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Pg 11 ar_lr_0


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Pg 11 ar_lr_0

  1. 1. 2011 ANNUAL REPORTInnovating for Everyday Life
  2. 2. ContentsLetter to Shareholders................................. Crest D White ...................................... Financial Contents ....................................Leadership Brands....................................... Gain Dishwashing Liquid ........................ Global Leadership Council.........................Innovating for Everyday Life...................... Head & Shoulders .................................. Board of Directors..................................... Gillette Guard ........................................ Old Spice ............................................... Financial Summary.................................... Brazil...................................................... Disaster Relief ........................................... Company and Shareholder Information.....Net Sales ($ billions) Operating Cash Flow ($ billions) Diluted Net Earnings (per common share)11 $ . 11 $ . 11 $ .10 $ . 10 $ . 10 $ .09 $ . 09 $ . 09 $ .08 $ . 08 $ . 08 $ .07 $ . 07 $ . 07 $ .2011 Net Sales By business segment By geographic region By market maturity % % % Beauty North America Developed Grooming % Western Europe Developing % Health Care % Central & Eastern Europe, % % Middle East & Africa Snacks & Pet Care % % Latin America % Fabric Care & Home Care Asia % Baby Care & Family Care %Financial Highlights (unaudited)Amounts in millions, except per share amountsNet Sales $ , $ , $ , $ , $ ,Operating Income , , , , ,Net Earnings , , , , ,Net Earnings Margin from Continuing Operations . % . % . % . % . %Diluted Net Earnings per Common Share from Continuing Operations $ . $ . $ . $ . $ .Diluted Net Earnings Per Common Share . . . . .Dividends Per Common Share . . . . .
  3. 3. Robert A. McDonald Chairman of the Board, President and Chief Executive OfficerDear Shareholders,Last year, I described P&G’s Purpose-inspired Growth Strategy, which is totouch and improve more consumers’ lives in more parts of the world morecompletely. I told you that we intend to deliver total shareholder returnthat consistently ranks P&G among the top third of our peers — the best-performing consumer products companies in the world. To do this, wemust deliver the Company’s long-term annual growth goals, which are to: Grow organic sales 1% to 2% faster than market growth in the categories and countries where we compete Deliver core earnings per share (core EPS) growth of high single to low double digits Generate free cash flow productivity of 90% or greater
  4. 4. 2 The Procter & Gamble CompanyWe made meaningful progress toward these long-term goals Growth Driversfor fiscal , despite significant external challenges. P&G’s Purpose is to touch and improve people’s everyday lives. Organic sales grew %. Organic volume grew %. This is an inspiring but demanding aspiration. There are nearly seven billion people on the planet today and we are currently Core earnings per share grew %. reaching about . billion of them. We want to reach all of Free cash flow productivity was % of net earnings. them with products and services that make their everyday lives a little better. We know that if we do this well, we’ll be rewarded with sales and profit growth, market share leadership, a strongWe increased our quarterly dividend by %, making company reputation and, ultimately, the creation of value thatthis the st consecutive year that P&G has paid allows our people, our shareholders and the communities in which we live and work to prosper.a dividend and the th consecutive year that thedividend has increased. Our growth strategy, which we established two years ago, is inspired by our Purpose. We are executing this strategy byOver the past years, P&G’s dividend has increased at an innovating to improve people’s everyday lives in every part ofannual compound average rate of approximately . %. In total, the world, and by then expanding our portfolio of innovationwe paid approximately $ . billion in dividends in fiscal . up and down price tiers, into new markets, and into new and existing product categories.We also returned $ . billion to shareholders through therepurchase of P&G stock. Based on our current market This strategy is fundamentally right for P&G because it inspirescapitalization, dividends and share repurchase, we provided our people and our partners, focuses us where the growthshareholders with an effective cash yield of nearly %, with opportunities are greatest, and leverages our core strengths:additional potential for capital appreciation. consumer understanding, brand building, go-to-market capability, global scale and, most importantly, innovation.This is good performance in a very demanding business andeconomic environment. It is not yet great performance. I amconfident, however, that we will continue to grow our business Innovation Wins Decadeson the strength of our Purpose-inspired Growth Strategy: Innovation is the driving force behind our strategy, as it always has been at P&G. Our experience has proven that price promotion We are executing the strategy as planned, with may win a quarter here and there, but innovation wins decades. unrelenting focus on innovation. There are many examples to prove this. Take our Laundry We are increasing productivity, which frees up resources business in the U.K., for instance. In the late s, we were to invest in innovation. competing hard just to defend and maintain our % market We continue to strengthen our portfolio of businesses. share leadership position. We then stepped up our innovation efforts. In the three decades since, we’ve introduced a series of We are tackling growth challenges head on. game-changing innovations such as Daz automatic detergent, We have solid, executable plans in place to capture the concentrated liquid detergent, and most recently, Liquitabs. enormous growth potential that our strategy creates. We now enjoy around a % share. We’ve seen the same dynamic in Oral Care. In the s, weFurther, P&G people are inspired and are performing heroically lost our historical lead versus our top competitor because theyto improve lives, to grow our business, and to create value simply out-innovated us. We stepped up our innovation gamefor our shareholders. My objective, with this Letter, is to explain once again and delivered a string of product breakthroughswhat we are doing in each of these areas. including Crest Whitestrips, Crest Pro-Health, and Crest D White. We restored P&G’s leadership of the U.S. Dentifrice category, which is now enabling us to expand these innovative products around the world.
  5. 5. The Procter & Gamble Company 3 Purpose-inspired Growth Strategy: Our path forward Organic Sales Growth (1) 4% 1–2% above global market growth rates Core EPS Growth (2) 8% High single to low double digits Free Cash Flow (3) 84% of net earnings 90% of net earnings (1) Organic sales growth is a non-GAAP measure of sales growth. See page 51 for a reconciliation of net sales growth to organic sales growth. (2) Core EPS growth is a non-GAAP measure of the Company’s diluted net earnings per share from continuing operations. See page 51 for a reconciliation of Core EPS to diluted net earnings per share from continuing operations. (3) Free cash flow productivity is defined as the ratio of free cash flow to net earnings.I’ll share one more example. Head & Shoulders was a relatively In this past fiscal year, we grew or held market share onsmall, primarily North American brand a decade ago. We invested businesses representing about % of our sales, which is the bestin a combination of marketing and product innovations and indication that consumers are rewarding P&G innovation despitethen began to expand the brand globally. Since then, we have a highly competitive and demanding economic environment.more than tripled sales and Head & Shoulders is now the largest We also continue to earn external recognition for ourshampoo brand in the world. innovations. In , P&G launched eight of the top mostThese and other experiences reinforce our commitment to successful new products in the consumer products industryinnovation as the fundamental driver of P&G’s growth. in North America, as measured by SymphonyIRI Group (which recognized us last year as one of the most innovativeWe invest about $ billion a year in Research & manufacturers in the U.S. Consumer Packaged Goods IndustryDevelopment — about % more than our next for the past decade, presenting us with an Outstandingclosest competitor and more than most of our Achievement in Innovation Award). Crest D White was the most successful new product launch measured bycompetitors combined. SymphonyIRI Group last year. For the past years, P&G hasThe investment continues to pay off. We currently have the had products on the top New Product Pacesetters list,strongest innovation and global expansion program in P&G history. more than our six largest competitors combined.We are globalizing products such as Gillette Fusion ProGlide,Crest D White, Laundry additives, and the Pampers thinness In , P&G along with our agencies broughtand absorbency upgrade. home a record-setting Cannes Lion awardsWe’re also expanding successful marketing innovation such (which recognize the world’s best advertising andas the Shiksha education program in India, in which P&G communications) at the Cannes Lions Internationalcontributes a brick to build a school for each pack of product Festival of Creativity (formerly known as thepurchased, or the Pampers “One Pack Equals One Vaccine” International Advertising Festival). This was nearlycampaign with its focus on eradicating maternal and neonatal double our previous record of — and more thantetanus. The Old Spice “Smell Like a Man, Man” campaigngenerated consumer excitement and demand that catapulted double the combined number of Lions awarded tothe brand to market leadership. P&G’s global sponsorship our six closest competitors. We were also awardedof the Olympic Games provides an outstanding platform for the title of Most Effective Marketer in the Worldintegrated, multi-branded commercial innovation. by Effie Worldwide.
  6. 6. 4 The Procter & Gamble CompanyAll this reflects P&G’s deep and abiding commitment to . Integrated Plans for Developing Marketsinnovation, which is always the best driver of long-term We are creating multi-category plans for our top-prioritysustainable growth — for P&G’s business and for the categories developing markets. These are plans that bring togetherin which we compete. In the section that follows this Letter, multiple categories and multifunctional capabilities in waysyou will find a series of stories that bring P&G innovation to that an individual brand or category team could not. Theylife — stories that show how P&G people innovate for the way reduce affordability barriers, accelerate speed of market entry,everyday life is lived and, as a result, improve lives in every increase relevance to distributors, retailers, governmentsmoment of the day, in every part of the world, through and potential employees, and create greater probabilitieseverything we do. of success. We’ve launched these plans over the past months in several markets, including the BRIC countries (Brazil, Russia,Productivity Fuels Innovation India, and China) and successfully accelerated our historicProductivity is the second critical growth driver for P&G. growth rates. Brazil is a good example. Our integrated planImproved productivity frees up resources to invest in innovation for that market will double the number of categories inthat improves lives and drives top- and bottom-line growth. which P&G competes in the next few years. We launchedIt is a virtuous cycle. two new categories this year (Skin Care and Air Care) withOur three most important productivity initiatives in three more planned for . We’ve accelerated sales growth from a % average over the – period to % inthe Company today are integration, simplification and % this past year. We’ve seen similar results in otherand digitization. They are highly interdependent and countries. We will continue to execute these plans in ourmutually reinforcing. top-priority developing markets over the next several years.Integration . Multi-Brand Commercial InnovationIntegrating to operate more fully as a single company is the We’re creating more multi-brand programs such as ourway we turn our size into scale and our scale into faster growth Olympic Games sponsorship, Future Friendly (an environ-and cost advantage. For many years, the focus was on individual mental sustainability initiative) and P&G Brand Saverbrands. We then shifted to managing on a regional product (a dedicated newspaper insert of advertising, coupons andcategory basis and, later, to a global category basis. We’re now consumer education). These multi-brand initiatives earnoperating through Global Business Units and Market Development significantly higher returns than many independent brandOrganizations to go to market as a single Company, rather than programs. They benefit from association with P&G as theas categories, and have expanded our Global Business Services parent company, cost less to execute, and attract broadorganization to scale work and to provide better operational retail support. Here, too, we can bring a broad, strong andsupport at lower cost. diverse mix of leading brands to these executions that other companies with narrower portfolios simply cannot do.For the most part, each of these evolutionary steps made P&Gmore cost efficient and incrementally faster, but we still weren’t . Integrated Supply Chaingetting the full benefit of our scale. We are now beginning to We’re moving from large, single-category manufacturingreap greater scale advantages by integrating as one Company. plants to more localized, scaled multi-category facilities that enable us to lower cost by leveraging the same infrastructureThere are multiple efforts under way throughout the organization, (utilities, roads, rail spurs — which are often up to % ofbut I’ll highlight three of the most important ones to illustrate the cost of a new plant), as well as lower transportation andhow we create Company scale. delivery costs. Accelerating local production also enables us to use local talent and materials. At the same time, these operations enable us to improve customer service with more frequent multi-category full-truck deliveries. This, like multi-brand commercial innovation, creates com- petitive advantage that is difficult for more narrowly focused competitors to match.
  7. 7. The Procter & Gamble Company 5Simplification DigitizationSimplification is also a critical driver of productivity. We’re pursuing Our third major productivity effort is dramatically increased useopportunities in a wide range of areas, two of which are the most of digital technology. Our intention is to make P&G the mostfar-reaching. technology-enabled company in the world. We are achieving this by focusing on four key areas: We want to enable one-on-. Simplifying the Business one relationships with customers and consumers around the We’re simplifying the business by creating standard manu- world; we are focused on harnessing the power of real-time facturing platforms with common packages, formulas, business intelligence to aid decision making; we are accelerating materials, equipment and operational systems. This enables innovation by using digital technology to create visibility from faster speed to market and concurrent product launches molecule-creation to the store shelf; and we are standardizing across regions at a lower cost. We’re moving from more best-in-class systems to integrate data. than manufacturing platforms as of two years ago to a target of about platforms by . We think this is Digitizing P&G will enable us to manage the business worth about $ million in savings worldwide. in real time and on a demand-driven basis. We’ll be Product simplification is also a big opportunity. Today, we able to collaborate more effectively and efficiently, have more than , unique products and we believe we can increase the productivity of our portfolio of offerings inside and outside the Company. And we’ll interact by % over three years. We are investing in new tools and with consumers, retail partners and others far more using deep shopper insight to simplify product lines and directly and frequently than we can do today. increase consumer and shopper satisfaction. Our research shows that in certain categories shoppers feel they have more We’re already seeing the benefits of digitization. We are choices after category options are reduced because there increasingly making business decisions faster and more is less clutter and confusion; they can more easily find the collaboratively with real-time data. We’re using virtual reality product that meets their specific need. technologies to reduce cost and increase the speed of innovation. We are reducing the number of physical product . Simplifying Processes that Support our Business mock-ups created for new product initiatives. Virtual shelving P&G currently has , Product Supply Planners distributed and displays are simplifying the way we test our brands with over locations globally. Over the next three years, we top customers, and new product modeling tools are improving will consolidate planning tasks into regional planning centers our engineering and design productivity. and implement new simulation tools. This centralization and digitization will improve productivity and create deeper, Employees are connecting faster through high- more sustainable organizational capabilities. Simplifying our definition technology that is reducing the need for planning processes and implementing new technologies will lower transportation and warehousing costs and improve travel by as much as , trips per year, saving productivity by % or more. $ million annually. Packaging simplification is another big opportunity. P&G All these productivity efforts are focused on one goal: high-quality spends over $ billion annually on packaging materials and profitable growth achieved on the strength of P&G innovation more than $ million on packaging development costs. and with the financial and operational discipline that you expect The packaging development process touches every function of P&G — and which we demand of ourselves. in the Company, involves more than , employees, and has significant opportunities for simplification and cost savings. We are implementing virtualized end-to-end pack- aging development tools, which we believe can drive a % reduction in packaging costs and release % of the time spent today on package design.
  8. 8. 6 The Procter & Gamble Company brand building innovation, consumer understanding, go toStrategic Choices Create a Winning Portfolio market and scale). Based on this evaluation, we believe that ourWe continue to take steps to strengthen P&G’s portfolio of current portfolio is the strongest it has been in many years andbusinesses, which enables us to focus on our greatest growth provides a highly strategic platform for market leadership andopportunities. Two years ago, we exited our pharmaceuticals sustainable This was an industry where the innovation model didnot play to P&G’s strengths, where there was little go-to-market These are the cornerstones of P&G’s growth strategy and oursynergy with the rest of P&G’s businesses, and where branding ability to create sustainable shareholder value: innovation thatwas inherently difficult and less relevant. We felt that exiting improves everyday life in every part of the world … fueled bypharmaceuticals would allow us to focus our efforts on consumer- productivity that frees up resources to invest … in a portfoliooriented health care, where we can more clearly apply our of businesses and brands designed for growth.Company’s strengths and where there are strong economicand demographic tailwinds. Growth ChallengesWe are advancing this over-the-counter (OTC) focus with the As we executed the Company’s growth strategy this past year,intent to form a joint venture with Teva Pharmaceutical Industries, we faced a number of extremely challenging external head-which we announced earlier this year. We will maintain our winds — two of which are most important and most likely toNorth America OTC business, which generates % of our total continue in the year ahead.OTC sales. We will gain access to Teva’s manufacturing scale as We are facing rapid and significant increases in commodity costs.the largest prescription drug manufacturer in the world, to theirlibrary of molecules including several prescription-to-OTC switch Materials and energy costs were up more than $ . billionportfolios, to their highly effective regulatory capabilities, and to before tax for the fiscal year. We’re taking a holistic approachbest-in-class pharmacy coverage in many markets. Teva will to manage these cost increases.further strengthen its position with major pharmacy customersaround the world and leverage P&G’s consumer understanding We’re turning up the dial on our productivity andand brand-building strengths. This partnership will allow both cost-savings initiatives, as indicated previously.companies to significantly accelerate entry into additional OTC We’re creating alternative product formulations andcategories and markets. developing materials that use renewable feedstocks.Negotiations continue to progress well as we work to close the We’re reducing our dependency on commodity andtransaction by the end of this calendar year. energy costs through our own and our suppliers’We closed the Ambi Pur acquisition and have completed a sustainability efforts.successful integration. Through a combination of the acquisition We’re increasing prices where necessary, coupledand organic expansions of the Febreze brand, we have grown with innovation where possible, to deliver the bestour Air Care presence from markets to nearly markets. consumer value.And, most recently, through a disciplined approach and tworounds of negotiations, we agreed to divest Pringles to We expect commodity costs to continue escalating in the yearDiamond Foods. This transaction is expected to close by the ahead and will remain highly disciplined to ensure we can offsetend of calendar and will complete P&G’s exit from the increases as fully as possible while continuing to invest in growthfood and beverage business. and create shareholder value.Strengthening our business portfolio is an ongoing process. We Developed markets are growing slower than expected. Thesecontinually evaluate the strength of our portfolio by assessing markets — principally North America, Western Europe andcategory attractiveness across three dimensions: industry Japan — account for about two-thirds of our sales. Their under-attractiveness (market size, growth and structural economics), performance reduced total Company growth by one percentagecompetitive position (share, profitability versus industry, brand point in fiscal year .equity/consumer purchase intent versus competition), andportfolio fit (ability to apply the Company’s core capabilities of
  9. 9. The Procter & Gamble Company 7Our primary response to slow-growth markets is innovation — On this basis, we currently compete in only about one-thirdthe only sustainable way to grow faster than the markets of the potential segments. Here, too, we are expanding ourin which we compete. Innovation creates consumer value, presence. We’ve recently introduced the Crest D White lineup,stimulates market growth and attracts retail support. We don’t Gillette Fusion ProGlide, and Olay ProX as premium products.anticipate accelerated economic recovery in developed markets At lower price points, innovations such as Gillette Guardin the coming year, but we remain confident that our focus (our entry point razor system in India), Pampers Simply Dryon creating and expanding innovations will enable us to grow and Gain Dishwashing Liquid are attracting new consumerseven where underlying market growth rates remain soft. to P&G brands. We are also making P&G brands available in more retail channels. Today, we compete in less than % of possibleGrowth Opportunities channel segments. Across the seven predominant channels,I have spent most of this Letter explaining the factors that the vast majority of our current business is in four of them.are driving and challenging P&G’s growth today. I want to We are executing plans now to increase our presence inconclude by looking forward and reaffirming my strong all channels.confidence that we have the right strategy and supportingcapability to grow well into the future. We are filling out product lines to fulfill consumers’ regimen needs. A good example is Pantene in Japan, where we haveThe growth opportunities created by our strategy are clearest recently redesigned our regimen and pricing strategy.when you look at population and economic growth trends Japanese women are meticulous about caring for their hair.and our geographic expansion plans. Many use up to eight steps throughout the day. It startsIt’s estimated that the world’s population will be with a nighttime shampoo washing, then a conditioner and in-shower treatment. Then she uses a jar treatment beforenearly eight billion people by . All these bed. In the morning, she uses water to get the frizz out andpeople — in developed and developing countries applies a leave-in treatment. She carries a tube treatment inalike — will have the same fundamental needs, her purse for midday application, and she applies anotherwants and aspirations for products and services treatment when she gets home in the evening. We werethat make their lives better. There is tremendous previously serving her in only a few of these subcategories. By launching a full line, addressing all points in her regimen,potential for P&G to grow by meeting those needs. we’ve increased our average sales per unit of Pantene byWe are going after this potential by making our products nearly % and market share has continued to grow.available in more categories, countries and channels, In addition to entering and creating new markets, we needexpanding product lines to meet a fuller range of regimen to grow our current markets, which we do by driving usageneeds, and stimulating market growth. frequency and trade-up to higher value items. Consider ourWe currently compete in a total of product categories. position in the diaper market in Egypt. Pampers currentlyToday, on average, we compete in categories in any given has roughly an % share of the disposable diaper In our most developed market, the United States, However, only about % of changes are done with disposablewe compete in product categories. In Russia and Mexico, diapers. The rest are done with cloth or nothing at all. In India,we’re in the s. In China, Brazil and India, we’re in the Duracell has a share of over % of the alkaline batterymid-to-high teens. In Nigeria, we’re in the mid-single-digits. market — which sounds good, until you realize that only aboutOur five-year plan will increase the average number of % of batteries used are alkaline. Our growth in these marketscategories from to . will not be dependent on growing share. It will be dependent on growing markets.Within each of these categories and countries, there aregenerally five distinct price tiers — ranging from the bestperforming and highest priced products in the super premiumand premium tiers, down to products that offer basicbenefits at a lower price in the value tier.
  10. 10. 8 The Procter & Gamble CompanyWe have seen firsthand how fast markets can develop Increasing market share by five points in each of thesewhen we launch new innovation and build broad-based three businesses is more than a $ billion salesconsumer awareness of our products. For example, opportunity.the size of the Greater China diaper market was only Looked at a different way, we generate annual sales of$ million in the year — when Pampers was about $ per person in the U.S. today. We generatejust starting to gain a foothold. Today, the China diaper about $ per person in Mexico. Our sales in Chinamarket is $ . billion — an increase of times in ten are only about $ per person. Indonesia is just over $ ,years. This level of market growth happens when brands and India and Sub-Saharan Africa are just under $ .like Pampers innovate in ways that genuinely improve Getting per capita spending on P&G products in thesepeople’s everyday lives. We know, for example, that four big markets up to the level of Mexico would addwhen babies stay dry throughout the night, they sleep more than $ billion to annual sales.better, which in turn helps them grow and develop.We innovate based on insights like this and consumers Economic growth should help. A study releasedreward us because they value the improvements our in November by the Boston Consulting Groupinnovations bring to their lives. We want to bring this projected that over the next decade China will addkind of innovation to more consumers in more parts of million consumers to its middle-income andthe world, and we have abundant opportunity to do affluent class. This is roughly the same number asso. In China and India, the average consumer changes there are in the U.S. today. The study went on to saya diaper less than once per day, in Brazil twice per day that % of the current middle-income and affluentand in the U.S. four times per day. Getting China and class plans to trade up to more premium products —India usage levels up to the levels of Brazil represents especially in packaged goods and clothing.not only a $ . billion opportunity for Pampers, but also In , when we established our growth strategy, wethe chance to improve parents’ and babies’ lives in were serving four billion consumers. We established avery fundamental ways. goal of increasing the number of consumers we serveIn India, the market size for wet shaving systems grew by billion by / . Last year, we served . billionby % in just one year following the launch of our consumers — and remain on track to serve billionlow-cost Mach razor. We’re working to accelerate that by .growth with Gillette Guard. Today, consumers purchase a P&G productDeveloped markets can also be stimulated to drive about billion times a year. As a resulthigher growth as we demonstrated with the Febreze“I Wish I Could Wash” advertising campaign in Japan, of the strategy and plans we are executingwhich restored the growth of the brand in that country. currently, we expect to increase thoseClearly, we see huge opportunities for growth, and for purchases to about billion a year by theour consumers, behind our Purpose-inspired Growth midpoint of this decade.Strategy. We are expanding into more categories,countries, and channels. We are meeting a broaderrange of consumer needs. We are stimulating marketgrowth in developed and developing markets alike.And our portfolio of businesses presents abundantopportunity to grow. We have the largest Beauty andGrooming business in the world, with a market shareof only %. We have the second largest consumerhealth care business in the world and we have only a % share. In Household Care, our oldest and mostdeveloped business, we have only a % share.
  11. 11. Leadership BrandsBrands that endure. Innovation for every day. Leadership Brands WorldwideP&G’s Leadership Brands are some of the world’s mostwell known household names.
  12. 12. Billion-Dollar Brands of these brands each generate more than one billion dollarsin annual sales.
  13. 13. Innovation LeadershipIn the past years, P&G has had products on SymphonyIRIGroup’s list of each year’s most successful new products, morethan our six largest competitors combined.**Source: SymphonyIRI Group New Product Pacesetters™ report (non-food brands), March , (measured as total year-one dollar sales across food, drug, and mass channels, excluding Walmart).
  14. 14. Generating Sales and ProfitsThese brands represent % of P&G sales and more than % of profits.
  15. 15. The Procter & Gamble Company 13 The vast majority of employees tell usPurposeful Growth they are inspired by our Purpose and canThe opportunities described above are a big reason whyI am so confident in P&G’s growth strategy, but the see how their day-to-day work touchesmost important reason of all is the most fundamental: and improves lives.Our strategy inspires extraordinary performance byeveryone called upon to help execute it. Nearly all cite their pride in being part of the P&G Family. These are encouraging results. They reaffirm myWhen we commit ourselves to touch and improve conviction that people seek meaning in their lives andeveryday life, for ordinary people in every part of the their work. They want to be part of something positive,world at every moment in their day, we inspire higher something bigger than themselves. They want to knowlevels of performance. A strong sense of Purpose they can use their time and talents to make a lastingfocuses us on the consumers we serve and inspires difference in the world.empathy for them that, in turn, leads to insights, bigideas and innovation that drive growth. The opportunity to find such meaning, to make such a difference, is what attracts people of remarkableLast year, we established a new measure of organiza- character and caliber to P&G. I am proud to stand along-tional health in our annual Employee Survey — side them all. I am confident in their ability to innovatea measure designed to assess whether P&G people for everyday life, and to deliver the top- and bottom-linebelieve in our Purpose and can connect it directly growth you expect from Procter & their day-to-day work.This is important because we know from the Surveyanalysis that when employees feel connected to P&G’sPurpose, they are able to give their best performance Robert A. McDonaldto the Company. Chairman of the Board, President and Chief Executive Officer See the P&G Leadership Brands
  16. 16. 14 The Procter & Gamble Company
  17. 17. The Procter & Gamble Company 15Innovating for Everyday LifeAt P&G, we see big potential in the little moments of life. Brushing teeth.Washing hair. Showering. Shaving. Caring for the baby. Cleaning thehouse. Doing the dishes and the laundry. To us, the moments thathelp make everyday life possible — across generations and geographicboundaries — are anything but ordinary. They’re the inspiration for ourinnovation, the place where P&G’s Purpose shines brightest in the livesof people around the world.
  18. 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 /gillette
  19. 19. The Procter & Gamble Company 17 “Touching lives, improving life is a two-way experience because it’s not just about improving the lives of the consumers. It had a huge impact on our lives as well.” Graham Simms, Male Grooming, Research & Development (Retired)Gillette Guard: Providing a Better Shavefor More Than a Billion MenIn India, nearly half a billion men still shave with a century-old Launched in , Gillette Guard is one of the most significanttechnology — the double-edge razor — because there’s no safe product launches in Gillette’s -year history. Designed as aalternative they can afford. To add to the inevitable risk of nicks completely new concept for men in emerging markets, it providesand cuts, many men shave sitting on the floor in low light, while the perfect combination of safety, ease and affordability — makingbalancing a mirror against a wall. It’s an intense, tedious and it possible for more than a billion men who previously couldn’ttime-consuming process. afford it to finally have a clean, safe shave.Members of a diverse P&G team traveled to India to get a first- Within months after it launched, Gillette Guard became thehand look at the men who shave in these conditions every day. best-selling razor in India. Within the first months of launch,In thousands of interviews, home visits and shopping trips, the million men had tried Gillette Guard, with % of men sayingteam gained a deep understanding of the role shaving plays in the Gillette Guard leaves fewer nicks and cuts and % saying theylives of Indian men. Their collective understanding directly shaped feel safer using Gillette Guard than double-edge razors. Today,the design, manufacturing and marketing of Gillette Guard. more than half of the razors sold in India are Gillette Guard — which is helping to drive the share of our entire lineup of products sold in India: Mach , Vector and Guard.
  20. 20. 18 The Procter & Gamble Company “P&G has not only brought innovative brands to the Brazilian market. We’ve innovated in the way we communicate with our consumers. We’re bringing elements of the Brazilian passion to our communication.” Michele Colombo, Corporate Communications and Reputation Manager, P&G BrazilBrazil: Improving More Liveswith More P&G BrandsThe beauty and warmth of everyday life in Brazil is inspiring. introduced Ariel Liquid Detergent, Gillette, Oral-B toothpaste andThe people of Brazil are open to new ideas. They are wonderfully Pantene, which have fast become part of the fabric of everydayexpressive. They are warm, welcoming and hospitable. Quality life in Brazil. Pantene has become the # shampoo and conditionerfamily time is a strong value that runs deep in Brazilian households. brand in Brazil — and # in Rio de Janeiro. Gillette has a moreAt the same time, Brazilian women are among the most beauty- than % share of the Brazilian blades and razors market today.conscious in the world, and are passionate about their appearance. By simply understanding what matters most to Brazilians andApproaching a quarter of a century in the country — and with a bringing them brands that improve their everyday lives, P&G haslot of room to grow — P&G’s Brazil business has made great been able to reach more than % of the Brazilian people, withstrides to understand what matters most to the people of Brazil sevenfold growth in a single decade and strong double-digitin order to provide brands that improve their everyday lives. growth in .In alone, we expanded four of our trusted P&G brands intothe Brazilian market for the very first time — Head & Shoulders,Naturella, Olay and Febreze. In the years leading up to , we
  21. 21. The Procter & Gamble Company 19 7x GROWTHP&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 /brazil
  22. 22. 20 The Procter & Gamble Company “It’s about having inner beauty and outer beauty. She knows she’s beautiful on the inside, and wants to make sure her outside matches. We’re letting her be her best self.” Niloo Farmand, Western European Paste Brand ManagerCrest 3D White*: Innovating More Completelyfor a Smile That Turns HeadsFor our most passionate oral care consumers around the world, From product formulation to packaging, Crest consistentlyhaving great teeth ranks right up there with great hair and designed the D White regimen to communicate one clearclothes. They believe that taking good care of their mouth is as benefit — a smile that turns heads. Once the platform was wellmuch about beauty as it is about hygiene. Beyond having healthy established in , Crest launched more products under theteeth, they want a smile that really turns heads. D White name in that continue to meet consumers’ needs — like D White Floss and D White -Hour Express Whitestrips.But conversations and shopping trips with these consumersrevealed that purchasing whitening products can be a confusing Crest D White is delivering strong results. With nearly a %experience. It’s often unclear which products work best — and if value share of the U.S. oral care market and expanding intoany of them work well together. This insight led to a simple idea: countries around the world, it’s giving . billion consumersCombine Crest’s best whitening technologies into one collection access to a whiter smile.that’s easy to identify at the shelf and provides swift, brilliant results * D White is marketed under the Crest, AZ, Blend-a-Med, Ipana and Oral-B brand names, with varying offerings under each that include toothpaste, toothbrushes, whitestrips, rinses and floss.when used together. The result was Crest D White.
  23. 23. The Procter & Gamble Company 21 2.3 BILLION CONSUMERS Crest 3D White is giving 2.3billion consumers worldwide access to a whiter smile. To learn more about how the Crest D White team is innovatingmore completely for smiles that turn heads, /crest
  24. 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 /gain
  25. 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 Scentto More Parts of the Home
  26. 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, /headandshoulders
  27. 27. The Procter & Gamble Company 25 “Beyond giving people care for their scalp, we’re helping them feel great about themselves — the way they feel and the way they look.” Julie Setser, Associate Director, Global Head & Shoulders Research and DevelopmentHead & Shoulders: Caring for More Itchy ScalpsAround the WorldMany people live with the everyday bother of scalp problems, the latest scientific insights on the scalp skin, the brand introducedsuch as itch, dryness, or sensitivity. Often, people don´t realize a new Scalp Care Collection around the world in that combinesthat the most likely reason for these bothersome signs is that scalp know-how and a sophisticated formulation technology tothey have a mild form of dandruff (which is so common that deliver gentle soothing care for a variety of scalp problems.about % of the world´s population has it). This is why they With its intuitive design and tailored benefits for people with scalpdon´t naturally think of Head & Shoulders, which is best known concerns, the Head & Shoulders Scalp Care Collection is provingfor its anti-dandruff performance. However, Head & Shoulders to be a big idea that travels well, helping more people around thenot only fights dandruff at the source, but also the variety of world get their heads to a happier place. Now available in Europe,signs of dandruff, including itch, dryness, and sensitivity, which Asia, Latin America and North America, it has helped driveare frequent scalp complaints. Head & Shoulders’ global shampoo volume up mid-single digits.As the number one shampoo brand in the world — and with tenconsecutive years of growth — Head & Shoulders has been at theforefront of studying and soothing scalps for years. Based on
  28. 28. 26 The Procter & Gamble Company “We’ve been able to touch our consumer in a way that has built a relationship beyond the product. They see Old Spice as a friend, and a part of their life.” Kenyata Martin, Global Brand Manager, Old SpiceOld Spice: Touching More LivesThrough Social MediaGuys aren’t impressed with body washes and deodorants that make The campaign first launched in North America in February ,them smell like fruit and flowers. And women — who purchase just before the Super Bowl. Since its launch, it has generated % of these products for them — don’t want them to smell that million YouTube views and billion total impressions. Withinway either. Old Spice had the products guys wanted — and that months of the campaign’s first appearance, volume of Old Spicewomen wanted for their guys. But getting their attention was body wash shot up by %, and is now at an all-time high foranything but easy. Until we discovered a big idea: “Hello, ladies!” the brand. The success in North America is being transported to other parts of the world.Old Spice created the “Smell Like a Man, Man” campaign —a movement that would catapult the brand onto the social media In addition to improving the everyday lives of guys who arestage and earn unprecedented acclaim and business results. navigating through the seas of manhood, the “Smell Like a Man,The brand cast Isaiah Mustafa as a charismatic and suave character Man” campaign has gained global recognition, winning moreto convince both men and women to choose the manly scent of awards than any single P&G brand campaign in history at theOld Spice body wash and deodorant over “lady scented” brands. Cannes Lions International Festival of Creativity. The business results are equally impressive, with double-digit global sales growth and continued strong share growth over the past year.
  29. 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, /oldspice
  30. 30. 28 The Procter & Gamble CompanyBringing the Basics Back to Everyday Life:P&G’s Response in Times of CrisisAt P&G, we integrate responsibility for improving lives into every aspect of our business and operations. This responsibility is atthe heart of our Company Purpose and is what drives P&G innovation. It also guides the actions we take to improve the worldaround us through philanthropic and other efforts. There is no separation between a company’s profit responsibility and itssocial responsibility. The two must be integrally linked.As a result, when natural disasters disrupt everyday life, P&G and our Brands respond. We work with relief partners around the worldto provide P&G products and services that help people feel more like themselves, that make a temporary shelter feel more like home,and that help people rebuild their lives. We must do well to do good, but we also know that doing good enables us to do well.It is a virtuous cycle.Through the branded services featured below, and through millions of dollars of product and cash donations, we’ve been ableto help people rebuild their lives in Japan, Pakistan, Australia, New Zealand, Haiti and the U.S. over the past year.P&G Children’s Duracell TideSafe Drinking Water Program Power Relief Loads Of HopeOur nonprofit P&G Children’s Safe Our Duracell Power Relief program Tide Loads of Hope is a mobileDrinking Water program provides distributes thousands of flashlights laundromat with over energy-PUR packets, which can make dirty and batteries in disaster-stricken areas. efficient washers and dryers that canwater safe to drink in minutes. The Power Relief trailer provides clean over loads of laundry perIn collaboration with relief partners, electricity and online access, helping day. Workers wash, dry and foldwe’ve stockpiled PUR packets around people in places without power to clothes for families in disaster-strickenthe world, for easier access when recharge, reconnect and recover. areas for free.they’re needed most.
  31. 31. The Procter & Gamble Company 29Financial ContentsManagement’s Responsibility for Financial Reporting 30Management’s Report on Internal Control over Financial Reporting 31Reports of Independent Registered Public Accounting Firm 31Management’s Discussion and AnalysisOverview 33Summary of Results 36Forward-Looking Statements 36Results of Operations 37Segment Results 40Financial Condition 45Significant Accounting Policies and Estimates 48Other Information 50Audited Consolidated Financial StatementsConsolidated Statements of Earnings 52Consolidated Balance Sheets 53Consolidated Statements of Shareholders’ Equity 54Consolidated Statements of Cash Flows 55Notes to Consolidated Financial Statements 56
  32. 32. 30 The Procter & Gamble CompanyManagement’s Responsibility for Financial ReportingAt The Procter & Gamble Company, we take great pride in our long Exerting rigorous oversight of the business. We continuously reviewhistory of doing what’s right. If you analyze what’s made our Company business results and strategic choices. Our Global Leadership Councilsuccessful over the years, you may focus on our brands, our marketing is actively involved – from understanding strategies to reviewing keystrategies, our organization design and our ability to innovate. But if initiatives, financial performance and control assessments. The intent isyou really want to get at what drives our Company’s success, the to ensure we remain objective, identify potential issues, continuouslyplace to look is our people. Our people are deeply committed to our challenge each other and ensure recognition and rewards are appro-Purpose, Values and Principles. It is this commitment to doing what’s priately aligned with results.right that unites us. Engaging our Disclosure Committee. We maintain disclosure controlsThis commitment to doing what’s right is embodied in our financial and procedures designed to ensure that information required to bereporting. High-quality financial reporting is our responsibility – one we disclosed is recorded, processed, summarized and reported timely andexecute with integrity, and within both the letter and spirit of the law. accurately. Our Disclosure Committee is a group of senior-level execu- tives responsible for evaluating disclosure implications of significantHigh-quality financial reporting is characterized by accuracy, objectivity business activities and events. The Committee reports its findings to theand transparency. Management is responsible for maintaining an CEO and CFO, providing an effective process to evaluate our externaleffective system of internal controls over financial reporting to deliver disclosure obligations.those characteristics in all material respects. The Board of Directors,through its Audit Committee, provides oversight. We have engaged Encouraging strong and effective corporate governance from ourDeloitte & Touche LLP to audit our Consolidated Financial Statements, Board of Directors. We have an active, capable and diligent Boardon which they have issued an unqualified opinion. that meets the required standards for independence, and we welcome the Board’s oversight. Our Audit Committee comprises independentOur commitment to providing timely, accurate and understandable directors with significant financial knowledge and experience. Weinformation to investors encompasses: review significant accounting policies, financial reporting and internal control matters with them and encourage their independent discussionsCommunicating expectations to employees. Every employee – from with external auditors. Our corporate governance guidelines, as wellsenior management on down – is required to be trained on the as the charter of the Audit Committee and certain other committeesCompany’s Worldwide Business Conduct Manual, which sets forth of our Board, are available on our website at Company’s commitment to conduct its business affairs with highethical standards. Every employee is held personally accountable for P&G has a strong history of doing what’s right. Our employees embracecompliance and is provided several means of reporting any concerns our Purpose, Values and Principles. We take responsibility for the qualityabout violations of the Worldwide Business Conduct Manual, which and accuracy of our financial reporting. We present this informationis available on our website at proudly, with the expectation that those who use it will understand our Company, recognize our commitment to performance with integrityMaintaining a strong internal control environment. Our system of and share our confidence in P&G’s future.internal controls includes written policies and procedures, segregationof duties and the careful selection and development of employees. Thesystem is designed to provide reasonable assurance that transactionsare executed as authorized and appropriately recorded, that assets Robert A. McDonaldare safeguarded and that accounting records are sufficiently reliable Chairman of the Board, President and Chief Executive Officerto permit the preparation of financial statements conforming in allmaterial respects with accounting principles generally accepted in theUnited States of America. We monitor these internal controls throughcontrol self-assessments conducted by business unit management. Jon R. MoellerIn addition to performing financial and compliance audits around the Chief Financial Officerworld, including unannounced audits, our Global Internal Audit organi-zation provides training and continuously improves internal controlprocesses. Appropriate actions are taken by management to correctany identified control deficiencies.Executing financial stewardship. We maintain specific programs andactivities to ensure that employees understand their fiduciary respon-sibilities to shareholders. This ongoing effort encompasses financialdiscipline in strategic and daily business decisions and brings particularfocus to maintaining accurate financial reporting and effective controlsthrough process improvement, skill development and oversight.
  33. 33. The Procter & Gamble Company 31Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate Management assessed the effectiveness of the Company’s internalinternal control over financial reporting of The Procter & Gamble control over financial reporting as of June , , using criteriaCompany (as defined in Rule a- (f) under the Securities Exchange established in Internal Control – Integrated Framework issued byAct of , as amended). Our internal control over financial reporting the Committee of Sponsoring Organizations of the Treadwayis designed to provide reasonable assurance regarding the reliability Commission (COSO) and concluded that the Company maintainedof financial reporting and the preparation of financial statements for effective internal control over financial reporting as of June , ,external purposes in accordance with generally accepted accounting based on these criteria.principles in the United States of America. Deloitte & Touche LLP, an independent registered public accountingStrong internal controls is an objective that is reinforced through our firm, has audited the effectiveness of the Company’s internal controlWorldwide Business Conduct Manual, which sets forth our commit- over financial reporting as of June , , as stated in their reportment to conduct business with integrity, and within both the letter and which is included herein.the spirit of the law. The Company’s internal control over financialreporting includes a Control Self-Assessment Program that is conductedannually by substantially all areas of the Company and is audited by Robert A. McDonaldthe internal audit function. Management takes the appropriate action Chairman of the Board, President and Chief Executive Officerto correct any identified control deficiencies. Because of its inherentlimitations, any system of internal control over financial reporting, nomatter how well designed, may not prevent or detect misstatementsdue to the possibility that a control can be circumvented or overrid- Jon R. Moellerden or that misstatements due to error or fraud may occur that are Chief Financial Officernot detected. Also, because of changes in conditions, internal controleffectiveness may vary over time. August ,Report of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of In our opinion, such Consolidated Financial Statements present fairly,The Procter & Gamble Company in all material respects, the financial position of the Company at June , and , and the results of its operations and cashWe have audited the accompanying Consolidated Balance Sheets of flows for each of the three years in the period ended June , ,The Procter & Gamble Company and subsidiaries (the “Company”) as in conformity with accounting principles generally accepted in theof June , and , and the related Consolidated Statements United States of America.of Earnings, Shareholders’ Equity, and Cash Flows for each of the threeyears in the period ended June , . These financial statements are We have also audited, in accordance with the standards of the Publicthe responsibility of the Company’s management. Our responsibility is to Company Accounting Oversight Board (United States), the Company’sexpress an opinion on these financial statements based on our audits. internal control over financial reporting as of June , , based on the criteria established in Internal Control – Integrated FrameworkWe conducted our audits in accordance with the standards of the issued by the Committee of Sponsoring Organizations of the TreadwayPublic Company Accounting Oversight Board (United States). Those Commission and our report dated August , expressed anstandards require that we plan and perform the audit to obtain unqualified opinion on the Company’s internal control over financialreasonable assurance about whether the financial statements are free reporting.of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as Cincinnati, Ohioevaluating the overall financial statement presentation. We believe August ,that our audits provide a reasonable basis for our opinion.
  34. 34. 32 The Procter & Gamble CompanyReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders of Because of the inherent limitations of internal control over financialThe Procter & Gamble Company reporting, including the possibility of collusion or improper manage- ment override of controls, material misstatements due to error orWe have audited the internal control over financial reporting of fraud may not be prevented or detected on a timely basis. Also,The Procter & Gamble Company and subsidiaries (the “Company”) as projections of any evaluation of the effectiveness of the internalof June , , based on criteria established in Internal Control – control over financial reporting to future periods are subject to theIntegrated Framework issued by the Committee of Sponsoring risk that the controls may become inadequate because of changes inOrganizations of the Treadway Commission. The Company’s manage- conditions, or that the degree of compliance with the policies orment is responsible for maintaining effective internal control over procedures may reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in Management’s In our opinion, the Company maintained, in all material respects,Report on Internal Control over Financial Reporting. Our responsibility effective internal control over financial reporting as of June , ,is to express an opinion on the Company’s internal control over based on the criteria established in Internal Control – Integratedfinancial reporting based on our audit. Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.We conducted our audit in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Those We have also audited, in accordance with the standards of thestandards require that we plan and perform the audit to obtain Public Company Accounting Oversight Board (United States), thereasonable assurance about whether effective internal control over Consolidated Financial Statements of the Company as of and forfinancial reporting was maintained in all material respects. Our audit the year ended June , and our report dated August ,included obtaining an understanding of internal control over financial expressed an unqualified opinion on those financial statements.reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internalcontrol based on the assessed risk, and performing such other proce-dures as we considered necessary in the circumstances. We believe Cincinnati, Ohiothat our audit provides a reasonable basis for our opinion. August ,A company’s internal control over financial reporting is a processdesigned by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that ( ) pertainto the maintenance of records that, in reasonable detail, accuratelyand fairly reflect the transactions and dispositions of the assets of thecompany; ( ) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of thecompany; and ( ) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or dispositionof the company’s assets that could have a material effect on thefinancial statements.
  35. 35. Management’s Discussion and Analysis The Procter & Gamble Company 33Management’s Discussion and AnalysisThe purpose of this discussion is to provide an understanding of historically been part of the Health Care reportable segment. InP&G’s financial results and condition by focusing on changes in accordance with the applicable accounting guidance for the disposalcertain key measures from year to year. Management’s Discussion of long-lived assets, the results of our pharmaceuticals business areand Analysis (MD&A) is organized in the following sections: presented as discontinued operations and, as such, have been excluded from continuing operations and from segment results for all periods Overview presented. Summary of Results Forward-Looking Statements In November , we completed the divestiture of our coffee Results of Operations business through the merger of our Folgers coffee subsidiary into Segment Results The J.M. Smucker Company (Smucker) in an all-stock Reverse Financial Condition Morris Trust transaction. In connection with the merger, . million Significant Accounting Policies and Estimates shares of P&G common stock were tendered by our shareholders Other Information and exchanged for all shares of Folgers common stock. Pursuant to the merger, a Smucker subsidiary merged with and into Folgers andThroughout MD&A, we refer to measures used by management to Folgers became a wholly-owned subsidiary of Smucker.evaluate performance, including unit volume growth, net sales andnet earnings. We also refer to a number of financial measures that The coffee business had historically been part of the Company’sare not defined under accounting principles generally accepted in the Snacks, Coffee and Pet Care reportable segment, as well as the coffeeUnited States of America (U.S. GAAP), including organic sales growth, portion of the away-from-home business which was included in thecore earnings per share (Core EPS), free cash flow and free cash flow Fabric Care and Home Care reportable segment. In accordance with theproductivity. Organic sales growth is net sales growth excluding the applicable accounting guidance for the disposal of long-lived assets,impacts of foreign exchange, acquisitions and divestitures. Core EPS is the results of our coffee business are presented as discontinueddiluted net earnings per share from continuing operations excluding operations and, as such, have been excluded from continuing opera-certain specified charges. Free cash flow is operating cash flow less tions and from segment results for all periods presented. The Snacks,capital spending. Free cash flow productivity is the ratio of free cash Coffee and Pet Care reportable segment was renamed Snacks andflow to net earnings. We believe these measures provide investors with Pet Care to reflect this change.important information that is useful in understanding our businessresults and trends. The explanation at the end of MD&A provides more OVERVIEWdetails on the use and the derivation of these measures. The purpose of our business is to provide branded consumer packaged goods of superior quality and value to our consumers around theManagement also uses certain market share and market consumption world. This will enable us to execute our Purpose-inspired growthestimates to evaluate performance relative to competition despite strategy: to touch and improve more consumers’ lives, in more partssome limitations on the availability and comparability of share and of the world, more completely. We believe this will result in leadershipconsumption information. References to market share and market sales, earnings and value creation, allowing employees, shareholdersconsumption in MD&A are based on a combination of vendor-reported and the communities in which we operate to prosper.consumption and market size data, as well as internal estimates. Allmarket share references represent the percentage of sales in dollar terms Our products are sold in more than countries primarily through masson a constant currency basis of our products, relative to all product merchandisers, grocery stores, membership club stores, drug storessales in the category. In certain situations, we discuss volume share, and high-frequency stores, the neighborhood stores which servewhich is the percentage of unit volume of our products relative to all many consumers in developing markets. We continue to expand ourproducts sold in the category. presence in other channels, including department stores, perfumeries, pharmacies, salons and e-commerce. We have on-the-ground opera-Recent Business Developments tions in approximately countries.Effective February , the Company consolidated the three GlobalBusiness Units (GBUs) into two: Beauty & Grooming and Household Our market environment is highly competitive with global, regionalCare. As a result, the Health Care segment largely became part of and local competitors. In many of the markets and industry segmentsP&G’s Beauty and Grooming GBU, while the Snacks and Pet Care in which we sell our products, we compete against other brandedsegment became part of P&G’s Household Care GBU. products as well as retailers’ private-label brands. Additionally, many of the product segments in which we compete are differentiated byIn October , we sold our global pharmaceuticals business to price (referred to as super-premium, premium, mid-tier and value-tierWarner Chilcott plc (Warner Chilcott) for $ . billion, net of assumed products). We are well positioned in the industry segments and marketsand transferred liabilities. Under the terms of the agreement, Warner in which we operate-often holding a leadership or significant marketChilcott acquired our portfolio of branded pharmaceuticals products, share position.our prescription drug product pipeline and our manufacturing facili-ties in Puerto Rico and Germany. The pharmaceuticals business had