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2011 ANNUAL REPORT
Innovating for Everyday Life

Table of contents

  • Page 1
    2011 ANNUAL REPORT Innovating for Everyday Life

  • Page 2
    ... 08 07 2011 Net Sales By business segment % % % Beauty Grooming North America Developed Developing By geographic region Western Europe By market maturity % % % % % % % % Health Care Snacks & Pet Care Fabric Care & Home Care Baby Care & Family Care Central & Eastern Europe, Middle East...

  • Page 3
    ... Chief Executive Officer Dear Shareholders, Last year, I described P&G's Purpose-inspired Growth Strategy, which is to touch and improve more consumers' lives in more parts of the world more completely. I told you that we intend to deliver total shareholder return that consistently ranks P&G among...

  • Page 4
    ... years ago, is inspired by our Purpose. We are executing this strategy by innovating to improve people's everyday lives in every part of the world, and by then expanding our portfolio of innovation up and down price tiers, into new markets, and into new and existing product categories. This strategy...

  • Page 5
    ... a year in Research & Development - about % more than our next closest competitor and more than most of our competitors combined. The investment continues to pay off. We currently have the strongest innovation and global expansion program in P&G history. We are globalizing products such as Gillette...

  • Page 6
    ...will continue to execute these plans in our top-priority developing markets over the next several years. . Multi-Brand Commercial Innovation Productivity Fuels Innovation Productivity is the second critical growth driver for P&G. Improved productivity frees up resources to invest in innovation that...

  • Page 7
    ... the way we test our brands with top customers, and new product modeling tools are improving our engineering and design productivity. P&G currently has , Product Supply Planners distributed over locations globally. Over the next three years, we will consolidate planning tasks into regional...

  • Page 8
    ... value: innovation that improves everyday life in every part of the world ...fueled by productivity that frees up resources to invest ...in a portfolio of businesses and brands designed for growth. Growth Challenges As we executed the Company's growth strategy this past year, we faced a number...

  • Page 9
    ...the potential segments. Here, too, we are expanding our presence. We've recently introduced the Crest D White lineup, Gillette Fusion ProGlide, and Olay ProX as premium products. At lower price points, innovations such as Gillette Guard (our entry point razor system in India), Pampers Simply Dry and...

  • Page 10
    ... Company We have seen firsthand how fast markets can develop when we launch new innovation and build broad-based consumer awareness of our products. For example, the size of the Greater China diaper market was only $ million in the year - when Pampers was just starting to gain a foothold. Today...

  • Page 11
    Leadership Brands Brands that endure. Innovation for every day. Leadership Brands Worldwide P&G's Leadership Brands are some of the world's most well known household names.

  • Page 12
    Billion-Dollar Brands of these brands each generate more than one billion dollars in annual sales.

  • Page 13
    ... Group's list of each year's most successful new products, more than our six largest competitors combined.* *Source: SymphonyIRI Group New Product Pacesettersâ„¢ report (non-food brands), March total year-one dollar sales across food, drug, and mass channels, excluding Walmart). , (measured as

  • Page 14
    Generating Sales and Profits These brands represent % of profits. % of P&G sales and more than

  • Page 15
    ..., in turn, leads to insights, big ideas and innovation that drive growth. Last year, we established a new measure of organizational health in our annual Employee Survey - a measure designed to assess whether P&G people believe in our Purpose and can connect it directly to their day-to-day work. This...

  • Page 16
    14 The Procter & Gamble Company

  • Page 17
    ... & Gamble Company 15 Innovating for Everyday Life At P&G, we see big potential in the little moments of life. Brushing teeth. Washing hair. Showering. Shaving. Caring for the baby. Cleaning the house. Doing the dishes and the laundry. To us, the moments that help make everyday life possible...

  • Page 18
    16 The Procter & Gamble Company 7to1 PREFERRED Men in India prefer Gillette Guard 7 to 1 to their double-edge razors. To learn more about how P&G people are providing a better shave in India, visit www.pg.com/ar /gillette

  • Page 19
    ... in the lives of Indian men. Their collective understanding directly shaped the design, manufacturing and marketing of Gillette Guard. Launched in , Gillette Guard is one of the most significant product launches in Gillette's -year history. Designed as a completely new concept for men in emerging...

  • Page 20
    ... Detergent, Gillette, Oral-B toothpaste and Pantene, which have fast become part of the fabric of everyday life in Brazil. Pantene has become the # shampoo and conditioner brand in Brazil - and # in Rio de Janeiro. Gillette has a more than % share of the Brazilian blades and razors market today...

  • Page 21
    The Procter & Gamble Company 19 7x GROWTH P&G Brazil has grown sevenfold in a single decade, with strong double-digit growth in 2011. To learn more about how P&G people in Brazil are touching more Brazilian lives, visit www.pg.com/ar /brazil

  • Page 22
    ... results. With nearly a % value share of the U.S. oral care market and expanding into countries around the world, it's giving . billion consumers access to a whiter smile. * D White is marketed under the Crest, AZ, Blend-a-Med, Ipana and Oral-B brand names, with varying offerings under each that...

  • Page 23
    The Procter & Gamble Company 21 2.3 BILLION CONSUMERS Crest 3D White is giving 2.3 billion consumers worldwide access to a whiter smile. To learn more about how the Crest D White team is innovating more completely for smiles that turn heads, visit www.pg.com/ar /crest

  • Page 24
    22 The Procter & Gamble Company ~5% SHARE On track to double its first-year sales, Gain Dish Liquid is already approaching a 5% share of the U.S. hand dish market. To learn more about how the Gain Dish team is bringing the scent of Gain to the kitchen sink, visit www.pg.com/ar /gain

  • Page 25
    "With Gain Dish Soap, we've given consumers an opportunity to be delighted in a different part of the house." Gain Dishwashing Liquid: Bringing a Beloved Scent to More Parts of the Home

  • Page 26
    24 The Procter & Gamble Company 10 years OF GROWTH Head & Shoulders has been growing for ten consecutive years and is the number one shampoo brand in the world. To learn more about how the Head & Shoulders team is caring for scalps around the world, visit www.pg.com/ar /headandshoulders

  • Page 27
    ...the Head & Shoulders Scalp Care Collection is proving to be a big idea that travels well, helping more people around the world get their heads to a happier place. Now available in Europe, Asia, Latin America and North America, it has helped drive Head & Shoulders' global shampoo volume up mid-single...

  • Page 28
    ...all-time high for the brand. The success in North America is being transported to other parts of the world. In addition to improving the everyday lives of guys who are navigating through the seas of manhood, the "Smell Like a Man, Man" campaign has gained global recognition, winning more awards than...

  • Page 29
    The Procter & Gamble Company 27 40% INCREASE Within 3 months of the campaign's first appearance, volume of Old Spice body wash shot up 40%. To learn more about how the Old Spice team is touching more lives, visit www.pg.com/ar /oldspice

  • Page 30
    ... & Gamble Company Bringing the Basics Back to Everyday Life: P&G's Response in Times of Crisis At P&G, we integrate responsibility for improving lives into every aspect of our business and operations. This responsibility is at the heart of our Company Purpose and is what drives P&G innovation...

  • Page 31
    ... of Operations Segment Results Financial Condition Significant Accounting Policies and Estimates Other Information Audited Consolidated Financial Statements Consolidated Statements of Earnings Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of...

  • Page 32
    ... Management's Responsibility for Financial Reporting At The Procter & Gamble Company, we take great pride in our long history of doing what's right. If you analyze what's made our Company successful over the years, you may focus on our brands, our marketing strategies, our organization design...

  • Page 33
    ...the Board, President and Chief Executive Officer Jon R. Moeller Chief Financial Officer August , Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of The Procter & Gamble Company We have audited the accompanying Consolidated Balance Sheets of The...

  • Page 34
    ... weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company...

  • Page 35
    ... coffee business had historically been part of the Company's Snacks, Coffee and Pet Care reportable segment, as well as the coffee portion of the away-from-home business which was included in the Fabric Care and Home Care reportable segment. In accordance with the applicable accounting guidance for...

  • Page 36
    ..., develop new product innovations and upgrades and build our brands through effective commercial innovations and marketing plans. Under U.S. GAAP, the business units comprising the GBUs are aggregated into six reportable segments: Beauty; Grooming; Health Care; Snacks and Pet Care; Fabric Care and...

  • Page 37
    Management's Discussion and Analysis The Procter & Gamble Company 35 Baby Care and Family Care: In baby care, we compete mainly in diapers and baby wipes, with approximately % of the global market share. We are the number one or number two baby care competitor in most of the key markets in which ...

  • Page 38
    ... A Risk Factors in our most recent -Q, -K and -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...

  • Page 39
    Management's Discussion and Analysis The Procter & Gamble Company 37 of credit markets. Such events could negatively impact our ability to collect receipts due from governments, including refunds of value added taxes, create significant credit risks relative to our local customers and depository...

  • Page 40
    ... with the prior year as additional spending to support business growth was offset by productivity improvements and lower restructuring charges. Other operating expenses as a percentage of net sales increased basis points mainly due to an increase in 11 10 09 . % . % . % We fund a number of...

  • Page 41
    ... due to productivity improvements, partially offset by increased marketing investments. Net earnings from continuing operations were $ . billion in , an increase of % versus the prior year due mainly to net sales growth and operating margin expansion, partially offset by a higher effective tax rate...

  • Page 42
    ... of these investments are managed as integral parts of the Company's business units, they are accounted for as if they were consolidated subsidiaries for management and segment reporting purposes. This means pre-tax earnings in the business units include % of each pre-tax income statement component...

  • Page 43
    ... & Gamble Company 41 Net Sales Change Drivers vs. Year Ago ( vs. ) Volume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange Price Mix/Other Net Sales Growth Beauty Grooming Health Care Snacks and Pet Care Fabric Care and Home Care Baby Care and...

  • Page 44
    ... in home and hair care appliances. Global value share of the dry shaving market was up half a point. Net earnings increased % to $ . billion in behind sales growth and net earnings margin expansion. Net earnings margin increased -basis points driven by gross margin expansion and a lower tax rate...

  • Page 45
    ... of net sales increased due to costs related to the select dry pet food products recall. The tax rate decrease was due to a shift in the geographic mix of earnings to countries with lower statutory tax rates. In April , we announced plans to divest the Company's Snacks business through a merger with...

  • Page 46
    ...by price reductions to improve consumer value. Negative mix reduced net sales by % driven mainly by disproportionate growth of mid-tier product lines, large count packs and developing regions, all of which have lower than segment average selling prices. Unfavorable foreign exchange reduced net sales...

  • Page 47
    ... of the Company reï¬,ects our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations. Operating Activities Operating cash ï¬,ow was $ . billion in , an % decrease versus the prior year. Operating cash ï¬,ow...

  • Page 48
    ..., primarily related to the increased marketing investments. Accounts receivable days were down year over year due mainly to the global pharmaceuticals divestiture and improved collection efforts. Inventory contributed to operating cash ï¬,ow despite growth in the business from a reduction in days on...

  • Page 49
    ... take-or-pay obligations represent future purchases in line with expected usage to obtain favorable pricing. Approximately 26% relates to service contracts for information technology, human resources management and facilities management activities that have been outsourced. While the amounts listed...

  • Page 50
    ... effective tax rate. Employee Benefits We sponsor various post-employment benefits throughout the world. These include pension plans, both defined contribution plans and defined benefit plans, and other post-employment benefit (OPEB) plans, consisting primarily of health care and life insurance...

  • Page 51
    ... useful lives. Our assessment as to brands that have an indefinite life and those that have a determinable life is based on a number of factors including competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment...

  • Page 52
    ... on historical interest rate movements, would not materially affect our financial statements. Currency Rate Exposure on Financial Instruments. Because we manufacture and sell products and finance operations in a number of countries throughout the world, we are exposed to the impact on revenue and...

  • Page 53
    ...ratio of free cash ï¬,ow to net earnings. Free cash ï¬,ow productivity is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation. Year ended June , Net Sales Growth Beauty Grooming Health Care Snacks and Pet Care Fabric Care and Home...

  • Page 54
    ... The Procter & Gamble Company Consolidated Statements of Earnings Amounts in millions except per share amounts; Years ended June NET SALES Cost of products sold Selling, general and administrative expense OPERATING INCOME Interest expense Other non-operating income/(expense), net EARNINGS FROM...

  • Page 55
    ...) Common stock, stated value $ per share ( , shares authorized; shares issued: Additional paid-in capital Reserve for ESOP debt retirement Accumulated other comprehensive income/(loss) Treasury stock, at cost (shares held Retained earnings Noncontrolling interest TOTAL SHAREHOLDERS' EQUITY TOTAL...

  • Page 56
    ... impact for adoption of new accounting guidance ( ) Dividends to shareholders: Common Preferred, net of tax benefits Treasury purchases Employee plan issuances Preferred stock conversions Shares tendered for Folgers coffee subsidiary ESOP debt impacts Noncontrolling interest BALANCE JUNE , $(47,588...

  • Page 57
    ... Share-based compensation expense Deferred income taxes Gain on sale of businesses Change in accounts receivable Change in inventories Change in accounts payable, accrued and other liabilities Change in other operating assets and liabilities Other TOTAL OPERATING ACTIVITIES INVESTING ACTIVITIES...

  • Page 58
    ...Gamble Company Notes to Consolidated Financial Statements NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations The Procter & Gamble Company's (the "Company," "we" or "us") business is focused on providing branded consumer packaged goods of superior quality and value. Our products...

  • Page 59
    ... acquired brands that have been determined to have indefinite lives due to the nature of our business. We evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, product life cycles, operating plans...

  • Page 60
    ...the Company's common shareholders. NOTE 2 GOODWILL AND INTANGIBLE ASSETS The change in the net carrying amount of goodwill by reportable segment was as follows: Snacks and Pet Care Fabric Care and Home Care Baby Care and Family Care Total Company Beauty Grooming Health Care Corporate GOODWILL...

  • Page 61
    ... of future foreign exchange rate changes. NOTE 3 SUPPLEMENTAL FINANCIAL INFORMATION Selected components of current and noncurrent liabilities were as follows: June ACCRUED AND OTHER LIABILITIES - CURRENT Marketing and promotion Compensation expenses Taxes payable Legal and environmental Other...

  • Page 62
    ... Financial Statements NOTE 5 RISK MANAGEMENT ACTIVITIES AND FAIR VALUE MEASUREMENTS As a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. We evaluate exposures on a centralized...

  • Page 63
    ... with maturities up to five years. These market instruments generally are designated as cash ï¬,ow hedges. The effective portion of the changes in fair value of these instruments is reported in OCI and reclassified into earnings in the same financial statement line item and in the same period...

  • Page 64
    ... Procter & Gamble Company Notes to Consolidated Financial Statements The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There was no significant activity within the Level financial assets and liabilities during the years presented...

  • Page 65
    ... Consolidated Financial Statements The Procter & Gamble Company 63 NOTE 6 EARNINGS PER SHARE NOTE 7 STOCK-BASED COMPENSATION Net earnings less preferred dividends (net of related tax benefits) are divided by the weighted average number of common shares outstanding during the year to calculate...

  • Page 66
    ... provide certain other retiree benefits, primarily health care and life insurance, for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require cost sharing with retirees and pay a stated...

  • Page 67
    ...to Consolidated Financial Statements The Procter & Gamble Company 65 Obligation and Funded Status. The following provides a reconciliation of benefit obligations, plan assets and funded status of these defined benefit plans: Pension Benefits ( ) Years ended June Other Retiree Benefits ( ) The...

  • Page 68
    ... Company stock. The expected rate of return on Company stock is based on the long-term projected return of . % and reï¬,ects the historical pattern of favorable returns. Assumed health care cost trend rates could have a significant effect on the amounts reported for the other retiree benefit plans...

  • Page 69
    ... account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan...

  • Page 70
    ... plan assets of the other retiree benefits plan discussed above. Debt service requirements are funded by preferred stock dividends, cash contributions and advances provided by the Company, of which $ is outstanding at June , . Each For purposes of calculating diluted net earnings per common share...

  • Page 71
    ... to the tax effects of net investment hedges, excess tax benefits from the exercise of stock options and the impacts of certain adjustments to pension and other retiree benefit obligations recorded in shareholders' equity. We have undistributed earnings of foreign subsidiaries of approximately...

  • Page 72
    ... amounts represent future purchases in line with expected usage to obtain favorable pricing. Approximately % of our purchase commitments relate to service contracts for information technology, human resources management and facilities management activities that have been outsourced to third-party...

  • Page 73
    ... at our effective tax rate are also included in Corporate. Corporate includes certain operating and non-operating activities that are not reï¬,ected in the operating results used internally to measure and evaluate the businesses, as well as eliminations to adjust management reporting principles to...

  • Page 74
    ... & Gamble Company Notes to Consolidated Financial Statements Global Segment Results Net Sales Earnings from Continuing Operations Before Income Taxes Net Earnings from Continuing Operations Depreciation and Amortization Total Assets Capital Expenditures BEAUTY GROOMING HEALTH CARE SNACKS...

  • Page 75
    ... included in net earnings from discontinued operations in the Consolidated Statement of Earnings for the year ended June , . 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...

  • Page 76
    74 The Procter & Gamble Company Notes to Consolidated Financial Statements NOTE 13 QUARTERLY RESULTS (UNAUDITED) Quarters Ended Sept - - Dec Mar Jun Total Year NET SALES OPERATING INCOME - - GROSS MARGIN - - $20,122 19,807 4,501 4,448 51.9% 52.6% $ 3,081 3,027 - 280 3,081 3,307 $ 1.02 0.97 ...

  • Page 77
    ... Passerini Group President - Global Business Services and Chief Information Officer Marc S. Pritchard Global Brand Building Officer Philip J. Duncan Global Design Officer Joan M. Lewis Global Consumer & Market Knowledge Officer Nancy K. Swanson Vice President - Corporate The following company of...

  • Page 78
    ... Net Earnings per Common Share: Earnings from continuing operations Earnings from discontinued operations Diluted Net Earnings per Common Share Dividends per Common Share Research and Development Expense Advertising Expense Total Assets Capital Expenditures Long-Term Debt Shareholders' Equity $ 82...

  • Page 79
    ... all dividends were reinvested. COMPARISON OF FIVE-YEAR CUMUL ATIVE TOTAL SHAREHOLDER RETURN P&G 150.0 137.5 125.0 112.5 100.0 87.5 75.0 2006 2007 2008 2009 2010 2011 Recognition P&G is recognized as a leading global company, including a # ranking on Fortune's "Global Most Admired Companies," the...

  • Page 80
    ...Services Department P.O. Box , Cincinnati, OH REGISTRAR - - P&G SHAREHOLDER INVESTMENT PROGRAM The Procter & Gamble Shareholder Investment Program (SIP) is a direct stock purchase and dividend reinvestment plan. The SIP is open to current P&G shareholders as well as new investors and is designed...

  • Page 81
    The Procter & Gamble Company 79 Highlighting Our Environmental Vision P&G is the largest consumer packaged goods company in the world today. This very fact, coupled with our Purpose-inspired Growth Strategy - improving the lives of more consumers, in more parts of the world, more completely - ...

  • Page 82
    © 2011 Procter & Gamble 00046014