Procter & Gamble

Procter & Gamble

NYSE: PG Student Investment Fund Stock Report Analysts: Janel Logan, Amanda Repp and Padma Venkatraman

Business Summary Recommendation: Long­Term Buy Procter & Gamble, founded in 1837 and based in Cincinnati, OH, Recent Price (12/04/09): $62.60 Sector: Consumer Staples is recognized as the world's largest producer and distributor of Target Price: $65.53 Sub‐Sector: Consumer Goods household and personal products. 52‐Week Range: $43.93‐ $64.00 Stock Classification: Classic Growth PG is organized into three global business units: Beauty; Health and Market Capt: $178 B Institutional Ownership: 58% Well‐Being; and Household Care. P/E Ratio: 17.4 Dividend Yield: 2.8% PG Procter and Gamble operates Earnings per Share: $4.58 Beta: 0.6 in over 80 countries and offers products and services to more than 180 countries worldwide. PG Price Performance has a strong global market presence. In 2009, PG generated 61% of its total sales in international markets.

Highlights

 PG is focused on developing its consumer understanding, marketing, and brand‐building techniques. Investment Thesis  PG manages 23 brands that individually generate over $1  Concerns over a sluggish economy in 2010 led us to PG — we billion in annual sales and 20 favor large‐capitalization, low beta, defensive stocks that pay brands that individually generate above‐average dividends and have strong growth potential in half of a billion in annual sales. foreign markets.  12 of PG’s billion‐dollar brands are  PG is the best consumer staples stock in terms of brand currently the #1 global market share management, innovation and consumer understanding. leader in their respective product  Procter and Gamble has superior financial standing and has categories. provided shareholders with substantial value creation over time. Student Investment Fund: Procter & Gamble

Business Segments

PG is organized into three global business units: Beauty, Health and Well‐Being, and Household Care.

 BEAUTY Includes two sub‐segments: o Beauty (2009 Sales $18.79 B, 23.7% of sales revenue) — cosmetics, deodorants, hair care, personal cleansing, prestige, fragrances and skin care products  Billion‐dollar brands include: Head & Shoulders, Olay, Pantene and Wella o Grooming (2009 Sales $7.54 B, 9.54% of sales revenue) — blades and razors, electric hair removal devices, facial products, shave products and home appliances  Billion‐dollar brands include: Braun, Fusion, Gillette and Mach 3

 HEALTH AND WELL‐BEING Includes two sub‐segments: o Health Care (2009 Sales $13.62 B, 17.23% of sales revenue) — feminine care, oral care and personal health care products  Billion‐dollar brands include: Actonel, Always, Crest and Oral‐ B o Snacks and Pet Care (2009 Sales $3.11 B, 3.94% of sales revenue)—pet food and snacks  Billon‐dollar brands include: Iams and Pringles

 HOUSEHOLD CARE Includes two sub‐ segments: o Fabric Care and Home Care (2009 Sales $23.19 B, 29.33% of sales revenue)—air care, batteries, dish care, fabric care and surface care  Billion‐dollar brands include: Ariel, Dawn, Downy, Duracell, Gain and Tide

o Baby Care and Family Care (2009 Sales $14.10 B, 17.84% of sales revenue)—baby wipes, bath tissues, diapers, facial tissues and paper towels  Billion‐dollar brands include: Bounty, Charmin and Pampers

Student Investment Fund: Procter & Gamble

Business Divestures

Procter and Gamble has recently divested two of its business segments in order to refocus on its core business segments and to continue to maintain its strong portfolio of brands.

 Folgers: On June 4, 2008, PG sold its Folgers coffee unit to J.M. Smucker Company in an all‐stock deal worth approximately $2.95 billion.

 Pharmaceuticals: In 2006, the company began winding down its discover‐phase pharmaceutical products in favor of licensing late‐stage compounds, and announced in 2008 it would exit the drug industry entirely. In 2009, PG sold its pharmaceutical unit to Warner Chilcott in a $3.1 billion cash deal. As a result of the divesture, Procter and Gamble expects to book a 43 cent per share earnings boost in the second quarter of fiscal year 2010.

These divestures will allow PG to primarily focus on its personal care, beauty, and household product divisions. Moreover, it is our assessment that these divestures reveal Procter and Gamble’s strong focus on maintaining a solid portfolio of brands that add value for the company rather than growing for growth's sake.

Consistency in Top Management

Procter and Gamble recently named Robert McDonald as president and CEO, succeeding A.G. Lafley, effective as of July 2009. The new CEO Robert McDonald, otherwise known as Bob McDonald, comes into the position with a rich company background. McDonald previously served as Vice Chair of PG’s Global Business Units and Operations. Furthermore, McDonald has vast experience in brand‐building and market development, and has over 30 years of experience with Procter and Gamble.

The news of Bob McDonald being named CEO of the company, shortly followed the announcement of PG’s CFO Clayt Daley’s retirement. Daley was replaced January 1, 2009 by Jon Moeller. Prior to accepting the new CFO position, Moeller previously served as the Vice President and Treasurer of Procter and Gamble. Moeller also served as Vice President of Finance and Accounting in various global business units within the company. Similar to McDonald, Moeller has developed a rich history at Procter and Gamble.

Looking forward, Procter and Gamble can remain confident in their recent changes in top management. Both executive successors are individuals who have a thorough and well‐developed understanding of the company’s core businesses and international markets, gained through many years of experience with Procter and Gamble.

Student Investment Fund: Procter & Gamble

Competitors

Procter and Gamble provides largest and broadest portfolio of products in the household and personal care industry with 24 billion dollar brands. PG generates 43% more revenue than its closest competitor, Unilever (UL). PG also maintains a relatively high operating margin of 20.46% in 2009, the highest amongst its competitors. Moreover, the company invests more than $2 billion annually in Research and Development — nearly twice that of Unilever, and equal to the combined total of its other major competitors — Avon, Clorox Company (CLX), Colgate‐Palmolive Company (CL), Energizer Holdings (ENR), Henkel, Kimberly‐Clark (KMB), L'Oreal, and Reckitt Benckiser.

REVENUE NET INCOME OPERATING DIVIDEND BILLION DOLLAR BRAND(S) (IN MILLIONS) (IN MILLIONS) MARGIN YIELD

PAMPERS, PANTENE, CREST, PROCTER & $79,029 $11,010 20.79% 3.0% TIDE, BOUNTY, DURACELL, GAMBLE CHARMIN

DOVE, AXE, LIPTON, VASELINE, UNILEVER $56,546 $7,015 N/A 1.38% SLIM‐FAST, BEN & JERRY’S

CLOROX BLEACH, PINE‐SOL, CLOROX $5,440 $566 20.12% 3.3% GLAD, BRITA WATER FILTERS, COMPANY BURT’S BEES

HUGGIES, KLEENEX, SCOTT KIMBERLY – $18,730 $,1810 15.95% 3.8% PAPER TOWELS CLARK

COLGATE TOOTHPASTE, COLGATE – $1,4910 $2,310 22.68% 2.2% PALMOLIVE DISHWASHING PALMOLIVE LIQUID, SOFTSOAP, SPEEDSTICK

Student Investment Fund: Procter & Gamble

Global Presence

Procter and Gamble operates in over 80 countries and offers products and services in more than 180 countries worldwide.

Sales are divided into four main segments:

 North America accounted for 44% of total sales in 2009 or $34.8 billion.

 Western Europe accounted for 22% of total sales in 2009 or $17.4 billion.

 North East Asia accounted for 4% of total sales in 2009 or $3.2 billion.

 Developing Markets accounted for 30% of total sales in 2009 or $23.7 billion.

Student Investment Fund: Procter & Gamble

Currently, international sales (sales outside of North America) generate roughly 61% of Procter and Gamble’s total revenue. Over the past five years, the average growth rate for PG’s international sales was 12% — which is almost three times that of PG’s domestic market sales growth of 5%.

In recent years, Procter and Gamble has heavily penetrated developing markets. Developing markets include Latin America, Central & Eastern Europe/Middle East and Africa, Greater China and ASEAN/Australasia/India/Korea. Procter and Gamble’s sales in developing markets comprise 30% of its total sales revenue‐‐ up a significant 20% since the beginning of the decade.

International Market Share

Procter and Gamble maintains a strong focus on its market share, as this is a key factor for success in the Consumer Staples sector in which they compete in. Each firm must compete for market share and viability of growing future sales for the company. As economies around the world continue to recover following the global downturn, Procter and Gamble recognizes that it is pertinent to have an established market share in order to take advantage of new growth opportunities and increase their sales in the future.

Developing markets currently make up 86% of the world’s population. Procter and Gamble has already established a strong market share in the most crucial areas of these developing markets: Central & Eastern Europe, Middle East & Africa Region, Latin America, Greater China and Developing Asia. It is important that PG takes advantage of opportunities in these particular markets as these areas provide the largest international growth opportunities. Procter and Gamble has established themselves as the leader in market share in the Blades and Razors markets. They are also first and second in market share in the Shampoos and Diapers markets, respectively. Additionally, they maintain first, second and third market share positions in the Laundry, Feminine Care and Oral Care product markets, respectively.

Purposed­Inspired Macro Strategy for Growth

Procter and Gamble is taking a focused approach towards its growth opportunities. PG looks to grow its leading, global brands and core categories. Where to Play: PG will achieve this by narrowing the focus of their portfolio. The recent divesture of their 1) Grow leading, global brands and core pharmaceutical business is just one example of how categories they are narrowing their focus. This will allow PG to focus more heavily on their 43 billion and half‐ 2) Build business with underserved and billion dollar brands that generate 85% of their unserved consumers revenues. Furthermore, focusing on the expansion of these 43 core brands into markets, where they 3) Continue to grow and develop faster‐ are currently underrepresented. growing, structurally attractive businesses with global leadership potential Student Investment Fund: Procter & Gamble

Another focus for Procter and Gamble is on building its business through underserved and unserved consumers. As previously mentioned, developing markets make up more than 86% of the world’s population. PG’s sales in developing markets totaled nearly $24 billion in 2009 — nearly five times greater than their average competitor’s sales in developing markets. Procter and Gamble continues to aim towards growing its current 19% share in developing markets. This allows an attractive opportunity for PG to further its growth outreach. In a recent interview with Fortune Magazine, Procter and Gamble’s CEO Bob McDonald explained that the company currently serves approximately 3.84 billion of the world’s 7.5 billion total population. Moreover, McDonald expressed PG’s plans to add 1 billion more customers over the next five years.

PG’s final strategy takes a focused approach towards growing structurally‐sound businesses, rather than growing for growth’s sake. The company maintains a solid strategy for future growth that adds value.

Key Strategies for Success

 Consumer Understanding o Each year, Procter and Gamble interacts with nearly 5 million consumers in over 60 countries worldwide. o It is important for Procter and Gamble to gain insight on consumer understanding in order to discover innovation opportunities and to find ways in which the company can better serve its customers. It is especially important for PG to recognize and adjust to cultural differences among its international markets.  Brand Building o Procter and Gamble currently has 23 brands within its product portfolio that individually generate over one billion dollars in sales annually. PG also has 20 brands that generate half of a billion dollars in annual sales. Combined, these 43 brands account for 85% of PG’s total sales and 90% of PG’s profit. PG maintains the strongest‐performing portfolio of brands within its industry. Moreover, PG maintains its key competitive advantage for the overall success of the firm.  Innovation o Procter and Gamble is the industry leader in terms of innovation. Each year in the U.S., the IRI New Product Pacesetter Report ranks the best selling new products within the consumer market. Over the past 14 years, Procter and Gamble has had 114 top 25 pacesetters—more than six times the number of pacesetters of their largest competitors combined. (Pacesetter is defined as a new, innovative Consumer Packaged Brand that exceeds $7.5 M in its first year).  Established Go‐To‐Market Capability o Procter and Gamble is ranked as the preferred supplier and industry leader in a wide range of capabilities including clearest company strategy, brands most important to retailers, strong business fundamentals and innovative marketing programs.  Scale o Procter and Gamble is able to take advantage of its ability to operate on a large scale. This allows PG to share processes and procedures among the categories under which they operate. This also creates the ability for PG to capitalize on its international expansion opportunities since they have the capabilities and resources for such ventures. Student Investment Fund: Procter & Gamble

Valuation Analysis Dividend Growth: Despite a solid historical year‐to‐ year dividend growth rate of 16.9%, dividend growth Our valuation analysis for PG was conducted using has been decreasing from its 2005 high of 37% growth conservative model assumptions. Our discounted to more moderate measures. Forecasted dividend cash flow model estimates PG’s intrinsic value at growth was reduced to a level of 10% for the forecast. $65.53 per share for 2009, reaching $82.91 by 2019.

Income Statement Inputs: Balance Statement Inputs:

Property, Plant and Equipment: PG’s five‐year Revenue Growth: Despite having a solid 5‐year historical average PPE/Sales of 25.8% and has been historical growth of 8.6%, PG faced revenue growth improving over the past three years. Despite PG’s of ‐3.3% during 2009. In 2009, PG saw the adverse recent efficiency with managing its capital affects of a weak consumer spending environment, investments, we steadily grew PPE/Sales throughout which was exacerbated by its inability to further our forecast from 24.0% in 2010 to 26% by 2019. lower prices on its higher‐priced premium products This more accurately reflects its historical average during the recession. We therefore forecasted and reflects more of a worst‐case scenario revenue growth on a year‐to‐year basis. For 2010, assumption. we again penalized PG’s revenue growth to a level of ‐3%, and used ‐2% in 2011. We expect PG’s revenue Capital Asset Pricing Model growth to bounce back out of the recession with a Cost of Equity: Cost of equity of 7.85% was moderate growth rate of 5% in 2012. Following calculated using a risk‐free rate of 4.25%, market risk 2012, we forecast the growth of revenue to taper premium of 6% and beta of 0.6. Conducting a down to a long‐term growth rate of 3% by 2019. regression analysis on PG’s historical prices since Selling, General and Administrative Expenses: PG’s 2002 yielded a beta estimate of .49. To maintain historical average SG&A/Sales expense was 30.4%. conservatism in our model, we increased the beta For our forecast, we increased SG&A/Sales to 32% estimate to 0.6 to allow for reversion to the mean. due to PG’s stated intention to increase advertising

expenditures in the future. Cost of Goods Sold: PG operated with a historical Weighted Average Cost of Capital Assumptions

average COGS/Sales of 48.6%. This average was maintained throughout the forecasted years. Weighted Average Cost of Capital: WACC of 7.4% Research and Development: PG charges its R&D was calculated using costs of 2.7% in short‐term costs to its SG&A expenses, which is primarily why debt and 5.28% in long‐term debt. Cost of equity was calculated at 7.85% as described above. R&D/Sales were 0% as of the past three years. We maintained .5% R&D/Sales for the forecast. Long‐term Horizon Value Growth Rate: We applied Tax Rate: Since PG’s tax rate has been steadily a long‐term horizon growth rate of 3% for PG to declining from its 30.6% high in 2005, we maintained maintain a conservative outlook for the company's its historical average rate of 28.2% for the long‐term prospects. forecasted years. Share Growth: In 2007, PG announced its plan for a repurchase of $24‐$30 billion of its common stock through 2010. Therefore, we held PG’s share growth to 0% through the forecasted years. Student Investment Fund: Procter & Gamble

Profitability

Returns: PG maintains stable levels of returns on assets and equity throughout the forecast. PG generated a historical average 8.7% return on assets. This 8.7% is slightly compressed to an average 8% return on assets through 2019. PG also generated an average 21.1% return on equity over the past five years. Our conservative modeling approach is reflected in a narrowing of PG’s average return on equity to 14% throughout the forecasted years.

Earnings Per Share & Dividends Per Share: PG's

ability to generate profits for shareholders is reflected in its earnings per share and dividends per share metrics. PG generated a historical average growth in earnings per share of 8.1%. While our conservative model reduces this rate to nearly a quarter of its historical average EPS growth, PG’s forecasted EPS growth remains a positive 2.2% through 2019. PG also delivered a modest historical average DPS of 11.4% to its shareholders. PG’s DPS was tightened to a level of 8.2% annual growth for the forecast. Even compressed to these rates, PG manages to grow both EPS and DPS at healthy and sustainable levels through 2019.

Value Creation Metrics

Free Cash Flow: Over the past five years, PG has successfully shown its ability to create free cash flow. After growing at a historical yearly average rate of 17.7%, PG’s FCF was drastically reduced to a sustainable level of 2.7% average growth for the forecast. Net Operating Profit After Tax: Historically, PG has grown its NOPAT at an average rate of 11.03%. Following a significant reduction in NOPAT in 2010, we forecast NOPAT to grow at an average yearly growth rate of 3%.

Student Investment Fund: Procter & Gamble

Economic Value Added: In 2009, PG created $10.2 billion in economic profit. Our forecast tightens EVA to $8.7 billion and $8.5 billion in 2010 and 2011, respectively. This decrease in EVA was due to our projected forecasts of ‐3% and ‐2% revenue growth for the years, in respective order. Despite this dip, economic profit for PG grows at a steady average rate of 3% per year for the forecast.

Market Value Added: PG created MVA of $143.4 billion in 2009. For 2010, this metric grew to $148 billion. PG’s MVA is projected to continue its growth at a yearly rate of 3% through 2019.

Value Spread: ROIC vs. WACC

ROIC: Historical average return on invested capital was 46.7% for PG. In 2009, generated a significantly higher ROIC of 54.4%. For the forecast, ROIC was slimmed to an average 42.4% through 2019. WACC: Weighted average cost of capital was calculated at 7.4%. As described above, the risk‐free rate, beta, and market risk premium were increased to maintain conservatism. Value Spread (ROIC‐WACC): Procter and Gamble’s historical average value spread was 39.9%. In 2009, PG’s value spread was 44%. PG’s forecasted value spread averages 35%. Even with a considerably lower forecasted value spread, PG displays considerable potential to further increase its value creation beyond our forecasted ROIC‐WACC spread measure.

Student Investment Fund: Procter & Gamble

Relative Valuation

Price‐to‐Earnings: Procter and Gamble currently trades at a lower PE multiple of 13.5, which is lower than two of its top competitors, Colgate Palmolive (CL) and Clorox (CLX), with PE multiples of 19 and 15 respectively.

Price‐to‐Cash Flow: PG’s price‐to‐cash flow of 11 is an additional relative valuation metric that favors PG compared to Colgate Palmolive’s significantly higher PCF of 16; Clorox’s PCF is also 11.

Valuation Measures

Altman Z‐Score Test for Bankruptcy: The Altman Z‐Score was developed to predict a company’s likelihood of bankruptcy using five financial metrics. Companies scoring above 2.9 are considered to be financially healthy. Lower scores reflect a higher likelihood of failure of a firm. Historically, PG scored an average 3.19—well above

the safe zone. Procter and Gamble also scored in the safe zone with an average 3.92 for the forecast.

Piotroski ‘s Financial Fitness Scorecard This scorecard evaluates companies based on income statement and balance sheet performance. Firms can score up to a maximum of 11 points. Historically, Procter and Gamble scored an average of 7 out 11. PG’s average score for the forecasted years is 8 out of 11, which suggests increased financial stability through 2019. Student Investment Fund: Procter & Gamble

Graham and Dodd Insider Trading Thomson Reuters’ metric is computed using a Over time, net insiders tend to sell off their positions Graham and Dodd approach to valuation. PG, ranked in order to diversify their holdings. Most recently, in the 7th Decile, indicates that Procter and Gamble’s PG’s net insiders have slowed the selling of their investors are paying a lower premium for future positions. Overall, net insiders have divested an earnings than 70% of investors in the S&P 500. This aggregate $43 million since 2004. is indicative of undervaluation.

Earnings Momentum Procter and Gamble has favorable earnings momentum despite recent tough economic times. PG’s earnings momentum is better than 87% of stocks in the S&P 500.

Other Analysts Recommendation Ranked on a scale from 1 to 5 (1 being a strong by and 5 being a strong sell) PG has a mean analysts recommendation of 1.9, indicating a buy signal from analysts

Correlation with Student Investment Fund Stocks Correlations are calculated between stock returns to reveal how investments move in relation to one another within a portfolio. Low correlations are favorable and indicate a weak relation in performance Days to Cover between two equities. In order This ratio measures the period of time it will take to ensure Procter and Gamble short sellers to cover their positions relative to the would fit favorably into stock’s total trading volume. As of January 2006, Washburn’s Student PG’s stable days to cover ratio remains low, Investment Fund, we ran a suggesting short sellers have little interest in the correlation of Procter and stock. Gamble’s historical returns since 2004 with respect to the historical returns of stocks currently held in the SIF over the same time period. Procter and Gamble’s strongest correlation of .49 was shared between Johnson and Johnson (JNJ) and United Technologies Incorporated (UTX). PG's low correlation with the rest of the portfolio should ensure the Student Investment Fund maintains its lower‐than‐average beta exposure.

Procter and Gamble Technical Appendix, Page 1 of 8

ABCDEFGHIJKLMN 1 Forecasted income statement items are based on 5 years of historical average ratios unless a value is entered in 2 Enter Firm Ticker PG the manual cell, in which case the manual entry overrides the historical average. The idea is to consider whether 3 the historical average is truly representative of what the firm can achieve in the future. 4 values in millions 5 Historical Income Statements Forecasting Percentages 6 Enter first financial statement year in cell B6 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Average Manual 7 Total revenue 56,741 68,222 74,832 81,748 79,029 Revenue Growth 20.2% 9.7% 9.2% -3.3% 8.6% 8 Cost of goods sold 27,872 33,125 35,659 39,536 38,898 COGS % of Sales 49.1% 48.6% 47.7% 48.4% 49.2% 48.6% 9 Gross profit 28,869 35,097 39,173 42,212 40,131 10 SG&A expense 16,460 19,773 24,170 25,575 24,008 SG&A % of Sales 29.0% 29.0% 32.3% 31.3% 30.4% 30.4% 32.0% 11 Research & Development 1,9402,075000R&D % of Sales3.4%3.0%0.0%0.0%0.0%1.3%0.5% 12 Depreciation/Amortization 00000D&A % of Sales0.0%0.0%0.0%0.0%0.0%0.0% 13 Interest expense (income), operating 00000Inc. Exp. Oper.0.0%0.0%0.0%0.0%0.0%0.0% 14 Non-recurring expenses 00000Exp. Non-rec0.0%0.0%0.0%0.0%0.0%0.0% 15 Other operating expenses 00000Other exp. 0.0%0.0%0.0%0.0%0.0%0.0% 16 Operating Income 10,469 13,249 15,003 16,637 16,123 17 Interest income (expense), non-operating 00000Int. inc. non-oper. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 18 Gain (loss) on sale of assets 00000Gain (loss) asset sales0.0%0.0%0.0%0.0%0.0%0.0% 19 Other income, net 346 283 565 462 560 Other income, net 0.6% 0.4% 0.8% 0.6% 0.7% 0.6% 20 Income before tax 9,981 12,413 14,264 15,632 15,325 21 Income tax 3,058 3,729 4,201 3,834 4,032 Tax rate 30.6% 30.0% 29.5% 24.5% 26.3% 28.2% 22 Income after tax 6,923 8,684 10,063 11,798 11,293 23 Minority interest 00000Minority interest0.0%0.0%0.0%0.0%0.0%0.0% 24 Equity in affiliates 00000Equity in affiliates 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 25 U.S. GAAP adjustment 00000U.S. GAAP adjust.0.0%0.0%0.0%0.0%0.0%0.0% 26 Net income before extraordinary items 6,923 8,684 10,063 11,798 11,293 27 Extraordinary items, total 0 0 277 277 2,143 Extrordinary items Too unpredictable to forecast, set to zero in the forecast 28 Net income 6,923 8,684 10,340 12,075 13,436 29 Total adjustments to net income (136) (148) (161) (176) (192) Adjustments to NI Too unpredictable to forecast, set to zero in the forecast 30 Basic weighted average shares 2,516 3,055 3,159 3,081 2,952 Share growth 21.4% 3.4% -2.5% -4.2% 4.1% 0.0% 31 Basic EPS excluding extraordinary items 2.75 2.84 3.19 3.83 3.83 32 Basic EPS including extraordinary items 2.75 2.84 3.27 3.92 4.55 33 Diluted weighted average shares 2,737 3,286 3,399 3,317 3,154 Diluted share growth 20.1% 3.4% -2.4% -4.9% 3.6% 0.0% 34 Diluted EPS excluding extraordinary items 2.53 2.64 2.96 3.56 3.58 35 Diluted EPS including extraordinary items 2.53 2.64 3.04 3.64 4.26 36 Dividends per share -- common stock 1.03 1.16 1.28 1.45 1.64 37 Gross dividends -- common stock 2,595 3,555 4,048 4,479 4,852 Dividend growth 37.0% 13.9% 10.6% 8.3% 16.9% 10.0% 38 Retained earnings 4,328 5,129 6,292 7,596 8,584 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 Data Source: Thomson/Reuters 56 Procter and Gamble Technical Appendix, Page 2 of 8

O PQRSTUVWXYZ 1 Revenues grow at the same rate each year unless a growth value is manually entered in the cell above the forecast year, in which case the year-by-year value 2 overrides the historical or manual average. It makes sense to start tapering the growth forecasts 5 or 6 years into the forecast period. 3 4 Year-by-year revenue growth -3.00% -2.00% 5.00% 5.00% 4.00% 4.00% 3.50% 3.00% 3.00% 3.00% 5 Forecasted Income Statements -- 10 Years 6 year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 7 Total revenue 76,658 75,125 78,881 82,825 86,138 89,584 92,719 95,501 98,366 101,317 8 Cost of goods sold 37,242 36,497 38,322 40,238 41,848 43,522 45,045 46,396 47,788 49,222 9 Gross profit 39,416 38,628 40,559 42,587 44,290 46,062 47,674 49,104 50,577 52,095 10 SG&A expense 24,531 24,040 25,242 26,504 27,564 28,667 29,670 30,560 31,477 32,421 11 Research & Development 383 376 394 414 431 448 464 478 492 507 12 Depreciation/Amortization 0000000000 13 Interest expense (income), operating 0000000000 14 Non-recurring expenses 0000000000 15 Other operating expenses 0000000000 16 Operating Income 14,502 14,212 14,923 15,669 16,295 16,947 17,540 18,067 18,609 19,167 17 Interest income (expense), non-operating (957) (651) (596) (657) (653) (672) (748) (785) (865) (993) 18 Gain (loss) on sale of assets 0000000000 19 Other income, net 468 459 482 506 526 547 566 583 601 619 20 Income before tax 14,014 14,019 14,808 15,517 16,169 16,822 17,359 17,864 18,345 18,793 21 Income tax 3,951 3,953 4,175 4,375 4,559 4,743 4,894 5,037 5,172 5,298 22 Income after tax 10,063 10,067 10,633 11,142 11,610 12,079 12,465 12,828 13,173 13,495 23 Minority interest 0000000000 24 Equity in affiliates 0000000000 25 U.S. GAAP adjustment 0000000000 26 Net income before extraordinary items 10,063 10,067 10,633 11,142 11,610 12,079 12,465 12,828 13,173 13,495 27 Extraordinary items, total 0000000000 28 Net income 10,063 10,067 10,633 11,142 11,610 12,079 12,465 12,828 13,173 13,495 29 Total adjustments to net income 0000000000 30 Basic weighted average shares 2,952 2,952 2,952 2,952 2,952 2,952 2,952 2,952 2,952 2,952 31 Basic EPS excluding extraordinary items 3.41 3.41 3.60 3.77 3.93 4.09 4.22 4.35 4.46 4.57 32 Basic EPS including extraordinary items 3.41 3.41 3.60 3.77 3.93 4.09 4.22 4.35 4.46 4.57 33 Diluted weighted average shares 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 34 Diluted EPS excluding extraordinary items 3.19 3.19 3.37 3.53 3.68 3.83 3.95 4.07 4.18 4.28 35 Diluted EPS including extraordinary items 3.19 3.19 3.37 3.53 3.68 3.83 3.95 4.07 4.18 4.28 36 Dividends per share -- common stock 1.81 1.99 2.19 2.41 2.65 2.91 3.20 3.52 3.88 4.26 37 Gross dividends -- common stock 5,337 5,871 6,458 7,104 7,814 8,596 9,455 10,401 11,441 12,585 38 Retained earnings 4,725 4,196 4,175 4,038 3,796 3,484 3,010 2,427 1,732 910 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 Procter and Gamble Technical Appendix, Page 3 of 8

AA AB AC AD AE AF AG AH AI AJ AK AL AM AN 1 Forecasted balance sheet items are based on 5 years of historical average ratios unless a value is entered in the 2 Enter Firm Ticker PG manual cell, in which case the manual entry overrides the historical average. The idea is to consider whether the 3 historical average is truly representative of what the firm can achieve in the future. 4 values in millions 5 Historical Balance Sheets Forecasting Percentages 6 year 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Average Manual 7 Assets PPE Growth 31.0% 4.1% 5.6% -5.7% 1.2% 8 Cash & equivalents 6,389 6,693 5,354 3,313 4,781 Cash % of Sales 11.3% 9.8% 7.2% 4.1% 6.0% 7.7% 9 Short term investments 1,744 1,133 202 228 0 ST Invest. % of Sales 3.1% 1.7% 0.3% 0.3% 0.0% 1.1% 10 Receivables, total 4,185 5,725 6,629 6,761 5,836 Receivables % Sales 7.4% 8.4% 8.9% 8.3% 7.4% 8.1% 11 Inventory, total 5,006 6,291 6,819 8,416 6,880 Inventory % of Sales 8.8% 9.2% 9.1% 10.3% 8.7% 9.2% 12 Prepaid expenses 1,924 2,876 3,300 3,785 3,199 Pre. Exp. % of Sales 3.4% 4.2% 4.4% 4.6% 4.0% 4.1% 13 Other current assets, total 1,081 1,611 1,727 2,012 1,209 Other CA % of Sales 1.9% 2.4% 2.3% 2.5% 1.5% 2.1% 14 Total Current Assets 20,329 24,329 24,031 24,515 21,905 15 Property, plant and equipment (net) 14,332 18,770 19,540 20,640 19,462 Net PPE % of Sales 25.3% 27.5% 26.1% 25.2% 24.6% 25.8% 16 Goodwill 19,816 55,306 56,552 59,767 56,512 Goodwill % of Sales 34.9% 81.1% 75.6% 73.1% 71.5% 67.2% 17 Intangibles 4,347 33,721 33,626 34,233 32,606 Intangibles % of Sales 7.7% 49.4% 44.9% 41.9% 41.3% 37.0% 18 Long term investments 00000LT Invest. % of Sales0.0%0.0%0.0%0.0%0.0%0.0% 19 Notes receivable -- long term 00000Notes Rec. % of Sales0.0%0.0%0.0%0.0%0.0%0.0% 20 Other long term assets, total 2,703 3,569 4,265 4,837 4,348 Other LT ass. % Sales 4.8% 5.2% 5.7% 5.9% 5.5% 5.4% 21 Other assets, total 00000Other assets % Sales0.0%0.0%0.0%0.0%0.0%0.0% 22 Total assets 61,527 135,695 138,014 143,992 134,833 23 Liabilities and Shareholders' Equity 24 Accounts payable 3,802 4,910 5,710 6,775 5,980 Acc. Payable % Sales 6.7% 7.2% 7.6% 8.3% 7.6% 7.5% 25 Payable/accrued 00000Pay/accured % Sales0.0%0.0%0.0%0.0%0.0%0.0% 26 Accrued expenses 7,531 9,587 9,586 10,154 7,879 Acc. Exp. % of Sales 13.3% 14.1% 12.8% 12.4% 10.0% 12.5% 27 Notes payable/short term debt 8,835 198 9,495 13,084 0 Notes payable % Sales 15.6% 0.3% 12.7% 16.0% 0.0% 8.9% 28 Current portion of LT debt/Capital leases 2,606 1,930 2,544 0 16,320 Curr. debt % of Sales 4.6% 2.8% 3.4% 0.0% 20.7% 6.3% 29 Other current liabilities 2,265 3,360 3,382 945 722 Other curr liab % Sales 4.0% 4.9% 4.5% 1.2% 0.9% 3.1% 30 Total Current Liabilities 25,039 19,985 30,717 30,958 30,901 31 Long term debt, total 12,887 35,976 23,375 23,581 20,652 LT debt % of Sales LT debt is manually adjusted for AFN in the pro formas 32 Deferred income tax 1,896 12,354 12,015 11,805 10,752 Def. inc. tax % Sales 3.3% 18.1% 16.1% 14.4% 13.6% 13.1% 33 Minority interest 00000Min. Int. % of Sales0.0%0.0%0.0%0.0%0.0%0.0% 34 Other liabilities, total 3,230 4,472 5,147 8,154 9,429 Other liab. % of Sales 5.7% 6.6% 6.9% 10.0% 11.9% 8.2% 35 Total Liabilities 43,052 72,787 71,254 74,498 71,734 36 Preferred stock (redeemable) 1,483 1,451 1,406 1,366 1,324 37 Preferred stock (unredeemable) 00000 38 Common stock 2,977 3,976 3,990 4,002 4,007 39 Additonal paid-in capital 3,030 57,856 59,030 60,307 61,118 40 Retained earnings (accumluated deficit) 31,004 35,666 41,797 48,986 57,309 41 Treasury stock -- common (17,194) (34,235) (38,772) (47,588) (55,961) Set to last historical year's level throughout the forecasts. 42 ESOP Debt Guarantee (1,259) (1,288) (1,308) (1,325) (1,340) Set to last historical year's level throughout the forecasts. 43 Other equity, total (1,566) (518) 617 3,746 (3,358) The model uses the more conservative diluted common shares 44 Total Shareholders' Equity 18,475 62,908 66,760 69,494 63,099 number for total shares outstanding. 45 Total Liabilities and Shareholders' Equity 61,527 135,695 138,014 143,992 134,833 46 Diluted weighted average shares 2,737 3,286 3,399 3,317 3,154 Diluted share growth 20.1% 3.4% -2.4% -4.9% 3.6% 0.0% 47 Total preferred shares outstanding 00000PreferredThe model uses the share more growth conservative diluted common shares 48 number for total shares outstanding. 49 50 51 52 53 54 55 56 Procter and Gamble Technical Appendix, Page 4 of 8

AO AP AQ AR AS AT AU AV AW AX AY AZ 1 Model maintains a fixed ratio of ST debt/sales. LT debt is adjusted for shortfalls/surpluses of AFN. Every time something changes that affects the forecasts, set row 49 2 3 0.07 20,824 22,282 23,842 25,511 27,296 29,207 31,252 33,439 35,780 38,285 4 Year-by-year PPE/Sales 24.00% 24.00% 24.00% 25.00% 25.00% 25.00% 26.00% 26.00% 26.00% 26.00% 5 Forecasted Balance Sheets -- 10 Years 6 year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 7 Assets 8 Cash & equivalents 6,800 6,800 6,047 6,349 6,603 6,867 7,107 7,321 7,540 7,766 9 Short term investments 810 794 833 875 910 947 980 1,009 1,039 1,071 10 Receivables, total 6,176 6,052 6,355 6,673 6,939 7,217 7,470 7,694 7,925 8,162 11 Inventory, total 7,077 6,935 7,282 7,646 7,952 8,270 8,559 8,816 9,081 9,353 12 Prepaid expenses 3,173 3,109 3,265 3,428 3,565 3,708 3,838 3,953 4,071 4,193 13 Other current assets, total 1,620 1,587 1,667 1,750 1,820 1,893 1,959 2,018 2,079 2,141 14 Total Current Assets 25,655 25,278 25,448 26,721 27,790 28,901 29,913 30,810 31,735 32,687 15 Property, plant and equipment (net) 18,398 18,030 18,931 20,706 21,535 22,396 24,107 24,830 25,575 26,342 16 Goodwill 51,542 50,511 53,037 55,689 57,916 60,233 62,341 64,211 66,138 68,122 17 Intangibles 28,388 27,820 29,211 30,672 31,899 33,175 34,336 35,366 36,427 37,520 18 Long term investments 0000000000 19 Notes receivable -- long term 0000000000 20 Other long term assets, total 4,157 4,074 4,277 4,491 4,671 4,858 5,028 5,179 5,334 5,494 21 Other assets, total 0000000000 22 Total assets 128,140 125,713 130,906 138,279 143,810 149,563 155,725 160,396 165,208 170,164 23 Liabilities and Shareholders' Equity 24 Accounts payable 5,731 5,617 5,898 6,192 6,440 6,698 6,932 7,140 7,354 7,575 25 Payable/accrued 0000000000 26 Accrued expenses 9,586 9,395 9,864 10,357 10,772 11,203 11,595 11,943 12,301 12,670 27 Notes payable/short term debt 6,831 6,694 7,029 7,381 7,676 7,983 8,262 8,510 8,765 9,028 28 Current portion of LT debt/Capital leases 4,825 4,729 4,965 5,213 5,422 5,639 5,836 6,011 6,192 6,377 29 Other current liabilities 2,377 2,330 2,446 2,569 2,671 2,778 2,875 2,962 3,051 3,142 30 Total Current Liabilities 29,351 28,764 30,202 31,712 32,981 34,300 35,501 36,566 37,663 38,792 31 Long term debt, total 14,624 8,915 7,693 8,677 8,438 8,653 9,936 10,523 11,895 14,183 32 Deferred income tax 10,050 9,849 10,342 10,859 11,293 11,745 12,156 12,521 12,896 13,283 33 Minority interest 0000000000 34 Other liabilities, total 6,291 6,165 6,473 6,797 7,069 7,351 7,609 7,837 8,072 8,314 35 Total Liabilities 60,316 53,693 54,710 58,045 59,780 62,049 65,201 67,446 70,526 74,573 36 Preferred stock (redeemable) 1,324 1,324 1,324 1,324 1,324 1,324 1,324 1,324 1,324 1,324 37 Preferred stock (unredeemable) 0000000000 38 Common stock 4,007 4,007 4,007 4,007 4,007 4,007 4,007 4,007 4,007 4,007 39 Additonal paid-in capital 61,118 61,118 61,118 61,118 61,118 61,118 61,118 61,118 61,118 61,118 40 Retained earnings (accumluated deficit) 62,034 66,230 70,406 74,444 78,240 81,723 84,733 87,160 88,892 89,802 41 Treasury stock -- common (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) (55,961) 42 ESOP Debt Guarantee (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) (1,340) 43 Other equity, total (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) (3,358) 44 Total Shareholders' Equity 67,824 72,020 76,196 80,234 84,030 87,513 90,523 92,950 94,682 95,592 45 Total Liabilities and Shareholders' Equity 128,140 125,713 130,906 138,279 143,810 149,563 155,725 160,396 165,208 170,164 46 Total common shares (diluted) 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 3,154 47 Total preferred shares outstanding 0000000000 48 AFN (interactive with 3 items below) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 49 Adjustment to LT Debt (use Goal Seek) (6,028.4) (5,708.8) (1,221.9) 984.3 (239.5) 215.1 1,283.4 586.7 1,372.4 2,287.6 50 Issue Common Stock to Fund AFN 51 Set Balance Sheet Cash Lower to Fund AFN 6,800.0 6,800 52 53 54 55 56 Procter and Gamble Technical Appendix, Page 5 of 8

BA BB BC BD BE BF BG BH BI BJ BK BL BM BN BO BP 1 Enter Firm Ticker PG 2 values in millions 3 Historical Ratios and Valuation Model Forecasted Ratios and Valuation Model -- 10 Years 4 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 5 Liquidity 6 Current 0.81 1.22 0.78 0.79 0.71 0.87 0.88 0.84 0.84 0.84 0.84 0.84 0.84 0.84 0.84 7 Quick 0.61 0.90 0.56 0.52 0.49 0.63 0.64 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 8 Net Working Capital to Total Assets (0.08) 0.03 (0.05) (0.04) (0.07) (0.03) (0.03) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) (0.04) 9 Asset Management 10 Days Sales Outstanding 26.92 30.63 32.33 30.19 26.95 29.41 29.41 29.41 29.41 29.41 29.41 29.41 29.41 29.41 29.41 11 Inventory Turnover 11.33 10.84 10.97 9.71 11.49 10.83 10.83 10.83 10.83 10.83 10.83 10.83 10.83 10.83 10.83 12 Fixed Assets Turnover 3.96 3.63 3.83 3.96 4.06 4.17 4.17 4.17 4.00 4.00 4.00 3.85 3.85 3.85 3.85 13 Total Assets Turnover 0.92 0.50 0.54 0.57 0.59 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 14 Debt Management 15 Long-Term Debt to Equity 69.8% 57.2% 35.0% 33.9% 32.7% 21.6% 12.4% 10.1% 10.8% 10.0% 9.9% 11.0% 11.3% 12.6% 14.8% 16 Total Debt to Total Assets 35.3% 26.7% 23.8% 25.5% 15.3% 16.7% 12.4% 11.2% 11.6% 11.2% 11.1% 11.7% 11.9% 12.5% 13.6% 17 Times Interest Earned N/A N/A N/A N/A N/A 15.2 21.8 25.0 23.8 25.0 25.2 23.5 23.0 21.5 19.3 18 Profitability 19 Gross Profit Margin 50.9% 51.4% 52.3% 51.6% 50.8% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 51.4% 20 Operating Profit Margin 18.5% 19.4% 20.0% 20.4% 20.4% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 18.9% 21 Net After-Tax Profit Margin 12.2% 12.7% 13.8% 14.8% 17.0% 13.1% 13.4% 13.5% 13.5% 13.5% 13.5% 13.4% 13.4% 13.4% 13.3% 22 Total Assets Turnover 0.92 0.50 0.54 0.57 0.59 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60 23 Return on Assets 11.3% 6.4% 7.5% 8.4% 10.0% 7.9% 8.0% 8.1% 8.1% 8.1% 8.1% 8.0% 8.0% 8.0% 7.9% 24 Equity Multiplier 3.33 2.16 2.07 2.07 2.14 1.89 1.75 1.72 1.72 1.71 1.71 1.72 1.73 1.74 1.78 25 Return on Equity 37.5% 13.8% 15.5% 17.4% 21.3% 14.8% 14.0% 14.0% 13.9% 13.8% 13.8% 13.8% 13.8% 13.9% 14.1% 26 Free Cash Flow Per Share $1.48 $3.10 $4.04 $3.48 $3.29 $3.34 $3.38 $2.94 $3.40 $3.53 $3.40 $3.84 $3.96 $4.07 27 EPS (using diluted shares, excluding extraordinary item 2.53 2.64 2.96 3.56 3.58 3.19 3.19 3.37 3.53 3.68 3.83 3.95 4.07 4.18 4.28 28 DPS (dividends per share) 0.95 1.08 1.19 1.35 1.54 1.69 1.86 2.05 2.25 2.48 2.73 3.00 3.30 3.63 3.99 29 30 Valuation Metrics Trend Analysis (NOPAT, EVA, MVA, FCF and Capital in millions) Forecasted Valuation Metrics -- 10 Years 31 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 32 NOPAT (net operating profit after tax) 7,261 9,269 10,584 12,557 11,881 10,413 10,205 10,715 11,251 11,701 12,169 12,595 12,973 13,362 13,763 33 ROIC (return on invested capital) 39.1% 40.3% 45.9% 56.6% 51.4% 45.0% 44.7% 46.9% 45.3% 45.3% 45.3% 43.9% 43.9% 43.9% 43.9% 34 EVA (economic value added) 5,886 7,568 8,879 10,913 10,171 8,701 8,517 9,024 9,414 9,790 10,182 10,470 10,784 11,107 11,440 35 FCF (free cash flow) N/A 4,866 10,520 13,402 10,982 10,381 10,532 10,668 9,280 10,708 11,137 10,728 12,111 12,475 12,849 36 Weighted Average Cost of Capital 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% 37 Net Operating Working Capital (NOWC) 4,247 4,212 3,506 1,561 3,638 4,735 4,776 3,921 4,118 4,282 4,454 4,609 4,748 4,890 5,037 38 Operating Long Term Assets 14,332 18,770 19,540 20,640 19,462 18,398 18,030 18,931 20,706 21,535 22,396 24,107 24,830 25,575 26,342 39 Total Operating Capital 18,579 22,982 23,046 22,201 23,100 23,133 22,806 22,853 24,824 25,817 26,850 28,716 29,578 30,465 31,379 40 41 Valuation (in millions) -- through year 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 42 Long-term Horizon Value Growth Rate (user-supplied) 3.00% 43 PV of Forecasted FCF, discounted at 7.40% $222,563 $228,656 $235,048 $241,777 $250,391 $258,216 $266,191 $275,166 $283,420 $291,923 $300,681 44 Value of Non-Operating Assets $4,781 $7,610 $7,594 $6,880 $7,224 $7,513 $7,814 $8,087 $8,330 $8,580 $8,837 45 Total Intrinsic Value of the Firm $227,344 $236,266 $242,642 $248,657 $257,616 $265,729 $274,005 $283,253 $291,750 $300,503 $309,518 46 Intrinsic Market Value of the Equity $206,692 $215,614 $221,990 $228,005 $236,964 $245,077 $253,353 $262,601 $271,098 $279,851 $288,866 47 Per Share Intrinsic Value of the Firm $65.53 $68.36 $70.38 $72.29 $75.13 $77.70 $80.33 $83.26 $85.95 $88.73 $91.58 48 MVA (market value added) $143,593 $147,789 $149,969 $151,809 $156,730 $161,047 $165,840 $172,078 $178,148 $185,169 $193,274 49 Weighted Average Cost of Capital Calculations Capital Asset Pricing Model 50 Item Value Percent Cost Weighted Cost Risk Free Rate 4.25% 51 ST Debt (from most recent balance sheet) 0 0.00% 2.70% 0.00% Beta 0.60 52 LT Debt (from most recent balance sheet) 20,652 11.05% 5.28% 0.42% Market Risk Prem. 6.00% 53 MV Equity (look up stock's mkt. cap and enter in cell BB53 166,245 88.95% 7.85% 6.98% Cost of Equity 7.85% 54 Weighted Average Cost of Capital 7.40% 55 56 Procter and Gamble Technical Appendix, Page 6 of 8

BQ BR BS BT BU BV BW BX BY BZ CA CB CC CD CE CF CG CH 1 2 In this section we are going to examine historical and forecasted ratios (or "multiples") typically used to value stocks ‐‐ P/CF, Enterprise Value/EBITDA, etc. We first want to compare the historical trends 3 in these ratios to the trends in their forecasted values. If our forecasted multiples are systematically increasing or decreasing our forecasts may be too optimistic or pessimistic, and our forecast 4 assumptions may have to be adjusted. Second, we want to compare our discounted cash flow valuation estimates with those derived from the various multiples. Once again, if there is a large 5 discrepancy between our DCF valuation estimate of the company's stock and the range of values obtained from the various multiples, we may want to adjust our forecast assumptions. 6 1. You will need to look up the company's year‐end stock prices and enter them in the first 5 (historical) years of the "per share value" category. 7 2. Use the estimated DCF price per share in the forecasted period (link to your forecasted prices in cells BG47‐BP47. 8 3. Market capitalization will be calculated as basic weighted shares x historical year‐end prices and then forecasted basic weighted shares x DCF forecasted prices. 4. As with previous calculations, historical multiples use actual historical values and forecasted multiples use forecasted values. 9 10 11 12 Historical Ratios and Valuation Forecasted Ratios and Valuation 13 Inputs 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 14 Per share value (hist. & DCF est.) $57.88 $64.27 $73.42 $61.82 $58.00 $68.36 $70.38 $72.29 $75.13 $77.70 $80.33 $83.26 $85.95 $88.73 $91.58 15 Market capitalization $145,603 $196,338 $231,934 $190,455 $171,228 $201,812 $207,780 $213,410 $221,795 $229,389 $237,136 $245,791 $253,745 $261,937 $270,375 16 EBITDA $9,981 $12,413 $14,541 $15,909 $17,468 $14,970 $14,671 $15,404 $16,174 $16,821 $17,494 $18,107 $18,650 $19,209 $19,786 17 Enterprise Value $162,419 $227,270 $260,856 $225,173 $188,423 $217,790 $217,913 $223,409 $232,828 $240,224 $248,228 $258,206 $266,781 $276,381 $287,144 18 Multiples 19 Price/Sales 2.57 2.88 3.10 2.33 2.17 2.63 2.77 2.71 2.68 2.66 2.65 2.65 2.66 2.66 2.67 20 Price/EBITDA 14.59 15.82 15.95 11.97 9.80 13.48 14.16 13.85 13.71 13.64 13.56 13.57 13.61 13.64 13.67 21 Price/Free Cash Flow N/A 33.23 21.32 14.57 16.27 19.44 19.73 20.00 23.90 21.42 21.29 22.91 20.95 21.00 21.04 22 Enterprise Value/EBITDA 16.27 18.31 17.94 14.15 10.79 14.55 14.85 14.50 14.39 14.28 14.19 14.26 14.30 14.39 14.51 23 Price/Earnings 22.88 24.32 24.80 17.38 16.20 21.43 22.05 21.44 21.27 21.11 20.97 21.07 21.13 21.24 21.41 24 Free Cash Flow Yield 2.3% 4.2% 6.5% 6.0% 4.8% 4.7% 4.7% 3.9% 4.4% 4.4% 4.1% 4.5% 4.5% 4.4% 25 Dividend Yield 1.64% 1.68% 1.62% 2.18% 2.65% 2.48% 2.64% 2.83% 3.00% 3.19% 3.39% 3.60% 3.84% 4.09% 4.36% 26 Historical Override Forecasted Stock Prices Based on Historical Multiples -- 10 Years 27 Valuation Estimates Based On: Average w/Manual 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 28 Price/Sales 2.61 $63.38 $62.12 $65.22 $68.48 $71.22 $74.07 $76.66 $78.96 $81.33 $83.77 29 Price/EBITDA 13.63 $69.09 $67.71 $71.10 $74.65 $77.64 $80.74 $83.57 $86.08 $88.66 $91.32 30 Price/Free Cash Flow 21.35 16.27 $57.21 $58.04 $58.79 $51.14 $59.01 $61.37 $59.12 $66.75 $68.75 $70.81 31 Enterprise Value/EBITDA 15.49 $78.56 $76.99 $80.84 $84.88 $88.27 $91.81 $95.02 $97.87 $100.81 $103.83 32 Price/Earnings 21.12 16.20 $55.22 $55.24 $58.35 $61.14 $63.71 $66.28 $68.40 $70.39 $72.28 $74.05 33 Low Price $55.22 $55.24 $58.35 $51.14 $59.01 $61.37 $59.12 $66.75 $68.75 $70.81 34 High Price $78.56 $76.99 $80.84 $84.88 $88.27 $91.81 $95.02 $97.87 $100.81 $103.83 35 DCF Price $68.36 $70.38 $72.29 $75.13 $77.70 $80.33 $83.26 $85.95 $88.73 $91.58 36 37 38 Price/Sales and Enterprise Value/EBITDA vs. Price Forecasted Per Share Stock Values 39 20 $100 $120 40 $90 $105 41 16 Share

$80 $90

42 Price

43

$70 Per $75 12 DCF

44 Value/EBITDA

$60 $60 or

45 Value 46 8

Ent. $50 $45 47 $40 $30

48 and 4

49 $30 Historical $15 50 P/S 0 $20 Forecasted $0 51 52 53 54 55 Price/Sales Enterprise Value/EBITDA Historical or DCF Price Low Price DCF Price High Price 56 Procter and Gamble Technical Appendix, Page 7 of 8

CI CJ CK CL CM CN CO CP CQ CR CS CT CU CV CW CX CY CZ DA DB 1 2 3 Price/Earnings Ratio and Dividend Yield Earnings and Dividends Per Share 4 35 5.0% $4.50 5 30 $4.00 6 4.0% $3.50 Ratio

25 DPS

7 $3.00 3.0% 8 20 $2.50 and Yield

$2.00 9 15 2.0%

EPS $1.50 10 10 1.0% $1.00 11 5

Price/Earnings $0.50 12 Dividend 0 0.0% $0.00 13 14 15 16 Price/Earnings Ratio Dividend Yield Earnings Per Share Dividends Per Share 17 18 19 20 Gross, Operating and Net Profit Margins Return on Assets, Equity and Invested Capital 21 60% 60% 22 55% 55% 23 50% 50% 45% 45% ROIC 24 40% 40% 25 35% 35% and

Margin 26 30% 30% 25% 25%

27 ROE 20% 20%

28 Gross 15% 15% 10% 10% 29 5% ROA, 5% 30 0% 0% 31 32 33 34 Gross Margin Operating Margin Net Margin Return on Assets Return on Equity Return on Invested Capital 35 36 37 NOPAT and Free Cash Flow (millions) 38 Economic Value Added & Market Value Added (millions) 39 $16,000 $12,000 $210,000 40 $14,000 Flow

$11,500 41 $190,000 $11,000 $12,000 42 $170,000 Added Cash

$10,000 $10,500 Added

43 $10,000 $150,000 44 $8,000 Free

$9,500 $130,000 Value

45 $6,000 Value $9,000 $110,000

46 and

$4,000 47 $8,500 $90,000 $2,000 48 $8,000 $7,500 $70,000 Market

Economic $0

49 NOPAT 50 $7,000 $50,000 51 52 53 NOPAT Free Cash Flow 54 Economic Value Added Market Value Added 55 56 Procter and Gamble Technical Appendix, Page 8 of 8

DC DD DE DF DG DH DI DJ DK DL DM DN DO DP DQ DR DS DT DU DV 1 2 Short Interest (thousands of shares) Average Daily Trading Volume (thousands) 3 4 72,000 32,000 66,000

5 60,000 28,000 54,000 6 48,000 24,000 7 42,000 36,000 20,000 Volume

8 (thousands) 30,000 9 24,000 16,000 18,000 Daily 10 12,000 12,000 Interst

6,000 11 0 8,000 Avg. 12

Short 4,000 13 14 15 Axis Title 16 17 Short Interest (thousands of shares) Average Daily Volume (thousands of shares) 18 19 20 Days to Cover Ratio (Short Interest / Volume) Peer Comparison: Price/Cash Flow Ratio 21 8.0 22 22 22 7.0 23 20 20

6.0 CLX

24 Ratio 18 18

& 5.0 25 16 16 4.0 CL

26 PG Cover

14 14 27 3.0 to 12 12 28 2.0 1.0 10 10

29 Days 30 0.0 8 8 31 32 33 34 Days to Cover PG CL CLX 35 36 37 38 Peer Comparison: Price/Earnings Ratio Peer Comparison: Price/Sales Ratio 39 30 30 5 40 4 41 25 25

42 CLX CLX

3

43 &

& 20 20 PG

44 CL CL 2 45 46 15 15 1 47 48 10 10 0 49 50 51 52 53 PG CL CLX PG CL CLX 54 55 56