Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

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

For the Quarterly Period Ended September 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 number 1-434

LOGO

THE PROCTER & GAMBLE COMPANY

(Exact name of registrant as specified in its charter)

 

Ohio   31-0411980
(State of Incorporation)  

(I.R.S. Employer

Identification Number)

 

One Procter & Gamble Plaza, Cincinnati, Ohio   45202
(Address of principal executive offices)   (Zip Code)

(513) 983-1100

(Registrant’s telephone number, including area code)

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  x    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  x    No  ¨

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

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨     

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

There were 2,921,734,338 shares of Common Stock outstanding as of September 30, 2009.

 


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

The Consolidated Statements of Earnings of The Procter & Gamble Company and subsidiaries (the “Company”, “we” or “our”) for the three months ended September 30, 2009 and 2008, the Consolidated Balance Sheets as of September 30, 2009 and June 30, 2009, and the Consolidated Statements of Cash Flows for the three months ended September 30, 2009 and 2008 follow. In the opinion of management, these unaudited Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. However, such financial statements may not necessarily be indicative of annual results.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

 

Amounts in millions except per share amounts    Three Months Ended
September 30
     2009    2008

Net Sales

   $ 19,807    $ 20,983

Cost of products sold

     9,398      10,558

Selling, general and administrative expense

     5,961      6,039
             

Operating Income

     4,448      4,386

Interest expense

     287      339

Other non-operating income, net

     23      280
             

Earnings from Continuing Operations Before Income Taxes

     4,184      4,327

Income taxes

     1,157      1,212
             

Net Earnings from Continuing Operations

     3,027      3,115

Net Earnings from Discontinued Operations

     280      233
             

Net Earnings

   $ 3,307    $ 3,348
             

Per Common Share

     

Basic net earnings from continuing operations

   $ 1.02    $ 1.02

Basic net earnings from discontinued operations

   $ 0.09    $ 0.08
             

Basic net earnings

   $ 1.11    $ 1.10

Diluted net earnings from continuing operations

   $ 0.97    $ 0.96

Diluted net earnings from discontinued operations

   $ 0.09    $ 0.07
             

Diluted net earnings

   $ 1.06    $ 1.03

Dividends

   $ 0.44    $ 0.40

Diluted Weighted Average Common Shares Outstanding

     3,109.6      3,239.5

See accompanying Notes to Consolidated Financial Statements

Certain amounts for prior periods were reclassified to conform with the fiscal 2010 presentation

 

- 1 -


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

Amounts in millions              September 30
2009
    June 30
2009
 

ASSETS

          

CURRENT ASSETS

          

Cash and cash equivalents

         $ 6,294      $ 4,781   

Accounts receivable

           6,239        5,836   

Inventories

          

Materials and supplies

           1,699        1,557   

Work in process

           657        672   

Finished goods

           4,694        4,651   
                      

Total inventories

           7,050        6,880   

Deferred income taxes

           1,254        1,209   

Prepaid expenses and other current assets

           2,691        3,199   

Assets held for sale

           989        —     
                      

TOTAL CURRENT ASSETS

           24,517        21,905   

PROPERTY, PLANT AND EQUIPMENT

          

Buildings

           6,795        6,724   

Machinery and equipment

           29,618        29,042   

Land

           881        885   
                      

Total property, plant and equipment

           37,294        36,651   

Accumulated depreciation

           (17,703     (17,189
                      

NET PROPERTY, PLANT AND EQUIPMENT

           19,591        19,462   

GOODWILL AND OTHER INTANGIBLE ASSETS

          

Goodwill

           57,011        56,512   

Trademarks and other intangible assets, net

           32,686        32,606   
                      

NET GOODWILL AND OTHER INTANGIBLE ASSETS

           89,697        89,118   

OTHER NON-CURRENT ASSETS

           4,576        4,348   
                      

TOTAL ASSETS

         $ 138,381      $ 134,833   
                      

LIABILITIES AND SHAREHOLDERS’ EQUITY

          

CURRENT LIABILITIES

          

Accounts payable

         $ 5,581      $ 5,980   

Accrued and other liabilities

           9,610        8,601   

Debt due within one year

           12,957        16,320   

Liabilities held for sale

           526        —     
                      

TOTAL CURRENT LIABILITIES

           28,674        30,901   

LONG-TERM DEBT

           22,439        20,652   

DEFERRED INCOME TAXES

           10,917        10,752   

OTHER NON-CURRENT LIABILITIES

           9,324        9,146   
                      

TOTAL LIABILITIES

           71,354        71,451   

SHAREHOLDERS’ EQUITY

          

Preferred stock

           1,308        1,324   

Common stock - shares issued -

   30-Sep    4,007.4      4,007     
   30-Jun    4,007.3        4,007   

Additional paid-in capital

           61,256        61,118   

Reserve for ESOP debt retirement

           (1,344     (1,340

Accumulated other comprehensive income (loss)

           (1,963     (3,358

Treasury stock

           (55,837     (55,961

Retained earnings

           59,287        57,309   

Noncontrolling interest

           313        283   
                      

TOTAL SHAREHOLDERS’ EQUITY

           67,027        63,382   
                      

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

         $ 138,381      $ 134,833   
                      

See accompanying Notes to Consolidated Financial Statements

Certain amounts for prior periods were reclassified to conform with the fiscal 2010 presentation

 

- 2 -


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Amounts in millions    Three Months Ended
September 30
 
     2009     2008  

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

   $ 4,781      $ 3,313   

OPERATING ACTIVITIES

    

Net earnings

     3,307        3,348   

Depreciation and amortization

     771        810   

Share-based compensation expense

     99        126   

Deferred income taxes

     (29     247   

Gain on sale of businesses

     (199     (317

Changes in:

    

Accounts receivable

     (513     (725

Inventories

     (96     (833

Accounts payable, accrued and other liabilities

     818        398   

Other operating assets and liabilities

     398        384   

Other

     (1     6   
                

TOTAL OPERATING ACTIVITIES

     4,555        3,444   
                

INVESTING ACTIVITIES

    

Capital expenditures

     (552     (699

Proceeds from asset sales

     209        545   

Acquisitions, net of cash acquired

     (19     (292

Change in investments

     (16     34   
                

TOTAL INVESTING ACTIVITIES

     (378     (412
                

FINANCING ACTIVITIES

    

Dividends to shareholders

     (1,336     (1,254

Change in short-term debt

     1,914        3,436   

Additions to long-term debt

     1,496        878   

Reductions of long-term debt

     (4,986     (1,287

Treasury stock purchases

     (8     (3,911

Impact of stock options and other

     117        405   
                

TOTAL FINANCING ACTIVITIES

     (2,803     (1,733
                

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

     139        (110

CHANGE IN CASH AND CASH EQUIVALENTS

     1,513        1,189   
                

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 6,294      $ 4,502   
                

See accompanying Notes to Consolidated Financial Statements

Certain amounts for prior periods were reclassified to conform with the fiscal 2010 presentation

 

- 3 -


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009. The results of operations for the three-month period ended September 30, 2009 are not necessarily indicative of annual results.

For the three months ended September 30, 2009, the Company has evaluated subsequent events for potential recognition and disclosure through October 29, 2009, the date of financial statement issuance.

 

2. Comprehensive Income—Total comprehensive income is comprised primarily of net earnings, net currency translation gains and losses, impacts of net investment and cash flow hedges, net unrealized gains and losses on investment securities and defined benefit and other retiree benefit plan activities. Total comprehensive income (loss) for the three months ended September 30, 2009 and 2008 was $4,702 million and $(252) million, respectively.

 

3. Segment Information – Effective July 1, 2009, we implemented a number of changes to the organization structure of the Beauty GBU, which resulted in changes to the components of our reportable segment structure. Female blades and razors were formerly included in the Grooming reportable segment and are now included in the Beauty reportable segment. Certain male-focused brands and businesses, such as Old Spice and Gillette personal care, moved from the Beauty reportable segment to the Grooming reportable segment. In addition, the Beauty GBU was renamed the Beauty and Grooming GBU. These changes have been reflected in our segment reporting for all periods presented.

Following is a summary of segment results.

 

          Three Months Ended September 30  
Amounts in millions         Net Sales     Earnings from
Continuing
Operations
Before Income
Taxes
    Net Earnings
from
Continuing

Operations
 

Beauty and Grooming GBU

         

Beauty

   2009    4,921      $ 1,027      $ 777   
   2008    5,181        1,018        788   
                           

Grooming

   2009    1,858        489        351   
   2008    2,090        610        443   

Health and Well-Being GBU

         

Health Care

   2009    2,979        830        550   
   2008    3,101        757        503   
                           

Snacks and Pet Care

   2009    755        113        74   
   2008    807        90        55   

Household Care GBU

         

Fabric Care and Home Care

   2009    6,130        1,510        1,009   
   2008    6,483        1,261        826   
                           

Baby Care and Family Care

   2009    3,589        885        557   
   2008    3,772        807        514   

Corporate

   2009    (425     (670     (291
   2008    (451     (216     (14
                           

Total

   2009    19,807        4,184        3,027   
   2008    20,983        4,327        3,115   
                           

 

- 4 -


4. Goodwill and Other Intangible Assets – Goodwill as of September 30, 2009 is allocated by reportable segment and global business unit as follows (amounts in millions):

 

     Three Months Ended
September 30, 2009
 

BEAUTY & GROOMING GBU

  

Beauty, beginning of year

   $ 18,668   

Acquisitions and divestitures

     23   

Translation and other

     329   
        

Goodwill, September 30, 2009

     19,020   

Grooming, beginning of year

     21,391   

Acquisitions and divestitures

     (16

Translation and other

     262   
        

Goodwill, September 30, 2009

     21,637   

HEALTH & WELL-BEING GBU

  

Health Care, beginning of year

     8,404   

Acquisitions and divestitures

     (4

Reclassification to held for sale (1)

     (246

Translation and other

     71   
        

Goodwill, September 30, 2009

     8,225   

Snacks and Pet Care, beginning of year

     2,055   

Acquisitions and divestitures

     —     

Translation and other

     5   
        

Goodwill, September 30, 2009

     2,060   

HOUSEHOLD CARE GBU

  

Fabric Care and Home Care, beginning of year

     4,408   

Acquisitions and divestitures

     (3

Translation and other

     56   
        

Goodwill, September 30, 2009

     4,461   

Baby Care and Family Care, beginning of year

     1,586   

Acquisitions and divestitures

     (1

Translation and other

     23   
        

Goodwill, September 30, 2009

     1,608   

GOODWILL, beginning of year

     56,512   

Acquisitions and divestitures

     (1

Reclassification to held for sale (1)

     (246

Translation and other

     746   
        

Goodwill, September 30, 2009

   $ 57,011   
        

 

(1) See Note 10 for further details on goodwill reclassification to held for sale.

The increase in goodwill from June 30, 2009 is primarily due to currency translation, partially offset by the reclassification of goodwill related to the pharmaceuticals business to assets held for sale.

 

- 5 -


Identifiable intangible assets as of September 30, 2009 are comprised of (amounts in millions):

 

     Gross Carrying
Amount
   Accumulated
Amortization

Amortizable intangible assets with determinable lives

   $ 8,686    $ 3,255

Intangible assets with indefinite lives

     27,255      —  
             

Total identifiable intangible assets

   $ 35,941    $ 3,255
             

Amortizable intangible assets consist principally of brands, patents, technology and customer relationships. The non-amortizable intangible assets consist primarily of brands.

The amortization of intangible assets for the three months ended September 30, 2009, and 2008 was $145 million and $153 million, respectively.

 

5. Pursuant to applicable accounting guidance for share-based payments, companies must recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards.

Total share-based compensation for the three months ended September 30, 2009 and 2008 are summarized in the following table (amounts in millions):

 

     Three Months Ended
September 30
     2009    2008

Share-Based Compensation

     

Stock options

   $ 93    $ 107

Other share-based awards

     6      19
             

Total share-based compensation

   $ 99    $ 126
             

Assumptions utilized in the model are evaluated and revised, as necessary, to reflect market conditions and experience.

 

6. Postretirement Benefits—The Company offers various postretirement benefits to its employees.

The components of net periodic benefit cost are as follows:

 

Amounts in millions                         
     Pension Benefits     Other Retiree Benefits  
     Three Months Ended
September 30
    Three Months Ended
September 30
 
     2009     2008     2009     2008  

Service cost

   $ 55      $ 59      $ 26      $ 23   

Interest cost

     147        152        63        62   

Expected return on plan assets

     (111     (132     (107     (111

Amortization of deferred amounts

     4        4        (5     (6

Recognized net actuarial loss

     23        8        4        1   
                                

Gross benefit cost (credit)

     118        91        (19     (31

Dividends on ESOP preferred stock

     —          —          (28     (26
                                

Net periodic benefit cost (credit)

   $ 118      $ 91      $ (47   $ (57
                                

For the year ending June 30, 2010, the expected return on plan assets is 7.1% and 9.3% for pension and other retiree benefit plans, respectively.

 

- 6 -


7. 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.

For additional details on the Company’s risk management activities, refer to the Company’s annual financial statements and footnotes in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

Fair Value Hierarchy

Accounting guidance on fair value measurement 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.

 

- 7 -


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

 

    Level 1   Level 2   Level 3   Total

Amounts in millions

  September 30,
2009
  June 30,
2009
  September 30,
2009
  June 30,
2009
  September 30,
2009
  June 30,
2009
  September 30,
2009
  June 30,
2009

Assets at fair value:

               

Investment securities

  $ —     $ —     $ 192   $ 174   $ 39   $ 38   $ 231   $ 212

Derivatives relating to:

               

Other foreign currency instruments (1)

    —       —       180     300     —       —       180     300

Interest rate

    —       —       59     —       —       —       59     —  

Net investment hedges

    —       —       35     83     —       —       35     83

Commodities

    —       3     32     25     —       —       32     28
                                               

Total assets at fair value (2)

  $ —     $ 3   $ 498   $ 582   $ 39   $ 38   $ 537   $ 623
                                               

Liabilities at fair value:

               

Derivatives relating to:

               

Foreign currency hedges

  $ —     $ —     $ 158   $ 103   $ —     $ —     $ 158   $ 103

Other foreign currency instruments (1)

    —       —       49     39     —       —       49     39

Interest rate

    —       —       15     13     —       —       15     13

Net investment hedges

    —       —       135     85     —       —       135     85

Commodities

    —       2     45     96     —       3     45     101
                                               

Total liabilities at fair value (3)

  $ —     $ 2   $ 402   $ 336   $ —     $ 3   $ 402   $ 341
                                               

 

(1) The other foreign currency instruments are comprised of foreign currency financial instruments that do not qualify as hedges.
(2) All 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 period June 30 to September 30, 2009.

 

Amounts in millions

   Derivatives     Investment
Securities

June 30, 2009

   $ (3   $ 38

Total gains or (losses) (realized/unrealized) included in earnings (or changes in net assets)

     —          —  

Total gains or (losses) (realized/unrealized) included in OCI

     1        1

Net purchases, issuances and settlements

     2        —  

Transfers in/(out) of Level 3

     —          —  
              

September 30, 2009

   $ —        $ 39
              

On July 1, 2009, we adopted the provisions of the fair value measurement accounting and disclosure guidance related to non-financial assets and liabilities recognized or disclosed at fair value on a nonrecurring basis. Assets and liabilities subject to this new guidance primarily include goodwill and indefinite-lived intangible assets measured at fair value for impairment assessments, long-lived assets measured at fair value for impairment assessments and non-financial assets and liabilities measured at fair value in business combinations. The adoption of this new guidance did not affect our financial position, results of operations or cash flows for the periods presented.

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 September 30, 2009 was $289 million. The Company has never been required to post any collateral as a result of these contractual features.

Fair Values of Other Financial Instruments

 

- 8 -


Other financial instruments, including cash equivalents, other investments and short-term debt, are recorded at cost, which approximates fair value. The fair value of the long-term debt was $23,880 million and $21,514 million at September 30 and June 30, 2009, respectively.

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 three months ended, September 30, 2009 are as follows:

 

Amounts in millions

                       

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)
 
          September 30     September 30     Three Months Ended
September 30
 

Interest rate contracts

   $ 750    $ (8 )     $ 21      $ (7

Foreign currency contracts

     690      (158     27        (51

Commodity contracts

     326      (13     (18     (61
                               

Total

   $ 1,766    $ (179   $ 30      $ (119
                               

Derivatives in Fair Value

Hedging Relationships

   Notional Amount
(Ending Balance)
   Fair Value Asset
(Liability)
    Amount of Gain or
(Loss) Recognized in
Debt on Derivative
(Effective Portion)
    Amount of Gain or (Loss) Recognized in
Income (Ineffective Portion) (2)
 
          September 30     September 30     Three Months Ended
September 30
 

Interest rate contracts

   $ 8,640    $ 52      $ 26      $ (5
                               

Total

   $ 8,640    $ 52      $ 26      $ (5
                               

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 (Ineffective Portion) (2)
 
          September 30     September 30     Three Months Ended
September 30
 

Net investment hedges

   $ 2,299    $ (100   $ (63     —     
                               

Total

   $ 2,299    $ (100   $ (63   $ —     
                               

Derivatives Not Designated
as Hedging Instruments

   Notional Amount
(Ending Balance)
   Fair Value Asset
(Liability)
    Amount of Gain or
(Loss) Recognized in
Income (3)
       
          September 30     Three Months Ended
September 30
       

Foreign currency contracts

   $ 11,814    $ 131      $ 260     
                         

Total

   $ 11,814    $ 131      $ 260     
                         

 

(1) The gain or loss reclassified from accumulated OCI into income is included in the Consolidated Statements of Earnings as follows: interest rate contracts in interest expense, foreign currency contracts in selling, general and administrative expense and interest expense and commodity contracts in cost of products sold.
(2) The gain or loss on the ineffective portion of interest rate contracts and net investment hedges, if any, is included in the Consolidated Statements of Earnings in interest expense.
(3) The gain or loss on foreign currency contracts not designated as hedging instruments is included in the Consolidated Statements of Earnings in selling, general and administrative expense.

During the next 12 months, the amount of the September 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.

 

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8. New Accounting Pronouncements and Policies

In December 2007, the Financial Accounting Standards Board (FASB) issued new accounting guidance on business combinations. The new guidance revises the method of accounting for a number of aspects of business combinations including acquisition costs, contingencies (including contingent assets, contingent liabilities and contingent purchase price), and post-acquisition exit activities of acquired businesses. The Company adopted the new guidance beginning July 1, 2009, and the adoption of the new guidance did not have a material effect on our financial position, results of operations or cash flows.

In December 2007, the FASB also issued new accounting guidance on noncontrolling interests in consolidated financial statements. The new accounting guidance requires that a noncontrolling interest in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interest and changes in ownership interests in a subsidiary, and requires additional disclosures that identify and distinguish between the interests of the controlling and noncontrolling owners. The Company retrospectively adopted the presentation and disclosure requirements of the new guidance on July 1, 2009. The adoption of the new guidance did not have a material effect on our financial position, results of operations or cash flows. Noncontrolling interests of $283 million at June 30, 2009 were reclassified from liabilities to shareholders’ equity in the Consolidated Balance Sheet. Net expense for income attributable to the noncontrolling interest totaling $28 million and $21 million for the three months ended September 30, 2009 and 2008, respectively, are not presented separately in the Consolidated Statements of Earnings due to immateriality, but are reflected within other non-operating income, net. Net earnings represents net income attributable to the Company’s common shareholders.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on the Consolidated Financial Statements.

 

9. Commitments and Contingencies

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, as detailed in Part 2, Item 1, Legal Proceedings of this 10-Q. 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 launched its own internal investigations into potential violations of competition laws. The Company has identified violations in certain European countries and appropriate actions have been taken. It is still too early for us to reasonably estimate the total amount of 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

 

- 10 -


accrued and paid, respectively. As these matters evolve, the Company will 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.

Income Tax Uncertainties

P&G is present in over 150 taxable jurisdictions, and at any point in time has 50-60 audits underway at various stages of completion. We have tax years open ranging from 1997 and forward. We are generally not able to reliably estimate the ultimate settlement amounts or timing until the close of the audit. However, 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. Based on information currently available, we anticipate that over the next 12 month period, audit activity could be completed related to existing unrecognized tax benefits of approximately $400 million.

Additional information on the Commitments and Contingencies of the Company can be found in Note 10, Commitments and Contingencies, which appears in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

 

10. Discontinued Operations

In August 2009, the Company announced an agreement to sell our global pharmaceuticals business to Warner Chilcott plc (Warner Chilcott) for $3.1 billion of cash. Under the terms of the agreement, Warner Chilcott will acquire our portfolio of branded pharmaceutical products, our prescription drug product pipeline and manufacturing facilities in Puerto Rico and Germany. In addition, the majority of the 2,300 employees working on the pharmaceuticals business are expected to transfer to Warner Chilcott. The Company expects the transaction to close by the end of the 2009 calendar year, pending necessary regulatory approvals.

The pharmaceuticals business had historically been part of the Company’s Health Care reportable segment. In accordance with the applicable accounting guidance for the disposal of long-lived assets, the results of the pharmaceuticals business are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Additionally, the assets and liabilities of the pharmaceuticals business at September 30, 2009 are presented as held for sale in the Consolidated Balance Sheet.

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 million. Pursuant to the merger, a Smucker subsidiary merged with and into

 

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Folgers and Folgers became a wholly owned subsidiary of Smucker. The Company recorded an after-tax gain on the transaction of $2,011 million, 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 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 periods presented.

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

 

     Three months ended
September 30
 
     2009     2008  

Amounts in millions

   Pharmaceuticals     Coffee    Total     Pharmaceuticals     Coffee     Total  

Net sales

   $ 555      $ —      $ 555      $ 599      $ 445      $ 1,044   

Earnings from discontinued operations

     430        —        430        240        116        356   

Income tax expense

     (150     —        (150     (80     (43     (123
                                               

Net earnings from discontinued operations

     280        —        280        160        73        233   
                                               

Net earnings from discontinued operations of the pharmaceuticals business for the three months ended September 30, 2009 include an after-tax gain of $121 million on the sale of the Actonel brand in Japan.

At September 30, 2009, the major components of assets and liabilities held for sale from the pharmaceuticals business were as follows:

 

Amounts in millions

   September 30,
2009

Accounts receivable

   $ 261

Inventories

     74

Prepaid expenses and other assets

     125

Property, plant and equipment, net

     76

Goodwill

     246

Trademarks and other intangible assets, net

     207
      

Total current assets held for sale

   $ 989
      

Accounts payable

   $ 109

Accrued and other liabilities

     417
      

Total current liabilities held for sale

   $ 526
      

 

11. Reclassification

The Company has reclassified certain amounts in the prior period Consolidated Balance Sheet and Consolidated Statement of Earnings in accordance with our July 1, 2009 retrospective adoption of new accounting guidance on noncontrolling interests in consolidated financial statements. See Note 8 for further details.

 

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The Company has reclassified certain amounts in the prior period Consolidated Statement of Cash Flows to be consistent with the current period presentation. Realized gains and losses from non-qualifying derivative instruments used to hedge currency exposures resulting from intercompany financing transactions were reclassified from operating activities to financing activities, which is consistent with the use of the instruments and their related cash flows.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 Results

 

   

Forward-Looking Statements

 

   

Results of Operations – Three Months Ended September 30, 2009

 

   

Business Segment Discussion – Three Months Ended September 30, 2009

 

   

Financial Condition

 

   

Reconciliation of Non-GAAP Measures

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

OVERVIEW

P&G’s business is focused on providing branded consumer goods products. Our purpose is to provide products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. We believe this will result in leadership sales, profits and value creation, allowing employees, shareholders and the communities in which we operate to prosper.

Our products are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, 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 compete in multiple product categories and have three global business units (GBUs): Beauty and Grooming; Health and Well-Being; and Household Care. Under U.S. GAAP, the business units comprising the GBUs are aggregated into six reportable segments: Beauty; Grooming; Health Care; Snacks and Pet Care; Fabric Care and Home Care; and Baby Care and Family Care.

We have on-the-ground operations in approximately 80 countries through our Market Development Organization, which leads country business teams to build our brands in local markets and 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

 

- 13 -


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.

Effective July 1, 2009, we implemented a number of changes to the organization structure of the Beauty GBU, which resulted in changes to the components of our reportable segment structure. Female blades and razors were formerly included in the Grooming reportable segment and are now included in the Beauty reportable segment. Certain male-focused brands and businesses, such as Old Spice and Gillette personal care, moved from the Beauty reportable segment to the Grooming reportable segment. In addition, the Beauty GBU was renamed the Beauty and Grooming GBU. These changes have been reflected in our segment reporting for all periods presented.

On August 24, 2009, we announced an agreement for the sale of our global pharmaceuticals business to Warner Chilcott which we expect to complete by the end of calendar 2009. The pharmaceuticals business had historically been part of the Health Care reportable segment. In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the pharmaceuticals business are presented as discontinued operations and, as such, have been excluded from continuing operations and from segment results for all periods presented.

The table below provides more information about the components of our GBU structure.

 

GBU

  

Reportable

Segment

  

Key Product

Categories

  

Key Products

  

Billion Dollar

Brands

Beauty and Grooming    Beauty    Hair Care    Hair Colorants, Shampoos and Conditioners    Head & Shoulders, Pantene
      Professional Salon    Hair Colorants, Shampoos and Conditioners    Wella
      Female Beauty    Cosmetics, Deodorants, Female Blades and Razors, Personal Cleansing and Skin Care    Olay
      Prestige    Fine Fragrances and Prestige Skin Care (SK II)   
   Grooming    Male Grooming    Male Blades & Razors and Male Personal Care Products (Deodorants, Face and Shave Products, Hair Care, Personal Cleansing)    Fusion, Gillette, Mach3
      Appliances (Braun)    Electric Hair Removal Devices and Home Appliances    Braun
Health and Well-Being    Health Care    Feminine Care    Feminine Pads and Tampons    Always
      Personal Health Care    Personal Diagnostics, Digestive and Respiratory Health Products   
      Oral Care    Oral Rinses, Toothbrushes and Toothpastes    Crest, Oral-B
   Snacks and Pet Care   

Pet Care

Snacks

  

Wet and Dry Pet Food

Potato Crisps

  

Iams

Pringles

Household Care    Fabric Care and Home Care    Fabric Care    Laundry Detergents and Fabric Softeners    Ariel, Downy, Gain, Tide
      Home Care    Air and Fabric Fresheners, Dishwashing Detergents, Hard Surface Cleaners    Dawn
      Batteries    Batteries and Personal Power Devices    Duracell
   Baby Care and Family Care   

Baby Care

Family Care

  

Baby Wipes and Diapers

Bath Tissue, Facial Tissue and Paper Towels

  

Pampers

Bounty, Charmin

The following table provides the percentage of net sales and net earnings from continuing operations by reportable business segment for the three months ended September 30, 2009 (excludes net sales and net earnings in Corporate):

 

- 14 -


     Net Sales     Net Earnings  

Beauty and Grooming GBU

    

Beauty

   24   23

Grooming

   9   11

Health and Well-Being GBU

    

Health Care

   15   17

Snacks and Pet Care

   4   2

Household Care GBU

    

Fabric Care and Home Care

   30   30

Baby Care and Family Care

   18   17

Total

   100   100

SUMMARY OF RESULTS

Following are highlights of results for the three months ended September 30, 2009:

 

   

Net sales declined 6% to $19.8 billion. Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, grew 2%.

 

   

Unit volume declined 3% and organic volume, which excludes the impact of acquisitions and divestitures, decreased 2% versus the comparable prior-year period.

 

   

Net earnings from continuing operations declined 3% versus the prior year period as lower net sales and lower levels of minor brand divestiture gains were mostly offset by an increase in operating margin and lower interest expense. Net earnings declined 1% to $3.3 billion for the quarter as the reduction in net earnings from continuing operations was partially offset by earnings from discontinued operations, which included the current period gain on the sale of the Actonel brand in Japan.

 

   

Diluted net earnings per share were $1.06, an increase of 3% versus the prior-year period. Diluted net earnings per share growth exceeded net earnings growth due to share repurchase activity in the prior fiscal year.

 

   

Operating cash flow was $4.6 billion, an increase of 32% versus the prior year period. Free cash flow productivity, defined as the ratio of operating cash flow less capital expenditures to net earnings, was 121%.

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

 

- 15 -


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 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 – Three Months Ended September 30, 2009

The following discussion provides a review of results for the three months ended September 30, 2009 versus the three months ended September 30, 2008.

 

- 16 -


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

(Amounts in Millions Except Per Share Amounts)

Consolidated Earnings Information

 

     Three Months Ended September 30  
     2009     2008     % CHG  

Net Sales

   $ 19,807      $ 20,983      -6

Cost of Products Sold

     9,398        10,558      -11
                      

Gross Margin

     10,409        10,425      0

Selling, General & Administrative Expense

     5,961        6,039      -1
                      

Operating Income

     4,448        4,386      1

Total Interest Expense

     287        339     

Other Non-operating Income, Net

     23        280     
                      

Earnings From Continuing Operations Before Income Taxes

     4,184        4,327      -3

Income Taxes

     1,157        1,212     
                      

Net Earnings From Continuing Operations

     3,027        3,115      -3
                      

Net Earnings From Discontinued Operations

     280        233     
                      

Net Earnings

     3,307        3,348      -1
                      

Effective Tax Rate – Continuing Operations

     27.7     28.0  

Per Common Share:

      

Basic Net Earnings – Continuing Operations

   $ 1.02      $ 1.02     

Basic Net Earnings – Discontinued Operations

   $ 0.09      $ 0.08     
                  

Basic Net Earnings

   $ 1.11      $ 1.10     

Diluted Net Earnings – Continuing Operations

   $ 0.97      $ 0.96      1

Diluted Net Earnings – Discontinued Operations

   $ 0.09      $ 0.07     
                  

Diluted Net Earnings

   $ 1.06      $ 1.03      3

Dividends

   $ 0.44      $ 0.40      10

Average Diluted Shares Outstanding

     3,109.6        3,239.5     

Comparisons as a % of Net Sales

               Basis Point
Change
 

Cost of Products Sold

     47.4     50.3   (290

Gross Margin

     52.6     49.7   290   

Selling, General & Administrative Expense

     30.1     28.8   130   

Operating Margin

     22.5     20.9   160   

Earnings From Continuing Operations Before Income Taxes

     21.1     20.6   50   

Net Earnings From Continuing Operations

     15.3     14.8   50   

Net sales decreased 6% for the quarter to $19.8 billion on a 3% decline in unit volume. Unfavorable foreign exchange reduced net sales by 7% as many foreign currencies weakened versus the U.S. dollar. Price increases, taken primarily in developing regions to offset local currency devaluations, added 3% to net sales. Positive product mix from disproportionate volume declines in developing regions, which have lower than company average selling prices, contributed 1% to net sales. Volume in developed regions declined low single digits while developing markets were down mid-single digits driven primarily by market contractions in CEEMEA. All reportable segments except Health Care experienced volume declines, led by a double-digit decline in

 

- 17 -


Snacks and Pet Care and a high single-digit decline in Grooming. Organic sales increased 2% led by sequentially improving growth in the Beauty Care and Health Care segments.

 

     Net Sales Change Drivers 2009 vs. 2008 (Three Months Ended Sep. 30)
     Volume with
Acquisitions &
Divestitures
  Volume excluding
Acquisitions &
Divestitures
  Foreign
Exchange
  Price   Mix/
Other
  Net Sales
Growth

Beauty and Grooming GBU

            

Beauty

     -2%     -1%   -7%   3%   1%     -5%

Grooming

     -8%     -8%   -9%   6%   0%   -11%

Health and Well-Being GBU

            

Health Care

       0%       0%   -8%   3%   1%   -4%

Snacks and Pet Care

     -10%     -10%   -3%   6%   1%   -6%

Household Care GBU

            

Fabric Care and Home Care

     -2%     -2%   -7%   3%   1%   -5%

Baby Care and Family Care

     -1%     -1%   -6%   2%   0%   -5%
                        

Total Company

     -3%     -2%   -7%   3%   1%   -6%
                        

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

Gross margin increased 290 basis points for the quarter to 52.6% of net sales. Price increases, lower commodity and energy costs and manufacturing cost savings added approximately 450 basis points to gross margin and were partially offset by unfavorable foreign exchange impacts, negative product mix and the negative impacts of volume scale deleveraging.

Total selling, general and administrative expenses (SG&A) decreased 1% to $6.0 billion due to lower overhead and marketing spending, partially offset by an increase in other operating expenses due to higher foreign currency exchange costs. SG&A as a percentage of net sales was up 130 basis points primarily due to the negative scale leveraging impact of reduced sales and an increase in other operating expenses, partially offset by lower marketing spending as a percent of net sales. Other operating expenses as a percentage of net sales increased behind the higher foreign currency exchange costs. Marketing spending as a percentage of net sales decreased behind media rate savings and a shift in timing of expenditures to later in the fiscal year. Overhead spending as a percentage of net sales increased slightly as productivity improvements and lower restructuring charges were more than offset by sales deleveraging.

The higher foreign exchange costs result primarily from our operations in Venezuela. Because of currency restrictions in Venezuela, payments for certain imported goods and services need to be satisfied by exchanging Bolivares Fuertes for U.S. dollars through a parallel exchange mechanism rather than at the more favorable official exchange rate. A reduction in the availability of foreign currency at the official exchange rate resulted in increased costs for exchange transactions executed using the parallel mechanism. Unless official foreign exchange is made more available, we expect these exchange controls to continue negatively impacting our results of operations. In addition, if Venezuela is designated as a high inflation economy and/or there is a devaluation of the official exchange rate, results of operations will be negatively impacted.

Interest expense was $287 million for the quarter, a decline of 15% due primarily to lower U.S. interest rates. Other non-operating income was down $257 million to $23 million mainly due to gains on the sale of minor brands in the prior year period. The effective tax rate on continuing operations declined 30 basis points to 27.7% primarily due to audit settlements, partially offset by changes in the geographic mix of earnings.

Net earnings from continuing operations declined 3% to $3.0 billion mainly due to reduced net sales and lower levels of minor brand divestiture gains, partially offset by an increase in operating margin and lower interest expense. Operating margin expanded primarily due to an increase in gross margin, partially offset by an

 

- 18 -


increase in SG&A as a percentage of net sales mainly resulting from higher foreign currency exchange costs. Diluted net earnings per share from continuing operations increased 1% versus the prior year to $0.97.

Net earnings from discontinued operations increased $47 million for the quarter to $280 million primarily due to a gain on the sale of the Actonel brand in Japan, partially offset by the loss of contribution from the Folgers business divested in fiscal 2009. Net earnings from discontinued operations also include the results of operations from the global pharmaceuticals business.

Net earnings were down 1% to $3.3 billion during the quarter. Diluted net earnings per share increased 3% to $1.06. Earnings per share growth exceeded net earnings growth due to the impact of share repurchases in fiscal 2009.

BUSINESS SEGMENT DISCUSSION – Three Months Ended September 30, 2009

The following discussion provides a review of results by business segment. Analyses of the results for the three months ended September 30, 2009 are provided compared to the same three month period ended September 30, 2008. The primary financial measures used to evaluate segment performance are net sales and net earnings from continuing operations. The table below provides supplemental information on net sales and net earnings from continuing operations by business segment for the three months ended September 30, 2009 versus the comparable prior year period (amounts in millions):

 

     Three Months Ended September 30, 2009  
     Net Sales     % Change
Versus Year
Ago
    Earnings From
Continuing
Operations Before
Income Taxes
    % Change
Versus Year
Ago
    Net Earnings From
Continuing
Operations
    % Change
Versus Year
Ago
 

Beauty and Grooming GBU

            

Beauty

   $ 4,921      -5   $ 1,027      1   $ 777      -1

Grooming

     1,858      -11     489      -20     351      -21

Health and Well-Being GBU

            

Health Care

     2,979      -4     830      10     550      9

Snacks and Pet Care

     755      -6     113      26     74      35

Household Care GBU

            

Fabric Care and Home Care

     6,130      -5     1,510      20     1,009      22

Baby Care and Family Care

     3,589      -5     885      10     557      8
                                          

Total Business Segments

     20,232      -6     4,854      7     3,318      6

Corporate

     (425   N/A        (670   N/A        (291   N/A   
                                          

Total Company

     19,807      -6     4,184      -3     3,027      -3
                                          

BEAUTY AND GROOMING GBU

Beauty

Beauty net sales were down 5% for the quarter to $4.9 billion on a 2% decline in unit volume. Unfavorable foreign exchange impacted net sales by 7%. Price increases, mainly in developing regions to offset local currency devaluations, and positive product mix added 3% and 1% to net sales, respectively. Organic sales grew 2%. Organic volume, which excludes acquisitions and divestitures, was down 1% mainly due to volume declines in the CEEMEA region and in the more discretionary businesses of Professional Salon and Prestige. Hair Care volume grew low single digits behind initiative-driven growth of Pantene, Head & Shoulders and Rejoice and delivered growth in every region except CEEMEA. Professional Salon volume declined double digits due to the exit of non-strategic businesses and continued market contractions. Prestige volume decreased high single digits primarily due to the continued contraction of the fragrance market, partially offset by double-

 

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digit growth of SK II. Female Beauty volume was down mid-single digits primarily due to lower shipments in CEEMEA, share losses on non-strategic personal cleansing brands, lower merchandising and initiative activity in cosmetics and the fiscal 2009 divestiture of Noxzema. Net earnings decreased 1% for the quarter to $777 million as lower net sales and a higher effective tax rate were mostly offset by operating margin expansion. Operating margin increased primarily due to higher gross margin, driven primarily by increased pricing and manufacturing cost savings, and a reduction in marketing spending as a percentage of net sales, partially offset by higher foreign currency exchange costs.

Grooming

Grooming net sales in the first fiscal quarter decreased 11% to $1.9 billion on an 8% decline in unit volume. Unfavorable foreign exchange reduced net sales by 9%. These impacts were partially offset by positive pricing impacts of 6%. Organic sales declined 2%. Volume in Male Blades and Razors declined high single digits behind market contractions and market share declines. Gillette Fusion volume continued to grow but was more than offset by volume declines in legacy shaving systems. Global market share of male blades and razors declined about half a point. Volume in Male Personal Care declined high single digits behind lower shipments of shave preparation products due to market share declines driven by increased competitive promotional activity. Volume in Braun was down double digits mainly due to market contractions, particularly in home and hair care appliances, and market share declines. Net earnings declined 21% versus the prior year period to $351 million primarily driven by lower net sales and reduced operating margin. The contraction of operating margin resulted from higher foreign currency exchange costs, lower gross margin and higher overhead spending as a percentage of net sales, both driven by the negative impacts of scale deleveraging, partially offset by lower marketing spending as a percentage of net sales.

HEALTH AND WELL-BEING GBU

Health Care

Health Care net sales declined 4% to $3.0 billion for the quarter. Unit volume was consistent with the prior year period as growth in developed regions was offset by a decline in developing regions, primarily CEEMEA. Unfavorable foreign exchange reduced net sales by 8%, partially offset by positive pricing impacts of 3% and improved product mix of 1%. Organic sales increased 4%. Personal Health Care volume was in line with the prior year period as growth in diagnostics products was offset by lower shipments of digestive health products in North America and shipment delays in CEEMEA due to a distributor transition. Feminine Care volume declined low single digits mainly due to increased competitive activity in CEEMEA, partially offset by growth in Asia. Global market share of feminine care was down nearly 1 point to about 36%. Oral Care volume was in line with the prior year period as initiative-driven growth in Western Europe and Latin America was offset by market contractions in Asia and CEEMEA. Net earnings increased 9% to $550 million for the first fiscal quarter. The decline in net sales and higher foreign currency exchange costs were more than offset by lower marketing spending as a percentage of net sales, a pricing-driven expansion of gross margin and a receipt from a favorable settlement of a legal dispute.

Snacks and Pet Care

Snacks and Pet Care net sales were down 6% for the quarter to $755 million on a 10% decline in unit volume. Unfavorable foreign exchange reduced net sales by 3%. Price increases to offset increased commodity costs and currency devaluations contributed 6% to net sales. Improved product mix added 1% to net sales due to relatively better volume results in Pet Care, which has higher than segment average selling prices. Organic sales declined 3% due to a decline in Snacks, partially offset by growth in Pet Care. Volume in Snacks decreased double digits due to lower merchandising activity in North America following the Super Stacks initiative and market contractions in CEEMEA. Volume in Pet Care was down low single digits mainly due to the contraction of the premium nutrition category following price increases, partially offset by the impact of new product initiatives launched in previous quarters. Net earnings were up 35% in the first quarter to $74 million behind gross margin expansion and a lower tax rate, partially offset by higher marketing and overhead

 

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spending as a percentage of net sales. Gross margin increased mainly due to price increases, formulation and packaging cost savings and commodity cost reductions in Pet Care.

HOUSEHOLD CARE GBU

Fabric Care and Home Care

Fabric Care and Home Care net sales decreased 5% to $6.1 billion for the quarter on a 2% decline in unit volume. Unfavorable foreign exchange reduced net sales by 7%, while positive pricing and product mix improved net sales by 3% and 1%, respectively. Organic sales grew 2%. Fabric Care volume was down low single digits due to trade inventory reductions in North America and global market share declines, partially offset by the new product launches and growth in Western Europe behind incremental merchandising activities. Global market share of fabric care declined less than 1 point. Home Care volume grew mid-single digits primarily due to new initiative launches in North America and Western Europe. Global market share of home care increased over half a point. Batteries volume declined mid-single digits due to market contractions, market share declines and trade inventory reductions. Global market share of general purpose batteries declined about 1 point. Net earnings grew 22% to $1.0 billion behind gross margin expansion and a lower tax rate, partially offset by lower net sales and higher SG&A as a percentage of net sales. Gross margin increased primarily due to the impact of price increases taken in the previous fiscal year, lower commodity costs and manufacturing and formulation cost savings. SG&A as a percentage of net sales was up due to an increase in currency exchange costs and higher overhead and marketing spending as a percentage of net sales.

Baby Care and Family Care

Baby Care and Family Care net sales declined 5% in the first fiscal quarter to $3.6 billion on a 1% decline in unit volume. Price increases, primarily taken in developing regions to offset local currency devaluations, added 2% to net sales. Unfavorable foreign exchange reduced net sales by 6%. Organic sales grew 1%. Baby Care volume increased low single digits behind new initiative launches in Western Europe including the expansion of Pampers Simply Dry and market growth in Asia and Western Europe. Family Care volume was down mid-single digits due to lower shipments of Charmin primarily driven by trade inventory reductions and market share losses due to a shift in timing of merchandising activity. Net earnings increased 8% to $557 million as gross margin expansion more than offset lower net sales, higher SG&A as a percentage of net sales and a higher tax rate. Gross margin increased mainly behind the impact of price increases taken in previous periods, lower commodity costs and manufacturing cost savings. SG&A as a percentage of net sales increased primarily due to higher foreign currency exchange costs and higher overhead spending.

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 rationalization. Corporate also includes reconciling items to adjust the accounting policies used in the segments to U.S. GAAP. The most significant reconciling items include income taxes (to adjust from statutory rates that are reflected in the segments to the overall Company effective tax rate), adjustments for unconsolidated entities (to eliminate sales, cost of products sold and SG&A for entities that are consolidated in the segments but accounted for using the equity method for U.S. GAAP) and noncontrolling interest adjustments for subsidiaries where we do not have 100% ownership. Since both unconsolidated entities and less than 100% owned subsidiaries are managed as integral parts of the Company, they are accounted for similar to a wholly owned subsidiary for management and segment purposes. This means our segment results recognize 100% of each income statement component through before-tax earnings, 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 noncontrolling interest.

 

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For the Corporate segment, net expenses from continuing operations increased $277 million to $291 million for the quarter. The increase in net expenses was driven primarily by higher divestiture gains and hedging impacts in the prior year period and foreign currency transaction losses in the current period. These were partially offset by lower current period net interest expense and a decrease in overhead spending which includes a reduction in restructuring charges.

FINANCIAL CONDITION

Operating Activities

Cash generated from operating activities for the quarter increased 32% versus the comparable prior year period to $4.6 billion. The combination of net earnings and non-cash items (primarily depreciation, amortization, share based compensation, deferred income taxes and gains on the sale of businesses) provided $3.9 billion of operating cash compared to $4.2 billion in the prior year period. A decrease in working capital contributed $209 million to operating cash flow primarily due to an increase in accounts payable, accrued and other liabilities behind higher taxes payable, partially offset by increased accounts receivable. Accounts receivable levels increased during the fiscal first quarter primarily due to higher net sales versus the June quarter but declined versus the comparable prior year period mainly due to lower net sales versus the prior year period and improved collection efforts. Inventory balances consumed less cash in the current period due to improving commodity costs trends and better matching of production to shipment volume.

Investing Activities

Investing activities in the first fiscal quarter used $378 million. Cash consumed by investing activities decreased 8% versus the prior year period mainly due to lower capital spending, partially offset by lower net cash from acquisition and divestiture activities. Capital expenditures were $552 million for the quarter or 2.8% of net sales. Proceeds from asset sales generated $209 million in cash primarily from the sale of the Actonel brand in Japan.

Financing Activities

Cash used to fund financing activities was up 62% versus the prior year period to $2.8 billion for the quarter. The increase versus the prior year resulted mainly from the retirement of debt, partially offset by a reduction in treasury stock purchases. Current year net repayments of debt used $1.6 billion, while dividends to shareholders used $1.3 billion.

As of September 30, 2009, our current liabilities exceeded current assets by $4.2 billion, driven by our short-term debt position. We have short- and long-term debt to fund discretionary items such as acquisitions and share buyback programs. 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 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.

RECONCILIATION OF NON-GAAP MEASURES

Our discussion of financial results includes several measures not defined by U.S. GAAP. We believe these measures provide our investors with additional information about the underlying results and trends of the Company, 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.

 

- 22 -


Organic Sales Growth: Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe this provides investors with a more complete understanding of underlying sales trends by providing sales growth on a consistent basis.

The reconciliation of reported sales growth to organic sales for the July—September quarter:

 

Jul – Sep ‘09    Net
Sales
Growth
  Foreign
Exchange
Impact
  Acquisition/
Divestiture
Impact
  Organic
Sales
Growth

Beauty

   -5%   7%   0%   2%

Grooming

   -11%    9%   0%   -2% 

Health Care

   -4%   8%   0%   4%

Snacks and Pet Care

   -6%   3%   0%   -3% 

Fabric Care and Home Care

   -5%   7%   0%   2%

Baby Care and Family Care

   -5%   6%   0%   1%

Total P&G

   -6%   7%   1%   2%

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. The Company’s long-term target is to generate free cash at or above 90 percent of net earnings. Free cash flow is also one of the measures used to evaluate senior management. The reconciliation of free cash flow and free cash flow productivity is provided below (amounts in millions):

 

     Operating
Cash Flow
   Capital
Spending
   Free Cash Flow    Net Earnings    Free Cash Flow
Productivity
 

Jul ‘09 – Sep ‘09

   $ 4,555    $ 552    $ 4,003    $ 3,307    121

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company’s exposure to market risk since June 30, 2009. Additional information can be found in 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 Annual Report to Shareholders for the fiscal year ended June 30, 2009 which can be found by reference to Exhibit 13 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

 

Item 4. 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 report. Messrs. McDonald and Moeller have concluded that the Company’s disclosure controls and procedures were effective to ensure that information

 

- 23 -


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.

Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. 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 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 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. Also in 2008, authorities in the United Kingdom (UK) initiated an investigation concerning potential antitrust violations in the UK involving one of the Company’s subsidiaries. The Company or its subsidiaries are also involved in other competition law investigations in Germany, 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. At this point, no formal claims have been made against the Company or any of our subsidiaries in connection with the French, European Commission or UK inquiries. The remaining matters also are in various stages of the investigatory process.

In response to the actions of the European Commission and national authorities, the Company launched its own internal investigations into potential violations of competition laws. The Company has identified violations in certain European countries and appropriate actions have been taken. It is still too early for us to reasonably estimate the total amount of 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-Q 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 1A. Risk Factors.

 

- 25 -


For a discussion of the Company’s risk factors, please refer to Part 1, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

   Total Number of
Shares Purchased (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)

7/1/09 - 7/31/09

   6,017,160    $ 53.16    0    13.7

8/1/09 - 8/31/09

   97    $ 52.37    0    13.7

9/1/09 - 9/30/09

   12,954    $ 55.31    0    13.7

 

(1)

The total number of shares purchased was 6,030,211 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 prepays large financial institutions to deliver shares at future dates in exchange for a discount. The number of shares purchased other than through a publicly announced repurchase plan was 6,030,211 for the quarter. This includes 13,051 shares acquired by the Company under various compensation and benefit plans and 6,017,160 shares acquired by the Profit Sharing Trust. 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 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.

 

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

At the Company’s 2009 Annual Meeting of Shareholders held on October 13, 2009, the following actions were taken:

The following Directors were elected for terms of office expiring in 2010:

 

Director

   Votes For    Votes
Against
   Abstain    Broker
Non-Votes*

Kenneth I. Chenault

   2,286,957,440    103,497,857    10,453,018    N/A

Scott D. Cook

   2,147,990,984    242,147,221    10,770,110    N/A

Rajat K. Gupta

   2,328,605,856    60,944,991    11,357,468    N/A

A.G. Lafley

   2,354,106,748    37,818,149    8,983,418    N/A

Charles R. Lee

   2,290,146,478    99,684,515    11,077,322    N/A

Lynn M. Martin

   2,317,861,794    72,870,189    10,176,332    N/A

Robert A. McDonald

   2,361,945,558    29,485,651    9,477,106    N/A

W. James McNerney, Jr.

   2,323,324,744    67,319,946    10,263,625    N/A

Johnathan A. Rodgers

   2,344,892,592    45,383,946    10,631,777    N/A

Ralph Snyderman, M.D.

   2,349,013,808    41,577,694    10,316,813    N/A

Maggie Wilderotter

   2,283,478,359    107,396,853    10,033,103    N/A

Patricia A. Woertz

   2,365,721,469    25,380,398    9,806,448    N/A

Ernesto Zedillo

   2,359,028,894    31,050,427    10,828,994    N/A

 

- 26 -


 

* Pursuant to the terms of the Notice of Annual Meeting and Proxy Statements, proxies received were voted, unless authority was withheld, in favor of the election of the thirteen nominees named.

A proposal by the Board of Directors to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm to conduct the annual audit of the financial statements of the Company and its subsidiaries for the fiscal year ending June 30, 2010, was approved by the shareholders. The shareholders cast 2,370,909,650 votes in favor of this resolution and 23,326,560 votes against. There were 6,672,105 abstentions.

A proposal by the Board of Directors to amend the Company’s Regulations to authorize the Board of Directors to amend the Company’s Regulations to the extent permitted by the Ohio General Corporation Law was approved by the shareholders. 76.34% of the issued and outstanding shares were voted in favor of the resolution. The shareholders cast 2,332,823,944 votes in favor of the resolution and 65,510,450 votes against. There were 2,573,921 abstentions.

A proposal by the Board of Directors to approve and authorize The Procter & Gamble 2009 Stock and Incentive Compensation Plan was approved by the shareholders. The shareholders cast 1,475,251,662 votes in favor of the resolution and 371,542,034 votes against. There were 12,333,145 abstentions and 541,781,474 broker non-votes.

A shareholder resolution proposed by Mrs. Evelyn Y. Davis was defeated by the shareholders. The proposal requested that the Board of Directors provide for cumulative voting in the election of directors. The Board opposed the resolution. The shareholders cast 558,974,175 votes in favor of the resolution and 1,290,224,761 votes against. There were 9,927,905 abstentions and 541,781,474 broker non-votes.

A shareholder resolution proposed by Walden Asset Management was defeated by the shareholders. The proposal requested shareholders be given an advisory vote on the compensation of certain executive officers. The Board opposed the resolution. The shareholders cast 826,408,834 votes in favor of the resolution and 965,702,952 votes against. There were 67,015,055 abstentions and 541,781,474 broker non-votes.

Although these actions occurred following the first quarter, the Company is voluntarily including this information here.

 

- 27 -


Item 6. 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 13, 2009).
11   Computation of Earnings per Share.
12   Computation of Ratio of Earnings to Fixed Charges.
31.1   Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer
31.2   Rule 13a-14(a)/15d-15(a) Certification – Chief Financial Officer
32.1   Section 1350 Certifications – Chief Executive Officer
32.2   Section 1350 Certifications – Chief Financial Officer
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

- 28 -


Pursuant to the requirements 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.

 

   

THE PROCTER & GAMBLE

COMPANY

October 29, 2009       /s/ VALARIE L. SHEPPARD
Date     (Valarie L. Sheppard)
   

Senior Vice President & Comptroller and Global

Household Care Finance and Accounting

 

- 29 -


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 13, 2009).
11   Computation of Earnings per Share.
12   Computation of Ratio of Earnings to Fixed Charges.
31.1   Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer
31.2   Rule 13a-14(a)/15d-15(a) Certification – Chief Financial Officer
32.1   Section 1350 Certifications – Chief Executive Officer
32.2   Section 1350 Certifications – Chief Financial Officer
101.INS*   XBRL Instance Document
101.SCH*   XBRL Taxonomy Extension Schema Document
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.