Edgar Filing: PROCTER & GAMBLE CO

Filed by The Procter & Gamble Company
Pursuant to Rule 425 under the
Securities Act of 1933

Subject Company: The Gillette Company
Commission File No.: 1-00922

FINAL TRANSCRIPT

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CONFERENCE CALL TRANSCRIPT

PG - PROCTER & GAMBLE COMPANY AT CONSUMER ANALYST GROUP OF NEW YORK 2005
CONFERENCE

EVENT DATE/TIME: FEB. 24. 2005 / 10:15AM ET
EVENT DURATION: N/A

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FINAL TRANSCRIPT
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PG - PROCTER & GAMBLE COMPANY AT CONSUMER ANALYST GROUP OF NEW YORK 2005 CONFERENCE
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CORPORATE PARTICIPANTS
AG LAFLEY
Procter & Gamble Company - Chairman, President, CEO

JIM KILTS
Gillette Company - Chairman, President, CEO

CLAYT DALEY
Procter & Gamble Company - CFO

CONFERENCE CALL PARTICIPANTS
ANN GILLIN-LEFEVER
Consumer Analyst Group of New York - Analyst

PRESENTATION

ANN GILLIN-LEFEVER - CONSUMER ANALYST GROUP OF NEW YORK - ANALYST

Good morning. When P&G and Gillette announced their intended merger on January
28, there were a few key words they ascribed to the deal, which we should see in
action during today's joint presentation by both companies. On the innovation
front, our session this morning marks the first time that I can recall a joint
presentation by two companies at CAGNY. Further this unique format suggests
synergy and their respective collaborative cultures are already at work. And we
certainly have scale from this extended 2 hour presentation and Q&A format.

With us this morning are two leaders who we all know well. Two leaders who have
led dramatic turnarounds at their respective companies, and who intend to
continue the momentum as they bring P&G and Gillette together. It is a great
pleasure to introduce AG Lafley, CEO of P&G, who will be followed by Jim Kilts,
CEO of Gillette.

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

Good morning. Thank you very much for inviting us to be with you today. Two
months ago at P&G's analyst meeting in Boston we explained why we're confident
that P&G's strategies and capabilities will enable sustained long-term top and
bottom line growth. Last month we announced the acquisition of Gillette, a
combination that brings together two of the leading consumer products companies
in the world, and further strengthens P&G's consumer driven business model.
Today Jim and I want to update you on the health of P&G's and Gillette's
businesses. Then we will go deeper on two elements of the deal that we did not
get to spend as much time on when we announced the acquisition.

First, why now and why P&G? Jim will explain why he and his management team felt
that now is the right time for Gillette to seek a partner, and why they saw P&G
ias the best partner for Gillette's long-term growth. Second, what is in this
for P&G shareholders? I will explain in greater detail how Gillette creates
upside to our growth model, and why we're confident we can integrate our two
companies while continuing to grow each company's existing business. As a
result, I hope you'll come away seeing the magnitude of the growth opportunities
this deal creates, and confident that we can and will deliver the growth to
which we are committing.

Before we get started, we need to cover the legal items. I want to remind you
that the presentations this morning will include a number of forward-looking
statements. If you will refer to our most recent 10-K and 8-K reports you'll see
a discussion of factors

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that could cause the Company's actual results to differ materially from these
projections. Also, as required by Regulation G, we need to make you aware that
during the presentation we will make a number of references to non-GAAP
measures. For completeness we have posted on our website, www.pg.com, a full
reconciliation of non-GAAP measures to U.S. GAAP.

Now let's get on with the business updates. P&G's choices are paying off. At the
beginning of this decade we made the choice to focus on the core business, on
leading brands on leading innovation. We made the choice to shift P&G's business
mix toward health, beauty and personal care. We made the choice to serve more of
the world's consumers in developing markets. These choices set P&G on a path of
balanced growth and consistent leadership. And they remain right choices for the
long-term.

We have grown organic volume on average more than 7 percent over the past 3
years. The momentum continues to be strong through the first half of fiscal
2005, with 8 percent organic volume growth. Sales growth has also been strong.
Over the past 3 years sales FX have been up more than 8 percent on average,
above P&G's long-term target of 4 to 6 percent. Organic sales have been up 5
percent on average over the past 3 years, at the top end of our goal for organic
sales growth, which is 3 to 5 percent.

Here too momentum continues to be strong. In fact organic growth is now tracking
1 to 2 percentage points ahead of target through the first half of this fiscal
year. There are two things to understand about P&G's growth. First, it is
quality growth, because it is primarily organic growth. We're growing
organically across virtually all of P&G's businesses, fabric care, baby care,
fem care, hair care as well as skin care, home care and health care. We
accelerated base business growth even as we integrated a number of acquisitions.

Second, P&G's growth is sustainable growth, because it is driven by strategic
and systemic changes that are making us better and more efficient. We're getting
even more value from P&G's core strengths of branding, innovation, scale and go
to market capability. It is all about balance and leadership. Balance creates
flexibility to deliver results reliably in good times and challenging times.
P&G's growth model is focused on balanced top and bottom line growth.

P&G's growth is coming from a balanced mix of businesses. We have a unique
combination of large steadily growing household businesses and faster growing,
higher margin health, beauty and personal care businesses. We have a balanced
mix of retail customers. We have strong strategic relationships with the largest
leading retailers, and we're growing fast with other customers in channels such
as high frequency stores in developing markets.

We have a balanced mix of developed and developing markets. Major developed
regions such as northeast Asia, North America and Western Europe are healthy and
growing steadily. At the same time, developing markets such as China, Russia,
Mexico and Turkey are disproportionate engines of growth.

Leadership is equally important. Leadership creates the flexibility to invest in
growth and the capability to sustain that growth. In consumer products the
industry and innovation leaders are best positioned to be the growth catalyst.
Brands that set the pace of innovation in their categories earn a significant
share of the growth they stimulate. This is why we place so much emphasis on
being the leader in every category where we compete.

P&G is one of the strongest leaders in the consumer products industry.
Two-thirds of P&G's sales come from categories where P&G is number 1 in market
share. P&G brands are leading innovation. Baby care is the innovation leaders
with baby stages of development, Pampers Feel and Learn and now Can Do.

Fabric care is leading on the strength of Tide with a touch of Downey and Tide
Cold Water. Tampex Pearl and Naturala continue to set performance and value
standards in fem care. Pantene Prohealth and Color Expressions are keeping P&G
hair care in the league. In addition, we have generated almost $5 billion in
retail sales in categories that did not exist, or in which we did not compete,
just 5 years ago. P&G's leadership is also recognized by retail customers and by
business and innovation partners. For retailers, P&G brands and P&G innovation
are indispensable.

Our leadership brands attract shoppers and grow the size and probability of
shopping baskets. Suppliers and partners want to work with P&G, the breadth and
depth of P&G capabilities and our ability to commercialize innovation helps them
grow their business as well as ours. The strategic choices we have made reflect
our belief in balance and leadership. So let's look at these choices in more
detail.

The first choice we made was to focus on our core businesses and brands, our
core markets and our core customers. We have been focused on growing P&G's
leading billion dollar brands. Today we have $16 billion brands. This is up from
10 just 5 years ago. Growth on brands like Tide, Pampers, Pantene, Olay and Head
& Shoulders has accelerated to double digits over the first half of fiscal 2005.
We have been focused on growing with our top 10 retail customers. P&G volume at
these winning retailers has grown on average 7 percent in the first half of this
year. Importantly, P&G's growth is not dependent on any one channel or customer.
During the first half of this fiscal we have grown volume with 8 of the top 10
customers.

Our third focus area is on growing P&G's core countries. The largest 16
geographic markets represents 80 percent of the Company's business. These
markets include big developed countries such as the U.S., the UK, Japan and
Germany, and developing countries such as China, Russia, Mexico and Turkey.
Together the top 16 countries have been growing volume 8 percent on average over
the first half of this fiscal year.

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Importantly, organic volume growth in developed markets has consistently been
mid-single-digits, and twice the rate of GDP growth in these markets. This is
strong performance that very few consumer products companies have been able to
match. Our low income consumer strategy has delivered 6 consecutive quarters of
mid to high teens volume growth in developing markets. This strategy has
deepened P&G's penetration in key developing markets like China, Russia and
Turkey. At the same time it has enabled us to expand in the midtier consumer
segments in developed markets. As we discussed at the analyst day meeting in
December, this is an area where we continue to see considerable upside.

P&G's mix of operating businesses is also a picture of balance and leadership.
In 1998 about two-thirds of P&G's business was in household categories, large,
steady growing cash generating businesses. In the years since we have been
shifting the mix toward a more even balance between these categories and faster
growing, higher margin health, beauty and personal care categories. Acquisitions
have played a significant role in this shift. But as you can see, this is not
just a story of acquisitions. Organic growth in health and beauty has averaged
more than 8 percent over the past 3 years.

And despite a strong base period, this growth continues to track ahead of
long-term targets through the first two quarters of fiscal 2005. Over the past 3
years we have grown every, every P&G health and beauty care business. As a
result, we expect health and beauty to represent about 47 percent of P&G's
portfolio in the current fiscal year. This percentage should grow to 50 percent
or more with the acquisition of Gillette.

What is most important here is that we did not get distracted by acquisition
activity. A number of analysts and some investors have been understandably
concerned that acquisitions would distract P&G management from the core
business. However, we integrated Clairol and Wella, even as we accelerated
organic health and beauty care growth.

There are two reasons we have been able to do this. First, our strategic
priority on growing from the core has kept us sharply focused on existing
businesses. Second, the plug and play capability of P&G's unique organization
structure enabled us to integrate new businesses without taking our eyes off
existing businesses.

For example, our market development organizations have taken Herbal Essences
around the world, while at the same time building Pantene market share around
the world, and turning Head & Shoulders into one of our fastest-growing billion
dollar brands. At the same time our GDS organization has been integrating back
office support for Clairol and Wella, while also raising service levels and
lowering costs for P&G's established businesses. No other CPG company has
created a similar organizational capability.

We have made it possible for each business unit to capture the scale of a $55
billion global company. We're essentially running a number of very focused,
smaller companies that share a common go to market infrastructure in local
markets, and a global shared services back room capability.

Following the acquisition, Gillette's businesses will be able to take advantage
of this infrastructure. The 3 business units that represent about 75 percent of
Gillette's sales, blades and razors, Duracell batteries and Braun will
essentially remained stand-alone businesses, but with access to P&G's unmatched
go to market and back office capabilities.

If you need any more evidence that this model works, just look at the
performance of P&G household categories where we have accelerated growth even as
we have grown health and beauty care. We can drive this kind of parallel growth
precisely because of the way we're organized. A business unit President, like
Dan Hanretta (ph) in baby care, hasn't had to pay a moment's notice to the
acquisition activity in health and beauty care. She and her organization has
stayed sharply focused on winning with moms who are concerned about their
babies' care and development. They have been leading innovation like Baby Stages
of Development, like Pampers Feel and Learn, like the Can Do line of products,
and have been growing faster than any competitor.

This too is about balance and leadership. We have been able to balance our focus
on strengthening P&G leadership in existing businesses while integrating
acquired businesses. We will not waver from our focus on growth from core
businesses where P&G brands are leaders. And we will only get better at
leveraging the capabilities of the organization structure.

Would I hope you can see here is that P&G's choices are resulting in balanced
leadership growth across the entire business. We're growing P&G's billion dollar
brands. We're growing with the top 10 retailers. We're growing in the largest
developed markets and in the fastest-growing developing markets. We're growing
P&G's household, baby and family care businesses, as well as P&G's health,
beauty and personal care businesses. We're growing organically while expanding
our core through adjacencies and through tack on as well as strategic
acquisitions.

P&G's balanced mix of businesses, markets and customers is unique in our
industry. And we're delivering leadership growth across all these businesses,
markets and customers. The key factor in sustaining this growth and translating
it into strong shareholder returns are the strategic and systemic changes we
have made to better leverage our core strengths. P&G's primary business model is
a simple but powerful one. Our purpose is to provide brands and products that
really improve the everyday lives of the consumers we serve.

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P&G's core activities, our branding, innovation, scale and go to market
capabilities, these core activities drive P&G's business model. Over the past
few years we have made a number of changes that are strengthening our processes
and our capabilities. As a result, we're getting even more value from P&G's core
competencies. This graphic shows how it all comes together. We're getting more
out of P&G innovation by multiplying our internal innovative capability with our
Connect and Develop strategy and capability. We're then bringing initiatives to
market more successfully and more profitably.

We're getting more value from P&G scale with greater cost and cash discipline.
As a result, we are bringing more innovation to market at price points that
deliver superior consumer value and strong shareholder value. We're amplifying
P&G's go to market strengths with our unique organization structure. This is
providing the capacity and the focus to commercialize a larger innovation
pipeline and more markets with more customers simultaneously.

Finally, we're getting even more value from P&G's leading global brands. These
brands are platforms for innovation. They have earned deep and enduring trust
from consumers worldwide. As a result, we could bring innovation to market on
these brands far more effectively and far more efficiently than we could without
them. The result, increased returns on initiatives and stronger P&G brand
equity.

In short, we are innovating at a faster pace. We're delivering innovation to
market affordable and profitably, with deep local knowledge and strong retail
partnerships. We're commercializing innovation more successfully and more
consistently. It all results in sustainable growth and consistent shareholder
returns.

As I said at the beginning, P&G's choices are working, and when combined with
the strategic and systemic changes we have made, they remain the basis for our
confidence in P&G's consistent, sustainable growth. We have delivered 3 years of
double-digit earnings per share growth. And fiscal 2005 is on track for 13 to 14
percent EPS growth, behind continued strong organic volume growth and solid
operating margin performance.

Fiscal 2004 was a test year for P&G's growth model because we started to fund
restructuring from within the current businesses. Then 2005 became yet another
test year. We came up off a very strong base period. Commodity prices moved
against us in a significant way. In addition, several key competitors lowered
the bar so they could spend more to keep up with our innovation programs. These
testing years have been an opportunity to demonstrate the resilience and
strength of P&G's business model and the core capabilities and competencies that
set us apart.

We were pleased with last year's results. And we are equally pleased that we are
on track to complete this year successfully, and significantly ahead of P&G's
long-term top and bottom line growth objectives. However, we're not taking
success for granted. And in fact, we're not satisfied. We remain focused behind
an initiative pipeline that is particularly strong in the back half of this
fiscal year. We will concentrate on sustaining P&G's momentum in core
categories, on leading billion dollar brands in the top 16 developed and
developing countries and with big winning retailers. As a result, at the January
28th meeting we raised the Company's top and bottom line guidance for the
balance of the year. And with Gillette we believe we're opening whole new areas
of opportunity for additional growth beyond this fiscal year.

I know you're looking for more details about how we will capture these growth
opportunities, and I will come back to this in more depth a bit later. The first
I would like to hand it over to Jim, who will discuss the power of Gillette and
the key growth drivers for continued success going forward.

JIM KILTS - GILLETTE COMPANY - CHAIRMAN, PRESIDENT, CEO

Thanks AG, and hello everyone again. It is great to be back. The Gillette story
has evolved quite a bit since we last met. AG just talked about the great new
Company that will be created with the combination of Gillette and Procter &
Gamble. We will create a Company that draws the best from two very strong
organizations. It will be a global Company, built upon scale, diversity and
brand strength. Those are all requisites for consistent growth in a
consolidating, highly competitive global environment. Today date I will talk
about what Gillette brings to the combination.

Let's start with our great operating strengths. We have proven consistently and
conclusively that we can perform. As you know in 2004 we had our second
consecutive year of record results across the board. That performance capped off
a turnaround of a Company that 4 years ago was drifting and existing largely on
the strength of a few powerful brands.

But over the past 3 years we have reported consistent sales and earnings growth.
We have made great progress on the sales line behind a strong new products
program, and continued trade up to our premium products. Sales grew 5 percent in
2002, 9 percent in 2003, and 13 percent in 2004. That is a 9 percent compound
growth rate over the past 3 years. We also regained our earnings momentum.
Earnings per share grew 15 percent in 2002, 18 percent in 2003, and up to a
record 25 percent in 2004.

At the same time we have increased the quality of our P&L. We have improved
gross margin by 350 basis points from 55.8 percent in 2001 to 59.3 percent in
2004. We have cut our overhead expenses by 330 basis points as we successfully
implemented our Functional Excellence Program. Taking cost out the system has
provided us with the affordability to reinvest behind our brands. We have
increased advertising as a percent of sales from 7.1 percent in 2001 to 11
percent in 2004, an increase of almost $600 million.

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Looking at return on invested capital, we more than doubled our return from 2001
through 2004 to 34 percent. And we generated in over $7 billion in free cash
flow, nearly 4 times what we produced in the 1997 to 2000 period. Those numbers
were produced by a strong and greatly improved portfolio of businesses. But as
productive and gratifying as the last 4 years have been, we know they are
history. As we look ahead to the combination with Procter & Gamble, what counts
is how our businesses and capabilities will deliver consistent growth going
forward.

We will do this through 4 key growth drivers. Gillette competes in high-growth
advantage categories. We are the technology leader in our categories. We can
drive trade up around the world for higher performing, higher margin products.
And we have a culture defined by a constant turnaround mentality and a drive for
innovation. In short, Gillette is the total package.

Let's talk first about high-growth advantage categories. We use 3 measures of
advantage, consistently high growth, global brands serving global consumers, and
low private label penetration. And we stack up well against all 3, starting with
high growth. As you can see from this chart, we're definitely in the right
places. We are in the 2 consumer product categories that have grown the fastest
during the last 4 years; blade and razor growth at 8.2 percent, and oral care
toothbrushes at 7.3 percent, with other strong industry categories coming in
behind. Growth in alkaline batteries has been curbed somewhat by price deflation
resulting from high promotional activity. Even so, battery growth was solid at
3.7 percent over 4 years.

Adding to the advantage of high growth is the fact that our categories and our
brands that truly global. I use that qualifier, truly, because we have a great
advantage over what I call multinational companies that bring together different
products with different names and various brand positionings. We serve more than
1 billion people around the world every day. When one of them picks up a
Gillette product, it is the same product with the same name and the same brand
positioning. Let's take a look at this video that illustrates how we go to
market throughout the world. (video playing)

In our categories no competitor has this kind of consistency. For example, in
blades the Gillette branded products such as Gillette Mach 3 and Gillette Venus
represent 94 percent of our sales globally, while the Shick brand accounts for
only 54 percent of Shick sales. And in batteries, Duracell branded products are
95 percent of our business, while the Energizer brand accounts for only 68
percent of Energizer's sales.

One of the reasons we can operate with such a global sameness is that for the
most part all consumers in our 4 categories act like 1 consumer. They use our
products in the same ways and with the same expectations. For example, our
market research shows that consumers in the U.S., Europe, Russia, and Japan all
focus on the same key performance attributes when shaving. Safety and comfort is
always number 1. Closeness is almost always second. Speed and convenience and
quality and value consistently numbers 3 and 4. You'll find that kind of
consistency all across our product lines. It opens the door to deep consumer
understanding and tremendous market efficiency.

Global consistency is a great advantage, but not if others can easily replicate
our offerings and consumer appeal. Let's go to the next slide which shows --
which looks at the penetration of private label.

That is an issue for just about every other consumer products company. As you
see, the average private label share for all consumer staples is 15 percent. For
the average food or beverage category the penetration is 18 percent. These are
big numbers. These are the kind of numbers that can inhibit growth and create a
base for even more private label. Now look at our category. The high is for
batteries at 12.7 percent, but that is still lower than the average. Then it
drops to 6.5 percent for toothbrushes. And all the way down to 2.9 percent for
system blades. And is almost nonexistent in antiperspirants and deodorants.

On average, our private label penetration is about half of other leading
consumer staple categories. Those numbers say that we can invest in innovation
and brand building with confidence. Confidence that it will be very difficult
for a lower-priced knock off to come in and take a free ride on our investment.

Let's move to driver number 2, technology. And I want to spend some time here
because it is key to creating the new product platforms that give us both
topline growth and strong operating margins. Technology plays a big part in our
well earned reputation as one of the best new product companies in any sector.
New products which we define as products introduced in the previous 5 years,
have accounted for more than 40 percent of our sales each year for the past 11
years.

The growth driving power of our technology is a three-part story. It creates
advantage in product development, in manufacturing efficiency, and in cost
reduction. This video illustrates the power precision and end result of
Gillette's technology. Let's take a look. (video playing)

Our technology leadership in product development resides in 3 areas, our deep
scientific understanding of hair, skin and teeth, our leading knowledge in
chemistry, and our expertise in advanced electromechanics. I could provide any
number of examples of how we combine those areas to drive new products. But I
will focus on one, M3 Power.

The basis for this product started with our knowledge that pulses could find the
beard for a closer shave. Our Braun and Duracell expertise electromechanics and
portable power enabled us to create the pulses with a new technology called
micropower pulsation.

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And our chemists, metallurgy experts and process engineers then developed a new
blade edge and blade coating process. The result, the smoothest, closest shaving
blade surface ever made. The combination of micro pulsation and advanced blade
technology created a superior performance that consumers could really feel. In
testing M3 Power won by very large margins on every one of 68 attributes tested.
And M3 Power was preferred over Shick's best system, the Quattro, by a score of
77 to 15 percent, an incredible margin of more than 5 to 1.

You can also see our product development advantage in 2 more big wins. Our high
end rechargeable toothbrush, the Oral B Professional Care 7000 beat Plantacare
Elite 54 to 41 percent. That is a huge win for any consumer product. And it has
driven significant growth in our power brushing business over the past year.

The other example is Braun Synchro. Braun Synchro outclassed Remington Titanium
69 to 29 percent, a massive win with consumers. And consumers have demonstrated
that preference in the marketplace, making Synchro a big seller for Braun.

The second area on which technology leadership delivers is in manufacturing
efficiency. Our advantage centers are high-speed, high-volume precision
assembly, which has delivered, and promises to continue to deliver, outstanding
productivity gains. Let's look at just one example. When we started making
Sensor Excel back in 1993, it had 9 parts and we could turn out 180 cartridges
per minute. Now jump ahead to M3 Power. It had 11 parts that we're turning out
at a rate of 625 cartridges per minute. That is an impressive gain in any
industry. 20 percent more parts in the cartridge, yet we produce almost 3.5
times more cartridges per minute. The gain came directly from our continuous
investment in bringing innovation to the manufacturing process.

The third area of technological leadership is cost reduction. Here I am talking
about gains beyond the increasing line speeds. There are gains like putting
material waste, and the down time of our production lines. Here you see some
specific examples of what we have achieved. Between 1998 and 2003 the cost to
make a cross action manual toothbrush has come down 66 percent. Our Mach3
cartridge is down 50 percent, AA batteries down by 25 percent, and Venus
cartridges by 12 percent.

Here is another example that tracks the cost of our power toothbrush heads. As
you can see across the top, we have gone from oscillating and rotating heads
back in 1991 to high-speed oscillating in 1995, to high-speed 3D brush heads in
2000 to our most advanced heads in 2004. And you also see what has happened to
direct costs in that time, down 83 percent. I've just presented some selective
examples, but they exist throughout the system. And they have played a big part
in our overall success in cost reduction.

So we have our very powerful technology engine that has consistently given us
advantage in product development, manufacturing efficiency and cost reduction
over time. And now we're making the engine run even better. Let's move to a
series of slides that would give you a good picture of some changes in our
technology structure. These changes are going to have a dramatic impact on our
ability to leverage our technology strength across businesses and products.

We have moved from a technology and manufacturing structure that was largely
siloed by business line to one that is thoroughly integrated. Here's a look at
the recent past, from procurement to R&D, to engineering, to manufacturing,
through the value chain our businesses basically ran their own shops. As you
might imagine, sharing ideas and innovation was the exception under this
separated set up. Now here is where we have gone, horizontal responsibility has
become vertical integration.

Instead of R&D engineering and other units attached to various businesses and
operating independently, we now have a strong centralized portfolio of technical
capabilities. It is the result of 3 years of work by our Vice Chairman, Ed
DeGraan and his team of the best scientific and engineering talent in the
business. Talent that includes more than 160 Ph.D.s from Harvard, MIT and other
world-class institutions.

This kind of organizational change is cost efficient. It will save money. But
the much more important issue is leverage and integration. The strength that the
various businesses had in procurement or R&D or engineering are now greatly
leveraged and are available to all our businesses.

Here is another way to look at our technology integration. Down on the left is a
lift of key production and product technologies, robotics, batteries, surface
technology, small motors and so on. It is a broad portfolio of capabilities that
are being leveraged across all our businesses and across our products. You can
see how many of them are common across our businesses. To give you an idea of
what that matrix does for us, I will go back to M3 Power. It is a good example
of a lot of things we are doing differently.

We combined blade and blade surface technology, multipart molding technology and
high-speed assembly expertise. We kept Braun's sourcing expertise to manage
component development and production in 17 locations around the world. The net
of all this is that M3 Power took only 14 months from kickoff to production and
fully ramped up manufacturing in only 9 weeks. We spent less than $30 million in
incremental capital on a product that this year is heading towards a $500
million in retail sales.

Here is another example. The world be Oral-B Pulsar is a 15 patent micro
pulsating, manual toothbrush that is going to change brushing in the way that M3
Power changed shaving. It grew out of our combined abilities in several areas,
including programmable robotics, electronics, high-speed assembly,
battery-power, and

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multicomponent molding. Let's take a look at this video. It will give you a
sense of the technology behind this great product development. (video playing)

In consumer use testing Oral-B Pulsar was preferred 2 to 1 over Oral-B Cross
Action, the next best toothbrush in the world. And it is the largest preference
margin we have ever had for a manual toothbrush. Pulsar will be introduced to
the 165 million manual toothbrush users in North America in July.

M3 Power and Oral-B Pulsar are just 2 early indications of how our newly
centralized technology function will help us utilize our technology advantage.
We will use it across businesses and new product development groups to speed the
flow innovation and new products.

There are 2 more examples in female shaving. We have very high expectations for
our new battery-powered premium razor for women, the Venus Vibrance, and our new
top-of-the-line Venus disposable. Both products will be available this spring.
Even with this new product activity, that would usually cause a spike in capital
spending, our enhanced organization will help us contain capital expenditures
over time to about 7 percent of sales. That will be well below our spending
range of 9 to 11 percent during the late 1990s.

Technology leadership feeds directly into our third growth driver, our ability
to drive trade up around the world for higher performing, higher margin
products. I wanted take you through the 4 key elements that drive trade up. They
are an established base of users, a product ladder that works, outstanding brand
loyalty, all supported by world-class marketing.

Let's start with the base. There are 2 elements necessary for an established
user base that can be upgraded over time. One is that there is a large pool of
users that you can upgrade, and the other is demographics that work in your
favor. This slides looks at the male shaver blade market in Asia, Latin America
and EMEA. 67 percent of blades sold are still double-edged, 25 percent are
disposables, and only 8 percent are systems. The opportunity for trade up is
huge, because those double-edged blades that account for 67 percent of the units
sold in the developing world represents close to 1 billion users.

You see the same kind of picture in oral care. Here you see that 27 percent of
the U.S. population use power brushes, and you can see how drops off from there;
21 percent in the UK, 11 percent in Canada, and only 9 percent in France and
Italy. Again, it is a great opportunity to move consumers up the ladder.

Now switch to batteries. Alkaline batteries are a must for the new generations
of high drain digital products that are growing around the world. Yet you can
see here that while North America and Europe have shifted to virtually all
alkaline consumption, the rest of the world is largely using zinc. As new
electronic devices penetrate around the world, the alkaline opportunity will
continue to grow. So the base is clearly there.

What about the other elements, demographics that work in your favor? Well, here
I will use my favorite chart. It shows the positive demographics of Mach3. Look
where Mach3 has the largest penetration. It is with the 15 to 24 and 25 to 34
year olds, where Mach3 has a 44 and 45 percent share respectively. This says
that we're connecting with younger shavers. And they are using the most premium
product on the market today. It also means that as shavers age and carry their
habits with them, trade up across the population will occur naturally over time.
And Mach3's share of the total user base will grow.

Most companies can talk about a portfolio of products, but few if any, have
built as complete and powerful a trade up ladder as we have. When you look at a
trade up ladder you want to see 3 things. 1, a ladder built around the needs of
individual markets, because the dynamics of trade up can differ market to
market. 2, you want to see the ladder pay off for you, meaning the higher you
go, the more each one gives you in profit per user. 3, you want to see the
premium end driving growth.

I won't take you through every ladder, but as you see here wet shaving gives you
a good example of the spectrum of trade up opportunities. It goes from
double-edged to disposables to entry-level systems to the premium systems with
M3 Power at the top. And here is the big picture. The price points are on the
left, and the performance level is across the bottom. Our portfolio ranges from
double-edged blades priced at about 12 cents to entry-level systems like Vector
and Slalom, to premium disposables like Sensor 3, all the way up to M3 Power at
almost $3 a blade. The higher you go on the ladder, the higher the price point
and the greater the margins.

Here is another look at the profit power in trade up. When you index the profit
per user per year for male wet shavers in the Asia-Pacific region, you start
with double-edged within an index of 100. Look what happens when you go up the
ladder. We go all the way up to Mach3 Turbo at 4100 plus. And as I said earlier,
it is the premium end that is driving the market if your ladder is working. In
the U.S. played market, for example, you can see here it is the premium end,
blades that cost more than $1.50 that have the greatest growth, and also have
the largest share of the category. And you see the same thing in Russia, where
the premium end in blades is growing even faster at 33 percent, and have a 41
percent share of the category.

As you can see on this chart for Oral Care the trade up ladder is just as
sturdy, and the progress up the latter just as certain. Looking at manual and
battery brushes. We take consumers from entry-level manual toothbrushes like our
Duralon and classic brushes to mid priced manual products like Vision and Exceed
to a premium manual like Cross Action Vitalizer. From there we move up to
entry-level battery power with Cross Action battery and Advanced

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Power 400. There's a similar trade up latter in our rechargeable business. There
we start with the low end, Cross Action Power Max, go to the mid price of the
base Professional Care, and then all the way up to Professional Care 8000 and
Sonic Complete in the $150 range.

In oral care we also have the same kind of profit progression that we have in
blades. We start out at an index of 100 with our entry-level manual toothbrush,
Indicator, and move to an index of over 1000 for our newest premium entries,
Professional Care 8000, and Sonic Complete.

Now look at what is happening in a developed market, Germany. Here you can see
that the growth action is in the mid tier and premium ends, which combines for
74 percent of the market. In a developing market, Russia, growth is at -- is
highest at the premium end at 38 percent, with a category share of 34 percent.

Now let's switch to personal care. Here the trade up ladder progression goes
from soap to foam, and then from foam to gel. That trade up potential is driving
great gains in Europe. In Italy, for example, we have grown the total market by
30 percent, and increased our value share by 14 points in just the last 18
months.

Let's move to trade up element number 3, brand loyalty. Loyalty is the element
that assures when consumers trade up they trade up with us. As you can see, we
have that kind of loyalty. When consumers were asked what they would do if their
brand were not available when they got to the shelf, 65 percent of Mach3 users
said they would try another store. 12 percent said they would wait for new stock
to come in. That is 77 percent loyal Mach3 buyers.

As you can see how that loyalty compares to disposable users. It is more than
double. With women the loyalty runs even deeper. 62 percent of Venus users said
they would try another store versus only 15 percent for disposable users. 16
percent said they would wait versus 4 percent for disposable users.

We also get the same kind of preference and loyalty results in oral care. You
can see in this chart on consumer brand loyalty Oral-B is by far the leader, 1.5
times greater than our nearest competitor. Our pool of consumers, our trade up
ladder and our consumer loyalty are now being fully leveraged by one of the most
significant changes in this Company.

It is the fourth key element to drive trade up. The one that is closest to my
heart, world class marketing. We have become a much better and much more dynamic
marketing Company. It started with giving our products the backing that they
deserved. As you saw earlier, this chart says it all about increased marketing
investment. Our advertising was only 6.2 percent of sales in 1989. It stood at
11 percent of sales in 2004, nearly double.

We have also revitalized our sports marketing ties. Here you can see our
consumer history and strategy in just one chart. From the 1930s to the 1980s we
were a pioneer and an innovator in creating sports driven, consumer poll
marketing. We were synonymous with the World Series, Friday Night Fight and the
All-Star Game. Then we drifted for a decade, mainly me too to push promotions,
like challenges and associate sponsorships that barely registered with
consumers.

Now we're back with moves like buying the naming rights to Gillette Stadium, a
tie that it is even more valuable with the remarkable performance of the New
England Patriots. They have given Gillette Stadium incredible visibility by
winning 3 of the last 4 Super Bowl. The Gillette Young Guns, 6 of racing finest
young drivers, are the focal point of our major marketing partnership with
NASCAR and its tens of millions of fans who are in our prime demographics. We
have created very compelling Gillette Young Guns ads. Let's take a look. (video
playing)

World-famous soccer star, David Beckham, also has joined our marketing arsenal
as the new face for Gillette grooming products. Here is some of our European
advertising for this style icon. (video playing)

We have brought on board some A list celebrities as you see here. We have had P.
Diddy and Johnny Damon of the Red Sox for M3 Power; Hillary and Haley Duff for
Venus Divine; and Anna Cornacova for Gillette Complete Skincare. Let's take a
look is how we utilize some of these high impact celebrities for when M3 Power
was launched. (video playing)

Great marketing creates the trial that drives trade up, develops loyalty and
improves profitability. We do this without relying on temporary volume oriented
price reductions. These next 2 charts show that very clearly. Here is what is
happening in the industry.

As you can see, trade promotion as a percent of sales has taken a big jump over
the past 3 years. Now look at Gillette. Our trade spending has gone down. It is
now down to 8 percent of sales, well under half the industry average. So that is
a look at our categories, our technologies and our trade up.

Finally, I want to spend a little time on our culture. This might seem strange,
since we're going to become part of another, larger culture. But I want to
discuss culture for 2 reasons. 1, the attitudes and beliefs we have established
at Gillette are going to carry forward in our businesses. 2, compatibility in
philosophy and beliefs is one of the reasons we're convinced this combination
with Procter & Gamble will work very, very well.

Over 4 years we have established what I can best describe as a turnaround
mentality. That means we're never satisfied with the status quo. We have
maintained this sense of urgency and constructive dissatisfaction that we
established early in the turnaround. The focus of that mentality initially was
on lowering cost and upgrading our capabilities. And those of you who have
followed our story know that we have been very successful on both

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fronts, largely because of a global effort called Functional Excellence.

The approach is straightforward. Functional Excellence helped us identify the
best practices in our industry, and how we measured up against them. It gave us
a process to identify where we need to close gaps, assign accountability, and
track how we're progressing. Overall, we expect approximately $300 million in
annualized savings.

And our productivity efforts aren't limited to overhead reductions. We look
across the board and around the globe for manufacturing and supply chain
opportunities. A good example is the ongoing realignment of our European blade
and razor manufacturing and distribution system. By 2006 we will begin to
realize significant productivity savings, along with solid improvements in
operational efficiency and customer service. By 2007 when the realignment is
complete, our savings are projected to reach $60 million on an annualized basis.

Another good example is our strategic sourcing initiative. We completely
reorganized our procurement function, delivering $375 million in cumulative
savings. And these are just 2 of many productivity projects that are now
underway or in the pipeline.

Let's turn to improvements in our capabilities, starting with the value chain.
When I came to Gillette every one of our key customers told me that they were
disappointed with our customer service. We have now totally upgraded and
reworked our value chain, creating a global line of sight from procurement to
the retail shelf. And that in turn drove dramatic improvements in customer
service, inventory management, and cost to serve. As you can see here, our fill
rates went from an abysmal 89 percent in 2001 to 98 percent last year. In fact,
we went from back of the pack to among the very best in a number of key metrics.
That helped earn us Vendor of the Year awards from several of our biggest trade
partners.

I could talk for the next couple of hours about all the ways Functional
Excellence has helped us improve the organization. But let me give you 2
measures that really tell the story. Since 2001 revenue per employee has
increased by 49 percent, and profit per employee has soared by 69 percent. That
shows how far our turnaround mentality has taken us. But that same mentality
tells us that as far as we have come, we have to go farther.

So in 2004 we launched a globe effort that will change our long-term trajectory.
We call it Total Innovation. And I want to spend some time here because again it
is such a solid fit with the philosophy of Procter & Gamble. Total Innovation is
not a project or a program or a strategy. It is a transformation in our ability
to generate and develop ideas and turn them into workable solutions that build
value across the entire organization.

And workable solutions are the most important part of the definition. We are
after innovation that translates into action. A good way to think about Total
Innovation is to think about a triangle. At the bottom is continuous
improvement. Continuous improvement is important because it enables us to
improve a little bit every day. It involves such things as changes to our
packaging graphics, or an improved product formulation. But continuous
improvement alone makes a company only average, because competitors make the
same small improvements at the same time.

Moving to the top of the triangle you see big bang innovation. This kind of
innovation focuses on big new breakthrough products, like Mach3, or big changes
in process like our strategic sourcing initiative. Big bang innovation is
essential for success, and we are very, very good at it.

But it is no longer enough. We need to increase our focus on the middle of the
triangle, the area that I call Incremental Innovation. And that means that the
many smaller innovations that in the aggregate and over time change your
business and helps us accelerate our future rate of growth.

Let me add some dimension to these ideas with 2 examples. The first is of the
electric product code, the bar-code of the 21st century. We're one of the
pioneers in the development of this new technology. And we're helping to lead
its deployment. Using electronic tags EPC can track and manage the flow of
products from manufacturing through the supply chain and on to the retail shelf.

We know that over time EPC will deliver competitive advantage in at least 4
ways, improve customer satisfaction, greater product availability at retail,
reduced shrinkage, a problem that now cost retailers billions in lost sales, and
finally, increased profit margins for both our retail trade partners and for us.

Another example of Incremental Innovation is our development of shopper based
merchandising strategies. In the oral care category we analyzed the on shelf
merchandising techniques of over 25 top retailers. And we identified 6 key
merchandising principles that improve category performance. A few months ago one
of our top trade partners implemented a recommendation for their manual
toothbrush section. The results over the first 13 weeks were dramatic. Their
in-aisle category growth rose 17 percent versus the prior year. Oral-B also
scored a win with our value share increasing 10 share points during the 13
weeks. We're now working with another key customer to test the same principles.
And we expect again to drive growth for the category and for Gillette, as the
category leader.

There are many other possible applications for this innovative shopper based
approach. And we're excited about its potential to create value across our
categories. Just 2 examples, but I hope they give you an idea of the thinking
and capability that we're driving throughout the organization under the Total
Innovation banner.

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So that is Gillette as we head into 2005. We are about to start on a new chapter
in our history, and I'm convinced a new era of growth. No doubt, joining with
Procter & Gamble is a big step for a Company with 100 years of independence. And
on occasion, Gillette fought hard to keep that independence against the assault
of unwanted raiders. But joining forces now is the right step at the right time
with the right partner.

Many of you have asked why now, and why P&G? Well the answer is simple, it is my
job and Gillette's Board of Directors responsibility to explore all avenues that
maximize shareholder value, including strategic options. It is an ongoing
process, not a one off discussion. We saw an exceptional fit with Procter &
Gamble, one that would accelerate Gillette's growth over the near and long-term.

There is absolutely no doubt in my mind that as a stand-alone Company Gillette
has the momentum, brand portfolio, capabilities and leadership to continue to
deliver top tier sales and earnings growth. However, it is equally true that
there are no 2 consumer products companies in the world with a better alignment
of brands, markets and philosophies. And as part of Procter & Gamble, Gillette
will have the scale and resources to grow our business faster and more
profitably than we would by going it alone.

This slide illustrates how the Gillette dynamic will build on Procter & Gamble's
historic and current strengths. The combination of our technology leadership
with P&G's already formidable strengths derived from their Connect and Develop
approach, will accelerate innovation. Innovation in such obvious areas as male
grooming beyond hair removal, female hair removal beyond wet shaving, and
broadly in oral care. Our turnaround mentality is characterized by our very
successful focus on reducing costs, upgrading capabilities and reorienting our
corporate culture towards continuous, constructive dissatisfaction. It will
thrive and help leverage Procter & Gamble's great scale and their focus on cost
and cash discipline.

The similarities of the Gillette and Procter & Gamble organizations structures
are remarkable, with both companies using global business units to maximize
brand strength and growth, and market based commercial selling units to assure
local customization and flexibility. The results should be a smooth integration
that will produce the ability to move Gillette products through the existing
Procter & Gamble infrastructure very efficiently.

This quick extension of product reach will result in acceleration of trade up,
notably in developing markets. And finally, Gillette will not only bring a
portfolio of billion dollar plus iconic brands to the combined Company, it also
brings leadership brands that are positioned in the most advantaged categories
of all consumer products. And we bring a marketing prowess that includes the
most advanced expertise in the sector for new product introductions, as well as
for ongoing excellence in in-store execution.

In short, this combination will enable our businesses to create more value in
more ways than would ever have been possible as a stand-alone Company. I firmly
believe that strength plus strength equals success.

Let me conclude my remarks by saying that we have returned Gillette to the top
tier of the industry where it belongs. Now we have an incredible opportunity to
build on that by joining a Company that is a great fit in everything from brands
to beliefs. It is an opportunity to help build something that we have been
pursuing for 4 years, the best consumer products Company in the world.

Now let's go back to AG who will provide some specifics on the tremendous
opportunities that we have ahead of us.

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

I want to pick up where Jim left off. While the time is right for Gillette to
join forces with another world class partner, and while P&G is the right partner
for Gillette, Gillette is also the perfect partner for P&G. There are 4 reasons
why.

First, we're combining 2 of the leading consumer products companies in the
world, and we're doing so at a time when both companies' performance is the best
it has been in a decade. It's a combination that plays to the structural
characteristics of the consumer products industry. Consumer products is an
industry that rewards leadership and scale. Leadership scale provides the
opportunity to keep growing margins. Margin growth makes it possible to reinvest
in branding and innovation, which drives consumer value. The more you can invest
in branding and innovation that delights consumers, the more you can grow. The
more you grow, the greater the scale and margins. It is a virtuous circle that
P&G and Gillette can leverage better together than alone.

Second, we're shifting P&G's business mix towards faster growing higher margin,
more asset efficient businesses in health care, beauty care and personal care.
This is an important component of our accelerated growth objective, which we
have increased for the balance of the decade by a point. Our increased target is
now 5 to 7 percent, of which 4 to 6 percent is organic.

P&G's lineup of $16 billion brands is growing double digits. With Gillette we
add 5 more $1 billion brands. And as Jim just told you, Gillette's billion
dollar brands have accelerated growth over the past 3 years, and their
initiative pipelines are all strong. Importantly, Gillette is a leader in
structurally advantaged categories. 3 of their $5 billion brands are in personal
care. Third, we're strengthening P&G's relationships with retail customers,
relationships that are already very strong.

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We can marry P&G customer business development with Gillette's outstanding
introduction and in-store execution capabilities. This will enable us to serve
retail customers even better than either of us can today. We can offer retailers
a more profitable mix of brands, broader, deeper knowledge about consumers and
shoppers, more innovation, more expertise in marketing, more supply chain
leadership. This is not about negotiating power. This is about the power to
jointly create value with retailers by serving our consumers, their shoppers
even better than we do today.

The final reason Gillette and P&G can grow faster together is the opportunity to
leverage complimentary strengths. Gillette will help P&G raise an already high
bar in the areas of branding, innovation, scale and the way we go to market. One
of the most important choices we made 5 years ago was to focus on those 4 key
competencies and strengths. P&G had important advantages in each area and we're
confident that we could get even better.

By combining these 4 strengths and applying them in the marketplace through
P&G's unique organization structure, we established branding, innovation, scale
and go to market as the pillars of P&G's business model. Then we began making
important structural improvements to make our business model even stronger and
more sustainable. We have multiplied P&G's internal innovative output through
Connect and Develop. We have used greater cash and cost discipline to deliver
better consumer value and grow margins. We have strengthened our go to market
capability with our unique organization structure. And we have created new
branding and marketing approaches that are generating more product trial and
increasing the value of P&G brands.

What is most encouraging is that the combination of P&G and Gillette will make
these structural improvements even more effective. So let's take a closer look
at how we're improving and how Gillette builds on these improvements. Innovation
is the starting place. P&G's lifeblood. We want to be the industry best at
consumer and technology driven innovation. We want to set the pace of
innovation, and we want to be the benchmark for innovation success. We are
becoming an even stronger innovation leader through P&G's Connect and Develop
strategy, which links innovation and technologies across businesses, geographies
and disciplines. No other consumer products company can create as many internal
linkages as we can, because no other company has the diversity of businesses,
markets and technologies that we can draw on.

At the same time, no other CPG company can create as many external linkages as
we can, because no other company can attract as many quality innovation
partners. Partners who prefer P&G because of its brand lineup, because of its
technology expertise, and because of its commercialization ability.

Gillette takes Connect and Develop to an even higher level for us. As Jim
explained, they are already doing this. And they're doing it brilliantly on
their own. The creation of M3 Power is a great example. Now we can connect and
develop with an even larger, more diverse combination of technologies and
businesses. The key to understanding how Gillette strengthens P&G innovation is
to think of innovation more broadly. Ours is not just a story of chemistry or
molecule driven innovation, it is a story of leading brands, breakthrough
technologies, and the power of great design. We will have 21 of the industry's
biggest, strongest innovation platforms to innovate on. Brands like Olay, Crest,
Gillette and Venus are all innovation leaders in their category. We have
complimentary consumer knowledge and complimentary technologies in oral care,
skin care, shaving, and hair removal. Lastly, we have complimentary innovation
capabilities, particularly in design.

How does this make P&G a stronger innovation leader? Let's look at 2 areas,
women's hair removal and men's personal care as illustrations. Today women's
hair removal is a 9 to $10 billion market projected to grow 8 percent a year
over the next 5 years. It is a market in which women are dissatisfied with the
current experience. For example, in the U.S. at least 1 in 2 women say they're
not particularly satisfied with the usage experience they have today. They find
the process time-consuming and somewhat difficult.

In short, it is a market ripe for further innovation. We can combine Gillette's
knowledge of women's hair removal needs with P&G's knowledge of women's skin
care needs. We can combine technologies to create products that remove hair and
conditions skin. We can link design capabilities and technologies to improve
product performance and the very important usage experience. And we can bring
these innovations to market with great brands like Olay and Venus. It is one
more virtuous circle. Each company brings unique consumer knowledge that will
help us both see more innovation opportunities. We will deliver innovation
breakthroughs with our combined technologies. We will turn these technologies
into experiences that really delight consumers with industry-leading designs. We
will bring these experiences to market through brands consumers trust and look
to for innovation. And as the innovation delivers benefits and experiences that
really delight, our brand equities will strengthen and broaden.

Men's personal care is another area with great potential. Today this is a $16
billion market, growing at above average rates. Men are buying and using more
grooming products. They are becoming more knowledgeable about personal care. And
yet, even as they become more interested, they really cannot find brands they
can relate to. Today in fact men often have to turn to women's products for skin
care. Clinique for Men, Nivia for Men, nearly a fourth of men in the United
States admit to using their wife's or girlfriend's products. And you know what,
it is not what they really want. Gillette is a great men's global brand that
with the right technologies can meet a much broader range of men's personal care
needs, and grow into a far larger franchise.

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No other 2 companies in consumer products can create the same innovation
opportunities. I want to highlight one element of this innovation story, the
power of P&G and Gillette as a combined leader in design. This is a benefit of
combining our companies that may be less obvious than brands and technologies,
but we believe equally important. Design helps build powerful emotional
connections that deliver delightful and wow experiences in store and in the
home. At P&G we are leveraging design to accelerate innovation and to turn more
P&G innovation into greater commercial success.

One effective way to make design meaningful to consumers is through delivery
systems designed to improve product performance and usage experiences. Gillette
is clearly a leader in this area. With Braun having been recognized as Best in
Class by New York's prestigious Museum of Modern Art, and several other
internationally acclaimed design associations. P&G has been learning and making
steady progress as well with products like Olay Regenerist, Tampax Pearl, Mr.
Clean AutoDry and Febreeze Aerofax (ph).

Together P&G and Gillette can make design an even more important driver of
innovation, and an even greater source of advantage in the marketplace. More and
better innovation is where we start. We then leverage our remaining core
strengths, scale, go to market capability and branding to get the most because
we possibly can from every one of these innovations.

Let's look first at scale and how Gillette makes us even stronger. Scale is
critical to ensuring we can deliver superior consumer value. It is the key to
commercializing innovation affordable and profitably. We're getting more value
from P&G scale through greater cash and cost disciplines. P&G scientists are
leading cost innovation as well as new technology and new product innovation.
P&G engineers are setting up low-cost supply chains, including contract
manufacturing. P&G business services organizations are delivering better
services and lower costs. Business units are delivering greater productivity and
higher operating TSR. As a result, we're bringing more P&G innovation to market
at prices that deliver superior consumer value and strong shareholder value.

Here too Gillette makes us better. We can eliminate costs as a combined Company
that don't contribute to consumer value. We have identified more than $1 billion
in cost synergies that we're confident we can achieve by year 3. We will
eliminate administrative overlap by integrating Gillette brands and businesses
with minimal additions to P&G's corporate staff. We can deliver key support
functions through P&G's global Business Services Group. GVS delivers best in
class costs that are not available to Gillette on its own today.

We also see synergy opportunities in purchasing and manufacturing and in
logistics. We will reduce costs in these areas through increased scale, improved
asset utilization and coordinated purchasing. And we will generate efficiencies
in marketing and retail selling. I'm confident we will find even more
opportunities, because Gillette and P&G both have the same constant turnaround
mentality. We have both gotten our businesses back on track with rigorous
strategic, operating and financial disciplines. Both organizations have embraced
the idea that we must continually keep getting better, and we must continually
find new ways to do more with less. In short, we can make both P&G and Gillette
even more effective and even more efficient. This will enable us to provide
superior consumer value and greater shareholder returns.

The way we go to market is the next area that is helping us get more value from
P&G innovation. P&G's organization structure is the key factor. Market
development organizations are focused exclusively on what they do best, keep our
local consumer understanding, better shopper knowledge, stronger customer
partnerships, stronger partnerships with other external stakeholders. As a
result, we have a greater capacity to execute with excellence when we go to
market. We can commercialize a larger innovation pipeline in more markets, with
more retail customers all at the same time. For example, we have doubled the
number of initiatives we are delivering per year in big categories like personal
beauty care. We have also accelerated the time it takes to expand an initiative
globally. We can now roll out a blockbuster innovation, like Olay Regenerist, in
fewer than 12 months worldwide. Compare that to the 7 years it took for the
global roll out of Pantene under old our old organization structure.

Once again, Gillette provides us with additional opportunities to get even
better. Their billion dollar brands strengthen the brand line up we offer retail
customers. At the same time, we can distribute leading brands like Gillette and
Duracell more deeply and cost effectively through our MDO infrastructure in
developing markets.

It is a simple but powerful story. We can bring Gillette brands to more stores.
Availability in more stores drives greater trial and more household penetration.
More trial and household presence leads to more regular usage and repeat
purchase, which results in more sales and profits. Yet another virtuous circle.

Here is the opportunity. On average developed market consumers use about 3 times
more product than consumers in developing markets. This is true for P&G
categories, as well as for blades and razors. Developing market consumers
however are catching up. In just 5 years consumption of P&G categories has grown
on average by 20 percent. Consumption for blades and razors has also grounded
double digits.

Further, our analysis shows that categories take off at different points as a
country's economy develops. Laundry and shampoo are 2 categories that take off
early. In a number of the developing markets we have used P&G leadership in
laundry and shampoo to build a strong foundation in infrastructure for growth.
We have built supply and distribution networks for these early take off

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categories through which we can later run our other beauty care, fem care,
personal care and baby care brands.

China is a great example. Gillette operates 3 businesses in China, like shaving,
batteries and oral care. They are distributed in about 55 to 60 cities, with
emphasis on the 4 largest -- Shanghai, Beijing, Chendu and Guangjo. P&G markets
14 brands in China distributed to about 2,000 cities in more than 11,000 towns
throughout urban and rural China. Consequently, we can make Gillette products
available to more consumers in more of China virtually immediately. And as we
lower Gillette's distribution costs, we can create more flexibility to fund
Gillette's world class trade up marketing programs.

We have similar opportunities in other developed and developing markets, such as
Japan and Russia. There also important growth opportunities in countries like
Brazil and India where we are underdeveloped today. We believe we can compete
more effectively in these markets as a combined Company because we will have
greater scale. With greater scale we can build the kind of supply and
distribution infrastructure we have built in other markets. And we can innovate
affordably and profitably. Our experience clearly supports this.

In China, where we have significant scale advantages, we consistently deliver
above-average margins. In fact, in total our top 8 developing markets where we
have greater scale deliver more than 3 times the average profit margins of 8
large developing markets where we're still subscale. Our proven experience
demonstrates that as we close scale gaps in markets like India and Brazil, we
should be able to grow faster, we should be able to grow profitably together
than alone.

There is one final way we are improving P&G's business model and getting more
value from core strengths. We're getting even better at branding and marketing.
We are defining P&G brand equities more broadly. Pampers now stands for baby
care and baby development. Crest for beautiful, healthy smiles for life. Olay
for all that is beautiful in women. With these broader equities we identifying
and commercializing a much bigger pipeline of innovation. Pampers Can Do is now
helping moms and toddlers make hygiene independence a development experience.
Crest is extending its beauty equity with White Stripes and its health equity
with Prohealth Rinse. Olay is expanding the boundaries of healthy beautiful skin
with daily facials, Total Effects, Regenerist, and now Olay Quench.

We are then getting more out of this bigger innovation pipeline by thinking more
expansively about how and where we reach consumers. We're doing a far better job
of communicating to consumers in-store. Current data shows more than half of
purchase decisions are made in the store aisle, the crucial first moment of
truth. We place more emphasis on collaborating with retailers to create a much
better in-store shopping experience to help consumers discover, learn about, try
and purchase P&G products.

We have also reframed our assumptions about how long we can generate new trial
on product initiatives, with launch and leverage programs that drive trials for
2 or 3 or more years after initial launch. The results of all of this is
increased returns on innovation investments and stronger P&G brand equities. We
have improved P&G's initiative success rate by more than 25 percent. And the
total net present value of P&G's portfolio has more than doubled.

Once again, Gillette will help us get even better. Gillette brands are leaders
in structurally advantaged categories. As Jim explained, these are categories
with consistently high growth, global brands serving global consumers, and low
private-label penetration. Gillette's trade up marketing keeps these categories
growing with leadership innovation, while continually increasing Gillette sales
and margins. This expertise fits well with P&G's focus on creating similar
product ladders, which we have done on several brands, Olay, with Total Effects
and Regenerist, Tide with Tide with Bleach, Tide with a Touch of Downey, and
Tide Cold Water. Pampers with Baby Stages of Development, and now Can Do toddler
care.

Finally, Gillette brings innovation to market with great product launch
expertise and in-store execution. As a result, Gillette people and Gillette
brands will help P&G do an even better job of reaching more consumers, more
effectively and more profitably in more aisles of more stores around the world.

The full impact of how our companies get better together is most evident when
all the pieces come together. Faster innovation delivered affordably and
profitably, breadth to market with the deep local knowledge and strong retail
partnerships. And commercialize more successfully and consistently is what leads
to sustained growth and superior shareholder returns. This is what P&G brings on
its own today. Add Gillette brands, Gillette technologies and Gillette design to
P&G innovation. Add Gillette's synergies and constant turnaround mentality to
P&G's cash and cost discipline. Add Gillette's developing market opportunities
and trade up capabilities to P&G's unique go to market structure and strength.
Add Gillette's marketing brilliance to the work we're both doing to get more
value from big, leading brands. And you get what we think of as the Gillette
dynamic, more wins with more consumers at the first and second moments of truth,
on more brands in more markets and in more stores around the world. And of
course, in the end, greater returns for shareholders.

Now is the time to take P&G and Gillette to the next level. I'm confident, and
Jim is confident that we can and we will. And that is why we're confident in
raising P&G's growth targets for the balance of this decade. When we combine
these 2 world class companies we can confidently deliver 5 to 7 percent sales
growth with 24 to 25 percent operating margins, leading to double-digit earnings
per share growth through the end of the decade and beyond.

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What I hope Jim and I have been able to demonstrate here this morning is that
now is the right time for Gillette to partner for sustained long-term growth.
P&G is the right industry-leading partner for Gillette. A combination of
Gillette and P&G creates the world's best consumers products Company. And that
is a great deal for consumers, a great deal for customers, a great deal for
employees, and shareholders alike. Thank you very much. Now we will be happy to
take your questions.

UNIDENTIFIED SPEAKER

Let me introduce Clayt Daley, and Chuck Cramb, our respective CFOs. And Clayt
is going to tap the people who ask the questions.

QUESTION AND ANSWER

UNIDENTIFIED AUDIENCE MEMBER

If you can talk about this cost -- in emerging markets the cost of the growth
and the time of building in emerging markets? Because even with Gillette's
global scale within blades and razors and its dominant position, the cost of
building out these emerging markets, China, Russia -- and so now the combined
breadth of the platform and scale -- contrast it to focus players in oral care
and beauty that are going it alone, so you can talk about the competitive
advantage and really about this cost of that growth?

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

I think there are -- I would put the developing markets into sort of 3 bundles.
In the first bundle there are markets where the infrastructure is already there.
In other words, it is already funded, it already exists. Today we're putting new
P&G categories and brands through the infrastructure and we're putting them
through very efficiently.

And it is not just the efficiency it is the speed at which you can build your
trial base, build your household penetration and quickly get to the virtuous
cycle where you can be investing in these brands, growing them rapidly, and
getting a good return. And those markets are, to name a few, China clearly,
Russia clearly, Mexico clearly. Those will be 3 of the bigger developing
markets.

The next group is where I would say we have sufficient scale today on our own.
But that first group would be -- I would have to say no one approaches our scale
or our cost of doing business, and we just have a huge lead. The next group we
have a very competitive infrastructure in place. If it is -- if it is not low
cost, it is competing for low cost. It probably has the broadest reach. And when
we add Gillette, we get to superior scale, right?

And then there are a few markets where when you put Gillette and P&G together,
and that is the vast majority of developing markets, the middle group. When you
put Gillette and P&G together I think we get to the point where we now have
competitive -- we have a shot at building really competitive scale. And we
mentioned India and Brazil, and I think those are well-known. One of our major
competitors that has been there since the time of Alrosh (ph). And the Dutch
East India Company in the case of India, and it has a huge position in Brazil.
And when you look at P&G plus the Wella building block, plus the Gillette
building block we essentially double our business. And all of a sudden you're in
a position where you can drive the local sourcing infrastructure. And in fact,
in the case a Brazil, Gillette has a world class plant that they have just
opened up there. And you can begin to drive the distribution structure.

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So those are the 3 groups. So it is going to put us in the game everywhere. It
is going to make us stronger and probably leading the game in the middle group.
And it is just going to extend our leadership, and I think really benefit the
Gillette brands in the first 2 groups.

UNIDENTIFIED AUDIENCE MEMBER

A question for Jim. How do you ensure that the Gillette organization doesn't
lose its stride during this time of uncertainty, given that layoffs are expected
down the road?

JIM KILTS - GILLETTE COMPANY - CHAIRMAN, PRESIDENT, CEO

I spent a good part of my career integrating companies, and what you need to do
and I think our organization structure really helps, because what we got to do
is get the back rooms integrated, and keep the front room focus on driving the
business and serving our customers. And that is what you have to in integration
situations. I think that we have an organization that can deal with that very
easily. And that they are here really excited about dealing with it. So it is a
combination of management, of paying attention to detail, but mostly staying
focused on your consumers and customers.

UNIDENTIFIED AUDIENCE MEMBER

This question is for Clayt. Clayt can you talk a little bit about the impact of
the acquisition on your returns, typically ROIC, but importantly as you look out
marginally over the next couple of years what type of run rate improvement do
you expect? And then maybe a target year for when you think you can get back to
current levels of ROIC?

CLAYT DALEY - PROCTER & GAMBLE COMPANY - CFO

ROIC is of course a difficult measure when you're doing acquisitions, because
of course the company is a composite of organically grown businesses where the
goodwill is not on the books. And then as you acquire, you bring goodwill onto
the books as we have done with Clairol and Wella. And of course there will be
the a substantial amount of goodwill that comes on with Gillette.

So as a consequence, if you look at strictly ROIC, it is going to go down
substantially when that goodwill comes on. And then it is going to rebuild over
time. We haven't really established a target per se to when we get back to where
it would be pre-deal. On the other hand, what we're also doing, and I think it
is very helpful, is if you look at ROIC without the goodwill component, you put
all your businesses on the same playing field, if you will. And I think if you
do that you're going to the our progress has been good and will continue to be
good going forward.

UNIDENTIFIED AUDIENCE MEMBER

When P&G bought Wella there was a lot of discussion at the time about how
bringing the 2 companies together could accelerate innovation. And there was
great expectation I think that the market share in hair coloring and hair care
generally would improve. And we, frankly, haven't really seen that happen. And
yet now looking at P&G buying Gillette, we are seeing sort of the same promises
and the same expectations that hey, look what we can do together.

So I guess my question is in your mind, AG, is there something that you can do
differently such that we start to see the benefits of the 2 companies together
sooner or faster, or maybe at an accelerated pace so there is a real realization
of that, look at how great we will be together?

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

Yes. First, on Wella. Because of the -- how should I say it -- idiosyncrasies
of German law, and because of the actions of some minority shareholders, we
spent the first year plus working our way to a domination agreement. And the
domination agreement really wasn't concluded until June. So we just began the
integration of Wella in July. So we have been integrating Wella for 7 months.
Point number 1.

Point number 2, is in our fragrance businesses, which are arguably the strongest
two components of the Wella and P&G business, actually our growth has been quite
good, industry-leading and arguably we're together one of, if not the most
successful fragrance businesses in the world. And those businesses are merging
as we speak.

3, there is no doubt about it. The colorant innovation has come slower. And
frankly it is because in the case of Clairol there wasn't much in the cupboard
because of the way the asset was managed by its previous owners. In the case of
Wella there actually is some interesting stuff in the cupboard, and you're going
to see it coming to market in 2005.

Now the big question is what is different about Gillette? I think everything is
different about Gillette. Gillette is a world class innovation company,
absolutely a world class innovation company. And if we had put up a slide with
our core innovation capabilities and technologies alongside the slide that Jim
shared this morning with his core capabilities and technologies, there are just
a heck of a lot of opportunities.

So you have now combined 2 companies that are -- that just believe in innovation
and have the capability to deliver innovation, and frankly have very full
pipelines. Jim should speak to this in a moment, but we're both in a period
where our pipelines have been

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getting bigger, where we're bringing more innovation to market more rapidly, and
commercializing it more successfully. So that is the big difference.

And the other big difference is we are coming off what Jim called appropriately
I think, structurely advantaged categories that Gillette competes in with big
leading brand share positions and global brands share positions. And all of
those are differences versus the Wella acquisition. So I think the start up is
instantaneous.

UNIDENTIFIED AUDIENCE MEMBER

And I guess just to follow that same point. When you look at the emerging
markets, is there an inflection point or is there a timing are you said okay, we
think within 12 months we can start to benefit from these -- combining these
subscale positions. Because I guess I'm looking for something sort of over the
next post-closing 12, 18 months for us to say oh wow, this is really creating
shareholder value.

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

I think there are things -- the 2 that will come the fastest will be, as we
talked at the last meeting, combining the commercial operations and MDO groups
in the developed parts of the world. I'm sure we're going to pick up the pace in
Western Europe, North America. And I think that will come virtually immediately
-- in the next cycle of planning with the customer. If the customer is on a 6
month cycle it will come in 6 months. If the customer is on a 12 month planning
cycle it will come in the first 12 months. And then I think in the developing
markets -- I mean, China is simply a matter of getting the product in place to
put through the distribution system. And that is the case in some other markets
that have those characteristics.

UNIDENTIFIED AUDIENCE MEMBER

2 questions. First of all on batteries. AG, have you given any further thought
over the past month or so to how you're going to manage that business, or if
you're going to manage it? And could you also talk a little bit, and maybe this
is for Jim, just about the pricing environment. There seems to be some potential
from some of the other players that may be we could see some pricing in that
category?

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

That would be sensible. We have had a chance to think through the battery
business. And I think as I said before, we're going to learn it and we're going
to continue to try to build on the success that Gillette has built with the
Duracell brand and with alkaline batteries, which is as Jim pointed out earlier,
still has tremendous opportunity for trade up.

Just from a P&G experience side, tissue towel is not the most attractive
business structurally in the world, but we do well in the tissue towel business,
the family care business, because of our strategy choice -- and it is not unlike
the Duracell strategy choice -- we go for the leading brand, and we operate from
the middle of the market to the premium end of the market, and we keep bringing
premium trade up, new towel and new bath tissue innovations. And it delivers
industry-leading returns.

The coffee business is not structurally the most attractive of businesses. When
I joined the Company in the mid-70s, Maxwell House was the coffee brand in
America. Folgers was only distributed --. Rub that in. I'm sorry, Jim wasn't
there then. Folgers was only distributed -- Folgers was the Folgers Coffee
Company of Kansas City. It was only distributed west of the Mississippi. And
today if you look at the most recent marketshares, I think you'll find that
there is quite a change. And frankly the coffee business goes when it is
well-managed strategically, well-managed executionally. And it is a good
returning business. And it throws off a lot of cash. And innovation is relevant.
So we're going to go into the Duracell business with a strong leadership that is
in place with Mark Leckie, and we're going to try to build on the position that
they built over the last 2 or 3 years.

JIM KILTS - GILLETTE COMPANY - CHAIRMAN, PRESIDENT, CEO

I think the battery business from when I first spoke as the CEO of Gillette
about 4 years ago in front of this group, I said it would take us 3 years to
really get that business back, because we had messed it up pretty well during
the time that we owned it. And I know a lot of you when I said it would take 3
years to get it back were a little disappointed. Why would it take that long?
Well, we made good progress every year, margins of over 20 percent. The kind of
capital you have to put in the business is relatively modest. We have plenty of
capacity to drive growth in the business, and we have tremendous trade up
opportunity. And we have a great management team that has done a great job. And
I think we brought discipline and leadership to the category. And it is
reflected our ability to hold market share while driving the earnings -- over
doubling yearnings in the past couple of years. So I feel pretty good about it.

UNIDENTIFIED AUDIENCE MEMBER

And just one other thing on the product pipeline. And, AG, you mentioned this
in passing. But Gillette sales were up 19 percent in the last quarter, which was
unbelievably strong. So I think we all feel pretty comfortable that over the
next 6 to 12 months the pipeline is pretty good. But can you just convince us in
the non

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blade razor business that you feel good about the pipeline going out 2 years?

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

Are we talking about Gillette?

UNIDENTIFIED AUDIENCE MEMBER

Yes.

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

Yes. 1, we have talked about it. And you have to remember we're still
competitors on some of these businesses. So for obvious reasons I don't know and
don't have the need to know and cannot know what the pipelines are like in
businesses where we compete. In the businesses where we don't compete, I think
-- I am very confident in the blades and razors pipeline. And I'm very
optimistic about the trade up opportunities. I really am very optimistic about
the trade up opportunities. Because we didn't dwell on this point in the
presentation, but part of what we will be able to bring is not just the breadth
and depth of distribution in a lot of markets, but we will be able to lower the
effective distribution and presence costs so we can invest more in trials of the
better systems. And that is the name of the game in innovation in our business
is you have to have the wherewithal to invest in the trial to get the trade up.

And I don't think it is a secret that we've dabbled in battery technology for
several years. So obviously as soon as we can, we're going to put our innovators
and technologists together to see what we've got that is relevant to there. And
let's see, what are the other?

Braun, I think Braun has a pretty proven track record of innovating on a fairly
predictable cycle in their dry shaving systems and in some of their other
product areas. And I think it is also pretty clear that we are selling products
with more and more devices, more and more power not just in the Gillette
businesses, but also in the P&G businesses. We introduced Swiffer and now we are
powering Swiffer. We introduced -- and there are lots of other I think personal
care products that are going to benefit from more power being applied. There are
household products that are going to benefit from more power being applied. And
home cafe, whether it is Desensio (ph) execution, whether it is one of our home
cafe executions, I think that is a fairly promising innovation in the coffee
business, all of which would come from a link up in innovation with Braun.

JIM KILTS - GILLETTE COMPANY - CHAIRMAN, PRESIDENT, CEO

I think the biggest issue that we've had, and I have said this before, is how
do we meter out the innovation we've got in that pipeline, and how do we handle
it all. And frankly, as they put the 2 companies together I think we will be
able to handle it even better. So I like the pipeline we have. And I like the
fact that we're a bigger scale Company with greater opportunities to put that
pipeline into the marketplace.

UNIDENTIFIED AUDIENCE MEMBER

I'm just wondering, going back to the big picture, why you did this? You each
bench marked each other to death. So can you give us a sense as to whether this
was driven more by some human or capital constraints that you saw, or whether
you saw from some external forces the need to accelerate this process? Or
thirdly, sorry, Jim, whether you just decided it was impossible to take share
from each other ultimately?

JIM KILTS - GILLETTE COMPANY - CHAIRMAN, PRESIDENT, CEO

We don't compete -- so in most cases -- so the share from each other didn't
bother me. I looked at it is all about opportunity. It is creating the best
consumer products company in the world. Both companies had terrific momentum,
great pipelines of innovation, a belief in their employees, investing in their
employees for growth, and we could leverage the scale. We had overlapping
infrastructures and in complementary categories, which meant lower cost, more
efficient growth opportunities at higher margins and higher returns for the
shareholders. So it just was as my -- one of my large investors said, it was
just a dream deal.

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

And if I could just say 3 quick things. I think it has been fairly clear that
strategically we have wanted to migrate to health, beauty and personal care and
this obviously accelerates that migration. I hope we were crystal clear that our
focus has been on core businesses, core capabilities, core strengths. And
Gillette's core businesses, capabilities and strengths are just like ours. Just
like ours. I can't think of another company in our industry whose profile is as
similar. It doesn't mean there aren't a lot of other great companies in our
industry, there are. But I can't think of another one who basically has the same
business model.

The third point is, and this was important for me, I think the cultures are very
compatible. And I'm not talking about just Jim and me or Chuck and Clayt, I'm
talking about the culture where the work really gets done. And I think that is
very important. I know where the work gets done, I can remember it. But I think
that is incredibly important. And then so what you're really doing is, as Jim
said, you are taking an opportunity that is out there and you are accelerating
it. You're just bringing it a decade forward.

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And I guess the last thing I would say is I really have gained a lot of
confidence in our organization structure, its flexibility and its robustness.
And it is unique in our industry. It does allow all of these global business
units to operate very independently, and has stayed focused like a laser on
their consumer, their customer, their competitor set. They benefit from this
global business shared service operation, which outside of the banks and the oil
companies, it is really not that well installed in many industries, or at many
companies. And the way we go to market, Gillette is going to plug into the way
we go to market, I think, very compatibly.

I have also benefited from working for GE for the last 3 years. And I have a
deep appreciation for the power of process and systems. And what we're going to
do is put these two companies -- the names are different -- we don't call it
Functional Excellence, but we ran the same best in practice bench marking. We
have the same goals for take out of money in our purchasing system and in our
supply chain. And when your process is -- and systems are robust, when they are
standard, when they are global, then you've got an incredible platform that you
can put a lot of businesses -- you can attach a lot of businesses to. And they
can all perform.

That is why we tried to make the point about Deb Henretta. Deb Henretta,
maybe she occasionally wonders why we're not buying more in the baby care area,
but for the most part she is focused like a laser on the baby care business. And
Mark Leckie is focused like a laser on the battery business. In this
organization structure we stumbled back in 99, in 2000 trying to get into it,
but every year we see more more potential to operate it better.

JIM KILTS - GILLETTE COMPANY - CHAIRMAN, PRESIDENT, CEO

I which is like to add to that, because when the Board talked about this
acquisition we really talked about culture, momentum and synergy, is 3 of the
components. And when you put that against the -- kind of the ideal situation,
this is a perfect, perfect marriage.

CLAYT DALEY - PROCTER & GAMBLE COMPANY - CFO

We're going to take one more. Bill Schmitz over there. And then after that you
get the microphone. Oh, you have got it already. Then you all have passed the
bladder test.

UNIDENTIFIED AUDIENCE MEMBER

Jim, I was just wondering in retrospect, when you look back, what do you think
will be more difficult for you, the first year and a half you spent fixing
Gillette, or the next year and a half of your life as you consolidate?

JIM KILTS - GILLETTE COMPANY - CHAIRMAN, PRESIDENT, CEO

I have always been lucky that my last job and my next day is my best day. So I
have always -- I have never looked back and said, what a great time I have had.
But I have always taken the opportunity to say, what I am doing now is the most
fun I've ever had. And I'm going to look at that next year and a half as
probably the most fun I will have in my life. And I am going to make it that
way. And I think we just have such a great opportunity with the assets we have
to make the best consumer products company in the world. I can hardly wait.

UNIDENTIFIED AUDIENCE MEMBER

And, AG, there has been some notable management changes. I guess you know, Paul
Polman has decided to retire. Laurent is leaving China to go into Western
Europe. A big part of the synergies on the revenue side are really getting into
these developed markets. How does that change with all this -- the management
shuffling?

AG LAFLEY - PROCTER & GAMBLE COMPANY - CHAIRMAN, PRESIDENT, CEO

First of all, over 5 years we have had incredibly little change. But the
changes that you referred to, I'm excited about Daniella in China. She did --
Russia was actually growing faster than China last year, much to Lorance's
dismay. And Daniella has worked in Latin America. She has worked in Russia and
the Ukraine successfully. And now she's going to China. She is a fantastic
leader. You're going to see -- when Dmitri went into China -- Dmitri
Panayotopoulos -- China took off in '93. Lorault (ph) came and it kept growing
fast. Daniella is going to come and it is going to keep growing fast again.

As for Laurent in Europe we have an incredibly strong leadership team in Europe.
Every country is run by a European, usually a native. We're very deep in Europe.
And Laurent is one of our outstanding leaders. So I think Paul took -- Paul
broke brought Europe back. Laurent is going to take Europe to the next level.

ANN GILLIN-LEFEVER - CONSUMER ANALYST GROUP OF NEW YORK - ANALYST

We will cut it off there. And thank you very much both of you. And we're
looking forward to another year and a half of fun. We'll be resuming here at
10:45 for the Pepsi presentation. Thank you.

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FORWARD LOOKING STATEMENT

All statements, other than statements of historical fact included in this
release, are forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995. In addition to the risks and
uncertainties noted in this release, there are certain factors that could cause
actual results to differ materially from those anticipated by some of the
statements made. These include: (1) the ability to achieve business plans,
including with respect to lower income consumers and growing existing sales and
volume profitably despite high levels of competitive activity, especially with
respect to the product categories and geographical markets (including developing
markets) in which the Company has chosen to focus; (2) successfully executing,
managing and integrating key acquisitions, including (i) the Domination and
Profit Transfer Agreement with Wella, and (ii) the Company's agreement to
acquire The Gillette Company, including obtaining the related required
shareholder and regulatory approvals; (3) the ability to manage and maintain key
customer relationships; (4) the ability to maintain key manufacturing and supply
sources (including sole supplier and plant manufacturing sources); (5) the
ability to successfully manage regulatory, tax and legal matters (including
product liability, patent, and other intellectual property matters), and to
resolve pending matters within current estimates; (6) the ability to
successfully implement, achieve and sustain cost improvement plans in
manufacturing and overhead areas, including the success of the Company's
outsourcing projects; (7) the ability to successfully manage currency (including
currency issues in volatile countries), debt (including debt related to the
Company's announced plan to repurchase shares of the Company's stock in
connection with the Company's pending acquisition of The Gillette Company),
interest rate and certain commodity cost exposures; (8) the ability to manage
the continued global political and/or economic uncertainty and disruptions,
especially in the Company's significant geographical markets, as well as any
political and/or economic uncertainty and disruptions due to terrorist
activities; (9) the ability to successfully manage increases in the prices of
raw materials used to make the Company's products; (10) the ability to stay
close to consumers in an era of increased media fragmentation; and (11) the
ability to stay on the leading edge of innovation. For additional information
concerning factors that could cause actual results to materially differ from
those projected herein, please refer to our most recent 10-K, 10-Q and 8-K
reports.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

In connection with the proposed merger, The Procter & Gamble Company ("P&G") and
The Gillette Company ("Gillette") will file a joint proxy statement/prospectus
with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE
ADVISED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE,
BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Investors and security holders
may obtain a free copy of the joint proxy statement/prospectus (when available)
and other documents filed by P&G and Gillette with the Commission at the
Commission's web site at http://www.sec.gov. Free copies of the joint proxy
statement/prospectus, once available, and each company's other filings with the
Commission may also be obtained from the respective companies. Free copies of
P&G's filings may be obtained by directing a request to The Procter & Gamble
Company, Investor Relations, P.O. Box 599, Cincinnati, Ohio 45201-0599. Free
copies of Gillette's filings may be obtained by directing a request to The

Gillette Company, Investor Relations, Prudential Tower, Boston, Massachusetts,
02199-8004.

This communication shall not constitute an offer to sell or the solicitation of
an offer to buy securities, nor shall there by any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such jurisdiction.

PARTICIPANTS IN THE SOLICITATION

P&G, Gillette and their respective directors, executive officers and other
members of their management and employees may be soliciting proxies from their
respective stockholders in favor of the merger. Information concerning persons
who may be considered participants in the solicitation of P&G's stockholders
under the rules of the Commission is set forth in the Proxy Statement filed by
P&G with the Commission on August 27, 2004, and information concerning persons
who may be considered participants in the solicitation of Gillette's
stockholders under the rules of the Commission is set forth in the Proxy
Statement filed by Gillette with the Commission on April 12, 2004.