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

• Overview

• Summary of Results

• Forward-Looking Statements

• Results of Operations - Three Months Ended September 30, 2009

• Business Segment Discussion - Three Months Ended September 30, 2009

• Financial Condition

• Reconciliation of Non-GAAP Measures

Throughout MD&A, we refer to measures used by management to evaluate performance, including unit volume growth, net outside sales and after-tax profit. We also refer to organic sales growth, free cash flow and free cash flow productivity. These financial measures are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP). The explanation at the end of MD&A provides more details on the use and the derivation of these measures. Management also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and comparability of such information. References to market share and market consumption in MD&A are based on a combination of vendor-reported consumption and market size data, as well as internal estimates.

OVERVIEW

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

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

We compete in multiple product categories and have three global business units (GBUs): Beauty and Grooming; Health and Well-Being; and Household Care. Under U.S. GAAP, the business units comprising the GBUs are aggregated into six reportable segments: Beauty; Grooming; Health Care; Snacks and Pet Care; Fabric Care and Home Care; and Baby Care and Family Care.

We have on-the-ground operations in approximately 80 countries through our Market Development Organization, which leads country business teams to build our brands in local markets and is organized along five geographic units: North America, Western Europe, Central & Eastern Europe/Middle East/Africa (CEEMEA), Latin America and Asia, which is comprised of Japan, Greater China and

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

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

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

                        Reportable        Key Product                                              Billion Dollar
GBU                     Segment           Categories              Key Products                     Brands
Beauty and Grooming     Beauty            Hair Care               Hair Colorants, Shampoos and     Head & Shoulders,
                                                                  Conditioners                     Pantene
                                          Professional Salon      Hair Colorants, Shampoos and     Wella
                                                                  Conditioners
                                          Female Beauty           Cosmetics, Deodorants, Female    Olay
                                                                  Blades and Razors, Personal
                                                                  Cleansing and Skin Care
                                          Prestige                Fine Fragrances and Prestige
                                                                  Skin Care (SK II)
                        Grooming          Male Grooming           Male Blades & Razors and Male    Fusion, Gillette,
                                                                  Personal Care Products           Mach3
                                                                  (Deodorants, Face and Shave
                                                                  Products, Hair Care, Personal
                                                                  Cleansing)
                                          Appliances (Braun)      Electric Hair Removal Devices    Braun
                                                                  and Home Appliances

Health and Well-Being   Health Care       Feminine Care           Feminine Pads and Tampons        Always
                                          Personal Health Care    Personal Diagnostics,
                                                                  Digestive and Respiratory
                                                                  Health Products
                                          Oral Care               Oral Rinses, Toothbrushes and    Crest, Oral-B
                                                                  Toothpastes
                        Snacks and Pet    Pet Care                Wet and Dry Pet Food             Iams
                        Care              Snacks                  Potato Crisps                    Pringles

Household Care          Fabric Care and   Fabric Care             Laundry Detergents and Fabric    Ariel, Downy,
                        Home Care                                 Softeners                        Gain, Tide
                                          Home Care               Air and Fabric Fresheners,       Dawn
                                                                  Dishwashing Detergents, Hard
                                                                  Surface Cleaners
                                          Batteries               Batteries and Personal Power     Duracell
                                                                  Devices
                        Baby Care and     Baby Care               Baby Wipes and Diapers           Pampers
                        Family Care       Family Care             Bath Tissue, Facial Tissue       Bounty, Charmin
                                                                  and Paper Towels

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

--------------------------------------------------------------------------------
                                          Net Sales      Net Earnings
              Beauty and Grooming GBU
              Beauty                             24 %              23 %
              Grooming                            9 %              11 %

              Health and Well-Being GBU
              Health Care                        15 %              17 %
              Snacks and Pet Care                 4 %               2 %

              Household Care GBU
              Fabric Care and Home Care          30 %              30 %
              Baby Care and Family Care          18 %              17 %

              Total                             100 %             100 %

SUMMARY OF RESULTS

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

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

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

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

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

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

FORWARD-LOOKING STATEMENTS

We discuss expectations regarding future performance, events and outcomes, such as our business outlook and objectives, in annual and quarterly reports, press releases and other written and oral communications. All such statements, except for historical and present factual information, are "forward-looking statements," and are based on financial data and our business plans available only as of the time the statements are made, which may become out-of-date or incomplete. We assume no obligation to update any forward-looking statements as a result of new information, future events or other factors. Forward-looking statements are inherently uncertain and investors must recognize that events could be significantly different from our expectations. For more information on risks that could impact our results, refer to Item 1A Risk Factors in our most recent 10-Q, 10-K and 8-K filings.

Ability to Achieve Business Plans: We are a consumer products company and rely on continued demand for our brands and products. To achieve business goals, we must develop and sell products that appeal to consumers and retail trade customers. Our continued success is dependent on leading-edge innovation with respect to both products and operations and on the continued positive reputations of our brands. This means we

Cost Pressures: Our costs are subject to fluctuations, particularly due to changes in commodity prices, raw materials, cost of labor, foreign exchange and interest rates. Therefore, our success is dependent, in part, on our continued ability to manage these fluctuations through pricing actions, cost savings projects, sourcing decisions and certain hedging transactions. We also must manage our debt and currency exposure, especially in certain countries, such as Venezuela, China and India. We need to maintain key manufacturing and supply arrangements, including sole supplier and sole manufacturing plant arrangements. We must implement, achieve and sustain cost improvement plans, including our outsourcing projects and those related to general overhead and workforce optimization. Successfully managing these changes, including identifying, developing and retaining key employees, is critical to our success.

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

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

RESULTS OF OPERATIONS - Three Months Ended September 30, 2009

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