sales Award
1/4 of BGP Target Award	×	Profit Factor	=	+	Profit Award
1/4 of BGP Target Award	×	Cash Flow Factor	=	+	Cash Flow Award
Prorated if separated prior to the end of the Performance Period				g	Total
				-	Interim Payment 1
				-	Interim Payment 2
					Final Payment

Your final BGP award is $[NUMBER]. Your award will be delivered in the form shown below which you designated in your previous election(s). Your award will be paid on September 15.

Payment Preference

Cash:	$[NUMBER]
RSUs:	[NUMBER]
Deferred Compensation	$[NUMBER]

Thank you for your leadership in achieving outstanding business and organizational results during the past three years.

[NAME]

Appendix 3: Grant Letter for BGP Award in Restricted Stock Units

[DATE]

[NAME]

Subject: Award of Restricted Stock Units – BGP [[    ]-Year / Elected]

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 [CODE]

Grant Date:	[DATE]
Forfeiture Date [for [    ]-Year RSUs only]:	[DATE]
Original Settlement Date:	[DATE]
Number of Restricted Stock Units:	[NUMBER]

Paragraph 3(a) of Statement of Terms and Conditions Form [CODE], 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

[NAME]

¨ 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.

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

Date Signature

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
	2009		2008		2007		2006		2005
BASIC NET EARNINGS PER SHARE
Net earnings from continuing operations	$	11,293	$	11,798	$	10,063	$	8,478	$	6,648
Preferred dividends, net of tax benefit		192		176		161		148		136
Net earnings from continuing operations available to common shareholders		11,101		11,622		9,902		8,330		6,512
Net earnings from discontinued operations		2,143		277		277		206		275
Net earnings	$	13,244	$	11,899	$	10,179	$	8,536	$	6,787
Basic weighted average common shares outstanding		2,952.2		3,080.8		3,159.0		3,054.9		2,515.6
Basic net earnings per common share - continuing operations	$	3.76	$	3.77	$	3.13	$	2.72	$	2.59
Basic net earnings per common share - discontinued operations		0.73		0.09		0.09		0.07		0.11
Basic net earnings per common share	$	4.49	$	3.86	$	3.22	$	2.79	$	2.70
DILUTED NET EARNINGS PER SHARE
Diluted net earnings from continuing operations	$	11,293	$	11,798	$	10,063	$	8,478	$	6,648
Diluted net earnings from discontinued operations		2,143		277		277		206		275
Diluted net earnings	$	13,436	$	12,075	$	10,340	$	8,684	$	6,923
Basic weighted average common shares outstanding		2,952.2		3,080.8		3,159.0		3,054.9		2,515.6
Add potential effect of:
Conversion of preferred shares		139.2		144.2		149.6		154.1		158.3
Exercise of stock options and other Unvested Equity awards		62.7		91.8		90.0		76.9		63.2
Diluted weighted average common shares outstanding		3,154.1		3,316.8		3,398.6		3,285.9		2,737.1
Diluted net earnings per common share - continuing operations	$	3.58	$	3.56	$	2.96	$	2.58	$	2.43
Diluted net earnings per common share - discontinued operations		0.68		0.08		0.08		0.06		0.10
Diluted net earnings per common share	$	4.26	$	3.64	$	3.04	$	2.64	$	2.53

EX-12

EXHIBIT (12)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

Computation of Ratio of Earnings to Fixed Charges

	Years Ended June 30
	2009		2008		2007		2006		2005
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	$	15,372	$	15,674	$	14,299	$	12,087	$	9,512
Fixed charges (excluding capitalized interest)		1,567		1,604		1,428		1,242		924
TOTAL EARNINGS, AS DEFINED	$	16,939	$	17,278	$	15,727	$	13,329	$	10,436
FIXED CHARGES, AS DEFINED
Interest expense (including capitalized interest)	$	1,431	$	1,546	$	1,374	$	1,153	$	869
1/3 of rental expense		177		137		124		122		90
TOTAL FIXED CHARGES, AS DEFINED	$	1,608	$	1,683	$	1,498	$	1,275	$	959
RATIO OF EARNINGS TO FIXED CHARGES		10.5x		10.3x		10.5x		10.5x		10.9x

EX-13

EXHIBIT (13)

Annual Report to Shareholders

(pages 1-74)

The Procter & Gamble Company 1

When I became CEO in 2000, P&G faced some of the most demanding challenges in the Company’s long history. We made the strategic choices necessary to get P&G back on track to sustainable growth. Overcoming the challenges in 2000 made us a better and more focused company, and in the years since, we have designed P&G to grow consistently and reliably.

We faced even greater challenges in fiscal 2009 as we encountered one of the most difficult economic environments in decades. Shortly after we began the fiscal year, oil reached an all-time high of $147 per barrel. In September, following the Lehman Brothers bankruptcy, credit markets stopped functioning normally. This impacted suppliers, retailers and distributors, some of whom went out of business and many of whom significantly reduced inventory levels to conserve cash.

The credit crisis, combined with falling housing prices and equity markets, led to a severe economic contraction in the U.S. and most other developed countries. Nearly 30 million people lost their jobs worldwide and consumer behavior changed dramatically. Consumers pulled back on discretionary purchases and pushed relentlessly for the best value in nondiscretionary categories. Global economic growth stopped—GDP declined from +4% during the first quarter of calendar 2008 to -6% in the fourth quarter, a ten-point swing.

Economies also slowed in developing markets—in China, Central and Eastern Europe and the Middle East. These markets, which had been growing GDP about + 6%, slowed to an average -1% during the fourth quarter of 2008—a seven-point swing.

Global anxiety and risk aversion drove a flight to the safety of U.S. dollars, resulting in the swiftest, broadest and deepest foreign exchange move in modern times.

Commodity cost and currency exchange rate volatility placed tremendous pressure on our business. We incurred roughly $2 billion in net commodity and energy costs this year, on top of about $1 billion in the prior year. Foreign exchange reduced P&G’s fiscal 2009 sales by about four percentage points, or approximately $4 billion, and profit by more than $1 billion. Consumer spending declined and volume growth in the broad majority of categories in which we compete slowed to an average of 1 – 2%, versus 3 – 4% in the prior year.

BALANCING NEAR-TERM RESULTS AND LONG-TERM GROWTH

We made two critical choices to deal with this macroeconomic environment: (1) to focus on disciplined cash and cost management and (2) to invest in capacity, innovation and consumer value this year to ensure P&G is leading and growing market share when we come out of the recession.

We focused first on cash and costs to protect the financial foundation of our businesses. We increased prices to recover higher commodity costs and foreign exchange transaction impacts. Despite $4 billion in price increases, we’ve held global value shares across the majority of categories, which is a reflection of P&G brands’ strength with consumers and retail customers. We knew that increased pricing would lead to market share volatility, and even some short-term share loss. We also knew higher prices might affect consumption in some more-discretionary categories. We were willing to accept these short-term consequences, however, to maintain investment-grade financial health.

We made the cash utilization choices necessary to maintain our strong AA- credit rating, including temporarily suspending share repurchases. Still, we repurchased over $6 billion in stock, retired another $2.5 billion as part of the Folgers divestiture, and returned over 100% of net earnings to shareholders through a combination of dividends and share count reduction.

With our financial house in order, we focused next on innovation and brand-building. We identified and funded product innovation and marketing initiatives across the business, with an emphasis on growing profitable value share in P&G’s core categories. We also maintained our commitment to research and development investments and we delivered strong consumer communication programs that emphasized the powerful performance-based value our products provide.

2 The Procter & Gamble Company

We’ve continued to make strategic investments to generate strong growth in future years. We are investing 4% of sales in capital spending, including funding for new manufacturing capacity to support future growth. Over the next five years, we will add 20 new manufacturing facilities—13 of which have already been announced. Almost all of these facilities are in developing markets, and almost all will be multi-product- category facilities. By migrating our manufacturing base closer to the consumers we’ll be serving, P&G will lower costs and enable better value for more consumers.

We delivered results in fiscal 2009 that reflect these choices. We delivered organic sales and EPS growth and maintained operating margin while delivering strong free cash flow—the financial lifeblood of the business.

Overall, our choices balanced short-term returns and long-term investments.

• Organic sales increased 2%. Net sales declined 3%, to $79 billion.

• Core earnings per share increased 8%. Excluding the negative foreign exchange impact, core earnings per share would have increased strong double digits. Diluted net earnings per share increased 17% for the fiscal year.

• We delivered strong free cash flow productivity at more than 100% of earnings, excluding the gain from the Folgers divestiture.

And, we increased our quarterly dividend 10% in a year when many large companies reduced or eliminated dividends. Fiscal 2009 marked the 53rd consecutive year in which P&G increased dividends.

DESIGNED TO LEAD

It’s too early to tell what the economic future holds. We must deal with what’s in front of us. We must be agile and flexible. We must stay financially strong so we can respond and continue to lead. If the recession continues longer than expected, we must be prepared to deal with that reality. If economies recover faster than anticipated, we must be equally prepared to take advantage of new growth opportunities.

P&G is well-positioned to do this. We’ve designed P&G to lead with:

• Clear strategies

• The core strengths required to win in our industry

• Rigorous cash and cost discipline

• The most diverse and experienced leadership team in the Company’s history

STRATEGY FOR GROWTH

Three strategic choices drove virtually all of P&G’s top-line, bottom-line, and shareholder growth this decade.

Our first choice was to focus on P&G’s core businesses and leading billion-dollar brands, to win with the biggest and strongest retail customers, and to win in the most important countries. We’ve done that.

Nearly 80% of P&G’s sales and profit growth this decade has come from 10 businesses, including Baby Care, Blades and Razors, Fabric Care, Family Care, Feminine Care, Home Care, Oral Care, Prestige Fragrances, Retail Hair Care and Skin Care.

About 75% of sales and profit growth has come from P&G’s leading billion-dollar brands.

We chose to shift our business portfolio to more Beauty and Personal Care businesses. We’ve done that. The percentage of P&G sales in more capital-intensive Paper and Food businesses went from 42% at the beginning of the decade to 25%. At the same time, the percentage of sales in more asset-efficient, faster-growing, higher-margin businesses has increased from 18% to 33% over the same period.

Beauty, Personal Care and Health Care have accounted for more than 60% of sales and profit growth in the past eight years.

Our third strategic choice was to extend the availability and affordability of P&G brands to more low-income consumers, particularly in developing markets. We’ve done that. Developing markets represent 32% of sales, up from about 20% at the beginning of the decade, and have contributed 42% of sales growth and 29% of profit growth.

On an aggregate basis, P&G has a 19% share in developing markets and is growing steadily by about half a share point a year. We now have a developing-market business which, at about $25 billion in annual sales, is over five times the average developing-market sales of our major competitors.

With these three strategies, P&G has delivered strong growth over the past decade. We’ve more than doubled sales, from $38 billion to $79 billion. We’ve delivered core earnings-per-share growth of 12%, on average, since 2001. And we’ve generated about $70 billion in free cash flow.

CORE STRENGTHS TO WIN

In addition to clear where-to-play strategies, we have chosen to focus on five core strengths that are required to win in the consumer products industry: consumer understanding, brand-building, innovation, go-to-market capability, and scale. P&G is designed to lead in each of these areas.

Note: An explanation and reconciliation of organic sales and free cash flow for 2009 are provided on page 48. Explanations of core earnings per share and free cash flow productivity are provided in footnotes (2), (3) and (4) of the P&G Report Card on page 3.

The Procter & Gamble Company 3

• No company in the world has invested more in consumer and market research than P&G. We interact with more than five million consumers each year in nearly 60 countries around the world. We conduct over 15,000 research studies every year. We invest more than $350 million a year in consumer understanding. This results in insights that tell us where the innovation opportunities are and how to serve and communicate with consumers.

• P&G is the innovation leader in our industry. Virtually all the organic sales growth we’ve delivered in the past nine years has come from new brands and new or improved product innovation. We continually strengthen our innovation capability and pipeline by investing two times more, on average, than our major competitors. In addition, we multiply our internal innovation capability with a global network of innovation partners outside P&G. More than half of all product innovation coming from P&G today includes at least one major component from an external partner. The IRI New Product Pacesetter Report ranks the best-selling new products in our industry in the U.S. every year. Over the past 14 years, P&G has had 114 top 25 Pacesetters—more than our six largest competitors combined. In the last year alone, P&G had five of the top 10 new product launches in the U.S. and 10 of the top 25.

• P&G is the brand-building leader of our industry. We’ve built the strongest portfolio of brands in the industry with 23 billion-dollar brands and 20 half-billion-dollar brands. These 43 brands account for 85% of sales and more than 90% of profit. Twelve of the billion-dollar brands are the #1 global market share leaders of their categories. The majority of the balance are #2. As a group, P&G’s billion-dollar brands have grown sales at an average rate of 11% per year for the entire decade.

• We’ve established industry-leading go-to-market capabilities. P&G is consistently ranked by leading retailers in industry surveys as a preferred supplier and as the industry leader in a wide range of capabilities including clearest company strategy, brands most important to retailers, strong business fundamentals and innovative marketing programs.

• Over the decades, we have also established significant scale advantages as a total company and in individual categories, countries and retail channels. P&G’s scale advantage is driven as much by knowledge sharing, common systems and processes, and best practices as it is by size and scope. These scale benefits enable us to deliver consistently superior consumer and shareholder value.

P&G REPORT CARD

Progress Against P&G’s Goals and Strategies

GROWTH RESULTS

Average annual	Goals		2009		2001 – 2009
Organic Sales Growth (1)	4 – 6	%	2	%	5	%
Core Earnings per Share Growth	10	%	8	% (2)	12	% (3)
Free Cash Flow Productivity (4)	90	%	102	%	112	%

GROWTH STRATEGIES (2001 – 2009)

Grow from the core: Leading Brands, Big Markets, Top Customers

Volume up 7%, on average, for P&G’s 23 billion-dollar brands ⁽⁵⁾ Volume up 6%, on average, for P&G’s top 16 countries ⁽⁶⁾ Volume up 6%, on average, for P&G’s top 10 retail customers ⁽⁶⁾

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

Beauty sales more than doubled to $18.8 billion; profits nearly tripled to $2.5 billion Health Care sales more than doubled to $13.6 billion; profit increased fourfold to $2.4 billion Home Care sales more than doubled; profits more than tripled

Accelerate growth in developing markets and among low-income consumers

Developing market sales up 15% per year Over 40% 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 were 6%, on average, in 2001 – 2009.

(2) Core earnings per share for 2009 excludes a positive $0.14 per share impact from significant adjustments to tax reserves in 2008, a positive $0.68 per share impact from discontinued operations in 2009 and a negative $0.09 per share impact from incremental Folgers-related restructuring charges in 2009.

(3) Core earnings per share for 2001– 2009 excludes a negative $0.61 per share impact in 2001 from the Organization 2005 restructuring program charges and amortization of goodwill and intangible assets, positive impacts of $0.06 and $0.68 per share earnings from discontinued operations in 2001 and 2009, respectively and a negative $0.09 per share impact from incremental Folgers-related restructuring charges in 2009.

(4) Free cash flow productivity is the ratio of operating cash flow less capital spending to net earnings. For 2009, we have excluded $2,011 million from net earnings due to the gain on the sale of the Folgers business. Free cash flow productivity in 2009 equals $14,919 million of operating cash flow less $3,238 million in capital spending divided by net earnings of $11,425 million which excludes the Folgers gain. Reconciliations of free cash flow and free cash flow productivity for 2001 – 2009 are provided on page 48.

(5) Excludes the impact of adding newly acquired billion-dollar brands to the portfolio.

(6) Excludes the impact of adding Gillette.

4 The Procter & Gamble Company

CASH AND COST MANAGEMENT

P&G’s cash productivity—the percentage of earnings we convert into cash—has averaged over 100% since the beginning of the decade, consistently among the very best in the industry. This cash productivity allows us to maintain the Company’s excellent credit rating, to pay a strong dividend every year, and to have the flexibility to invest in the business organically or through mergers and acquisitions.

Our cash position is consistently strong because we are relentlessly focused on working-capital management. For example, P&G is the receivables leader of the industry, operating more efficiently with fewer days of receivables outstanding than any consumer products competitor.

We’re equally rigorous about managing costs. We have reduced overhead costs as a percentage of sales by more than 300 basis points since 2001, and we continue to focus on reducing overhead costs consistently and steadily year after year.

In addition to reducing costs, we’ve also focused on increasing productivity in everything we do. Sales per employee has grown from $363,000 in 2000 to $585,000 in 2009, and profit per employee has increased from $32,000 to $84,000. We have doubled the productivity of our R&D organization since 2000 even as we’ve become more innovative. This means that P&G can now support an additional $44 billion in sales with virtually the same number of R&D employees we had nearly a decade ago. We’ve become so much more productive because we continually innovate how we innovate and because we are working with such a large and diverse global network of external innovation partners.

This productivity discipline ensures that P&G has the flexibility and the resources to invest in growth even in the most challenging environments.

LEADERSHIP FOR THE NEXT DECADE

P&G has earned a reputation as one of the world’s best companies for leaders. We work hard at leadership development because, as a build-from-within company, our future success is entirely dependent on the ongoing strength of our talent pipeline.

Succession planning is an important element of this focus on leadership. We are methodical about identifying multiple succession candidates for every senior executive leadership position and then ensuring each individual gets the experience to be ready for the job.

We began planning for my successor as CEO several years ago. Bob McDonald emerged as the right choice to lead P&G in the decade ahead. Bob has nearly 30 years of brand-building, market development, global business unit and global operations leadership experience across the Company and around the world. I’ve worked with him for most of my career at P&G. We’ve worked side-by-side over the past decade.

I am equally confident in the leadership team that we’ve put in place to lead P&G in the decade ahead. This executive team has more than 1000 years of collective industry experience—in every part of P&G’s business, in developed and developing markets, in good times and through business and economic crises. This is a team you can count on.

I will continue to be engaged: I will chair the Board; I will continue to provide advice and counsel to Bob and will join him at business strategy, innovation program and talent development reviews. I will continue to be involved in coaching senior managers.

The breadth, depth and quality of management—and of the organization as a whole—is another way we design P&G to lead. I could not be more confident in the new leadership team or in the 135,000 P&Gers who lead our business every day.

DESIGNED TO CREATE VALUE THROUGH LEADERSHIP

In the end, P&G’s commitment is to create value for its shareholders (including employees and retirees, who hold about 10% of P&G shares). This decade, we’ve fulfilled that commitment.

When I became CEO on June 8, 2000, P&G was the 31^st largest company in sales and the 22^nd largest company in profit among the Fortune 500. In the nine years since, P&G has moved to 20^th in sales and to 9^th in profit.

The Company’s market capitalization in June 2000 was $74 billion—35th highest among the Fortune 500. Since then, P&G’s stock has appreciated by about 80% while the S&P 500 Index has declined approximately 30%. P&G’s market capitalization is now roughly $150 billion, making P&G one of the 10 most valuable companies in the United States.

Our business and financial performance is the result of clear choices and extraordinary commitment and capability at every level of our Company. I’ve never been prouder of this Company and its people than I am today. We have designed P&G to lead through virtually any economic environment—and as a result, P&G remains a company you can count on to improve consumers’ lives and to create superior shareholder value.

A.G. Lafley

Chairman of the Board

August 7, 2009

The Procter & Gamble Company 5

P&G has a solid foundation for growth. Our strategies are working. Our billion-dollar and half-billion-dollar brands are among the strongest in the world. P&G’s core strengths are those that matter most to winning in our industry. Our relationships with retailers, suppliers and innovation partners are enormous sources of competitive advantage. And the leadership team now in place has been carefully groomed through experience and coaching to lead P&G in the decade ahead. We are building on a rock-solid foundation of continuity. This is one of P&G’s greatest advantages.

THE POWER OF PURPOSE

In fact, leading change on a foundation of continuity has been at the heart of P&G’s success throughout its history. P&G will be 172 years old this October. We have grown through multiple economic cycles: boom years, recessions, the Great Depression. We’ve also grown in the face of unrelenting change: two world wars, economic crises, massive technological change, significant demographic shifts and continuously changing consumer expectations. Despite all this, P&G’s total shareholder return has outperformed the industry and broader markets over the long term. Why?

I believe it comes down to one simple and remarkably constant factor: the clarity and constancy of P&G’s Purpose. Since the Company was founded, we’ve been in the business of providing daily essentials that improve the quality of people’s lives. We help people care for their babies, pets and homes. We make everyday chores easier to do. We help people look and feel better. We’ve stayed true to the inspiring Purpose of touching and improving people’s lives in meaningful ways.

It’s at times like we’re living in today—when change is volatile and unsettling, when norms we’re accustomed to no longer seem certain—that clarity of Purpose matters more than ever.

More than a year ago, A.G. and I, along with the vice chairs and other senior leaders, began the effort to renew P&G’s strategies. We began this work with P&G’s Purpose in mind. We have now updated the Company’s growth strategies and identified a few critical interventions needed to strengthen our businesses—fully acknowledging the economic crisis in front of us but equally focused on the longer-term growth of our Company. I want to use this, my first letter to shareholders as CEO, to explain our choices and decisions. This will help you to clearly see P&G’s vision for growth in the decade ahead.

PURPOSE-INSPIRED GROWTH STRATEGY: “WHERE TO PLAY” CHOICES

Our single, unifying growth strategy is tightly linked to our Purpose: “We will grow by touching and improving the lives of more consumers in more parts of the world…more completely.” Specifically, we will:

• Grow our leading global brands and core categories—with an unrelenting focus on innovation

• Build business with underserved and unserved consumers

• Continue to grow and develop faster-growing, structurally attractive businesses with global leadership potential.

We will create abundant growth opportunities in each of these areas.

1) Growing our Core

Our billion-dollar brands and aspiring billion-dollar brands—43 brands in total—represent 85% of P&G’s sales and more than 90% of profit.

We will continue to focus sharply on our core businesses and brands because this is the primary way we touch and improve lives—and there is plenty of room to keep growing our core brands and categories.

• Global Household Care is a $200 billion market—and P&G’s global share is about 20%.

• Consumer Health Care is a $240 billion market; P&G is a market leader with just a 5% share.

• Beauty & Grooming is a $300 billion market and P&G is leading, but with only a 13% share.

6 The Procter & Gamble Company

P&G Growth Strategy: Touching and improving more consumers’ lives in more parts of the world more completely

WHERE TO PLAY:		HOW TO WIN:
1.	Grow leading, global brands and core categories	1.	Drive Core P&G Strengths in consumer understanding, brand building, innovation and go to market
2.	Build business with underserved and unserved consumers	2.	Simplify, Scale and Execute for competitive advantage
3.	Continue to grow and develop faster-growing, structurally attractive businesses with global leadership potential	3.	Lead change to win with consumers and customers

We will focus on growing market share profitably across all these businesses. As economies recover, I am confident we will be positioned to extend our leading market share positions.

2) Winning with underserved and unserved consumers

The second growth strategy is new—to build our business with underserved and unserved consumers. We’ll do this in three ways.

We are increasing our presence in developing markets.

The opportunities here are boundless. Eighty-six percent of the world’s population is in developing markets and we have strong share positions in the most important of these markets. In Blades and Razors, we’re #1 in the Central & Eastern Europe, Middle East and Africa region, Latin America, Greater China and developing Asia. In Shampoo and Diapers, we’re #1 or #2. And in Laundry, Feminine Care and Oral Care, we are ranked #1, #2 or #3 in market share.

We will continue to increase the percentage of total company sales from these markets by building consumers’ awareness of the performance, quality and value of our brands and making our products more accessible and affordable for consumers.

We are extending our distribution systems to reach more consumers through underserved retail channels.

We’re pursuing opportunities in four priority areas:

Drug, Pharmacy and Perfumery: This is a significant opportunity across many parts of our business, and a strategic focus for Beauty & Grooming.

High Frequency Stores: Already, high frequency stores would be our single largest customer if they were a single retailer. They are growing at rates equal to the modern retail trade and are the main source of our products for the majority of developing-market consumers.

Export Operations: This is another underdeveloped channel with meaningful potential. It’s the primary way P&G reaches consumers in newly emerging markets where P&G does not yet have on-the-ground operations. This channel sets the stage for more aggressive portfolio expansion as new economies develop.

E-commerce: Our “Consumer is boss” focus means we must be available to consumers when and where they seek to research or purchase P&G products. Increasingly, that’s online. We do less than a billion dollars in online sales today, and we believe we can increase that substantially over the next few years. We see e-commerce as part of a broader effort to establish online connections with consumers that build our brands and our business with retail partners.

We are expanding brand and product portfolios.

A third action we are taking to serve more consumers is to create broader and deeper product portfolios.

To do this, we will expand our categories vertically into the premium end of our markets as we have done successfully with Tide Total Care, Clairol Perfect 10, Gillette Fusion, Venus Embrace, Olay Pro-X, Dawn Hand Renewal, Secret Clinical Strength and Cascade Action Pacs. By bringing better-performing, specially targeted products to market, we will increase consumer value and drive category sales for retailers.

We will simultaneously expand our portfolio into the value-priced segment. The successful launches of Mach3 disposable razors in the U.S., Pampers Simply Dry diapers in Germany and Naturella feminine care pads into the Arabian Peninsula are three recent examples.

We will also expand our core brands horizontally into adjacent product segments. Febreze Candles, Bounce Dryer Bar and Tide Stain Release are recent examples of how we have done this.

As we stretch our portfolio vertically and horizontally, we will touch more consumers’ lives and offer more opportunities to improve each consumer’s life.

3) Develop faster-growing, structurally attractive businesses with global leadership potential

Our third growth strategy for the decade ahead is to continue to grow and develop faster-growing, structurally attractive businesses. We’re concentrating on opportunity areas in the beauty and health market segments and several household care categories. With this strategy, we will continue to shift P&G’s business portfolio toward these advantaged categories.

The Procter & Gamble Company 7

PURPOSE-FOCUSED EXECUTION:

“HOW-TO-WIN” STRATEGIES

We have made three strategic “how-to-win” choices to capture these growth opportunities.

First, we will leverage our core strengths—consumer understanding, brand-building, innovation, go-to-market capability and scale—to execute the Company’s growth strategies. These strengths create significant competitive advantage for P&G, particularly when we leverage them together as interdependent capabilities to win. We see opportunities to apply P&G’s strengths in several areas—from expanding category, country and channel portfolios globally to extending distribution and store coverage in developing markets. This will continue to be a primary how-to-win focus area for P&G.

Second, we are elevating Simplification, Scale and Execution to how-to-win strategies. These are key improvement areas where we believe we can create the greatest value and competitive advantage.

Our simplification efforts have one goal: to make it easier for each P&G employee and business partner to improve more lives in more parts of the world more completely. As P&G has grown larger, we’ve naturally become more complex. We are removing complexity so our brands are more affordable and to make the Company more innovative and agile. We’re reducing senior management positions and layers, and improving decision making, by simplifying our organization structure. We’re also making other important interventions to simplify business processes such as business planning, product launch, and product formulation. We want to become a $100 billion company with the speed and agility of a $10 billion company.

We consider scale to be a tremendous growth opportunity. We’re leveraging scale efficiencies to deliver best-in-class cost structures throughout our business. We’re using our R&D and supply chain scale to create alternative materials that minimize exposure to volatile commodity markets. We’re creating the technology infrastructure to rapidly transfer best-in-class knowledge across our global organization. And more. I’m confident this focus will yield dramatic benefits for the Company over time.

Execution is, of course, the only strategy our customers and consumers ever see, so we must do it with excellence, always. We are placing even sharper emphasis on consistent, quality execution in every part of our business.

Third, we are leading change to win with consumers and customers. We are becoming an even more collaborative organization, inside and outside our Company. We’re getting flatter, faster and simpler. We’re changing how we compensate people to reinforce and reward behaviors that allow us to meet our simplification, scale and disciplined execution objectives. We’re making the investments to be networked globally and digitized from end to end. And we’re building the capability to operate on a demand-driven, real-time, future-focused basis every day.

In today’s economic environment, many companies are cutting back on investments in their people. P&G is increasing its investment. We know without doubt that P&G people are our most important asset, and we will continue to invest in their growth, capability, and productivity.

PURPOSE-INSPIRED CULTURE

I believe to my core that by renewing our commitment to P&G’s Purpose…by establishing a unifying growth strategy and a Company culture that are tightly linked to our Purpose…we can inspire and motivate P&G people around the world to new levels of innovation, productivity, executional excellence and business results.

A.G. and I both believe the decade ahead has the potential to be one of the strongest decades of growth in the Company’s history. We’re serving about four billion people in the world today. That’s a billion and a half more people than we were reaching at the beginning of the decade, and at least a billion less than the number I’m committed to serving in the decade ahead.

We know that P&G products touch and improve people’s lives in meaningful ways. People tell us and show us—when we visit them in their homes, when we shop with them in stores, when we listen to their calls and read their e-mails. When we spend time with the people who trust and use our brands, we come away inspired. Every time.

The opportunities are there. We have the right strategies, capabilities and plans. We have the best people—the strongest global organization that I believe you’ll find in any company. If we can inspire the performance that our people are capable of delivering—day in and day out—I have no doubt that we can fulfill our Purpose more thoroughly and deliver the superior shareholder value we all expect from P&G.

Bob McDonald

President and Chief Executive Officer

August 7, 2009

26 The Procter & Gamble Company

P&G at a Glance

GBU	Reportable Segment	Key Products	Billion-Dollar Brands	Net Sales by GBU(1) (in billions)
BEAUTY	Beauty	Cosmetics, Deodorants, Hair Care, Personal Cleansing, Prestige Fragrances, Skin Care	Head & Shoulders, Olay, Pantene, Wella	$	26.3
	Grooming	Blades and Razors, Electric Hair Removal Devices, Face and Shave Products, Home Appliances	Braun, Fusion, Gillette, Mach3
HEALTH AND WELL-BEING	Health Care	Feminine Care, Oral Care, Personal Health Care, Pharmaceuticals	Actonel, Always, Crest, Oral-B	$	16.7
	Snacks and Pet Care	Pet Food, Snacks	Iams, Pringles
HOUSEHOLD CARE	Fabric Care and Home Care	Air Care, Batteries, Dish Care, Fabric Care, Surface Care	Ariel, Dawn, Downy, Duracell, Gain, Tide	$	37.3
	Baby Care and Family Care	Baby Wipes, Bath Tissue, Diapers, Facial Tissue, Paper Towels	Bounty, Charmin, Pampers

(1) Partially offset by net sales in corporate to eliminate the sales of unconsolidated entities included in business unit results.

RECOGNITION

P&G is recognized as a leading global company, including a #6 ranking on Fortune’s “World’s Most Admired Companies,” the #2 ranking on Fortune’s “Top Companies for Leaders” survey, the #3 ranking on Barron’s “World’s Most Respected Companies List,” a #12 ranking on Business Week’s list of “World’s Most Innovative Companies,” named to Chief Executive magazine’s worldwide survey of the Top 20 Best Companies for Leaders, top rankings on the Dow Jones Sustainability Index from 2000 to 2009, being named to the list of the Global 100 Most Sustainable Corporations in the World, and a consistent #1 ranking within our industry on Fortune’s Most Admired list for 24 of 25 total years and for 12 years in a row.

P&G’s commitment to creating a diverse workplace has been recognized by the National Association for Female Executives (Top 10 Companies for Executive Women), Working Mother magazine (100 Best Companies for Working Mothers and Top 20 Best Companies for Multicultural Women), Black Enterprise magazine (40 Best Companies for Diversity), and Diversity Inc. (Top 50 Companies for Diversity and #3 ranking on the Top 10 Companies for Global Diversity).

Supplier diversity is a fundamental business strategy at P&G. In 2009, P&G spent more than $2 billion with minority- and women-owned businesses. Since 2005, P&G has been a member of the Billion Dollar Roundtable, a forum of 16 corporations that spend more than $1 billion annually with diverse suppliers.

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 2009 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 required to be trained on the Company’s Worldwide Business Conduct Manual, which sets forth the Company’s commitment to conduct its business affairs with high ethical standards. Every employee is held personally accountable for compliance and is provided several means of reporting any concerns about violations of the Worldwide Business Conduct Manual, which is available on our website at www.pg.com.

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

R.A. McDonald

President and Chief Executive Officer

J.R. Moeller

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, 2009, 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, 2009, based on these criteria.

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of the Company’s internal control over financial reporting as of June 30, 2009, as stated in their report which is included herein.

R.A. McDonald

President and Chief Executive Officer

J.R. Moeller

Chief Financial Officer

August 14, 2009

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

The Procter & Gamble Company

We have audited the accompanying Consolidated Balance Sheets of The Procter & Gamble Company and subsidiaries (the “Company”) as of June 30, 2009 and 2008, and the related Consolidated Statements of Earnings, Shareholders’ Equity, and Cash Flows for each of the three years in the period ended June 30, 2009. 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, 2009 and 2008, and the results of its operations and cash flows for each of the three years in the period ended June 30, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 9 to the Consolidated Financial Statements, the Company adopted new accounting guidance on the accounting for uncertainty in income taxes, effective July 1, 2007.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of June 30, 2009, 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, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Cincinnati, Ohio

August 14, 2009

30 The Procter & Gamble Company

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

The Procter & Gamble Company

We have audited the internal control over financial reporting of The Procter & Gamble Company and subsidiaries (the “Company”) as of June 30, 2009, 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, included in Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

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, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Financial Statements of the Company as of and for the year ended June 30, 2009 and our report dated August 14, 2009 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of new accounting guidance on the accounting for uncertainty in income taxes, effective July 1, 2007.

Cincinnati, Ohio

August 14, 2009

Management’s Discussion and Analysis 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 2009 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 net earnings. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), including organic sales growth, free cash flow and free cash flow productivity. We believe these measures provide investors with important information that is useful in understanding our business results and trends. The explanation at the end of MD&A provides more details on the use and the derivation of these measures. Management also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and comparability of share 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.

In November 2008, we completed the divestiture of our Coffee business through the merger of our Folgers coffee subsidiary into The J.M. Smucker Company (Smucker) in an all-stock reverse Morris Trust transaction. In connection with the merger, 38.7 million shares of P&G common stock were tendered by our shareholders and exchanged for all shares of Folgers common stock. Pursuant to the merger, a Smucker subsidiary merged with and into Folgers and Folgers became a wholly owned subsidiary of Smucker. The Company recognized an after-tax gain on the disposition of $2.0 billion, which is included as part of net earnings from discontinued operations.

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

OVERVIEW

P&G’s business is focused on providing branded consumer packaged goods. 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, earnings and value creation, allowing employees, shareholders and the communities in which we operate to prosper.

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

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

Organizational Structure

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

GLOBAL BUSINESS UNITS

In fiscal year 2009, our three GBUs were Beauty, Health and Well-Being and Household Care. The primary responsibility of the GBUs is to develop the overall strategy for our brands. They identify common consumer needs, develop new product innovations and upgrades and build our brands through effective commercial innovations and marketing plans.

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

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

GBU	Reportable Segment	% of Net Sales*		% of Net Earnings*		Key Products	Billion Dollar Brands
BEAUTY	Beauty	23	%	22	%	Cosmetics, Deodorants, Hair Care, Personal Cleansing, Prestige Fragrances, Skin Care	Head & Shoulders, Olay, Pantene, Wella
	Grooming	9	%	13	%	Blades and Razors, Electric Hair Removal Devices, Face and Shave Products, Home Appliances	Braun, Fusion, Gillette, Mach3
HEALTH AND WELL-BEING	Health Care	17	%	21	%	Feminine Care, Oral Care, Personal Health Care, Pharmaceuticals	Actonel, Always, Crest, Oral-B
	Snacks and Pet Care	4	%	2	%	Pet Food, Snacks	Iams, Pringles
HOUSEHOLD CARE	Fabric Care and Home Care	29	%	26	%	Air Care, Batteries, Dish Care, Fabric Care, Surface Care	Ariel, Dawn, Downy, Duracell, Gain, Tide
	Baby Care and Family Care	18	%	16	%	Baby Wipes, Bath Tissue, Diapers, Facial Tissue, Paper Towels	Bounty, Charmin, Pampers

* Percent of net sales and net earnings from continuing operations for the year ended June 30, 2009 (excluding results held in Corporate).

Beauty

Beauty: We are a global market leader in the beauty category. Most of the beauty markets in which we compete are highly fragmented with a large number of global and local competitors. We are the global market leader in hair care with over 20% of the global market share. In skin care, our primary brand is Olay, which is the top facial skin care retail brand in the world. We are also one of the global market leaders in prestige fragrances, primarily behind the Gucci, Hugo Boss and Dolce & Gabbana fragrance brands.

Grooming: This segment consists of blades and razors, face and shave preparation products (such as shaving cream), electric hair removal devices and small household appliances. We hold leadership market share in the manual blades and razors market on a global basis and in almost all of the geographies in which we compete. Our global manual blades and razors market share is approximately 70%, primarily behind the Gillette franchise including Mach3, Fusion and Venus. Our electric hair removal devices and small home appliances are sold under the Braun brand in a number of markets around the world, where we compete against both global and regional competitors. Our primary focus in this area is electric hair removal devices, such as electric razors and epilators, where we hold approximately 30% and 50% of the male and female markets, respectively.

Health and Well-Being

Health Care: We compete in oral care, feminine care, pharmaceuticals and personal health. In oral care, there are several global competitors in the market, and we have the number two market share position with approximately 20% of the global market. We are the global market leader in the feminine care category with over 35% of the global market share. We have approximately 40% of the global bisphosphonates market for the treatment of osteoporosis under the Actonel pharmaceuticals brand. In personal health, we are the market leader in nonprescription heartburn medications and in respiratory treatments with Prilosec OTC and Vicks, respectively.

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

Household Care

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

Baby Care and Family Care: In baby care, we compete primarily in diapers, training pants and baby wipes, with approximately 35% of the global market share. We are the number one or number two baby care competitor in most of the key markets in which we compete, primarily behind Pampers, the Company’s largest brand, with annual net sales of approximately $8 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 45% and 25%, respectively.

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

Fiscal year 2010 changes to Global Business Unit structure

We recently announced a number of changes to our organization structure for the Beauty GBU, which resulted in changes to the components of its segment structure. Effective July 1, 2009, the Beauty GBU will become the Beauty and Grooming GBU and reportable segments under the GBU will move to a new consumer-oriented alignment. The reportable segment formally known as Beauty will become Female Beauty and the Grooming reportable segment will change to Male Grooming. As a result, Female blades and razors will transition from Male Grooming to Female Beauty. In addition, certain male-focused brands and businesses, such as Old Spice and Gillette personal care, will move from Female Beauty to Male Grooming.

These changes will be reflected in our segment reporting beginning in fiscal year 2010, at which time our historical segment reporting will also be restated to reflect the new structure. The GBU and segment discussions in the MD&A and accompanying Consolidated Financial Statements reflect the organizational structure that existed through June 30, 2009.

GLOBAL OPERATIONS

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

GLOBAL BUSINESS SERVICES

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

CORPORATE FUNCTIONS

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

Strategic Focus

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 long-term financial targets are:

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

• 3% to 4% of market growth, plus

• 1% to 2% of share growth

• 0% to 1% of mix enhancement and whitespace expansion, plus

• 1% of growth acceleration behind revenue synergies associated with the Gillette acquisition.

• Operating margin expansion of 50 to 75 basis points.

• Diluted net earnings per share (EPS) growth of 10%.

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

• Capital spending at or below 4% of net sales annually.

As a result of the recent global economic downturn, market growth rates have slowed and for 2010 are expected to be below the range that underpins our long-term financial growth targets. We are continuing to monitor market growth and may reassess our long-term targets in the future.

In order to achieve these targets, we will focus on three primary areas:

• Grow our leading, global brands and core categories. Our portfolio includes 23 brands that generate over $1 billion in annual sales and 20 brands that generate approximately $500 million or more in annual sales. Combined, these 43 brands account for 85% or more of our sales and profits. These brands are platforms for future innovations that will drive sales growth, expand categories for retail customers and differentiate brands in the minds of consumers. Our core categories, Baby Care, Blades and Razors, Fabric Care, Family Care, Feminine Care, Home Care, Oral Care, Prestige Fragrances, Retail Hair Care and Skin Care, have opportunities for continued growth. We will focus on profitable share growth across all of our businesses by leveraging our core strengths in innovation and brand-building.

• Build business with underserved and unserved consumers. We are increasing our presence in developing markets, where 86% of the world’s population lives. We will increase the amount of sales from these markets by focusing on affordability, accessibility and awareness of our brands. We are extending our distribution systems to reach more consumers through underserved retail channels such as e-commerce and high frequency stores. And, we are creating a broader and deeper product portfolio. Our initiative pipeline has new and improved products that extend and strengthen our category and brand portfolios vertically and horizontally.

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

• Continue to grow and develop faster-growing, structurally attractive businesses with global leadership potential. We are continually optimizing our portfolio of brands and businesses with an emphasis on opportunities in Beauty, Health Care and selective portfolio and geographic acquisitions in Household Care. We will also identify growth opportunities in services, particularly businesses that can be franchised and expanded rapidly.

To achieve our targets, we will also leverage core strengths that create competitive advantages and are critical to winning in the consumer products industry: consumer knowledge, innovation, brand-building, go-to-market capabilities and scale. We are placing particular emphasis on execution, simplification and scale as key improvement areas that will enable P&G to create the greatest value and competitive advantage. Finally, we are strengthening the depth, breadth and quality of leadership at all levels of the Company to make P&G a more demand-driven, real-time, future-focused organization.

SUMMARY OF 2009 RESULTS

• Net sales decreased 3% to $79.0 billion.

• Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, increased 2%, which is below our organic sales growth target range.

• Net earnings increased 11% to $13.4 billion.

• Net earnings from continuing operations decreased 4% to $11.3 billion primarily due to lower net sales and a higher effective tax rate.

• Operating margins were consistent with the prior year, as a commodity-driven reduction in gross margins was offset by reduced selling, general and administrative expenses (SG&A).

• Net earnings from discontinued operations increased $1.9 billion to $2.1 billion due to the impact of the Folgers coffee divestiture.

• Diluted net earnings per share increased 17% to $4.26.

• Earnings per share included $0.68 from discontinued operations.

• Earnings per share from continuing operations increased 1% to $3.58.

• Earnings per share grew ahead of net earnings due to the impact of share repurchases and the shares tendered in the Folgers coffee transaction.

• Cash flow from operating activities was $14.9 billion.

• Free cash flow, which is operating cash flow less capital spending, was $11.7 billion.

• Free cash flow productivity, which is the ratio of free cash flow to net earnings, was 87% and included a negative 15% impact resulting from the non-cash gain on the Folgers coffee transaction.

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. For more information on risks that could impact our results, refer to Item 1A Risk Factors in our most recent 10-Q, 10-K and 8-K filings.

Ability to Achieve Business Plans. We are a consumer products company and rely on continued demand for our brands and products. To achieve business goals, we must develop and sell products that appeal to consumers and retail trade customers. Our continued success is dependent on leading-edge innovation with respect to both products and operations 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, trade terms and product initiatives. We must manage each of these factors, as well as maintain mutually beneficial relationships with our key customers, in order to effectively compete and achieve our business plans. As a company that manages a portfolio of consumer brands, our ongoing business model involves a certain level of ongoing acquisition and divestiture activities. We must be able to successfully manage the impacts of these activities, while at the same time delivering against base business objectives. Our success will also depend on our ability to maintain key information technology systems.

Cost Pressures. Our costs are subject to 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 certain countries, such as Venezuela, China and India. We need to maintain key manufacturing and supply arrangements, including sole supplier and sole manufacturing plant arrangements. We must implement, achieve and sustain cost improvement plans, including our outsourcing projects and those

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

related to general overhead and workforce optimization. Successfully managing these changes, including identifying, developing and retaining key employees, is critical to our success.

Global Economic Conditions. Economic changes, terrorist activity and political unrest may result in business interruption, 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. Our ability to manage regulatory, tax and legal matters (including product liability, patent, intellectual property, competition law matters and tax policy) and to resolve pending legal matters within current estimates may impact our results.

RESULTS OF OPERATIONS

Net Sales

Net sales decreased 3% in 2009 to $79.0 billion behind a 3% decline in unit volume. Unfavorable foreign exchange reduced net sales by 4% as many foreign currencies weakened versus the U.S. dollar. Price increases, taken across all segments, primarily to offset higher commodity costs and foreign exchange impacts, added 5% to net sales. Negative product mix reduced net sales by 1% mainly due to disproportionate volume declines in our more discretionary categories (primarily Prestige Fragrances, Professional Hair Care and Braun appliances), along with Pharmaceuticals and Personal Health Care, all of which have higher than Company average selling prices. Every reportable segment except Baby Care and Family Care reported volume declines led by mid-single-digit declines in Grooming and Snacks and Pet Care. Volume in both developed and developing regions was below previous year levels. Organic volume, which excludes the impact of acquisitions and divestitures, declined 2%. Organic sales increased 2% behind the net benefit of pricing and mix. The global economic downturn, credit crisis and price increases have contributed to market contractions, trade inventory reductions and share declines in certain businesses, resulting in organic sales below the Company’s long-term financial target range. These impacts were more pronounced in our more discretionary categories and may continue to negatively impact results of operations into fiscal 2010.

Net sales increased 9% in 2008 to $81.7 billion behind 4% unit volume growth, a favorable 5% foreign exchange impact and a positive 1% pricing impact. Favorable foreign exchange resulted primarily from the strengthening of European and other currencies relative to the U.S. dollar. Price increases were taken across a number of our businesses primarily to offset higher commodity costs. Mix had a negative 1% impact on net sales primarily due to disproportionate growth in developing regions, where selling prices are below the Company average. Each reportable segment posted year-on-year volume growth, with mid-single-digit growth in Fabric Care and Home Care, Baby Care and Family Care, Grooming and Health Care and low single-digit growth in Beauty and Snacks and Pet Care. Each geographic region posted year-on-year volume growth except Western Europe, which was down low single digits due to the impact of divestitures. Volume grew primarily behind initiative activity on key brands and continued double-digit growth in developing regions. Organic sales increased 5% behind organic volume growth of 5%. Each reportable segment posted year-on-year organic sales and organic volume growth.

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

Operating Costs

Comparisons as a percentage of net sales; Years ended June 30	2009		Basis Point Change		2008		Basis Point Change		2007
Gross margin	50.8	%	(80	)	51.6	%	(70	)	52.3	%
Selling, general and administrative	30.4	%	(80	)	31.2	%	(110	)	32.3	%
Operating margin	20.4	%	0		20.4	%	40		20.0	%
Earnings from continuing operations before income taxes	19.4	%	30		19.1	%	0		19.1	%
Net earnings from continuing operations	14.3	%	(10	)	14.4	%	100		13.4	%

Gross margin declined 80 basis points to 50.8% of net sales in 2009. Higher commodity and energy costs, partially offset by savings projects on raw and packing materials, negatively impacted gross margin by about 250 basis points. Unfavorable foreign exchange and incremental restructuring charges also negatively impacted gross margin. These impacts were partially offset by price increases and manufacturing and logistics cost savings.

Gross margin was down 70 basis points in 2008 to 51.6% of net sales. Commodity and energy cost increases had a negative impact on gross margin of about 200 basis points. These were largely offset by the benefits of scale leverage from volume growth and cost savings projects resulting from manufacturing efficiency improvements and product reformulations.

Total selling, general and administrative expenses (SG&A) decreased 6% to $24.0 billion in 2009 driven primarily by foreign currency impacts and cost reduction efforts. SG&A as a percentage of net sales was down 80 basis points due to lower marketing expenses and the impact of foreign currency transaction gains on working capital balances caused by strengthening of the U.S. dollar. Marketing expenses were down as a percentage of net sales for the total Company and for each reportable segment mainly due to media rate reductions, foreign exchange and reductions in the amount of media purchased primarily in the fourth fiscal quarter. Overhead spending as a percentage of net sales was up 10 basis points versus the prior year as productivity improvements were mostly offset by the negative impacts of sales deleverage and incremental restructuring charges.

SG&A increased 6% to $25.6 billion in 2008 driven by higher overhead and marketing spending to support business growth. SG&A as a percentage of net sales was down 110 basis points. Overhead spending was down as a percentage of net sales for the total Company and for each reportable segment primarily due to volume scale leverage, a focus on overhead productivity and incremental synergy savings from the Gillette acquisition. Marketing spending as a percentage of net sales was in line with previous year levels.

We fund a number of restructuring-type activities primarily related to manufacturing and workforce optimization efforts to maintain a competitive cost structure. We have incurred annual charges of approximately $400 million after tax in recent years. In 2009, we implemented additional restructuring-type activities in order to offset the dilution caused by the disposition of our Coffee business. These incremental charges, which impacted both gross margin and SG&A as a percentage of net sales, reduced operating margin by about 50 basis points in 2009.

Non-Operating Items

Non-operating items primarily include interest expense, divestiture gains and interest and investment income. Interest expense decreased 7% in 2009 to $1.4 billion primarily driven by a reduction in U.S. dollar interest rates partially offset by a higher debt level primarily to fund the Company’s previously announced share repurchase program. In July 2007, the Company announced plans to repurchase $24 – 30 billion of P&G stock over a three-year period. In 2008, interest expense increased 13% to $1.5 billion driven by a higher interest rate on our long-term borrowings and a higher debt level to fund the Company’s previously announced share repurchase program.

Other non-operating income increased $98 million in 2009 mainly due to higher divestiture gains from the current year sales of Thermacare, Noxzema, Infusium and other minor brands. In 2008, other non-operating income decreased $103 million versus the prior year primarily due to lower interest income resulting from lower interest rates and cash balances. Divestiture gains in 2008 were in line with previous year levels and included the sale of the Western European tissue and Japanese adult incontinence businesses as well as other minor brands.

The effective tax rate from continuing operations in 2009 was up 180 basis points to 26.3% primarily due to a lower level of net favorable adjustments to reserves for previously existing uncertain tax positions and the utilization of tax credits, partially offset by unfavorable geographic mix of earnings across all reporting segments resulting from a weakening of key foreign currencies versus the U.S. dollar. During

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

the current year, net adjustments to reserves for uncertain tax positions benefitted the effective tax rate by 120 basis points, versus a benefit of 320 basis points in 2008. The effective tax rate from continuing operations declined from 29.5% in 2007 to 24.5% in 2008. Approximately 300 basis points of the decline was due to the tax reserve adjustments for previously existing uncertain tax positions. The balance of the decline in 2008 was primarily driven by a more favorable geographic mix of earnings and a reduction in the German statutory tax rate, which reduced our deferred tax liabilities related to acquired intangible assets.

Net Earnings

Net earnings from continuing operations decreased 4% to $11.3 billion in 2009 mainly due to lower net sales and a higher effective tax rate. Operating margin was consistent with the prior year as lower SG&A as a percentage of net sales offset a commodity-driven decline in gross margin. Net earnings from continuing operations in 2008 increased 17% to $11.8 billion behind sales growth, a 40-basis point improvement in operating margin and a lower tax rate. Operating margin increased in 2008 due to lower SG&A as a percentage of net sales, which more than offset lower gross margin.

Net earnings from discontinued operations increased $1.9 billion in 2009 primarily due to a $2.0 billion after tax gain on the sale of the Coffee business in November 2008. This was partially offset by the loss of earnings contribution from the Coffee business. Net earnings from discontinued operations were $277 million in both 2008 and 2007.

Diluted net earnings per share in 2009 increased 17% to $4.26. The increase was due mainly to the gain on the sale of our Coffee business, partially offset by lower net earnings from continuing operations and the loss of earnings contribution from the Coffee business. Diluted net earnings per share from continuing operations in 2009 increased 1% to $3.58, while diluted net earnings per share from discontinued operations was $0.68, comprised primarily of the gain on the sale of the Coffee business. Diluted net earnings per share growth exceeded net earnings due to fewer shares outstanding as a result of share repurchase activity and shares tendered in the Folgers coffee transaction. Treasury shares in the amount of $6.4 billion were repurchased in 2009, nearly all of which were made under our publicly announced share repurchase program.

Diluted net earnings per share in 2008 were up 20% versus the prior year to $3.64 per share, comprised of $3.56 per share from continuing operations and $0.08 per share from discontinued operations. Diluted net earnings per share growth exceeded net earnings growth due to share repurchase activity. Treasury shares in the amount of $10.0 billion were repurchased in 2008, nearly all of which were made under our publicly announced share repurchase program. Gillette was modestly accretive to earnings per share results in 2008, compared to dilution of approximately $0.10 – $0.12 per share in 2007. The elimination of Gillette dilution on earnings per share drove approximately 4 percentage points of earnings per share growth in 2008.

SEGMENT RESULTS

Results for the segments reflect information on the same basis we use for internal management reporting and performance evaluation. Within the Beauty GBU, we provide data for the Beauty and the Grooming reportable segments. In the Health and Well-Being GBU, we provide data for the Health Care and the Snacks and Pet Care reportable segments. In the Household Care GBU, we provide data for the Fabric Care and Home Care and the Baby Care and Family Care reportable segments. All references to net earnings throughout the discussion of segment results refer to net earnings from continuing operations.

The results of these reportable business segments do not include certain non-business unit specific costs such as interest expense, investing activities and certain restructuring costs. These costs are reported in our Corporate segment and are included as part of our Corporate segment discussion. Additionally, as described in Note 11 to the Consolidated Financial Statements, we have investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions and, therefore, do not consolidate them for U.S. GAAP purposes (“unconsolidated entities”). Given that certain of these investments are managed as integral parts of the Company’s business units, they are accounted for as if they were consolidated subsidiaries for management and segment reporting purposes. This means 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.

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

Net Sales Change Drivers vs. Year Ago (2009 vs. 2008)	Volume with Acquisitions & Divestitures		Volume Excluding Acquisitions & Divestitures		Foreign Exchange		Price		Mix/Other		Net Sales Growth
BEAUTY
Beauty	-2	%	-1	%	-4	%	2	%	0	%	-4	%
Grooming	-6	%	-5	%	-6	%	5	%	-2	%	-9	%
HEALTH AND WELL-BEING
Health Care	-4	%	-3	%	-5	%	4	%	-2	%	-7	%
Snacks and Pet Care	-6	%	-6	%	-4	%	9	%	-2	%	-3	%
HOUSEHOLD CARE
Fabric Care and Home Care	-3	%	-3	%	-5	%	6	%	0	%	-2	%
Baby Care and Family Care	1	%	2	%	-4	%	5	%	-1	%	1	%
TOTAL COMPANY	-3	%	-2	%	-4	%	5	%	-1	%	-3	%

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

Beauty

BEAUTY

($ millions)	2009		Change vs. Prior Year		2008		Change vs. Prior Year
Volume		n/a	-2	%		n/a	+2	%
Net sales	$	18,789	-4	%	$	19,515	+9	%
Net earnings	$	2,531	-7	%	$	2,730	+5	%

Beauty net sales decreased 4% in 2009 to $18.8 billion on a 2% decline in unit volume. Price increases to offset higher commodity costs added 2% to net sales. Unfavorable foreign exchange reduced net sales by 4%. Organic sales increased 1% versus the prior year behind price increases, partially offset by a 1% decline in organic volume. Volume in developed regions declined mid-single digits, while volume in developing regions grew low single digits. Retail Hair Care volume grew low single digits behind growth of Pantene, Head & Shoulders and Rejoice. Prestige Fragrances volume declined high single digits and Professional Hair Care volume declined mid-single digits mainly due to market contractions and trade inventory reductions. Volume in Skin Care declined mid-single digits primarily due to competitive activity affecting shipments of Olay and the divestiture of Noxzema. Personal Cleansing volume was down high single digits behind trade inventory reductions, market contractions and divestiture activity. Our market shares in key categories within Beauty were generally consistent with the prior year.

Net earnings decreased 7% in 2009 to $2.5 billion mainly due to lower net sales and reduced net earnings margin. Net earnings margin contracted 50 basis points due to reduced gross margin and a higher effective tax rate, partially offset by reduced SG&A as a percentage of net sales. Gross margin declined due to higher commodity costs, which were only partially offset by price increases and manufacturing cost savings. SG&A was down due to lower marketing spending as a percentage of net sales.

Beauty net sales increased 9% in 2008 to $19.5 billion behind 2% volume growth and 6% of favorable foreign exchange. Favorable product mix had a positive 1% impact on net sales primarily due to stronger growth in Skin Care and Prestige Fragrances, which have higher than segment average unit selling prices. This more than offset the impact of disproportionate growth in developing regions, which have lower selling prices than the segment average. Skin Care volume was up mid-single digits driven by growth of Olay behind the Definity and Regenerist initiatives. Our global skin care market share was up slightly, driven primarily by about a 1 point increase in our U.S. market share. Prestige Fragrances volume was up low single digits and organic volume was up high single digits behind new product launches on Dolce & Gabbana and Hugo Boss. Retail Hair Care volume was up mid-single digits, led by high single-digit growth in developing markets. Retail Hair Care volume in developed regions was flat as a double-digit volume increase of Head & Shoulders was offset by a double-digit volume decline of Pantene in North America. Professional Hair Care volume declined mid-single digits as growth from color was more than offset by declines in care and styling. Overall, global hair care market share was in line with the prior year level. Net earnings in Beauty increased 5% to $2.7 billion in 2008 as the impact of higher net sales was partially offset by a lower net earnings margin. Net earnings margin was down 60 basis points as lower gross margin and the impact of base period divestiture gains on minor brands more than offset the benefit of a lower tax rate due to geographic mix. Gross margin was down due to higher commodity costs, which more than offset the benefit of increased volume scale leverage and manufacturing cost savings projects. SG&A increased slightly as higher marketing spending as a percentage of net sales was partially offset by lower overhead spending as a percentage of net sales.

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

GROOMING

($ millions)	2009		Change vs. Prior Year		2008		Change vs. Prior Year
Volume		n/a	-6	%		n/a	+5	%
Net sales	$	7,543	-9	%	$	8,254	+11	%
Net earnings	$	1,492	-11	%	$	1,679	+21	%

Grooming net sales declined 9% in 2009 to $7.5 billion on a 6% decline in unit volume. Unfavorable foreign exchange reduced net sales by 6%. Product mix had a negative 2% impact on net sales as favorable product mix from growth of the premium-priced Gillette Fusion brand was more than offset by a disproportionate decline of Braun, both of which have higher than segment average selling prices. Price increases, taken across most product lines and in part to offset foreign exchange impacts in developing regions, added 5% to net sales. Organic sales were down 2% versus the prior year on a 5% decline in organic volume, mainly due to the sharp decline of the Braun business. Volume in developed regions declined high single digits and volume in developing regions declined mid-single digits. Blades and Razors volume declined low single digits primarily driven by market contractions in developed regions and trade inventory reductions. Growth of Gillette Fusion and Venus was more than offset by declines in legacy shaving systems. Global value share of blades and razors was up less than half a point versus the prior year. Volume in Braun was down double digits due to market contractions, trade inventory reductions and the exits of the U.S. home appliance and Tassimo coffee appliance businesses. Global value share of the female dry shaving market was up more than a point, while global value share of the male dry shaving market was down less than half a point.

Net earnings were down 11% in 2009 to $1.5 billion primarily on the decline in net sales and a 60-basis point reduction in net earnings margin. Net earnings margin was down due to a higher effective tax rate and reduced gross margin, partially offset by lower SG&A as a percentage of net sales. Gross margin declined due to unfavorable product mix resulting from disproportionate growth of disposable razors, higher commodity costs and volume scale deleverage which were partially offset by price increases and manufacturing cost savings. SG&A as a percentage of net sales was down due to lower overhead and marketing spending. The economic downturn in fiscal 2009 has resulted in a disproportionate decline in the Braun business particularly in developing geographies, given the more discretionary nature of home and personal grooming appliance purchases. We believe the Braun business will return to sales and earnings growth rates consistent with our long-term business plans. Failure to achieve these business plans or a further deterioration of the macroeconomic conditions could result in an impairment of the Braun business goodwill and intangibles recorded in 2005 as part of the Gillette acquisition.

Grooming net sales increased 11% to $8.3 billion in 2008. Net sales were up behind 5% volume growth, a 7% favorable foreign exchange impact and a 2% positive pricing impact driven by price increases on premium shaving systems. Product mix had a negative 3% impact on net sales as positive product mix from growth on the premium-priced Gillette Fusion brand was more than offset by the impact of disproportionate growth in developing regions, where selling prices are below the segment average. Blades and Razors volume increased high single digits behind double-digit growth in developing regions driven primarily by Gillette Fusion expansion and the Prestobarba3 launch. In developed regions, Blades and Razors volume was down low single digits as double-digit growth on Fusion was more than offset by lower shipments of legacy shaving systems. Gillette Fusion delivered more than $1 billion in net sales for 2008. Braun volume was down mid-single digits primarily due to supply constraints at a contract manufacturer, the announced exits of certain appliance businesses and the divestiture of the thermometer and blood pressure devices business. Net earnings in Grooming were up 21% in 2008 to $1.7 billion behind net sales growth and a 170-basis point earnings margin expansion. Earnings margin improved behind lower SG&A as a percentage of net sales, partially offset by a reduction in gross margin. Gross margin declined due to higher costs incurred at a contract manufacturer on the Braun home appliance business, which more than offset benefits from higher pricing and volume scale leverage. SG&A as a percentage of net sales was down primarily due to lower overhead spending driven largely by synergies from the integration of Gillette into P&G’s infrastructure.

Health and Well-Being

HEALTH CARE

($ millions)	2009		Change vs. Prior Year		2008		Change vs. Prior Year
Volume		n/a	-4	%		n/a	+4	%
Net sales	$	13,623	-7	%	$	14,578	+9	%
Net earnings	$	2,435	-3	%	$	2,506	+12	%

Health Care net sales were down 7% to $13.6 billion in 2009 on a 4% decline in unit volume. The divestitures of Thermacare and other minor brands resulted in 1% of the unit volume decline. Unfavorable foreign exchange reduced net sales by 5%. Negative product mix from disproportionately higher volume declines of Personal Health Care and Pharmaceuticals, which have higher than segment average selling prices, reduced net sales by 2%. These negative impacts were partially offset by positive pricing impacts of 4%. Organic sales were down 1% versus fiscal 2008. Volume declined mid-single digits in developed regions and low single digits in developing regions. Personal Health Care volume was down double digits due to the loss of marketplace exclusivity of Prilosec in North America, the impact of a mild cold and flu season on Vicks and the divestiture of Thermacare. All-outlet value share of the U.S. personal health care market has declined over 2 points, including a double-digit share decline of Prilosec OTC. Pharmaceuticals volume decreased high single digits mainly due to minor brand divestitures and the impact of generic competition to our Actonel brand in the osteoporosis category. The impact from the loss of Prilosec exclusivity and from generic competition to the Actonel brand are expected to continue. Oral Care volume declined low single digits behind trade inventory reductions and market contractions in North America and CEEMEA. Our global market share of oral care was in line with the prior year. Feminine Care volume was down low single digits mainly due to trade inventory reductions and market contractions in North America and CEEMEA. Our global feminine care market share was down half a point versus the prior year.

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

Net earnings declined 3% to $2.4 billion in 2009 mainly due to lower net sales. Net earnings margin was up 70 basis points due primarily to lower SG&A as a percentage of net sales and higher current period divestiture gains, partially offset by a lower gross margin. The decline in gross margin was driven by higher commodity costs, which were partially offset by price increases and manufacturing cost savings. SG&A as a percentage of net sales was down behind reductions in both marketing and overhead spending as a percentage of net sales.

Health Care net sales increased 9% in 2008 to $14.6 billion behind a 4% increase in unit volume. Foreign exchange had a positive 5% impact on net sales and price increases added 1% to net sales. Disproportionate growth in developing regions, which have selling prices below the segment average, resulted in a negative 1% mix impact. Feminine Care volume increased mid-single digits and organic volume was up high single digits behind double-digit growth on Naturella and high single-digit growth on Always, which more than offset a low single-digit decline on Tampax. Our global feminine care market share increased slightly in 2008. Oral Care volume was up mid-single digits behind initiative-driven growth on Oral-B toothbrushes and Crest. Volume in Pharmaceuticals and Personal Health was up low single digits as the impact of adding the Swiss Precision Diagnostics business was largely offset by lower shipments of Actonel, Prilosec OTC and PuR. The PuR decline was from adjustments to a Whirlpool^® water filters licensing agreement. Prilosec OTC volume began to decline in the third fiscal quarter of 2008 due to the loss of marketplace exclusivity and the entry of competing products into the market. This is expected to continue and to have an adverse effect on the results of the Health Care segment in future periods. Net earnings in Health Care were up 12% in 2008 to $2.5 billion due to higher net sales and a 50-basis point improvement in net earnings margin. Net earnings margin increased as reduced SG&A as a percentage of net sales more than offset lower gross margin. Gross margin was down due to higher commodity costs and a less profitable mix driven primarily by disproportionate growth in developing regions and lower shipments of Prilosec OTC, which more than offset the benefit of increased volume scale leverage and manufacturing cost savings. SG&A improved primarily behind lower overhead spending as a percentage of net sales due to a focus on productivity improvement and Gillette synergy benefits.

SNACKS AND PET CARE

($ millions)	2009		Change vs. Prior Year		2008		Change vs. Prior Year
Volume		n/a	-6	%		n/a	+3	%
Net sales	$	3,114	-3	%	$	3,204	+7	%
Net earnings	$	234	-10	%	$	261	+7	%

Snacks and Pet Care net sales decreased 3% to $3.1 billion in 2009 on a 6% decline in unit volume. Price increases to offset higher commodity costs added 9% to net sales. Product mix reduced net sales by 2% due to lower shipments of Eukanuba and premium snack products, which have higher than segment average selling prices. Unfavorable foreign exchange reduced net sales by 4%. Organic sales increased 1%. Snacks volume decreased high single digits due to lower merchandising support and trade inventory levels, a high base period, which included the Rice Infusion, Extreme Flavors and Stix product launches and market share declines following price increases. Our global snacks market share declined about 1 point versus the prior year. Volume in Pet Care declined mid-single digits mainly due to declines in premium nutrition business following multiple price increases.

Net earnings in 2009 were down 10% to $234 million on lower net sales and a 60-basis point reduction in net earnings margin. A reduction in gross margin and a higher effective tax rate each reduced net earnings margin. These impacts were partially offset by lower SG&A as a percentage of net sales. Gross margin declined due to higher commodity costs, partially offset by higher selling prices and manufacturing cost savings. SG&A as a percentage of net sales declined due to reductions in both marketing and overhead spending.

Snacks and Pet Care net sales increased 7% to $3.2 billion in 2008. Net sales grew behind a 3% volume increase, a positive 1% price impact resulting from price increases in Pet Care and a 4% favorable foreign exchange impact. Product mix had a negative 1% impact on net sales from an increase in Snacks volume, which has lower selling prices than the segment average. Snacks volume was up high single digits behind the launch of Rice Infusion in Western Europe and Extreme Flavors and Pringles Stix in North America. In Pet Care, volume was down low single digits due to negative impacts from the voluntary wet pet food recall in the U.S. in March 2007 that contributed to approximately a 1% decline in our U.S. market share. Net earnings in Snacks and Pet Care were up 7% to $261 million in 2008 due to sales growth. Operating margin was consistent with the prior year as lower gross margin was offset by improved SG&A as a percentage of net sales. Gross margin was down as higher commodity costs across the segment more than offset price increases, base period pet food recall impacts and manufacturing cost savings. SG&A decreased as a percentage of net sales due to reductions in both overhead and marketing spending as a percentage of net sales.

Household Care

FABRIC CARE AND HOME CARE

($ millions)	2009		Change vs. Prior Year		2008		Change vs. Prior Year
Volume		n/a	-3	%		n/a	+6	%
Net sales	$	23,186	-2	%	$	23,714	+11	%
Net earnings	$	3,032	-11	%	$	3,411	+9	%

Fabric Care and Home Care net sales were down 2% in 2009 to $23.2 billion on a 3% decline in unit volume. Price increases, taken primarily to offset higher commodity costs, added 6% to net sales, while unfavorable foreign exchange reduced net sales by 5%. Organic sales increased 3%. Fabric Care, Home Care and Batteries unit volume were each down in both developed and developing regions. Volume in Fabric Care declined low single digits due to trade inventory reductions and net market share declines following price increases. Lower shipments of premium-priced Tide and Ariel were only partially offset by growth of Gain and Downy. Global value share of the fabric care market was down less than half a point behind

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

declines in U.S. all-outlet shares of Tide and Downy, partially offset by share growth of Gain. Home Care volume was down low single digits due to market contractions and trade inventory reductions. Batteries volume declined high single digits due to market contractions, trade inventory reductions and competitive activity, which drove a 1-point market share decline of general purpose batteries.

Net earnings declined 11% to $3.0 billion primarily due to reduced net earnings margin and lower net sales. Net earnings margin contracted 130 basis points behind lower operating margin. Operating margin was down primarily due to a commodity-driven decline in gross margin, which was partially offset by price increases and manufacturing cost savings. Lower marketing spending as a percentage of net sales was largely offset by higher overhead spending as a percentage of net sales.

Fabric Care and Home Care net sales in 2008 increased 11% to $23.7 billion. Volume was up 6%, price increases added 1% and favorable foreign exchange added 5% to net sales growth. This was partially offset by a negative 1% mix impact primarily from disproportionate growth in developing regions and a shift toward larger sizes in fabric care, both of which have selling prices below the segment average. Fabric Care volume increased mid-single digits behind high single-digit growth in developing regions and mid-single-digit growth in developed regions. Growth was driven by the liquid laundry detergent compaction launch in North America and initiative activity on Tide, Gain, Ariel and Downy. Home Care volume was up mid-single digits due to double-digit growth in developing regions and high-teens growth on Febreze from the launch of Febreze Candles. Batteries volume was up mid-single digits behind double-digit growth in developing regions and mid-single-digit growth in developed regions. Net earnings in Fabric Care and Home Care increased 9% to $3.4 billion in 2008 primarily behind higher net sales. Net earnings margin was down 20 basis points primarily due to lower gross margin, partially offset by a reduction in SG&A as a percentage of net sales. Gross margin was down due to higher commodity costs, which more than offset benefits from pricing, increased volume scale leverage and manufacturing cost savings projects. SG&A improved as a percentage of net sales due to lower overhead spending as a percentage of net sales resulting from a focus on overhead productivity improvements.

BABY CARE AND FAMILY CARE

($ millions)	2009		Change vs. Prior Year		2008		Change vs. Prior Year
Volume		n/a	+1	%		n/a	+4	%
Net sales	$	14,103	+1	%	$	13,898	+9	%
Net earnings	$	1,770	+2	%	$	1,728	+20	%

Baby Care and Family Care net sales increased 1% to $14.1 billion in 2009 on 1% volume growth. Pricing to help recover higher commodity and energy costs contributed 5% to net sales growth. Unfavorable foreign exchange reduced net sales by 4%. Negative product mix from higher shipments of mid-tier brands, which have lower than segment average selling prices, reduced net sales by 1%. Organic sales were up 7% on a 2% increase in organic volume. Volume growth was driven by low single-digit growth in developing regions, while volume in developed regions was in line with the prior year. Baby Care volume increased low single digits due to growth of Pampers primarily in developing regions and double-digit growth of Luvs in North America. Our global market share of baby care was up nearly half a point. Family Care volume was down low single digits due to the Western European family care divestiture. Organic volume for Family Care was up low single digits behind double-digit growth of Charmin Basic and Bounty Basic. U.S. market share on Bounty was up nearly 1 point, while Charmin market share remained consistent with the prior year.

Net earnings were up 2% versus the prior year to $1.8 billion due to net sales growth and higher net earnings margin. Net earnings margin increased 10 basis points as higher gross margin was partially offset by an increase in SG&A as a percentage of net sales and a higher effective tax rate. Gross margin improved due to the impact of price increases, manufacturing cost savings and more positive product mix following the Western European family care divestiture, which more than offset higher commodity and energy costs. SG&A as a percentage of net sales increased due to the higher current period overhead spending and base period reimbursements for services related to the Western European family care divestiture, partially offset by lower marketing spending.

Baby Care and Family Care net sales increased 9% in 2008 to $13.9 billion. Volume was up 4%, including the impact of the Western European family care divestiture. Price increases contributed 1% to net sales and foreign exchange had a positive 4% impact on net sales. Organic volume and organic sales, which exclude the impacts of the Western European family care divestiture and foreign exchange, both grew 8%. Organic volume growth was balanced across the segment with high single-digit growth in both Baby Care and Family Care. Baby Care volume in developed regions was up mid-single digits behind growth on the Pampers Baby Stages of Development and on the Baby Dry Caterpillar Flex initiative. In developing regions, Baby Care volume was up double digits behind continued growth on Pampers. Family Care volume was down low single digits due to the divestiture of the Western European family care business but was up high single digits on an organic basis behind the Bounty and Charmin product restages. U.S. market share on both Bounty and Charmin was up over 1 point. Net earnings in Baby Care and Family Care were up 20% to $1.7 billion in 2008 behind higher net sales and earnings margin expansion. Net earnings margin improved 110 basis points primarily behind higher gross margin and lower SG&A as a percentage of net sales. Gross margin was up due to a more profitable product mix following the Western Europe family care divestiture, the benefit of increased volume scale leverage, pricing and manufacturing cost savings projects, which more than offset higher commodity and energy costs. SG&A improved as a percentage of net sales due to lower overhead spending as a percentage of net sales, partially offset by higher marketing expenses as a percentage of net sales.

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

Corporate

Corporate includes certain operating and non-operating activities not allocated to specific business units. These include: the incidental businesses managed at the corporate level; financing and investing activities; other general corporate items; the historical results of certain divested brands and categories; and certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization. Corporate also includes reconciling items to adjust the accounting policies used in the segments to U.S. GAAP. The most significant reconciling items include income taxes (to adjust from statutory rates that are reflected in the segments to the overall Company effective tax rate), adjustments for unconsolidated entities (to eliminate 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 certain unconsolidated entities and less than 100%-owned subsidiaries are managed as integral parts of the Company, they are accounted for similar to a wholly owned subsidiary for management and segment purposes. This means our segment results recognize 100% of each income statement component through before-tax earnings in the segments, with eliminations for unconsolidated entities in Corporate. In determining segment after-tax 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.

Corporate net sales primarily reflect the adjustment to eliminate the sales of unconsolidated entities included in business segment results. Accordingly, Corporate net sales is generally a negative balance. Negative net sales in Corporate declined $86 million in 2009 primarily driven by lower adjustments to eliminate these sales. These adjustments decreased due to lower net sales of existing unconsolidated entities. Net expenses from continuing operations decreased $316 million to $201 million. The decrease was primarily due to corporate hedging impacts, lower interest expense and higher current period divestiture gains, partially offset by higher restructuring spending. These items are discussed in more detail in the Results of Operations section.

In 2008, negative net sales increased $474 million in Corporate primarily driven by higher adjustments to eliminate the impact of joint venture net sales for unconsolidated entities. These adjustments increased due to sales growth of existing unconsolidated entities and the addition of the Swiss Precision Diagnostics business. Net expenses in Corporate decreased $450 million in 2008. The decrease was driven primarily by a lower tax rate resulting from the net benefits of adjustments to reserves for uncertain tax positions.

FINANCIAL CONDITION

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

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

Operating Activities

Operating cash flow was $14.9 billion in 2009, a decrease of 1% versus the prior year total of $15.0 billion. Operating cash flow resulted primarily from net earnings adjusted for non-cash items (depreciation and amortization, stock-based compensation, deferred income taxes and gain on the sale of businesses). The combination of net earnings and non-cash items provided $15.3 billion of operating cash as compared to $16.7 billion in the prior year. The decrease in operating cash flow versus 2008 was primarily due to a decline in net earnings from continuing operations. A net decrease in working capital also added to cash flow in the current year as lower accounts receivable and inventory balances were partially offset by a decline in accounts payable. The decrease in working capital was primarily due to the impact of lower net sales and our ability to adequately adjust production to better meet unit volume requirements. Accounts receivable days declined primarily due to improved collection efforts. Inventory and accounts payable days declined due in part to the optimization of our manufacturing process and inventory levels and a moderation of commodity costs late in the year. Other operating assets and liabilities reduced cash flow primarily due to changes in postretirement benefit plans. Cash flow from discontinued operations contributed $124 million to operating cash flow.

In 2008, operating cash flow increased 12% over the prior year to $15.0 billion. Both operating cash flow and the increase in operating cash flow over the prior year resulted primarily from higher net earnings and non-cash charges (depreciation and amortization, stock-based compensation, deferred income taxes and gain on the sale of businesses). Working capital balances increased primarily to support business growth resulting in a net use of cash. Cash flow from discontinued operations contributed $263 million to operating cash flow.

Free Cash Flow. We view free cash flow as an important measure because it is one factor impacting the amount of cash available for dividends and discretionary investment. It is defined as operating cash flow less capital expenditures and is one of the measures used to evaluate senior management and determine their at-risk compensation. Free cash flow was $11.7 billion in 2009, compared to $12.0 billion in 2008. Free cash flow decreased as a result of higher capital spending and lower operating cash flow. Free cash flow productivity, defined as the ratio of free cash flow to net earnings, was 87% in 2009. This is

Management’s Discussion and Analysis The Procter & Gamble Company 43

below our 90% target primarily due to the gain on the Folgers coffee transaction which lowered productivity by approximately 15% because the gain is included in net earnings but had no impact on operating cash flow.

In 2008, free cash flow was $12.0 billion, compared to $10.5 billion in 2007. Free cash flow increased primarily as a result of higher operating cash flow. Capital expenditures were $3.0 billion and 3.7% of net sales. Free cash flow productivity was 99% in 2008, ahead of our 90% target.

Investing Activities

Net investing activities used $2.4 billion of cash in 2009 and $2.5 billion in 2008 mainly due to capital spending.

Capital Spending. We view capital spending efficiency as a critical component of our overall cash management strategy. Capital expenditures in 2009 were $3.2 billion, compared to $3.0 billion in 2008. Capital spending as a percentage of net sales was 4.1% in 2009, compared to 3.7% in 2008, as we continued to make investments to support capacity, innovation and cost savings. Capital spending for our discontinued Coffee business was $3 million and $30 million in 2009 and 2008, respectively.

Acquisitions. Acquisitions used $368 million of cash in 2009 primarily for the acquisition of Nioxin, a leader in the scalp care professional hair care market, which was incorporated into Beauty. In 2008, acquisitions used $381 million of cash primarily for the acquisition of Frederic Fekkai, a premium hair care brand, in Beauty.

Proceeds from Asset Sales. Proceeds from asset sales were $1.1 billion in 2009 mainly due to the sale of our Coffee business and the Thermacare brand. Of these proceeds, $350 million related to debt issued in connection with the Folgers coffee transaction. The underlying debt obligation was transferred to The J.M. Smucker Company pursuant to the transaction. No cash was received from Smucker in the exchange transaction. During 2009, we also divested our Thermacare brand and a number of other minor brands. In 2008, proceeds from asset sales were $928 million primarily behind the sale of our Western Europe family care business as well as several minor Beauty and Health Care divestitures.

Financing Activities

Dividend Payments. Our first discretionary use of cash is dividend payments. Dividends per common share increased 13% to $1.64 per share in 2009. Total dividend payments to both common and preferred shareholders were $5.0 billion, $4.7 billion and $4.2 billion in 2009, 2008 and 2007, respectively. In April 2009, the Board of Directors declared an increase in our quarterly dividend from $0.40 to $0.44 per share on Common Stock and Series A and B ESOP Convertible Class A Preferred Stock.

Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt was $37.0 billion in 2009, $36.7 billion in 2008 and $35.4 billion in 2007. Debt increased in 2009 and 2008 primarily to fund our share repurchase plan discussed below.

Treasury Purchases. In 2007, we began to acquire $24 – 30 billion of our outstanding shares under a publicly announced three-year share repurchase plan. To date, we have acquired $16.3 billion of shares under this repurchase plan. Total share repurchases were $6.4 billion in 2009 and $10.0 billion in 2008, nearly all of which were made under our publicly announced share repurchase plan. Total share repurchases under the publicly announced plan may be below the announced range due to lower earnings growth in fiscal 2009 and 2010 versus expectations at the time the plan was publicly announced.

In November 2008, we completed the divestiture of our Folgers coffee subsidiary. In connection with this divestiture, 38.7 million shares of P&G common stock were tendered by shareholders and exchanged for all shares of Folgers common stock, resulting in an increase of treasury stock of $2.5 billion.

Liquidity

Our current liabilities exceeded current assets by $9.0 billion, driven by our short-term debt position. We utilize short- and long-term debt to fund discretionary items such as acquisitions and share repurchases. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We have strong short- and long-term debt ratings which despite the current credit crisis have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, we have agreements with a diverse group of financial institutions that, if needed, should provide sufficient credit funding to meet short-term financing requirements.

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

Our short-term credit ratings from Moody’s and Standard & Poor’s (S&P) 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.

We maintain three bank credit facilities: a $6 billion 5-year facility expiring in August 2012, a $3 billion 5-year facility expiring in August 2012 and a $1.8 billion 364-day facility expiring in June 2010. The credit facilities are in place to support our ongoing commercial paper program. The two 5-year facilities can be extended for certain periods of time as specified in, and in accordance with, the terms of each of these credit agreements. We anticipate that these facilities will remain largely undrawn for the foreseeable future. These credit facilities do not have cross-default or ratings triggers, nor do they have material adverse events clauses, except at the time of signing. In addition to these credit facilities, we have an automatically effective registration statement on Form S-3 filed with the SEC that is available for registered offerings of short- or long-term debt securities.

Guarantees and Other Off-Balance Sheet Arrangements

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

Contractual Commitments

The following table provides information on the amount and payable date of our contractual commitments as of June 30, 2009.

($ millions)	Total		Less Than 1 Year		1–3 Years		3–5 Years		After 5 Years
RECORDED LIABILITIES
Total debt	$	36,631	$	16,270	$	1,438	$	6,091	$	12,832
Capital leases		392		46		84		76		186
Unrecognized tax benefit(1)		—		—		—		—		—
OTHER
Interest payments relating to long-term debt		12,616		1,183		2,469		1,788		7,176
Operating leases(2)		1,620		305		495		378		442
Minimum pension funding(3)		1,499		616		883		—		—
Purchase obligations(4)		3,897		1,258		1,659		681		299
TOTAL CONTRACTUAL COMMITMENTS		56,655		19,678		7,028		9,014		20,935

(1) As of June 30, 2009, the Company’s Consolidated Balance Sheet reflects a liability for unrecognized tax benefits of $2.7 billion, including $736 of interest and penalties. Due to the high degree of uncertainty regarding the timing of future cash outflows of liabilities for unrecognized tax benefits, a reasonable estimate of the period of cash settlement beyond the balance sheet date of June 30, 2009, can not be made.

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

(3) Represents future pension payments to comply with local funding requirements. The projected payments beyond fiscal year 2012 are not currently determinable.

(4) Primarily reflects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represent future purchases in line with expected usage to obtain favorable pricing. Approximately 43% relates to service contracts for information technology, human resources management and facilities management activities that have been outsourced. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include obligations related to other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.

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. Accordingly, they are not expected to result in changes that would materially affect our financial condition, results of operations or cash flows in any given year. However, for ongoing impairment testing of goodwill and intangible valuations, significant changes in the underlying assumptions used in the valuation models, including discount and tax rates or future cash flow projections, versus those anticipated at the time of the initial valuations, could result in impairment charges that could materially affect the financial statements 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.

Management’s Discussion and Analysis The Procter & Gamble Company 45

Revenue Recognition

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

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

We operate in multiple jurisdictions with complex regulatory environments subject to different interpretations by the taxpayer and respective governmental taxing authorities. In certain of these jurisdictions we may take positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties in light of the changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We have a number of audits in process in various jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available information, we believe that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows.

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

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 the underlying 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 8 to the Consolidated Financial Statements. For 2009, the average return on assets assumptions for pension plan assets and OPEB assets were 7.4% 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 6.0% represents a weighted average of local rates in countries where such plans exist. A 0.5% change in the discount rate would impact annual after-tax defined benefit pension expense by less than

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

$50 million. The average discount rate on the OPEB plan of 6.4% 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 $20 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 8 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 or technology life cycles, economic barriers to entry, a brand’s relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Determining the useful life of an intangible asset also requires judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands. Other acquired 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. For acquisitions closed after June 30, 2009, exit costs will no longer be treated as acquired liabilities. Rather, they will be charged to expense as incurred post acquisition in accordance with the applicable new accounting guidance (see discussion of the new business combinations accounting guidance in the New Accounting Pronouncements section below).

Goodwill and Intangible Assets

Acquired intangible assets may represent indefinite-lived assets (e.g., certain trademarks or brands), determinable-lived intangibles (e.g., certain trademarks or brands, customer relationships, 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. We determine the fair value of our reporting units based on the income approach. Under the income approach, we calculate the fair value of our reporting units based on the present value of estimated future cash flows. 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 our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. We believe such assumptions and estimates are also comparable to those that would be used by other marketplace participants. When certain events or changes in operating conditions occur, indefinite-lived intangible assets may be reclassified to a determinable life asset and an additional impairment assessment may be performed. We did not recognize any material impairment charges for goodwill or intangible assets during the years presented.

Management’s Discussion and Analysis The Procter & Gamble Company 47

Our annual impairment testing for both goodwill and indefinite-lived intangible assets indicated that all reporting units and intangible assets fair values exceeded their respective recorded values. However, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values, which could result in impairment charges that could materially affect the financial statements in any given year. The recorded value of goodwill and intangible assets from recently acquired businesses are derived from more recent business operating plans and macroeconomic environmental conditions and therefore are more susceptible to an adverse change that could require an impairment charge. For example, because the Gillette intangible and goodwill amounts represent 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. Gillette indefinite-lived intangible assets represent approximately 89% of the $26.9 billion of indefinite-lived intangible assets at June 30, 2009. Goodwill allocated to reporting units consisting entirely of businesses purchased as part of the Gillette acquisition (Blades and Razors, Braun, Batteries) represents 47% of the $56.5 billion of goodwill at June 30, 2009. With the exception of our Braun business, all of our other reporting units have fair values that significantly exceed recorded values. While the fair value of our Braun business exceeds its carrying value, which includes goodwill and indefinite-lived intangibles of $2.4 billion, the economic downturn in 2009 has resulted in a disproportionate decline in that business in developing geographies given the more discretionary nature of home and personal grooming appliances purchases. Our valuation of the Braun business has it returning to sales and earnings growth rates consistent with our long-term business plans. Failure to achieve these business plans or a further deterioration of the macroeconomic conditions could result in a valuation that would trigger an impairment of the Braun business goodwill and intangibles.

New Accounting Pronouncements

On July 1, 2008, we adopted new accounting guidance on fair value measurements. This new guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The new guidance was effective for the Company beginning July 1, 2008, for certain financial assets and liabilities. Refer to Note 5 for additional information regarding our fair value measurements for financial assets and liabilities. The new guidance is effective for non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis beginning July 1, 2009.

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

In December 2007, the Financial Accounting Standards Board (FASB) issued new accounting guidance on business combinations and noncontrolling interests in consolidated financial statements. The new guidance revises the method of accounting for a number of aspects of business combinations and noncontrolling interests, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests), and post acquisition exit activities of acquired businesses. The new guidance will be effective for the Company beginning July 1, 2009.

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.

OTHER INFORMATION

Hedging and Derivative Financial Instruments

As a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. We evaluate exposures on a centralized basis to take advantage of natural exposure netting and correlation. To the extent we choose to manage volatility associated with the net exposures, we enter into various financial transactions which we account for using the applicable accounting guidance for derivative instruments and hedging activities. These financial transactions are governed by our policies covering acceptable counterparty exposure, instrument types and other hedging practices. Note 5 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, 2009. In cases where data is unavailable in RiskMetrics™, a reasonable proxy is included.

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

Interest Rate Exposure on Financial Instruments. Interest rate swaps are used to hedge exposures to interest rate movement on underlying debt obligations. Certain interest rate swaps denominated in foreign currencies are designated to hedge exposures to currency exchange

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

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, 2009, including derivative and other instruments sensitive to interest rates, we believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would not materially affect our financial statements.

Currency Rate Exposure on Financial Instruments. Because we manufacture and sell products 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 with maturities of less than 18 months. In addition, we enter into certain currency swaps with maturities of up to five years to hedge our exposure to exchange rate movements on intercompany financing transactions.

Based on our overall currency rate exposure as of and during the year ended June 30, 2009, we believe, at a 95% confidence level based on historical currency rate movements, the impact of a near-term change in currency rates on derivative and other instruments would not materially affect our financial statements.

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

Based on our overall commodity price exposure as of and during the year ended June 30, 2009, we believe, at a 95% confidence level based on historical commodity price movements, the impact of a near-term change in commodity prices on derivative and other instruments would not materially affect our financial statements.

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. We believe this provides investors with a more complete understanding of underlying results and trends by providing sales growth on a consistent basis.

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

FY 2009	Net Sales Growth		Foreign Exchange Impact		Acquisition/ Divestiture Impact		Organic Sales Growth
Beauty	-4	%	4	%	1	%	1	%
Grooming	-9	%	6	%	1	%	-2	%
Health Care	-7	%	5	%	1	%	-1	%
Snacks and Pet Care	-3	%	4	%	0	%	1	%
Fabric Care and Home Care	-2	%	5	%	0	%	3	%
Baby Care and Family Care	1	%	4	%	2	%	7	%
TOTAL P&G	-3	%	4	%	1	%	2	%
FY 2008	Net Sales Growth		Foreign Exchange Impact		Acquisition/ Divestiture Impact		Organic Sales Growth
Beauty	9	%	-6	%	1	%	4	%
Grooming	11	%	-7	%	0	%	4	%
Health Care	9	%	-5	%	-1	%	3	%
Snacks and Pet Care	7	%	-4	%	0	%	3	%
Fabric Care and Home Care	11	%	-5	%	0	%	6	%
Baby Care and Family Care	9	%	-4	%	3	%	8	%
TOTAL P&G	9	%	-5	%	1	%	5	%

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

Free Cash Flow Productivity. Free cash flow productivity is defined as the ratio of free cash flow to net earnings. Our 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:

	Operating Cash Flow		Capital Spending			Free Cash Flow		Net Earnings		Free Cash Flow Productivity
2009	$	14,919	$	(3,238	)	$	11,681	$	13,436	87	%
2008	$	15,008	$	(3,046	)	$	11,962	$	12,075	99	%
2007	$	13,410	$	(2,945	)	$	10,465	$	10,340	101	%
2006	$	11,372	$	(2,667	)	$	8,705	$	8,684	100	%
2005	$	8,561	$	(2,181	)	$	6,380	$	6,923	92	%
2004	$	9,216	$	(2,024	)	$	7,192	$	6,156	117	%
2003	$	8,455	$	(1,482	)	$	6,973	$	4,788	146	%
2002	$	7,672	$	(1,679	)	$	5,993	$	3,910	153	%
Total Free Cash Flow Since 2001						$	69,351
Average Free Cash Flow Productivity										112	%

The Procter & Gamble Company 49

Consolidated Statements of Earnings

Amounts in millions except per share amounts; Years ended June 30	2009		2008		2007
NET SALES	$	79,029	$	81,748	$	74,832
Cost of products sold		38,898		39,536		35,659
Selling, general and administrative expense		24,008		25,575		24,170
OPERATING INCOME		16,123		16,637		15,003
Interest expense		1,358		1,467		1,304
Other non-operating income, net		560		462		565
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		15,325		15,632		14,264
Income taxes on continuing operations		4,032		3,834		4,201
NET EARNINGS FROM CONTINUING OPERATIONS		11,293		11,798		10,063
NET EARNINGS FROM DISCONTINUED OPERATIONS		2,143		277		277
NET EARNINGS	$	13,436	$	12,075	$	10,340
BASIC NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations	$	3.76	$	3.77	$	3.13
Earnings from discontinued operations		0.73		0.09		0.09
BASIC NET EARNINGS PER COMMON SHARE		4.49		3.86		3.22
DILUTED NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations		3.58		3.56		2.96
Earnings from discontinued operations		0.68		0.08		0.08
DILUTED NET EARNINGS PER COMMON SHARE		4.26		3.64		3.04
DIVIDENDS PER COMMON SHARE	$	1.64	$	1.45	$	1.28

See accompanying Notes to Consolidated Financial Statements.

50 The Procter & Gamble Company

Consolidated Balance Sheets

Assets

Amounts in millions; June 30	2009			2008
CURRENT ASSETS
Cash and cash equivalents	$	4,781		$	3,313
Accounts receivable		5,836			6,761
Inventories
Materials and supplies		1,557			2,262
Work in process		672			765
Finished goods		4,651			5,389
Total inventories		6,880			8,416
Deferred income taxes		1,209			2,012
Prepaid expenses and other current assets		3,199			4,013
TOTAL CURRENT ASSETS		21,905			24,515
PROPERTY, PLANT AND EQUIPMENT
Buildings		6,724			7,052
Machinery and equipment		29,042			30,145
Land		885			889
Total property, plant and equipment		36,651			38,086
Accumulated depreciation		(17,189	)		(17,446	)
NET PROPERTY, PLANT AND EQUIPMENT		19,462			20,640
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill		56,512			59,767
Trademarks and other intangible assets, net		32,606			34,233
NET GOODWILL AND OTHER INTANGIBLE ASSETS		89,118			94,000
OTHER NONCURRENT ASSETS		4,348			4,837
TOTAL ASSETS	$	134,833		$	143,992

See accompanying Notes to Consolidated Financial Statements.

The Procter & Gamble Company 51

Consolidated Balance Sheets

Liabilities and Shareholders’ Equity

Amounts in millions; June 30	2009			2008
CURRENT LIABILITIES
Accounts payable	$	5,980		$	6,775
Accrued and other liabilities		8,601			11,099
Debt due within one year		16,320			13,084
TOTAL CURRENT LIABILITIES		30,901			30,958
LONG-TERM DEBT		20,652			23,581
DEFERRED INCOME TAXES		10,752			11,805
OTHER NONCURRENT LIABILITIES		9,429			8,154
TOTAL LIABILITIES		71,734			74,498
SHAREHOLDERS’ EQUITY
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)		1,324			1,366
Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)		—			—
Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2009 — 4,007.3, 2008 — 4,001.8)		4,007			4,002
Additional paid-in capital		61,118			60,307
Reserve for ESOP debt retirement		(1,340	)		(1,325	)
Accumulated other comprehensive income (loss)		(3,358	)		3,746
Treasury stock, at cost (shares held: 2009 — 1,090.3, 2008 — 969.1)		(55,961	)		(47,588	)
Retained earnings		57,309			48,986
TOTAL SHAREHOLDERS’ EQUITY		63,099			69,494
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	134,833		$	143,992

See accompanying Notes to Consolidated Financial Statements.

52 The Procter & Gamble Company

Consolidated Statements of Shareholders’ Equity

Dollars in millions /Shares in thousands	Common Shares Outstanding		Common Stock		Preferred Stock			Additional Paid-In Capital		Reserve for ESOP Debt Retirement			Accumulated Other Comprehensive Income			Treasury Stock			Retained Earnings			Total
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
Other comprehensive income:
Financial statement translation														2,419									2,419
Hedges and investment securities, net of $459 tax														(951	)								(951	)
Total comprehensive income																						$	11,808
Cumulative impact for adoption of new accounting guidance(1)														(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						—
ESOP debt impacts											(20	)											(20	)
BALANCE JUNE 30, 2007	3,131,946			3,990		1,406			59,030		(1,308	)		617			(38,772	)		41,797			66,760
Net earnings																				12,075			12,075
Other comprehensive income:
Financial statement translation														6,543									6,543
Hedges and investment securities, net of $1,664 tax														(2,906	)								(2,906	)
Defined benefit retirement plans, net of $120 tax														(508	)								(508	)
Total comprehensive income																						$	15,204
Cumulative impact for adoption of new accounting guidance(1)																				(232	)		(232	)
Dividends to shareholders:
Common																				(4,479	)		(4,479	)
Preferred, net of tax benefits																				(176	)		(176	)
Treasury purchases	(148,121	)															(10,047	)					(10,047	)
Employee plan issuances	43,910			12					1,272								1,196						2,480
Preferred stock conversions	4,982					(40	)		5								35						—
ESOP debt impacts											(17	)								1			(16	)
BALANCE JUNE 30, 2008	3,032,717			4,002		1,366			60,307		(1,325	)		3,746			(47,588	)		48,986			69,494
Net earnings																				13,436			13,436
Other comprehensive income:
Financial statement translation														(6,151	)								(6,151	)
Hedges and investment securities, net of $452 tax														748									748
Defined benefit retirement plans, net of $879 tax														(1,701	)								(1,701	)
Total comprehensive income																						$	6,332
Cumulative impact for adoption of new accounting guidance(1)																				(84	)		(84	)
Dividends to shareholders:
Common																				(4,852	)		(4,852	)
Preferred, net of tax benefits																				(192	)		(192	)
Treasury purchases	(98,862	)															(6,370	)					(6,370	)
Employee plan issuances	16,841			5					804								428						1,237
Preferred stock conversions	4,992					(42	)		7								35						—
Shares tendered for Folgers coffee subsidiary	(38,653	)															(2,466	)					(2,466	)
ESOP debt impacts											(15	)								15			—
BALANCE JUNE 30, 2009	2,917,035		$	4,007	$	1,324		$	61,118	$	(1,340	)	$	(3,358	)	$	(55,961	)	$	57,309		$	63,099

(1) Cumulative impact of adopting new accounting guidance relates to: 2007 — defined benefit and post retirement plans; 2008 — uncertainty in income taxes; 2009 — split-dollar life insurance arrangements.

See accompanying Notes to Consolidated Financial Statements.

The Procter & Gamble Company 53

Consolidated Statements of Cash Flows

Amounts in millions; Years ended June 30	2009			2008			2007
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	$	3,313		$	5,354		$	6,693
OPERATING ACTIVITIES
Net earnings		13,436			12,075			10,340
Depreciation and amortization		3,082			3,166			3,130
Share-based compensation expense		516			555			668
Deferred income taxes		596			1,214			253
Gain on sale of businesses		(2,377	)		(284	)		(153	)
Change in accounts receivable		415			432			(729	)
Change in inventories		721			(1,050	)		(389	)
Change in accounts payable, accrued and other liabilities		(742	)		297			(278	)
Change in other operating assets and liabilities		(758	)		(1,270	)		(151	)
Other		30			(127	)		719
TOTAL OPERATING ACTIVITIES		14,919			15,008			13,410
INVESTING ACTIVITIES
Capital expenditures		(3,238	)		(3,046	)		(2,945	)
Proceeds from asset sales		1,087			928			281
Acquisitions, net of cash acquired		(368	)		(381	)		(492	)
Change in investments		166			(50	)		673
TOTAL INVESTING ACTIVITIES		(2,353	)		(2,549	)		(2,483	)
FINANCING ACTIVITIES
Dividends to shareholders		(5,044	)		(4,655	)		(4,209	)
Change in short-term debt		(2,420	)		2,650			9,006
Additions to long-term debt		4,926			7,088			4,758
Reductions of long-term debt		(2,587	)		(11,747	)		(17,929	)
Treasury stock purchases		(6,370	)		(10,047	)		(5,578	)
Impact of stock options and other		681			1,867			1,499
TOTAL FINANCING ACTIVITIES		(10,814	)		(14,844	)		(12,453	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(284	)		344			187
CHANGE IN CASH AND CASH EQUIVALENTS		1,468			(2,041	)		(1,339	)
CASH AND CASH EQUIVALENTS, END OF YEAR	$	4,781		$	3,313		$	5,354
SUPPLEMENTAL DISCLOSURE
Cash payments for:
Interest	$	1,226		$	1,373		$	1,330
Income Taxes		3,248			3,499			4,116
Assets acquired through non-cash capital leases		8			13			41
Divestiture of coffee business in exchange for shares of P&G stock		2,466			—			—

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, department stores, salons and high-frequency stores. We have on-the-ground operations in approximately 80 countries.

Basis of Presentation

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

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on 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, uncertain income tax positions and contingencies. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year. However, in regard to ongoing impairment testing of goodwill and indefinite-lived intangible assets, significant deterioration in future cash flow projections or other assumptions used in valuation models, versus those anticipated at the time of the initial valuations, could result in impairment charges that may materially affect the financial statements in a given year.

Revenue Recognition

Sales are recognized when revenue is realized or realizable and has been earned. 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 expense (SG&A) is primarily comprised of marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Research and development costs are charged to expense as incurred and were $2,044 in 2009, $2,212 in 2008, and $2,100 in 2007. Advertising costs, charged to expense as incurred, include worldwide television, print, radio, internet and in-store advertising expenses and were $7,579 in 2009, $8,583 in 2008 and $7,850 in 2007. Non-advertising related components of the Company’s total marketing spending include costs associated with consumer promotions, product sampling and sales aids, all of which are included in SG&A, as well as coupons and customer trade funds, which are recorded as reductions to net sales.

Other Non-Operating Income, Net

Other non-operating income, net, primarily includes net 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 $3,333 and $9,484 at June 30, 2009 and 2008, 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.

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 55

Cash Flow Presentation

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

Cash Equivalents

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

Investments

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

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

Goodwill and indefinite-lived brands are not amortized, but are evaluated for impairment annually or when indicators of a potential impairment are present. Our impairment testing of goodwill is 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 assumptions and internal projections of expected future cash flows and operating plans. We believe such assumptions are also comparable to those that would be used by other marketplace participants.

We have 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.

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 non-contractual 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, results of operations or cash flows. Other financial instruments, including cash equivalents, other investments

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

56 The Procter & Gamble Company Notes to Consolidated Financial Statements

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 4 and Note 5, respectively.

Subsequent Events

For the fiscal year ended June 30, 2009, the Company has evaluated subsequent events for potential recognition and disclosure through August 14, 2009, the date of financial statement issuance.

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.

FAIR VALUE MEASUREMENTS

On July 1, 2008, we adopted new accounting guidance on fair value measurements. The new guidance defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. It was effective for the Company beginning July 1, 2008, for certain financial assets and liabilities. Refer to Note 5 for additional information regarding our fair value measurements for financial assets and liabilities. The new guidance is effective for non-financial assets and liabilities recognized or disclosed at fair value on a nonrecurring basis beginning July 1, 2009. The Company believes that the adoption of the new guidance applicable to non-financial assets and liabilities will not have a material effect on its financial position, results of operations or cash flows.

DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS

AND HEDGING ACTIVITIES

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

BUSINESS COMBINATIONS AND NONCONTROLLING INTERESTS IN

CONSOLIDATED FINANCIAL STATEMENTS

In December 2007, the Financial Accounting Standards Board issued new accounting guidance on business combinations and non-controlling interests in consolidated financial statements. The new guidance revises the method of accounting for a number of aspects of business combinations and noncontrolling interests, including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), the impacts of partial and step-acquisitions (including the valuation of net assets attributable to non-acquired minority interests) and post-acquisition exit activities of acquired businesses. The new guidance will be effective for the Company during our fiscal year beginning July 1, 2009. The Company believes that the adoption of the new guidance will not have a material effect on its financial position, results of operations or cash flows.

NOTE 2

GOODWILL AND INTANGIBLE ASSETS

The change in the net carrying amount of goodwill by Global Business Unit (GBU) was as follows:

	2009			2008
BEAUTY GBU
Beauty, beginning of year	$	16,903		$	15,359
Acquisitions and divestitures		98			187
Translation and other		(942	)		1,357
GOODWILL, JUNE 30		16,059			16,903
Grooming, beginning of year		25,312			24,211
Acquisitions and divestitures		(246	)		(269	)
Translation and other		(1,066	)		1,370
GOODWILL, JUNE 30		24,000			25,312
HEALTH AND WELL-BEING GBU
Health Care, beginning of year		8,750			8,482
Acquisitions and divestitures		(81	)		(59	)
Translation and other		(265	)		327
GOODWILL, JUNE 30		8,404			8,750
Snacks and Pet Care, beginning of year		2,434			2,407
Acquisitions and divestitures		(356	)		(5	)
Translation and other		(23	)		32
GOODWILL, JUNE 30		2,055			2,434
HOUSEHOLD CARE GBU
Fabric Care and Home Care, beginning of year		4,655			4,470
Acquisitions and divestitures		(46	)		(43	)
Translation and other		(201	)		228
GOODWILL, JUNE 30		4,408			4,655
Baby Care and Family Care, beginning of year		1,713			1,623
Acquisitions and divestitures		(7	)		(34	)
Translation and other		(120	)		124
GOODWILL, JUNE 30		1,586			1,713
GOODWILL, NET, beginning of year		59,767			56,552
Acquisitions and divestitures		(638	)		(223	)
Translation and other		(2,617	)		3,438
GOODWILL, JUNE 30		56,512			59,767

The acquisition and divestiture impact during fiscal 2009 in Snacks and Pet Care is primarily due to the divestiture of the Coffee business. The remaining decrease in goodwill during fiscal 2009 is primarily due to currency translation across all GBUs.

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 57

Identifiable intangible assets were comprised of:

	2009				2008
June 30	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands	$	3,580	$	1,253	$	3,564	$	1,032
Patents and technology		3,168		1,332		3,188		1,077
Customer relationships		1,853		411		1,947		353
Other		320		210		333		209
TOTAL		8,921		3,206		9,032		2,671
BRANDS WITH INDEFINITE LIVES		26,891		—		27,872		—
TOTAL		35,812		3,206		36,904		2,671

The amortization of intangible assets for the years ended June 30, 2009, 2008 and 2007 was $648, $649 and $640, respectively. Estimated amortization expense over the next five years is as follows: 2010 — $570; 2011 — $523; 2012 — $489; 2013 — $462; and 2014 — $429. Such estimates do not reflect the impact of future foreign exchange rate changes.

NOTE 3

SUPPLEMENTAL FINANCIAL INFORMATION

Selected components of current and noncurrent liabilities were as follows:

June 30	2009		2008
ACCRUED AND OTHER LIABILITIES — CURRENT
Marketing and promotion	$	2,378	$	2,760
Compensation expenses		1,464		1,527
Accrued Gillette exit costs		111		257
Taxes payable		722		945
Other		3,926		5,610
TOTAL		8,601		11,099
OTHER NONCURRENT LIABILITIES
Pension benefits	$	3,798	$	3,146
Other postretirement benefits		1,516		512
Unrecognized tax benefits		2,705		3,075
Other		1,410		1,421
TOTAL		9,429		8,154

Gillette Acquisition

On October 1, 2005, we completed our acquisition of The Gillette Company (Gillette) for total consideration of $53.4 billion including common stock, the fair value of vested stock options and acquisition costs. In connection with this acquisition, we recognized an assumed liability for Gillette exit costs of $1.2 billion, including $854 in separation costs related to approximately 5,500 people, $55 in employee relocation costs and $320 in other exit costs. These costs are 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. These activities are substantially complete as of June 30, 2009. Total integration plan charges against the assumed liability were $51, $286 and $438 for the years ended June 2009, 2008 and 2007, respectively. A total of $106 and $121 of the liability was reversed during the years ended June 2009 and 2008, respectively, related to underspending on a number of projects that were concluded during the period, which resulted in a reduction of goodwill during those years.

NOTE 4

SHORT-TERM AND LONG-TERM DEBT

June 30	2009		2008
DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt	$	6,941	$	1,746
Commercial paper		5,027		9,748
Floating rate notes		4,250		1,500
Other		102		90
TOTAL		16,320		13,084

The weighted average short-term interest rates were 2.0% and 2.7% as of June 30, 2009 and 2008, respectively, including the effects of interest rate swaps discussed in Note 5.

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

58 The Procter & Gamble Company Notes to Consolidated Financial Statements

June 30	2009			2008
LONG-TERM DEBT
Floating rate note due July 2009	$	1,750		$	1,750
Floating rate note due August 2009		1,500			1,500
6.88% USD note due September 2009		1,000			1,000
Floating rate note due March 2010		750			—
2% JPY note due June 2010		522			467
4.88% EUR note due October 2011		1,411			1,573
3.38% EUR note due December 2012		1,975			2,203
4.60% USD note due January 2014		2,000			—
4.50% EUR note due May 2014		2,116			2,360
4.95% USD note due August 2014		900			900
3.50% USD note due February 2015		750			—
4.85% USD note due December 2015		700			700
5.13% EUR note due October 2017		1,552			1,731
4.70% USD note due February 2019		1,250			—
4.13% EUR note due December 2020		846			944
9.36% ESOP debentures due 2009 – 2021(1)		896			934
4.88% EUR note due May 2027		1,411			1,573
6.25% GBP note due January 2030		832			993
5.50% USD note due February 2034		500			500
5.80% USD note due August 2034		600			600
5.55% USD note due March 2037		1,400			1,400
Capital lease obligations		392			407
All other long-term debt		2,540			3,792
Current portion of long-term debt		(6,941	)		(1,746	)
TOTAL		20,652			23,581

(1) Debt issued by the ESOP is guaranteed by the Company and must be recorded as debt of the Company as discussed in Note 8.

Long-term weighted average interest rates were 4.9% and 4.5% as of June 30, 2009 and 2008, respectively, including the effects of interest rate swaps and net investment hedges discussed in Note 5.

The fair value of the long-term debt was $21,514 and $23,276 at June 30, 2009 and 2008, respectively. Long-term debt maturities during the next five years are as follows: 2010 — $6,941; 2011 — $47; 2012 — $1,474; 2013 — $2,013; and 2014 — $4,154.

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

NOTE 5

RISK MANAGEMENT ACTIVITIES

AND FAIR VALUE MEASUREMENTS

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

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

Credit Risk Management

We have counterparty credit guidelines and generally enter into transactions with investment grade financial institutions. Counterparty exposures are monitored daily and downgrades in 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 counter-party’s obligations to us exceed our obligations to the counterparty. We have not incurred and do not expect to incur material credit losses on our risk management or other financial instruments.

Certain of the Company’s financial instruments used in hedging transactions are governed by industry standard netting agreements with counterparties. If the Company’s credit rating were to fall below the levels stipulated in the agreements, the counterparties could demand either collateralization or termination of the arrangement. The aggregate fair value of the instruments covered by these contractual features that are in a net liability position as of June 30, 2009 was $288 million. The Company has never been required to post any collateral as a result of these contractual features.

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 59

Interest Rate Risk Management

Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps 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 amount.

Interest rate swaps that meet specific accounting criteria are accounted for as fair value and cash flow hedges. There were no fair value hedging instruments at June 30, 2009 or June 30, 2008. 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.

Foreign Currency Risk 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 manage the volatility associated with short-term changes in exchange rates.

To manage this exchange rate risk, we have historically utilized a combination of forward contracts, options and currency swaps. As of June 30, 2009, we had currency swaps with maturities up to five years, which are intended to offset the effect of exchange rate fluctuations on intercompany loans denominated in foreign currencies and are therefore accounted for as cash flow hedges. The Company has also utilized forward contracts and options to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and intercompany royalties denominated in foreign currencies. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion, which is not material for any year presented, is immediately recognized in earnings.

The change in value of certain non-qualifying instruments used to manage foreign exchange exposure of intercompany financing transactions, income from international operations and other balance sheet items subject to revaluation is immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related exposure. The net earnings impact of such instruments was a $1,047 loss in 2009 and gains of $1,397 and $56 in 2008 and 2007, respectively.

Net Investment Hedging

We hedge certain net investment positions in major foreign subsidiaries. To accomplish this, we either borrow directly in foreign currencies and designate all or a portion of foreign currency debt as a hedge of the applicable net investment position or enter into foreign currency swaps that are designated as hedges of our related foreign net investments. Changes in the fair value of these instruments are immediately recognized in OCI to offset the change in the value of the net investment being hedged. Currency effects of these hedges reflected in OCI were an after-tax gain of $964 in 2009 and $2,951 loss in 2008. Accumulated net balances were a $4,059 and a $5,023 after-tax loss as of June 30, 2009 and 2008, respectively.

Commodity Risk Management

Certain raw materials used in our products or production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the volatility related to anticipated purchases of certain of these materials, we use futures and options with maturities generally less than one year and swap contracts with maturities up to five years. These market instruments generally are designated as cash flow hedges. The effective portion of the changes in fair value 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 and non-qualifying portions, which are not material for any year presented, are immediately recognized in earnings.

Insurance

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

Fair Value Hierarchy

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

Level 1:	Quoted market prices in active markets for identical assets or liabilities.
Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3:	Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.

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

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

60 The Procter & Gamble Company Notes to Consolidated Financial Statements

The following table sets forth the Company’s financial assets and liabilities as of June 30, 2009 that are measured at fair value on a recurring basis during the period, segregated by level within the fair value hierarchy:

At June 30	Level 1		Level 2		Level 3		2009		2008
Assets at fair value:
Investment securities	$	—	$	174	$	38	$	212	$	282
Derivatives relating to:
Foreign currency hedges		—		—		—		—		4
Other foreign currency instruments(1)		—		300		—		300		190
Net investment hedges		—		83		—		83		26
Commodities		3		25		—		28		229
Total assets at fair value(2)		3		582		38		623		731
Liabilities at fair value:
Derivatives relating to:
Foreign currency hedges		—		103		—		103		37
Other foreign currency instruments(1)		—		39		—		39		33
Net investment hedges		—		85		—		85		1,210
Interest rate		—		13		—		13		17
Commodities		2		96		3		101		—
Total liabilities at fair value(3)		2		336		3		341		1,297

(1) The other foreign currency instruments are comprised of non-qualifying foreign currency financial instruments.

(2) All derivative assets are presented in prepaid expenses and other current assets or other noncurrent assets with the exception of investment securities which are only presented in other noncurrent assets.

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

The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 financial assets and liabilities balances for the year ended June 30, 2009.

	Derivatives			Investment Securities
BEGINNING OF YEAR	$	17		$	46
Total gains or (losses) (realized/unrealized) included in earnings (or changes in net assets)		—			(2	)
Total gains or (losses) (realized/unrealized) included in OCI		(27	)		(6	)
Net purchases, issuances and settlements		7			—
Transfers in /(out) of Level 3		—			—
END OF YEAR		(3	)		38

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 61

Disclosures about Derivative Instruments

The fair values and amounts of gains and losses on qualifying and non-qualifying financial instruments used in hedging transactions as of, and for the year ended, June 30, 2009 are as follows:

Derivatives in Cash Flow Hedging Relationships	Notional Amount (Ending Balance)		Fair Value Asset (Liability)			Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)			Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)(1)
			June 30			June 30			Twelve Months Ended June 30
Interest rate contracts	$	4,000	$	(13	)	$	18		$	(56	)
Foreign currency contracts		690		(103	)		26			(66	)
Commodity contracts		503		(73	)		(62	)		(170	)
Total		5,193		(189	)		(18	)		(292	)
Derivatives in Net Investment Hedging Relationships	Notional Amount (Ending Balance)		Fair Value Asset (Liability)			Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)			Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)(1)
			June 30			June 30			Twelve Months Ended June 30
Net investment hedges	$	2,271	$	(2	)	$	(2	)	$	(5	)
Total		2,271		(2	)		(2	)		(5	)
Derivatives Not Designated as Hedging Instruments	Notional Amount (Ending Balance)		Fair Value Asset (Liability)			Amount of Gain or (Loss) Recognized in Income on Derivative(1)
			June 30			Twelve Months Ended June 30
Foreign currency contracts	$	12,348	$	261		$	(1,047	)
Commodity contracts		—		—			(5	)
Total		12,348		261			(1,052	)

(1) The gain or loss reclassified from accumulated OCI into income is included in the consolidated statement of earnings as follows: interest rate contracts in interest expense, foreign currency contracts in SG&A and interest expense, commodity contracts in cost of products sold and net investment hedges in interest expense.

During the next 12 months, the amount of the June 30, 2009 OCI balance that will be reclassified to earnings is expected to be immaterial. In addition, the total notional amount of contracts outstanding at the end of the period is indicative of the level of the Company’s derivative activity during the period.

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

62 The Procter & Gamble Company Notes to Consolidated Financial Statements

NOTE 6

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 7) and assume conversion of preferred stock (see Note 8).

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

Years ended June 30	2009			2008			2007
NET EARNINGS FROM CONTINUING OPERATIONS	$	11,293		$	11,798		$	10,063
Preferred dividends, net of tax benefit		(192	)		(176	)		(161	)
NET EARNINGS FROM CONTINUING OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS		11,101			11,622			9,902
Preferred dividends, net of tax benefit		192			176			161
DILUTED NET EARNINGS FROM CONTINUING OPERATIONS		11,293			11,798			10,063
Net earnings from discontinued operations		2,143			277			277
NET EARNINGS		13,436			12,075			10,340
Shares in millions; Years ended June 30	2009			2008			2007
Basic weighted average common shares outstanding		2,952.2			3,080.8			3,159.0
Effect of dilutive securities
Conversion of preferred shares(1)		139.2			144.2			149.6
Exercise of stock options and other unvested equity awards(2)		62.7			91.8			90.0
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		3,154.1			3,316.8			3,398.6

(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 92 million in 2009, 40 million in 2008 and 41 million in 2007 of the Company’s outstanding stock options were not included in the diluted net earnings per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the total proceeds upon exercise would have exceeded the market value of the underlying common shares).

NOTE 7

STOCK-BASED COMPENSATION

We have stock-based compensation plans under which we annually grant stock option and restricted stock awards to key managers and directors. Exercise prices on options granted have been and continue to be set equal to the market price of the underlying shares on the date of the grant. The key manager stock option awards granted since September 2002 are vested after three years and have a 10-year life. The key manager stock option awards granted from July 1998 through August 2002 vested after three years and have a 15-year life. Key managers can elect to receive up to 50% of the value of their option award in restricted stock units (RSUs). Key manager RSUs are vested and settled in shares of common stock five years from the grant date. The awards provided to the Company’s directors are in the form of restricted stock and RSUs. In addition to our key manager and director grants, we make other minor stock option and RSU grants to employees for which the terms are not substantially different.

A total of 229 million shares of common stock were authorized for issuance under stock-based compensation plans approved by shareholders in 2001 and 2003, of which 12 million remain available for grant. An additional 20 million shares of common stock available for issuance under a plan approved by Gillette shareholders in 2004 were assumed by the Company in conjunction with the acquisition of Gillette. A total of 10 million of these shares remain available for grant under this plan.

Total stock-based compensation expense for stock option grants was $460, $522 and $612 for 2009, 2008 and 2007, respectively. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $126, $141 and $163 for 2009, 2008 and 2007, respectively. Total compensation cost for restricted stock, RSUs and other stock-based grants, was $56, $33 and $56 in 2009, 2008 and 2007, respectively.

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

Years ended June 30	2009		2008		2007
Interest rate	0.7–3.8	%	1.3–3.8	%	4.3–4.8	%
Weighted average interest rate	3.6	%	3.4	%	4.5	%
Dividend yield	2.0	%	1.9	%	1.9	%
Expected volatility	18–34	%	19–25	%	16–20	%
Weighted average volatility	21	%	20	%	19	%
Expected life in years	8.7		8.3		8.7

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 63

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 life of options granted is derived from the output of the option valuation model and represents the average period of time that options granted are expected to be outstanding. The interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of options outstanding under the plans as of June 30, 2009, and activity during the year then ended is presented below:

Options in thousands	Options		Weighted Avg. Exercise Price		Weighted Avg. Remaining Contractual Life in Years	Aggregate Intrinsic Value (in millions)
Outstanding, beginning of year	337,177		$	48.25
Granted	37,623			50.30
Exercised	(16,199	)		39.45
Canceled	(1,284	)		57.62
OUTSTANDING, END OF YEAR	357,317			48.83	6.3	$	2,084
EXERCISABLE	259,362			44.93	5.4		1,984

The weighted average grant-date fair value of options granted was $11.67, $15.91 and $17.29 per share in 2009, 2008 and 2007, respectively. The total intrinsic value of options exercised was $434, $1,129 and $894 in 2009, 2008 and 2007, respectively. The total grant-date fair value of options that vested during 2009, 2008 and 2007 was $537, $532 and $552, respectively. We have no specific policy to repurchase common shares to mitigate the dilutive impact of options; however, we have historically made adequate discretionary purchases, based on cash availability, market trends and other factors, to satisfy stock option exercise activity.

At June 30, 2009, there was $524 of compensation cost that has not yet been recognized related to stock awards. That cost is expected to be recognized over a remaining weighted average period of 2.0 years.

Cash received from options exercised was $639, $1,837 and $1,422 in 2009, 2008 and 2007, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $146, $318 and $265 in 2009, 2008 and 2007, respectively.

NOTE 8

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. Total global defined contribution expense was $364, $290, and $273 in 2009, 2008 and 2007, respectively.

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 2009, 2008 and 2007.

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.

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.

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.

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

64 The Procter & Gamble Company Notes to Consolidated Financial Statements

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	2009			2008			2009			2008
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year(3)	$	10,095		$	9,819		$	3,553		$	3,558
Service cost		214			263			91			95
Interest cost		551			539			243			226
Participants’ contributions		15			14			55			58
Amendments		47			52			—			(11	)
Actuarial (gain) loss		456			(655	)		186			(232	)
Acquisitions (divestitures)		(3	)		(7	)		(17	)		2
Curtailments and settlements		3			(68	)		—			(3	)
Special termination benefits		3			1			16			2
Currency translation and other		(867	)		642			27			67
Benefit payments		(498	)		(505	)		(226	)		(209	)
BENEFIT OBLIGATION AT END OF YEAR(3)		10,016			10,095			3,928			3,553
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year		7,225			7,350			3,225			3,390
Actual return on plan assets		(401	)		(459	)		(678	)		(29	)
Acquisitions (divestitures)		—			—			—			—
Employer contributions		657			507			18			21
Participants’ contributions		15			14			55			58
Currency translation and other		(688	)		318			(4	)		1
ESOP debt impacts(4)		—			—			4			(7	)
Benefit payments		(498	)		(505	)		(226	)		(209	)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR		6,310			7,225			2,394			3,225
FUNDED STATUS		(3,706	)		(2,870	)		(1,534	)		(328	)

(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 the net impact of ESOP debt service requirements, which is netted against plan assets for Other Retiree Benefits.

	Pension Benefits						Other Retiree Benefits
Years ended June 30	2009			2008			2009			2008
CLASSIFICATION OF NET AMOUNT RECOGNIZED
Noncurrent assets	$	133		$	321		$	—		$	200
Current liability		(41	)		(45	)		(18	)		(16	)
Noncurrent liability		(3,798	)		(3,146	)		(1,516	)		(512	)
NET AMOUNT RECOGNIZED		(3,706	)		(2,870	)		(1,534	)		(328	)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
Net actuarial loss		1,976			715			1,860			578
Prior service cost (credit)		227			213			(152	)		(175	)
NET AMOUNTS RECOGNIZED IN AOCI		2,203			928			1,708			403
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
Net actuarial loss — current year		1,335			361			1,309			226
Prior service cost (credit) — current year		47			52			—			(11	)
Amortization of net actuarial loss		(29	)		(9	)		(2	)		(7	)
Amortization of prior service (cost) credit		(14	)		(14	)		23			21
Settlement/Curtailment cost		—			(32	)		—			(2	)
Currency translation and other		(64	)		19			(25	)		24
TOTAL CHANGE IN AOCI		1,275			377			1,305			251
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI		1,616			609			1,088			33

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

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 65

The accumulated benefit obligation for all defined benefit retirement pension plans was $8,637 and $8,750 at June 30, 2009 and June 30, 2008, respectively. Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consist of the following:

	Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets				Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
Years ended June 30	2009		2008		2009		2008
Projected benefit obligation	$	6,509	$	5,277	$	9,033	$	7,987
Accumulated benefit obligation		5,808		4,658		7,703		6,737
Fair value of plan assets		3,135		2,153		5,194		4,792

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

	Pension Benefits									Other Retiree Benefits
Years ended June 30	2009			2008			2007			2009			2008			2007
Service cost	$	214		$	263		$	279		$	91		$	95		$	85
Interest cost		551			539			476			243			226			206
Expected return on plan assets		(473	)		(557	)		(454	)		(444	)		(429	)		(407	)
Prior service cost (credit) amortization		14			14			13			(23	)		(21	)		(22	)
Net actuarial loss amortization		29			9			45			2			7			2
Curtailment and settlement gain		6			(36	)		(176	)		—			(1	)		(1	)
GROSS BENEFIT COST (CREDIT)		341			232			183			(131	)		(123	)		(137	)
Dividends on ESOP preferred stock		—			—			—			(86	)		(95	)		(85	)
NET PERIODIC BENEFIT COST (CREDIT)		341			232			183			(217	)		(218	)		(222	)

Pursuant to plan revisions adopted during 2007, Gillette’s U.S. defined benefit retirement pension plans were frozen effective January 1, 2008, at which time Gillette employees in the U.S. moved into the Trust and ESOP. 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, 2010, are as follows:

	Pension Benefits		Other Retiree Benefits
Net actuarial loss	$	92	$	19
Prior service cost (credit)		15		(21	)

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	2009		2008		2009		2008
ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATIONS(1)
Discount rate	6.0	%	6.3	%	6.4	%	6.9	%
Rate of compensation increase	3.7	%	3.7	%	—		—
ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST(2)
Discount rate	6.3	%	5.5	%	6.9	%	6.3	%
Expected return on plan assets	7.4	%	7.4	%	9.3	%	9.3	%
Rate of compensation increase	3.7	%	3.1	%	—		—
ASSUMED HEALTH CARE COST TREND RATES
Health care cost trend rates assumed for next year	—		—		8.5	%	8.6	%
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate)	—		—		5.0	%	5.1	%
Year that the rate reaches the ultimate trend rate	—		—		2016		2015

(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.

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

	One-Percentage Point Increase		One-Percentage Point Decrease
Effect on total of service and interest cost components	$	58	$	(46	)
Effect on postretirement benefit obligation		549		(447	)

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

66 The Procter & Gamble Company Notes to Consolidated Financial Statements

Plan Assets. Our target asset allocation for the year ended June 30, 2009, and actual asset allocation by asset category as of June 30, 2009 and 2008, were as follows:

	Target Asset Allocation
Asset Category	Pension Benefits		Other Retiree Benefits
Equity securities(1)	45	%	93	%
Debt securities	55	%	7	%
TOTAL	100	%	100	%

	Asset Allocation at June 30
	Pension Benefits				Other Retiree Benefits
Asset Category	2009		2008		2009		2008
Equity securities(1)	42	%	45	%	93	%	96	%
Debt securities	51	%	50	%	7	%	4	%
Cash	6	%	3	%	—		—
Real estate	1	%	2	%	—		—
TOTAL	100	%	100	%	100	%	100	%

(1) Equity securities for other retiree plan assets include Company stock, net of Series B ESOP debt, of $2,084 and $2,809 as of June 30, 2009 and 2008, 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 cash requirements for the defined benefit retirement plans and other retiree benefit plans for the year ending June 30, 2010, is approximately $616 and $24, respectively. For the defined benefit retirement plans, this is comprised of $178 in expected benefit payments from the Company directly to participants of unfunded plans and $438 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.

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

Years ending June 30	Pension Benefits		Other Retiree Benefits
EXPECTED BENEFIT PAYMENTS
2010	$	499	$	184
2011		496		201
2012		507		217
2013		525		232
2014		552		247
2015–2019		3,096		1,453

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 provided by the Company. The original borrowing of $1.0 billion has been repaid in full, and advances from the Company of $178 remain outstanding at June 30, 2009. 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 $1.64 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 provided by the Company, of which $266 is outstanding at June 30, 2009. 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 $1.64 per share. The liquidation value is $12.96 per share.

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

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 67

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	2009	2008	2007
Allocated	56,818	58,557	60,402
Unallocated	16,651	18,665	20,807
TOTAL SERIES A	73,469	77,222	81,209
Allocated	20,991	21,134	21,105
Unallocated	42,522	43,618	44,642
TOTAL SERIES B	63,513	64,752	65,747

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 $171 at June 30, 2009.

NOTE 9

INCOME TAXES

Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax liabilities and assets, which represent future tax consequences of events that have been recognized differently in the 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.

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

Years ended June 30	2009		2008		2007
United States	$	9,064	$	8,696	$	8,692
International		6,261		6,936		5,572
TOTAL		15,325		15,632		14,264

The provision for income taxes on continuing operations consisted of the following:

Years ended June 30	2009		2008			2007
CURRENT TAX EXPENSE
U.S. federal	$	1,867	$	860		$	2,511
International		1,316		1,546			1,325
U.S. state and local		253		214			112
		3,436		2,620			3,948
DEFERRED TAX EXPENSE
U.S. federal		577		1,267			231
International and other		19		(53	)		22
		596		1,214			253
TOTAL TAX EXPENSE		4,032		3,834			4,201

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

Years ended June 30	2009		2008		2007
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
Country mix impacts of foreign operations	-6.9	%	-6.8	%	-4.5	%
Income tax reserve adjustments	-1.2	%	-3.2	%	-0.3	%
Other	-0.6	%	-0.5	%	-0.7	%
EFFECTIVE INCOME TAX RATE	26.3	%	24.5	%	29.5	%

Income tax reserve adjustments represent changes in our net liability for unrecognized tax benefits related to prior year tax positions.

Tax benefits credited to shareholders’ equity totaled $556 and $1,823 for the years ended June 30, 2009 and 2008, 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.

We have undistributed earnings of foreign subsidiaries of approximately $25 billion at June 30, 2009, 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.

On July 1, 2007, we adopted new accounting guidance on the accounting for uncertainty in income taxes. The adoption of the new guidance resulted in a decrease to retained earnings as of July 1, 2007, of $232, which was reflected as a cumulative effect of a change in accounting principle, with a corresponding increase to the net liability for unrecognized tax benefits. The impact primarily reflects the accrual of additional statutory interest and penalties as required by the new accounting guidance, partially offset by adjustments to existing unrecognized tax benefits to comply with measurement principles. The implementation of the new guidance also resulted in a reduction

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

68 The Procter & Gamble Company Notes to Consolidated Financial Statements

in our net tax liabilities for uncertain tax positions related to prior acquisitions accounted for under purchase accounting, resulting in an $80 decrease to goodwill. Additionally, the Company historically classified unrecognized tax benefits in current taxes payable. As a result of the adoption of the new guidance, unrecognized tax benefits not expected to be paid in the next 12 months were reclassified to other noncurrent liabilities.

A reconciliation of the beginning and ending liability for unrecognized tax benefits is as follows:

	2009			2008
BEGINNING OF YEAR	$	2,582		$	2,971
Increases in tax positions for prior years		116			164
Decreases in tax positions for prior years		(485	)		(576	)
Increases in tax positions for current year		225			375
Settlements with taxing authorities		(172	)		(260	)
Lapse in statute of limitations		(68	)		(200	)
Currency translation		(195	)		108
END OF YEAR		2,003			2,582

The Company is present in over 150 taxable jurisdictions, and at any point in time, has 50 – 60 audits underway at various stages of completion. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closing of statute of limitations. Such adjustments are reflected in the tax provision as appropriate. The Company has made a concerted effort to bring its audit inventory to a more current position. We have done this by working with tax authorities to conduct audits for several open years at once. We have tax years open ranging from 1997 and forward. We are generally not able to reliably estimate the ultimate settlement amounts until the close of the audit. While we do not expect material changes, it is possible that the amount of unrecognized benefit with respect to our uncertain tax positions will significantly increase or decrease within the next 12 months related to the audits described above. At this time we are not able to make a reasonable estimate of the range of impact on the balance of unrecognized tax benefits or the impact on the effective tax rate related to these items.

Included in the total liability for unrecognized tax benefit at June 30, 2009 is $1,381 that, if recognized, would impact the effective tax rate in future periods.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of June 30, 2009 and 2008, we had accrued interest of $636 and $656 and penalties of $100 and $155, respectively, that are not included in the above table. During the fiscal years ended June 30, 2009 and 2008, we recognized $119 and $213 in interest and $(4) and $35 in penalties, respectively.

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

June 30	2009			2008
DEFERRED TAX ASSETS
Pension and postretirement benefits	$	1,395		$	633
Stock-based compensation		1,182			1,082
Unrealized loss on financial and foreign exchange transactions		577			1,274
Loss and other carryforwards		439			482
Goodwill and other intangible assets		331			267
Accrued marketing and promotion expense		167			125
Accrued interest and taxes		120			123
Fixed assets		114			100
Inventory		97			114
Advance payments		15			302
Other		885			1,048
Valuation allowances		(104	)		(173	)
TOTAL		5,218			5,377
DEFERRED TAX LIABILITIES
Goodwill and other intangible assets		11,922			12,371
Fixed assets		1,654			1,847
Other		146			151
TOTAL		13,722			14,369

Net operating loss carryforwards were $1,428 and $1,515 at June 30, 2009 and 2008, respectively. If unused, $462 will expire between 2010 and 2029. The remainder, totaling $966 at June 30, 2009, may be carried forward indefinitely.

NOTE 10

COMMITMENTS AND CONTINGENCIES

Guarantees

In conjunction with certain transactions, primarily divestitures, we may provide routine indemnifications (e.g., indemnification for representations and warranties and retention of previously existing environmental, tax and employee liabilities) which terms range in duration and in some circumstances are not explicitly defined. The maximum obligation under some indemnifications is also not explicitly stated and, as a result, the overall amount of these obligations cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, we have not made significant payments for these 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.

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

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 69

Off-Balance Sheet Arrangements

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

Purchase Commitments

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: 2010 — $1,258; 2011 — $872; 2012 — $787; 2013 — $525; 2014 — $156; and $299 thereafter. Such amounts represent future purchases in line with expected usage to obtain favorable pricing. Approximately 43% of our purchase commitments relate to service contracts for information technology, human resources management and facilities management activities that have been outsourced to third-party suppliers. Due to the proprietary nature of many of our materials and processes, certain supply contracts contain penalty provisions for early termination. We do not expect to incur penalty payments under these provisions that would materially affect our financial position, results of operations or cash flows.

Operating Leases

We lease certain property and equipment for varying periods. Future minimum rental commitments under noncancelable operating leases are as follows: 2010 — $305; 2011 — $272; 2012 — $223; 2013 — $202; 2014 — $176; and $442 thereafter. Operating lease obligations are shown net of guaranteed sublease income.

Litigation

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

As previously disclosed, the Company is subject to a variety of investigations into potential competition law violations in Europe, including investigations initiated in the fourth quarter of fiscal 2008 by the European Commission with the assistance of national authorities from a variety of countries. We believe these matters involve a number of other consumer products companies and/or retail customers. The Company’s policy is to comply with all laws and regulations, including all antitrust and competition laws, and to cooperate with investigations by relevant regulatory authorities, which the Company is doing. Competition and antitrust law inquiries often continue for several years and, if violations are found, can result in substantial fines. In other industries, fines have amounted to hundreds of millions of dollars. At this point, no significant formal claims have been made against the Company or any of our subsidiaries in connection with any of the above inquiries.

In response to the actions of the European Commission and national authorities, the Company has launched its own internal investigations into potential violations of competition laws, some of which are ongoing. The Company has identified violations in certain European countries and appropriate actions are being taken. It is still too early for us to reasonably estimate the fines to which the Company will be subject as a result of these competition law issues. However, the ultimate resolution of these matters will likely result in fines or other costs that could materially impact our income statement and cash flows in the period in which they are accrued and paid, respectively. As these matters evolve the Company will, if necessary, recognize the appropriate reserves.

With respect to other litigation and claims, 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 position, results of operations or cash flows.

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

NOTE 11

SEGMENT INFORMATION

Through fiscal 2009, we were organized under three GBUs as follows:

• The Beauty GBU includes the Beauty and the Grooming businesses. The Beauty business is comprised of cosmetics, deodorants, prestige fragrances, hair care, personal cleansing and skin care. The Grooming business includes blades and razors, electric hair removal devices, face and shave products and home appliances.

• The Health and Well-Being GBU includes the Health Care and the Snacks and Pet Care businesses. The Health Care business includes feminine care, oral care, personal health care and pharmaceuticals. The Snacks and Pet Care business includes pet food and snacks.

• The Household Care GBU includes the Fabric Care and Home Care as well as the Baby Care and Family Care businesses. The Fabric Care and Home Care business includes air care, batteries, dish care, fabric care and surface care. The Baby Care and Family Care business includes baby wipes, bath tissue, diapers, facial tissue and paper towels.

Under U.S. GAAP, we have six reportable segments: Beauty; Grooming; Health Care; Snacks and Pet Care; Fabric Care and Home Care; and Baby Care and Family Care. The accounting policies of the businesses are generally the same as those described in Note 1. Differences between these policies and U.S. GAAP primarily 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.

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

70 The Procter & Gamble Company Notes to Consolidated Financial Statements

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 include certain employee benefit costs, the costs of certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce rationalization, and other general Corporate items. The non-operating elements in Corporate primarily include interest expense, divestiture gains and interest and investing income. In addition, Corporate includes the historical results of certain divested businesses. Corporate assets primarily include cash, investment securities and all goodwill.

The Company had net sales in the U.S. of $31.1 billion, $31.3 billion and $30.3 billion for the years ended June 30, 2009, 2008 and 2007, respectively. Assets in the U.S. totaled $71.9 billion and $73.8 billion as of June 30, 2009 and 2008, respectively.

Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for 15% of consolidated net sales in 2009, 2008 and 2007.

Global Segment Results		Net Sales			Earnings from Continuing Operations Before Income Taxes			Net Earnings from Continuing Operations			Depreciation and Amortization		Total Assets		Capital Expenditures
BEAUTY GBU
BEAUTY	2009	$	18,789		$	3,367		$	2,531		$	465	$	11,330	$	530
	2008		19,515			3,528			2,730			454		12,260		465
	2007		17,889			3,440			2,611			419		11,140		431
GROOMING	2009		7,543			2,091			1,492			710		26,192		290
	2008		8,254			2,299			1,679			739		27,406		305
	2007		7,437			1,895			1,383			729		27,767		314
HEALTH AND WELL-BEING GBU
HEALTH CARE	2009		13,623			3,685			2,435			435		9,373		397
	2008		14,578			3,746			2,506			441		10,597		450
	2007		13,381			3,365			2,233			439		9,512		374
SNACKS AND PET CARE	2009		3,114			388			234			100		1,382		72
	2008		3,204			409			261			102		1,651		78
	2007		2,985			381			244			121		1,570		94
HOUSEHOLD CARE GBU
FABRIC CARE AND HOME CARE	2009		23,186			4,663			3,032			578		12,457		808
	2008		23,714			5,060			3,411			599		13,708		763
	2007		21,355			4,636			3,119			567		12,113		706
BABY CARE AND FAMILY CARE	2009		14,103			2,827			1,770			570		7,363		902
	2008		13,898			2,700			1,728			612		8,102		763
	2007		12,726			2,291			1,440			671		7,731		769
CORPORATE(1)	2009		(1,329	)		(1,696	)		(201	)		224		66,736		239
	2008		(1,415	)		(2,110	)		(517	)		181		70,268		222
	2007		(941	)		(1,744	)		(967	)		135		68,181		257
TOTAL COMPANY	2009		79,029			15,325			11,293			3,082		134,833		3,238
	2008		81,748			15,632			11,798			3,128		143,992		3,046
	2007		74,832			14,264			10,063			3,081		138,014		2,945

(1) The Corporate reportable segment includes the total assets and capital expenditures of the Coffee business prior to the divestiture in November 2008.

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

Notes to Consolidated Financial Statements The Procter & Gamble Company 71

NOTE 12

DISCONTINUED OPERATIONS

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

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

Years Ended June 30	2009			2008			2007
Net Sales	$	668		$	1,754		$	1,644
Earnings from discontinued operation		212			446			447
Income tax expense		(80	)		(169	)		(170	)
Gain on sale of discontinued operation		1,896			—			—
Deferred tax benefit on sale		115			—			—
Net earnings from discontinued operations		2,143			277			277

NOTE 13

QUARTERLY RESULTS (UNAUDITED)

Quarters Ended		Sept 30			Dec 31			Mar 31			Jun 30			Total Year
NET SALES	2008–2009	$	21,582		$	20,368		$	18,417		$	18,662		$	79,029
	2007–2008		19,799			21,038			20,026			20,885			81,748
OPERATING INCOME	2008–2009		4,569			4,251			3,730			3,573			16,123
	2007–2008		4,298			4,590			4,013			3,736			16,637
GROSS MARGIN	2008–2009		50.8	%		51.6	%		50.3	%		50.3	%		50.8	%
	2007–2008		53.2	%		52.3	%		51.7	%		49.4	%		51.6	%
NET EARNINGS:
Earnings from continuing operations	2008–2009	$	3,275		$	2,962		$	2,585		$	2,471		$	11,293
	2007–2008		3,004			3,194			2,650			2,950			11,798
Earnings from discontinued operations	2008–2009		73			2,042			28			—			2,143
	2007–2008		75			76			60			66			277
Net earnings	2008–2009		3,348			5,004			2,613			2,471			13,436
	2007–2008		3,079			3,270			2,710			3,016			12,075
DILUTED NET EARNINGS PER COMMON SHARE:
Earnings from continuing operations	2008–2009	$	1.01		$	0.94		$	0.83		$	0.80		$	3.58
	2007–2008		0.90			0.96			0.80			0.90			3.56
Earnings from discontinued operations	2008–2009		0.02			0.64			0.01			—			0.68
	2007–2008		0.02			0.02			0.02			0.02			0.08
Diluted net earnings per common share	2008–2009		1.03			1.58			0.84			0.80			4.26
	2007–2008		0.92			0.98			0.82			0.92			3.64

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

72 The Procter & Gamble Company

Shareholder Information

IF …

• You need online access or help with your account

• You are interested in our certificate safekeeping service

• You want to arrange for direct deposit or reinvestment of dividends

• You have a lost, stolen or destroyed stock certificate

CALL PERSON-TO-PERSON

• Shareholder Services representatives are available Monday – Friday, 9AM – 4PM 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 SHAREHOLDER SERVICES — 24 HOURS A DAY

• Visit us online at www.pg.com/investor, where you can get stock purchase information, transaction forms, P&G annual reports and webcasts

• E-mail us at shareholders.im@pg.com

• Call for financial information at 1-800-764-7483

COMMON STOCK PRICE RANGE AND DIVIDENDS

	Price Range
Quarter Ended	2008–2009 High		2008–2009 Low		2007–2008 High		2007–2008 Low
September 30	$	73.57	$	60.05	$	70.73	$	60.89
December 31		71.94		53.77		75.18		67.90
March 31		62.97		43.93		73.81		62.74
June 30		54.77		46.29		71.20		60.44

	Dividends
Quarter Ended	2008–2009		2007–2008
September 30	$	0.40	$	0.35
December 31		0.40		0.35
March 31		0.40		0.35
June 30		0.44		0.40

DIVIDEND HISTORY

P&G has paid dividends without interruption since its incorporation in 1890 and has increased dividends each year for the past 53 fiscal years. P&G’s compound annual dividend growth rate is 9.5% over the last 53 years.

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 Procter & Gamble Company

P.O. Box 599

Cincinnati, OH 45201-0599

EXCHANGE LISTINGS

New York Stock Exchange, NYSE Euronext-Paris

STOCK SYMBOL

PG

SHAREHOLDERS OF COMMON STOCK

There were approximately 2,301,000 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, 2009.

FORM 10-K

Shareholders may obtain a copy of P&G’s 2009 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, 2009. 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 13, 2009. A full transcript of the meeting will be available from Susan Felder, Assistant Secretary. Ms. Felder can be reached at 299 East Sixth Street, Cincinnati, Ohio 45202-3315.

The Procter & Gamble Company 73

Financial Summary (Unaudited)

Amounts in millions, except per share amounts	2009			2008			2007			2006			2005			2004			2003			2002			2001			2000			1999
Net Sales	$	79,029		$	81,748		$	74,832		$	66,724		$	55,292		$	50,128		$	42,133		$	38,965		$	37,855		$	38,545		$	36,710
Gross Margin		40,131			42,212			39,173			34,549			28,213			25,709			20,570			18,547			16,473			17,854			16,394
Operating Income		16,123			16,637			15,003			12,916			10,026			9,019			6,931			5,672			3,976			5,457			5,885
Net Earnings from Continuing Operations		11,293			11,798			10,063			8,478			6,648			5,930			4,554			3,663			2,437			3,225			3,513
Net Earnings from Discontinued Operations		2,143			277			277			206			275			226			234			247			175			138			170
Net Earnings		13,436			12,075			10,340			8,684			6,923			6,156			4,788			3,910			2,612			3,363			3,683
Net Earnings Margin from Continuing Operations		14.3	%		14.4	%		13.4	%		12.7	%		12.0	%		11.8	%		10.8	%		9.4	%		6.4	%		8.4	%		9.6	%
Basic Net Earnings per Common Share:
Earnings from continuing operations	$	3.76		$	3.77		$	3.13		$	2.72		$	2.59		$	2.25		$	1.71		$	1.36		$	0.89		$	1.19		$	1.28
Earnings from discontinued operations		0.73			0.09			0.09			0.07			0.11			0.09			0.09			0.10			0.07			0.05			0.07
Basic Net Earnings per Common Share		4.49			3.86			3.22			2.79			2.70			2.34			1.80			1.46			0.96			1.24			1.35
Diluted Net Earnings per Common Share:
Earnings from continuing operations	$	3.58		$	3.56		$	2.96		$	2.58		$	2.43		$	2.12		$	1.62		$	1.30		$	0.86		$	1.13		$	1.21
Earnings from discontinued operations		0.68			0.08			0.08			0.06			0.10			0.08			0.08			0.09			0.06			0.04			0.06
Diluted Net Earnings per Common Share		4.26			3.64			3.04			2.64			2.53			2.20			1.70			1.39			0.92			1.17			1.27
Dividends per Common Share		1.64			1.45			1.28			1.15			1.03			0.93			0.82			0.76			0.70			0.64			0.57
Restructuring Program Charges(1)	$	—		$	—		$	—		$	—		$	—		$	—		$	751		$	958		$	1,850		$	814		$	481
Research and Development Expense		2,044			2,212			2,100			2,060			1,926			1,782			1,641			1,572			1,751			1,880			1,709
Advertising Expense		7,579			8,583			7,850			7,045			5,850			5,401			4,406			3,696			3,654			3,828			3,471
Total Assets		134,833			143,992			138,014			135,695			61,527			57,048			43,706			40,776			34,387			34,366			32,192
Capital Expenditures		3,238			3,046			2,945			2,667			2,181			2,024			1,482			1,679			2,486			3,018			2,828
Long-Term Debt		20,652			23,581			23,375			35,976			12,887			12,554			11,475			11,201			9,792			9,012			6,265
Shareholders’ Equity		63,099			69,494			66,760			62,908			18,475			18,190			17,025			14,415			12,560			12,673			12,352

(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, related to a multi-year restructuring plan initiated in 1999 concurrent with the reorganization of our business units from geographic into product-based Global Business Units.

74 The Procter & Gamble Company

Shareholder Return Performance Graphs

FIVE-YEAR CUMULATIVE TOTAL RETURN

The following graph compares the cumulative total return of P&G’s common stock for the 5-year period ending June 30, 2009, against the cumulative total return of the S&P 500 Stock Index and the S&P 500 Consumer Staples Index. The graph and tables assume $100 was invested on June 30, 2004, and that all dividends were reinvested. The benchmark of “Composite Group” has been replaced by the S&P 500 Consumer Staples Index as the more relevant line of business comparison to P&G’s operations. The Composite Group results are still provided in this transition year, and are 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, all weighted based on P&G’s current fiscal year revenues. Further, the Dow Jones Industrial Average will no longer be shown after this year, as a “broad market” index as the S&P 500 satisfies this comparison.

	Cumulative Value of $100 Investment, through June 30
Company Name/Index	2004		2005		2006		2007		2008		2009
P&G	$	100	$	99	$	106	$	119	$	121	$	105
S&P 500 Consumer Staples Index		100		102		110		128		128		104
S&P 500 Index		100		106		115		139		121		89
DJIA		100		101		112		138		119		92
Composite Group		100		99		111		131		121		99

DIVIDEND HISTORY

P&G has paid dividends without interruption since its incorporation in 1890 and has increased dividends each year for the past 53 fiscal years. P&G’s compound annual dividend growth rate is 9.5% over the last 53 years.

(in dollars, split adjusted)	1956		1970		1984		1998		2009
Dividends per Share	$	0.01	$	0.04	$	0.15	$	0.51	$	1.64

EX-21

EXHIBIT (21)

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

Subsidiaries of the Registrant

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

AB Tudor Hellesens [Sweden]

Agile Pursuits Franchising, Inc. [Ohio]

Agile Pursuits, Inc. [Ohio]

An-Pro Company [Ohio]

Arbora & Ausonia, S.L. [Spain]

Arbora, S.A. [Spain]

Becruz, S.A. de C.V. [Mexico]

Belcosa Distribuidora de Cosméticos Ltda. [Brazil] (*)

Belfam Industria Cosmetic S.A. [Brazil]

Braun (Shanghai) Co., Ltd. [China]

Braun (Shanghai) International Trading Co., Ltd. [China]

Braun GmbH [Germany]

Braun Oral-B Ireland Limited [Ireland] (*)

Braun-Gillette Immobilien GmbH & Co. KG [Germany]

CAMADA Grundstücks-GmbH & Co. oHG [Germany] (*)

Capella OOO [Russia]

Celtic Insurance Company Limited [Bermuda] (*)

Chemo Laboratories Manufacturing Sdn. Bhd. [Malaysia]

China Battery Limited [Hong Kong]

Clairol Limited [U.K.]

Clivia Publicidade Ltda. [Brazil] (*)

Compania Giva, S.A. [Delaware]

Compania Procter & Gamble Mexico, S. de R.L. de C.V. [Mexico]

Consumer Studies, Inc. [Massachusetts]

Corporativo Procter & Gamble, S. de R.L. de C.V. [Mexico]

Corpydes S.A. de C.V. [Mexico]

Cosmedica CA [Venezuela]

Cosmetic Products Pty. Ltd. [Australia]

Cosmetic Research Bureau, Inc. [Delaware]

Cosmetic Suppliers Pty. Ltd. [Australia]

Cosmetics Beauty Inc. [New Jersey] (*)

Cosmital S.A. [Switzerland] (*)

Cosmonor Distribuidora de Cosmeticos Ltda. [Brazil] (*)

Cosmopolitan Cosmetics China Ltd. [Hong Kong] (*)

Cosmopolitan Cosmetics GmbH [Germany]

Cosmopolitan Cosmetics K.K. [Japan]

Cosmopolitan Cosmetics Korea Co., Ltd [South Korea]

Cosmopolitan Cosmetics Ltd. [Hong Kong] (*)

Cosmopolitan Cosmetics SA [France]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Crest Toothpaste Inc. [Canada]

Detergent Products A.G. [Switzerland] (*)

Dicosma Distribuidora de Cosmeticos Ltda. [Brazil] (*)

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]

Escada Cosmetics Ltd. [Korea]

European Beauty Products (U.K.) Limited [U.K.]

Fameccanica Data S.p.A. [Italy]

Fameccanica Machinery (Shanghai) Co., Ltd. [China]

Fameccanica Partecipacoes Ltda. [Brazil]

Fater S.p.A. [Italy]

FF Trademark, LLC [Delaware]

Finco do Brasil Fomento Comercial Ltda. [Brazil] (*)

FINCO Holdings (BVI) Inc. [British Virgin Islands] (*)

FINPAR-Finco do Brasil Participacoes Ltda. [Brazil] (*)

Foreign Company “Procter & Gamble” [Belarus]

Fountain Square Music Publishing Co., Inc. [Ohio]

FPG Oleochemicals Sdn. Bhd. [Malaysia]

Frederic Fekkai & Co., LLC [Delaware]

Frederic Fekkai & Company (Soho), LLC [New York]

Frederic Fekkai (Mark NY), LLC [Delaware]

Frederic Fekkai Beverly Hills, LLC [Calfornia]

Frederic Fekkai Dallas, LLC [Delaware]

Frederic Fekkai Greenwich, LLC [Delaware]

Frederic Fekkai Las Vegas, LLC [Delaware]

Frederic Fekkai Melrose Place, LLC [California]

Frederic Fekkai New York, LLC [New York]

Frederic Fekkai NY II, LLC [Delaware]

Frederic Fekkai Palm Beach, LLC [Florida]

Frederic Holding Co. [Delaware]

Frederic, LLC [Delaware]

Fruehling Cosmetics Co. Ltd. [Thailand]

Fujian Nanping Nanfu Battery Co., Ltd. [China]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Gala Cosmetics International Limited [U.K.]

Gilfin B.V. [Netherlands] (*)

Gilfin Holding B.V. [Netherlands] (*)

Gillette (China) Ltd. [China]

Gillette (Shanghai) Ltd. [China]

Gillette (Shanghai) Sales Company Limited [China]

Gillette Aesop Ltd. [U.K.]

Gillette Australia Pty. Ltd. [Australia]

Gillette Canada Holdings, Inc. [Delaware]

Gillette Canada Overseas Holding Company [Canada]

Gillette Central Services Limited [U.K.]

Gillette Commercial Operations North America [Massachusetts]

Gillette Czech and Ukraine Holding, LLC [Ohio]

Gillette de Mexico, Inc. [Delaware]

Gillette del Uruguay, S.A. [Uruguay]

Gillette Deutschland GmbH & Co. oHG [Germany]

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 Group (Europe) Holdings B.V. [Netherlands] (*)

Gillette Group India Private Limited [India]

Gillette Group UK Ltd [U.K.]

Gillette Holding Company, Inc. [Delaware]

Gillette Holding GmbH [Germany]

Gillette India Limited [India]

Gillette Industries Ltd. [U.K.]

Gillette International B.V. [Netherlands]

Gillette Korea Holding B.V. [Netherlands] (*)

Gillette Latin America Holding B.V. [Netherlands]

Gillette Management LLC [Delaware]

Gillette Nova Scotia Company [Canada]

Gillette Pakistan Limited [Pakistan]

Gillette Poland International sp. zo.o. [Poland]

Gillette Poland S.A. [Poland]

Gillette Products Private Limited [India]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Gillette Puerto Rico LLC [Puerto Rico]

Gillette Safety Razor Company [Massachusetts]

Gillette Sanayi ve Ticaret A.S. [Turkey]

Gillette Southern Cone, LLC [Ohio] (*)

Gillette U.K. Limited [U.K.]

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, S. de R.L. de C.V. [Mexico] (*)

HDS Cosmetics Lab Inc. [Delaware]

Herman Lepsoe A/S [Norway] (*)

Hikari Biyo Kagaku Co. Ltd. [Japan]

Humatro Corporation [Delaware]

Hyginett KFT [Hungary]

Iams Europe B.V. [Netherlands]

Iams Pet Food International N.V. [Netherlands]

Iams Pet Imaging, LLC [Ohio]

Industries Marocaines Modernes SA [Morocco]

Intpropco S.A. [Switzerland] (*)

Juvian Fabric Care Corporation [Ohio]

Kadabell GmbH [Germany]

Kadabell GmbH & Co. KG [Germany]

Laboratorios Vicks, S.L. [Spain]

Liberty Street Music Publishing Company, Inc. [Ohio]

Limited Liability Company ‘Procter & Gamble Trading Ukraine’ [Ukraine]

LLC “Procter & Gamble Novomoskovsk” [Russia]

LLC “Procter & Gamble Services” [Russia]

LLC “Procter & Gamble” [Russia]

Londa GmbH [Germany]

Londa Kosmetika OOO [Russia]

Londa Rothenkirchen Produktions GmbH [Germany]

Marcosma Distribuidora de Cosméticos Ltda [Brazil] (*)

Marcvenca Inversiones, C.A. [Venezuela]

Max Factor & Co. [Delaware]

MDVIP, Inc. [Delaware]

Metropolitan Cosmetics GmbH [Germany]

Mining Consultants (India) Private Ltd. [India] (*)

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Modern Hairdressing Supplies (Pty) Ltd. [South Africa] (*)

Modern Holdings (Pty) Ltd. [South Africa] (*)

Modern Industries Company - Dammam [Saudi Arabia]

Modern Products Company - Jeddah [Saudi Arabia]

Muehlens GmbH & Co. KG [Germany]

Neoblanc-Produtos de Higiene e Limpeza Lda. [Portugal]

Nexus Mercantile Private Ltd. [India]

Nioxin Management, Inc. [Georgia]

Nioxin Research Laboratories, Inc. [Georgia]

North Carolina Pet Imaging, LLC [Ohio]

Noxell Corporation [Maryland]

Olay LLC [Puerto Rico]

Ondal France SARL [France]

Ondelle S.A.(Pty) Ltd. [South Africa] (*)

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, G.P. [Delaware]

P&G Design Center Godo Kaisha [Japan]

P&G Distribution Morocco SAS [Morocco]

P&G Holding B.V. [Netherlands] (*)

P&G Indochina [Vietnam]

P&G Industrial Peru S.R.L. [Peru]

P&G Innovation Godo Kaisha [Japan]

P&G Israel Enterprise 2005 Ltd. [Israel]

P&G Israel M.D.O. Ltd. [Israel]

P&G Japan Holdings GK [Japan]

P&G K.K. [Japan]

P&G Max Factor Godo Kaisha [Japan]

P&G Northeast Asia Pte. Ltd. [Singapore] (*)

P&G Prestige Products [Russia] (*)

P&G Prestige Products GmbH [Austria]

P&G Prestige Products GmbH [Germany]

P&G Prestige Products Ltd. [U.K.]

P&G Prestige Products N.V. [Belgium]

P&G Prestige Products S.A.S. [France] (*)

P&G Prestige Products Singapore [Singapore] (*)

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

P&G Prestige Products Taiwan [Taiwan]

P&G Prestige Products, Inc. [Connecticut]

P&G South African Trading (Pty.) Ltd. [South Africa]

P&G-Clairol, Inc. [Delaware]

Pacific Beauty Care Pte. Ltd. [Singapore] (*)

PADOS Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Darmstadt KG [Germany]

Parfums Rochas S.A.S. [France]

Parkfin [U.K.] (*)

Phase II Holdings Corporation [Philippines]

PPS Hairwear Australia Pty. Ltd. [Australia]

Procter & Gamble (Chengdu) Ltd. [China]

Procter & Gamble (China) Ltd. [China]

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 Bhd [Malaysia]

Procter & Gamble (Manufacturing) Ireland Limited [Ireland]

Procter & Gamble (Shanghai) International Trade Company Ltd. [China]

Procter & Gamble (Singapore) Pte. Ltd. [Singapore]

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 SRL [Argentina]

Procter & Gamble Asia Holding B.V. [Netherlands]

Procter & Gamble Asia Pte. Ltd. [Singapore]

Procter & Gamble Asia Pte. Ltd. [Philippines]

Procter & Gamble Australia Proprietary Limited [Australia]

Procter & Gamble Austria GmbH [Austria]

Procter & Gamble Azerbaijan Services LLC [Azerbaijan]

Procter & Gamble Bangladesh Private Ltd. [Bangladesh]

Procter & Gamble Blois S.A.S. [France]

Procter & Gamble Brazil Holdings B.V. [Netherlands]

Procter & Gamble Bulgaria EOOD [Bulgaria]

Procter & Gamble Business Services Canada Company [Canada]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Procter & Gamble Canada Holding B.V. [Netherlands]

Procter & Gamble Central & Eastern Europe GmbH [Germany]

Procter & Gamble Chemical Services Pte. Ltd. [Singapore] (*)

Procter & Gamble Chile Holding Ltda. [Chile]

Procter & Gamble Chile Limitada [Chile]

Procter & Gamble Chile, Inc. [Ohio]

Procter & Gamble Colombia Ltda. [Colombia]

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 s.r.o. [Czech Republic]

Procter & Gamble d.o.o. za trgovinu [Croatia]

Procter & Gamble Danmark ApS [Denmark]

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] (*)

Procter & Gamble do Nordeste S/A [Brazil]

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 Supplies [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 Export Operations SARL [Switzerland] (*)

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Procter & Gamble Exports, S. de R.L. [Panama]

Procter & Gamble Far East, Inc. [Ohio]

Procter & Gamble Finance (U.K.) Ltd. [U.K.]

Procter & Gamble Financial Services Ltd. [Ireland] (*)

Procter & Gamble Financial Services SA [Luxembourg]

Procter & Gamble Finland OY [Finland]

Procter & Gamble Food Products SARL [Switzerland] (*)

Procter & Gamble France S.A.S. [France]

Procter & Gamble Germany GmbH [Germany]

Procter & Gamble Germany GmbH & Co. Operations oHG [Germany]

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 Hellas Ltd. [Greece]

Procter & Gamble Holding (HK) Limited [Hong Kong]

Procter & Gamble Holding (Thailand) Limited [Thailand]

Procter & Gamble Holding France S.A.S. [France]

Procter & Gamble Holding GmbH [Germany]

Procter & Gamble Holding S.r.l. [Italy]

Procter & Gamble Holdings (UK) Ltd. [U.K.]

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. [Canada]

Procter & Gamble India Holdings B.V. [Netherlands]

Procter & Gamble India Holdings, Inc. [Ohio]

Procter & Gamble Industrial Colombia Ltda. [Colombia]

Procter & Gamble Industrial de Guatemala, S.A. [Guatemala]

Procter & Gamble Industrial e Comercial Ltda. [Brazil]

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 Panama, S. de R.L. [Panama]

Procter & Gamble International Finance Funding General Management S.a.r.l. [Luxembourg] (*)

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Procter & Gamble International Funding 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 Italia, S.p.A. [Italy]

Procter & Gamble Japan K.K. [Japan]

Procter & Gamble Kazakhstan LLP [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]

Procter & Gamble Levant S.A.L. [Lebanon]

Procter & Gamble Limited [U.K.]

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. [China]

Procter & Gamble Manufacturing Belgium N.V. [Belgium]

Procter & Gamble Manufacturing GmbH [Germany]

Procter & Gamble Manufacturing SA [South Africa]

Procter & Gamble Manufacturing Ukraine [Ukraine]

Procter & Gamble Marketing & Commercial Activities d.o.o. Ljubljana [Slovenia]

Procter & Gamble Marketing and Services d.o.o. [Serbia and Montenegro]

Procter & Gamble Marketing DOOEL Skopje [Macedonia]

Procter & Gamble Marketing Romania SRL [Romania]

Procter & Gamble Maroc SA [Morocco]

Procter & Gamble Mataro, S.L. [Spain]

Procter & Gamble Materials Management Romania S.R.L. [Romania] (*)

Procter & Gamble Mexico Holding B.V. [Netherlands]

Procter & Gamble Moldova SRL [Moldova]

Procter & Gamble Nederland B.V. [Netherlands]

Procter & Gamble Netherlands Services B.V. [Netherlands]

Procter & Gamble Neuilly S.A.S. [France]

Procter & Gamble Nigeria Limited [Nigeria]

Procter & Gamble Nordic LLC [Ohio]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Procter & Gamble Norge AS [Norway]

Procter & Gamble NPD, Inc. [Ohio]

Procter & Gamble Operations Polska-Spolka z o.o. [Poland]

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 Pet Care (Australia) Pty. Ltd. [Australia]

Procter & Gamble Pharmaceuticals Canada, Inc. [Canada]

Procter & Gamble Pharmaceuticals France SAS [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 BV [Netherlands]

Procter & Gamble Pharmaceuticals Puerto Rico LLC [Puerto Rico]

Procter & Gamble Pharmaceuticals SARL [Switzerland]

Procter & Gamble Pharmaceuticals UK 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 z o.o [Poland]

Procter & Gamble Porto, Lda. [Portugal]

Procter & Gamble Portugal S.A. [Portugal]

Procter & Gamble Prestige Products S.A. [Portugal]

Procter & Gamble Prestige Products S.A. [Spain]

Procter & Gamble Product Supply (U.K.) Limited [U.K.]

Procter & Gamble Productions, Inc. [Ohio]

Procter & Gamble RHD, Inc. [Ohio]

Procter & Gamble RSC Regional Service Company Ltd. [Hungary]

Procter & Gamble S.r.l. [Italy]

Procter & Gamble Satis ve Dagitim Ltd. Sti. [Turkey]

Procter & Gamble Senegal S.a.r.l. [Senegal]

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]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Procter & Gamble Singapore Investment Pte. Ltd. [Singapore] (*)

Procter & Gamble South Africa Proprietary Limited [South Africa]

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 Centres Limited [U.K.]

Procter & Gamble Technology (Beijing) Co., Ltd. [China]

Procter & Gamble Trading (Thailand) Limited [Thailand]

Procter & Gamble Trading International S.a.r.l. [Switzerland] (*)

Procter & Gamble Trgovaeko Drustvo d.o.o. Sarajevo [Bosnia]

Procter & Gamble Tuketim Mallari Sanayii A.S. [Turkey]

Procter & Gamble UK [U.K.]

Procter & Gamble Ukraine [Ukraine]

Procter & Gamble Verwaltungs GmbH [Germany] (*)

Procter & Gamble Vietnam Co. Ltd. [Vietnam]

Procter & Gamble, Spol. s.r.o. (Ltd.) [Slovak Republic]

Procter & Gamble-Rakona s.r.o. [Czech Republic]

Productos Cosmeticos, S.L. [Spain]

Professional Care Logistics, S.L. [Spain]

Progam Realty & Development Corporation [Philippines]

Promotora de Bienes y Valores, S. de R.L. de C.V. [Mexico]

PT Kosmindo [Indonesia]

PT Procter & Gamble Home Products Indonesia [Indonesia]

PUR Water Purification Products, Inc. [Ohio]

Redmond Products, Inc. [Minnesota]

Richardson-Vicks do Brasil Quimica e Farmacêutica Ltda [Brazil]

Richardson-Vicks Real Estate Inc. [Ohio]

Riverfront Music Publishing Co., Inc. [Ohio]

Rosemount Corporation [Delaware] (*)

RPI Management, Inc. [Nevada]

Russwell OOO [Russia]

R-V Chemicals Holdings Ltd. [Ireland] (*)

S.C. Detergenti S.A. [Romania]

S.P.F. Beaute SAS [France]

San Francisco Pet Imaging, Inc. [California]

San Francisco Pet Imaging, LLC [Ohio]

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Scannon GmbH [Germany]

Sebastian Europe GmbH [Germany]

Series Acquisition B.V. [Netherlands]

Series Overseas Investment Ltd. [Bermuda] (*)

Shulton (Great Britain) Ltd. [U.K.]

Shulton, Inc. [New Jersey]

Sigma Cosmetica International S.A [Uruguay]

SPD Development Company Limited [U.K.]

SPD Swiss Precision Diagnostics GmbH [Switzerland]

Star Parfums Verwaltungs GmbH [Germany]

Sulcosma Distribuidora de Cosmeticos Ltda. [Brazil] (*)

Surfac S.R.L. [Peru]

Sycamore Productions, Inc. [Ohio]

Tambrands Inc. [Delaware]

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 Gillette Company [Delaware]

The Iams Company [Ohio]

The Malabar Company [Delaware] (*)

The Procter & Gamble Distributing LLC [Delaware]

The Procter & Gamble GBS Company [Ohio]

The Procter & Gamble Global Finance Company [Ohio]

The Procter & Gamble International Insurance Company, Limited [Ireland] (*)

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]

Universal Beauty Supply Corp. [Puerto Rico] (*)

Vidal Sassoon (Shanghai) Academy [China]

Vidal Sassoon Co. [Ohio]

WEBA Betriebsrenten-Verwaltungsgesellschaft mbH [Germany]

Wella (Ireland) Ltd. [Ireland] (*)

Wella (U.K.) Ltd. [U.K.]

Wella (UK) Holdings Ltd. [U.K.]

Wella AB [Sweden] (*)

[ ] Brackets indicate state or country of incorporation and do not form part of corporate name

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

The registrant’s subsidiaries are listed below, omitting certain entities that have de minimis activity or are in the process of being liquidated that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of June 30, 2009. Entities denoted with an asterisk (*) are among those currently planned for liquidation.

Wella AG [Germany]

Wella Argentina Ondabel S.A. [Argentina]

Wella Beteiligungen GmbH [Switzerland] (*)

Wella Canada, Inc. [Canada]

Wella Chile S.A. [Chile]

Wella Colombiana Ltda. [Colombia]

Wella Cosmetics China Ltd. Co. [China]

Wella CZ s.r.o. [Czech Republic]

Wella Danmark A/S [Denmark] (*)

Wella de México, S. de R.L. de C.V. [Mexico]

Wella France S.A.S. [France]

Wella Grundstucks-und Vermogensverwaltungs AG & Co. KG [Germany]

Wella Hellas Ltd. [Greece]

Wella Hong Kong Limited [Hong Kong] (*)

Wella India Hair Cosmetics Private Limited [India]

Wella Intercosmetic GmbH [Germany]

Wella Japan Co. Ltd. [Japan]

Wella Korea Co. Ltd. [Korea]

Wella Kozmetik Sanayi ve Ticaret Limited [Turkey]

Wella Magyarorszag Kft. [Hungary]

Wella Malaysia Sdn. Bhd. [Malaysia]

Wella Management GmbH [Germany]

Wella Manufacturing GmbH [Germany]

Wella New Zealand [New Zealand]

Wella Nordamerika Beteiligungen GmbH [Germany] (*)

Wella Paraguay S.A. [Paraguay]

Wella Philippines Inc. [Philippines]

Wella Polska Spolka z o.o. [Poland] (*)

Wella Portugal Sociedade Unipessoal Lda. [Portugal] (*)

Wella Romania srl [Romania]

Wella Slovensko s.r.o. [Slovak Republic]

Wella Taiwan Co. Ltd. [Taiwan]

Wella Thailand Ltd. [Thailand]

Wella Trading (Thailand) Ltd. [Thailand]

Wella UK Holdings Ltd. [Great Britain]

Wella Ukraina [Ukraine]

Zogi SRL [Italy]

[ ] 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, 2009, relating to the consolidated financial statements of The Procter & Gamble Company and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the Company’s adoption of new accounting guidance on the accounting for uncertainty in income taxes, effective July 1, 2007) and the effectiveness of The Procter & Gamble Company and subsidiaries’ 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, 2009.

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 Form 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 Form 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;

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;

38. Registration Statement No. 333-145938 on Form S-3 for The Procter & Gamble Company and Procter & Gamble International Funding SCA;

39. Registration Statement No. 333-146904 on Form S-8 for The Gillette Company Employees’ Savings Plan;

40. Registration Statement No. 333-155046 on Form S-8 for Employee Stock Purchase Plan (Japan);

41. Registration Statement No. 333-156032 on Form S-3 for The Procter & Gamble U.K. Share Investment Scheme; and

42. Registration Statement No. 333-156033 on Form S-3 for The Procter & Gamble Shareholder Investment Program.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP

Cincinnati, Ohio

August 14, 2009

EX-31

EXHIBIT (31)

Rule 13a-14(a)/15d-14(a) Certifications

Rule 13a-14(a)/15d-14(a) Certifications

I, Robert A. McDonald, 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;

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.

/s/ ROBERT A. MCDONALD

(Robert A. McDonald)

President and Chief Executive Officer

August 14, 2009

Date

Rule 13a-14(a)/15d-14(a) Certifications

I, Jon R. Moeller, 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;

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.

/s/ JON R. MOELLER

(Jon R. Moeller)

Chief Financial Officer

August 14, 2009

Date

EX-32

EXHIBIT (32)

Section 1350 Certifications

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, 2009 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 conditions and results of operations of the Company.

/s/ ROBERT A. MCDONALD

(Robert A. McDonald)

President and Chief Executive Officer

August 14, 2009

Date

A signed original of this written statement required by Section 906 has been provided to The Procter & Gamble Company and will be retained by The Procter & Gamble Company and furnished to the Securities and Exchange Commission or its staff upon request.

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, 2009 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 conditions and results of operations of the Company.

/s/ JON R. MOELLER

(Jon R. Moeller)

Chief Financial Officer

August 14, 2009

Date

A signed original of this written statement required by Section 906 has been provided to The Procter & Gamble Company and will be retained by The Procter & Gamble Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

EXHIBIT (99-1)

Summary of Directors and Officers Insurance Program

This summary states the general effect of the Company’s Directors & Officers Insurance Program for the policy period effective for June 30, 2009 to June 30, 2010.

INSURANCE COMPANY	LIMIT ($MILL)
Corporate Officers & Directors Assurance Ltd.	25
Endurance Specialty Insurance Ltd.	25
ACE Bermuda Insurance Ltd.	15
Steadfast Insurance Company	25
Allied World Assurance Company Ltd.	20
Arch Insurance (Bermuda)	20
St. Paul Surplus Lines Insurance Company	10
Max Bermuda Ltd.	15
Chubb Atlantic Indemnity Ltd.	10
Ariel Reinsurance Company Ltd.	5
Allied World Assurance Company Ltd.	5
Axis Specialty Limited Bermuda	25
Corporate Officers & Directors Assurance Ltd.	15
Chubb Atlantic Indemnity Ltd.	10
Ariel Reinsurance Company Ltd.	5
St. Paul Surplus Lines Insurance Company	10
Lloyd’s Syndicate 2623/623	10
TOTAL	250