Management’s Discussion and Analysis

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

• Overview
• Summary of 2008 Results
• Forward-Looking Statements
• Results of Operations
• Segment Results
• Financial Condition
• Significant Accounting Policies and Estimates
• Other Information

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

On October 1, 2005, we completed the acquisition of The Gillette Company for $53.4 billion. The Gillette acquisition ultimately resulted in the creation of Grooming, a new reportable segment, primarily consisting of Gillette’s Blades and Razors and Braun businesses. Results of Gillette’s Personal Care, Oral Care and Duracell businesses were primarily subsumed within the Beauty, the Health Care and the Fabric Care and Home Care reportable segments, respectively. Our discussion of 2007 results within MD&A are in comparison to 2006 results that included the Gillette business only for the nine-month period from October 1, 2005 (the acquisition date) through June 30, 2006. We previously provided details regarding the changes to our reportable segment structure resulting from the integration of the Gillette businesses (as presented in our Form 8-K filed on October 31, 2007).