

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filed," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þFalse

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of

the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.

7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes þ No o TRUE

The aggregate market value of the voting stock held by non-affiliates amounted to ~~$215~~$304 billion on December 31, ~~2016.~~2019.

There were ~~2,550,014,230~~2,486,086,692 shares of Common Stock outstanding as of July 31, ~~2017.~~2020.

Documents Incorporated by Reference

Portions of the Proxy Statement for the ~~2017~~2020 Annual Meeting of Shareholders, which ~~was~~will be filed ~~on August 1, 2017 (2017~~within one hundred and twenty days of the fiscal year ended June 30, 2020 (2020 Proxy Statement), are incorporated by reference into Part III of this report to the extent described herein.

The Procter & Gamble Company 1

Item 1. Business.

Additional information required by this item is incorporated herein by reference to Management's Discussion and Analysis (MD&A); and Notes 1 and 2 to our Consolidated Financial Statements. Unless the context indicates otherwise, the terms the "Company," "P&G," "we," "our" or "us" as used herein refer to The Procter & Gamble Company (the registrant) and its subsidiaries.

The Procter & Gamble Company is focused on providing branded ~~consumer packaged goods~~products of superior quality and value to improve the lives of the world's ~~consumers.~~consumers, now and for generations to come. The Company was incorporated in Ohio in 1905, having first been established as a New Jersey corporation in 1890, and was built from a business founded in Cincinnati in 1837 by William Procter and James Gamble. Today, our products are sold in more than 180 countries and territories.

Throughout this Form 10-K, we incorporate by reference information from other documents filed with the Securities and Exchange Commission (SEC).

The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments thereto, are filed electronically with the SEC. The SEC maintains an internet site that contains these reports at: www.sec.gov. You can also access these reports through links from our website at: www.pginvestor.com. P&G includes the website link solely as a textual reference. The information contained on our website is not incorporated by reference into this report.

Copies of these reports are also available, without charge, by contacting ~~Wells Fargo,~~EQ Shareowner Services, 1100 Centre Pointe Curve, Suite 101, Mendota, MN 55120-4100.

Financial Information about Segments

As of June 30, 2017, the Company has five reportable segments under U.S. GAAP: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. Many of the factors necessary for understanding these businesses are similar. Operating margins of the individual businesses vary due to the nature of materials and processes used to manufacture the products, the capital intensity of the businesses and differences in selling, general and administrative expenses as a percentage of net sales. Net sales growth by business is also expected to vary slightly due to the underlying growth of the markets and product categories in which they operate. While none of our reportable segments are highly seasonal, components within certain reportable segments, such as Appliances (Grooming) and Personal Health Care (Health), are seasonal.

~~Additional information~~Information about our reportable segments can be found in the MD&A and Note 2 to our Consolidated Financial Statements.

Narrative Description of Business

Business Model. Our business model relies on the continued growth and success of existing brands and products, as well as the creation of new ~~products.~~innovative products and brands. The markets and industry segments in which we offer our products are highly competitive. Our products are sold in more than 180 countries and territories ~~primarily~~ through ~~mass merchandisers, grocery~~

~~stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores, e-commerce, high-frequency stores~~numerous channels as well as direct-to-consumer. Our growth strategy is to deliver meaningful and ~~pharmacies.~~noticeable superiority in all elements of our consumer proposition - product, packaging, brand communication, retail execution and consumer and customer value equation. We use our research and development and consumer insights to provide superior products and packaging. We utilize our ~~superior~~ marketing and online presence to ~~win with consumers at the "zero moment of truth" - when they are searching for information about a~~deliver superior brand ~~or product.~~messaging to our consumers. We work collaboratively with our customers to ~~improve the~~deliver superior retail execution, both in-store and ~~online presence~~online. In conjunction with the above elements, we provide superior value to consumers and our retail customers in each price tier

in which we compete. Productivity improvement is also critical to delivering our objectives of ~~our products~~balanced top and win the "first moment of truth" - when a consumer is shopping in the store or online. We must also win the "second moment of truth" - when a consumer uses the product, evaluates how well it met his or her expectationsbottom-line growth and decides whether it was a good value. We believe we must continue to provide new, innovative products and branding to the consumer in order to grow our business. Accordingly, marketing and research and product development activities, designed to enable sustained organic growth, continued to carry a high priority during the past fiscal year.value creation.

Key Product Categories. Information on key product categories can be found in the MD&A and Note 2 to our Consolidated Financial Statements.

Key Customers. Our customers include mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores ~~e-commerce,~~(including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and ~~pharmacies.~~professional channels. These customers sell our products to individual consumers. We also sell direct to consumers. Sales to ~~Wal-Mart Stores,~~Walmart Inc. and its affiliates represent approximately ~~16%~~15% of our total sales in ~~2017,~~2020, 2019 and ~~15% in 2016 and 2015.~~2018. No other customer represents more than 10% of our total sales. Our top ten customers accounted for approximately ~~35%~~38% of our total sales in ~~2017, 2016~~2020 and ~~2015.~~36% in 2019 and 2018. The nature of our business ~~results~~does not result in no material backlog orders or contracts with the government. We believe our practices related to working capital items for customers and suppliers are consistent with the industry segments in which we compete.

Sources and Availability of Materials. Almost all of the raw and packaging materials used by the Company are purchased from ~~others,~~third parties, some of ~~which~~whom are single-source suppliers. We produce certain raw materials, primarily chemicals, for further use in the manufacturing process. In addition, fuel, natural gas and derivative products are important commodities consumed in our manufacturing ~~process~~processes and in the transportation of input materials and of finished ~~product~~products to customers. The prices we pay for materials and other commodities are subject to fluctuation. When prices for these items change, we may or may not pass the change to our customers. The Company purchases a substantial variety of other raw and packaging materials, none of which isare material to our business taken as a whole.

Trademarks and Patents. We own or have licenses under patents and registered trademarks, which are used in connection with our activity in all businesses. Some of these patents or licenses cover significant product formulation and processes used to manufacture our products. The trademarks are important to the overall marketing and branding of our products. All major trademarks in each business are registered.

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In part, our success can be attributed to the existence and continued protection of these trademarks, patents and licenses.

Competitive Condition. The markets in which our products are sold are highly competitive. Our products compete against similar products of many large and small companies, including well-known global competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products as well as retailers' private-label brands. We are well positioned in

2 The Procter & Gamble Company

the industry segments and markets in which we operate, often holding a leadership or significant market share position. We support our products with advertising, promotions and other marketing vehicles to build awareness and trial of our brands and products in conjunction with ~~an extensive~~our sales force. We believe this combination provides the most efficient method of marketing for these types of products. Product quality, performance, value and packaging are also important differentiating factors.

~~Research and Development Expenditures~~. Research and development (R&D) expenditures enable us to develop technologies and obtain patents across all categories in order to meet the needs and improve the lives of our consumers. Research and development expenses were $1.9 billion in 2017 and 2016 and $2.0 billion in 2015 (reported in Net earnings from continuing operations).

Expenditures for Environmental Compliance.Expenditures for compliance with federal, state and local environmental laws and regulations are fairly consistent from year to year and are not material to the Company. No material change is expected in fiscal year ~~2018.~~2021.

Employees. ~~Total~~As of June 30, 2020, the Company had approximately 99,000 employees, an increase of two percent versus the prior year due to business growth and in-sourcing of certain media planning and other services. The total number of employees is an estimate of total Company employees excluding interns, co-ops, contractors and employees of joint ~~ventures as of the years ended June 30.~~ventures. The number of employees includes manufacturing and non-manufacturing employees. A discussion of progress on non-manufacturing enrollment objectives is included in Note 3 to our Consolidated Financial Statements. The number of employees includes employees of discontinued operations.

Total Number of Employees
2017 95,000
2016 105,000
2015 110,000
2014 118,000
2013 121,000
2012 126,000

~~Financial Information about Foreign and Domestic Operations.~~ Net sales in the U.S. account for 42% of total net sales. No other individual country exceeds 10% of total net sales. Operations outside the U.S. are generally characterized by the same conditions discussed in the description of the business above and may be affected by additional factors including changing currency values, different rates of inflation, economic growth and political and economic uncertainties and disruptions.

~~Our sales by geography for the fiscal years ended June 30 were as follows:~~

2017 2016 2015
North America ⁽¹⁾
45% 44% 41%
Europe 23% 23% 24%
Asia Pacific 9% 9% 8%
Greater China 8% 8% 9%
Latin America 8% 8% 10%
IMEA ⁽²⁾
7% 8% 8%


⁽¹⁾	~~North America includes results for the United States, Canada and Puerto Rico only.~~


⁽²⁾	~~IMEA includes India, Middle East and Africa.~~

~~Net sales and total assets in the United States and internationally were as follows (in billions):~~

Net Sales (years ended June 30) United States International
2017 $27.3 $37.8
2016 $27.0 $38.3
2015 $26.8 $43.9
Total Assets (years ended June 30)
2017 $59.8 $60.6
2016 $64.4 $62.7
2015 $65.0 $64.5

Item 1A. Risk Factors.

We discuss our expectations regarding future performance, events and outcomes, such as our business outlook and objectives in this Form 10-K, as well as in our quarterly and annual reports, current reports on Form 8-K, press releases and other written and oral communications. All statements, except for historical and present factual information, are “forward-looking statements” and are based on financial data and business plans available only as of the time the statements are made, which may become outdated or incomplete. We assume no obligation to update any forward-looking statements as a result of new information, future events or other ~~factors.~~factors, except to the extent required by law. Forward-looking statements are inherently uncertain, and investors must recognize that events could significantly differ from our expectations.

The following discussion of “risk factors” identifies significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with ~~the MD&A~~Management's Discussion and Analysis and the Consolidated Financial Statements and related Notes incorporated in this report. The following discussion of risks is not all inclusive, but is designed to highlight what we believe are important factors to consider when evaluating our expectations. These and other factors could cause our future results to differ from those in the forward-looking statements and from historical ~~trends.~~trends, perhaps materially.

~~The Procter & Gamble Company 3~~

Our business is subject to numerous risks as a result of our having significant operations and sales in international markets, including foreign currency fluctuations, currency exchange or pricing controls and localized volatility.

We are a global company, with operations in approximately 70 countries and products sold in more than 180 countries

and territories around the world. We hold assets, incur liabilities, ~~earn revenues~~generate sales and pay expenses in a variety of currencies other than the U.S. dollar, and our operations outside the U.S. generate ~~a significant portion~~more than fifty percent of our annual net ~~revenue.~~sales. Fluctuations in exchange rates for foreign currencies ~~may~~have and could continue to reduce the U.S. dollar value of ~~revenues, profits~~sales, earnings and cash flows we receive from non-U.S. markets, increase our supply costs (as measured in U.S. dollars) in those markets, negatively impact our competitiveness in those markets or otherwise adversely impact our business results or financial condition. Moreover, discriminatory or conflicting fiscal or trade policies in different countries, including changes to tariffs and existing trade policies and agreements, could adversely affect our results. See also the Results of Operations and Cash Flow, Financial Condition and Liquidity sections of the MD&A, and ~~Note 9 to our~~the Consolidated Financial ~~Statements.~~Statements and related Notes.

We also have businesses and maintain local currency cash balances in a number of countries with currency exchange, import authorization, pricing or other controls or restrictions, ~~including~~such as Nigeria, Algeria, Argentina, Egypt and ~~Ukraine.~~Turkey. Our results of operations, ~~and~~ financial condition and cash flows could be adversely impacted if we are unable to successfully manage such controls and restrictions, continue existing business operations and repatriate earnings from overseas, or if new or increased tariffs, quotas, exchange or price controls, trade barriers or similar restrictions are imposed on our business.

Additionally, our business, operations or employees ~~may~~have been and could continue to be adversely affected by political volatility, labor market disruptions or other crises or vulnerabilities in individual countries or regions, including political instability or upheaval, broad economic instability or sovereign risk related to a default by or deterioration in the ~~credit worthiness~~creditworthiness of local governments, particularly in emerging markets.

Uncertain ~~global~~ economic conditions may adversely impact demand for our products or cause our customers and other business partners to suffer financial hardship, which could adversely impact our business.

Our business could be negatively impacted by reduced demand for our products related to one or more significant local, regional or global economic disruptions. These disruptions ~~such as:~~have included and may in the future include: a slow-down or recession in the general economy; reduced market growth rates; tighter credit markets for our suppliers, vendors or customers; a significant shift in government policies; the deterioration of economic relations between countries or regions, including potential negative consumer sentiment toward non-local products or sources; or the inability to conduct day-to-day transactions through our financial intermediaries to pay funds to or collect funds from our customers, vendors and suppliers. Additionally, these and other economic conditions may cause our suppliers, distributors, contractors or other ~~third party~~third-party partners to suffer financial or operational difficulties that they cannot overcome, resulting in their inability to provide us with the

The Procter & Gamble Company 3

materials and services we need, in which case our business and results of operations could be adversely affected. Customers may also suffer financial hardships due to economic

conditions such that their accounts become uncollectible or are subject to longer collection cycles. In addition, if we are unable to generate sufficient sales, income and cash flow, it could affect the Company’s ability to achieve expected share repurchase and dividend payments.

Disruptions in credit markets or changes to our credit ratings may reduce our access to credit.

A disruption in the credit markets or a downgrade of our current credit rating could increase our future borrowing costs and impair our ability to access capital and credit markets on terms commercially acceptable to us, which could adversely affect our liquidity and capital resources or significantly increase our cost of capital.

~~Disruption~~Our business results depend on our ability to manage disruptions in our global supply ~~chain may negatively impact our business results.~~chain.

Our ability to meet our customers’ needs and achieve cost targets depends on our ability to maintain key manufacturing and supply arrangements, including execution of supply chain optimizations and certain sole supplier or sole manufacturing plant arrangements. The loss or disruption of such manufacturing and supply arrangements, including for issues such as labor disputes, loss or impairment of key manufacturing sites, discontinuity in our internal information and data systems, inability to procure sufficient raw or input materials, significant changes in trade policy, natural disasters, increasing severity or frequency of extreme weather events due to climate change or otherwise, acts of war or terrorism, disease outbreaks or other external factors over which we have no control, ~~could interrupt~~have interrupted product supply and, if not effectively managed and remedied, could have an adverse impact on our business, financial condition, or results of ~~operations.~~operations or cash flows.

Our businesses face cost fluctuations and pressures that could affect our business results.

Our costs are subject to fluctuations, particularly due to changes in the prices of commodities and raw materials and the costs of labor, transportation, energy, pension and healthcare. Therefore, our business results ~~are dependent,~~depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost saving projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuations could adversely impact our ~~financial results.~~results of operations or cash flows.

Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits.

We are a consumer products company that relies on continued global demand for our brands and products. Achieving our business results depends, in part, on successfully developing, introducing and marketing new products and on making significant improvements to our equipment and manufacturing processes. The success of such innovation depends on our ability to correctly anticipate

customer and consumer acceptance and trends, to obtain, maintain and enforce necessary intellectual property protections and to avoid infringing upon the intellectual property rights of others. We must also successfully respond to technological advances made by, and intellectual property rights granted to, competitors. Failure to continually innovate, improve and

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respond to competitive moves and changing consumer habits could compromise our competitive position and adversely impact our ~~results.~~financial condition, results of operations or cash flows.

The ability to achieve our business objectives ~~is dependent~~depends on how well we can compete with our local and global competitors in new and existing markets and channels.

The consumer products industry is highly competitive. Across all of our categories, we compete against a wide variety of global and local competitors. As a result, we experience ongoing competitive pressures in the environments in which we operate, ~~as well as~~which may result in challenges in maintaining profit margins. To address these challenges, we must be able to successfully respond to competitive factors and emerging retail trends, including pricing, promotional incentives, product delivery windows and trade terms. In addition, evolving sales channels and business models may affect customer and consumer preferences as well as market dynamics, which, for example, may be seen in the growing consumer preference for shopping ~~online.~~online, ease of competitive entry into certain categories, and growth in hard discounter channels. Failure to successfully respond to competitive factors and emerging retail trends, and effectively compete in growing sales channels and business models, particularly e-commerce and mobile commerce applications, could negatively impact our ~~results.~~results of operations or cash flows.

A significant change in customer relationships or in customer demand for our products could have a significant impact on our business.

We sell most of our products via retail customers, which include mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores ~~e-commerce,~~(including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and ~~pharmacies.~~professional channels. Our success ~~is dependent~~depends on our ability to successfully manage relationships with our retail trade customers, which includes our ability to offer trade terms that are mutually acceptable and are aligned with our pricing and profitability targets. Continued concentration among our retail customers could create significant cost and margin pressure on our business, and our business performance could suffer if we cannot reach agreement with a key customer on trade terms and principles. Our business could also be negatively impacted if a key customer were to significantly reduce the inventory level of or shelf space allocated to our products as a result of increased offerings of other branded manufacturers, private label brands and generic non-branded products or for other reasons, significantly tighten product delivery windows or experience a significant business disruption.

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If the reputation of the Company or one or more of our brands erodes significantly, it could have a material impact on our financial results.

The Company's reputation, and the reputation of our brands, form the foundation of our relationships with key stakeholders and other constituencies, including consumers, customers and suppliers. The quality and safety of our products are critical to our business. Many of our brands have worldwide recognition and our financial success is directly ~~dependent~~depends on the success of our brands. The success of our brands can suffer if our marketing plans or product initiatives do not have the desired impact on a brand's image or its ability to attract consumers. Our results of operations or cash flows could also be negatively impacted if one of our brands suffers substantial harm to its reputation due to a significant product recall, product-related litigation, defects or impurities in our products, product misuse, changing consumer perceptions of certain ingredients or environmental impacts, allegations of product tampering or the distribution and sale of

counterfeit products. Additionally, negative or inaccurate postings or comments on social media or networking websites about the Company or one of its brands could generate adverse publicity that could damage the reputation of our brands or the Company. If we are unable to effectively manage real or perceived issues, including concerns about safety, quality, ingredients, efficacy, environmental impacts or similar matters, sentiments toward the Company or our products could be negatively impacted, and our ~~financial~~ results of operations or cash flows could suffer. Our Company also devotes ~~significant~~ time and resources to ~~programs~~citizenship efforts that are consistent with our corporate values and are designed to strengthen our business and protect and preserve our reputation, ~~such as social~~including programs driving ethics and corporate responsibility, strong communities, diversity and inclusion, gender equality and environmental sustainability. If these programs are not executed as planned or suffer negative publicity, the Company's reputation and ~~financial~~ results of operations or cash flows could be adversely impacted.

We rely on third parties in many aspects of our business, which creates additional risk.

Due to the scale and scope of our business, we must rely on relationships with third parties, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, for certain functions. If we are unable to effectively manage our ~~third party~~third-party relationships and the agreements under which our ~~third party~~third-party partners operate, our results of operations and cash flows could be adversely impacted. Further, failure of these third parties to meet their obligations to the Company or substantial disruptions in the relationships between the Company and these third parties could adversely impact our operations and financial ~~results could suffer.~~results. Additionally, while we have policies and procedures for managing these relationships, they inherently involve a lesser degree of control over business operations, governance and compliance, thereby potentially increasing our financial, legal, reputational and operational risk.

A significant information security or operational technology incident, including a cybersecurity breach, or the failure of one or more key information or operations technology systems, networks, hardware, processes, and/or associated sites owned or operated by the Company or one of its service providers could have a material adverse impact on our business or reputation.

We rely extensively on information and operational technology ~~(IT)~~("IT/OT") systems, networks and services, including internet and intranet sites, data hosting and processing facilities and ~~tools,~~technologies, physical security systems and other hardware, software and technical applications and platforms, many of which are managed, hosted, provided and/or used by third parties or their vendors, to assist in conducting our business. The various uses of these ITIT/OT systems, networks and services include, but are not limited to:

•ordering and managing materials from suppliers;

•converting materials to finished products;

•shipping products to customers;

•marketing and selling products to consumers;

•collecting, transferring, storing and/or processing customer, consumer, employee, vendor, investor, and other stakeholder information and personal ~~data;~~data, including such data from persons covered by an expanding landscape of privacy and data regulations, such as citizens of the European Union who are covered by the General Data Protection Regulation (“GDPR”) or residents of California covered by the California Consumer Privacy Act ("CCPA");

•summarizing and reporting results of operations, including financial reporting;

•managing our banking and other cash liquidity systems and platforms;

•hosting, processing and sharing, as appropriate, confidential and proprietary research, business plans and financial information;

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•collaborating via an online and efficient means of global business communications;

•complying with regulatory, legal and tax requirements;

•providing data security; and

•handling other processes necessary to manage our business.

Numerous and evolving information security threats, including advanced persistent cybersecurity threats, pose a risk to the security of our ITservices, systems, networks and ~~services,~~supply chain, as well as to the confidentiality, availability and integrity of our data and of our critical business operations. As cybersecurity threats rapidly evolve in sophistication and become more prevalent across the industry globally, the Company is continually increasing its attention to these threats. We continue to assess potential threats and vulnerabilities and make investments seeking to address them, including monitoring of networks and systems, increasing information security skills, deploying employee security training, and updating security policies for the Company and its third-party providers. However,In addition, because the techniques, tools and tactics used in ~~cyber attacks~~cyber-attacks frequently change ~~frequently~~ and may be difficult to detect for periods of time, we may face difficulties in anticipating and implementing adequate preventative measures or fully mitigating harms after such an attack.

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Our ITIT/OT databases and systems and our third-party providers’ databases and systems have been, and will likely continue to be, subject to advanced computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other cyber-attacks. ~~To date, we have seen no material impact on our business~~Such attacks may originate from outside parties, hackers, criminal organizations or ~~operations from these attacks; however, we~~other threat actors, including nation states. In addition, insider actors-malicious or otherwise-could cause technical disruptions and/or confidential data leakage. We cannot guarantee that our security efforts or the security efforts of our third-party providers will prevent material breaches, operational incidents or other breakdowns to our or our third-party providers’ IT/OT databases or systems.

If the ITIT/OT systems, networks or service providers we rely upon fail to function properly or cause operational outages or aberrations, or if we or one of our third-party providers suffer ~~a loss,~~ significant unavailability of key operations, or inadvertent disclosure of, lack of integrity of, or loss of our sensitive business or stakeholder information, due to any number of causes, ranging from catastrophic events or power outages to improper data handling, or security incidents or employee error or malfeasance, and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive, operational, financial and business harm as well as litigation and regulatory action. Periodically, we also upgrade our IT/OT systems or adopt new technologies. If such a new system or technology does not function properly or otherwise exposes us to increased cybersecurity breaches and failures, it could affect our ability to order materials, make and ship orders, and process payments in addition to other operational and information integrity and loss issues. The costs and operational consequences of responding to the above items and implementing remediation measures could be significant and could adversely impact our ~~results.~~results of operations and cash flows.

Changing political conditions could adversely impact our business and financial results.

Changes in the political conditions in markets in which we manufacture, sell or distribute our products may be difficult to predict and may adversely affect our business and financial results. For example, the United Kingdom’s ~~decision to leave~~withdrawal from the European Union ("Brexit") has created uncertainty regarding, among other things, the U.K.'s future legal and economic framework and how the U.K. will interact with other countries, including with respect to the free movement of goods, services, capital and people. In addition, results of elections, referendums or other

political processes in certain markets in which our products are manufactured, sold or distributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, tariffs, import and export controls and the general movement of goods, services, capital and people between countries and other matters. The potential implications of such uncertainty, which include, among others, exchange rate fluctuations, new or increased tariffs, trade barriers and

market contraction, could adversely affect the Company’s ~~business~~results of operations and ~~financial results.~~cash flows.

We must successfully manage compliance with laws and regulations, as well as manage new and pending legal and regulatory matters in the U.S. and abroad.

Our business is subject to a wide variety of laws and regulations across ~~all of~~ the countries in which we do business, including those laws and regulations involving intellectual property, product liability, product composition or formulation, packaging content or end-of-life responsibility, marketing, antitrust, ~~privacy,~~data protection, environmental (including increasing focus on the climate, water, and waste impacts of consumer packaged goods companies' operations and products), employment, anti-bribery, anti-corruption, tax, accounting and financial reporting or other matters. Rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions, create challenges for the Company, including our compliance and ethics programs, ~~and~~ may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our ~~financial results.~~results of operations and cash flows. If we are unable to continue to meet these challenges and comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our business results. Failure to successfully manage regulatory and legal matters and resolve such matters without significant liability or damage to our reputation may materially adversely impact our financial condition, results of operations and ~~financial position.~~cash flows. Furthermore, if pending legal or regulatory matters result in fines or costs in excess of the amounts accrued to date, that may also materially impact our results of operations and financial position.

Changes in applicable tax regulations and resolutions of tax disputes could negatively affect our financial results.

The Company is subject to taxation in the U.S. and numerous foreign jurisdictions. ~~Because~~Changes in the various tax laws can and do occur. For example, the U.S. ~~maintains a worldwide corporate~~government enacted comprehensive tax ~~system,~~legislation commonly referred to as the ~~foreign~~Tax Cuts and ~~U.S. tax systems are somewhat interdependent. For example, certain income that is earned and taxed~~Jobs Act (the “U.S. Tax Act”). The changes included in ~~countries outside~~ the U.S. ~~is not taxed~~Tax Act are broad and complex. The ongoing impacts of the U.S. Tax Act may differ from the estimates provided elsewhere in the ~~U.S., provided those earnings are indefinitely reinvested outside~~reports we file with the ~~U.S. If those same foreign earnings are instead repatriated to the U.S., additional residual U.S. taxation will likely occur,~~Securities and Exchange Commission, possibly materially, due to, among other things, changes in interpretations, any regulatory guidance or legislative action to address questions that arise or any updates or changes to estimates the ~~U.S.’s worldwide tax system and higher U.S. corporate tax rate. The U.S. is considering corporate tax reform that may significantly change~~Company has used to calculate the ~~corporate tax rate and the U.S. international tax rules.~~ impacts.

Additionally, longstanding international tax norms that determine each country’s jurisdiction to tax cross-border international trade are ~~evolvingas a result~~subject to potential evolution. An outgrowth of the original Base Erosion and Profit Shifting ~~reporting requirements~~ (“BEPS") ~~recommended~~project is a project undertaken by the ~~G8, G20~~more than 130 member countries of the expanded OECD Inclusive Framework focused on "Addressing the Challenges of the Digitalization of the Economy." The breadth of this project extends beyond pure digital businesses and ~~Organization for Economic Cooperation and Development ("OECD").~~is likely to

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impact all multinational businesses by potentially redefining jurisdictional taxation rights. As ~~these~~this and other tax laws and related regulations change or evolve, our financial condition, results of operations and cash flows could be materially impacted. Given the unpredictability of these possible changes, ~~and their potential interdependency,~~ it is very difficult to assess whether the overall effect of such potential tax changes would be

~~6 The Procter & Gamble Company~~

cumulatively positive or negative, ~~for our earnings and cash flow,~~ but such changes could adversely impact our ~~financial results.~~results of operations and cash flows.

Furthermore, we are subject to regular review and audit by both foreign and domestic tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation, including maintaining our intended tax treatment of divestiture transactions such as the fiscal 2017 Beauty Brands transaction with Coty, may differ materially from the tax amounts recorded in our Consolidated Financial Statements, which could adversely impact our results of operations and cash ~~flows and financial results.~~flows.

We must successfully manage ongoing acquisition, joint venture and divestiture activities.

As a company that manages a portfolio of consumer brands, our ongoing business model includes a certain level of acquisition, joint venture and divestiture activities. We must be able to successfully manage the impacts of these activities, while at the same time delivering against our business objectives. Specifically, our financial results have been, and in the future could be, adversely impacted by the dilutive impacts from the loss of earnings associated with divested ~~brands.~~brands or dissolution of joint ventures. Our ~~financial~~ results of operations and cash flows have been and, in the future could also be, impacted ~~in the event of~~by acquisitions or joint venture activities, if: 1) changes in the cash flows or other market-based assumptions cause the value of acquired assets to fall below book value, or 2) we are not able to deliver the expected cost and growth synergies associated with such acquisitions and joint ventures, including as a result of integration and collaboration challenges, which could also ~~have~~result in an ~~impact on~~impairment of goodwill and intangible assets.

Our business results depend on our ability to successfully manage productivity improvements and ongoing organizational ~~change.~~change, including attracting and retaining key talent as part of our overall succession planning.

Our financial projections assume certain ongoing productivity improvements and cost savings, including staffing adjustments as well as employee departures. Failure to deliver these planned productivity improvements and cost savings, while continuing to invest in business growth, could adversely impact our ~~financial results.~~results of operations and cash flows. Additionally, successfully executing organizational change, management transitions at leadership levels of the Company and motivation and retention of key employees, is critical to our business success. ~~We are generally a build-from-within company~~Factors that may affect our ability to attract and

retain sufficient numbers of qualified employees include employee morale, our reputation, competition from other employers and availability of qualified individuals. Our success ~~is dependent~~depends on identifying, developing and retaining key employees to provide uninterrupted leadership

and direction for our business. This includes developing and retaining organizational capabilities in key growth markets where the depth of skilled or experienced employees may be limited and competition for these resources is intense, as well as continuing the development and execution of robust leadership succession plans.

We must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of a disease outbreak, including epidemics, pandemics, or similar widespread public health concerns.

Our business may be negatively impacted by the fear of exposure to or actual effects of a disease outbreak, epidemic, pandemic, or similar widespread public health concern, such as travel restrictions or recommendations or mandates from governmental authorities to avoid large gatherings or to self-quarantine as a result of the novel coronavirus (COVID-19) pandemic. These impacts include, but are not limited to:

•Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading activity. If prolonged, such impacts can further increase the difficulty of business or operations planning and may adversely impact our results of operations and cash flows;

•Inability to meet our customers’ needs and achieve cost targets due to disruptions in our manufacturing and supply arrangements caused by constrained workforce capacity or the loss or disruption of other essential manufacturing and supply elements such as raw materials or other finished product components, transportation, or other manufacturing and distribution capability;

•Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations; or

•Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, import/export restrictions, price controls, or governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which

The Procter & Gamble Company 7

could adversely impact our results of operations and cash flows.

Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

In the U.S., we own and operate 2423 manufacturing sites located in 1817 different ~~states or territories.~~states. In addition, we own and operate 8984 manufacturing sites in 3837 other countries. Many of the domestic and international sites manufacture products for multiple businesses. Beauty products are manufactured at 24 of these locations; Grooming products at ~~21;~~19; Health Care products at ~~17;~~21; Fabric & Home Care products at ~~43;~~38; and Baby, Feminine & Family Care at ~~41.~~36. We own our Corporate headquarters in Cincinnati, Ohio. We own or lease our principal regional general offices in Switzerland, Panama, Singapore, China and Dubai. We own or lease our principal regional shared service centers in Costa Rica, the United Kingdom and the Philippines. Management believes that the Company's ~~manufacturing~~ sites are adequate to support the business and that the properties and equipment have been well maintained.

Item 3. Legal Proceedings.

The Company is subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental issues, patent and trademark matters, labor and employment matters and tax. See Note 1213 to our Consolidated Financial Statements for information on certain legal proceedings for which there are contingencies.

This item should be read in conjunction with the Company's Risk Factors in Part I, Item 1A for additional information.

Item 4. Mine Safety Disclosure.

Not applicable.

8 The Procter & Gamble Company 7

INFORMATION ABOUT OUR EXECUTIVE OFFICERS ~~OF THE REGISTRANT~~

The names, ages and positions held by the Executive Officers of the Company on August ~~7, 2017,~~6, 2020, are:

All the Executive Officers named above have been employed by the Company for more than the past five years.

^aMr. Taylor previously served as Group President - Global Beauty, Grooming & Health Care (February - October 2015).

^bMr. Moeller previously served as Vice Chairman and Chief Financial Officer (2017 - 2019) and as Chief Financial Officer (2009 - 2017).

^cMr. Bishop previously served as Group President - Global Oral Care (January - October 2015).

^dMr. Coombe previously served as President - Europe Selling & Market Operations (November 2014 - February 2018).

^eMs. Ferguson-McHugh previously served as Group President - Global Family Care (2014-2015).

^fMs. Francisco previously served as President - Global Feminine Care (November 2015 - August 2018) and as Vice President - Brand Franchise Leader, Feminine Care (January - October 2015).

^gMr. Jejurikar previously served as President - Global Fabric Care and Brand-Building Officer Global Fabric & Home Care (November 2015 - July 2018) and as President - Fabric Care, North America; Brand-Building Officer Fabric & Home Care New Business Creation (November 2014 - October 2015).

^hMs. Keith previously served as President - Global Skin & Personal Care (November 2014 - June 2017).

ⁱMs. Tastad previously served as Group President - North America Selling & Market Operations (January 2015 - May 2019).

^jMs. Grabowski previously served as Vice President - Human Resources, North America Selling and Market Operations (April 2015 - July 2018).

8 The Procter & Gamble Company 9

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

ISSUER PURCHASES OF EQUITY SECURITIES

Period

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs ⁽¹⁾

Approximate Dollar Value of Shares that May Yet Be Purchased Under Our Share Repurchase Program

4/1/2020 - 4/30/2020

n/a

⁽¹⁾

5/1/2020 - 5/31/2020

n/a

⁽¹⁾

6/1/2020 - 6/30/2020

n/a

⁽¹⁾

Total

n/a

⁽¹⁾

Period
Total Number of
Shares Purchased ⁽¹⁾

Average Price
Paid per Share⁽²⁾

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs ⁽³⁾
Approximate Dollar Value of Shares that May Yet Be Purchased Under Our Share Repurchase Program
4/1/2017 - 4/30/2017 5,568,038 89.80 5,568,038
⁽³⁾
5/1/2017 - 5/31/2017 2,315,036 86.39 2,315,036
⁽³⁾
6/1/2017 - 6/30/2017 — — —
⁽³⁾
Total 7,883,074 $88.80 7,883,074
⁽³⁾
⁽¹⁾On April 17, 2020, the Company stated that in fiscal year 2020 the Company expected to reduce outstanding shares through direct share repurchases at a value of $7 to $8 billion, notwithstanding any purchases under the Company's compensation and benefit plans. The share repurchases were authorized pursuant to a resolution issued by the Company's Board of Directors and were financed through a combination of operating cash flows and issuance of long-term and short-term debt. The total value of the shares purchased under the share repurchase plan was $7.4 billion. The share repurchase plan ended on June 30, 2020.

Additional information required by this item can be found in Part III, Item 12 of this Form 10-K.

SHAREHOLDER RETURN PERFORMANCE GRAPHS

Market and Dividend Information

P&G has been paying a dividend for ~~127~~130 consecutive years since its original incorporation in 1890 and has increased its dividend for 6164 consecutive years. ~~Over the past five years, the dividend has increased at an annual compound average rate of 5%.~~ Nevertheless, as in the past, further dividends will be considered after reviewing dividend yields, profitability and cash flow expectations and financing needs and will be declared at the discretion of the Company's Board of Directors.


(in dollars; split-adjusted)	1956			1970			1980			1990			2000		2010	2020
Dividends per share	$	0.01	$	0.04	$	0.11	$	0.22	$	0.64	$	1.80	$	3.03

(in dollars; split-adjusted) 1957 1967 1977 1987 1997 2007 2017
Dividends per share $ 0.01 $ 0.03 $ 0.08 $ 0.17 $ 0.45 $ 1.28 $ 2.70

10 The Procter & Gamble Company 9

~~Quarterly Dividends~~

Quarter Ended 2016 - 2017 2015 - 2016
September 30 $ 0.6695
$ 0.6629
December 31 0.6695
0.6629
March 31 0.6695
0.6629
June 30 0.6896
0.6695

Common Stock ~~Price Range~~Information

Quarter Ended 2016 - 2017 2015 - 2016
High Low High Low
September 30 $ 90.22
$ 84.32
$ 82.55
$ 65.02
December 31 90.32
81.18
81.23
71.30
March 31 92.00
83.24
83.87
74.46
June 30 91.13
85.52
84.80
79.10

P&G trades on the New York Stock Exchange ~~and NYSE Euronext-Paris~~ under the stock symbol PG. ~~There~~As of June 30, 2020, there were approximately ~~3.0~~4 millioncommon stock shareowners, including shareowners of record, ~~participants in the P&G Shareholder Investment Program,~~ participants in P&G stock ownership plans and beneficial owners with accounts at banks and brokerage ~~firms, as ofJune 30, 2017.~~

firms.

Shareholder Return

The following graph compares the cumulative total return of P&G’s common stock for the five-year period ended June 30, ~~2017,~~2020, against the cumulative total return of the S&P 500 Stock Index (broad market comparison) and the S&P 500 Consumer Staples Index (line of business comparison). The graph and table assume $100 was invested on June 30, ~~2012,~~2015, and that all dividends were reinvested.


	Cumulative Value of $100 Investment, through June 30
Company Name/Index	2015		2016		2017		2018		2019		2020
P&G	$	100	$	112	$	119	$	110	$	160	$	179
S&P 500 Stock Index	100		104		123		140		155		166
S&P 500 Consumer Staples Index	100		119		122		117		137		142

Cumulative Value of $100 Investment, through June 30
Company Name/Index 2012 2013 2014 2015 2016 2017
P&G $ 100
$ 130
$ 137
$ 140
$ 157
$ 167
S&P 500 Index 100
121
150
161
168
198
S&P 500 Consumer Staples Index 100
117
135
148
176
181

10 The Procter & Gamble Company 11

Item 6. Selected Financial Data.

The information required by this item is incorporated by reference to Note 1 and Note 2 to our Consolidated Financial Statements. For further details behind the business drivers for recent results presented below, see the Management's Discussion and Analysis.

Financial Summary (Unaudited)


Amounts in millions, except per share amounts	2020			2019			2018			2017			2016
Net sales	$	70,950		$	67,684		$	66,832		$	65,058		$	65,299
Gross profit	35,700			32,916			32,400			32,420			32,275
Operating income	15,706			5,487			13,363			13,766			13,258
Net earnings from continuing operations	13,103			3,966			9,861			10,194			10,027
Net earnings from discontinued operations	—			—			—			5,217			577
Net earnings attributable to Procter & Gamble	13,027			3,897			9,750			15,326			10,508
Net earnings margin from continuing operations	18.5		%	5.9		%	14.8		%	15.7		%	15.4		%
Basic net earnings per common share: ⁽¹⁾
Earnings from continuing operations	$	5.13		$	1.45		$	3.75		$	3.79		$	3.59
Earnings from discontinued operations	—			—			—			2.01			0.21
Basic net earnings per common share	$	5.13		$	1.45		$	3.75		$	5.80		$	3.80
Diluted net earnings per common share: ⁽¹⁾
Earnings from continuing operations	$	4.96		$	1.43		$	3.67		$	3.69		$	3.49
Earnings from discontinued operations	—			—			—			1.90			0.20
Diluted net earnings per common share	$	4.96		$	1.43		$	3.67		$	5.59		$	3.69
Dividends per common share	$	3.03		$	2.90		$	2.79		$	2.70		$	2.66
Research and development expense	$	1,834		$	1,861		$	1,908		$	1,874		$	1,879
Advertising expense	7,326			6,751			7,103			7,118			7,243
Total assets	120,700			115,095			118,310			120,406			127,136
Capital expenditures	3,073			3,347			3,717			3,384			3,314
Long-term debt	23,537			20,395			20,863			18,038			18,945
Shareholders' equity	$	46,878		$	47,579		$	52,883		$	55,778		$	57,983

Amounts in millions, except per share amounts 2017 2016 2015 2014 2013 2012
Net sales $ 65,058
$ 65,299
$ 70,749
$ 74,401
$ 73,910
$ 73,138
Gross profit 32,523
32,390
33,693
35,371
35,858
35,254
Operating income 13,955
13,441
11,049
13,910
13,051
12,495
Net earnings from continuing operations 10,194
10,027
8,287
10,658
10,346
8,864
Net earnings/(loss) from discontinued operations 5,217
577
(1,143 ) 1,127
1,056
2,040
Net earnings attributable to Procter & Gamble 15,326
10,508
7,036
11,643
11,312
10,756
Net earnings margin from continuing operations 15.7 % 15.4 % 11.7 % 14.3 % 14.0 % 12.1 %
Basic net earnings per common share: ⁽¹⁾

Earnings from continuing operations $ 3.79
$ 3.59
$ 2.92
$ 3.78
$ 3.65
$ 3.08
Earnings/(loss) from discontinued operations 2.01
0.21
(0.42 ) 0.41
0.39
0.74
Basic net earnings per common share $ 5.80
$ 3.80
$ 2.50
$ 4.19
$ 4.04
$ 3.82
Diluted net earnings per common share: ⁽¹⁾

Earnings from continuing operations $ 3.69
$ 3.49
$ 2.84
$ 3.63
$ 3.50
$ 2.97
Earnings/(loss) from discontinued operations 1.90
0.20
(0.40 ) 0.38
0.36
0.69
Diluted net earnings per common share $ 5.59
$ 3.69
$ 2.44
$ 4.01
$ 3.86
$ 3.66
Dividends per common share $ 2.70
$ 2.66
$ 2.59
$ 2.45
$ 2.29
$ 2.14
Research and development expense $ 1,874
$ 1,879
$ 1,991
$ 1,910
$ 1,867
$ 1,874
Advertising expense 7,118
7,243
7,180
7,867
8,188
7,839
Total assets 120,406
127,136
129,495
144,266
139,263
132,244
Capital expenditures 3,384
3,314
3,736
3,848
4,008
3,964
Long-term debt 18,038
18,945
18,327
19,807
19,111
21,080
Shareholders' equity $ 55,778
$ 57,983
$ 63,050
$ 69,976
$ 68,709
$ 64,035
⁽¹⁾Basic net earnings per common share and Diluted net earnings per common share are calculated based on Net earnings attributable to Procter & Gamble.


⁽¹⁾			~~Basic net earnings per common share and Diluted net earnings per common share are calculated based on Net earnings attributable to Procter & Gamble.~~

~~The Procter & Gamble Company 11~~

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Management's Discussion and Analysis

Forward-Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including without limitation, in the following sections: “Management's Discussion and ~~Analysis”~~Analysis,” “Risk Factors” and ~~“Risk Factors.”~~"Notes 4 and 13 to the Consolidated Financial Statements." These forward-looking statements generally

are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely ~~result”~~result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties that may cause results to differ materially from those expressed or implied in the forward-looking statements. A detailed discussion of risks and uncertainties that could cause results and events to differ materially from such forward-looking statements is included in the section titled "Economic Conditions and Uncertainties" and the section titled “Risk Factors” (Item 1A of this Form 10-K). Forward-looking statements are made as of the date of this report, and weWe undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or ~~otherwise.~~otherwise, except to the extent required by law.

Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial risks,

12 The Procter & Gamble Company

including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to effect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to factors outside of our control, such as natural disasters, acts of war or terrorism, or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information and operational technology systems, networks and services, and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions (including the United Kingdom’s exit from the European Union) and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, data protection, tax, environmental, and accounting and financial reporting) and to resolve pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes, while successfully identifying, developing and

retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; and (17) the ability to successfully manage the demand, supply, and operational challenges associated with a disease outbreak, including epidemics, pandemics, or similar widespread public health concerns (including the novel coronavirus, COVID-19, outbreak). A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from those projected herein, is included in the section titled "Economic Conditions and Uncertainties" and the section titled "Risk Factors" (Part I, Item 1A) of this Form 10-K.

The purpose of Management's Discussion and Analysis (MD&A) is to provide an understanding of Procter & Gamble's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying ~~notes.~~Notes. The MD&A is organized in the following sections:

•Overview

•Summary of ~~2017~~2020 Results

•Economic Conditions and Uncertainties

•Results of Operations

•Segment Results

•Cash Flow, Financial Condition and Liquidity

•Significant Accounting Policies and Estimates

•Other Information

Throughout the MD&A we refer to measures used by management to evaluate performance, including unit volume growth, net sales and net earnings. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), ~~including~~consisting of organic sales growth, core earnings per share (Core EPS), adjusted free cash flow and adjusted free

cash flow productivity. Organic sales growth is net sales growth excluding the impacts of ~~the Venezuela deconsolidation,~~ acquisitions, divestitures and foreign exchange from year-over-year comparisons. Core EPS is diluted net earnings per share from continuing operations excluding certain items that are not judged to be part of the Company's sustainable results or trends. Adjusted free cash flow is operating cash flow less capital spending, transitional tax payments related to the U.S. Tax Act and ~~certain divestiture impacts.~~tax payments related to the Merck OTC consumer healthcare acquisition. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net ~~earnings excluding certain one-time items.~~earnings. We believe these measures provide our investors with additional information about our underlying results and trends, as well as insight to some of the metrics used to evaluate management. The explanation at the end of the MD&A provides more details on the use and the derivation of these measures, as well as reconciliations to the most directly comparable U.S. GAAP measures.

Management also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and

The Procter & Gamble Company 13

comparability of share and consumption information. References to market share and ~~market~~ consumption in the MD&A are based on a combination of ~~vendor-reported consumption~~vendor purchased traditional brick-and-mortar and ~~market size~~online data in key markets as well as internal estimates. All market share references represent the percentage of sales of our products in dollar terms on a constant currency basis, ~~of our products,~~ relative to all product sales in the category. The Company measures fiscal-year-to-date market shares through the most recent period for which market share data is available, which typically reflects a lag time of one or two months as compared to the end of the reporting period. Management also uses unit volume growth to evaluate and explain drivers of changes in net sales. Organic volume growth reflects year-over-year changes in unit volume excluding the impacts of acquisitions and divestitures and certain one-time items, if applicable, and is used to explain changes in organic sales.

OVERVIEW

~~P&G~~Procter & Gamble is a global leader in the fast-moving consumer goods industry, focused on providing branded consumer packaged goods of superior quality and value to

our consumers around the world. Our products are sold in more than 180 countries and territories primarily through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores ~~e-commerce,~~(including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and ~~pharmacies.~~professional channels. We also sell direct to consumers. We have on-the-ground operations in approximately 70 countries.

Our market environment is highly competitive with global, regional and local competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products, as well as retailers' private-label brands. Additionally, many of the product segments in which we compete are differentiated by price tiers (referred to as super-premium, premium, mid-tier and value-tier products). We believe we are well positioned in the industry segments and markets in which we operate, often holding a leadership or significant market share position.

~~12 The Procter & Gamble Company~~

ORGANIZATIONAL STRUCTURE

~~Our~~In fiscal 2020, our organizational structure iswas comprised of ~~Global~~Sector Business Units ~~(GBUs)~~(SBUs), ~~Selling~~Enterprise Markets (EMs), Corporate Functions (CF) and ~~Market Operations (SMOs),~~ Global Business Services (GBS) ~~and Corporate Functions (CF)~~.

~~Global~~Sector Business Units

Our ~~GBUs~~SBUs are organized into ten product categories. Under U.S. GAAP, the ~~GBUs~~SBUs underlying the ten product categories are aggregated into five reportable segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The ~~GBUs~~SBUs are responsible for developing overall brand strategy, new product upgrades and innovations and marketing plans. The following provides additional detail on our reportable segments and the ten product categories and brand composition within each segment.

Reportable Segments

% of

Net Sales ⁽¹⁾

% of Net

Earnings ⁽¹⁾

Product Categories (Sub-Categories)

Major Brands

Beauty

19%

21%

Hair Care (Conditioner, Shampoo, Styling Aids, Treatments)

Head & Shoulders, Herbal Essences, Pantene, Rejoice

Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care)

Olay, Old Spice, Safeguard, Secret, SK-II

Grooming

10%

Grooming⁽²⁾ (Shave Care - Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care; Appliances)

Braun, Gillette, Venus

Health Care

13%

12%

Oral Care (Toothbrushes, Toothpaste, Other Oral Care)

Crest, Oral-B

Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory,

Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care)

Metamucil, Neurobion, Pepto-Bismol, Vicks

Fabric & Home Care

33%

31%

Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents)

Ariel, Downy, Gain, Tide

Home Care (Air Care, Dish Care, P&G Professional, Surface Care)

Cascade, Dawn, Fairy, Febreze, Mr. Clean, Swiffer

Baby, Feminine & Family Care

26%

Baby Care (Baby Wipes, Taped Diapers and Pants)

Luvs, Pampers

Feminine Care (Adult Incontinence, Feminine Care)

Always, Always Discreet, Tampax

Family Care (Paper Towels, Tissues, Toilet Paper)

Bounty, Charmin, Puffs

Reportable Segments
% of
Net Sales ⁽¹⁾
% of Net
Earnings ⁽¹⁾
Product Categories (Sub-Categories) Major Brands
Beauty 18% 19%
Hair Care (Conditioner, Shampoo, Styling Aids, Treatments)
Head & Shoulders, Pantene, Rejoice
Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care)
Olay, Old Spice, Safeguard, SK-II
Grooming 10% 16%
Grooming⁽²⁾ (Shave Care - Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care; Appliances)
Braun, Fusion, Gillette, Mach3, Prestobarba, Venus
Health Care 12% 13%
Oral Care (Toothbrushes, Toothpaste, Other Oral Care)
Crest, Oral-B
Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Other Personal Health Care)
Prilosec, Vicks
Fabric & Home Care 32% 27%
Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents)
Ariel, Downy, Gain, Tide
Home Care (Air Care, Dish Care, P&G Professional, Surface Care)
Cascade, Dawn, Febreze, Mr. Clean, Swiffer
Baby, Feminine & Family Care 28% 25%
Baby Care (Baby Wipes, Diapers and Pants)
Luvs, Pampers
Feminine Care (Adult Incontinence, Feminine Care)
Always, Tampax
Family Care (Paper Towels, Tissues, Toilet Paper)
Bounty, Charmin
⁽¹⁾Percent of Net sales and Net earnings from continuing operations for the year ended June 30, 2020 (excluding results held in Corporate).


⁽¹⁾	~~Percent of Net sales and Net earnings from continuing operations for the year ended June 30, 2017 (excluding results held in Corporate).~~


⁽²⁾	~~The Grooming product category is comprised of the Shave Care and Appliances GBUs.~~ ⁽²⁾ The Grooming product category is comprised of the Shave Care and Appliances operating segments.

14 The Procter & Gamble Company

Recent Developments:

During fiscal ~~2017,~~2019, the Company completed the previously announced plan to significantly streamline our product portfolio by divesting, discontinuing or consolidating about 100 non-strategic brands. The resulting portfolio of about 65 key brands are in 10 category-based businesses where P&G has leading market positions, strong brands and consumer-meaningful product technologies.

~~During fiscal 2017, the Company completed the divestiture of four product categories, which included 43~~acquisition of the ~~Company's beauty brands ("Beauty Brands"), including~~over-the-counter (OTC) healthcare business of Merck KGaA (Merck OTC) for $3.7 billion (based on exchange rates at the ~~global salon professional hair care~~time of closing). This business primarily sells OTC consumer healthcare products, mainly in markets in Europe, Latin America and ~~color, retail hair color, cosmetics and~~Asia. Total sales for the fine fragrance businesses, along with select hair styling brands. The Beauty Brands had historically been part of the Company’s Beauty reportable segment. The results of the Beauty Brands are presented as discontinued operations and, as such, are excluded from both continuing operations and segment results for all periods presented. Additionally, the Beauty Brands balance sheet positions as of June 30, 2016 are presented as held for sale in the Consolidated Balance Sheets. The Company recorded an after-tax gain on the final transaction of $5.3 billion ($1.95 per share), net of transaction and related costs.

~~During~~business during Merck OTC's fiscal 2016, the Company completed the divestiture of its Batteries business. The Batteries business had historically been part of the Company’s Fabric & Home Care reportable segment. The results of the Batteries business are presented as discontinued operations and, as such, are excluded from both continuing operations and segment results for all periods presented.

During fiscal 2015, the Company completed the divestiture of its Pet Care business. The gain on the transaction was not material. The results of the Pet Care business are presented as discontinued operations and, as such, are excluded from both continuing operations and segment results for all periods presented.

year ended December 31, 2017 were approximately $1 billion. Refer to Note 1314 to our Consolidated Financial Statements for more details on ~~each of these divestiture transactions.~~this transaction.

~~While our ongoing business model may include a certain level of acquisition and divestiture activity, with the aforementioned transactions and other recent minor brand divestitures,~~During fiscal 2019, the Company ~~has completed the strategic portfolio reshaping program.~~

~~The Procter & Gamble Company 13~~

~~As of June 30, 2015,~~also dissolved our PGT Healthcare partnership, a venture between the Company ~~deconsolidated our Venezuelan subsidiaries~~ and ~~began accounting~~Teva Pharmaceutical Industries, Ltd (Teva) in the OTC consumer healthcare business. Pursuant to the agreement, PGT product assets were returned to the original respective parent companies to reestablish independent OTC businesses. This transaction was accounted for ~~our investment in those subsidiaries using~~as a sale of the ~~cost method~~Teva portion of ~~accounting. This change resulted in a fiscal 2015 one-time~~the PGT business. The Company recorded an after-tax ~~charge~~gain on the sale of ~~$2.1 billion ($0.71 per share). Beginning in fiscal 2016, our financial results only include sales of finished goods~~$353 million.

Organization Design Changes:

The Company implemented changes to our ~~Venezuelan subsidiaries~~organization design effective July 1, 2019. In the new design, the ten product categories were organized into six SBUs. The SBUs are responsible for global brand strategy, innovation and supply chain. They have direct profit responsibility for markets representing the large majority of the Company's sales and earnings (referred to as Focus Markets) and are responsible for innovation plans, supply plans and operating frameworks to drive growth and value creation in the ~~extent we receive cash payments from Venezuela (expected~~remaining markets (referred to as Enterprise Markets). For segment reporting purposes, the product categories continue to be ~~largely through~~aggregated into the ~~DIPRO and DICOM exchange market). Accordingly, we no longer include the results of our Venezuelan subsidiaries' operations in~~same five external reporting ~~periods following fiscal 2015 (see Note 1 to the Consolidated Financial Statements and additional discussion in~~segments. Throughout the MD&A, ~~under "Venezuela Impacts" in Results~~we reference business results by region, which are comprised of ~~Operations)~~North America, Europe, Greater China, Latin America, Asia Pacific and India, Middle East and Africa (IMEA).

Beauty: We are a global market leader in the beauty category. Most of the beauty markets in which we compete are highly fragmented with a large number of global and local competitors. We compete in skin and personal care and in hair care. In skin and personal care, we offer a wide variety of products, ranging from deodorants to personal cleansing to skin care, such as our Olay brand, which is one of the top facial skin care brands in the world with ~~nearly~~approximately 6% global market share. We are the global market leader in the retail hair care market with over 20% global market share primarily behind our Pantene and Head & Shoulders brands.

Grooming: We compete in ~~Shave Care~~shave care and ~~Appliances.~~appliances. In ~~Shave Care,~~shave care, we are the global market leader in the blades and razors market. Our global blades and razors market share is ~~nearly 65%~~over 60%, primarily behind ~~the~~our Gillette ~~franchise including our Fusion, Mach3, Prestobarba~~ and Venus brands. Our appliances, such as electric ~~razors~~shavers and epilators, are sold under the Braun brand in a number of markets around the world where we compete against both global and regional competitors. We hold nearly 25% of the male

electric shavers market and over 50% of the female epilators market.

Health Care: We compete in oral care and personal health care. In oral care, there are several global competitors in the market and we have the number two market share position with nearly 20% global market share behind our ~~Oral-B~~Crest and ~~Crest~~Oral-B brands. In personal health care, we are a top ten competitor in a large, highly fragmented industry, primarily behind respiratory treatments (Vicks brand)~~, non-prescription heartburn medications (Prilosec OTC brand)~~ and digestive wellness products (Metamucil, Pepto Bismol and Align brands). ~~Nearly all of our sales outside the U.S.~~As discussed earlier, in ~~personal health care are generated through~~fiscal 2019, we dissolved the PGT Healthcare partnership with Teva, ~~Pharmaceuticals Ltd.~~which previously managed nearly all of our personal health care sales outside the U.S., and reestablished an independent OTC business. We also acquired Merck OTC as discussed above.

Fabric & Home Care: This segment is comprised of a variety of fabric care products, including laundry detergents, additives and fabric enhancers; and home care products, including dishwashing liquids and detergents, surface cleaners and air fresheners. In fabric care, we generally have the number one or number two market share position in the markets in which we compete and are the global market leader with over 25% global market share, primarily behind our Tide, Ariel and Downy brands. Our global home care market share is ~~over 20%~~approximately 25% across the categories in which we ~~compete.~~

compete primarily behind our Cascade, Dawn, Febreze and Swiffer brands.

Baby, Feminine & Family Care: In baby care, we are the global market leader and compete mainly in taped diapers, pants and baby wipes with ~~over~~nearly 25% global market share. We ~~are~~have the number one or number two ~~baby care competitor~~market share position in most of the key markets in which we compete, primarily behind Pampers, the Company's largest brand, with annual net sales of ~~more than $8~~over $7 billion. We are the global market leader in the feminine care category with ~~over~~ 25% global market share, primarily behind ~~Always.~~our Always and Tampax brands. We also compete in the adult incontinence category in certain markets behind Always Discreet, achieving ~~over~~nearly 10% market share in most of the key markets ~~where~~in which we compete. Our family care business is predominantly a North American business comprised ~~largely~~primarily of the Bounty paper towel and Charmin toilet paper brands. U.S. market shares are over 40% for Bounty and over 25% for Charmin.

~~Selling and Market Operations~~Enterprise Markets

~~Our SMOs~~As a result of the changes in our organization design effective July 1, 2019, EMs are responsible for ~~developing~~sales and ~~executing go-to-market~~profit delivery in specific countries, supported by SBU agreed innovation and supply chain plans, ~~at the local level. The SMOs include dedicated retail~~along with scaled services like planning, distribution and customer trade channel and country-specific teams. Our SMOs are organized under six regions comprised of North America, Europe, Latin America, Asia Pacific, Greater China and India, Middle East and Africa (IMEA). Throughout the MD&A, we reference business results in developed markets, which are comprised of North America, Western Europe and Japan, and developing markets which are all other markets not included in developed.management.

Corporate Functions

CF provides company-level strategy and portfolio analysis, corporate accounting, treasury, tax, external relations, governance, human resources and legal ~~as well as other centralized functional support.~~services.

The Procter & Gamble Company 15

Global Business Services

GBS provides technology, processes and standard data tools to enable the ~~GBUs,~~SBUs, the ~~SMOs~~EMs and ~~Corporate Functions~~CF to better understand the business and better serve consumers and customers. The GBS organization is responsible for providing world-class solutions at a low cost and with minimal capital investment.

STRATEGIC FOCUS

~~P&G~~Procter & Gamble aspires to serve the world’s consumers better than our best competitors in every category and in every country in which we compete, and, as a result, deliver total shareholder return in the top one-third of our peer group. Delivering and sustaining leadership levels of shareholder value creation requires balanced ~~top-line growth,~~top- and bottom-line growth and strong cash generation.

Our strategic choices are focused on winning with consumers. The consumers who purchase and use our products are at the center of everything we do. We increase the number of users - and the usage - of our brands when we win at the zero, first and second moments of truth: when consumers research our categories and brands, purchase them in a store or online and use them in their homes.

~~Winning with consumers around the world and against our best competitors requires innovation. Innovation has always been, and continues to be, P&G’s lifeblood. Innovation requires~~

~~14 The Procter & Gamble Company~~

~~consumer insights and technology advancements that lead to product improvements, improved marketing and merchandising programs and game-changing inventions that create new brands and categories.~~

Productivity improvement is critical to delivering our balanced top-line growth, bottom-line growth and value creation objectives. Productivity improvement and sales growth reinforce and fuel each other. We are driving productivity improvement across all elements of cost, including cost of goods sold, marketing and promotional expenses and non-manufacturing overhead. Productivity improvements and cost savings are being reinvested in product and packaging improvements, brand awareness-building advertising and trial-building sampling programs, increased sales coverage and R&D programs.

~~We are improving operational effectiveness and organizational culture through enhanced clarity of roles and responsibilities, accountability and incentive compensation programs.~~

The Company has undertaken an effort to focus and strengthen its business portfolio to compete in categories and with brands that are structurally attractive and that play to P&G's strengths.

The ongoing portfolio of businesses consists of 10ten product ~~categories. These are~~ categories where P&G has leading market positions, strong brands and consumer-meaningful product technologies.

Within these categories, our strategic choices are focused on winning with consumers. The consumers who purchase and use our products are at the center of everything we do. We win with consumers by delivering superiority across the five key elements of product, packaging, brand communication, retail execution and value equation. Winning with consumers around the world and against our best competitors requires innovation. Innovation has always been, and continues to be, P&G’s lifeblood. Innovation requires consumer insights and technology advancements that lead to product improvements, improved marketing and merchandising programs and game-changing inventions that create new brands and categories.

Productivity improvement is critical to delivering our balanced top- and bottom-line growth and value creation

objectives. Productivity improvement and sales growth reinforce and fuel each other. Our objective is to drive productivity improvement across all elements of cost, including cost of goods sold, marketing and promotional spending and non-manufacturing overhead. We plan to reinvest productivity improvements and cost savings in product and packaging improvements, brand awareness-building advertising and trial-building sampling programs, increased sales coverage and R&D programs as well as to offset cost increases (including commodity and foreign exchange impacts) and improve operating margins.

We are constructively disrupting our industry and the way we do business, including how we innovate, communicate and leverage new technologies, to create more value.

We are improving operational effectiveness and organizational culture through enhanced clarity of roles and responsibilities, accountability and incentive compensation programs.

We believe these strategies are right for the long-term health of the Company and our objective of delivering total shareholder return in the top one-third of our peer group.

The Company expects the delivery of the following long-term annual financial targets will result in total shareholder returns in the top third of the competitive fast-moving consumer goods peer group:

•Organic sales growth above market growth rates in the categories and geographies in which we compete;

•Core ~~EPS~~earnings per share (EPS) growth of mid-to-high single digits; and

•Adjusted free cash flow productivity of 90% or greater.

In periods with significant macroeconomic pressures, such as the current COVID-19 pandemic, we intend to maintain a disciplined approach to investing so as not to sacrifice the long-term health of our businesses to meet short-term objectives in any given year.

SUMMARY OF ~~2017~~2020 RESULTS


Amounts in millions, except per share amounts	2020		2019		Change vs. Prior Year
Net sales	$	70,950	$	67,684	5	%
Operating income	15,706		5,487		186	%
Net earnings	13,103		3,966		230	%
Net earnings attributable to Procter & Gamble	13,027		3,897		234	%
Diluted net earnings per common share	4.96		1.43		247	%
Core earnings per share	5.12		4.52		13	%
Cash flow from operating activities	17,403		15,242		14	%

Amounts in millions, except per share amounts 2017 Change vs. Prior Year 2016 Change vs. Prior Year 2015
Net sales $ 65,058
— % $ 65,299
(8 )% $ 70,749
Operating income 13,955
4 % 13,441
22 % 11,049
Net earnings from continuing operations 10,194
2 % 10,027
21 % 8,287
Net earnings/(loss) from discontinued operations 5,217
804 % 577
N/A
(1,143 )
Net earnings attributable to Procter & Gamble 15,326
46 % 10,508
49 % 7,036
Diluted net earnings per common share 5.59
51 % 3.69
51 % 2.44
Diluted net earnings per share from continuing operations 3.69
6 % 3.49
23 % 2.84
Core earnings per share 3.92
7 % 3.67
(2 )% 3.76
Cash flow from operating activities 12,753
(17 )% 15,435
6 % 14,608

•Net sales ~~were unchanged at $65.1~~increased 5% to $71.0 billion ~~including~~on a 4% increase in unit volume. Foreign exchange had a negative 2% impact ~~from foreign exchange.~~on net sales. Net sales growth was driven by a double digit increase in Health Care, a high single digit increase in Fabric & Home Care, a mid-single digit increase in Beauty and a low single digit increase in Baby, Feminine & Family Care. Grooming net sales


◦	~~Organic sales increased 2% on a 2% increase in organic volume.~~


◦	~~Unit volume increased 1%. Volume increased low single digits in Grooming, Health Care, Fabric & Home Care and Baby, Feminine & Family Care. Volume decreased low single digits in Beauty.~~

decreased low single digits. Organic sales increased 6% on a 4% increase in organic volume. Organic sales increased high single digits in Health Care and in Fabric & Home Care, increased mid-single digits in Beauty and in Baby, Feminine & Family Care and increased low single digits in Grooming.

16 The Procter & Gamble Company

•Operating income increased $10.2 billion, or 186% versus year ago, due primarily to the $8.3 billion base period non-cash impairment charges related to Shave Care goodwill and Gillette indefinite-lived intangible assets (Shave Care impairment). The remaining $1.9 billion increase was driven by the net sales increase and an increase in operating margin.

•Net earnings ~~from continuing operations~~ increased ~~$167 million~~$9.1 billion or ~~2% in fiscal 2017, driven by higher operating income~~230% versus year ago, due to the aforementioned items and a ~~lower~~reduction in current year effective tax ~~rate,~~rates, partially offset by ~~an increase in~~the base period gain on the dissolution of the PGT Healthcare partnership and other ~~non-operating expense.~~minor divestitures. Foreign exchange impacts negatively affected net earnings ~~from continuing operations~~ by approximately ~~$420 million or 4%.~~$390 million.

~~Net earnings from discontinued operations increased $4.6 billion primarily due to the net impact of a gain on the sale of our Beauty business in fiscal 2017, partially offset by~~

the base period results, which included the net earnings of the Batteries and Beauty Brands businesses prior to divestiture, a gain on the sale of the Batteries business and impairment charges on the Batteries business prior to divestiture.

•Net earnings attributable to Procter & Gamble were ~~$15.3~~$13.0 billion, an increase of ~~$4.8~~$9.1 billion or ~~46%~~234% versus the prior year primarily due to the aforementioned ~~increases in net earnings from both continuing and from discontinued operations.~~items.

•Diluted net earnings per share (EPS) increased ~~51%~~247% to ~~$5.59.~~$4.96.


◦	~~Diluted net earnings per share from continuing operations increased 6% to $3.69.~~


◦	~~Core EPS increased 7% to $3.92.~~

◦ Core EPS increased 13% to $5.12.

•Cash flow from operating activities was ~~$12.8~~$17.4 billion.


◦	~~Adjusted free cash flow was $9.8 billion.~~


◦	~~Adjusted free cash flow productivity was 94%.~~

◦ Adjusted free cash flow was $14.9 billion.

◦ Adjusted free cash flow productivity was 114%.

~~The Procter & Gamble Company 15~~

ECONOMIC CONDITIONS AND UNCERTAINTIES

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

Global Economic Conditions.Our products are sold in numerous countries across North America, Europe, Latin America, Asia and Africa, with more than half our sales generated outside the United States. As such, we are exposed to and impacted by global macro-economic factors, U.S. and foreign government policies and foreign exchange fluctuations. Current ~~macroeconomic~~global economic conditions are highly volatile due to the COVID-19 pandemic, resulting in both market size contractions in certain countries due to economic slowdowns and government restrictions on movement, as well as market size increases in certain countries due to pantry loading and increased consumption of household cleaning and personal health and hygiene products by consumers. Other macro-economic factors also remain dynamic, and any causes of market size contraction, such as

reduced GDP in commodity-dependent economies, greater political unrest or instability in the Middle East, ~~and~~ Central & Eastern Europe, ~~further economic instability in the European Union, political instability in~~ certain Latin American markets, ~~further economic slowdowns~~the Hong Kong market in ~~Japan and~~Greater China and ~~changes~~the Korean peninsula and economic uncertainty related to ~~international trade agreements in North America and elsewhere,~~the United Kingdom's exit from the European Union, could reduce our sales or erode our operating margin, in either case reducing our ~~earnings.~~net earnings and cash flows.

Changes in Costs. Our costs are subject to fluctuations, particularly due to changes in commodity prices, transportation costs and our own productivity efforts. We have significant exposures to certain commodities, in particular certain oil-derived materials like resins and paper-based materials like pulp, and volatility in the market price of these commodity input materials has a direct impact on our costs. Disruptions in our manufacturing, supply and distribution operations due to the COVID-19 pandemic may also impact our costs. If we are unable to manage ~~commodity fluctuations~~these impacts through pricing actions, cost savings projects and sourcing decisions, as well as through consistent productivity improvements, it may adversely impact our gross margin, operating margin, net earnings and ~~net earnings.~~cash flows. Sales could also be adversely impacted following pricing actions if there is a negative impact on consumption of our products. We strive to implement, achieve and sustain cost improvement plans, including outsourcing projects, supply chain optimization and general overhead and workforce optimization. As discussed later in ~~this~~the MD&A, in 2012 we initiated ~~certain non-manufacturing~~ overhead ~~reduction projects along with manufacturing~~ and ~~other~~ supply chain cost ~~improvements projects in fiscal 2012.~~improvement projects. In fiscal 2017, we ~~announced~~communicated specific elements of an additional multi-year cost reduction ~~program. These programs are~~program which is resulting in ~~significant~~targeted enrollment reductions and other savings. If we are not successful in executing and sustaining these changes, there could be a negative impact on our gross margin, operating margin, net earnings and ~~net earnings.~~cash flows.

Foreign Exchange.We have both translation and transaction exposure to the fluctuation of exchange rates. Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S. dollar as their functional currency. Transaction exposures relate to 1) the impact from input costs that are denominated in a currency other than the local reporting currency and 2) the revaluation of transaction-related working capital balances

denominated in currencies other than the functional currency. ~~Over~~In four of the past ~~four~~five years, including fiscal 2020, the U.S. dollar has strengthened versus a number of foreign currencies, leading to lower sales and earnings from these foreign exchange impacts. Certain countries experiencing significant exchange rate fluctuations, like Argentina, ~~Egypt, Nigeria,~~Brazil, Greater China, Turkey and the United Kingdom have had, and could continue to have, a significant impact on our sales, costs and net earnings. Increased pricing in response to ~~these~~certain fluctuations in foreign currency exchange rates may offset portions of the currency impacts but could also have a negative impact on consumption of our products, which would affect our ~~sales.~~sales, gross margin, operating margin, net earnings and cash flows.

The Procter & Gamble Company 17

Government Policies. Our net earnings could be affected by changes in U.S. or foreign government tax ~~policies. For~~policies, for example, the U.S. Tax Act, and the current work being led by the OECD for the G20 focused on "Addressing the Challenges of the Digitalization of the Economy." The breadth of this project extends beyond pure digital businesses and is ~~considering corporate tax reform that~~likely to impact all multinational businesses by redefining jurisdictional taxation rights. Further, our sales, net earnings and cash flows may ~~significantly impact~~be impacted by U.S. and foreign government policies to manage the ~~corporate tax rate and change the U.S. tax treatment of international earnings.~~COVID-19 pandemic, such as movement restrictions or site closures. Additionally, we attempt to carefully manage our debt, currency and ~~currency exposure~~other exposures in certain countries with currency exchange, import authorization and pricing controls, such as Nigeria, Algeria, Egypt, Argentina and ~~Ukraine.~~Turkey. Further, our sales, net earnings and cash flows could be affected by changes to international trade agreements in North America and elsewhere, including increases of import tariffs, both currently effective and future potential changes. Changes in government policies in these areas might cause an increase or decrease in our sales, gross margin, operating margin, net earnings and cash flows.

COVID-19 Pandemic disclosures

The Company’s priorities during the COVID-19 pandemic are protecting the health and safety of our employees; maximizing the availability of products that help consumers with their health, hygiene and cleaning needs; and using our employees’ talents and our resources to help society meet and overcome the current challenges. Because the Company sells products that are essential to the daily lives of consumers, the COVID-19 pandemic has not had a material net ~~earnings.~~impact to our consolidated sales, net earnings and cash flows in the current year. However, the pandemic has had offsetting impacts during the period. For example, during the second half of fiscal ~~2015, the Company deconsolidated its Venezuelan subsidiaries~~2020 we experienced a significant increase in demand and consumption of certain of our product categories (health, hygiene and home cleaning products) primarily in North America, caused in part by changing consumer habits and pantry stocking, due to ~~evolving conditions that resulted~~the COVID-19 pandemic, contributing to increases in ~~an other-than-temporary lack~~sales, net earnings and cash flows. At the same time, we experienced a decrease in sales due to the economic slowdown and restricted consumer movements in certain regions, including Europe, IMEA, Asia Pacific and Latin America, in certain channels, including travel retail, professional and electronics stores, and in certain of ~~exchangeability between~~our beauty and grooming products. While we experienced a decrease in sales in Greater China during the ~~Venezuelan bolivar~~third quarter of fiscal 2020, demand recovered in the fourth quarter as restrictions on consumer movement were relaxed. In the future, the pandemic may cause reduced demand for our products if it results in a recessionary global economic environment. Demand in certain of our Enterprise Markets, including certain countries in Latin America, Asia Pacific, and ~~U.S. dollar and restricted~~IMEA may be particularly susceptible to recession. It could also lead to volatility in consumer access to our products due to government actions impacting our ability to ~~pay dividends~~produce and ~~satisfy~~ship products or impacting

consumers’ movements and access to our products. We believe that over the long term, there will continue to be strong demand for categories in which we operate, particularly our products that deliver essential health, hygiene and cleaning benefits. However, the timing and extent of demand recovery in markets such as Greater China and Japan, the resumption of international travel, the timing and impact of potential consumer pantry destocking in markets including North America and Europe, and product demand volatility caused by future economic trends are unclear. Accordingly, there may be heightened volatility in sales, net earnings and cash flows during and subsequent to the duration of the pandemic. Our retail customers are also being impacted by the pandemic. Their success in addressing the issues and maintaining their operations could impact consumer access to, and as a result, sales of our products.

Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees and our supply chain. The Company has endeavored to follow actions recommended by governments and health authorities to protect our employees world-wide, with particular measures in place for those working in our plants and distribution facilities. We have also worked closely with local and national officials to keep our manufacturing facilities open due to the essential nature of the majority our products. We were able to broadly maintain our operations in the current fiscal year, but we have experienced some disruption in our supply chain in certain ~~other obligations denominated~~Enterprise Markets due primarily to the restriction of employee movements as well as increased transportation and manufacturing costs. We intend to continue to work with government authorities and implement our employee safety measures to ensure that we are able to continue manufacturing and distributing our products during the pandemic. However, uncertainty resulting from the pandemic could result in ~~U.S. dollars.~~an unforeseen disruption to our supply chain (for example a closure of a key manufacturing or distribution facility or the inability of a key material or transportation supplier to source and transport materials) that could impact our operations.

Because the pandemic has not had a material negative impact on our operations or demand for our products and resulting sales and net earnings, it has also not negatively impacted the Company’s liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets enabled by our strong short- and long-term credit ratings. We have also not observed any material impairments of our assets or a significant change in the fair value of assets due to the COVID-19 pandemic.

For additional information on risk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A of this Form 10-K.

18 The Procter & Gamble Company

RESULTS OF OPERATIONS

The key metrics included in ~~our~~the discussion of our consolidated results of operations include net sales, gross margin, selling, general and administrative costs (SG&A), other non-operating items and income taxes. The primary factors driving year-over-year changes in net sales include overall market growth in the categories in which we compete, product initiatives, competitive activities (the level of initiatives, pricing and other activities by competitors), ~~geographic expansion~~marketing spending, retail executions (both in-store and online), and acquisition and divestiture activity, all of which drive changes in our underlying unit volume, as well as our pricing actions (which can also ~~indirectly~~ impact volume), changes in product and geographic mix and foreign currency impacts on sales outside the U.S.

Most of our cost of products sold and SG&A are to some extent variable in nature. Accordingly, our discussion of these operating costs focuses primarily on relative margins rather than the absolute year-over-year changes in total costs. The primary drivers of changes in gross margin are input costs (energy and other commodities), pricing impacts, geographic mix (for example, gross margins in ~~developed markets~~North America are generally higher than ~~in developing markets~~the Company average for similar products), product mix (for example, the Beauty segment has higher gross margins than the Company average), foreign exchange rate fluctuations (in situations where certain input costs may be tied to a different functional currency than the underlying sales), the impacts of manufacturing savings projects and reinvestments (for example, product or package improvements) and to a lesser extent scale impacts (for costs

~~16 The Procter & Gamble Company~~

that are fixed or less variable in nature). The primary ~~drivers~~components of SG&A are marketing-related costs and non-manufacturing overhead costs. Marketing-related costs are primarily variable in nature, although we may achieve some level of scale benefit

over time due to overall growth and other marketing efficiencies. ~~Overhead~~While overhead costs are ~~also~~ variable ~~in nature, but on a relative basis, less so than marketing~~to some extent, we generally experience more scale-related impacts

for these costs due to our ability to leverage our organization and ~~systems~~systems' infrastructures to support business growth. ~~Accordingly, we generally experience more scale-related impacts~~

For a detailed discussion of the fiscal 2019 year over year changes, please refer to the MD&A in Part II, Item 7 of the Company's Form 10-K for ~~these costs.~~

~~The Company is in~~ the midst of a productivity and cost savings plan to reduce costs in the areas of supply chain, certain marketing activities and overhead expenses. The plan is designed to accelerate cost reductions by streamlining management decision making, manufacturing and other work processes to fund the Company's growth strategy.fiscal year ended June 30, 2019.

Net Sales

~~Fiscal year 2017 compared with fiscal year 2016~~

Net sales ~~were unchanged at $65.1~~increased 5% to $71.0 billion in ~~2017~~fiscal 2020 on a 1%4% increase in unit volume versus the prior ~~year period.~~year. Volume increased double digits in Health Care, increased mid-single digits in Fabric & Home Care and increased low single digits in ~~Grooming, Health Care, Fabric & Home Care~~Beauty and Baby, Feminine & Family Care. Volume decreased low single digits in ~~Beauty.~~

Grooming. Excluding the impacts of acquisitions and divestitures, including the Merck OTC acquisition, organic volume increased mid-single digits in Health Care and increased high single digits in Fabric & Home Care.

~~Volume~~On a regional basis, volume increased high single digits in North America and increased low single digits in ~~developed regions~~Greater China, Europe, Asia Pacific and ~~was unchanged~~Latin America driven by innovation, market growth and increased demand, particularly in ~~developing regions. Organic volume~~household cleaning and personal health and hygiene products in the second half of the fiscal year, driven in part by increased consumption and pantry loading due to the COVID-19 pandemic. Volume decreased low single digits in ~~both developed and developing markets.~~IMEA as growth in the first half of the year was more than offset by market contraction in the second half of the fiscal year driven by economic slowdown resulting from the COVID-19 pandemic. Unfavorable foreign exchange reduced net sales by 2%. ~~Neither~~Increased pricing ~~nor mix~~ had ~~any~~a positive 1% impact on net sales. Mix had a positive 1% impact on net sales ~~for~~driven by the ~~year.~~disproportionate organic growth of the Personal Health Care and Home Care categories and the North America region, all of which have higher than company average selling prices. Organic sales grew ~~2% driven by~~6% on a 2%4% increase in organic volume.

~~Fiscal year 2016 compared with fiscal year 2015~~

Net sales decreased 8% to $65.3 billion in 2016 on a 3% decrease in unit volume versus the prior year period. Volume decreased low single digits in Grooming, Health Care, Fabric & Home Care and Baby, Feminine & Family Care and decreased mid-single digits in Beauty. Volume increased low single digits in developed regions and declined high single digits in developing regions, in part due to increased pricing to address foreign exchange devaluations and due to the Venezuela deconsolidation and minor brand divestitures. Organic volume declined mid-single digits in developing markets. Unfavorable foreign exchange reduced net sales by 6%, while higher pricing drove a 1% favorable impact on net sales. Organic volume decreased 1% and organic sales grew 1% driven by higher pricing.

Operating Costs


Comparisons as a percentage of net sales; Years ended June 30	2020		2019		Basis Point Change
Gross margin	50.3	%	48.6	%	170
Selling, general and administrative expense	28.2	%	28.2	%	—
Operating margin	22.1	%	8.1	%	1,400
Earnings before income taxes	22.3	%	9.0	%	1,330
Net earnings	18.5	%	5.9	%	1,260
Net earnings attributable to Procter & Gamble	18.4	%	5.8	%	1,260

Comparisons as a percentage of net sales; Years ended June 30 2017 Basis Point Change 2016 Basis Point Change 2015
Gross margin 50.0 % 40
49.6 % 200
47.6 %
Selling, general and administrative expense 28.5 % (50 ) 29.0 % (10 ) 29.1 %
Operating margin 21.5 % 90
20.6 % 500
15.6 %
Earnings from continuing operations before income taxes 20.4 % (10 ) 20.5 % 490
15.6 %
Net earnings from continuing operations 15.7 % 30
15.4 % 370
11.7 %
Net earnings attributable to Procter & Gamble 23.6 % 750
16.1 % 620
9.9 %

~~Fiscal year 2017 compared with fiscal year 2016~~

Gross margin increased 40170 basis points ~~(bps)~~ to ~~50.0%~~50.3% of net sales in ~~2017.~~fiscal 2020. Gross margin ~~increased primarily due to:~~benefited from:

~~a 230 basis-point positive impact~~•150 basis points from total manufacturing cost savings ~~(210~~(130 basis points net of product and packaging reinvestments),

~~a 20 basis-point benefit~~

•90 basis points from lower ~~restructuring charges~~commodity costs and

~~a 10 basis-point benefit from~~•60 basis points of positive ~~scale impacts due to higher volume.~~pricing impacts.

These ~~impacts~~ were ~~partially~~ offset ~~by:~~

by a 9070 basis-point ~~decrease~~decline from unfavorable product mix ~~between segments (caused primarily by~~(due to the ~~lower relative proportion~~disproportionate organic

The Procter & Gamble Company 19

growth of ~~sales in Grooming,~~the Fabric & Home Care segment which has ~~higher~~lower than ~~company-average~~company average gross ~~margins)~~margin and mix within segments ~~(due~~due to ~~disproportionate~~the growth of lower margin ~~products,~~product forms and ~~package~~larger sizes in certain ~~businesses)~~categories),

a 4020 basis-point negative impact from unfavorable foreign exchange and

~~a combined 70 basis-point impact due to higher commodities and~~ 20 basis points of other ~~costs.~~impacts.

Total SG&A ~~decreased 2%~~increased 5% to ~~$18.6~~$20.0 billion, ~~as increased overhead and advertising spending were more than offset by a reduction in other operating expenses,~~ primarily due to increases in marketing spending and, to a ~~reduction~~lesser extent, increases in other net ~~foreign exchange transactional costs~~operating expenses and ~~gains on real estate sales.~~overhead costs. SG&A as a percentage of net sales ~~decreased 50 basis points to 28.5%~~was unchanged at 28.2%. An increase in marketing spending and other net operating expenses as a ~~result~~percentage of ~~the decline~~net sales was offset by a decrease in ~~other operating expenses.~~overhead costs as a percentage of net sales.

•Marketing spending as a percentage of net sales increased 10 basis points due to ~~an increase~~investments in media and other marketing ~~activities,~~spending, partially offset by ~~productivity savings.~~

Overhead costs as a percentage of net sales increased 20 basis points, primarily driven by wage inflation and increased sales personnel in certain businesses, partially offset by 20 basis points of productivity savings.

~~Other operating expenses as a percent of net sales declined 80 basis points. Lower foreign exchange transactional charges reduced SG&A as a percentage of net sales by~~

~~The Procter & Gamble Company 17~~

~~approximately 20 basis points. The balance of~~ the ~~reduction is primarily driven by gains on sales of real estate.~~

~~Fiscal year 2016 compared with fiscal year 2015~~

~~Gross margin increased 200 basis points to 49.6% of net sales in 2016. Gross margin increased primarily due to:~~

~~a 210 basis-point~~ positive ~~impact from manufacturing cost savings,~~

~~a 110 basis-point benefit from lower commodity costs and~~

~~a 70 basis-point benefit of higher pricing.~~

~~These impacts were partially offset by:~~

~~a 70 basis-point negative impact from unfavorable foreign exchange,~~

~~a 70 basis-point decrease due to unfavorable product mix caused by the disproportionate decline of higher margin segments like Beauty and by product form mix within the segments,~~

~~a 20 basis-point decrease from negative scale impacts due to lower volume and~~

~~a 20 basis-point decline due to incremental restructuring activity.~~

Total SG&A decreased 8% to $18.9 billion in 2016 primarily due to reduced overhead spending and a decrease in foreign exchange transaction charges. SG&A as a percentage of net sales declined 10 basis points to 29.0%, as negative scale impacts of ~~lower~~the net sales increase and ~~inflationary impacts were more than offset by cost~~ savings ~~efforts, mainly~~ in ~~overhead spending,~~agency compensation, production costs and ~~lower foreign exchange transactional charges.~~advertising spending.

~~Marketing spending as a percentage of net sales increased 90 basis points due to the negative scale impacts from reduced sales.~~

•Overhead costs as a percentage of net sales decreased 2040 basis points ~~as 90 basis points~~due to the positive scale impacts of the net sales increase and productivity savings, ~~were~~ partially offset by ~~wage~~ inflation ~~increased sales personnel in certain businesses~~ and ~~investments in research and development.~~other cost increases.

~~Lower foreign exchange transactional charges reduced SG&A~~•Other net operating expenses as a percentage of net sales byincreased approximately 7030 basis ~~points. A pre-deconsolidation balance sheet remeasurement charge in Venezuela in~~points primarily due to the base period gain on sale of real estate.

Operating margin increased 1,400 basis points to 22.1% for fiscal ~~year 2015 drove 20~~2020. 1,230 basis points of this decline. The balance of the reduction relates to lower transactional charges from revaluing receivables and payables from transactions denominated in a currency other than a local entity’s functional currency.

~~In addition~~increase is due to the Shave Care impairment charge in the base period. The remaining increase is due to the increase in gross margin ~~expansion and decrease in SG&A~~ as ~~a percent of net sales~~ discussed ~~above, operating margin also increased by 290 basis points in 2016 due to a $2.0 billion charge in 2015 related to the deconsolidation of the Company's Venezuelan subsidiaries.~~above.

Non-Operating Items

~~Fiscal year 2017 compared with fiscal year 2016~~

•Interest expense was $465 million in ~~2017,~~fiscal 2020, a decrease of ~~$114~~$44 million versus the prior year due primarily to a reduction in U.S. interest rates, partially offset by an increase in debt.

•Interest income was $155 million in fiscal 2020, a reduction of $65 million versus the prior year due to a ~~decrease~~reduction in ~~weighted~~ average cash and investment securities balances and a reduction in U.S. interest rates.

~~Interest income was $171 million in 2017, comparable to 2016.~~

•Other non-operating ~~income/(expense),~~income, which consists primarily of divestiture gains ~~investment income,~~ and other non-operating items ~~was a net expense of $404~~decreased $433 million ~~in 2017 versus a net income of $325~~to $438 million, in 2016, a $729 million year-over-year decrease. This change is due to a $543 million current-year charge related to early extinguishment of long-term debt and a reduction in gains on minor brand divestitures. In 2017, we had approximately $110 million in minor brand divestiture gains, including Hipoglos (a baby care brand sold primarily in Brazil) and other minor brands. The prior year divestiture activities included approximately $300 million in minor brand divestiture gains, including Escudo and certain hair care brands in Europe and IMEA.

~~Fiscal year 2016 compared with fiscal year 2015~~

~~Interest expense was $579 million in 2016, a decrease of $47 million versus the prior year due to lower average debt balances.~~

~~Interest income was $182 million in 2016, an increase of $33 million versus the prior year~~ primarily due to ~~increasing cash, cash equivalents and investment securities balances.~~

~~Other non-operating income, which primarily includes divestiture~~the base period gains ~~and investment income, decreased $115~~from brand divestitures including a $355 million to $325 million in 2016, due primarily to lower gains on minor brand divestitures. In 2016, we had approximately $300 million in minor brand divestiture gains, including Escudo and certain hair care brands in Europe and IMEA. The prior year acquisition and divestiture activities included approximately $450 million in divestiture gains, including Zest, Camay, Fekkai and Wash & Go hair care brands and Vaposteam.before-tax gain from the dissolution of the PGT Healthcare partnership.

Income Taxes

~~Fiscal year 2017 compared with fiscal year 2016~~

Income taxes increased $628 million to $2.7 billion due to increased earnings, partially offset by a decline in the effective tax rate. The effective tax rate ~~on continuing operations~~ decreased ~~190~~1,750 basis points to ~~23.1%. The rate declined~~17.2% in 2020 due to:

•a ~~130 basis-points impact from excess tax benefits associated with share-based payments~~1,750 basis-point reduction due to the ~~adoption~~prior year impact of ~~FASB Accounting Standards Update (ASU) 2016-09 Improvements~~the Shave Care impairment charge as there was no tax benefit related to ~~Employee Share-based Payment Accounting~~the goodwill portion of the charge and

•a 135 basis-point current year reduction from a tax benefit arising from transactions to simplify our legal entity structure.

These reductions were partially offset by:

•a 60 basis-point increase from unfavorable impacts from geographic mix of current year earnings, caused primarily by disproportionately higher sales and earnings in ~~2017,~~the U.S.,

•a ~~150~~40 basis-point ~~benefit~~increase related to the prior year tax impact of the gain on the dissolution of the PGT Healthcare partnership,

•a 30 basis-point increase from current year unfavorable discrete impacts related to uncertain ~~income~~ tax positions ~~(which netted to approximately 205 basis points~~(15 basis-point increase in the current year rate versus a 15 basis-point decrease in the prior year rate) and

•a 5 basis-point increase from lower excess tax benefits of share-based compensation (155 basis-point reduction in the current year versus ~~55 basis points~~160 basis-point reduction in the prior year),.

~~a 50 basis-point benefit from the tax impact~~Net Earnings

Operating income increased 186% or $10.2 billion to $15.7 billion. $8.3 billion of the ~~early extinguishment of long-term debt, and~~

~~a 130 basis-point benefit from the prior year establishment of a valuation allowance on deferred tax assets related to net operating loss carryforwards.~~

~~These benefits were partially offset by a 230 basis-point~~ increase ~~from unfavorable geographic mix, primarily due to a greater proportion of total income taxed in the U.S. and a 40 basis-point increase~~was due to the ~~impact of minor brand divestitures.~~

18base period charge for the Shave Care impairment. The ~~Procter & Gamble Company~~

~~Fiscal year 2016 compared with fiscal year 2015~~

~~The effective tax rate on continuing operations increased 30 basis points~~remaining $1.9 billion increase was due to ~~25.0% in 2016 mainly due to:~~

~~a 260 basis-point negative impact from~~ the ~~unfavorable geographic mix of earnings, and~~

~~a 130 basis-point impact in 2016 from the establishment of valuation allowances on deferred tax assets related to~~ net ~~operating loss carryforwards~~sales increase and the ~~impact of favorable discrete adjustments related to uncertain income tax positions (which netted to 55 basis points~~increase in ~~2016 versus 85 basis points in 2015).~~

~~These benefits were partially offset by a 400 basis point decrease related to the non-deductibility of the Venezuelan deconsolidation charge in 2015.~~

~~Net Earnings~~

~~Fiscal year 2017 compared with fiscal year 2016~~

~~Net earnings from continuing operations increased $167 million, or 2%, to $10.2 billion. Operating income improved $514 million, or 4%, due to improved~~ gross margin ~~and reduced SG&A costs. Net earnings also benefitted from a lower tax rate in 2017. These benefits were~~ partially offset by the increase in ~~net non-operating expenses,~~SG&A, all of which are discussed above.

Earnings before income taxes increased 161% or $9.8 billion to $15.8 billion, as the increase in operating income discussed above was partially offset by the base period gains from the dissolution of the PGT Healthcare partnership and other minor brand divestitures. Net earnings increased 230% or $9.1 billion to $13.1 billion due to the increase in operating income and the reduction in effective income taxes rates discussed above. Foreign exchange impacts reduced net earnings by approximately ~~$420~~$390 million in ~~2017~~fiscal 2020 due to weakening of certain currencies against the U.S. dollar, including those in Argentina, ~~Nigeria, Egypt~~Brazil, China, Turkey and the United Kingdom. This impact includes both transactional charges ~~as discussed above in Operating Costs~~ and translational impacts from converting earnings from foreign subsidiaries to U.S. dollars.

Net earnings from discontinued operations increased $4.6 billion in 2017 to $5.2 billion. This change was driven by the $5.3 billion gain on the sale of the Beauty Brands in the current year, partially offset by the impact of the base period results, which included the net earnings of the Batteries and Beauty Brands businesses prior to divestiture, a gain on the sale of the Batteries business and impairment charges on the Batteries business prior to divestiture (see Note 13 to the Consolidated Financial Statements).

~~Net earnings~~ attributable to Procter & Gamble increased ~~$4.8~~$9.1 billion, or ~~46%~~234%, to ~~$15.3~~$13.0 billion.

Diluted net ~~earnings per share from continuing operations~~EPS increased ~~$0.20,~~$3.53, or 6%247%, to ~~$3.69~~$4.96 due primarily to the increase in net earnings from continuing operations and a reduction in the number of weighted average shares outstanding following the shares tendered in the sale of the Beauty Brands to Coty (see Note 13 to the Consolidated Financial Statements), along with ongoing share repurchases.

Diluted net earnings per share from discontinued operations were $1.90. This was an increase of $1.70 per share versus the prior year primarily resulting from the gain on the sale of the Beauty Brands. Diluted net earnings per share increased $1.90, or 51%, to $5.59.earnings.

Core EPS increased 7%13% to ~~$3.92.~~$5.12. Core EPS ~~in fiscal year 2017~~ represents diluted net ~~earnings per share~~EPS from continuing operations, excluding the base year charge ~~related to early extinguishment~~for the Shave Care impairment, the base year gain on the dissolution of ~~long-term debt~~the PGT Healthcare partnership and incremental

restructuring charges in both years related to our productivity and cost savings ~~plan.~~plans. The increase was primarily driven by ~~operating margin expansion, lower effective tax rate and the reduction in the number of weighted average shares outstanding discussed above.~~

~~Fiscal year 2016 compared with fiscal year 2015~~

Net earnings from continuing operations increased $1.7 billion, or 21%, to $10.0 billion in 2016 primarily due to the base period charge of $2.1 billion after-tax related to the deconsolidation of Venezuelan subsidiaries. Earnings also declined due to the impact of the decline in net sales in fiscal 2016, partially offset by improved gross margin and the reduction in SG&A. Foreign exchange impacts reduced net earnings by about $880 million in 2016 due to weakening of certain key currencies against the U.S. dollar, primarily in Argentina, Brazil, Canada, Mexico and Russia. This impact includes both transactional charges as discussed above in Operating Costs and translational impacts from converting earnings from foreign subsidiaries to U.S. dollars.

Net earnings from discontinued operations improved $1.7 billion in 2016 to $577 million. Batteries drove a $2.1 billion improvement due primarily to a $1.8 billion reduction in after-tax impairment charges in the Batteries business ($350 million in 2016 compared to $2.1 billion in 2015) and a $422 million after-tax gain in 2016 from the sale of the Batteries business. This was partially offset by a decrease in the earnings of the Beauty Brands in 2016 (see Notes 4 and 13 to the Consolidated Financial Statements).

~~Net earnings attributable to Procter & Gamble increased $3.5 billion, or 49% to $10.5 billion.~~

~~Diluted net earnings per share from continuing operations increased $0.65, or 23%, to $3.49 in 2016 due to~~ the increase in net earnings and a decline in the average number of shares outstanding. Diluted net earnings per share from discontinued operations were $0.20 primarily resulting from the gain on the sale of the Batteries business. This was an improvement of $0.60 per share versus the prior year. Diluted net earnings per share increased $1.25, or 51%, to $3.69.

Core EPS decreased 2% to $3.67 in 2016. Core EPS in fiscal year 2016 represents diluted net earnings per share from continuing operations excluding charges for certain European legal matters and incremental restructuring related to our productivity and cost savings plan. The decline was driven by reduced net sales and ~~foreign exchange impacts, partially offset by gross~~the increase in operating margin ~~expansion.~~discussed previously.

~~Venezuela Impacts~~

There are a number of currency and other operating controls and restrictions in Venezuela, which have evolved over time and may continue to evolve in the future. These evolving conditions resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar and restricted our Venezuelan operations’ ability to pay dividends or pay for certain raw and package materials, finished goods and services denominated in U.S. dollars. For accounting purposes, this resulted in a lack of control over our Venezuelan subsidiaries. Therefore, in accordance with the applicable accounting standards for consolidation, effective

20 The Procter & Gamble Company 19

June 30, 2015, we deconsolidated our Venezuelan subsidiaries and began accounting for our investment in those subsidiaries using the cost method of accounting. This resulted in a write-off of all of the net assets of our Venezuelan subsidiaries, along with Venezuela related assets held by other subsidiaries. Beginning in fiscal 2016, our financial results only includeSEGMENT RESULTS

sales of finished goods to our Venezuelan subsidiaries to the extent we receive payments from Venezuela. Accordingly, we no longer include the results of our Venezuelan subsidiaries’ operations in our financial results.

~~SEGMENT RESULTS~~

Segment results reflect information on the same basis we use for internal management reporting and performance evaluation. The results of these reportable segments do not include certain non-business unit specific ~~costs such as interest expense, investing activities and certain restructuring and asset impairment~~ costs. These costs, including the Shave Care impairment in fiscal 2019, are reported in our Corporate segment and are included as part of our Corporate segment discussion. Additionally, ~~as described in Note 2 to the Consolidated Financial Statements,~~ we apply blended statutory tax rates in the segments. Eliminations to adjust segment results to arrive at our consolidated effective tax rate are included in Corporate. ~~All references~~See Note 2 to the Consolidated Financial Statements for additional information on items included in the Corporate segment.


	Net Sales Change Drivers 2020 vs. 2019⁽¹⁾
	Volume with Acquisitions & Divestitures		Volume Excluding Acquisitions & Divestitures		Foreign Exchange		Price		Mix		Other ⁽²⁾		Net Sales Growth
Beauty	3	%	2	%	(2)	%	2	%	1	%	—	%	4	%
Grooming	(1)	%	(1)	%	(3)	%	2	%	—	%	—	%	(2)	%
Health Care	10	%	5	%	(2)	%	1	%	1	%	—	%	10	%
Fabric & Home Care	6	%	7	%	(1)	%	1	%	1	%	—	%	7	%
Baby, Feminine & Family Care	3	%	3	%	(2)	%	1	%	1	%	—	%	3	%
TOTAL COMPANY	4	%	4	%	(2)	%	1	%	1	%	1	%	5	%

⁽¹⁾Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.

⁽²⁾Other includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net ~~earnings throughout the discussion of segment results refer to net earnings from continuing operations.~~sales.

Net Sales Change Drivers 2017 vs. 2016 ⁽¹⁾
Volume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange Price Mix
Other ⁽²⁾
Net Sales Growth
Beauty (2 )% 1 % (2 )% 1 % 2 % 1 % — %
Grooming 2 % 3 % (2 )% (1 )% (2 )% — % (3 )%
Health Care 3 % 4 % (2 )% — % 1 % — % 2 %
Fabric & Home Care 1 % 2 % (2 )% — % 1 % — % — %
Baby, Feminine & Family Care 2 % 2 % (2 )% (1 )% — % — % (1 )%
TOTAL COMPANY 1 % 2 % (2 )% — % — % 1 % — %

Net Sales Change Drivers 2016 vs. 2015 ⁽¹⁾
Volume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange Price Mix
Other ⁽²⁾
Net Sales Growth
Beauty (5 )% (2 )% (6 )% 2 % — % — % (9 )%
Grooming (2 )% (2 )% (9 )% 5 % (2 )% — % (8 )%
Health Care (2 )% (2 )% (6 )% 2 % 1 % — % (5 )%
Fabric & Home Care (1 )% 1 % (6 )% — % — % — % (7 )%
Baby, Feminine & Family Care (3 )% (2 )% (6 )% — % — % — % (9 )%
TOTAL COMPANY (3 )% (1 )% (6 )% 1 % — % — % (8 )%


⁽¹⁾			~~Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.~~


⁽²⁾	~~Other includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net sales.~~

BEAUTY

($ millions) 2017 Change vs. 2016 2016 Change vs. 2015
Volume N/A (2)% N/A (5)%
Net sales $11,429 —% $11,477 (9)%
Net earnings $1,914 (3)% $1,975 (9)%
% of net sales 16.7% (50) bps 17.2% (10) bps

~~Fiscal year 2017 compared with fiscal year 2016~~


($ millions)	2020	2019	Change vs. 2019
Volume	N/A	N/A	3%
Net sales	$13,359	$12,897	4%
Net earnings	$2,737	$2,637	4%
% of net sales	20.5%	20.4%	10 bps

Beauty net sales ~~were unchanged at $11.4~~increased 4% to $13.4 billion in ~~2017~~fiscal 2020 on a ~~2% decrease~~3% increase in unit volume. Unfavorable foreign exchange

impacts reduced net sales by 2%. ~~Price increases had a 1% positive impact on~~Higher pricing increased net ~~sales.~~sales by 2%. Favorable product mix added 2%1% to net sales ~~primarily~~ due to the disproportionate growth of the ~~super-premium SK-II~~Skin and Personal Care category, including the Olay skin care brand, which has higher than segment average selling prices. Organic sales increased 3%5% on a 2% increase in organic ~~volume that increased 1%.~~volume. Global market share of the Beauty segment ~~decreased 0.6~~increased 0.2 points. Volume increased mid-single digits in North America, Europe and Asia Pacific and increased low single digits in Greater China and Latin America. Volume decreased high single digits in IMEA.

•Volume in Hair Care increased low single digits. Volume increased mid-single digits in Europe and Asia Pacific and increased low single digits in North America and Latin America due to product innovation and market growth. Volume decreased double digits in IMEA and decreased low single digits in ~~developed regions. Volume decreased low single digits in developing regions. Excluding minor brand divestitures, organic volume in developing regions increased low single digits.~~

~~Volume in Hair Care decreased low single digits~~Greater China due to ~~minor brand divestitures. Organic volume increased low single digits. Developed regions decreased low single~~

~~20 The Procter & Gamble Company~~

~~digits mainly due to competitive activity. Developing regions decreased low single digits due to minor brand divestitures. Organic volume increased low single digits~~the economic slowdown caused by the COVID-19 pandemic in ~~developing regions behind product innovation~~the second half of the fiscal year and market ~~growth.~~declines in certain countries. Global market share of the hair care category ~~decreased more than half a point.~~was unchanged.

•Volume in Skin and Personal Care ~~was unchanged including the impact of minor brand divestitures. Organic volume~~ increased ~~low single~~mid-single digits. ~~Developed market volume decreased low single~~Volume increased double digits ~~following~~ in Greater China,

increased ~~pricing~~mid-single digits in North America, and ~~due to competitive activity. Volume~~ increased low single digits in ~~developing regions behind~~Europe and Asia Pacific due to premium innovation, increased marketing spending and market ~~growth.~~growth, partially offset by a volume decrease in the SK-II brand and a mid-single digits decline in IMEA due to the COVID-19 pandemic related travel restrictions. Global market share of the skin and personal care category ~~decreased~~increased nearly half a point.

Net earnings ~~decreased 3%~~increased 4% to ~~$1.9~~$2.7 billion in fiscal 2020 due to the increase in net sales and a 10 basis-point increase in net earnings margin. Net earnings margin increased due to a ~~50 basis point~~ decrease ~~in net earnings margin, behind an increase~~ in SG&A as a percentage of net ~~sales.~~sales, partially offset by a decrease in gross margin and an increase in the effective tax rate. The gross margin decrease was mainly driven by the negative impacts of unfavorable mix (due to the decline of the super-premium SK-II brand, driven by the impacts of the COVID-19 pandemic, and the disproportionate growth of large sizes) and other hurts related to new manufacturing startup costs partially offset by increased selling prices. SG&A as a percentage of net sales ~~increased~~decreased due to ~~increased overhead~~the positive scale impacts of the net sales increase and a reduction in marketing spending ~~including investments in sales resources and incremental marketing activity. Gross margin decreased slightly as the benefits from~~due to productivity ~~savings and higher pricing were more than offset by higher commodity costs and unfavorable mix impacts (driven by Hair Care from an~~savings. The increase in the ~~proportion of lower margin forms and categories, and~~effective tax rate was driven by the unfavorable geographic mix ~~which more than offset benefit from Skin and Personal Care, driven by the growth~~ of ~~SK-II).~~ earnings.

~~Fiscal year 2016 compared with fiscal year 2015~~GROOMING

~~Beauty~~


($ millions)	2020	2019	Change vs. 2019
Volume	N/A	N/A	(1)%
Net sales	$6,069	$6,199	(2)%
Net earnings	$1,329	$1,529	(13)%
% of net sales	21.9%	24.7%	(280) bps

The Procter & Gamble Company 21

Grooming net sales decreased 9%2% to ~~$11.5~~$6.1 billion in fiscal ~~2016~~2020 on a 5%1% decrease in unit volume. Unfavorable foreign exchange impacts reduced net sales by 6%3%. ~~Price increases~~Increased pricing had a 2% positive impact onto net sales. Organic sales ~~were unchanged on organic volume that decreased 2%~~increased 1%. Global market share of the ~~Beauty~~Grooming segment decreased ~~1.0~~0.2 points. Volume increased mid-single digits in Asia Pacific and was unchanged in Europe and Latin America. Volume decreased low single digits in ~~developed markets~~North America and Greater China and decreased mid-single digits in IMEA.

•Shave Care volume decreased low single digits. Volume decreased mid-single digits in IMEA and decreased low single digits in North America and Europe due to market decline and reduced shaving incidents resulting from the COVID-19 pandemic and competitive activity. This was partially offset by a mid-single digit volume increase in Asia Pacific due to innovation. Global market share of the shave care category was unchanged.

•Appliances volume increased low single digits. Volume increased mid-teens in North America and mid-single digits in Europe due to innovation and increased consumption of at-home styling products due to pandemic related movement restrictions. Volume decreased double digits in Asia Pacific, decreased high single digits in ~~developing markets.~~

~~Volume~~Greater China and decreased low single digits in ~~Hair Care was down mid-single digits. Developed markets declined mid-single digits~~IMEA due to market contraction, competitive activity ~~while developing markets declined mid-single digits driven~~and the economic slowdown caused by ~~increased pricing,~~ the ~~Venezuela deconsolidation and minor brand divestitures.~~COVID-19 pandemic. Global market share of the ~~hair care~~appliances category ~~decreased~~increased more than a point.

Volume in Skin and Personal Care decreased high single digits, while organic volume decreased low single digits, with the difference attributable to the Camay and Zest brand divestitures and the Venezuela deconsolidation. Organic volume was unchanged in developed regions as commercial innovation was offset by ongoing competitive activity. Organic volume declined mid-single digits in developing regions primarily due to increased pricing and competitive activity. Global market share of the skin and personal care category decreased nearly a point.

Net earnings decreased 9%13% to ~~$2.0~~$1.3 billion in ~~2016 primarily~~fiscal 2020 due to the ~~reduction~~decrease in net sales ~~along with~~and a 10280 basis-point decrease in net earnings margin. ~~Net~~The net earnings margin decreased due to an increase in SG&A as a percentage of net sales, ~~largely offset by~~an increase in the effective tax rate and a decrease in gross ~~margin expansion.~~margin. Gross margin

~~improved~~ decreased due to ~~productivity savings, increased pricing~~the negative impact of unfavorable mix (due to the disproportionate growth of disposable razors, styling appliances and the Asia Pacific region all of which have lower ~~commodity costs,~~than segment average margins) partially offset by ~~negative mix.~~the positive impacts of manufacturing cost savings and increased selling prices. SG&A as a percentage of net sales increased ~~as lower~~primarily due to a base period gain on the sale of operating real estate partially offset by current period reductions in overhead costs and marketing ~~and overhead~~ spending due to productivity savings. The increase in the effective tax rate was primarily due to a base period benefit from the ~~Company's focus on efficiencies was more than offset by the negative scale impacts from the reduction in sales.~~favorable adjustments to reserves for uncertain tax positions.

~~GROOMING~~HEALTH CARE


($ millions)	2020	2019	Change vs. 2019
Volume	N/A	N/A	10%
Net sales	$9,028	$8,218	10%
Net earnings	$1,652	$1,519	9%
% of net sales	18.3%	18.5%	(20) bps

($ millions) 2017 Change vs. 2016 2016 Change vs. 2015
Volume N/A 2% N/A (2)%
Net sales $6,642 (3)% $6,815 (8)%
Net earnings $1,537 (1)% $1,548 (13)%
% of net sales 23.1% 40 bps 22.7% (130) bps

~~Fiscal year 2017 compared with fiscal year 2016~~

~~Grooming~~Health Care net sales ~~decreased 3%~~increased 10% to ~~$6.6~~$9.0 billion in ~~2017~~fiscal 2020 on a 2%10% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 2%. ~~Unfavorable~~Increased pricing had a 1% positive impact to net sales. Favorable mix ~~reduced~~increased net sales by ~~2% driven by~~1% due to the disproportionate organic growth ~~in emerging markets, where~~of the Personal Health Care category which has higher than segment average selling ~~prices are lower than in developed regions, in part due to a higher relative proportion of disposable razors in those markets. Price reductions in~~prices. Excluding the ~~U.S. during the second half~~net impacts of the ~~year taken to address~~Merck OTC consumer ~~price-competitiveness drove~~healthcare acquisition and minor brand divestitures, organic sales increased 7% on a ~~1% reduction~~5% increase in ~~net sales. Organic sales were unchanged on~~ organic ~~volume that increased 3%.~~volume. Global market share of the ~~Grooming~~Health Care segment ~~decreased 0.7~~increased 0.4 points. Volume increased more than 20% in IMEA, increased double digits in Latin America and Europe, increased high single digits in Asia Pacific and increased mid-single digits in North America. Excluding the net impacts of the Merck OTC consumer healthcare acquisition and minor brand divestitures, organic volume increased high single digits in IMEA, increased mid-single digits in Latin America and increased low single digits in ~~developed~~Europe and ~~developing regions.~~Asia Pacific.

~~Shave~~•Oral Care volume increased low single digits. ~~Shave Care volume decreased low single~~Volume increased double digits in ~~developed regions due to competitive activity~~IMEA, increased mid-single digits in Latin America and increased low single digits in ~~developing regions behind~~North America and Asia Pacific due to product ~~innovation.~~innovation and market growth. This growth was partially offset by low single digits volume decreases in Europe and Greater China due to competitive activities and the COVID-19 pandemic related economic slowdown and electronics stores closures. Excluding the impact of minor brand divestitures, organic volume increased low single digits in Europe. Global market share of the ~~shave~~oral care category ~~decreased~~increased less than half a point.

•Volume in ~~Appliances~~Personal Health Care increased over 20%. Excluding the impacts of the Merck OTC consumer healthcare acquisition, organic volume increased double digits. ~~Volume~~Organic volume increased ~~double~~mid-teens in North America and Europe and increased mid-single digits in ~~developed regions and increased low single digits in developing regions~~IMEA due to product ~~innovation.~~innovation, increased marketing spending and increased consumption and retailer inventory increases in certain markets driven by the COVID-19 pandemic. This was partially offset by a low single digit volume decrease in Asia Pacific and Latin America due to devaluation related price increases and the COVID-19 related economic slowdown. Global market share of the ~~appliances~~personal health care category increased nearly ~~half~~ a point.

Net earnings ~~decreased 1%~~increased 9% to ~~$1.5~~$1.7 billion in fiscal 2020 due to the ~~reduction~~increase in net sales partially offset by ~~an increase in net earnings margin. Net earnings margin increased 40 basis points due to~~ a decrease in SG&A as a percent of net sales and improved gross margin. SG&A as a percent of net sales decreased due to a gain on the sale of real estate, partially offset by increased overhead spending. Gross margin increased as the benefits of productivity efforts were only partially offset by unfavorable foreign exchange impacts, reduced pricing and negative mix driven by growth in emerging markets, where average selling prices are lower than in developed regions, in part due to a higher relative proportion of disposable razors in those markets.

~~The Procter & Gamble Company 21~~

~~Fiscal year 2016 compared with fiscal year 2015~~

Grooming net sales decreased 8% to $6.8 billion in 2016 on a 2% decrease in unit volume. Unfavorable foreign exchange reduced net sales by 9%. Price increases in Shave Care contributed 5% to net sales. Unfavorable product mix decreased net sales by 2% due to a higher relative mix of disposable razors, which have lower than segment average selling prices compared to system razor cartridges. Organic sales increased 2%. Global market share of the Grooming segment decreased 1.1 points. Volume decreased low single digits in developed and developing regions.

Shave Care volume decreased low single digits in both developed and developing regions due to competitive activity and increased pricing. Global market share of the shave care category decreased more than half a point.

Volume in Appliances was up mid-single digits due to a mid-single-digit increase in developed regions from product innovation. Volume in developing regions increased low single digits due to growth from product innovation, partially offset by reductions due to increased pricing. Global market share of the Appliances category decreased more than half a point.

~~Net earnings decreased 13% to $1.5 billion in 2016 due to the reduction in net sales and a 130~~20 basis-point decrease in net earnings margin. ~~Net~~The net earnings margin decreased due to ~~increased~~an increase in SG&A as a percentage of net sales and a reduction in non-operating income, partially offset by a lower tax rate. Gross margin was unchanged as the benefits of increased pricing and productivity efforts were largely offset by unfavorable foreign exchange impacts and negative product mix caused by an increase in gross margin. Gross margin increased due to manufacturing cost savings and increased selling prices partially offset by unfavorable mix impact (from the ~~proportion~~disproportionate growth of ~~disposable razor sales compared to system razor cartridges.~~certain products and certain markets in IMEA both of which have lower than segment-average margins). SG&A as a percentage of net

22 The Procter & Gamble Company

sales increased due to ~~increased marketing spending~~an increase in overhead costs and other operating expenses primarily caused by the ~~negative~~Merck OTC consumer healthcare acquisition, partially offset by the positive scale ~~impact~~impacts of ~~lower~~the net ~~sales. The tax rate~~sales increase. Non-operating income declined due to ~~the geographic mix of earnings.~~a base period gain from minor brand divestitures.

~~HEALTH~~FABRIC & HOME CARE


($ millions)	2020	2019	Change vs. 2019
Volume	N/A	N/A	6%
Net sales	$23,735	$22,080	7%
Net earnings	$4,154	$3,518	18%
% of net sales	17.5%	15.9%	160 bps

($ millions) 2017 Change vs. 2016 2016 Change vs. 2015
Volume N/A 3% N/A (2)%
Net sales $7,513 2% $7,350 (5)%
Net earnings $1,280 2% $1,250 7%
% of net sales 17.0% — 17.0% 190 bps

~~Fiscal year 2017 compared with fiscal year 2016~~

~~Health~~Fabric & Home Care net sales increased 2%7% to ~~$7.5~~$23.7 billion in ~~2017~~fiscal 2020 on a 6% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 1%. Higher pricing increased net sales by 1%. Positive mix impacts increased net sales by 1% due to the disproportionate growth of the Home Care category and the North America region, both of which have higher than segment average selling prices. Organic sales increased 9% on a 7% increase in organic volume. Global market share of the Fabric & Home Care segment increased 0.7 points. Volume increased double digits in North America, increased high single digits in Latin America, increased mid-single digits in Greater China and Europe and increased low single digits in Asia Pacific. Volume decreased low single digits in IMEA.

•Fabric Care volume increased mid-single digits. Volume grew double digits in North America and Latin America, grew mid-single digits in Greater China and grew low single digits in Europe. Volume growth was driven by product innovation and to a lesser extent the consumption increase and pantry loading driven by the COVID-19 pandemic. This growth was partially offset by a low single digit volume decrease in IMEA due to the COVID-19 pandemic related economic slowdown. Volume in Asia Pacific was unchanged. Global market share of the Fabric Care category increased a point.

•Home Care volume increased double digits. Volume increased in all regions led by double digit growth in North America and Europe, high single digits growth in Asia Pacific, mid-single digits growth in Latin America and low single digits growth in IMEA. The volume growth was driven by product innovation as well as the consumption increase and pantry loading driven by the COVID-19 pandemic. Global market share of the Home Care category increased more than half a point.

Net earnings increased 18% to $4.2 billion in fiscal 2020 due to the increase in net sales and a 160 basis-point increase in net earnings margin. The net earnings margin increased due to an increase in gross margin partially offset by an increase in the effective tax rate. The gross margin increase was driven by manufacturing cost savings and a reduction in commodity costs, partially offset by unfavorable product mix (due to the disproportionate growth of premium innovation that has not yet been cost optimized). SG&A as a

percentage of net sales was unchanged as an increase in marketing spending was offset by the positive scale benefits of increased net sales on overhead costs. The increase in the effective tax rate was driven by the unfavorable geographical mix of earnings.

BABY, FEMININE & FAMILY CARE


($ millions)	2020	2019	Change vs. 2019
Volume	N/A	N/A	3%
Net sales	$18,364	$17,806	3%
Net earnings	$3,465	$2,734	27%
% of net sales	18.9%	15.4%	350 bps

Baby, Feminine & Family Care net sales increased 3% to $18.4 billion in fiscal 2020 on a 3% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 2%. ~~Favorable product mix contributed~~Increased pricing was a positive 1% impact to net sales. Positive mix impact increased net sales due primarily to an increase in power toothbrushes in Oral Care, which have higher than segment-average selling prices. Organic sales increased 5% on organic volume that increased 4%. Global market share of the Health Care segment decreased 0.2 points. Volume increased low single digits in developed regions and increased mid-single digits in developing regions.

~~Oral Care volume increased mid-single digits. Volume increased low single digits in developed regions and~~

~~increased mid-single digits in developing regions driven~~ by ~~market growth and product innovation. Global market share of the oral care category decreased slightly.~~

Volume in Personal Health Care increased low single digits. Volume increased low single digits in both developed and developing regions behind a stronger cough/cold season relative to prior year, product innovation and expanded distribution. Global market share of the personal health care category was unchanged.

~~Net earnings increased 2% to $1.3 billion~~1% due to the increase in net sales. Operating margin was unchanged as a higher gross margin was offset by increased SG&A as a percentage of net sales. Gross margin increased due to productivity cost savings, partially offset by unfavorable geographic mix driven by the disproportionate growth of ~~developing regions,~~the North America region which ~~have lower than segment-average margins. SG&A increased as a percentage of net sales due to increased overhead spending, partially offset by reduced marketing spending.~~

~~Fiscal year 2016 compared with fiscal year 2015~~

Health Care net sales were down 5% to $7.4 billion in 2016 on a 2% decrease in unit volume. Unfavorable foreign exchange reduced net sales by 6%. Price increases contributed 2% to net sales, mainly in developing markets. Favorable geographic mix increased net sales 1%, primarily driven by a decline in Oral Care volume in developing regions, which have lowerhas higher than segment average selling prices. Organic sales increased ~~2%. Global market share of the Health Care segment decreased 0.7 points. Volume was up low single digits in developed regions and declined high single digits in developing regions.~~

Oral Care volume declined low single digits due to a high single-digit decrease in developing regions caused by increased pricing, competitive activity and reduced customer inventory. Volume in developed regions increased low single digits driven by product innovation. Global market share of the oral care category was down less than a point.

Volume in Personal Health Care decreased mid-single digits primarily due to a mid-single-digit decrease in developed regions driven by competitive activity and a weak cough/cold season. Volume in developing markets decreased low single digits due to increased pricing. Global market share of the personal health care category decreased half a point.

Net earnings increased 7% to $1.3 billion in 2016 as the reduction in net sales was more than offset by a 190 basis-point increase in net earnings margin. Gross margin increased primarily due to manufacturing cost savings and increased pricing. SG&A as a percentage of net sales decreased primarily due to reduced marketing spending from the focus on productivity and cost savings efforts.

~~22 The Procter & Gamble Company~~

~~FABRIC & HOME CARE~~

($ millions) 2017 Change vs. 2016 2016 Change vs. 2015
Volume N/A 1% N/A (1)%
Net sales $20,717 —% $20,730 (7)%
Net earnings $2,713 (2)% $2,778 5%
% of net sales 13.1% (30) bps 13.4% 160 bps

~~Fiscal year 2017 compared with fiscal year 2016~~

Fabric & Home Care net sales were unchanged in 2017 at $20.7 billion on a 1% increase in unit volume. Unfavorable foreign exchange reduced net sales by 2%. Favorable geographic mix increased net sales 1%, primarily driven by increased volume in developed regions, which have higher than segment-average selling prices. Organic sales increased 3% on organic volume that increased 2%. Global market share of the Fabric & Home Care segment decreased 0.1 points. Volume increased low single digits in developed regions and decreased low single digits in developing regions. Excluding minor brand divestitures, organic volume increased mid-single digits in developed regions and decreased low single digits in developing regions.

Fabric Care volume increased low single digits as a mid-single digit volume increase in developed regions, due primarily to product innovation, was partially offset by a low single-digit decrease in developing regions, driven by competitive activity and reduced distribution of less profitable brands. Global market share of the fabric care category was unchanged.

Home Care volume increased low single digits driven by a low single-digit increase in both developed and developing regions due to market growth and product innovation. Global market share of the home care category was unchanged.

Net earnings decreased 2% to $2.7 billion due to a 30 basis-point decrease in net earnings margin. Net earnings margin decreased due to an increase in the effective tax rate driven by the geographic mix of earnings. Gross margin expanded slightly, driven by manufacturing cost savings, partially offset by unfavorable foreign exchange impacts and increased commodity costs. SG&A as a percentage of net sales increased slightly due to increased overhead spending.

~~Fiscal year 2016 compared with fiscal year 2015~~

Fabric & Home Care net sales in 2016 were down 7% to $20.7 billion on unit volume that declined 1%. Unfavorable foreign exchange reduced net sales by 6%. Organic sales increased 1% on a 1% increase in organic volume, which excludes minor brand divestitures and the Venezuela deconsolidation. Global market share of the Fabric & Home Care segment decreased 0.2 points. Volume increased mid-single digits in developed regions and was down high single digits in developing regions.

Fabric Care volume declined low single digits due to a double-digit decrease in developing regions driven by increased pricing, reduced distribution of less profitable brands, minor brand divestitures and the Venezuela

deconsolidation. Organic volume in developing regions decreased high single digits. Volume in developed markets increased mid-single digits due to innovation and increased marketing. Global market share of the fabric care category was flat.

Home Care volume increased low single digits. Developed market volume increased low single digits as benefits from product innovation more than offset impacts from competitive activity. This was partially offset by a low single-digit decrease in developing regions following increased pricing. Global market share of the home care category was down slightly.

Net earnings increased 5% to $2.8 billion in 2016 behind a 160 basis-point increase in net earnings margin, which more than offset the reduction in net sales. Net earnings margin increased due to gross margin expansion, partially offset by increased SG&A as a percentage of net sales. Increased gross margin was driven by manufacturing cost savings and lower commodity costs. SG&A as a percentage of net sales increased due to an increase in marketing spending and the negative scale impacts from the reduction in net sales.

~~BABY, FEMININE & FAMILY CARE~~

($ millions) 2017 Change vs. 2016 2016 Change vs. 2015
Volume N/A 2% N/A (3)%
Net sales $18,252 (1)% $18,505 (9)%
Net earnings $2,503 (6)% $2,650 (10)%
% of net sales 13.7% (60) bps 14.3% (20) bps

~~Fiscal year 2017 compared with fiscal year 2016~~

Baby, Feminine & Family Care net sales decreased 1% to $18.3 billion in 2017 on a 2% increase in unit volume. Unfavorable foreign exchange reduced net sales by 2%. Lower pricing had a negative 1% impact on net sales. Organic sales increased 1% on organic volume that increased 2%4%. Global market share of the Baby, Feminine & Family Care segment decreased ~~0.1~~0.3 points. Volume increased high single digits in North America and was unchanged in Asia Pacific. Volume decreased high single digits in Latin America, decreased mid-single digits in IMEA and decreased low single digits in ~~developed regions~~Greater China and ~~was unchanged in developing regions.~~Europe.

~~Volume in~~ •Baby Care ~~was unchanged.~~volume decreased mid-single digits. Volume decreased double digits in ~~developed regions~~Latin America, decreased high single digits in IMEA, decreased mid-single digits in Europe and decreased low single digits ~~primarily~~in Greater China and Asia Pacific due to competitive activity, devaluation related price increases, category contraction in certain markets (partly due to declining birth rates in China) and ~~volume in developing regions increased~~to a lesser extent the economic slowdown caused by the COVID-19 pandemic. This was partially offset by a low single ~~digits, due to~~digit volume increase in North America driven by market growth and product innovation. Global market share of the baby care category decreased more than ~~half~~ a point.

~~Volume in~~ •Feminine Care volume increased low single digits. Volume growth was led by a double digit increase in ~~developed regions increased~~Asia Pacific due to a new launch in the adult incontinence category in Japan, as well as high single digits growth in North America, mid-single digits growth in Europe and low single digits ~~driven by~~growth in Greater China and Latin America, all due to product innovation, increased marketing spending, adult incontinence category growth and to a lesser extent the increased consumption and pantry loading related to the COVID-19 pandemic in certain markets. Excluding the impact of a minor brand acquisition, volume in ~~developing regions decreased~~North America increased mid-single digits. This was partially offset by a low single ~~digits~~digit volume decrease in IMEA due to ~~competitive activity and reduced exports to our Venezuelan subsidiaries.~~the economic slowdown caused by the COVID-19 pandemic. Global market share of the feminine care category ~~was unchanged.~~increased nearly a point.

The Procter & Gamble Company 23

•Volume in Family Care, which is predominantly a North American business, increased ~~mid-single~~high single digits driven by the COVID-19 pandemic related market growth, consumption increase and pantry loading, product innovation, ~~and increased merchandising. In the U.S., all-outlet share of the family care category increased less than a point.~~

~~The Procter & Gamble Company 23~~

Net earnings decreased 6% to $2.5 billion due to the reduction in net sales and a 60 basis point decrease in net earnings margin. Net earnings margin decreased as increased SG&A as a percent of net sales was only partially offset by an increase in gross margin. SG&A as a percentage of net sales increased due to increased marketing and overhead spending. Gross margin increased driven by manufacturing cost savings partially offset by unfavorable foreign exchange impacts, lower pricing and unfavorable product mix across business units due to increased net sales in product forms and larger package sizes with lower than segment-average margins.

~~Fiscal year 2016 compared with fiscal year 2015~~

Baby, Feminine & Family Care net sales decreased 9% to $18.5 billion in 2016 on a 3% decline in unit volume. Unfavorable foreign exchange reduced net sales by 6%. Organic sales declined 1% on a 2% decline in organic volume. Global market share of the Baby, Feminine & Family Care segment decreased 1.1 points. Volume increased low single digits in developed regions and decreased double digits in developing regions.

Volume in Baby Care was down mid-single digits due to a high single-digit decrease in developing regions caused by price increases in the previous fiscal year, the Venezuela deconsolidation and competitive activity. Organic volume in developing markets was down mid-single digits. Volume was up low single digits in developed regions as product innovationspending and market ~~growth more than offset competitive activity. Global market share of the baby care category decreased less than two points, primarily attributable to developing markets.~~

Volume in Feminine Care declined low single digits due to a mid-single-digit decrease in developing regions caused by competitive activity and price increases in the previous fiscal year, partially offset by market growth. ~~In developed regions, volume was unchanged. Global market share of the feminine care category decreased more than half a point.~~

Volume in Family Care decreased low single digits due to a double-digit decline in developing regions driven by the discontinuation of non-strategic products. Volume in developed regions increased low single digits due to product innovation and increased merchandising. In the U.S., all-outlet share of the family care category decreased ~~nearly~~more than half a point.

Net earnings ~~decreased 10%~~in fiscal 2020 increased 27% to ~~$2.7~~$3.5 billion due to the increase in ~~2016~~net sales and a 350 basis-point increase in net earnings margin. Net earnings margin increased primarily due to ~~the reduction~~an increase in ~~net sales. Net earnings margin decreased 20 basis points as higher~~ gross margin, ~~was more than~~partially offset by an increase in the effective tax rate and a marginal increase in SG&A as a percentage of net ~~sales and a higher tax rate. Gross~~sales. The gross margin ~~increased~~increase was driven by manufacturing cost savings, ~~and lower~~a reduction in commodity costs and higher selling prices partially offset by ~~negative~~unfavorable product ~~mix.~~mix (due to the disproportionate growth of large sizes and product forms with lower than segment average margins). SG&A as a percentage of net sales increased marginally due primarily to ~~the negative scale impact from the~~an increase in marketing spending, partially offset by a reduction in overhead costs driven by productivity savings and the positive scale benefits of the net ~~sales.~~sales increase. The ~~higher~~increase in the effective tax rate ~~versus the prior year~~ was ~~due to the~~driven by an unfavorable geographic mix of earnings.

CORPORATE


($ millions)	2017	Change vs. 2016	2016	Change vs. 2015	($ millions)	2020	2019	Change vs. 2019
Net sales	$505	20%	$422	(9)%	Net sales	$395	$484	(18)%
Net earnings/(loss)	$247	N/A	$(174)	N/A	Net earnings/(loss)	$(234)	$(7,971)	N/A

Corporate includes certain operating and non-operating activities not allocated to specific business segments. These include: the incidental businesses managed at the corporate level; financing and investing activities; certain employee benefit costs; other general corporate items; gains and losses related to certain divested brands and categories; certain asset impairment charges; and certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization. Corporate also includes reconciling items to adjust the accounting policies used in the segments to U.S. GAAP. The most significant ongoing reconciling item is income taxes, to adjust from blended statutory rates that are reflected in the segments to the overall Company effective tax rate.

~~Fiscal year 2017 compared with fiscal year 2016~~

Corporate net sales ~~increased 20%, or $83 million,~~decreased 18% to ~~$505~~$395 million in ~~2017 primarily~~fiscal 2020 due to ~~an increase~~a decrease in the net sales of the incidental businesses managed at the corporate level. Corporate net ~~earnings from continuing operations improved~~loss decreased by ~~approximately $421 million in 2017, primarily due to:~~

~~lower restructuring charges in 2017 compared to the prior year,~~

~~a gain on the sale of real estate in the current fiscal year,~~

~~lower foreign exchange transactional charges,~~

~~a reduction in the proportion of corporate overhead spending not allocated to the segments, consisting in part of reduced stranded overheads following divestitures, and~~

~~current year tax benefits resulting from the adoption of a new accounting standard on the tax impacts of share-based payments to employees (see Note 1 to the Consolidated Financial Statements).~~

~~These benefits were partially offset by a $345 million after-tax charge on the early extinguishment of long-term debt~~$7.7 billion in fiscal ~~2017 and lower gains from minor brand divestitures compared to 2016.~~

~~Fiscal year 2016 compared with fiscal year 2015~~

~~Corporate net sales decreased $44 million in 2016 to $422 million. Corporate net earnings from continuing operations improved by approximately $2.2 billion in 2016,~~2020 primarily due to the ~~$2.1~~$8.0 billion ~~Venezuela deconsolidation~~after tax ($8.3 billion before tax) base period charge infor the ~~prior fiscal year and lower foreign currency transactional charges. Additional discussion~~Shave Care impairment, partially offset by higher base period divestiture gains (primarily driven by gain on the dissolution of ~~these items impacting net earnings in Corporate are included in~~ the ~~Results of Operations section.~~PGT healthcare partnership).

Restructuring Program to Deliver Productivity and Cost Savings ~~Plan~~

In fiscal 2012, the Company initiated a productivity and cost savings plan to reduce costs and better leverage scale in the areas of supply chain, research and development, marketing

and overheads. The plan was designed to accelerate cost reductions by streamlining management decision making, manufacturing

~~24 The Procter & Gamble Company~~

and other work processes to both fund the Company's growth ~~strategy.~~strategy and increase the Company's operating margin. In ~~2016 the Company communicated additional multi-year productivity and cost savings targets. In~~fiscal 2017, the Company communicated specific elements of ~~the~~an additional multi-year productivity and cost savings ~~targets.~~program.

The current productivity and cost savings plan is further reducing costs in the areas of supply chain, certain marketing activities and overhead expenses. As part of ~~the original~~this plan, the Company incurred approximately ~~$5.6~~$1.5 billion in ~~before-tax~~total before- tax restructuring costs ~~over a six-year period (from~~across 2019 and 2020. In fiscal ~~2012 through fiscal 2017).~~2021 and onwards, the Company expects to incur restructuring costs within the range of our historical ongoing level of $250 to $500 million annually. Savings generated from the Company's restructuring ~~costs~~program are difficult to estimate, given the nature of the activities, the timing of the execution and the degree of reinvestment. ~~Through 2017, these~~However, we estimate that through 2020, the underlying restructuring costs ~~and~~incurred since 2012 (approximately $8.2 billion), along with other non-manufacturing enrollment reductions since 2012 have delivered approximately ~~$2.9~~$3.7 billion in annual before-tax gross savings.

The additional productivity and cost savings plan will further reduce costs in the areas of supply chain, certain marketing activities and overhead expenses. As part of this plan, the Company expects to incur approximately $1.2 billion in total before-tax restructuring costs in fiscal 2018 and 2019. This program is expected to result in meaningful non-manufacturing enrollment reductions, along with further optimization of the supply chain and other manufacturing processes.

Restructuring accruals of ~~$277~~$472 million as of June 30, ~~2017~~2020 are classified as current liabilities. ~~During fiscal 2017, 48%~~Approximately 52% of the restructuring charges incurred in fiscal 2020 either have been or will be settled with cash. Consistent with our historical policies for ongoing restructuring-type activities, the resulting charges are funded by and included within Corporate for segment reporting.

In addition to our restructuring programs, we have additional ongoing savings efforts in our supply chain, marketing and overhead areas that yield additional benefits to our operating margins.

Refer to Note 3 to the Consolidated Financial Statements for more details on the restructuring program and to the Operating Costs section of the MD&A for more information about the total benefit to operating margins from our total savings efforts.

CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY

We believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and to readily access capital markets at competitive rates.

Operating cash flow provides the primary source of cash to fund operating needs and capital expenditures. Excess operating cash is used first to fund shareholder dividends. Other discretionary uses include share repurchases and acquisitions to complement our portfolio of businesses, brands and geographies. As necessary, we may supplement operating cash flow with debt to fund these activities. The overall cash position of the Company reflects our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations.

24 The Procter & Gamble Company

Operating Cash Flow

~~Fiscal year 2017 compared with fiscal year 2016~~

Operating cash flow was ~~$12.8~~$17.4 billion in ~~2017,~~2020, a ~~17% decrease~~14% increase from the prior year. Net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation and deferred income ~~taxes, loss/(gain) on sale of assets and impairment charges) and the loss on early extinguishment of debt~~taxes) generated ~~$13.0~~approximately $16.1 billion of operating cash flow. Working capital and other impacts ~~used $281 million~~generated $1.3 billion of operating cash ~~flow.~~flow as summarized below.

~~An increase~~•A decrease in accounts receivable ~~used $322~~generated $634 million of cash primarily due to ~~higher~~the timing of the end of the fiscal year (which fell on a Tuesday versus Sunday in the prior year end, resulting in additional collection days in the current year) and lower relative sales ~~late in~~at the end of the period ~~as compared to the prior period, partially offset~~in certain markets driven by ~~collection of approximately $150 million of retained receivables from the Beauty Brands business. In addition, the~~COVID-19. The number of days sales outstanding ~~increased 1 day due in part to foreign exchange impacts.~~decreased approximately 5 days versus prior year.

~~Lower~~•Higher inventory ~~generated $71~~used $637 million of cash mainly due to ~~supply chain optimizations, partially offset by~~inventory increases to support initiatives, business growth across all segments and ~~increased commodity costs.~~to replenish stocks in certain categories depleted by the COVID-19 pandemic related demand increases. Inventory days on hand ~~decreased~~increased approximately ~~1 day~~4 days primarily due to ~~supply chain optimizations.~~initiative support and inventory replenishment.

•Accounts payable, accrued and other liabilities decreased, using $149 million in operating cash flow. This was caused by reduced accruals from lower fourth quarter marketing and overhead activities as compared to the base period, as well as the paymentincreased, generating $1.9 billion of ~~approximately $595~~cash. Approximately $700 million of ~~accounts payable and accrued liabilities related to the divestiture of the Beauty Brands business, including liabilities retained~~this was driven by ~~the Company pursuant to the terms of the agreement. These impacts were partially offset by approximately $700 million related to~~ extended payment terms with our suppliers (see Extended Payment Terms and Supply Chain Financing below). The remaining amount was driven by higher payables from increased manufacturing activity due to the pandemic related demand increases, an increase in marketing spending in the fourth quarter versus the prior year and increases in taxes payable related to the Merck integration. Days payable outstanding increased approximately 4 days to 81 days as of June 30, 2020 due to the above.

•Other net operating assets and liabilities declined, using $710 million of cash, primarily driven by the payment of the current year portion of taxes due related to the U.S. Tax Act repatriation charge ($215 million) and pension related accruals and contributions.

Adjusted Free Cash Flow. We view adjusted free cash flow as an important non-GAAP measure because it is a factor impacting the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments. It is defined as operating cash flow less capital expenditures and excluding payments for the transitional tax resulting from the U.S. Tax Act and tax payments related to the Merck acquisition. Adjusted free cash flow is one of the measures used to evaluate senior management and determine their at-risk compensation.

Adjusted free cash flow was $14.9 billion in 2020, an increase of 23% versus the prior year. The increase was primarily driven by the increase in operating cash flows as discussed above. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings, was 114% in 2020.

Extended Payment Terms and Supply Chain Financing. Beginning in fiscal 2014, in response to evolving market practices, the Company began a program to negotiate extended payment terms with its suppliers. At about the same time, the Company initiated a Supply Chain Finance program (SCF) with several global financial institutions (SCF Banks). Under the SCF, qualifying suppliers may elect to sell their receivables from the Company to an SCF Bank. These ~~factors, along~~participating suppliers negotiate their receivables sales arrangements directly with the ~~impact~~respective SCF Bank. While the Company is not party to those agreements, the SCF Banks allow the participating suppliers to utilize the Company’s creditworthiness in establishing credit spreads and associated costs. This generally provides the suppliers with more favorable terms than they would be able to secure on their own. The Company has no economic interest in a supplier’s decision to sell a receivable. Once a qualifying supplier elects to participate in the SCF and reaches an agreement with an SCF Bank, the supplier elects which individual Company invoices they sell to the SCF bank. However, all the Company’s payments to participating suppliers are paid to the SCF Bank on the invoice due date, regardless of ~~foreign exchange, drove~~whether the individual invoice is sold by the supplier to the SCF Bank. The SCF Bank pays the supplier on the invoice due date for any invoices that were not previously sold by the supplier to the SCF Bank.

The terms of the Company’s payment obligation are not impacted by a ~~4 day increase~~supplier’s participation in the SCF. Our payment terms with our suppliers for similar materials within individual markets are consistent between suppliers that elect to participate in the SCF and those that do not participate. Accordingly, our average days outstanding are not significantly impacted by the portion of suppliers or related input costs that are included in the SCF. In addition, the SCF is available to both material suppliers, where the underlying costs are largely included in Cost of goods sold, and to service suppliers, where the underlying costs are largely included in SG&A. As of June 30, 2020, approximately 3% of our global suppliers have elected to participate in the SCF. Payments to those suppliers during 2020 total approximately $13 billion, which equals approximately 24% of our total Cost of goods sold and SG&A for the period. For participating suppliers, we believe substantially all of their receivables with the Company are sold to the SCF Banks. Accordingly, we would expect that at each balance sheet date, a similar proportion of amounts originally due to suppliers would instead be payable ~~outstanding.~~ to SCF Banks. All outstanding amounts related to suppliers participating in the SCF are recorded within Accounts payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows. As of both June 30, 2020 and 2019, the amount due to suppliers participating in the SCF and included in Accounts payable were approximately $4 billion.

Although difficult to project due to market and other dynamics, we anticipate incremental cash flow benefits from the extended payment terms with suppliers could ~~decline slightly over the next fiscal year.~~

~~Other operating assets and liabilities used $43 million of cash.~~

~~Fiscal year 2016 compared with fiscal year 2015~~

~~Operating cash flow was $15.4 billion in 2016, a 6%~~ increase from the prior year. Net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation, deferred income taxes, loss/(gain) on sale of assets and impairment charges) generated $13.6 billion of operating cash flow. Working capital and other impacts generated $1.8 billion of operating cash flow.

Reduced accounts receivable generated $35 million of cash due to improved collection results partially offset by sales mix. The number of days sales outstanding increased 1 day due to foreign exchange impacts.

~~Lower inventory generated $116 million of cash mainly due to supply chain optimizations and lower commodity costs. Inventory days on hand increased 4 days primarily due to foreign exchange impacts.~~at

The Procter & Gamble Company 25

~~Accounts payable, accrued and other liabilities increased, generating $1.3 billion~~a slower rate in ~~operating cash flow, of which approximately $0.8 billion was driven by~~fiscal 2021. Future changes in our suppliers’ financing policies or economic developments, such as changes in interest rates, general market liquidity or the Company’s creditworthiness relative to participating suppliers could impact suppliers’ participation in the SCF and/or our ability to negotiate extended payment terms with our suppliers. The balance was primarily driven by an increase in fourth quarter marketing activity versus the prior year. These items, along with the impact of foreign exchange, drove a 24 day increase in days payable outstanding.

~~Other operating assets and liabilities generated $204 million of cash.~~

~~Adjusted Free Cash Flow.~~ We view adjusted free cash flow as an important measure because it is a factor impacting the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investment. It is defined as operating cash flow less capital expenditures and excluding tax payments relatedHowever, any such impacts are difficult to ~~certain divestitures and is one of the measures used to evaluate senior management and determine their at-risk compensation.~~

~~Fiscal year 2017 compared with fiscal year 2016~~

Adjusted free cash flow was $9.8 billion in 2017, a decrease of 19% versus the prior year. The decrease was primarily driven by the decrease in operating cash flows. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings, excluding the loss on debt extinguishment and impacts of the sale of the Beauty Brands, was 94% in 2017.

~~Fiscal year 2016 compared with fiscal year 2015~~

Adjusted free cash flow was $12.1 billion in 2016, an increase of 4% versus the prior year. The increase was driven by the increase in operating cash flows and decrease in capital spending. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings excluding the impairment charges and gain on the sale of the Batteries business, was 115% in 2016.predict.

Investing Cash Flow

~~Fiscal year 2017 compared with fiscal year 2016~~

Net investing activities generated $3.0 billion in cash in 2020, mainly due to proceeds from sales and maturities of investment securities, partially offset by capital spending. Net investing activities consumed ~~$5.7~~$3.5 billion in cash in ~~2017~~2019, mainly due to capital spending and ~~purchases of short-term investments,~~business acquisitions, partially offset by proceeds from ~~asset sales, transactions related to the close of the Beauty Brands divestiture and~~ sales and maturities of short-term investments.

~~Fiscal year 2016 compared with fiscal year 2015~~

Net investing activities consumed $5.6 billion in cash in 2016 mainly due to capital spending, divestiture transactions and purchases of short-term investments, partially offset by sales and maturities of short-term investments.

Capital Spending. Capital expenditures, primarily to support capacity expansion, innovation and cost efficiencies, were ~~$3.4~~$3.1 billion in ~~2017~~2020 and $3.3 billion in ~~2016.~~2019. Capital spending as a percentage of net sales ~~increased 10~~decreased 60 basis points to ~~5.2%~~4.3% in ~~2017. Capital spending as a percentage of net sales was 5.1% in 2016.~~ 2020.

Acquisitions. Acquisition activity ~~was not material~~used cash of $58 million in ~~2017 or 2016.~~

2020, primarily related to final contractual payments from the prior year acquisition of Merck OTC along with a minor Baby Care acquisition. Acquisition activity used $3.9 billion in 2019, primarily related to the Merck OTC acquisition.

Proceeds from Divestitures and Other Asset Sales. Proceeds from asset sales ~~in 2017 contributed $571~~were $30 million and $394 million in ~~cash,~~2020 and 2019, respectively, primarily from minor brand divestitures in both years and the sale of real estate in 2019.

Investment Securities. Investments generated net cash of $6.2 billion in 2020 and $3.5 billion in 2019 primarily from sales and other minor brand divestitures. Proceeds from asset sales contributed $432 million in cash in 2016 primarily from plant asset sales and other minor brand divestitures. In fiscal 2016, the Company invested $1.0 billionmaturities of cash, received from the pre-Beauty Brands divestiture issuance of transaction-related debt, in restricted cash. In fiscal 2017, the Company invested an additional $874 million of cash, received from the issuance of debt, in restricted cash. At the closing of the Beauty Brands transaction, $1.9 billion of restricted cash was released and returned to cash and cash equivalents and $475 million of cash was transferred to the discontinued Beauty Brands business.investment securities.

Financing Cash Flow

Net financing activities consumed $8.4 billion of cash in 2020, mainly due to dividends to shareholders and treasury stock purchases, partially offset by a net increase in debt and the impact of stock options. Net financing activities consumed $10.0 billion in cash in 2019, mainly due to dividends to shareholders and treasury stock purchases, partially offset by the impact of stock options.

Dividend Payments. Our first discretionary use of cash is dividend payments. Dividends per common share increased ~~1.5%~~5% to ~~$2.70~~$3.0284 per share in ~~2017.~~2020. Total dividend payments to common and preferred shareholders were ~~$7.2~~$7.8 billion in ~~2017~~2020 and ~~$7.4~~$7.5 billion in ~~2016.~~2019. In April ~~2017,~~2020, the Board of Directors declared an increase in our quarterly dividend from ~~$0.6695~~$0.7459 to ~~$0.6896~~$0.7907 per share on Common Stock and Series A and B ESOP Convertible Class A Preferred Stock. This represents a 3%6% increase compared to the prior quarterly dividend and is the ~~61st~~64th consecutive year that our dividend has increased. We have paid a dividend for ~~127~~130 consecutive years, every year since our incorporation in 1890.

Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for

ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt was ~~$31.6~~$34.7 billion as of June 30, ~~2017~~2020 and ~~$30.6~~$30.1 billion as of June 30, ~~2016.~~2019. The increase is primarily due to the issuance of bonds generating $5.0 billion of cash.

Treasury Purchases. Total share repurchases were ~~$5.2~~$7.4 billion in ~~2017~~2020 and ~~$4.0~~$5.0 billion in ~~2016. In addition, the cash infusion of $1.7 billion in the Batteries divestiture was reflected as a purchase of treasury stock in 2016.~~2019.

Liquidity

At June 30, ~~2017,~~2020, our current liabilities exceeded current assets by ~~$3.7~~$5.0 billion largely due to short-term borrowings under our commercial paper program. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. The Company regularly assesses its cash needs and the available sources to fund these needs. As of June 30, ~~2017, $15.0 billion of~~2020, the ~~Company’s~~Company did not have material net cash and cash equivalents ~~and marketable securities is held off-shore by foreign subsidiaries. Amounts held by~~related to foreign subsidiaries ~~are generally~~nor related to any country subject to ~~U.S. income taxation upon repatriation~~exchange controls that significantly restrict our ability to access or repatriate the ~~U.S.~~funds. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the U.S. to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future. Of the June 30, 2017 balance of off-shore cash, cash equivalents and marketable securities, the majority relates to various Western European countries. As of June 30, 2017, we did not have material cash, cash equivalents and

~~26 The Procter & Gamble Company~~

~~marketable securities balances in any country subject to exchange controls that significantly restrict our ability to access or repatriate the funds.~~

We utilize short- and long-term debt to fund discretionary items, such as acquisitions and share repurchases. We have strong short- and long-term debt ratings, which have enabled, and should continue to enable, us to refinance our debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, we have agreements with a diverse group of financial institutions that, if needed, should provide sufficient ~~credit~~ funding to meet short-term financing requirements.

On June 30, ~~2017,~~2020, our short-term credit ratings were P-1 (Moody's) and A-1+ (Standard & Poor's), while our long-term credit ratings were Aa3 (Moody's) and AA- (Standard & Poor's), all with a stable outlook.

We maintain bank credit facilities to support our ongoing commercial paper program. The current facility is an $8.0

billion facility split between a $3.2 billion five-year facility and a $4.8 billion 364-day facility, which expire in November ~~2021~~2024 and November ~~2017,~~2020, respectively. Both facilities can be extended for certain periods of time as specified in the terms of the credit agreement. These facilities are currently undrawn and we anticipate that they will remain undrawn. These credit facilities do not have cross-default or ratings triggers, nor do they have material adverse events clauses, except at the time of signing. In addition to these credit facilities, we have an automatically effective registration statement on Form S-3 filed with the SEC that is available for registered offerings of short- or long-term debt securities. For additional details on debt see Note 10 to the Consolidated Financial Statements.

26 The Procter & Gamble Company

Guarantees and Other Off-Balance Sheet Arrangements

We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities,

which we believe could have a material impact on our financial condition or liquidity.

Contractual Commitments

The following table provides information on the amount and payable date of our contractual commitments as of June 30, ~~2017.~~2020.


($ millions)	Total		Less Than 1 Year		1-3 Years		3-5 Years		After 5 Years
RECORDED LIABILITIES
Total debt	$	34,589	$	11,189	$	5,154	$	5,148	$	13,098
Leases	1,023		239		352		220		212
U.S. Tax Act transitional charge⁽¹⁾	2,346		224		450		984		688
Uncertain tax positions⁽²⁾	59		59		—		—		—
OTHER
Interest payments relating to long-term debt	6,676		673		1,173		955		3,875
Minimum pension funding ⁽³⁾	603		196		407		—		—
Purchase obligations ⁽⁴⁾	1,577		782		412		145		238
TOTAL CONTRACTUAL COMMITMENTS	$	46,873	$	13,362	$	7,948	$	7,452	$	18,111

Amounts in millions Total Less Than 1 Year 1-3 Years 3-5 Years After 5 Years
RECORDED LIABILITIES
Total debt $ 31,455
$ 13,543
$ 3,101
$ 4,236
$ 10,575
Capital leases 51
13
20
10
8
Uncertain tax positions ⁽¹⁾
18
18
—
—
—
OTHER
Interest payments relating to long-term debt 5,220
594
1,014
887
2,725
Operating leases ⁽²⁾
1,493
261
510
354
368
Minimum pension funding ⁽³⁾
378
123
255
—
—
Purchase obligations ⁽⁴⁾
1,607
843
393
169
202
TOTAL CONTRACTUAL COMMITMENTS $ 40,222
$ 15,395
$ 5,293
$ 5,656
$ 13,878
⁽¹⁾Represents the U.S. federal tax liability associated with the repatriation provisions of the U.S. Tax Act. Does not include any provisions made for foreign withholding taxes on expected repatriations as the timing of those payments is uncertain.

⁽²⁾As of June 30, 2020, the Company's Consolidated Balance Sheet reflects a liability for uncertain tax positions of $643 million, including $158 million of interest and penalties. Due to the high degree of uncertainty regarding the timing of future cash outflows of liabilities for uncertain tax positions beyond one year, a reasonable estimate of the period of cash settlement beyond twelve months from the balance sheet date of June 30, 2020 cannot be made.

⁽³⁾Represents future pension payments to comply with local funding requirements. These future pension payments assume the Company continues to meet its future statutory funding requirements. Considering the current economic environment in which the Company operates, the Company believes its cash flows are adequate to meet the future statutory funding requirements. The projected payments beyond fiscal year 2023 are not currently determinable.

⁽⁴⁾Primarily reflects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represent minimum commitments under take-or-pay agreements with suppliers and are in line with expected usage. This includes service contracts for information technology, human resources management and facilities management activities that have been outsourced. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.


⁽¹⁾			As of June 30, 2017, the Company's Consolidated Balance Sheet reflects a liability for uncertain tax positions of $585 million, including $120 million of interest and penalties. Due to the high degree of uncertainty regarding the timing of future cash outflows of liabilities for uncertain tax positions beyond one year, a reasonable estimate of the period of cash settlement beyond twelve months from the balance sheet date of June 30, 2017, cannot be made.


⁽²⁾	~~Operating lease obligations are shown net of guaranteed sublease income.~~

⁽³⁾

Represents future pension payments to comply with local funding requirements. These future pension payments assume the Company continues to meet its future statutory funding requirements. Considering the current economic environment in which the Company operates, the Company believes its cash flows are adequate to meet the future statutory funding requirements. The projected payments beyond fiscal year 2020 are not currently determinable.

⁽⁴⁾

Primarily reflects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represents minimum commitments under take-or-pay agreements with suppliers and are in line with expected usage. This includes service contracts for information technology, human resources management and facilities management activities that have been outsourced. Such amounts also include arrangements with suppliers that qualify as embedded operating leases. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with U.S. GAAP, there are certain accounting policies that may require

a choice between acceptable accounting methods or may require substantial judgment or estimation in their application. These include revenue recognition, income taxes, certain employee benefits and goodwill and intangible assets. We believe these accounting

~~The Procter & Gamble Company 27~~

policies, and others set forth in Note 1 to the Consolidated Financial Statements, should be reviewed as they are integral to understanding the results of operations and financial condition of the Company.

The Company has discussed the selection of significant accounting policies and the effect of estimates with the Audit Committee of the Company's Board of Directors.

Revenue Recognition

Our revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single performance obligation and revenue is recognized at a

single point in time when ownership, risks and rewards transfer, which can be on the date of shipment or the date of receipt by the customer. Trade promotions, consisting primarily of customer pricing allowances, in-store merchandising funds, advertising and other promotional activities, and consumer coupons, are offered through various programs to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred at the time of the sale. Amounts accrued for trade promotions at the end of a period require estimation, based on contractual terms, sales volumes and historical utilization and redemption rates. The actual amounts paid may be different from such estimates. These differences, which have historically not been significant, are recognized as a change in management estimate in a subsequent period. The Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” on July 1, 2018. Adoption of this standard resulted in a change

The Procter & Gamble Company 27

in the timing of recognition of certain trade promotional spending.

Income Taxes

Our annual tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Also inherent in determining our annual tax rate are judgments and assumptions regarding the recoverability of

certain deferred tax balances, primarily net operating loss and other carryforwards, and our ability to uphold certain tax positions.

Realization of net operating losses and other carryforwards is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods, which involves business plans, planning opportunities and expectations about future outcomes. Although realization is not assured, management believes it is more likely than not that our deferred tax assets, net of valuation allowances, will be realized.

We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certain of these jurisdictions, we may take tax positions that management believes are supportable, but are potentially subject to successful challenge by the applicable taxing authority. These interpretational differences with the respective governmental taxing authorities can be impacted by the local economic and fiscal environment.

A core operating principle is that our tax structure is based on our business operating model, such that profits are earned in line with the business substance and functions of the various legal entities. However, because of the complexity of transfer pricing concepts, we may have income tax uncertainty related to the determination of intercompany transfer prices for our various cross-border transactions. We have obtained and continue to prioritize the strategy of seeking advance rulings with tax authorities to reduce this uncertainty. We estimate that our current portfolio of advance rulings reduces this uncertainty with respect to over 70% of our global earnings. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We have a number of audits in process in various jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available information, we believe that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows.

Because there are a number of estimates and assumptions inherent in calculating the various components of our tax provision, certain changes or future events such as changes in tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans could have an impact on

those estimates and our effective tax rate. ~~For~~See Note 5 to the Consolidated Financial Statements for additional details on the Company's income ~~taxes, see Note 5 to the Consolidated Financial Statements.~~taxes.

Employee Benefits

We sponsor various post-employment benefits throughout the world. These include pension plans, both defined contribution plans and defined benefit plans, and other post-employment benefit (OPEB) plans, consisting primarily of health care and life insurance for retirees. For accounting purposes, the defined benefit pension and OPEB plans require assumptions to estimate the net projected and accumulated benefit obligations, including the following variables: discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected return on assets; and health care cost trend rates. These and other assumptions affect the annual expense and net obligations recognized for the underlying plans. Our assumptions reflect our historical experiences and management's best judgment regarding future expectations. As permitted by U.S. GAAP, the net amount by which actual results differ from our assumptions is deferred. If this net deferred amount exceeds 10% of the greater of plan assets or liabilities, a portion of the deferred amount is included in expense for the following year. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the employees expected to receive benefits.

The expected return on plan assets assumption impacts our defined benefit expense since many of our defined benefit pension plans and our primary OPEB plan are partially funded. The process for setting the expected rates of return is described in Note 8 to the Consolidated Financial Statements. For ~~2017,~~2020, the average return on assets assumptions for pension plan assets and OPEB assets was ~~6.9%~~6.6% and ~~8.3%~~8.4%, respectively. A change in the rate of return of 100 basis points for both pension and OPEB assets would impact annual after-tax ~~benefit~~ benefit/expense by approximately ~~$100~~$130 million.

Since pension and OPEB liabilities are measured on a discounted basis, the discount rate impacts our plan obligations and expenses. Discount rates used for our U.S. defined benefit pension and OPEB plans are based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA or better. The average discount rate on the defined benefit pension plans of ~~2.4%~~1.5% represents a weighted average of local rates in countries where such plans exist. A ~~1.0%~~100 basis point change in the discount rate would impact annual after-tax benefit expense by approximately ~~$200~~$220 million. The average discount rate on the OPEB plan of ~~3.9%~~3.1% reflects the higher interest rates generally applicable in the U.S., which is where a majority of the plan participants receive benefits. A ~~1.0%~~100 basis point change in the discount rate would impact annual after-tax OPEB expense by approximately ~~$70~~$50 million. ~~For~~ See Note 8 to the Consolidated Financial Statements for

28 The Procter & Gamble Company

additional details on our defined benefit pension and OPEB ~~plans, see Note 8 to the Consolidated Financial Statements.~~plans.

~~28 The Procter & Gamble Company~~

Goodwill and Intangible Assets

Significant judgment is required to estimate the fair value of our goodwill reporting units and intangible assets. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant goodwill reporting units and intangible assets. The fair value estimates are based on available historical information and on future expectations. We typically estimate the fair value of these assets using the income method, which is based on the present value of estimated future cash flows attributable to the respective assets. The valuations used to establish and to test goodwill and intangible assets for impairment are dependent on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, competitive activities, cost containment and margin ~~expansion,~~progression, Company business plans and the discount rate applied to cash flows.

Indefinite-lived intangible assets and goodwill are not amortized, but are tested at least annually for impairment. Our ongoing annual impairment testing for goodwill and indefinite-lived intangible assets occurs during the 3 months ended December 31. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. We believe these estimates and assumptions are reasonable and comparable to those that would be used by other marketplace participants. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. For example, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and ~~indefinite lived~~indefinite-lived intangible assets, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values. In addition, changes to, or a failure to achieve business plans or deterioration of macroeconomic conditions could result in reduced cash flows or higher discount rates, leading to a lower valuation that would trigger an impairment of the goodwill and intangible assets of these businesses.

We test individual ~~indefinite lived~~indefinite-lived intangible assets by comparing the book value of each asset to the estimated fair value. Our impairment testing for goodwill is performed separately from our impairment testing of ~~indefinite lived~~indefinite-lived intangible assets. The test to evaluate goodwill for impairment is a ~~two step~~two-step process. In the first step (step one), we compare the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit is less than its carrying value, we perform a second step (step two) to determine the implied fair value of the reporting unit's goodwill. The second step of the impairment analysis requires a valuation of a reporting unit's tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. The difference between the step one fair value and the amounts allocated to the assets and liabilities in step two is the

implied fair value of the reporting unit’s goodwill. If ~~the resulting~~this implied fair value of the reporting unit's goodwill is less than its carrying value, that difference represents an impairment.

Determining the useful life of an intangible asset also requires judgment. Certain brand intangible assets are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands. Other acquired intangible assets (e.g., certain brands, all customer relationships, patents and technologies) are expected to have determinable useful lives. Our assessment as to brands that have an indefinite life and those that have a determinable life

is based on a number of factors including competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. Determinable-lived intangible assets are amortized to expense over their estimated lives. ~~Impairment~~An impairment assessment for determinable-lived intangibles is only required when an event or change in circumstances indicates that the carrying amount of the asset may not be recoverable. ~~Indefinite-lived intangible assets and goodwill are not amortized, but are tested separately at least annually for impairment.~~

Most of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have fair value cushions that, at a minimum, exceed two times their underlying carrying values. Certain of our goodwill reporting units, in particular Shave Care and Appliances, are comprised entirely of acquired businesses and as a result have fair value cushions that are not as high. ~~Both of these~~The Appliances wholly-acquired reporting ~~units have~~unit has a fair value ~~cushions~~ that ~~currently exceed~~significantly exceeds the underlying carrying ~~values. However,~~value.

During fiscal 2019, a non-cash before- and after-tax impairment charge of $6.8 billion was recognized to reduce the carrying amount of goodwill for the Shave Care ~~cushion, as well as~~reporting unit, and a non-cash, before-tax impairment charge of $1.6 billion ($1.2 billion after-tax) was recognized to reduce the ~~related~~carrying amount of the Gillette indefinite-lived intangible asset ~~cushion, have been reduced~~ to ~~below 10%~~its fair value. The underlying reductions in fair values were due in large part to ~~an increased competitive market environment in the U.S., a deceleration of category growth caused by changing grooming habits and~~ significant currency devaluations in a number of countries relative to the U.S. dollar, ~~that have occurred~~a deceleration of category growth caused by changing grooming habits, primarily in ~~recent years~~the developed markets, and ~~resulted~~an increased competitive market environment in ~~reduced cash flow projections.~~the U.S. and certain other markets. As a result of the fiscal 2019 impairment determined by the step two testing, the Shave Care fair value exceeded the carrying value by approximately 20% as of June 30, 2019. Because the impairment testing for intangible assets is a one-step process, the Gillette indefinite-lived intangible asset fair value approximated its carrying value at that date.During our annual impairment testing during the quarter ended December 31, 2019, we reduced the discount rate used in the valuation based on developments in the macroeconomic environment.As a result of this change and updates to other underlying cash flow projections, the Shave Care fair value exceeded the carrying value by more than 20% and the

The Procter & Gamble Company 29

Gillette indefinite-lived intangible asset fair value exceeded the carrying value by approximately 5%.

The most significant assumptions utilized in the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset are the net sales and earnings growth rates (including residual growth rates) and discount rate. The residual growth rate represents the expected rate at which the reporting unit and Gillette brand are expected to grow beyond the shorter-term business planning period. The residual growth rate utilized in our fair value estimates is ~~more susceptible~~consistent with the reporting unit and brand operating plans and approximates expected long-term category market growth rates. The residual growth rate is dependent on overall market growth rates, the competitive environment, inflation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rate could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies against the U.S. dollar or an increased competitive environment. The discount rate, which is consistent with a weighted average cost of capital that is likely to ~~impairment risk from~~be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by adverse changes in ~~business operating plans, category development and~~the macroeconomic environment, ~~conditions, including any~~volatility in the equity and debt markets or other country specific factors, such as further ~~significant~~ devaluation of ~~major~~ currencies ~~relative to~~against the U.S. dollar. Spot rates as of the fair value measurement date are utilized in our fair value estimates for cash flows outside the U.S.

While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that ~~could~~would trigger future impairment charges of the ~~business~~Shave Care reporting unit's goodwill and indefinite-lived ~~intangibles (carrying~~intangibles. As of June 30, 2020, the carrying values of the Shave Care goodwill and the Gillette indefinite-lived intangible asset were $12.5 billion and $14.1 billion, respectively.

The COVID-19 pandemic that occurred during the second half of fiscal 2020 resulted in a reduction in shave incidents by consumers and a weakening of certain currencies relative to the U.S. dollar, which led to a reduction in net sales for Gillette-branded products.This resulted in a triggering event for the Gillette indefinite-lived intangible asset, which caused us to perform an additional impairment assessment for that asset as of June 30, ~~2017~~2020.That assessment indicated that the fair value of the Gillette trade name approximated its carrying value.Accordingly, no impairment charge was recorded during the year ended June 30, 2020.

The duration and severity of the pandemic could result in additional future impairment charges for the Shave Care reporting unit goodwill and the Gillette indefinite-lived intangible asset. Our June 30, 2020 impairment assessment of the Gillette intangible asset assumes the pandemic’s

impact on net sales will begin to abate during the first half of fiscal 2021 and be largely eliminated by the second half of the fiscal year.There is an extreme level of uncertainty relating to how the pandemic will evolve and how governments and consumers will react.Accordingly, there is a significant amount of uncertainty related to this key assumption. A more prolonged pandemic could impact the results of operations due to changes to assumptions utilized in the determination of the estimated fair values of Shave Care reporting unit and the Gillette indefinite-lived intangible asset that are ~~$19 billion~~significant enough to trigger an impairment. Net sales and ~~$16 billion, respectively).~~earnings growth rates could be negatively impacted by more prolonged reductions or changes in demand for our shave care products, whichmay be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, financial hardship, changes in the use and frequency of grooming products or by shifts in demand away from one or more of our higher priced products to lower priced products. In addition, relative global and country/regional macroeconomic factors could result in additional and prolonged devaluation of other countries’ currencies relative to the U.S. dollar. Finally, the discount rate utilized in our valuation model could be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital.

The table below provides a sensitivity analysis for the Shave Care reporting unit and the Gillette indefinite-lived intangible asset, utilizing reasonably possible changes in the assumptions for the shorter term and residual growth rates and the discount rate, to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to a 25 basis point increase to discount rate or a 25 basis point decrease to our shorter-term and residual growth rates, either of which, in isolation, would result in an additional impairment of the Gillette indefinite-lived intangible asset.


	Approximate Percent Change in Estimated Fair Value
	+25 bps Discount Rate	-25 bps Growth Rate
Shave Care goodwill reporting unit	(6)%	(6)%
Gillette indefinite-lived intangible asset	(6)%	(6)%

See Note 4 to the Consolidated Financial Statements for additional discussion on goodwill and intangible asset impairment testing results.

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of June 30, ~~2017.~~2020.

30 The Procter & Gamble Company 29

OTHER INFORMATION

Hedging and Derivative Financial Instruments

As a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. We evaluate exposures on a centralized basis to take advantage of natural exposure correlation and netting. ~~Except within financing operations, we~~We leverage the Company's diversified portfolio of exposures as a natural hedge and prioritize operational hedging activities over financial market instruments. To the extent we choose to further manage volatility ~~associated with the net exposures,~~within our financing operations, as discussed below, we enter into various financial transactions which we account for using the applicable accounting guidance for derivative instruments and hedging activities. These financial transactions are governed by our policies covering acceptable counterparty exposure, instrument types and other hedging practices. See Note 9 to the Consolidated Financial Statements for a discussion of our accounting policies for derivative instruments.

Derivative positions are monitored using techniques including market valuation, sensitivity analysis and value-at-risk modeling. The tests for interest rate, currency rate and commodity derivative positions discussed below are based on the ~~CorporateManager™~~RiskManager™ value-at-risk model using a one-year horizon and a 95% confidence level. The model incorporates the impact of correlation (the degree to which exposures move together over time) and diversification (from holding multiple currency, commodity and interest rate instruments) and assumes that financial returns are normally distributed. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics™ dataset as of June 30, ~~2017.~~2020. In cases where data is unavailable in RiskMetrics™, a reasonable proxy is included.

Our market risk exposures relative to interest rates, currency rates and commodity prices, as discussed below, have not changed materially versus the previous reporting period. In addition, we are not aware of any facts or circumstances that would significantly impact such exposures in the near term.

Interest Rate Exposure on Financial Instruments. Interest rate swaps are used to hedge exposures to interest rate movement on underlying debt obligations. Certain interest rate swaps denominated in foreign currencies are designated to hedge exposures to currency exchange rate movements on our investments in foreign operations. These currency interest rate swaps are designated as hedges of the Company's foreign net investments.

Based on our interest rate exposure as of and during the year ended June 30, ~~2017,~~2020, including derivative and other instruments sensitive to interest rates, we believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would not materially affect our financial statements.

Currency Rate Exposure on Financial Instruments.Because we manufacture and sell products and finance operations in a number of countries throughout the world, we are exposed to the impact on revenue and expenses of movements in currency exchange rates. Corporate policy

prescribes the range of

allowable hedging activity. To manage the exchange rate risk associated with the financing of our operations, we primarily use forward contracts and currency swaps with maturities of less than 18 months. ~~In addition, we have entered into certain currency swaps with maturities of up to five years to hedge our exposure to exchange rate movements on intercompany financing transactions.~~

Based on our currency rate exposure on derivative and other instruments as of and during the year ended June 30, ~~2017,~~2020, we believe, at a 95% confidence level based on historical currency rate movements, the impact on such instruments of a near-term change in currency rates would not materially affect our financial statements.

Commodity Price Exposure on Financial Instruments. We use raw materials that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. We may use futures, options and swap contracts to manage the volatility related to the above exposures.

As of and during the years ended June 30, ~~2017~~2020 and June 30, ~~2016,~~2019, we did not have any commodity hedging activity.

Measures Not Defined By U.S. GAAP

~~Our discussion~~In accordance with the SEC's Regulation S-K Item 10(e), the following provides definitions of ~~financial results includes several "non-GAAP" financial~~the non-GAAP measures and the reconciliation to the most closely related GAAP measures. We believe that these measures provide useful perspective of underlying business trends (i.e. trends excluding non-recurring or unusual items) and results and provide a supplemental measure of year-on-year results. The non-GAAP measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These measures are also used to evaluate senior management and are a factor in determining their at-risk compensation. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP measure, but rather as supplemental information to our business results. These non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted. These measures include:

Organic Sales Growth. Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of ~~the Venezuela deconsolidation,~~ acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent ~~basis, and this~~basis. This measure is used in assessing achievement of management goals for at-risk compensation.

30 The Procter & Gamble Company 31

The following tables provide a numerical reconciliation of organic sales growth to reported net sales growth:


Year ended June 30, 2020	Net Sales Growth		Foreign Exchange Impact		Acquisition & Divestiture Impact/Other (1)		Organic Sales Growth
Beauty	4	%	2	%	(1)	%	5	%
Grooming	(2)	%	3	%	—	%	1	%
Health Care	10	%	2	%	(5)	%	7	%
Fabric & Home Care	7	%	1	%	1	%	9	%
Baby, Feminine & Family Care	3	%	2	%	(1)	%	4	%
TOTAL COMPANY	5	%	2	%	(1)	%	6	%

Year ended June 30, 2017 Net Sales Growth Foreign Exchange Impact
Acquisition/Divestiture Impact ⁽¹⁾
Organic Sales Growth
Beauty — % 2 % 1 % 3 %
Grooming (3 )% 2 % 1 % — %
Health Care 2 % 2 % 1 % 5 %
Fabric & Home Care — % 2 % 1 % 3 %
Baby, Feminine & Family Care (1 )% 2 % — % 1 %
TOTAL COMPANY — % 2 % — % 2 %

Year ended June 30, 2016 Net Sales Growth Foreign Exchange Impact
Acquisition/Divestiture Impact ⁽¹⁾
Organic Sales Growth
Beauty (9 )% 6 % 3 % — %
Grooming (8 )% 9 % 1 % 2 %
Health Care (5 )% 6 % 1 % 2 %
Fabric & Home Care (7 )% 6 % 2 % 1 %
Baby, Feminine & Family Care (9 )% 6 % 2 % (1 )%
TOTAL COMPANY (8 )% 6 % 3 % 1 %
⁽¹⁾Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.


⁽¹⁾	~~Acquisition/Divestiture Impact also includes the impact of the Venezuela deconsolidation and the rounding impacts necessary to reconcile net sales to organic sales.~~

Adjusted Free Cash Flow. Adjusted free cash flow is defined as operating cash flow less capital spending, ~~and excluding certain divestiture impacts (tax~~tax payments related to ~~certain divestitures)~~the Merck OTC Consumer Healthcare acquisition in 2020 and the transitional tax resulting from the U.S. Tax Act in 2020 and 2019 (the Company incurred a transitional tax liability of approximately $3.8 billion from the U.S. Tax Act, which is payable over a period of 8 years). Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. We view adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for

dividends, share repurchases, acquisitions and other discretionary ~~investment.~~investments.

The following table provides a numerical reconciliation of adjusted free cash flow ($ millions):


	Operating Cash Flow		Capital Spending		Adjustments to Operating Cash Flow ⁽¹⁾		Adjusted Free Cash Flow
2020	$	17,403	$	(3,073)	$	543	$	14,873
2019	$	15,242	$	(3,347)	$	235	$	12,130

Operating
Cash Flow
Capital
Spending
Divestiture impacts ⁽¹⁾
Adjusted Free
Cash Flow
2017 $ 12,753
$ (3,384 ) $ 418
$ 9,787
2016 15,435
(3,314 ) —
12,121
2015 14,608
(3,736 ) 729
11,601
⁽¹⁾Adjustments to Operating Cash Flow include tax payments for the transitional tax resulting from the U.S. Tax Act of $215 and $235 in 2020 and 2019, respectively, and tax payments related to the Merck acquisition of $328 in 2020.


⁽¹⁾	~~Divestiture impacts relate to tax payments for the Beauty Brands divestiture in fiscal 2017 and the Pet Care divestiture in fiscal 2015.~~

Adjusted Free Cash Flow Productivity. Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net ~~earnings excluding Batteries impairments, the gain on the sale of the Batteries and Beauty Brands businesses, the loss on early debt extinguishment and the Venezuela deconsolidation charges.~~earnings. We view adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, in allocating financial resources and for budget planning purposes. This measure is used in assessing the achievement of management goals for at-risk compensation. The Company's long-term target is to generate annual adjusted free cash flow productivity at or above 90 percent.

The following table provides a numerical reconciliation of adjusted free cash flow productivity ($ millions):


	Adjusted Free Cash Flow		Net Earnings		Adjusted Free Cash Flow Productivity
2020	$	14,873	$	13,103	114	%

Net
Earnings
Adjustments to Net Earnings ⁽¹⁾
Net Earnings Excluding Adjustments Adjusted Free Cash Flow
Adjusted Free
Cash Flow
Productivity
2017 $ 15,411
$ (4,990 ) $ 10,421
$ 9,787
94 %
2016 10,604
(72 ) 10,532
12,121
115 %
2015 7,144
4,187
11,331
11,601
102 %


⁽¹⁾			Adjustments to Net Earnings relate to the loss on early debt extinguishment and gain on the sale of the Beauty Brands business in fiscal 2017, the gain on the sale of the Batteries business and the Batteries impairment in fiscal 2016, and the Batteries impairment and Venezuela deconsolidation charges in fiscal 2015.

~~The Procter & Gamble Company 31~~

Core EPS. Core EPS is a measure of the Company's diluted net earnings per share from continuing operations adjusted as indicated. Management views ~~these~~this non-GAAP ~~measures~~measure as a useful supplemental measure of Company performance over time. Core EPS is also used in assessing the achievement of management goals for at-risk compensation. The table below provides a reconciliation of diluted net earnings per share to Core EPS, including the following reconciling items:

•Incremental ~~restructuring~~:Restructuring: The Company has had and continues to have an ongoing level of restructuring activities. Such activities have resulted in ongoing annual restructuring related charges of approximately $250 - $500 million before tax. ~~Beginning in~~In 2012, ~~Procter & Gamble~~the Company began a $10 billion strategic productivity and cost savings initiative that ~~includes~~included incremental restructuring activities. In 2017, ~~the company announced elements~~we communicated details of an additional multi-year productivity and cost savings plan. ~~These plans result~~This results in incremental restructuring charges to accelerate productivity efforts and cost savings. The adjustment to Core earnings includes only the restructuring costs above what we believe are the normal recurring level of restructuring costs.

~~Early debt extinguishment charges: During fiscal 2017,~~•Gain on Dissolution of the PGT Healthcare Partnership: The Company dissolved our PGT Healthcare partnership, a venture between the Company ~~recorded~~and Teva Pharmaceuticals Industries, Ltd (Teva) in the OTC consumer healthcare business, during the year ended June 30, 2019. The transaction was accounted for as a sale of the Teva portion of the PGT business and the Company recognized an after-tax gain on the dissolution of $353 million.

•Shave Care Impairment: As discussed in Note 4 to the Consolidated Financial Statements and in the Significant Accounting Policies and Estimates section of the MD&A, in the fourth quarter of fiscal 2019, the Company recognized a non-cash after-tax charge of ~~$345 million after tax due~~$8.0 billion ($8.3 billion before tax) to adjust the ~~early extinguishment~~carrying values of ~~certain long-term debt. This charge represents~~ the ~~difference between the reacquisition price~~Shave Care reporting unit and the ~~par~~Gillette indefinite-lived intangible asset. This was comprised of a before and after-tax impairment charge of $6.8 billion related to goodwill and an after-tax impairment charge of $1.2 billion ($1.6 billion before tax) to reduce the carrying value of the ~~debt extinguished.~~

Gillette indefinite-lived intangible asset.

•Anti-Dilutive Impacts: As discussed in Note 6 to the Consolidated Financial Statements, the Shave Care impairment charges caused preferred shares that are normally dilutive (and hence, normally assumed converted for purposes of determining diluted earnings per share) to be anti-dilutive. Accordingly, for U.S. GAAP the preferred shares were not assumed to be converted into common shares for diluted earnings per share and the related dividends paid to the preferred

~~Charges~~

32 The Procter & Gamble Company

shareholders were deducted from net income to calculate net earnings available to common shareholders. As a result of the non-GAAP Shave Care impairment adjustment, these instruments are dilutive for ~~certain European legal matters~~: Several countries in Europe issued separate complaints alleging that the Company, along with several other companies, engaged in violations of competition laws in prior periods. The Company established Legal Reserves related to these charges.

non-GAAP core EPS.

~~Venezuela deconsolidation charge~~: For accounting purposes, evolving conditions resulted in a lack of control over our Venezuelan subsidiaries. Therefore, in accordance with the applicable accounting standards for consolidation, effective June 30, 2015, we deconsolidated our Venezuelan subsidiaries and began accounting for our investment in those subsidiaries using the cost method of accounting. The charge was incurred to write off our net assets related to Venezuela.

~~Venezuela balance sheet remeasurement & devaluation impacts~~: Venezuela is a highly inflationary economy under U.S. GAAP. Prior to deconsolidation, the government enacted episodic changes to currency exchange mechanisms and rates, which resulted in currency remeasurement charges for non-dollar denominated monetary assets and liabilities held by our Venezuelan subsidiaries.

We do not view the above items to be indicative of underlying business results and their exclusion from Core earnings measures provides a more comparable measure of year-on-year results. These items are also excluded when evaluating senior management in determining their at-risk compensation.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2017
AS REPORTED (GAAP) DISCONTINUED OPERATIONS INCREMENTAL RESTRUCTURING EARLY DEBT EXTINGUISHMENT ROUNDING NON-GAAP (CORE)
COST OF PRODUCTS SOLD $ 32,535
$ —
$ (498 ) $ —
$ —
$ 32,037
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE 18,568
—
99
—
—
18,667
OPERATING INCOME 13,955
—
399
—
—
14,354
INCOME TAX ON CONTINUING OPERATIONS 3,063
—
120
198
—
3,381
NET EARNINGS ATTRIBUTABLE TO P&G 15,326
(5,217 ) 279
345
(1 ) 10,732
—
—
—
—
Core EPS
DILUTED NET EARNINGS PER COMMON SHARE* $ 5.59
$ (1.90 ) $ 0.10
$ 0.13
$ —
$ 3.92


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2020
	AS REPORTED (GAAP)		INCREMENTAL RESTRUCTURING		NON-GAAP (CORE)




NET EARNINGS ATTRIBUTABLE TO P&G	13,027		415		13,442
					Core EPS
DILUTED NET EARNINGS PER COMMON SHARE⁽¹⁾	$	4.96	$	0.16	$	5.12

* ⁽¹⁾Diluted net earnings per share are calculated on Net earnings attributable to Procter & Gamble.



		CHANGE VERSUS YEAR AGO
~~CORE EPS~~	7	%

~~32 The Procter & Gamble Company~~

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2016
AS REPORTED (GAAP) DISCONTINUED OPERATIONS INCREMENTAL RESTRUCTURING CHARGES FOR EUROPEAN LEGAL MATTERS ROUNDING NON-GAAP (CORE)
COST OF PRODUCTS SOLD $ 32,909
$ —
$ (624 ) $ —
$ —
$ 32,285
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE 18,949
—
31
(13 ) —
18,967
OPERATING INCOME 13,441
—
593
13
—
14,047
INCOME TAX ON CONTINUING OPERATIONS 3,342
—
94
2
(1 ) 3,437
NET EARNINGS ATTRIBUTABLE TO P&G 10,508
(577 ) 499
11
—
10,441
Core EPS
DILUTED NET EARNINGS PER COMMON SHARE* $ 3.69
$ (0.20 ) $ 0.18
$ —
$ —
$ 3.67

* Diluted net earnings per share are calculated on Net earnings attributable to Procter & Gamble.



		~~CHANGE VERSUS YEAR AGO~~
CORE EPS	(213		)%


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2019
	AS REPORTED (GAAP)		ANTI-DILUTIVE IMPACTS		INCREMENTAL RESTRUCTURING		SHAVE CARE IMPAIRMENT		GAIN ON DISSOLUTION OF PGT PARTNERSHIP		ROUNDING		NON-GAAP (CORE)




NET EARNINGS ATTRIBUTABLE TO P&G	3,897		—		354		7,978		(353)		1		11,877
													Core EPS
Diluted Net Earnings attributable to common shareholders ⁽¹⁾	3,634		263		354		7,978		(353)		1		11,877
Diluted Weighted Average Common Shares Outstanding⁽¹⁾	2,539.5		90.2										2,629.7
DILUTED NET EARNINGS PER COMMON SHARE	$	1.43	$	0.06	$	0.13	$	3.03	$	(0.13)	$	—	$	4.52

⁽¹⁾The reduction in net earnings from the 2019 charge for the Shave Care impairment caused the preferred shares outstanding to be anti-dilutive. Accordingly, for U.S. GAAP, the preferred shares were not assumed to be converted into common shares for diluted earnings per share and the related dividends paid to the preferred shareholders were deducted from net income to calculate earnings available to common shareholders. Excluding the impairment charge results in higher non-GAAP earnings which causes the preferred shares to be dilutive. The adjustments in this row are made to reflect the dilutive preferred share impact resulting from the Shave Care impairment adjustment.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information required by this item is incorporated by reference to the section entitled Other Information under Management's Disclosure and Analysis, and Note 9 to the Consolidated Financial Statements.

The Procter & Gamble Company 33

Item 8. Financial Statements and Supplementary Data.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting of The Procter & Gamble Company (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

Strong internal controls is an objective that is reinforced through our Worldwide Business Conduct Manual, which sets forth our commitment to conduct business with integrity, and within both the letter and the spirit of the law. Our people are deeply committed to our Purpose, Values, and Principles, which unite us in doing what’s right. Our system of internal controls includes written policies and procedures, segregation of duties, and the careful selection and development of employees. Additional key elements of our internal control structure include our Global Leadership Council, which is actively involved in oversight of the business strategies, initiatives, results and controls, our Disclosure Committee, which is responsible for evaluating disclosure implications of significant business activities and events, our Board of Directors, which provides strong and effective corporate governance, and our Audit Committee, which reviews significant accounting policies, financial reporting and internal control matters.

The Company's internal control over financial reporting includes a Control Self-Assessment Program that is conducted annually for critical financial reporting areas of the Company and is audited by our Global Internal Audit organization. Management takes the appropriate action to correct any identified control deficiencies. Global Internal Audit also performs financial and compliance audits around the world, provides training, and continuously improves our internal control processes.

Because of its inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, because of changes in conditions, internal control effectiveness may vary over time.

Management assessed the effectiveness of the Company's internal control over financial reporting as of June 30, ~~2017,~~2020, using criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the Company maintained effective internal control over financial reporting as of June 30, ~~2017,~~2020, based on these criteria.

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of the Company's internal control over financial reporting as of June 30, ~~2017,~~2020, as stated in their report which is included herein.



/s/ David S. Taylor
(David S. ~~Taylor~~Taylor)
Chairman of the Board, President and Chief Executive Officer

/s/ Jon R. Moeller
(Jon R. ~~Moeller~~Moeller)
Vice Chairman, Chief Operating Officer and Chief Financial Officer

August ~~7, 2017~~6, 2020

34 The Procter & Gamble Company

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors ~~and Stockholders~~ of The Procter & Gamble Company

~~Cincinnati, Ohio~~Opinion on the Financial Statements

We have audited the accompanying Consolidated Balance Sheets of The Procter & Gamble Company and subsidiaries (the "Company") as of June 30, ~~2017~~2020 and ~~2016, and~~2019, the related Consolidated Statements of Earnings, Comprehensive Income, ~~Shareholders'~~Shareholders’ Equity and Cash Flows for each of the three years in the period ended June 30, ~~2017.~~ 2020 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 6, 2020 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on ~~these~~the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material ~~misstatement. An audit includes~~misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the financial statements. ~~An audit~~Our audits also ~~includes assessing~~included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial ~~statement presentation.~~statements. We believe that our audits provide a reasonable basis for our opinion.

InCritical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion ~~such Consolidated Financial Statements present fairly, in all material respects,~~on the financial ~~position~~statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill and Intangible Assets - Shave Care Goodwill and Gillette Indefinite Lived Intangible Asset - Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill and indefinite lived intangible assets for impairment involves the comparison of the fair value of each reporting unit or indefinite lived intangible asset to its carrying value. The Company estimates fair value using the income method, which is based on the present value of estimated future cash flows attributable to the respective assets. This requires management to make significant estimates and assumptions related to forecasts of future net sales and earnings, including growth rates beyond a 10-year time period, royalty rates and discount rates. Changes in the assumptions could have a significant impact on either the fair value, the amount of any impairment charge, or both. The Company performed their annual impairment assessments of the Shave Care reporting unit as of October 1, 2019 and the Gillette brand indefinite lived intangible asset (the “Gillette brand”) as of December 31, 2019. Because the estimated fair values exceeded their carrying values, no impairments were recorded. Given reductions in cash flows caused by currency devaluations, changing consumer grooming habits, the COVID-19 pandemic affecting demand and an increase in the competitive market environment, the Company revised their cash flow estimates and updated their fair value estimates for the Gillette brand as of June 30, 2020 and determined that the fair value of the Gillette brand approximated its carrying value. As of June 30, 2020, the Shave Care reporting unit goodwill was $12.5 billion, and the Gillette brand was $14.1 billion.

We identified the Company’s impairment evaluations of goodwill for the Shave Care reporting unit and the Gillette brand as a critical audit matter because of the reductions in cash flows and the significant judgments made by management to estimate the

The Procter & Gamble Company ~~and subsidiaries at June 30, 2017 and 2016,~~35

fair values of the reporting unit and the ~~results~~brand. A high degree of ~~their operations~~auditor judgment and ~~their cash flows for each~~an increased extent of effort was required when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of future net sales and earnings as well as the selection of royalty rates and discount rates, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to forecasts of future net sales and earnings and the selection of the ~~three years in~~royalty rates and discount rates for the ~~period ended June 30, 2017, in conformity with accounting principles generally accepted in~~Shave Care reporting unit and the ~~United States~~Gillette brand included the following, among others:

•We tested the effectiveness of ~~America.~~controls over goodwill and indefinite lived intangible assets, including those over the determination of fair value, such as controls related to management’s development of forecasts of future net sales, earnings, the selection of royalty rates, and discount rates.

•We ~~have also audited, in accordance with~~evaluated management’s ability to accurately forecast net sales and earnings by comparing actual results to management’s historical forecasts.

•We evaluated the ~~standards~~reasonableness of management’s forecast of net sales and earnings by comparing the forecasts to:

•Historical net sales and earnings.

•Underlying analysis detailing business strategies and growth plans including consideration of the ~~Public~~effects related to the COVID-19 pandemic.

•Internal communications to management and the Board of Directors.

•Forecasted information included in Company ~~Accounting Oversight Board (United States),~~press releases as well as in analyst and industry reports for the ~~Company's internal control over financial reporting as~~Company and certain of ~~June 30, 2017, based on~~its peer companies.

•With the ~~criteria established in~~ ~~Internal Control - Integrated Framework (2013)~~ ~~issued by~~assistance of our fair value specialists, we evaluated the ~~Committee~~net sales and earnings growth rates, royalty rates, and discount rates by:

•Testing the source information underlying the determination of ~~Sponsoring Organizations~~net sales and earnings growth rates, royalty rates, and discount rates and the mathematical accuracy of the ~~Treadway Commission~~calculations.

•Developing a range of independent estimates for the discount rates and ~~our report dated August 7, 2017 expressed an unqualified opinion on~~comparing those to the ~~Company's internal control over financial reporting.~~discount rates selected by management.



/s/ Deloitte & Touche LLP
Cincinnati, Ohio

August ~~7, 2017~~6, 2020

We have served as the Company’s auditor since 1890.

36 The Procter & Gamble Company 35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors ~~and Stockholders~~ of The Procter & Gamble Company

~~Cincinnati, Ohio~~

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of The Procter & Gamble Company and subsidiaries (the "Company") as of June 30, ~~2017,~~2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission.~~ Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2020, of the Company and our report dated August 6, 2020, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying ~~Management's~~Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the ~~Company's~~Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A ~~company's~~company’s internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A ~~company's~~company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the ~~company's~~company’s assets that could have a material effect on the financial statements.

Because of ~~the~~its inherent limitations, of internal control over financial reporting ~~including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud~~ may not ~~be prevented~~prevent or ~~detected on a timely basis.~~detect misstatements. Also, projections of any evaluation of ~~the~~ effectiveness ~~of the internal control over financial reporting~~ to future periods are subject to the risk that ~~the~~ controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2017, based on the criteria established in~~ ~~Internal Control - Integrated Framework (2013)~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission.~~

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Financial Statements as of and for the year ended June 30, 2017 of the Company and our report dated August 7, 2017 expressed an unqualified opinion on those financial statements.



/s/ Deloitte & Touche LLP
Cincinnati, Ohio

August ~~7, 2017~~6, 2020

36 The Procter & Gamble Company 37

Consolidated Statements of Earnings


Amounts in millions except per share amounts; Years ended June 30	2020		2019		2018
NET SALES	$	70,950	$	67,684	$	66,832
Cost of products sold	35,250		34,768		34,432
Selling, general and administrative expense	19,994		19,084		19,037
Goodwill and indefinite-lived intangibles impairment charges	—		8,345		—
OPERATING INCOME	15,706		5,487		13,363
Interest expense	(465)		(509)		(506)
Interest income	155		220		247
Other non-operating income, net	438		871		222
EARNINGS BEFORE INCOME TAXES	15,834		6,069		13,326
Income taxes	2,731		2,103		3,465


NET EARNINGS	13,103		3,966		9,861
Less: Net earnings attributable to noncontrolling interests	76		69		111
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE ⁽¹⁾	$	13,027	$	3,897	$	9,750

NET EARNINGS PER COMMON SHARE: ⁽²⁾
Basic	$	5.13	$	1.45	$	3.75



Diluted	$	4.96	$	1.43	$	3.67

Amounts in millions except per share amounts; Years ended June 30 2017 2016 2015
NET SALES $ 65,058
$ 65,299
$ 70,749
Cost of products sold 32,535
32,909
37,056
Selling, general and administrative expense 18,568
18,949
20,616
Venezuela deconsolidation charge —
—
2,028
OPERATING INCOME 13,955
13,441
11,049
Interest expense 465
579
626
Interest income 171
182
149
Other non-operating income/(expense), net (404 ) 325
440
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 13,257
13,369
11,012
Income taxes on continuing operations 3,063
3,342
2,725
NET EARNINGS FROM CONTINUING OPERATIONS 10,194
10,027
8,287
NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS 5,217
577
(1,143 )
NET EARNINGS 15,411
10,604
7,144
Less: Net earnings attributable to noncontrolling interests 85
96
108
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE $ 15,326
$ 10,508
$ 7,036

BASIC NET EARNINGS PER COMMON SHARE: ⁽¹⁾

Earnings from continuing operations $ 3.79
$ 3.59
$ 2.92
Earnings/(loss) from discontinued operations 2.01
0.21
(0.42 )
BASIC NET EARNINGS PER COMMON SHARE $ 5.80
$ 3.80
$ 2.50
DILUTED NET EARNINGS PER COMMON SHARE: ⁽¹⁾

Earnings from continuing operations $ 3.69
$ 3.49
$ 2.84
Earnings/(loss) from discontinued operations 1.90
0.20
(0.40 )
DILUTED NET EARNINGS PER COMMON SHARE $ 5.59
$ 3.69
$ 2.44
DIVIDENDS PER COMMON SHARE $ 2.70
$ 2.66
$ 2.59


⁽¹⁾	~~Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings attributable to Procter & Gamble.~~

⁽¹⁾Net earnings attributable to Procter & Gamble in fiscal 2019 was negatively impacted by the impairment charges of $8.3 billion related to Shave Care goodwill and Gillette indefinite-lived intangible assets.

⁽²⁾Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings attributable to Procter & Gamble.

See accompanying Notes to Consolidated Financial Statements.

38 The Procter & Gamble Company 37

Consolidated Statements of Comprehensive Income


Amounts in millions; Years ended June 30	2020		2019		2018
NET EARNINGS	$	13,103	$	3,966	$	9,861
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Foreign currency translation (net of $59, $78 and $(279) tax, respectively)	(1,083)		(213)		(305)
Unrealized gains/(losses) on investment securities (net of $(1), $0 and $0 tax, respectively)	(12)		184		(148)
Unrealized gains/(losses) on defined benefit retirement plans (net of $(42), $22 and $68 tax, respectively)	(150)		169		334
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX	(1,245)		140		(119)
TOTAL COMPREHENSIVE INCOME	11,858		4,106		9,742
Less: Total comprehensive income attributable to noncontrolling interests	60		70		109
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE	$	11,798	$	4,036	$	9,633

Amounts in millions; Years ended June 30 2017 2016 2015
NET EARNINGS $ 15,411
$ 10,604
$ 7,144
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Financial statement translation 239
(1,679 ) (7,220 )
Unrealized gains/(losses) on hedges (net of $(186), $5 and $739 tax, respectively) (306 ) 1
1,234
Unrealized gains/(losses) on investment securities (net of $(6), $7 and $0 tax, respectively) (59 ) 28
24
Unrealized gains/(losses) on defined benefit retirement plans (net of $551, $(621) and $328 tax, respectively) 1,401
(1,477 ) 844
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX 1,275
(3,127 ) (5,118 )
TOTAL COMPREHENSIVE INCOME 16,686
7,477
2,026
Less: Total comprehensive income attributable to noncontrolling interests 85
96
108
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE $ 16,601
$ 7,381
$ 1,918

See accompanying Notes to Consolidated Financial Statements.

38 The Procter & Gamble Company 39

Consolidated Balance Sheets


Amounts in millions; As of June 30	2017			2016
Amounts in millions except stated values; As of June 30							Amounts in millions except stated values; As of June 30	2020		2019
Assets							Assets
CURRENT ASSETS							CURRENT ASSETS
Cash and cash equivalents	$	5,569		$	7,102		Cash and cash equivalents	$	16,181	$	4,239
Available-for-sale investment securities	9,568			6,246			Available-for-sale investment securities	—		6,048
Accounts receivable	4,594			4,373			Accounts receivable	4,178		4,951
INVENTORIES							INVENTORIES
Materials and supplies	1,308			1,188			Materials and supplies	1,414		1,289
Work in process	529			563			Work in process	674		612
Finished goods	2,787			2,965			Finished goods	3,410		3,116
Total inventories	4,624			4,716			Total inventories	5,498		5,017
Deferred income taxes	—			1,507
Prepaid expenses and other current assets	2,139			2,653			Prepaid expenses and other current assets	2,130		2,218
Current assets held for sale	—			7,185
TOTAL CURRENT ASSETS	26,494			33,782			TOTAL CURRENT ASSETS	27,987		22,473
PROPERTY, PLANT AND EQUIPMENT, NET	19,893			19,385			PROPERTY, PLANT AND EQUIPMENT, NET	20,692		21,271
GOODWILL	44,699			44,350			GOODWILL	39,901		40,273
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET	24,187			24,527			TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET	23,792		24,215
OTHER NONCURRENT ASSETS	5,133			5,092			OTHER NONCURRENT ASSETS	8,328		6,863
TOTAL ASSETS	$	120,406		$	127,136		TOTAL ASSETS	$	120,700	$	115,095

Liabilities and Shareholders' Equity							Liabilities and Shareholders' Equity
CURRENT LIABILITIES							CURRENT LIABILITIES
Accounts payable	$	9,632		$	9,325		Accounts payable	$	12,071	$	11,260
Accrued and other liabilities	7,024			7,449			Accrued and other liabilities	9,722		9,054
Current liabilities held for sale	—			2,343
Debt due within one year	13,554			11,653			Debt due within one year	11,183		9,697
TOTAL CURRENT LIABILITIES	30,210			30,770			TOTAL CURRENT LIABILITIES	32,976		30,011
LONG-TERM DEBT	18,038			18,945			LONG-TERM DEBT	23,537		20,395
DEFERRED INCOME TAXES	8,126			9,113			DEFERRED INCOME TAXES	6,199		6,899
OTHER NONCURRENT LIABILITIES	8,254			10,325			OTHER NONCURRENT LIABILITIES	11,110		10,211
TOTAL LIABILITIES	64,628			69,153			TOTAL LIABILITIES	73,822		67,516
SHAREHOLDERS' EQUITY							SHAREHOLDERS' EQUITY
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)	1,006			1,038			Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)	897		928
Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)	—			—			Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)	—		—
Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2017 - 4,009.2, 2016 - 4,009.2 )	4,009			4,009
Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2020 - 4,009.2, 2019 - 4,009.2)							Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2020 - 4,009.2, 2019 - 4,009.2)	4,009		4,009
Additional paid-in capital	63,641			63,714			Additional paid-in capital	64,194		63,827
Reserve for ESOP debt retirement	(1,249		)	(1,290		)	Reserve for ESOP debt retirement	(1,080)		(1,146)
Accumulated other comprehensive income/(loss)	(14,632		)	(15,907		)	Accumulated other comprehensive income/(loss)	(16,165)		(14,936)
Treasury stock, at cost (shares held: 2017 -1,455.9, 2016 - 1,341.2)	(93,715		)	(82,176		)
Treasury stock, at cost (shares held: 2020 - 1,529.5, 2019 - 1,504.5)							Treasury stock, at cost (shares held: 2020 - 1,529.5, 2019 - 1,504.5)	(105,573)		(100,406)
Retained earnings	96,124			87,953			Retained earnings	100,239		94,918
Noncontrolling interest	594			642			Noncontrolling interest	357		385
TOTAL SHAREHOLDERS' EQUITY	55,778			57,983			TOTAL SHAREHOLDERS' EQUITY	46,878		47,579
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	120,406		$	127,136		TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	120,700	$	115,095

See accompanying Notes to Consolidated Financial Statements.

40 The Procter & Gamble Company 39

Consolidated Statements of Shareholders' Equity


Dollars in millions except per share amounts; shares in thousands	Common Stock			Preferred Stock	Add-itional Paid-In Capital	Reserve for ESOP Debt Retirement	Accumu-lated Other Comp-rehensive Income/(Loss)	Treasury Stock	Retained Earnings	Non-controlling Interest	Total Share-holders' Equity
		Shares	Amount
BALANCE JUNE 30, 2017	2,553,297	$4,009	$1,006	$63,641	($1,249)	($14,632)	($93,715)	$96,124	$594	$55,778
Net earnings								9,750	111	9,861
Other comprehensive income/(loss)						(117)			(2)	(119)
Dividends and dividend equivalents ($2.7860 per share):
Common								(7,057)		(7,057)
Preferred, net of tax benefits								(265)		(265)
Treasury stock purchases	(81,439)						(7,004)			(7,004)
Employee stock plans	21,655			199			1,469			1,668
Preferred stock conversions	4,580		(39)	6			33			—
ESOP debt impacts					45			89		134
Noncontrolling interest, net									(113)	(113)
BALANCE JUNE 30, 2018	2,498,093	$4,009	$967	$63,846	($1,204)	($14,749)	($99,217)	$98,641	$590	$52,883
Impact of adoption of new accounting standards						(326)		(200)	(27)	(553)
Net earnings								3,897	69	3,966
Other comprehensive income/(loss)						139			1	140
Dividends and dividend equivalents ($2.8975 per share):
Common								(7,256)		(7,256)
Preferred, net of tax benefits								(263)		(263)
Treasury stock purchases	(53,714)						(5,003)			(5,003)
Employee stock plans	55,734			93			3,781			3,874
Preferred stock conversions	4,638		(39)	6			33			—
ESOP debt impacts					58			99		157
Noncontrolling interest, net				(118)					(248)	(366)
BALANCE JUNE 30, 2019	2,504,751	$4,009	$928	$63,827	($1,146)	($14,936)	($100,406)	$94,918	$385	$47,579
Net earnings								13,027	76	13,103
Other comprehensive income/(loss)						(1,229)			(16)	(1,245)
Dividends and dividend equivalents ($3.0284 per share):
Common								(7,551)		(7,551)
Preferred, net of tax benefits								(263)		(263)
Treasury stock purchases	(61,346)						(7,405)			(7,405)
Employee stock plans	32,603			362			2,212			2,574
Preferred stock conversions	3,738		(31)	5			26			—
ESOP debt impacts					66			108		174
Noncontrolling interest, net									(88)	(88)
BALANCE JUNE 30, 2020	2,479,746	$4,009	$897	$64,194	($1,080)	($16,165)	($105,573)	$100,239	$357	$46,878

Dollars in millions; shares in thousands Common Shares Outstanding Common Stock Preferred Stock Add-itional Paid-In Capital Reserve for ESOP Debt Retirement
Accumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury Stock Retained Earnings Non-controlling Interest Total Share-holders' Equity
BALANCE JUNE 30, 2014 2,710,806

$4,009

$1,111

$63,911

($1,340 )
($7,662 )
($75,805 )
$84,990

$762

$69,976
Net earnings 7,036
108
7,144
Other comprehensive loss (5,118 ) (5,118 )
Dividends to shareholders:
Common (7,028 ) (7,028 )
Preferred, net of tax benefits (259 ) (259 )
Treasury purchases (54,670 ) (4,604 ) (4,604 )
Employee plan issuances 54,100
156
3,153
3,309
Preferred stock conversions 4,335
(34 ) 4
30
—
ESOP debt impacts 20
68
88
Noncontrolling interest, net (219 ) (239 ) (458 )
BALANCE JUNE 30, 2015 2,714,571

$4,009

$1,077

$63,852

($1,320 )
($12,780 )
($77,226 )
$84,807

$631

$63,050
Net earnings 10,508
96
10,604
Other comprehensive loss (3,127 ) (3,127 )
Dividends to shareholders:
Common (7,181 ) (7,181 )
Preferred, net of tax benefits (255 ) (255 )
Treasury purchases ⁽¹⁾
(103,449 ) (8,217 ) (8,217 )
Employee plan issuances 52,089
(144 ) 3,234
3,090
Preferred stock conversions 4,863
(39 ) 6
33
—
ESOP debt impacts 30
74
104
Noncontrolling interest, net (85 ) (85 )
BALANCE JUNE 30, 2016 2,668,074

$4,009

$1,038

$63,714

($1,290 )
($15,907 )
($82,176 )
$87,953

$642

$57,983
Net earnings 15,326
85
15,411
Other comprehensive loss 1,275
1,275
Dividends to shareholders:
Common (6,989 ) (6,989 )
Preferred, net of tax benefits (247 ) (247 )
Treasury purchases ⁽²⁾
(164,866 ) (14,625 ) (14,625 )
Employee plan issuances 45,848
(77 ) 3,058
2,981
Preferred stock conversions 4,241
(32 ) 4
28
—
ESOP debt impacts 41
81
122
Noncontrolling interest, net (133 ) (133 )
BALANCE JUNE 30, 2017 2,553,297

$4,009

$1,006

$63,641

($1,249 )
($14,632 )
($93,715 )
$96,124

$594

$55,778


⁽¹⁾	~~Includes $4,213 of treasury shares acquired in the divestiture of the Batteries business (see Note 13).~~


⁽²⁾	~~Includes $9,421 of treasury shares received as part of the share exchange in the Beauty Brands transaction (see Note 13).~~

See accompanying Notes to Consolidated Financial Statements.

40 The Procter & Gamble Company 41

Consolidated Statements of Cash Flows


Amounts in millions; Years ended June 30	2020		2019		2018
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR	$	4,239	$	2,569	$	5,569
OPERATING ACTIVITIES
Net earnings	13,103		3,966		9,861
Depreciation and amortization	3,013		2,824		2,834
Loss on early extinguishment of debt	—		—		346
Share-based compensation expense	558		515		395
Deferred income taxes	(596)		(411)		(1,844)
Loss/(gain) on sale of assets	7		(678)		(176)
Goodwill and indefinite-lived intangible impairment charges	—		8,345		—
Change in accounts receivable	634		(276)		(177)
Change in inventories	(637)		(239)		(188)
Change in accounts payable, accrued and other liabilities	1,923		1,856		1,385
Change in other operating assets and liabilities	(710)		(973)		2,000
Other	108		313		431
TOTAL OPERATING ACTIVITIES	17,403		15,242		14,867
INVESTING ACTIVITIES
Capital expenditures	(3,073)		(3,347)		(3,717)
Proceeds from asset sales	30		394		269
Acquisitions, net of cash acquired	(58)		(3,945)		(109)
Purchases of short-term investments	—		(158)		(3,909)
Proceeds from sales and maturities of investment securities	6,151		3,628		3,928
Change in other investments	(5)		(62)		27
TOTAL INVESTING ACTIVITIES	3,045		(3,490)		(3,511)
FINANCING ACTIVITIES
Dividends to shareholders	(7,789)		(7,498)		(7,310)
Increases/(reductions) in short-term debt	2,345		(2,215)		(3,437)
Additions to long-term debt	4,951		2,367		5,072
Reductions of long-term debt ⁽¹⁾	(2,447)		(969)		(2,873)
Treasury stock purchases	(7,405)		(5,003)		(7,004)
Impact of stock options and other	1,978		3,324		1,177
TOTAL FINANCING ACTIVITIES	(8,367)		(9,994)		(14,375)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(139)		(88)		19
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	11,942		1,670		(3,000)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR	$	16,181	$	4,239	$	2,569

SUPPLEMENTAL DISCLOSURE
Cash payments for interest	$	434	$	497	$	529
Cash payment for income taxes	3,550		3,064		2,830
Assets acquired through non-cash finance leases are immaterial for all periods.

Amounts in millions; Years ended June 30 2017 2016 2015
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR $ 7,102
$ 6,836
$ 8,548
OPERATING ACTIVITIES
Net earnings 15,411
10,604
7,144
Depreciation and amortization 2,820
3,078
3,134
Loss on early extinguishment of debt 543
—
—
Share-based compensation expense 351
335
337
Deferred income taxes (601 ) (815 ) (803 )
Gain on sale of assets (5,490 ) (41 ) (766 )
Venezuela deconsolidation charge —
—
2,028
Goodwill and intangible asset impairment charges —
450
2,174
Change in accounts receivable (322 ) 35
349
Change in inventories 71
116
313
Change in accounts payable, accrued and other liabilities (149 ) 1,285
928
Change in other operating assets and liabilities (43 ) 204
(976 )
Other 162
184
746
TOTAL OPERATING ACTIVITIES 12,753
15,435
14,608
INVESTING ACTIVITIES
Capital expenditures (3,384 ) (3,314 ) (3,736 )
Proceeds from asset sales 571
432
4,498
Cash related to deconsolidated Venezuela operations —
—
(908 )
Acquisitions, net of cash acquired (16 ) (186 ) (137 )
Purchases of short-term investments (4,843 ) (2,815 ) (3,647 )
Proceeds from sales and maturities of short-term investments 1,488
1,354
1,203
Pre-divestiture addition of restricted cash related to the Beauty Brands divestiture (874 ) (996 ) —
Cash transferred at closing related to the Beauty Brands divestiture (475 ) —
—
Release of restricted cash upon closing of the Beauty Brands divestiture 1,870
—
—
Cash transferred in Batteries divestiture —
(143 ) —
Change in other investments (26 ) 93
(163 )
TOTAL INVESTING ACTIVITIES (5,689 ) (5,575 ) (2,890 )
FINANCING ACTIVITIES
Dividends to shareholders (7,236 ) (7,436 ) (7,287 )
Change in short-term debt 2,727
(418 ) (2,580 )
Additions to long-term debt 3,603
3,916
2,138
Reductions of long-term debt (4,931 )
⁽¹⁾
(2,213 ) (3,512 )
Treasury stock purchases (5,204 ) (4,004 ) (4,604 )
Treasury stock from cash infused in Batteries divestiture —
(1,730 ) —
Impact of stock options and other 2,473
2,672
2,826
TOTAL FINANCING ACTIVITIES (8,568 ) (9,213 ) (13,019 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (29 ) (381 ) (411 )
CHANGE IN CASH AND CASH EQUIVALENTS (1,533 ) 266
(1,712 )
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,569
$ 7,102
$ 6,836
SUPPLEMENTAL DISCLOSURE
Cash payments for interest $ 518
$ 569
$ 678
Cash payment for income taxes 3,714
3,730
4,558
Divestiture of Batteries business in exchange for shares of P&G stock ⁽²⁾
—
4,213
—
Divestiture of Beauty business in exchange for shares of P&G stock and assumption of debt 11,360
—
—
Assets acquired through non-cash capital leases are immaterial for all periods.
⁽¹⁾ Includes early extinguishment of debt costs of $346 in 2018.


⁽¹⁾	~~Includes $543 of costs related to early extinguishment of debt.~~


⁽²⁾	~~Includes $1,730 from cash infused into the Batteries business pursuant to the divestiture agreement (see Note 13).~~

See accompanying Notes to Consolidated Financial Statements.

42 The Procter & Gamble Company 41

Notes to Consolidated Financial Statements

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Procter & Gamble Company's (the "Company," "Procter & Gamble," "we" or "us") business is focused on providing branded consumer packaged goods of superior quality and value. Our products are sold in more than 180 countries and territories primarily through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores ~~e-commerce,~~(including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and ~~pharmacies.~~professional channels. We have on-the-ground operations in approximately 70 countries.

Basis of Presentation

The Consolidated Financial Statements include the Company and its controlled subsidiaries. Intercompany transactions are eliminated.

~~There are~~Because of a lack of control over Venezuelan subsidiaries caused by a number of currency and other operating controls and restrictions, in Venezuela, which have evolved over time and may continue to evolve in the future. These evolving conditions resulted in an other-than-temporary lack of exchangeability between the Venezuelan bolivar and U.S. dollar and restricted our Venezuelan operations’ ability to pay dividends and satisfy certain other obligations denominated in U.S. dollars. For accounting purposes, this resulted in a lack of control over our Venezuelan subsidiaries. Therefore, in accordance with the applicable accounting standards for consolidation, effective June 30, 2015, we deconsolidated our Venezuelan subsidiaries ~~and began accounting~~are not consolidated for ~~our investment in~~any year presented. We account for those subsidiaries ~~using the~~at cost, method of accounting. This resulted in a write-off of all of the net assets of our Venezuelan subsidiaries, along with Venezuela related assets held by other subsidiaries. Beginning with the first quarter of fiscal 2016, our financial results only include sales of finished goods to our Venezuelan subsidiaries to the extent we receive payments from Venezuela. Accordingly, we no longer include the results of our Venezuelan subsidiaries’ operations in our financial results.less impairments, plus or minus observable price changes.

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, consumer and trade promotion accruals, restructuring reserves, pensions, post-employment benefits, stock options, valuation of acquired intangible assets, useful lives for depreciation and amortization of long-lived assets, future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets, deferred tax assets and liabilities, uncertain income tax positions and contingencies. Actual results may

ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year. However, in regard to ongoing impairment testing of goodwill and indefinite-lived intangible assets, significant deterioration in future cash flow projections or other assumptions used in estimating fair values versus those anticipated at the time of the initial valuations, could result in impairment charges that materially affect the financial statements in a given year.

Revenue Recognition

~~Sales are recognized when~~Our revenue is ~~realized or realizable~~primarily generated from the sale of finished product to customers. Those sales predominantly contain a

single performance obligation and ~~has been earned. Revenue transactions represent sales of inventory. The~~ revenue ~~recorded~~ is ~~presented net of sales~~recognized at a single point in time when ownership, risks and other taxes we collect on behalf of governmental authorities. The revenue includes shipping and handling costs, which generally are included in the list price to the customer. Our policy is to recognize revenue when title to the product, ownership and risk of lossrewards transfer, ~~to the customer,~~ which can be on the date of shipment or the date of receipt by the customer. A provision for payment discounts and product return allowances is recorded as a reduction of sales in the same period the revenue is recognized. The revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. The revenue includes shipping and handling costs, which generally are included in the list price to the customer.

Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are offered through various programs to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred ~~generally~~ at the time of the sale. Most of these arrangements have terms of approximately one year. Accruals for expected payouts under these programs are included as accrued marketing and promotion in the Accrued and other liabilities line item in the Consolidated Balance Sheets.

Cost of Products Sold

Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacturing of product, as well as manufacturing labor, depreciation expense and direct overhead ~~expense~~expenses necessary to acquire and convert the purchased materials and supplies into finished ~~product.~~products. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.

Selling, General and Administrative Expense

Selling, general and administrative expense (SG&A) is primarily comprised of marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Research and development costs are charged to expense as incurred and were $1.8 billion in 2020, $1.9 billion in ~~2017,~~2019 and $1.9 billion in ~~2016 and $2.0 billion in 2015 (reported in Net earnings from continuing operations).~~2018. Advertising costs, charged to expense as incurred, include worldwide television, print, radio, internet and in-store advertising expenses and were $7.3 billion in 2020, $6.8 billion in 2019 and $7.1 billion in ~~2017, $7.2 billion in 2016 and $7.2 billion in 2015 (reported in Net earnings from continuing operations).~~2018. Non-advertising related components of the Company's total

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~42 The Procter & Gamble Company~~

marketing spending reported in SG&A include costs associated with consumer promotions, product sampling and sales aids.

Other Non-Operating ~~Income/(Expense),~~Income, Net

Other non-operating ~~income/(expense),~~income, net primarily includes net acquisition and divestiture gains, net non-service costs related to defined benefit plans, investment income and other non-operating items.

Currency Translation

Financial statements of operating subsidiaries outside the U.S. generally are measured using the local currency as the functional currency. Adjustments to translate those

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 43

statements into U.S. dollars are recorded in Other comprehensive income (OCI). For subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Re-measurement adjustments for financial statements in highly inflationary economies and other transactional exchange gains and losses are reflected in earnings.

Cash Flow Presentation

The Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles net earnings to cash ~~flow~~flows from operating activities. Cash flows from foreign currency transactions and operations are translated at ~~an average~~monthly exchange ~~rate~~rates for ~~the~~each period. Cash flows from hedging activities are included in the same category as the items being hedged. Cash flows from derivative instruments designated as net investment hedges are classified as financing activities. Realized gains and losses from non-qualifying derivative instruments used to hedge currency exposures resulting from intercompany financing transactions are also classified as financing activities. Cash flows from other derivative instruments used to manage interest rates, commodity or other currency exposures are classified as operating activities. Cash payments related to income taxes are classified as operating activities. ~~Cash flows from the Company's discontinued operations are included in the Consolidated Statements of Cash Flows. See Note 13 for significant cash flow items related to discontinued operations.~~

Investments

Investment securities ~~consist~~have primarily consisted of readily marketable debt ~~and equity~~ securities. Unrealized gains or losses from ~~investments~~debt securities classified as trading, if any, are charged to earnings. Unrealized gains or losses on debt securities classified as available-for-sale are ~~generally~~ recorded in OCI. If an available-for-sale security is other than temporarily impaired, the loss is charged to either earnings or OCI depending on our intent and ability to retain the security until we recover the full cost basis and the extent of the loss attributable to the creditworthiness of the issuer. ~~Investment~~Debt securities are included as Available-for-sale investment securities and Other noncurrent assets in the Consolidated Balance Sheets.

~~Investments~~In addition to debt securities, we hold minor equity investments in certain companies over which we exert significant influence, but do not control the financial and operating ~~decisions,~~decisions. These are accounted for as equity method investments. Other equity investments that are not controlled, and over which we do not have the ability to exercise significant influence, and for which there is a readily determinable market value, are ~~accounted for under the~~recorded at fair value, with gains and losses recorded through net earnings. Equity investments without readily determinable fair values are measured at cost, ~~method. Both equity~~

~~and cost method~~less impairments, plus or minus observable price changes. Equity investments are included as Other noncurrent assets in the Consolidated Balance Sheets.

Inventory Valuation

Inventories are valued at the lower of cost or ~~market~~net realizable value. Product-related inventories are maintained on the first-in, first-out method. The cost of spare part inventories is maintained using the average-cost method.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets' estimated useful lives using the straight-line method. Machinery and equipment includes office furniture and fixtures (15-year life), computer equipment and capitalized software (3- to 5-year lives) and manufacturing equipment (3- to 20-year lives). Buildings are depreciated over an estimated useful life of 40 years. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.

Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Our annual impairment testing of goodwill is performed separately from our impairment testing of indefinite-lived intangible assets.

We have acquired brands that have been determined to have indefinite lives. ~~Those assets are evaluated annually for impairment.~~ We evaluate a number of factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. In addition, when certain events or changes in operating conditions occur, an additional impairment assessment is performed and indefinite-lived assets may be adjusted to a determinable life.

The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangible assets with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over periods generally ranging from 5 to 30 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and remaining lives of intangible assets with determinable lives may be adjusted.

For additional details on goodwill and intangible assets see Note 4.

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~The Procter & Gamble Company 43~~

Fair Values of Financial Instruments

Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash equivalents, certain investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and financial instruments are disclosed in Note 9.

Amounts in millions of dollars except per share amounts or as otherwise specified.

44 The Procter & Gamble Company

New Accounting Pronouncements and Policies

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This guidance outlines a single, comprehensive model for accounting for revenue from contracts with customers. We plan to adopt the standard onOn July 1, ~~2018. While~~2019, we are currently assessing the impact of the new standard, our revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer. The timing of revenue recognition is not impacted by the new standard. The provisions of the new standard may impact the classification of certain payments to customers, moving an immaterial amount of such payments from expense to a deduction from net sales. The impact would reduce net sales by less than 1%. We are still assessing the impact on financial disclosures related to the new standard. We do not expect this new guidance to have any other material impacts on our Consolidated Financial Statements.

In November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes." This guidance simplifies the presentation of deferred taxes on the balance sheet by requiring that all deferred tax assets and liabilities be classified as non-current. The new standard is effective for us beginning July 1, 2017, with early adoption permitted. We elected to early adopt the new guidance on a prospective basis in the first quarter of fiscal year 2017. The impact was not significant.

~~In February 2016, the FASB issued~~adopted ASU 2016-02, "Leases (Topic 842)." The new accounting standard requires ~~lessees to recognize lease~~the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet and requires expanded disclosures about leasing arrangements. We plan to adopt the standard on July 1, 2019. We are currently assessing the impact that the new standard will have on our Consolidated Financial Statements, which will consist primarily of a balance sheet gross up of our operating leases to show equal and offsetting lease assets and lease liabilities. For additional details on operating leases, see Note 12.

In March 2016, the FASB issued ASU 2016-09, "Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," which changes the accounting for certain aspects of share-based payments to employees. The new guidance requires excess tax benefits (which represent the excess of actual tax benefits received at vest or settlement over the benefits recognized at issuance of share-based payments) and tax deficiencies (which represent the amount by which actual tax benefits received at vest or settlement is lower than

the benefits recognized at issuance of share-based payments) to be recorded in the income statement when the awards vest or are settled. The amended guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows, rather than a financing activity. The standard further provides an accounting policy election to account for forfeitures as they occur rather than utilizing the estimated amount of forfeitures at the time of issuance. The new standard is effective for us beginning July 1, 2017, with early adoption permitted.sheet. We elected ~~to early adopt~~the optional transition method and adopted the new guidance on a ~~prospective~~modified retrospective basis inwith no restatement of prior period amounts. As allowed under the first quarter of fiscal year 2017. The primary impact of adoption was the recognition of excess tax benefits in our Income taxes on continuing operations rather than in Additional paid-in capital for fiscal year 2017. As a result,new accounting standard, we ~~recognized excess tax benefits of $169 in Income taxes on continuing operations during fiscal year 2017. We also~~ elected to ~~adopt~~apply practical expedients to carry forward the ~~cash flow presentation~~original lease determinations, lease classifications and accounting of initial direct costs for all asset classes at the ~~excess tax benefits prospectively commencing in the first quarter~~time of ~~fiscal 2017. We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period.~~adoption. The adoption ~~of this amended guidance~~ did not have a material impact on our ~~Consolidated Financial Statements.~~financial statements, resulting in an increase of approximately 1% to each of our total assets and total liabilities on our balance sheet as of July 1, 2019. See Note 12 for further information.

In January 2017, the FASB issued ASU 2017-04, ~~“Intangibles-Goodwill~~"Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”" The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured using a single step impairment model, whereby the impairment equals the difference between the carrying amount and the estimated fair value of the specified reporting units in their entirety. This eliminates the second step of the current impairment model that requires companies to first estimate the fair value of all assets in a reporting unit and measure impairments based on those estimated fair values and a residual measurement approach. ItThe new standard also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We will adopt the standard ~~no later than~~effective July 1, 2020. The impact of the new standard will be dependent on the specific facts and circumstances of future individual impairments, if any.

In March ~~2017,~~2020, the FASB issued ASU ~~2017-07, "Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~2020-04, "Reference Rate Reform (Topic ~~715).” This guidance requires an entity to disaggregate the current service cost component from the other components of net benefit costs in the face~~848): Facilitation of the ~~income statement. It requires~~Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the ~~service cost component~~potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be ~~presented with other current compensation costs for~~discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the ~~related employees in~~optional expedients provided by the operating section of the income statement, with other components of net benefit cost presented outside of income from operations. We will adopt the standard retrospectively no later than July 1, 2018. The adoption of ASU 2017-07 is not expected to have a material impact on our Consolidated Financial Statements. We currently classify all net periodic pension costs within operating costs (as part of Cost of products sold and Selling, general and administrative expense). Had this standard been effective and adopted during fiscal 2017, Cost of products sold

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~44 The Procter & Gamble Company~~

and Selling, general and administrative costs would have increased approximately $104 and $85, respectively, for the year ended June 30, 2017 with a corresponding increase in Other non-operating income/(expense), net.new standard.

No other new accounting ~~pronouncement~~pronouncements issued or effective during the fiscal year or in future years had, or isare expected to have, a material impact on our Consolidated Financial Statements.

NOTE 2

SEGMENT INFORMATION

During fiscal 2017, the Company completed the divestiture of four product categories, comprised of 43 of its beauty brands. The transactions included the global salon professional hair care and color, retail hair color, cosmetics and the fragrance businesses, along with select hair styling brands. In fiscal 2016, the Company completed the divestiture of its Batteries business to Berkshire Hathaway. The Company completed the divestiture of its Pet Care business in fiscal year 2015. Each of these businesses are reported as discontinued operations for all periods presented (see Note 13).

Under U.S. GAAP, our ~~remaining Global Business Units (GBUs)~~operating segments are aggregated into ~~five~~5 reportable segments: 1) Beauty, 2) Grooming, 3) Health Care, 4) Fabric & Home Care and 5) Baby, Feminine & Family Care. Our ~~five~~5 reportable segments are comprised of:

•Beauty: Hair Care (Conditioner, Shampoo, Styling Aids, Treatments); Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care);

•Grooming: Shave Care (Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care); Appliances

•Health Care: Oral Care (Toothbrushes, Toothpaste, Other Oral Care); Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care);

•Fabric & Home Care: Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents); Home Care (Air Care, Dish Care, P&G Professional, Surface ~~Care );~~Care); and

•Baby, Feminine & Family Care: Baby Care (Baby Wipes, Taped Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper).

While none of our reportable segments are highly seasonal, components within certain reportable segments, such as Appliances (Grooming) and Personal Health Care (Health), are seasonal.

The accounting policies of the segments are generally the same as those described in Note 1. Differences between these policies and U.S. GAAP primarily reflect income taxes, which are reflected in the segments using applicable blended statutory rates. Adjustments to arrive at our effective tax rate are included in ~~Corporate.~~Corporate, including the impacts from the U.S. Tax Act in fiscal 2018 (see Note 5).

Corporate includes certain operating and non-operating activities that are not reflected in the operating results used internally to measure and evaluate the businesses, as well as items to adjust management reporting principles to U.S. GAAP. Operating activities in Corporate include the results of incidental businesses managed at the corporate level. Operating elements also include certain employee benefit costs, the costs of certain restructuring-type activities to

maintain a competitive cost structure, including manufacturing and workforce optimization, certain significant asset impairment ~~and deconsolidation~~ charges ~~certain balance sheet impacts from significant foreign exchange devaluations~~ and other general Corporate items. The non-operating elements in Corporate primarily include interest expense, certain pension and other postretirement benefit costs, certain acquisition and divestiture gains, ~~and~~ interest and investing ~~income.~~income and other financing costs.

Total assets for the reportable segments include those assets managed by the reportable segment, primarily inventory, ~~fixed assets and intangible assets. Other assets, primarily cash, accounts receivable, investment securities and goodwill, are included in Corporate.~~

~~Our business units are comprised of similar product categories. Nine business units individually accounted for 5% or more of consolidated net sales as follows:~~

% of Sales by Business Unit ⁽¹⁾
Years ended June 30 2017 2016 2015
Fabric Care 22% 22% 22%
Baby Care 14% 14% 15%
Hair Care 10% 10% 11%
Home Care 10% 10% 9%
Shave Care 9% 9% 9%
Family Care 8% 8% 8%
Oral Care 8% 8% 8%
Skin and Personal Care 8% 8% 7%
Feminine Care 6% 6% 6%
All Other 5% 5% 5%
TOTAL 100% 100% 100%


⁽¹⁾	~~% of sales by business unit excludes sales held in Corporate.~~

The Company had net sales in the U.S. of $27.3 billion, $27.0 billion and $26.8 billion for the years ended June 30, 2017, 2016 and 2015, respectively. Long-lived assets in the U.S. totaled $8.8 billion and $8.5 billion as of June 30, 2017 and 2016, respectively. Long-lived assets consists of property, plant and equipment. No other country's net sales or long-lived assets exceed 10% of the Company totals.

Our largest customer, Wal-Mart Stores, Inc. and its affiliates, accounted for approximately 16% of consolidated net sales in 2017, and 15% of consolidated net sales in 2016 and 2015. No other customer represents more than 10% of our consolidated net sales.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 45

fixed assets and intangible assets. Other assets, primarily cash, accounts receivable, investment securities, leased assets and goodwill, are included in Corporate.

Our operating segments are comprised of similar product categories. Operating segments that individually accounted for 5% or more of consolidated net sales are as follows:


% of Net sales by operating segment ⁽¹⁾
Years ended June 30	2020	2019	2018
Fabric Care	22%	22%	22%
Baby Care	11%	12%	13%
Home Care	11%	10%	10%
Skin and Personal Care	10%	10%	9%
Hair Care	9%	10%	10%
Family Care	9%	9%	8%
Oral Care	8%	8%	8%
Shave Care	7%	8%	8%
Feminine Care	6%	6%	6%
Personal Health Care	5%	4%	4%
All Other	2%	1%	2%
TOTAL	100%	100%	100%

⁽¹⁾ % of Net sales by operating segment excludes sales held in Corporate.

Net sales and long-lived assets in the United States and internationally were as follows (in billions):

Global Segment Results Net Sales
Earnings/(Loss)
from
Continuing
Operations
Before
Income Taxes
Net Earnings/(Loss) from Continuing Operations
Depreciation
and
Amortization

Total
Assets

Capital
Expenditures
BEAUTY 2017 $ 11,429
$ 2,546
$ 1,914
$ 220
$ 4,184
$ 599
2016 11,477
2,636
1,975
218
3,888
435
2015 12,608
2,895
2,181
247
4,004
411
GROOMING 2017 6,642
1,985
1,537
433
22,759
341
2016 6,815
2,009
1,548
451
22,819
383
2015 7,441
2,374
1,787
540
23,090
372
HEALTH CARE 2017 7,513
1,898
1,280
209
5,194
283
2016 7,350
1,812
1,250
204
5,139
240
2015 7,713
1,700
1,167
202
5,212
218
FABRIC & HOME CARE 2017 20,717
4,249
2,713
513
6,886
797
2016 20,730
4,249
2,778
531
6,919
672
2015 22,274
4,059
2,634
547
7,155
986
BABY, FEMININE & FAMILY CARE 2017 18,252
3,868
2,503
874
9,920
1,197
2016 18,505
4,042
2,650
886
9,863
1,261
2015 20,247
4,317
2,938
924
10,109
1,337
CORPORATE ⁽¹⁾
2017 505
(1,289 ) 247
571
71,463
167
2016 422
(1,379 ) (174 ) 788
78,508
323
2015 466
(4,333 ) (2,420 ) 674
79,925
412
TOTAL COMPANY 2017 $ 65,058
$ 13,257
$ 10,194
$ 2,820
$ 120,406
$ 3,384
2016 65,299
13,369
10,027
3,078
127,136
3,314
2015 70,749
11,012
8,287
3,134
129,495
3,736


Years ended June 30	2020		2019		2018
NET SALES
United States	$	31.3	$	28.6	$	27.3
International	$	39.7	$	39.1	$	39.5
LONG-LIVED ASSETS ⁽¹⁾
United States	$	9.9	$	10.0	$	9.7
International	$	10.8	$	11.3	$	10.9

⁽¹⁾ Long-lived assets consists of property, plant and equipment.

No country, other than the United States, exceeds 10% of the consolidated net sales or long-lived assets.

Our largest customer, Walmart Inc. and its affiliates, accounted for consolidated net sales of approximately 15% in 2020, 2019 and 2018. No other customer represents more than 10% of our consolidated net sales.


⁽¹⁾			~~The Corporate reportable segment includes depreciation and amortization, total assets and capital expenditures of the Beauty Brands, Batteries and Pet Care businesses prior to their divestiture.~~


Global Segment Results		Net Sales		Earnings/(Loss) Before Income Taxes		Net Earnings/(Loss)		Depreciation and Amortization		Total Assets		Capital Expenditures
BEAUTY	2020	$	13,359	$	3,437	$	2,737	$	320	$	5,531	$	397
	2019	12,897		3,282		2,637		272		5,362		634
	2018	12,406		3,042		2,320		236		4,709		766
GROOMING	2020	6,069		1,613		1,329		406		20,589		305
	2019	6,199		1,777		1,529		429		20,882		367
	2018	6,551		1,801		1,432		447		22,609		364
HEALTH CARE	2020	9,028		2,156		1,652		350		7,726		338
	2019	8,218		1,984		1,519		294		7,708		363
	2018	7,857		1,922		1,283		230		5,254		330
FABRIC & HOME CARE	2020	23,735		5,426		4,154		605		7,745		887
	2019	22,080		4,601		3,518		557		7,620		984
	2018	21,441		4,191		2,708		534		7,295		1,020
BABY, FEMININE & FAMILY CARE	2020	18,364		4,534		3,465		839		8,628		764
	2019	17,806		3,593		2,734		861		9,271		819
	2018	18,080		3,527		2,251		899		9,682		1,016
CORPORATE ⁽¹⁾	2020	395		(1,332)		(234)		493		70,481		382
	2019	484		(9,168)		(7,971)		411		64,252		180
	2018	497		(1,157)		(133)		488		68,761		221
TOTAL COMPANY	2020	$	70,950	$	15,834	$	13,103	$	3,013	$	120,700	$	3,073
	2019	67,684		6,069		3,966		2,824		115,095		3,347
	2018	66,832		13,326		9,861		2,834		118,310		3,717

⁽¹⁾The Corporate reportable segment includes the $8.3 billion non-cash before-tax ($8.0 billion after-tax) goodwill and intangible asset impairment charge in fiscal 2019. For additional details on goodwill and intangible assets see Note 4.

Amounts in millions of dollars except per share amounts or as otherwise specified.

46 The Procter & Gamble Company

NOTE 3

SUPPLEMENTAL FINANCIAL INFORMATION

The components of property, plant and equipment were as follows:


As of June 30	2017			2016			As of June 30	2020		2019
PROPERTY, PLANT AND EQUIPMENT	PROPERTY, PLANT AND EQUIPMENT						PROPERTY, PLANT AND EQUIPMENT
Buildings	$	6,943		$	6,885		Buildings	$	7,700	$	7,746
Machinery and equipment	29,505			29,506			Machinery and equipment	33,260		32,263
Land	765			769			Land	777		805
Construction in progress	2,935			2,706			Construction in progress	2,034		2,579
TOTAL PROPERTY, PLANT AND EQUIPMENT	40,148			39,866			TOTAL PROPERTY, PLANT AND EQUIPMENT	43,771		43,393
Accumulated depreciation	(20,255		)	(20,481		)	Accumulated depreciation	(23,079)		(22,122)
PROPERTY, PLANT AND EQUIPMENT, NET	$	19,893		$	19,385		PROPERTY, PLANT AND EQUIPMENT, NET	$	20,692	$	21,271

Selected components of current and noncurrent liabilities were as follows:


As of June 30	2020		2019
ACCRUED AND OTHER LIABILITIES - CURRENT
Marketing and promotion	$	3,531	$	4,299
Compensation expenses	1,921		1,623
Restructuring reserves	472		468
Taxes payable	693		341
Other	3,105		2,323
TOTAL	$	9,722	$	9,054

OTHER NONCURRENT LIABILITIES
Pension benefits	$	6,223	$	5,622
Other postretirement benefits	965		1,098
U.S. Tax Act transitional tax payable	2,121		2,343
Uncertain tax positions	580		472
Long term operating leases	652		—
Other	569		676
TOTAL	$	11,110	$	10,211

As of June 30 2017 2016
ACCRUED AND OTHER LIABILITIES - CURRENT
Marketing and promotion $ 2,792
$ 2,820
Compensation expenses 1,344
1,457
Restructuring reserves 277
315
Taxes payable 449
397
Legal and environmental 168
158
Other 1,994
2,302
TOTAL $ 7,024
$ 7,449
OTHER NONCURRENT LIABILITIES
Pension benefits $ 5,487
$ 6,761
Other postretirement benefits 1,333
1,808
Uncertain tax positions 564
952
Other 870
804
TOTAL $ 8,254
$ 10,325

RESTRUCTURING PROGRAM

The Company has historically incurred an ongoing annual level of restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization. Before-tax costs incurred under the ongoing program have generally ranged from $250 to $500 annually. In fiscal 2012, the Company initiated an incremental restructuring program (covering fiscal 2012 through 2017) as part of a productivity and cost savings plan to reduce costs in the areas of supply chain, research and development, marketing activities and ~~overheads.~~overhead expenses. The productivity and cost savings plan was designed to accelerate cost reductions by streamlining management decision making, manufacturing and other work processes in order to help fund the Company's growth strategy.

The Company incurred $5.6 billion in before-tax restructuring costs over a six year period (from fiscal 2012 through fiscal 2017), including costs incurred as part of the incremental restructuring program. The program included a non-

manufacturing overhead enrollment reduction target of approximately 25% - 30% by the end of fiscal year 2017. Through fiscal 2017, the Company reduced non-manufacturing enrollment by approximately 26%. The reductions were enabled by the elimination of duplicate work, simplification through the use of technology and optimization of various functional and business organizations and the Company's global footprint. In addition, the plan included integration of newly acquired companies and the optimization of the supply chain and other manufacturing processes.

In fiscal 2017, the Company announced specific elements of an additional incremental multi-year productivity and cost savings plan to further reduce costs in the areas of supply chain, certain marketing activities and overhead expenses. ~~Over the next two fiscal years (fiscal 2018 and 2019), the Company expects to incur approximately $1.2 billion total before-tax restructuring costs under the plan.~~ This program is ~~expected to result~~resulting in ~~meaningful additional non-manufacturing~~incremental targeted enrollment reductions, along with further optimization of the supply chain and other manufacturing processes.

Restructuring costs incurred consist primarily of costs to separate employees, asset-related costs to exit facilities and other costs. The Company incurred total restructuring charges of ~~approximately~~$782 and $754 ~~and $977~~ for the years ended June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~Approximately $137 and $202 of these~~Of the charges incurred for fiscal year 2020, $155 were recorded in SG&A, $614 in Costs of products sold, and $13 in Other non-operating income/(expense), net. Of the charges incurred for ~~the years ended June 30, 2017 and 2016, respectively and approximately $593 and $718 of these charges~~fiscal year 2019, $213 were recorded in ~~Cost~~SG&A, $521 in Costs of products sold, ~~for the years ended June 30, 2017~~ and ~~2016, respectively. The remainder of the charges were included~~$20 in Net earnings from discontinued operations. Of the total costs incurred since the inception of this restructuring program, $2.5 billion were related to separations, $1.8 billion were asset-related and $1.3 billion were related to other restructuring-type costs.Other non-operating income/(expense), net. The following table presents restructuring activity for the years ended June 30, ~~2017~~2020 and ~~2016:~~2019:


	Separations		Asset-Related Costs		Other		Total
RESERVE JUNE 30, 2018	$	259	$	—	$	254	$	513
Charges	260		252		242		754
Cash spent	(239)		—		(308)		(547)
Charges against assets	—		(252)		—		(252)
RESERVE JUNE 30, 2019	280		—		188		468
Charges	221		372		189		782
Cash spent	(216)		—		(190)		(406)
Charges against assets	—		(372)		—		(372)
RESERVE JUNE 30, 2020	$	285	$	—	$	187	$	472

Amounts in millions Separations Asset-Related Costs Other Total
RESERVE JUNE 30, 2015 $ 362
$ —
$ 27
$ 389
Charges 262
432
283
977
Cash spent (381 ) —
(238 ) (619 )
Charges against assets —
(432 ) —
(432 )
RESERVE JUNE 30, 2016 243
—
72
315
Charges 206
397
151
754
Cash spent ⁽¹⁾
(221 ) —
(174 ) (395 )
Charges against assets —
(397 ) —
(397 )
RESERVE JUNE 30, 2017 $ 228
$ —
$ 49
$ 277


⁽¹⁾	~~Includes liabilities transferred to Coty related to our Beauty Brands divestiture.~~

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~The Procter & Gamble Company 47~~

Separation Costs

Employee separation charges for the years ended June 30, ~~2017~~2020 and ~~2016, related~~2019 relate to severance packages for approximately ~~2,120~~1,200 and ~~2,770 employees, respectively. For the years ended June 30, 2017 and 2016, these severance packages included approximately 380 and 920 non-manufacturing~~1,810 employees, respectively. The packages were ~~predominantly~~primarily voluntary and the amounts were calculated based on salary levels and past service periods. Severance costs related to voluntary separations are generally charged to earnings when the employee accepts the offer. ~~Since its inception, the restructuring program has incurred separation charges related to approximately 19,190 employees, of which approximately 9,920 are non-manufacturing overhead personnel.~~

Asset-Related Costs

Asset-related costs consist of both asset write-downs and accelerated depreciation. Asset write-downs relate to the establishment of a new fair value basis for assets held-for-sale or for disposal. These assets were written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less minor disposal costs. Charges for accelerated depreciation relate to long-lived assets that will be taken out of service prior to the end of their normal service period. These assets relate primarily to

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 47

manufacturing consolidations and technology standardizations. The asset-related charges will not have a significant impact on future depreciation charges.

Other Costs

Other restructuring-type charges are incurred as a direct result of the restructuring program. Such charges primarily include asset removal and termination of contracts related to supply chain optimization.

Consistent with our historical policies for ongoing restructuring-type activities, the restructuring program charges are funded by and included within Corporate for both management and segment reporting. Accordingly, all of the charges under the program are included within the Corporate reportable segment.

However, for ~~informative~~information purposes, the following table summarizes the total restructuring costs related to our reportable segments:


Years ended June 30	2020		2019		2018
Beauty	$	54	$	49	$	60
Grooming	102		65		38
Health Care	136		23		21
Fabric & Home Care	75		84		115
Baby, Feminine & Family Care	192		226		547
Corporate ⁽¹⁾	223		307		289
Total Company	$	782	$	754	$	1,070

⁽¹⁾Corporate includes costs related to allocated overheads, including charges related to our Enterprise Markets, Global Business Services and Corporate Functions activities.


⁽¹⁾			Corporate includes costs related to allocated overheads, including charges related to our Sales and Market Operations, Global Business Services and Corporate Functions activities and costs related to discontinued operations from our Batteries and Beauty Brands businesses.

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~48 The Procter & Gamble Company~~

GOODWILL AND INTANGIBLE ASSETS

The change in the net carrying amount of goodwill by reportable segment was as follows:


	Beauty		Grooming		Health Care		Fabric & Home Care		Baby, Feminine & Family Care		Corporate		Total Company
BALANCE AT JUNE 30, 2018 - NET ⁽¹⁾	$	12,992	$	19,820	$	5,929	$	1,865	$	4,569	$	—	$	45,175
Acquisitions and divestitures	132		—		2,084		6		57		—		2,279
Goodwill impairment charges	—		(6,783)		—		—		—		—		(6,783)
Translation and other	(139)		(156)		(41)		(16)		(46)		—		(398)
BALANCE AT JUNE 30, 2019 - NET ⁽¹⁾	12,985		12,881		7,972		1,855		4,580		—		40,273
Acquisitions and divestitures	(1)		—		(46)		—		5		—		(42)
Translation and other	(82)		(66)		(140)		(14)		(28)		—		(330)
BALANCE AT JUNE 30, 2020 - NET ⁽¹⁾	$	12,902	$	12,815	$	7,786	$	1,841	$	4,557	$	—	$	39,901

Beauty Grooming Health Care Fabric & Home Care Baby, Feminine & Family Care Corporate Total Company
Balance at June 30, 2015 - Net ^{(1) (2)}
12,704
19,619
5,876
1,874
4,549
—
44,622
Acquisitions and divestitures (2 ) —
(2 ) —
—
—
(4 )
Translation and other (57 ) (142 ) (34 ) (18 ) (17 ) —
(268 )
Balance at June 30, 2016 - Net ⁽¹⁾
12,645
19,477
5,840
1,856
4,532
—
44,350
Acquisitions and divestitures —
—
(10 ) (3 ) (24 ) —
(37 )
Translation and other 146
150
48
4
38
—
386
Balance at June 30, 2017 - Net ⁽¹⁾
$ 12,791
$ 19,627
$ 5,878
$ 1,857
$ 4,546
$ —
$ 44,699

During fiscal 2017, the Company completed the divestiture of four product categories, comprised of 43 of its beauty brands ("Beauty Brands"). The transactions included the global salon professional hair care and color, retail hair color and cosmetics businesses and the fine fragrances business, along with select hair styling brands (see Note 13). The Beauty Brands have historically been part of the Company's Beauty reportable segment. In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Beauty Brands are presented as discontinued operations. As a result, the goodwill attributable to the Beauty Brands as of June 30, ~~2016~~2018 and ~~2015 is excluded from the preceding table and is reported as Current assets held for sale in the Consolidated Balance Sheets~~$7.9 billion as of June 30, ~~2016.~~2019 and 2020.

~~In February 2016,~~

Goodwill and indefinite-lived intangibles are tested for impairment at least annually by comparing the ~~Company completed~~estimated fair values of our reporting units and underlying indefinite-lived intangible assets to their respective carrying values. We typically use an income method to estimate the ~~divestiture~~fair value of ~~its Batteries business to Berkshire Hathaway (BH). Prior~~these assets, which is based on forecasts of the expected future cash flows attributable to the transaction, the Company recorded a non-cash, before-tax impairment charge of $402 ($350 after tax) during fiscal 2016, which reflected the value of BH's shares in P&G stock as of the date of the impairment charges (see Note 13). This impairment charge as well as accumulated Batteries impairment charges totaling $2.1 billion through fiscal 2015 were included as part of discontinued operations.

~~The change in goodwill during fiscal 2017 and the remaining change during fiscal 2016 was primarily due to currency translation across all reportable segments.~~

~~All of the goodwill and indefinite-lived intangible asset impairment charges that are not reflected in discontinued operations are included in Corporate for segment reporting.~~

~~The goodwill and intangible asset valuations are dependent on a number of significant~~respective assets. Significant estimates and assumptions ~~including~~inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates and profitability). Estimates utilized in the projected cash flows include consideration of macroeconomic conditions, overall category growth rates, competitive activities, cost containment and margin expansion, ~~and~~ Company business ~~plans.~~ plans, the underlying product or technology life cycles, economic barriers to entry, a brand's relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and

circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

We believe ~~these~~the estimates and assumptions utilized in our impairment testing are reasonable and are comparable to those that would be used by other marketplace participants. However, actual events and results could differ substantially from those

used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows initially used to estimate fair value for purposes of establishing or subsequently impairing the carrying amount of goodwill and related intangible assets, we may need to record additional non-cash impairment charges in the future.

~~Identifiable intangible assets were comprised of:~~

2017 2016
As of June 30
Gross
Carrying
Amount
Accumulated
Amortization

Gross
Carrying
Amount
Accumulated
Amortization
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands $ 3,094
$ (1,898 ) $ 3,409
$ (2,032 )
Patents and technology 2,617
(2,261 ) 2,624
(2,164 )
Customer relationships 1,377
(564 ) 1,382
(514 )
Other 239
(132 ) 246
(130 )
TOTAL $ 7,327
$ (4,855 ) $ 7,661
$ (4,840 )

INTANGIBLE ASSETS WITH INDEFINITE LIVES
Brands 21,715
—
21,706
—
TOTAL $ 29,042
$ (4,855 ) $ 29,367
$ (4,840 )

~~Due to~~The change in goodwill during fiscal 2020 primarily reflects opening balance sheet adjustments from the ~~divestiture~~prior year acquisition of the ~~Beauty Brands, intangible assets specific to this~~over-the-counter (OTC) healthcare business as of ~~June 30, 2016 are reported~~Merck KGaA (Merck OTC) in ~~Current assets held for sale in accordance with~~ the ~~accounting principles for assets held for sale.~~

~~Amortization expense of intangible assets was as follows:~~

Years ended June 30 2017 2016 2015
Intangible asset amortization $ 325
$ 388
$ 457

~~Estimated amortization expense over the next five fiscal years is as follows:~~

Years ending June 30 2018 2019 2020 2021 2022
Estimated amortization expense $ 292
$ 275
$ 249
$ 201
$ 185

Health Care reportable segment (see Note 14) and currency translation across all reportable segments.

Amounts in millions of dollars except per share amounts or as otherwise specified.

48 The Procter & Gamble Company 49

During fiscal 2019, we determined that the estimated fair value of our Shave Care reporting unit was less than its carrying value. We also determined that the estimated fair value of the Gillette indefinite-lived intangible asset was less than its carrying value. As a result, we recorded non-cash impairment charges for both assets. These reductions were due in large part to significant currency devaluations in a number of countries relative to the U.S. dollar, a deceleration of category growth caused by changing grooming habits, primarily in the developed markets, and an increased competitive market environment in the U.S. and certain other markets, which collectively resulted in reduced cash flow projections. A non-cash, before and after-tax impairment charge of $6.8 billion was recognized to reduce the carrying amount of goodwill for the Shave Care reporting unit. Additionally, a non-cash, before-tax impairment charge of $1.6 billion ($1.2 billion after-tax) was recognized to reduce the carrying amount of the Gillette indefinite-lived intangible asset to its estimated fair value as of June 30, 2019.

During fiscal 2019, the Company completed the acquisition of the healthcare business of Merck OTC, which is included in the Health Care reportable segment (see Note 14), along with other minor acquisitions in the Beauty, the Baby, Feminine & Family Care and the Fabric & Home Care reportable segments. These goodwill increases were partially offset by the divestiture of the Teva portion of the PGT business in the Health Care reportable segment and currency translation in fiscal 2019.

Identifiable intangible assets were comprised of:


	2020						2019
As of June 30	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands	$	3,820	$	(2,347)	$	3,836	$	(2,160)
Patents and technology	2,776		(2,513)		2,776		(2,434)
Customer relationships	1,752		(778)		1,787		(691)
Other	143		(92)		145		(91)
TOTAL	$	8,491	$	(5,730)	$	8,544	$	(5,376)

INTANGIBLE ASSETS WITH INDEFINITE LIVES
Brands	21,031		—		21,047		—
TOTAL	$	29,522	$	(5,730)	$	29,591	$	(5,376)

Amortization expense of intangible assets was as follows:


Years ended June 30	2020		2019		2018
Intangible asset amortization	$	360	$	349	$	302

Estimated amortization expense over the next five fiscal years is as follows:


Years ending June 30	2021		2022		2023		2024		2025
Estimated amortization expense	$	310	$	291	$	280	$	268	$	250

NOTE 5

INCOME TAXES

Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the U.S. Tax Act). The U.S. Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering the U.S. corporate income tax rates and implementing a hybrid territorial tax system. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ended June 30, 2018, and 21% for subsequent fiscal years. However, the U.S. Tax Act eliminated the domestic manufacturing deduction and moved to a hybrid territorial system, which also largely eliminated the ability to credit certain foreign taxes that existed prior to enactment of the U.S. Tax Act.

There were also certain transitional impacts of the U.S. Tax Act. As part of the transition to the new hybrid territorial tax system, the U.S. Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. In addition, the reduction of the U.S. corporate tax rate caused us to adjust our U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. These transitional impacts resulted in a provisional net charge of $602 for the fiscal year ended June 30, 2018, comprised of an estimated repatriation tax charge of $3.8 billion (comprised of U.S. repatriation taxes and foreign withholding taxes) and an estimated net deferred tax benefit of $3.2 billion. The transitional impact was finalized during the fiscal year ended June 30, 2019, with no significant impact on income tax expense.

Any legislative changes, as well as any other new or proposed Treasury regulations to address questions that arise because of the U.S. Tax Act, may result in additional income tax impacts which could be material in the period any such changes are enacted.

The Global Intangible Low-Taxed Income (GILTI) provision of the U.S. Tax Act requires the Company to include in its U.S. Income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. An accounting policy election is available to account for the tax effects of GILTI either as a current period expense when incurred, or to recognize deferred taxes for book and tax basis differences expected to reverse as GILTI in future years. We have elected to account for the tax effects of GILTI as a current period expense when incurred.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 49

Earnings ~~from continuing operations~~ before income taxes consisted of the following:


Years ended June 30	2020		2019		2018
United States	$	10,338	$	1,659	$	9,277
International	5,496		4,410		4,049
TOTAL	$	15,834	$	6,069	$	13,326

Years ended June 30 2017 2016 2015
United States $ 9,031
$ 8,788
$ 8,496
International 4,226
4,581
2,516
TOTAL $ 13,257
$ 13,369
$ 11,012

Income taxes ~~on continuing operations~~ consisted of the following:


Years ended June 30	2020		2019		2018
CURRENT TAX EXPENSE
U.S. federal	$	1,266	$	1,064	$	3,965
International	1,769		1,259		1,131
U.S. state and local	292		191		213
	3,327		2,514		5,309
DEFERRED TAX EXPENSE/(BENEFIT)
U.S. federal	39		(296)		(1,989)
International and other	(635)		(115)		145
	(596)		(411)		(1,844)
TOTAL TAX EXPENSE	$	2,731	$	2,103	$	3,465

Years ended June 30 2017 2016 2015
CURRENT TAX EXPENSE
U.S. federal $ 1,531
$ 1,673
$ 2,127
International 1,243
1,483
1,142
U.S. state and local 241
224
252
3,015
3,380
3,521
DEFERRED TAX EXPENSE
U.S. federal 28
33
(607 )
International and other 20
(71 ) (189 )
48
(38 ) (796 )
TOTAL TAX EXPENSE $ 3,063
$ 3,342
$ 2,725

A reconciliation of the U.S. federal statutory income tax rate to our actual effective income tax rate ~~on continuing operations~~ is provided below:


Years ended June 30	2020		2019		2018
U.S. federal statutory income tax rate	21.0	%	21.0	%	28.1	%
Country mix impacts of foreign operations	(0.1)	%	(0.5)	%	(4.7)	%
State income taxes, net of federal benefit	1.4	%	2.6	%	1.4	%
Excess tax benefits from the exercise of stock options	(1.6)	%	(3.8)	%	(0.4)	%
Tax benefit from simplification of legal entity structure	(1.4)	%	—	%	—	%
Foreign derived intangible income deduction (FDII)	(1.0)	%	(2.2)	%	—	%
Changes in uncertain tax positions	0.1	%	(0.3)	%	(0.3)	%
Goodwill impairment	—	%	22.8	%	—	%
Net transitional impact of U.S. Tax Act	—	%	—	%	4.5	%
Other	(1.2)	%	(4.9)	%	(2.6)	%
EFFECTIVE INCOME TAX RATE	17.2	%	34.7	%	26.0	%

Years ended June 30 2017 2016 2015
U.S. federal statutory income tax rate 35.0 % 35.0 % 35.0 %
Country mix impacts of foreign operations (6.8 )% (9.1 )% (14.0 )%
Changes in uncertain tax positions (2.0 )% (0.5 )% (0.9 )%
Excess tax benefits from the exercise of stock options (1.3 )% — % — %
Venezuela deconsolidation charge — % — % 6.6 %
Other (1.8 )% (0.4 )% (2.0 )%
EFFECTIVE INCOME TAX RATE 23.1 % 25.0 % 24.7 %

Country mix impacts of foreign operations includes the effects of foreign subsidiaries' earnings taxed at rates other than the

U.S. statutory rate, the U.S. tax impacts of non-U.S. earnings repatriation and any net impacts of intercompany transactions. Changes in uncertain tax positions represent changes in our net liability related to prior year tax positions.

Excess tax benefits from the exercise of stock options reflect the ~~impact~~excess of ~~adopting ASU 2016-09, "Stock Compensation (Topic 718): Improvements~~actual tax benefits received on employee exercises of stock options and other share-based payments (which generally equals the income taxable to ~~Employee-Share-Based Payment Accounting)."~~the employee) over the amount of tax benefits that were calculated at the grant dates of such instruments.

Tax ~~costs charged~~benefits credited to shareholders' equity totaled ~~$333~~$18 for the year ended June 30, ~~2017.~~2020. This primarily relates to the ~~impact~~tax effects of certain adjustments to pension obligations and unrealized foreign exchange losses recorded in stockholders' equity, partially offset by the tax effects of net investment hedges. Tax ~~benefits credited~~costs charged to shareholders' equity totaled ~~$899~~$80 for the year ended June 30, ~~2016.~~2019. This primarily relates to the ~~impact~~tax effects of net investment hedges and certain adjustments to pension obligations recorded in stockholders' ~~equity and~~equity.

Prior to the ~~impact~~passage of ~~excess tax benefits from~~ the ~~exercise~~U.S. Tax Act, the Company asserted that substantially all of ~~stock options.~~

~~We have~~the undistributed earnings of its foreign subsidiaries ~~of approximately $49 billion at June 30, 2017, for which deferred taxes have not been provided. Such earnings are~~were considered indefinitely invested inand accordingly, no deferred taxes were provided. Pursuant to the ~~foreign subsidiaries. If such~~provisions of the U.S. Tax Act, these earnings were ~~repatriated, additional tax expense may result. However, the calculation of the amount of deferred~~subjected to a one-time transition tax. This charge included taxes for all U.S. income ~~tax~~taxes and for the related foreign withholding taxes for the portion of those earnings which are no longer considered indefinitely invested. We have not provided deferred taxes on ~~these~~approximately $19 billion of earnings ~~is not practicable because of the large number of assumptions necessary to compute the tax.~~ that are considered permanently reinvested.

A reconciliation of the beginning and ending liability for uncertain tax positions is as follows:


Years ended June 30	2020		2019		2018
BEGINNING OF YEAR	$	466	$	470	$	465
Increases in tax positions for prior years	60		85		26
Decreases in tax positions for prior years	(21)		(94)		(38)
Increases in tax positions for current year	82		71		87
Settlements with taxing authorities	(83)		(37)		(45)
Lapse in statute of limitations	(12)		(27)		(20)
Currency translation	(7)		(2)		(5)
END OF YEAR	$	485	$	466	$	470

Years ended June 30 2017 2016 2015
BEGINNING OF YEAR $ 857
$ 1,096
$ 1,437
Increases in tax positions for prior years 87
124
87
Decreases in tax positions for prior years (147 ) (97 ) (146 )
Increases in tax positions for current year 75
97
118
Settlements with taxing authorities (381 ) (301 ) (250 )
Lapse in statute of limitations (22 ) (39 ) (27 )
Currency translation (4 ) (23 ) (123 )
END OF YEAR $ 465
$ 857
$ 1,096

Included in the total liability for uncertain tax positions at June 30, ~~2017,~~2020 is ~~$284~~$278 that, depending on the ultimate resolution, could impact the effective tax rate in future periods.

The Company is present in approximately ~~140~~70 countries and over 150 taxable jurisdictions and, at any point in time, has ~~50-60~~40-50 jurisdictional audits underway at various stages of completion. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Uncertain tax positions are reviewed on an

Amounts in millions of dollars except per share amounts or as otherwise specified.

50 The Procter & Gamble Company

ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and the closing of statutes of

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~50 The Procter & Gamble Company~~

limitation. Such adjustments are reflected in the tax provision as appropriate. We have tax years open ranging from 2008 and forward. We are generally not able to reliably estimate the ultimate settlement amounts until the close of the audit. ~~While~~Based on information currently available, we ~~do not expect material changes, it is possible~~anticipate that over the ~~amount of unrecognized benefit with respect~~next 12-month period, audit activity could be completed related to ~~our~~ uncertain tax positions ~~could increase or decrease within the next 12 months. At this time,~~in multiple jurisdictions for which we ~~are not able to make a reasonable estimate~~have accrued existing liabilities of ~~the range of impact on the balance of uncertain tax positions or the impact on the effective tax rate related to these items.~~approximately $60, including interest and penalties.

We recognize the additional accrual of any possible related interest and penalties relating to the underlying uncertain tax position in income tax expense. As of June 30, ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, we had accrued interest of ~~$100, $323~~$141, $133 and ~~$347~~$99 and accrued penalties of ~~$20, $20~~$17, $17 and ~~$19,~~$15, respectively, which are not included in the above table. During the fiscal years ended June 30, ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, we recognized ~~$62,~~$39, $40 and $22 in interest expense and $1, $2 and ~~$15 in interest benefit/(expense) and $0, $(2) and $13~~$5 in penalties ~~benefit/(expense),~~expense, respectively. ~~The net benefits recognized resulted primarily from the favorable resolution of tax positions for prior years.~~

Deferred income tax assets and liabilities were comprised of the following:


As of June 30	2020		2019
DEFERRED TAX ASSETS
Pension and postretirement benefits	$	1,602	$	1,591
Loss and other carryforwards	875		1,007
Stock-based compensation	398		421
Accrued marketing and promotion	353		334
Fixed assets	218		232
Lease liabilities	190		—
Unrealized loss on financial and foreign exchange transactions	64		73
Inventory	27		41
Accrued interest and taxes	20		15
Other	829		931
Valuation allowances	(486)		(442)
TOTAL	$	4,090	$	4,203

DEFERRED TAX LIABILITIES
Goodwill and intangible assets	$	5,775	$	6,506
Fixed assets	1,485		1,413
Lease right-of-use assets	185		—
Unrealized gain on financial and foreign exchange transactions	169		147
Foreign withholding tax on earnings to be repatriated	118		239
Other	366		351
TOTAL	$	8,098	$	8,656

As of June 30 2017 2016
DEFERRED TAX ASSETS
Pension and postretirement benefits $ 1,775
$ 2,226
Loss and other carryforwards 1,516
1,077
Stock-based compensation 732
845
Unrealized loss on financial and foreign exchange transactions 259
122
Fixed assets 212
216
Accrued marketing and promotion 210
240
Advance payments 121
515
Inventory 75
61
Accrued interest and taxes 30
55
Other 709
764
Valuation allowances (505 ) (467 )
TOTAL $ 5,134
$ 5,654

DEFERRED TAX LIABILITIES
Goodwill and other intangible assets $ 9,403
$ 9,461
Fixed assets 1,495
1,533
Unrealized gain on financial and foreign exchange transactions 314
387
Other 26
105
TOTAL $ 11,238
$ 11,486

Net operating loss carryforwards were ~~$3.3 billion and $3.2~~$2.9 billion at June 30, ~~2017~~2020 and ~~2016, respectively. If unused, $1.1 billion will expire between 2017 and 2036. The remainder, totaling $2.2~~$3.5 billion at June 30, ~~2017,~~2019. If unused, approximately $900 will expire between 2020 and 2039. The remainder, totaling $2.0 billion at June 30, 2020, may be carried forward indefinitely.

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~The Procter & Gamble Company 51~~

NOTE 6

EARNINGS PER SHARE

Basic net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble less preferred dividends (net of related tax benefits) by the weighted average number of common shares outstanding during the year. For fiscal years 2020 and 2018, Diluted net earnings per common share are calculated onby dividing Net earnings attributable to Procter & Gamble by the ~~basis of the~~diluted weighted average number of common shares outstanding ~~plus~~during the year. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method (see Note 7) and the assumed conversion of preferred stock (see Note 8).

For fiscal year 2019, Diluted net earnings per common share do not include the assumed conversion of preferred stock because to do so would have been antidilutive, due to the lower Net earnings driven by the Shave Care impairment charges (see Note 4). Therefore, Diluted net earnings per common share ~~were as follows:~~are calculated by dividing Net earnings attributable to Procter & Gamble less preferred dividends (net of related tax benefit) by the diluted weighted average number of common shares outstanding during the year. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method.

Years ended June 30 2017 2016 2015
CONSOLIDATED AMOUNTS Continuing Operations Dis-continued Operations Total Continuing Operations Dis-continued Operations Total Continuing Operations Dis-continued Operations Total
Net earnings/(loss) $ 10,194
$ 5,217
$ 15,411
$ 10,027
$ 577
$ 10,604
$ 8,287
$ (1,143 ) $ 7,144
Net earnings attributable to noncontrolling interests (85 ) —
(85 ) (96 ) —
(96 ) (98 ) (10 ) (108 )
Net earnings/(loss) attributable to P&G (Diluted) 10,109
5,217
15,326
9,931
577
10,508
8,189
(1,153 ) 7,036
Preferred dividends, net of tax (247 ) —
(247 ) (255 ) —
(255 ) (259 ) —
(259 )
Net earnings/(loss) attributable to P&G available to common shareholders (Basic) $ 9,862
$ 5,217
$ 15,079
$ 9,676
$ 577
$ 10,253
$ 7,930
$ (1,153 ) $ 6,777
SHARES IN MILLIONS
Basic weighted average common shares outstanding 2,598.1
2,598.1
2,598.1
2,698.9
2,698.9
2,698.9
2,711.7
2,711.7
2,711.7
Add: Effect of dilutive securities
Conversion of preferred shares⁽¹⁾
99.3
99.3
99.3
103.9
103.9
103.9
108.6
108.6
108.6
Impact of stock options and other unvested equity awards ⁽²⁾
43.0
43.0
43.0
41.6
41.6
41.6
63.3
63.3
63.3
Diluted weighted average common shares outstanding 2,740.4
2,740.4
2,740.4
2,844.4
2,844.4
2,844.4
2,883.6
2,883.6
2,883.6
PER SHARE AMOUNTS
Basic net earnings/(loss) per common share ⁽³⁾
$ 3.79
$ 2.01
$ 5.80
$ 3.59
$ 0.21
$ 3.80
$ 2.92
$ (0.42 ) $ 2.50
Diluted net earnings/(loss) per common share ⁽³⁾
$ 3.69
$ 1.90
$ 5.59
$ 3.49
$ 0.20
$ 3.69
$ 2.84
$ (0.40 ) $ 2.44


⁽¹⁾	Despite being included currently in Diluted net earnings per common share, the actual conversion to common stock occurs when the preferred shares are sold. Shares may only be sold after being allocated to the ESOP participants pursuant to the repayment of the ESOP's obligations through 2035.


⁽²⁾	Weighted average outstanding stock options of approximately 20 million in 2017, 55 million in 2016 and 8 million in 2015 were not included in the Diluted net earnings per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the total proceeds upon exercise would have exceeded the market value of the underlying common shares).


⁽³⁾	~~Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings/(loss) attributable to Procter & Gamble.~~

Amounts in millions of dollars except per share amounts or as otherwise specified.

52 The Procter & Gamble Company 51

Net earnings per share were calculated as follows:


Years ended June 30	2020		2019		2018
CONSOLIDATED AMOUNTS
Net earnings	$	13,103	$	3,966	$	9,861
Less: Net earnings attributable to noncontrolling interests	76		69		111
Net earnings attributable to P&G	13,027		3,897		9,750
Less: Preferred dividends, net of tax	263		263		265
Net earnings attributable to P&G available to common shareholders (Basic)	$	12,764	$	3,634	$	9,485

Net earnings attributable to P&G available to common shareholders (Diluted)	$	13,027	$	3,634	$	9,750

SHARES IN MILLIONS
Basic weighted average common shares outstanding	2,487.1		2,503.6		2,529.3
Add: Effect of dilutive securities
Impact of stock options and other unvested equity awards ⁽¹⁾	52.7		35.9		32.5
Conversion of preferred shares ⁽²⁾	86.0		—		94.9
Diluted weighted average common shares outstanding	2,625.8		2,539.5		2,656.7

NET EARNINGS PER SHARE ⁽³⁾
Basic	$	5.13	$	1.45	$	3.75
Diluted	$	4.96	$	1.43	$	3.67

⁽¹⁾Weighted average outstanding stock options of approximately 6 million in 2020, 13 million in 2019 and 48 million in 2018 were not included in the Diluted net earnings per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the assumed proceeds upon exercise would have exceeded the market value of the underlying common shares).

⁽²⁾Despite being included in Diluted net earnings per common share, the actual conversion to common stock occurs when the preferred shares are sold. Shares may only be sold after being allocated to the ESOP participants pursuant to the repayment of the ESOP's obligations through 2035. In fiscal year 2019, weighted average outstanding preferred shares of 90 million were not included in the Diluted net earnings per share calculation because to do so would have been antidilutive, due to lower Net earnings driven by the Shave Care impairment charges (see Note 4).

⁽³⁾Net earnings per share are calculated on Net earnings attributable to Procter & Gamble.

NOTE 7

STOCK-BASED COMPENSATION

~~We have~~The Company has two primary stock-based compensation programs under which we annually grant stock option, restricted stock unit (RSU) and performance stock unit (PSU) awards to key managers and directors.

In our main long-term incentive program, key managers can elect to receive options or RSUs. All options ~~granted~~ vest after three ~~years.~~years and have a 10-year life. Exercise prices on options ~~granted have been, and continue to be,~~are set equal to the market price of the underlying shares on the date of the grant. ~~The stock options granted from July 1998 through August 2002 had a 15-year life and expired during~~Effective in fiscal year ~~2017. The options granted since September 2002 have a 10-year life.~~

2017, RSUs ~~granted in February 2017~~ vest and settle in shares of common stock three years from the grant date. RSUs granted prior to ~~February~~fiscal year 2017 vest and settle in shares of common stock five years from the grant date.

Senior-level executives participate in an additional long-term incentive program that awards PSUs, which are paid in shares after the end of a three-year performance ~~period. Under this program,~~period subject to pre-established performance goals. Effective in fiscal year 2019, we added a Relative Total Shareholder Return (R-TSR) modifier to the PSUs, under which the number of ~~PSUs that will vest~~shares ultimately granted is ~~based on~~also impacted by the Company's ~~performance~~actual shareholder return relative to ~~pre-established performance goals during that three year period.~~our consumer products competitive peer set.

In addition to these long-term incentive programs, we award RSUs to the Company's non-employee directors and make other minor stock option and RSU grants to employees for which the terms are not substantially different ~~than~~from our long-term incentive awards.

A total of ~~185~~150 million shares of common stock were newly authorized for issuance under the stock-based compensation plan approved by shareholders in ~~2014.~~2019. Additionally, the number of shares available for award under the 2019 plan includes 37 million previously authorized but not awarded under the shareholders approved plan in 2014 plus any shares of Common Stock subject to outstanding awards under the 2014 Plan that are forfeited, cancelled or otherwise terminated without the issuance of shares of Common Stock as set forth in the 2019 Plan. A total of 95166 million shares remain available for grant under the ~~2014~~2019 plan.

The Company recognizes stock-based compensation expense based on the fair value of the awards at the date of grant. The fair value is amortized on a straight-line basis over the requisite service period. Awards to employees eligible for retirement prior to the award becoming fully vested are recognized as compensation expense from the grant date through the date the employee first becomes eligible to retire and is no longer required to provide services to earn the

Amounts in millions of dollars except per share amounts or as otherwise specified.

52 The Procter & Gamble Company

award. Stock-based compensation expense ~~which~~ is included as part of Cost of products sold and SG&A in the Consolidated Statement of Earnings and ~~the~~includes an estimate of forfeitures, which is based on historical data. Total expense and related tax benefit were as follows:


Years ended June 30	2020		2019		2018
Stock options	$	249	$	246	$	220
RSUs and PSUs	309		269		175
Total stock-based expense	$	558	$	515	$	395

Income tax benefit	$	97	$	101	$	87

Years ended June 30 2017 2016 2015
Stock options $ 216
$ 199
$ 223
RSUs and PSUs 150
143
114
Total stock-based expense ⁽¹⁾
$ 366
$ 342
$ 337

Income tax benefit ⁽¹⁾
$ 111
$ 85
$ 109


⁽¹⁾	~~Includes amounts related to discontinued operations, which are not material in any period presented.~~

We utilize an industry standard lattice-based valuation model to calculate the fair value for stock options granted. Assumptions utilized in the model, which are evaluated and revised to reflect market conditions and experience, were as follows:


Years ended June 30	2020						2019							2018
Interest rate	1.1	-	1.4	%	2.5	-	2.7	%	1.9		-	2.9	%
Weighted average interest rate	1.3			%			2.6			%				2.8	%
Dividend yield	2.4			%			3.0			%				3.1	%
Expected volatility	17			%			17			%				18	%
Expected life in years	9.2						9.2							9.2

Years ended June 30 2017 2016 2015
Interest rate 0.8 - 2.6 % 0.7 - 1.9 % 0.1 - 2.1 %
Weighted average interest rate 2.6 % 1.8 % 2.0 %
Dividend yield 3.2 % 3.2 % 3.1 %
Expected volatility 12 - 16 % 15 - 17 % 11 - 15 %
Weighted average volatility 15 % 16 % 15 %
Expected life in years 9.6 8.3 8.3

Lattice-based option valuation models incorporate ranges of assumptions for inputs and those ranges are disclosed in the preceding table. Expected volatilities are based on a combination of historical volatility of our stock and implied volatilities of call options on our stock. We use historical data to estimate option exercise and employee termination patterns within the valuation model. The expected life of options granted is derived from the output of the option valuation model and represents the average period of time that options granted are expected to be outstanding. The interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of options ~~RSUs and PSUs~~ outstanding under the plans as of June 30, ~~2017~~2020 and activity during the year then ended is presented below:


Options	Options (in thousands)	Weighted Average Exercise Price		Weighted Average Contract-ual Life in Years	Aggregate Intrinsic Value
Outstanding, beginning of year	164,741	$	79.59
Granted	14,277	115.01
Exercised	(28,722)	70.34
Forfeited/expired	(424)	83.23
OUTSTANDING, END OF YEAR	149,872	$	84.71	5.5	$	5,241
EXERCISABLE	102,702	$	79.54	4.2	$	4,111

Options Options (in thousands) Weighted Average Exercise Price Weighted Average Contract-ual Life in Years Aggregate Intrinsic Value
Outstanding, beginning of year 230,397
$ 68.02

Granted 21,425
90.70

Exercised (44,070 ) 59.11

Canceled (1,267 ) 69.76

OUTSTANDING, END OF YEAR 206,485
$ 72.46
5.4 $ 3,109
EXERCISABLE 140,803
$ 66.71
3.9 $ 2,878

The weighted average grant-date fair value of options granted was $10.45, $8.48 and $9.38 per share in 2017, 2016 and 2015, respectively. The total intrinsic value of options exercised was $1,334, $1,388 and $1,814 in 2017, 2016 and 2015, respectively. The total grant-date fair value of options that vested during 2017, 2016 and 2015 was $246, $200 and $241, respectively. following table provides additional information on stock options:


Years ended June 30	2020		2019		2018
Weighted average grant-date fair value of options granted	$	15.60	$	13.60	$	11.89
Intrinsic value of options exercised	1,455		1,770		500
Grant-date fair value of options that vested	217		180		209
Cash received from options exercised	2,019		3,381		1,245
Actual tax benefit from options exercised	298		221		127

At June 30, ~~2017,~~2020, there was ~~$208~~$171 of compensation cost that has not yet been recognized related to stock option grants. That cost is expected to be recognized over a remaining weighted average period of 2.0 years. ~~Cash received from options exercised was $2,630, $2,332~~

A summary of non-vested RSUs and ~~$2,631 in 2017, 2016~~PSUs outstanding under the plans as of June 30, 2020 and ~~2015, respectively. The actual tax~~

activity during the year then ended is presented below:


	RSUs				PSUs
RSU and PSU awards	Units (in thousands)	Weighted Average Grant Date Fair Value		Units (in thousands)	Weighted Average Grant Date Fair Value
Non-vested at July 1, 2019	5,493	$	84.00	1,295	$	92.98
Granted	1,516	114.44		562	123.52
Vested	(2,376)	88.61		(799)	79.64
Forfeited	(135)	84.61		(10)	94.94
Non-vested at June 30, 2020	4,498	$	92.15	1,048	$	117.02

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~The Procter & Gamble Company 53~~

~~benefit for the tax deductions from option exercises totaled $421, $433 and $519 in 2017, 2016 and 2015, respectively.~~

RSUs PSUs
Other stock-based awards Units (in thousands) Weighted Average Grant Date Fair Value Units (in thousands) Weighted Average Grant Date Fair Value
Non-vested at July 1, 2016 5,274
$ 65.53
1,146
$ 75.25
Granted 1,730
89.74
623
91.03
Vested (1,586 ) 66.70
(575 ) 77.55
Forfeited (59 ) 69.21
—
—
Non-vested at June 30, 2017 5,359
$ 74.98
1,194
$ 82.40

At June 30, ~~2017,~~2020, there was ~~$255~~$251 of compensation cost that has not yet been recognized related to ~~restricted stock,~~ RSUs and PSUs. That cost is expected to be recognized over a remaining weighted average period of ~~2.5~~1.9 years. The total grant date fair value of shares vested was ~~$163, $97~~$264, $205 and ~~$79~~$175 in ~~2017, 2016~~2020, 2019 and ~~2015,~~2018, respectively.

The Company settles equity issuances with treasury shares. We have no specific policy to repurchase common shares to

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 53

mitigate the dilutive impact of options, RSUs and PSUs. However, we have historically made adequate discretionary purchases, based on cash availability, market trends and other factors, to offset the impacts of such activity.

NOTE 8

POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN

We offer various postretirement benefits to our employees.

Defined Contribution Retirement Plans

We have defined contribution plans, which cover the majority of our U.S. employees, as well as employees in certain other countries. These plans are fully funded. We generally make contributions to participants' accounts based on individual base salaries and years of service. Total global defined contribution expense was ~~$270,~~$317, $272 and $292 in 2020, 2019 and ~~$305 in 2017, 2016 and 2015,~~2018, respectively.

The primary U.S. defined contribution plan (the U.S. DC plan) comprises the majority of the expense for the Company's defined contribution plans. For the U.S. DC plan, the contribution rate is set annually. Total contributions for this plan approximated 14% of total participants' annual wages and salaries in ~~2017 in 2016~~2020, 2019 and ~~2015.~~2018.

We maintain The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. DC plan and other retiree benefits (described below). Operating details of the ESOP are provided at the end of this Note. The fair value of the ESOP Series A shares allocated to participants reduces our cash contribution required to fund the U.S. DC plan.

Defined Benefit Retirement Plans and Other Retiree Benefits

We offer defined benefit retirement pension plans to certain employees. These benefits relate primarily to ~~local~~ plans outside the U.S. and, to a lesser extent, plans assumed in previous acquisitions covering U.S. employees.

We also provide certain other retiree benefits, primarily health care, ~~and life insurance,~~ for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require cost sharing with retirees and pay a stated percentage of expenses, reduced by deductibles and other coverages. These benefits are primarily funded by ESOP Series B shares and certain other assets contributed by the Company.

Amounts in millions of dollars except per share amounts or as otherwise specified.

54 The Procter & Gamble Company

Obligation and Funded Status. The following provides a reconciliation of benefit obligations, plan assets and funded status of these defined benefit plans:


	Pension Benefits ⁽¹⁾						Other Retiree Benefits ⁽²⁾							Pension Benefits ⁽¹⁾						Other Retiree Benefits ⁽²⁾
Years ended June 30	2017			2016			2017			2016			Years ended June 30	2020		2019		2020		2019
CHANGE IN BENEFIT OBLIGATION													CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ⁽³⁾	$	17,285		$	15,951		$	5,632		$	4,904		Benefit obligation at beginning of year ⁽³⁾	$	17,037	$	15,658	$	4,964	$	4,778
Service cost	310			314			133			124			Service cost	247		259		100		101
Interest cost	300			466			175			219			Interest cost	276		339		160		187
Participants' contributions	14			17			74			74			Participants' contributions	11		12		74		76
Amendments	2			8			—			(40		)	Amendments	3		9		(136)		—
Net actuarial loss/(gain)	(643		)	1,927			(554		)	589			Net actuarial loss/(gain)	951		1,587		(85)		37
Acquisitions/(divestitures) ⁽⁴⁾	(413		)	(21		)	(31		)	(7		)
Curtailments	(132		)	—			(37		)	—
Acquisitions													Acquisitions	—		49		—		—
Special termination benefits	4			6			21			12			Special termination benefits	11		13		2		8
Currency translation and other	35			(826		)	16			(14		)	Currency translation and other	(218)		(283)		(64)		20
Benefit payments	(602		)	(557		)	(242		)	(229		)	Benefit payments	(557)		(606)		(245)		(243)
BENEFIT OBLIGATION AT END OF YEAR ⁽³⁾	$	16,160		$	17,285		$	5,187		$	5,632		BENEFIT OBLIGATION AT END OF YEAR ⁽³⁾	$	17,761	$	17,037	$	4,770	$	4,964

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 10,269
$ 10,605
$ 3,787
$ 3,470
Actual return on plan assets 884
630
136
408
Acquisitions/(divestitures) ⁽⁴⁾
(34 ) (13 ) —
—
Employer contributions 316
306
36
32
Participants' contributions 14
17
74
74
Currency translation and other (18 ) (719 ) (4 ) (8 )
ESOP debt impacts ⁽⁵⁾
—
—
44
40
Benefit payments (602 ) (557 ) (242 ) (229 )
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $ 10,829
$ 10,269
$ 3,831
$ 3,787
Reclassification of net obligation to held for sale liabilities —
402
—
16
FUNDED STATUS $ (5,331 ) $ (6,614 ) $ (1,356 ) $ (1,829 )


CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	11,382	$	11,267	$	5,096	$	3,259
Actual return on plan assets	664		739		595		1,918
Acquisitions	—		4		—		—
Employer contributions	180		178		33		31
Participants' contributions	11		12		74		76
Currency translation and other	(196)		(212)		2		(1)
ESOP debt impacts ⁽⁴⁾	—		—		63		56
Benefit payments	(557)		(606)		(245)		(243)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	11,484	$	11,382	$	5,618	$	5,096
FUNDED STATUS	$	(6,277)	$	(5,655)	$	848	$	132

⁽¹⁾

⁽¹⁾Primarily non-U.S.-based defined benefit retirement plans.

⁽²⁾Primarily U.S.-based other postretirement benefit plans.

⁽³⁾For the pension benefit plans, the benefit obligation is the projected benefit obligation. For other retiree benefit plans, the benefit obligation is the accumulated postretirement benefit obligation.

⁽⁴⁾Represents the net impact of ESOP debt service requirements, which is netted against plan assets for other retiree benefits.

~~Primarily non-U.S.-based defined benefit retirement plans.~~


⁽²⁾	~~Primarily U.S.-based other postretirement benefit plans.~~


⁽³⁾	~~For the pension benefit plans, the benefit obligation is the projected benefit obligation. For other retiree benefit plans, the benefit obligation is the accumulated postretirement benefit obligation.~~


⁽⁴⁾	~~For the year ended June 30, 2017, this represents the obligations and plans which were classified as held for sale at June 30, 2016.~~


⁽⁵⁾	~~Represents the net impact of ESOP debt service requirements, which is netted against plan assets for other retiree benefits.~~

The underfunding of pension benefits is primarily a function of the different funding incentives that exist outside of the U.S. In certain countries, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations prior to their due date. In these instances, benefit payments are typically paid directly from the Company's cash as they become due.


	Pension Benefits						Other Retiree Benefits
As of June 30	2020		2019		2020		2019
CLASSIFICATION OF NET AMOUNT RECOGNIZED
Noncurrent assets	$	12	$	19	$	1,843	$	1,257
Current liabilities	(66)		(52)		(30)		(27)
Noncurrent liabilities	(6,223)		(5,622)		(965)		(1,098)
NET AMOUNT RECOGNIZED	$	(6,277)	$	(5,655)	$	848	$	132
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
Net actuarial loss	$	5,662	$	5,062	$	572	$	874
Prior service cost/(credit)	198		214		(511)		(424)
NET AMOUNTS RECOGNIZED IN AOCI	$	5,860	$	5,276	$	61	$	450

Pension Benefits Other Retiree Benefits
Years ended June 30 2017 2016 2017 2016
CLASSIFICATION OF NET AMOUNT RECOGNIZED
Noncurrent assets $ 196
$ 180
$ —
$ —
Current liabilities (40 ) (33 ) (23 ) (21 )
Noncurrent liabilities (5,487 ) (6,761 ) (1,333 ) (1,808 )
NET AMOUNT RECOGNIZED $ (5,331 ) $ (6,614 ) $ (1,356 ) $ (1,829 )
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
Net actuarial loss $ 4,548
$ 6,088
$ 1,819
$ 2,247
Prior service cost/(credit) 245
270
(293 ) (334 )
NET AMOUNTS RECOGNIZED IN AOCI $ 4,793
$ 6,358
$ 1,526
$ 1,913

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 55

The accumulated benefit obligation for all defined benefit pension plans was ~~$14,512~~$16.5 billion and ~~$15,546~~$15.8 billion as of June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consisted of the following:


	Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets						Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
As of June 30	2020		2019		2020		2019
Projected benefit obligation	$	12,095	$	11,604	$	17,635	$	16,304
Accumulated benefit obligation	11,196		10,711		16,377		15,096
Fair value of plan assets	5,994		6,026		11,347		10,630

Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
As of June 30 2017 2016 2017 2016
Projected benefit obligation $ 13,699
$ 15,233
$ 14,181
$ 15,853
Accumulated benefit obligation 12,276
13,587
12,630
14,149
Fair value of plan assets 8,279
8,082
8,654
8,657

Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows:


	Pension Benefits										Other Retiree Benefits
Years ended June 30	2020		2019		2018		2020		2019		2018
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST
Service cost	$	247	$	259	$	280	$	100	$	101	$	112
Interest cost	276		339		348		160		187		177
Expected return on plan assets	(740)		(732)		(751)		(473)		(447)		(451)
Amortization of net actuarial loss	340		225		295		68		66		69
Amortization of prior service cost/(credit)	25		26		28		(48)		(48)		(41)
Amortization of net actuarial loss/prior service cost due to settlements and curtailments	7		9		—		—		—		—
Special termination benefits	11		13		8		2		8		7
GROSS BENEFIT COST/(CREDIT)	166		139		208		(191)		(133)		(127)
Dividends on ESOP preferred stock	—		—		—		(19)		(28)		(37)
NET PERIODIC BENEFIT COST/(CREDIT)	$	166	$	139	$	208	$	(210)	$	(161)	$	(164)
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI
Net actuarial loss/(gain) - current year	$	1,027	$	1,580			$	(207)	$	(1,434)
Prior service cost/(credit) - current year	3		9				(136)		—
Amortization of net actuarial loss	(340)		(225)				(68)		(66)
Amortization of prior service (cost)/credit	(25)		(26)				48		48
Amortization of net actuarial loss/prior service costs due to settlements and curtailments	(7)		(9)				—		—
Currency translation and other	(74)		(84)				(26)		14
TOTAL CHANGE IN AOCI	584		1,245				(389)		(1,438)
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI	$	750	$	1,384			$	(599)	$	(1,599)

Pension Benefits Other Retiree Benefits
Years ended June 30 2017 2016 2015 2017 2016 2015
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST
Service cost ⁽¹⁾
$ 310
$ 314
$ 317
$ 133
$ 124
$ 156
Interest cost 300
466
545
175
219
240
Expected return on plan assets (675 ) (731 ) (732 ) (431 ) (416 ) (406 )
Amortization of net actuarial loss 375
265
275
122
78
105
Amortization of prior service cost/(credit) 28
29
30
(45 ) (52 ) (20 )
Amortization of net actuarial loss/ prior service cost due to settlements and curtailments 186
⁽²⁾
—
—
16
⁽²⁾
—
—
Special termination benefits 4
6
11
21
⁽²⁾
12
23
GROSS BENEFIT COST/(CREDIT) 528
349
446
(9 ) (35 ) 98
Dividends on ESOP preferred stock —
—
—
(45 ) (52 ) (58 )
NET PERIODIC BENEFIT COST/(CREDIT) $ 528
$ 349
$ 446
$ (54 ) $ (87 ) $ 40
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI
Net actuarial loss/(gain) - current year $ (852 ) $ 2,028
$ (259 ) $ 597

Prior service cost/(credit) - current year 2
8
—
(40 )
Amortization of net actuarial loss (375 ) (265 ) (122 ) (78 )
Amortization of prior service (cost)/credit (28 ) (29 ) 45
52

Amortization of net actuarial loss/prior service costs due to settlements and curtailments (186 ) —
(16 ) —

Reduction in net actuarial losses resulting from curtailment (132 ) —
(37 ) —

Currency translation and other 6
(172 ) 2
(3 )
TOTAL CHANGE IN AOCI (1,565 ) 1,570
(387 ) 528

NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI $ (1,037 ) $ 1,919
$ (441 ) $ 441


⁽¹⁾ The service cost component of the net periodic benefit cost is included in the Consolidated Statements of Earnings in Cost of products sold and SG&A. All other components are included in the Consolidated Statements of Earnings in Other non-operating income/(expense), net, unless otherwise noted.	~~Service cost includes amounts related to discontinued operations, which are not material for any period.~~


⁽²⁾	~~Amortization of net actuarial loss / prior service cost due to settlement and curtailments and $18 of the special termination benefits are included in Net earnings from discontinued operations.~~

Amounts expected to be amortized from AOCI into net periodic benefit cost during the year ending June 30, ~~2018,~~2021, are as follows:


	Pension Benefits		Other Retiree Benefits
Net actuarial loss	$	401	$	47
Prior service cost/(credit)	25		(59)

Pension Benefits Other Retiree Benefits
Net actuarial loss $ 289
$ 67
Prior service cost/(credit) 28
(35 )

Amounts in millions of dollars except per share amounts or as otherwise specified.

56 The Procter & Gamble Company

Assumptions. We determine our actuarial assumptions on an annual basis. These assumptions are weighted to reflect each country that may have an impact on the cost of providing retirement benefits. The weighted average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of June 30, were as follows: ⁽¹⁾


	Pension Benefits						Other Retiree Benefits
As of June 30	2020		2019		2020		2019
Discount rate	1.5	%	1.9	%	3.1	%	3.7	%
Rate of compensation increase	2.5	%	2.6	%	N/A		N/A
Health care cost trend rates assumed for next year	N/A		N/A		6.6	%	6.6	%
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate)	N/A		N/A		4.9	%	4.9	%
Year that the rate reaches the ultimate trend rate	N/A		N/A		2026		2026

Pension Benefits Other Retiree Benefits
As of June 30 2017 2016 2017 2016
Discount rate 2.4 % 2.1 % 3.9 % 3.6 %
Rate of compensation increase 3.0 % 2.9 % N/A
N/A
Health care cost trend rates assumed for next year N/A
N/A
6.4 % 7.2 %
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate) N/A
N/A
4.9 % 4.9 %
Year that the rate reaches the ultimate trend rate N/A
N/A
2022
2021
⁽¹⁾Determined as of end of fiscal year.

The weighted average assumptions used to determine net benefit cost recorded on the Consolidated Statement of Earnings for the years ended June 30, were as follows: ⁽¹⁾


	Pension Benefits										Other Retiree Benefits
Years ended June 30	2020		2019		2018		2020		2019		2018
Discount rate	1.9	%	2.5	%	2.4	%	3.7	%	4.2	%	3.9	%
Expected return on plan assets	6.6	%	6.6	%	6.8	%	8.4	%	8.3	%	8.3	%
Rate of compensation increase	2.6	%	2.6	%	3.0	%	N/A		N/A		N/A

⁽¹⁾Determined as of beginning of fiscal year.

For ~~the fiscal year 2017, the Company changed its method of determining service and interest costs for~~ plans that make up the majority of our obligation, ~~from~~ the Company calculates the benefit obligation and the related impacts on service and interest costs using specific spot rates along the corporate bond yield curve. For the remaining plans, the Company determines these amounts utilizing a single weighted average discount rate approach to specific spot rates along the yield curve, which management has concluded is a more precise estimate. Prior to this change in methodology, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the corporate bond yield curve used to measure the plan obligations. The Company has accounted for this change as a change in accounting estimate and, accordingly, has accounted for it on a prospective basis. This change does not impact the benefit obligation and did not have a material impact on fiscal year 2017 results.

Several factors are considered in developing the estimate for the long-term expected rate of return on plan assets. For the defined benefit retirement plans, these factors include historical rates of return of broad equity and bond indices and projected long-term rates of return obtained from pension investment consultants. The expected long-term rates of return for plan assets are 88% - 9% for equities and 55% - 6% for bonds. For other retiree benefit plans, the expected long-term rate of return reflects that the assets are comprised primarily of Company stock. The expected rate of return on Company stock is based on the long-term projected return of 8.5% and reflects the historical pattern of returns.

Assumed health care cost trend rates could have a significant effect on the amounts reported for the other retiree benefit plans. A one percentage point change in assumed health care cost trend rates would have the following effects:


	One-Percentage Point Increase		One-Percentage Point Decrease
Effect on the total service and interest cost components	$	56	$	(43)
Effect on the accumulated postretirement benefit obligation	669		(543)

One-Percentage
Point Increase

One-Percentage
Point Decrease
Effect on the total service and interest cost components $ 74
$ (55 )
Effect on the accumulated postretirement benefit obligation 950
(697 )

Plan Assets. Our investment objective for defined benefit retirement plan assets is to meet the plans' benefit obligations and to improve plan self-sufficiency for future benefit obligations. The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by assessing different investment risks and matching the actuarial projections of the plans' future liabilities and benefit payments with current as well as expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and with continual monitoring of investment managers' performance relative to the investment guidelines established with each investment manager.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 57

Our target asset allocation for the year ended June 30, ~~2017,~~2020, and actual asset allocation by asset category as of June 30, ~~2017~~2020 and ~~2016,~~2019, were as follows:


	Target Asset Allocation						Actual Asset Allocation at June 30
	Pension Benefits		Other Retiree Benefits		Pension Benefits						Other Retiree Benefits
Asset Category							2020		2019		2020		2019
Cash	—	%	2	%	1	%	1	%	3	%	3	%
Debt securities	67	%	3	%	66	%	63	%	2	%	2	%
Equity securities	33	%	95	%	33	%	36	%	95	%	95	%
TOTAL	100	%	100	%	100	%	100	%	100	%	100	%

Target Asset Allocation Actual Asset Allocation at June 30
Pension Benefits
Other Retiree
Benefits
Pension Benefits Other Retiree Benefits
Asset Category 2017 2016 2017 2016
Cash 2 % 2 % 2 % 2 % 1 % 2 %
Debt securities 57 % 3 % 53 % 55 % 4 % 4 %
Equity securities 41 % 95 % 45 % 43 % 95 % 94 %
TOTAL 100 % 100 % 100 % 100 % 100 % 100 %

The following ~~tables set~~table sets forth the fair value of the Company's plan assets as of June 30, ~~2017~~2020 and ~~2016~~2019 segregated by level within the fair value hierarchy (refer to Note 9 for further discussion on the fair value hierarchy and fair value principles). Company stock listed as Level 2 in the hierarchy represents preferred shares which are valued based on the value of Company common stock. The majority of our Level 3 pension assets are insurance contracts. Their fair values are based on their cash equivalent or models that project future cash flows and discount the future amounts to a present value using market-based observable inputs, including credit risk and interest rate curves. There was no significant activity within the Level 3 pension and other retiree benefits plan assets during the years presented. Investments valued using net asset value as a practical expedient ~~are primarily equity and fixed income collective funds. These assets~~ are not valued using the fair value hierarchy, but rather valued using the net asset value reported by the managers of the funds and as supported by the unit prices of actual purchase and sale transactions. ~~For additional details~~

Company preferred stock ⁽¹⁾

Fixed income securities⁽²⁾

Insurance contracts ⁽³⁾

Investments valued at net asset value ⁽⁴⁾

⁽¹⁾Company preferred stock is valued based on the ~~fair~~ value ~~hierarchy, see Note 9.~~of Company common stock and is presented net of ESOP debt discussed below.

Cash Flows. Management's best estimate of cash requirements and discretionary contributions for the defined benefit retirement plans and other retiree benefit plans for the year ending June 30, ~~2018,~~2021, is ~~$125~~$197 and ~~$39,~~$44, respectively. For the defined benefit retirement plans, this is comprised of $75 in expected benefit payments from the Company directly to participants of unfunded plans and $50 of expected contributions to funded plans. For other retiree benefit plans, this is comprised of $24 in expected benefit payments from the

~~Company directly to participants of unfunded plans and $15 of expected contributions to funded plans.~~ Expected contributions are dependent on many variables, including the variability of the market value of the plan assets as compared to the benefit obligation and other market or regulatory conditions. In addition, we take into consideration our business investment opportunities and resulting cash requirements. Accordingly, actual funding may differ significantly from current estimates.

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~58 The Procter & Gamble Company~~

Total benefit payments expected to be paid to participants, which include payments funded from the Company's assets and payments from the plans are as follows:


Years ending June 30	Pension Benefits		Other Retiree Benefits
EXPECTED BENEFIT PAYMENTS
2021	$	559	$	196
2022	534		205
2023	556		214
2024	573		221
2025	608		225
2026 - 2030	3,258		1,199

Years ending June 30
Pension
Benefits

Other Retiree
Benefits
EXPECTED BENEFIT PAYMENTS
2018 $ 524
$ 198
2019 530
211
2020 539
222
2021 575
232
2022 596
242
2023 - 2027 3,221
1,334

Amounts in millions of dollars except per share amounts or as otherwise specified.

58 The Procter & Gamble Company

Employee Stock Ownership Plan

We maintain the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs.

The ESOP borrowed $1.0 billion in 1989 and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the U.S. DC plan. Principal and interest requirements of the borrowing were paid by the Trust from dividends on the preferred shares and from advances provided by the Company. The original borrowing of $1.0 billion has been repaid in full, and advances from the Company of ~~$62~~$33 remain outstanding at June 30, ~~2017.~~2020. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of ~~$2.70~~$3.03 per share. The liquidation value is $6.82 per share.

In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares, net of the ESOP's debt, are considered plan assets of the other retiree benefits plan discussed above. Debt service requirements are funded by preferred stock dividends, cash contributions and advances provided by the Company, of which ~~$770~~$928 are outstanding at June 30, ~~2017.~~2020. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of ~~$2.70~~$3.03 per share. The liquidation value is $12.96 per share.

Our ESOP accounting practices are consistent with current ESOP accounting guidance, including the permissible continuation of certain provisions from prior accounting guidance. ESOP debt, which is guaranteed by the Company, is recorded as debt (see Note 10) with an offset to the Reserve for ESOP debt retirement, which is presented within Shareholders' equity. Advances to the ESOP by the Company are recorded as an increase in the Reserve for ESOP debt retirement. Interest incurred on the ESOP debt is recorded as Interest expense. Dividends on all preferred shares, net of related tax benefits, are charged to Retained earnings.

The series A and B preferred shares of the ESOP are allocated to employees based on debt service requirements. The number of preferred shares outstanding at June 30 was as follows:


Shares in thousands	2020	2019	2018
Allocated	29,591	31,600	34,233
Unallocated	2,479	3,259	4,117
TOTAL SERIES A	32,070	34,859	38,350

Allocated	27,894	26,790	25,895
Unallocated	24,418	26,471	28,512
TOTAL SERIES B	52,312	53,261	54,407

Shares in thousands 2017 2016 2015
Allocated 36,488
39,241
42,044
Unallocated 5,060
6,095
7,228
TOTAL SERIES A 41,548
45,336
49,272

Allocated 25,378
23,925
23,074
Unallocated 30,412
32,319
34,096
TOTAL SERIES B 55,790
56,244
57,170

For purposes of calculating diluted net earnings per common share, the preferred shares held by the ESOP are considered converted from inception.

NOTE 9

RISK MANAGEMENT ACTIVITIES AND FAIR VALUE MEASUREMENTS

~~At inception, we formally designate~~If the Company elects to do so and ~~document qualifying~~if the instrument meets certain specified accounting criteria, management designates derivative instruments as cash flow hedges, of underlying exposures. We formally assess, at inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair value hedges or ~~cash flows of~~net investment hedges. We record derivative instruments at fair value and the ~~related underlying exposures. Fluctuations in the value of these instruments generally are offset by~~accounting for changes in the fair value ~~or cash flows~~depends on the intended use of the ~~underlying exposures being hedged. This~~derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is ~~driven by the~~designed to hedge. We generally have a high degree of effectiveness between the exposure being hedged and the hedging instrument. ~~The ineffective portion of a change in the fair value of a qualifying instrument is immediately recognized in earnings. The amount of ineffectiveness recognized was immaterial for all years presented.~~

Credit Risk Management

We have counterparty credit guidelines and normally enter into transactions with investment grade financial institutions, to the extent commercially viable. Counterparty exposures are monitored daily and downgrades in counterparty credit ratings are reviewed on a timely basis. We have not incurred, and do not expect to incur, material credit losses on our risk management or other financial instruments.

Substantially all of the Company's financial instruments used in hedging transactions are governed by industry standard

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~The Procter & Gamble Company 59~~

netting and collateral agreements with counterparties. If the Company's credit rating were to fall below the levels stipulated in the agreements, the counterparties could demand either collateralization or termination of the arrangements. The aggregate fair value of the instruments covered by these contractual features that are in a net liability position as of June 30, ~~2017,~~2020, was not material. The Company has not been required to post collateral as a result of these contractual features.

Interest Rate Risk Management

Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount.

~~Interest~~

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 59

We designate certain interest rate swaps on fixed rate debt that meet specific accounting criteria ~~are accounted for~~ as fair value ~~or cash flow~~ hedges. For fair value hedges, the changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in Interest expense. For cash flow hedges, the effective portion of the changes in fair value of the hedging instrument is reported in OCI and reclassified into Interest expense over the life of the underlying debt obligation. The ineffective portion for both cash flow and fair value hedges, which was not material for any year presented, was immediately recognized in Interest expense.earnings.

Foreign Currency Risk Management

We manufacture and sell our products and finance our operations in a number of countries throughout the world. As a result, we are exposed to movements in foreign currency exchange rates.

~~To manage~~ We leverage the ~~exchange rate risk primarily associated with the financing~~Company’s diversified portfolio of ~~our operations,~~exposures as a natural hedge. In certain cases, we ~~have historically used a combination of forward~~enter into non-qualifying foreign currency contracts ~~options and currency swaps. Historically, we have had currency swaps with original maturities up~~ to ~~five years, which were intended~~hedge certain balance sheet items subject to ~~offset the effect of exchange rate fluctuations on intercompany loans denominated in foreign currencies. These swaps were accounted for as cash flow hedges.~~revaluation. The ~~effective portion of the changes~~change in fair value of these instruments ~~was reported in OCI~~ and ~~reclassified into SG&A and Interest expense in~~ the ~~same period or periods during which the related hedged transactions affected earnings. The ineffective portion, which was not material for any year presented, was~~underlying exposure are both immediately recognized in ~~SG&A.~~earnings.

To manage exchange rate risk related to our intercompany financing, we primarily use forward contracts and currency swaps. The change in fair ~~values~~value of ~~certain~~these non-qualifying instruments ~~used to manage foreign exchange exposure of intercompany financing transactions and certain balance sheet items subject to revaluation are~~is immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related ~~exposures.~~exposure.

Net Investment Hedging

We hedge certain net investment positions in foreign subsidiaries. To accomplish this, we either borrow directly in foreign currencies and designate all or a portion of the foreign

currency debt as a hedge of the applicable net investment position or we enter into foreign currency swaps that are designated as hedges of net investments. Changes in the fair value of these instruments are recognized in the Foreign Currency Translation component of OCI toand offset the change in the value of the net investment being hedged. The ~~ineffective portion~~time value component of ~~these hedges, which was not material~~the net investment hedge currency swaps is excluded from the assessment of hedge effectiveness. Changes in ~~any year presented, was immediately~~the fair value of the swap, including changes in the fair value of the excluded time value component, are recognized in ~~Interest expense.~~OCI and offset the value of the underlying net assets. The time value component is subsequently reported in income on a systematic basis.

Commodity Risk Management

Certain raw materials used in our products or production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. To manage the volatility related to anticipated purchases of certain of these materials, we have historically, on a limited basis, used futures and options with maturities generally less than one year and swap contracts with maturities up to five years. As of and during the years ended June 30, ~~2017~~2020 and ~~2016,~~2019, we did not have any financial commodity hedging ~~activity.~~activity to manage such exposures.

Insurance

We self-insure for most insurable risks. However, we purchase insurance for Directors and Officers Liability and certain other coverage where it is required by law or by contract.

Fair Value Hierarchy

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

•Level 1: Quoted market prices in active markets for identical assets or liabilities.

•Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

•Level 3: Unobservable inputs reflecting the reporting entity's own assumptions or external inputs from inactive markets.

When applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value of any financial assets or liabilities during the year. ~~Our fair value estimates take into consideration the credit risk of both the Company and our counterparties.~~

When active market quotes are not available for financial assets and liabilities, we use industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including credit risk, interest rate curves ~~foreign currency rates~~ and forward and spot prices for currencies. In circumstances where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value. Generally, the fair value of our Level 3 instruments is estimated as the net present value of expected future cash flows based on external inputs.

Assets and Liabilities Measured at Fair Value

~~Amounts in millions~~Other investments had a fair value of ~~dollars except per share amounts or as otherwise specified.~~

~~60 The Procter & Gamble Company~~

~~The following table sets forth the Company's financial assets~~$67 and $169 as of June 30, ~~2017~~2020 and ~~2016 that~~2019, respectively, and are presented in Other noncurrent assets. During the year ended June 30, 2020, the Company sold all of its existing U.S. government securities and corporate bond securities. Such securities had fair values of $3.6 billion and $2.4 billion, respectively, and were ~~measured at fair value on a recurring basis during the period:~~

Fair Value Asset
As of June 30 2017 2016
Investments:
U.S. government securities $ 6,297
$ 4,839
Corporate bond securities 3,271
1,407
Other investments 132
28
TOTAL $ 9,700
$ 6,274

~~Investment securities are~~ presented in Available-for-sale investment securities ~~and Other noncurrent assets. The amortized cost of the U.S. government securities with maturities less than one year was $2,494 and $292 as of~~at June 30, 2017 and 2016, respectively. The amortized cost of the U.S. government securities with maturities between one and five years was $3,824 and $4,513 as of June 30, 2017 and 2016, respectively. The amortized cost of corporate bond securities with maturities of less than a year was $730 and $382 as of June 30, 2017 and 2016, respectively. The amortized cost of corporate bond securities with maturities between one and five years was $2,547 and $1,018 as of June 30, 2017 and 2016, respectively.2019. The Company's investments measured at fair value are generally classified as Level 2 within the fair value hierarchy. Cash equivalents were $14.6 billion and $3.0 billion as of June 30, 2020 and 2019, respectively and are classified as Level 1 within the fair value hierarchy. There are no other material investment balances classified as Level 1 or Level 3 within the fair value hierarchy, or using net asset value as a practical expedient. Fair values are generally estimated based upon quoted market prices for similar instruments.

The fair value of long-term debt was ~~$21,396~~$29.0 billion and ~~$24,362~~$25.4 billion as of June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. This includes the current portion of long-term debt instruments ($~~1,694~~2.5 billion and ~~$2,761~~$3.4 billion as of June 30, ~~2017~~2020 and ~~2016,~~2019, respectively). Certain long-term debt ~~approximates~~(debt designated as a fair value hedge) is recorded at fair value. ~~Certain~~All other long-term debt is ~~not~~ recorded at ~~fair value on a recurring basis,~~amortized cost, but is measured at fair value for disclosure purposes. ~~Long-term~~We consider our debt ~~with fair value of $1,716 and $2,331 as of June 30, 2017 and 2016, respectively, is classified as~~to be Level 2 ~~within the fair value hierarchy. All remaining long-term debt is classified as Level 1 within~~in the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments.

Amounts in millions of dollars except per share amounts or as otherwise specified.

60 The Procter & Gamble Company

Disclosures about ~~Derivative~~Financial Instruments

The notional amounts and fair values of ~~qualifying and non-qualifying derivative~~financial instruments used in hedging transactions as of June 30, ~~2017~~2020 and ~~2016~~2019 are as follows:


	Notional Amount						Fair Value Asset						Fair Value (Liability)
As of June 30	2020		2019		2020		2019		2020		2019
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts	$	7,114	$	7,721	$	269	$	177	$	—	$	(1)
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Foreign currency interest rate contracts	$	3,856	$	3,157	$	26	$	35	$	(41)	$	(24)
TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS	$	10,970	$	10,878	$	295	$	212	$	(41)	$	(25)

DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts	$	5,986	$	6,431	$	23	$	27	$	(25)	$	(20)

TOTAL DERIVATIVES AT FAIR VALUE	$	16,956	$	17,309	$	318	$	239	$	(66)	$	(45)

As of June 30 Notional Amount Fair Value Asset Fair Value (Liability)
2017 2016 2017 2016 2017 2016
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
Foreign currency contracts $ —
$ 798
$ —
$ 94
$ —
$ (63 )
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts $ 4,552
$ 4,993
$ 180
$ 371
$ (2 ) $ —
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Net investment hedges $ 6,102
$ 3,013
$ 14
$ 28
$ (177 ) $ (115 )
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts $ 4,969
$ 6,482
$ 25
$ 28
$ (7 ) $ (38 )

All derivative assets are presented in Prepaid expenses and other current assets or Other noncurrent assets. All derivative liabilities are presented in Accrued and other liabilities or Other noncurrent liabilities.

The ~~decrease~~fair value of the interest rate derivative asset/liability directly offsets the cumulative amount of the fair value hedging adjustment included in the ~~notional balance~~carrying amount of the underlying debt obligation. The carrying amount of the underlying debt obligation, which includes the unamortized discount or premium and the fair value adjustment, was $7.4 billion and $7.9 billion as of June 30, 2020 and 2019, respectively. In addition to the foreign currency ~~cash flow hedges is reflective of the decrease in the underlying intercompany loans. The increase in the notional balance of~~derivative contracts designated as net investment hedges, ~~primarily reflects a movement into lower yielding~~certain of our foreign currency ~~swaps.~~denominated debt instruments are designated as net investment hedges. The ~~decrease in~~carrying value of those debt instruments designated as net investment hedges, which includes the ~~notional balance of~~adjustment for the foreign currency ~~contracts not designated~~transaction gain or loss on those instruments, was $16.0 billion and $17.2 billion as ~~hedging instruments reflects changes in the level~~ of ~~intercompany financing activity during the period.~~ June 30, 2020 and 2019, respectively.

All of the Company's derivative assets and liabilities are measured at fair value that is derived from observable market data, including interest rate yield curves and foreign exchange rates, and are classified as Level 2 within the fair value hierarchy.

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers between levels during the periods presented. In addition, there was no significant activity within the Level 3 assets and liabilities during the periods presented. Except for the impairment ~~charges related to our Batteries business (see~~of the Gillette indefinite-lived intangible asset discussed in Note ~~4),~~4, there were no significant assets or liabilities that were re-measured at fair value on a non-recurring basis during the years ended June 30, ~~2017~~2020 and ~~2016.~~2019.

Before tax gains/(losses) on our financial instruments in hedging relationships are categorized as follows:


	Amount of Gain/(Loss) Recognized in OCI on Derivatives
Years ended June 30	2020		2019
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS ^{(1) (2)}
Foreign currency interest rate contracts	$	66	$	47

⁽¹⁾For the derivatives in net investment hedging relationships, the amount of gain/(loss) excluded from effectiveness testing, which was recognized in earnings, was $69 and $70 for the fiscal year ended June 30, 2020 and 2019, respectively.

⁽²⁾ In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The amount of gain/(loss) recognized in AOCI for such instruments was $189 and $299, as of June 30, 2020 and 2019, respectively.


	Amount of Gain/(Loss) Recognized in Earnings
Years ended June 30	2020		2019
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts	$	93	$	104
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts	$	(83)	$	54

The gain/(loss) on the derivatives in fair value hedging relationships is fully offset by the mark-to-market impact of the related exposure. These are both recognized in the Consolidated Statement of Earnings in Interest Expense. The gain/(loss) on derivatives not designated as hedging instruments is substantially offset by the currency mark-to-market of the related exposure. These are both recognized in the Consolidated Statements of Earnings in SG&A.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 61

Amount of Gain/(Loss)
Recognized in AOCI
on Derivatives (Effective Portion)
Years ended June 30 2017 2016
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
Interest rate contracts $ (2 ) $ (2 )
Foreign currency contracts —
—
TOTAL $ (2 ) $ (2 )
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Net investment hedges $ (104 ) $ (53 )

During the next 12 months, the amount of the June 30, 2017 AOCI balance that will be reclassified to earnings is expected to be immaterial. The amounts of gains and losses included in earnings from qualifying and non-qualifying financial instruments used in hedging transactions for the years ended June 30, 2017 and 2016 were as follows:

Amount of Gain/(Loss)
Reclassified from
AOCI into Earnings
Years ended June 30 2017 2016
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
Interest rate contracts $ —
$ 3
Foreign currency contracts 69
(106 )
TOTAL $ 69
$ (103 )

Amount of Gain/(Loss)
Recognized in Earnings
Years ended June 30 2017 2016
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts $ (193 ) $ 212
Debt 193
(212 )
TOTAL $ —
$ —
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Net investment hedges $ 6
$ (2 )
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts ⁽¹⁾
$ 59
$ (120 )


⁽¹⁾	~~The gain or loss on non-qualifying foreign currency contracts substantially offsets the foreign currency mark-to-market impact of the related exposure.~~

NOTE 10

SHORT-TERM AND LONG-TERM DEBT


As of June 30	2020			2019
DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt	$	2,508		$	3,388
Commercial paper	8,545			6,183
Other	130			126
TOTAL	$	11,183		$	9,697
Short-term weighted average interest rates ⁽¹⁾	0.7		%	0.5		%

⁽¹⁾Short-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9.


As of June 30	2020			2019
LONG-TERM DEBT
1.90% USD note due October 2020	$	600		$	600
4.13% EUR note due December 2020	674			682
9.36% ESOP debentures due 2020-2021⁽¹⁾	119			228
1.85% USD note due February 2021	600			600
1.70% USD note due November 2021	875			875
2.00% EUR note due November 2021	843			852
2.30% USD note due February 2022	1,000			1,000
2.15% USD note due August 2022	1,250			1,250
2.00% EUR note due August 2022	1,124			1,137
3.10% USD note due August 2023	1,000			1,000
1.13% EUR note due November 2023	1,405			1,421
0.50% EUR note due October 2024	562			568
0.63% EUR note due October 2024	899			909
2.45% USD note due March 2025	750			—
2.70% USD note due February 2026	600			600
2.45% USD note due November 2026	875			875
2.80% USD note due March 2027	500			—
4.88% EUR note due May 2027	1,124			1,137
2.85% USD note due August 2027	750			750
1.20% EUR note due October 2028	899			909
1.25% EUR note due October 2029	562			568
3.00% USD note due March 2030	1,500			—
5.55% USD note due March 2037	763			763
1.88% EUR note due October 2038	562			568
3.55% USD note due March 2040	1,000			—
3.50% USD note due October 2047	600			600
3.60% USD note due March 2050	1,250			—
Finance lease obligations	—			33
All other long-term debt	3,359			5,858
Current portion of long-term debt	(2,508)			(3,388)
TOTAL	$	23,537		$	20,395
Long-term weighted average interest rates ⁽²⁾	2.3		%	2.4		%

As of June 30 2017 2016
DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt $ 1,676
$ 2,760
Commercial paper 11,705
8,690
Other 173
203
TOTAL $ 13,554
$ 11,653
Short-term weighted average interest rates ⁽¹⁾
0.5 % 0.2 %


⁽¹⁾	~~Short-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9.~~

⁽¹⁾Debt issued by the ESOP is guaranteed by the Company and is recorded as debt of the Company, as discussed in Note 8.

As of June 30 2017 2016
LONG-TERM DEBT
5.13% EUR note due October 2017 1,078
1,221
1.60% USD note due November 2018 1,000
1,000
1.90% USD note due November 2019 550
550
0.28% JPY note due May 2020 894
973
4.13% EUR note due December 2020 686
666
9.36% ESOP debentures due 2017-2021 ⁽¹⁾
417
498
1.85% USD note due February 2021 600
600
1.70% USD note due November 2021 875
—
2.00% EUR note due November 2021 858
833
2.30% USD note due February 2022 1,000
1,000
2.00% EUR note due August 2022 1,144
1,110
3.10% USD note due August 2023 1,000
1,000
1.13% EUR note due November 2023 1,430
1,388
2.70% USD note due February 2026 600
600
2.45% USD note due November 2026 875
—
4.88% EUR note due May 2027 1,144
1,110
5.55% USD note due March 2037 1,130
1,400
Capital lease obligations 51
45
All other long-term debt 4,382
7,711
Current portion of long-term debt (1,676 ) (2,760 )
TOTAL $18,038 $18,945
Long-term weighted average interest rates ⁽²⁾
2.6 % 3.1 %
⁽²⁾Long-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9.


⁽¹⁾	~~Debt issued by the ESOP is guaranteed by the Company and is recorded as debt of the Company, as discussed in Note 8.~~


⁽²⁾	~~Long-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9.~~

Long-term debt maturities during the next five fiscal years are as follows:


Years ending June 30	2018	2019	2020	2021	2022	Years ending June 30	2021	2022	2023	2024	2025
Debt maturities	$1,676	$1,111	$2,010	$1,411	$2,890	Debt maturities	$2,508	$2,830	$2,425	$2,481	$2,743

The Procter & Gamble Company fully and unconditionally guarantees the registered debt and securities issued by its 100% owned finance subsidiaries.

Amounts in millions of dollars except per share amounts or as otherwise specified.

62 The Procter & Gamble Company

ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The table below presents the changes in Accumulated other comprehensive income/(loss) attributable to Procter & Gamble (AOCI), including the reclassifications out of ~~Accumulated other comprehensive income/(loss)~~AOCI by component:

Reclassification to retained earnings in accordance with ASU 2018-02 ⁽³⁾

OCI before reclassifications ⁽¹⁾

Amounts reclassified from AOCI ⁽²⁾

OCI before reclassifications ⁽³⁾

Amounts reclassified from AOCI ⁽⁴⁾

⁽¹⁾

⁽²⁾Net of tax (benefit)/expense of $0, $66 and $0 for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively, for the period ended June 30, 2019.

⁽³⁾Adjustment made to early adopt ASU 2018-02: "Reclassification of Certain Effects from Accumulated Other Comprehensive Income."

⁽⁴⁾Net of tax (benefit)/expense of $(1), $(131) and $59 for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively, for the period ended June 30, 2020.

⁽⁵⁾Net of tax (benefit)/expense of $0, $89 and $0 for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively, for the period ended June 30, 2020.

The below provides additional details on amounts reclassified from AOCI into the Consolidated Statement of Earnings:

~~Financial statement translation:~~

NOTE 12

LEASES

The Company determines whether a contract contains a lease at the inception of a contract by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. We lease certain real estate, machinery, equipment, vehicles and office equipment for varying periods. Many of these leases include an option to either renew or terminate the lease. For purposes of calculating lease liabilities, these options are included within the lease term when it has become reasonably certain that the Company will exercise such options. The incremental borrowing rate utilized to calculate our lease liabilities is based on the information available at commencement date,

as most of the leases do not provide an implicit borrowing rate. Our operating lease agreements do not contain any material guarantees or restrictive covenants. The Company does not have any material finance leases or sublease activities.

The Company incurred lease expense for operating leases of $347, $341 and $340 during the years ended June 30, 2020, 2019 and 2018, respectively. Total cash paid for amounts ~~reclassified from AOCI into Net earnings from discontinued operations. These amounts~~included in the measurement of lease liabilities during the year ended June 30, 2020 was $271. Short-term leases, defined as leases with initial terms of 12 months or less, are not reflected on the Consolidated Balance Sheets. Lease expense for such short-term leases is not material. The most significant assets in our leasing portfolio relate to ~~accumulated translation associated with foreign entities sold as part~~real estate and vehicles. For purposes of ~~the sale of the Beauty Brands business.~~calculating lease liabilities for

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 63

such leases, we have combined lease and non-lease components.

The right-of-use assets obtained in exchange for new lease liabilities were $126 for the year ended June 30, 2020.

Supplemental balance sheet and other information related to leases is as follows:


	June 30, 2020
Operating leases:
Other noncurrent assets	$	850

Accrued and other liabilities	239
Other noncurrent liabilities	652
Total operating lease liabilities	$	891

Weighted average remaining lease term:
Operating leases	6.5 years

Weighted average discount rate:
Operating leases	4.3		%

At June 30, 2020, future payments of operating lease liabilities were as follows:


	Operating Leases
	June 30, 2020
1 year	$	239
2 years	191
3 years	161
4 years	134
5 years	86
Over 5 years	212
Total lease payments	1,023
Less: Interest	(132)
Present value of lease liabilities	$	891

As of June 30, 2019, minimum lease payments under non-cancelable operating leases by fiscal year were expected to be:


	Operating Leases
	June 30, 2019
2020	$	263
2021	209
2022	165
2023	141
2024	121
After 2024	244
Total lease payments	$	1,143

NOTE 1213

COMMITMENTS AND CONTINGENCIES

Guarantees

In conjunction with certain transactions, primarily divestitures, we may provide routine indemnifications (e.g., indemnification for representations and warranties and retention of previously existing environmental, tax and employee liabilities) for which terms range in duration and, in some circumstances, are not explicitly defined. The maximum obligation under some indemnifications is also not explicitly stated and, as a result, the overall amount of these obligations cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss on any of these matters, the loss would not have a material effect on our financial position, results of operations or cash flows.

In certain situations, we guarantee loans for suppliers and customers. The total amount of guarantees issued under such arrangements is not material.

Off-Balance Sheet Arrangements

We do not have off-balance sheet financing arrangements, including variable interest entities, that have a material impact on our financial statements.

Purchase Commitments ~~and Operating Leases~~

We have purchase commitments for materials, supplies, services and property, plant and equipment as part of the normal course of business. Commitments made under take-or-pay obligations are as follows:


Years ending June 30	2018		2019		2020		2021		2022		Thereafter		Years ending June 30	2021		2022		2023		2024		2025		There-after
Purchase obligations	$	843	$	225	$	168	$	99	$	70	$	202	Purchase obligations	$	782	$	257	$	155	$	92	$	53	$	238

Such amounts represent minimum commitments under take-or-pay agreements with suppliers and are in line with expected usage. These amounts include purchase commitments related to service contracts for information technology, human resources management and facilities management activities that have been outsourced to ~~third-party suppliers. Such amounts also include arrangements with suppliers that qualify as embedded operating leases. Due to the proprietary nature~~third-

Amounts in millions of dollars except per share amounts or as otherwise specified.

64 The Procter & Gamble Company 63

party suppliers. Due to the proprietary nature of many of our materials and processes, certain supply contracts contain penalty provisions for early termination. We do not expect to incur penalty payments under these provisions that would materially affect our financial position, results of operations or cash flows.

~~We also lease certain property and equipment for varying periods. Future minimum rental commitments under non-cancelable operating leases, net of guaranteed sublease income, are as follows:~~

Years ending June 30 2018 2019 2020 2021 2022 Thereafter
Operating leases $ 261
$ 273
$ 237
$ 194
$ 160
$ 368

Litigation

We are subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental, patent and trademark matters, labor and employment matters and tax.

While considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsuits and claims will not materially affect our financial position, results of operations or cash flows.

We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information, we do not believe the ultimate resolution of environmental remediation will materially affect our financial position, results of operations or cash flows.

NOTE 1314

~~DISCONTINUED OPERATIONS~~MERCK ACQUISITION

On ~~October 1, 2016, the Company~~November 30, 2018, we completed ~~the divestiture of four product categories to Coty, Inc. (“Coty”). The divestiture included 41~~our acquisition of the ~~Company's beauty brands (“Beauty Brands”), including the global salon professional hair care and color, retail hair color, cosmetics and a majority~~OTC healthcare business of ~~the fine fragrance businesses, along with select hair styling brands. The form of the divestiture transaction was a Reverse Morris Trust split-off, in which P&G shareholders were given the election to~~Merck OTC for $3.7 billion (based on exchange their P&G shares for shares of a new corporation that held the Beauty Brands (Galleria Co.), and then immediately exchange those shares for Coty shares. The value P&G received in the transaction was $11.4 billion. The value was comprised of 105 million shares of common stock of the Company, which were tendered by shareholders of the Company and exchanged for the Galleria Co. shares, valued at approximately $9.4 billion, and the assumption of $1.9 billion of debt by Galleria Co. The shares tendered in the transaction were reflected as an addition to treasury stock and the cash received related to the debt assumed by Coty was reflected as an investing activity in the Consolidated Statement of Cash Flows. The Company recorded an after-tax gain on the final transaction of $5.3 billion, net of transaction and related costs.

Two of the fine fragrance brands, Dolce & Gabbana and Christina Aguilera, were excluded from the divestiture. These brands were subsequently divested at amounts that approximated their adjusted carrying values.

In February 2016, the Company completed the divestiture of its Batteries business to Berkshire Hathaway (BH) via a split transaction, in which the Company exchanged the Duracell Company, which the Company had infused with additional cash, to repurchase all 52.5 million shares of P&G stock owned by BH. During the fiscal year ended June 30, 2016, the Company recorded non-cash, before-tax goodwill and indefinite-lived asset impairment charges of $402 ($350 after tax), to reduce the Batteries carrying value to the total estimated proceeds based on the value of BH’s shares in P&G stockrates at the time of the impairment charges (see Note 4). The Company recorded an after-tax gain on the final transaction of $422 to reflect a subsequent increase in the final value of the BH’s shares in P&G stock. The total value of the transaction was $4.2 billion representing the value of the Duracell business and the cash infusion. The cash infusion of $1.7 billion was reflected as a purchase of treasury stock.

~~On July 31, 2014, the Company completed the divestiture of its Pet Care operations in North America, Latin America, and other selected countries to Mars, Incorporated (Mars) for $2.9 billion~~closing) in an all-cash transaction. ~~Under~~This business primarily sells OTC consumer healthcare products, mainly in Europe, Latin America and Asia markets. The results of Merck OTC, which are not material to the ~~terms~~Company, are reported in our consolidated financial statements beginning December 1, 2018.

During the quarter ended December 31, 2019, we completed the allocation of the ~~agreement, Mars~~purchase price to the individual assets acquired ~~our branded pet care products, our manufacturing sites~~and liabilities assumed. The allocation is based on the final determination of fair values of the assets and

liabilities acquired. The following table presents the allocation of purchase price related to the Merck OTC business as of the date of the acquisition:


Amounts in millions	November 30, 2018
Current assets	$	421
Property, plant and equipment	119
Intangible assets	2,134
Goodwill	2,083
Other non-current assets	209
Total Assets Acquired	$	4,966

Current liabilities	$	232
Deferred income taxes	763
Non-current liabilities	94
Total Liabilities Acquired	$	1,089

Noncontrolling Interest ⁽¹⁾	$	169

Net Assets Acquired	$	3,708

⁽¹⁾Represents a 48% minority ownership interest in the ~~United States~~Merck India company.

The acquisition resulted in $2.1 billion in goodwill, of which approximately $180 million was expected to be deductible for tax purposes as of the acquisition date. All of this goodwill was allocated to the Health Care Segment.

The purchase price allocation to Merck OTC's identifiable intangible assets and ~~the~~their average useful lives is as follows:


Amounts in millions	Fair Value		Average Useful Life
Intangible Assets with Determinable Lives
Brands	$	701	14
Patents and technology	162		10
Customer relationships	325		20
Total	$	1,188	15

Intangible Assets with Indefinite Lives
Brands	946
Total Intangible Assets	$	2,134

The majority of the ~~employees working in~~intangible valuation relates to brand intangibles. Our assessment as to brand intangibles that have an indefinite life and those that have a definite life was based on a number of factors, including competitive environment, market share, brand history, product life cycles, operating plan and the Pet Care business. The agreement included an option for Mars to acquire the Pet Care business in several additional countries, which was also completed in fiscal 2015. The European Union countries were not included in the agreement with Mars.

~~In December 2014, the Company completed the divestiture of its Pet Care operations in Western Europe to Spectrum Brands in an all-cash transaction. Under the terms~~macroeconomic environment of the ~~agreement, Spectrum Brands acquired our branded pet~~countries in which the brands are sold. The indefinite-lived brand intangibles include Neurobion and Dolo Neurobion. The definite-lived brand intangibles primarily include regional or local brands. The definite-lived brand intangibles have estimated lives ranging from 10 to 20 years. The technology intangibles are related to R&D and manufacturing know-how. The customer relationships intangibles are related to Merck OTC’s relationships with health care ~~products, our manufacturing site in the Netherlands~~professionals, retailers and ~~the majority of the employees working in the Western Europe Pet Care business. The one-time after-tax impact of these transactions is not material.~~

In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Beauty Brands, Batteries and Pet Care businesses are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Additionally, the Beauty Brands' balance sheet positions are presented as assets and liabilities held for sale in the Consolidated Balance Sheet as of June 30, 2016. The Beauty Brands were historically part of the Company's Beauty reportable segment. The Batteries business was historically part of the Company's Fabric & Home Care reportable segment. The Pet Care business was historically part of the Company's Health Care reportable segment.

distributors.

Amounts in millions of dollars except per share amounts or as otherwise specified.

~~64 The Procter & Gamble Company~~

On July 1, 2015, the Company adopted ASU 2014-08, which included new reporting and disclosure requirements for discontinued operations. The new requirements are effective for discontinued operations occurring on or after the adoption date, which includes the Beauty Brands divestiture. All other discontinued operations prior to July 1, 2015 are reported based on the previous disclosure requirements for discontinued operations, including the Batteries and Pet Care divestitures.

~~The following table summarizes Net earnings/(loss) from discontinued operations and reconciles to the Consolidated Statements of Earnings:~~

~~The following is selected financial information included in Net earnings/(loss) from discontinued operations for the Beauty Brands:~~

For the fiscal year ended June 30, 2017, the Beauty Brands incurred transition costs of $167, after-tax, which are included in the table above. For the fiscal year ended June 30, 2016, transition costs of $112, before-tax, were incurred and are included in Net earnings/(loss) from discontinued operations.

~~The following is selected financial information included in cash flows from discontinued operations for the Beauty Brands:~~

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

The Procter & Gamble Company 65

~~The major components of assets and liabilities of the Beauty Brands held for sale are provided below.~~

~~Following is selected financial information included in Net earnings/(loss) from discontinued operations for the Batteries and Pet Care businesses:~~

Net Sales Earnings Before Impairment Charges and Income Taxes Impairment Charges Income Tax (Expense)/Benefit Gain/(Loss) on Sale Before Income Taxes Income Tax (Expense)/Benefit on Sale Net Earnings/(Loss) from Discontinued Operations
Batteries 2016 1,517
266
(402 ) (45 ) (288 ) 710
⁽¹⁾
241
2015 2,226
479
(2,174 ) (140 ) —
—
(1,835 )
Pet Care 2016 —
—
—
—
—
—
—
2015 251
—
—
(4 ) 195
(142 ) 49
Total 2016 1,517
266
(402 ) (45 ) (288 ) 710
⁽¹⁾
241
2015 2,477
479
(2,174 ) (144 ) 195
(142 ) (1,786 )

~~Amounts in millions of dollars except per share amounts or as otherwise specified.~~

~~66 The Procter & Gamble Company~~

QUARTERLY RESULTS (UNAUDITED)


Quarters Ended		Sep 30			Dec 31			Mar 31			Jun 30			Total Year
NET SALES	2019-2020	$	17,798		$	18,240		$	17,214		$	17,698		$	70,950
	2018-2019	16,690			17,438			16,462			17,094			67,684
OPERATING INCOME	2019-2020	4,290			4,482			3,453			3,481			15,706
	2018-2019	3,554			3,896			3,229			(5,192)			5,487
GROSS MARGIN	2019-2020	51.0		%	51.4		%	49.4		%	49.5		%	50.3		%
	2018-2019	49.2		%	48.9		%	48.8		%	47.7		%	48.6		%
NET EARNINGS/(LOSS):
Net earnings/(loss)	2019-2020	3,617			3,743			2,957			2,786			13,103
	2018-2019	3,211			3,216			2,776			(5,237)			3,966
Net earnings/(loss) attributable to Procter & Gamble	2019-2020	3,593			3,717			2,917			2,800			13,027
	2018-2019	3,199			3,194			2,745			(5,241)			3,897
DILUTED NET EARNINGS/(LOSS) PER COMMON SHARE ^{(1) (2)}	2019-2020	$	1.36		$	1.41		$	1.12		$	1.07		$	4.96
	2018-2019	1.22			1.22			1.04			(2.12)			1.43

Quarters Ended Sep 30 Dec 31 Mar 31 Jun 30 Total Year
NET SALES 2016-2017 $ 16,518
$ 16,856
$ 15,605
$ 16,079
$ 65,058
2015-2016 16,527
16,915
15,755
16,102
65,299
OPERATING INCOME 2016-2017 3,771
3,875
3,360
2,949
13,955
2015-2016 3,768
3,853
3,318
2,502
13,441
GROSS MARGIN 2016-2017 51.0 % 50.8 % 49.8 % 48.4 % 50.0 %
2015-2016 50.7 % 50.0 % 49.8 % 47.9 % 49.6 %
NET EARNINGS:
Net earnings from continuing operations 2016-2017 $ 2,875
$ 2,561
$ 2,556
$ 2,202
$ 10,194
2015-2016 2,777
2,905
2,337
2,008
10,027
Net earnings/(loss) from discontinued operations 2016-2017 (118 ) 5,335
—
—
5,217
2015-2016 (142 ) 323
446
(50 ) 577
Net earnings attributable to Procter & Gamble 2016-2017 2,714
7,875
2,522
2,215
15,326
2015-2016 2,601
3,206
2,750
1,951
10,508
DILUTED NET EARNINGS PER COMMON SHARE: ⁽¹⁾

Earnings from continuing operations 2016-2017 $ 1.00
$ 0.93
$ 0.93
$ 0.82
$ 3.69
2015-2016 0.96
1.01
0.81
0.71
3.49
Earnings/(loss) from discontinued operations 2016-2017 (0.04 ) 1.95
—
—
1.90
2015-2016 (0.05 ) 0.11
0.16
(0.02 ) 0.20
Net earnings 2016-2017 0.96
2.88
0.93
0.82
5.59
2015-2016 0.91
1.12
0.97
0.69
3.69
⁽¹⁾Diluted net earnings/(loss) per share is calculated on Net earnings/(loss) attributable to Procter & Gamble.

⁽²⁾Diluted net earnings/(loss) per share in each quarter is computed using the weighted average number of shares outstanding during that quarter while Diluted net earnings/(loss) per share for the full year is computed using the weighted average number of shares outstanding during the year. In the quarter ended June 30, 2019, the Company reported a Net loss attributable to P&G, driven by the Shave Care impairment charges discussed in Note 4. This caused certain of our equity instruments to be antidilutive for the full year (preferred shares) and for the quarter ended June 30, 2019 (preferred shares and equity awards). Because these securities were dilutive during the first three quarters of this fiscal year, the sum of the four quarters' Diluted net earnings/(loss) per share will not equal the full-year Diluted net earnings per common share.


⁽¹⁾			~~Diluted net earnings per share is calculated on Net earnings attributable to Procter & Gamble.~~


Cincinnati
THE PROCTER & GAMBLE COMPANY	OH
One Procter & Gamble Plaza	One Procter & Gamble Plaza, Cincinnati, Ohio 45202	45202
513	Telephone (513) 983-1100	983-1100
	IRS Employer Identification No. 31-0411980	31-0411980
	State of Incorporation: Ohio	OH



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, without Par Value	PG	New York Stock Exchange ~~NYSE Euronext-Paris~~
4.125% EUR notes due December 2020	PG20A	New York Stock Exchange
2.000% notes due 2021	PG21	New York Stock Exchange
2.000% notes due 2022	PG22B	New York Stock Exchange
1.125% notes due 2023	PG23A	New York Stock Exchange
0.500% notes due 2024	PG24A	New York Stock Exchange
0.625% notes due 2024	PG24B	New York Stock Exchange
1.375% notes due 2025	PG25	New York Stock Exchange
4.875% EUR notes due May 2027	PG27A	New York Stock Exchange
1.200% notes due 2028	PG28	New York Stock Exchange
1.250% notes due 2029	PG29B	New York Stock Exchange
1.800% notes due 2029	PG29A	New York Stock Exchange
6.250% GBP notes due January 2030	PG30	New York Stock Exchange
5.250% GBP notes due January 2033	PG33	New York Stock Exchange
1.875% notes due 2038	PG38	New York Stock Exchange


~~[x]~~	~~ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~


~~[ ]~~	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~



FORM 10-K TABLE OF CONTENTS								Page
PART I	Item 1.	Business				1
	Item 1A.	Risk Factors				2
	Item 1B.	Unresolved Staff Comments		6		7
	Item 2.	Properties		6		7
	Item 3.	Legal Proceedings		6		7
	Item 4.	Mine Safety Disclosure		6		7
		Information about our Executive Officers ~~of the Registrant~~		7		8
PART II	Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		8		9
	Item 6.	Selected Financial Data		10		11
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations				11
	Item 7A.	Quantitative and Qualitative Disclosures ~~About~~a bout Market Risk				32
	Item 8.	Financial Statements and Supplementary Data				33
			Management's Report and Reports of Independent Registered Public Accounting Firm				33
			Consolidated Statements of Earnings		36		37
			Consolidated Statements of Comprehensive Income		37		38
			Consolidated Balance Sheets		38		39
			Consolidated Statements of Shareholders' Equity		39		40
			Consolidated Statements of Cash Flows		40		41
			Notes to Consolidated Financial Statements		41		42
			Note 1: Summary of Significant Accounting Policies		41		42
			Note 2: Segment Information				44
			Note 3: Supplemental Financial Information				46
			Note 4: Goodwill and Intangible Assets		48		47
			Note 5: Income Taxes		49		48
			Note 6: Earnings Per Share		51		50
			Note 7: Stock-based Compensation		52		51
			Note 8: Postretirement Benefits and Employee Stock Ownership Plan				53
			Note 9: Risk Management Activities and Fair Value Measurements				58
			Note 10: Short-term and Long-term Debt				61
			Note 11: Accumulated Other Comprehensive Income/(Loss)				62
			Note 12:Leases				62
		Note 13: Commitments and Contingencies		62		63
			Note ~~13: Discontinued Operations~~14: Merck Acquisition		63		64
			Note ~~14:~~15: Quarterly Results (Unaudited)		66		65
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		67		65
	Item 9A.	Controls and Procedures		67		65
	Item 9B.	Other Information		67		65
PART III	Item 10.	Directors, Executive Officers and Corporate Governance		67		66
	Item 11.	Executive Compensation		67		66
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		68		66
	Item 13.	Certain Relationships and Related Transactions and Director Independence		69		67
	Item 14.	Principal Accountant Fees and Services		69		67
PART IV	Item 15.	Exhibits and Financial Statement Schedules		69		67
	Item 16.	Form 10-K Summary		71		69
		Signatures		72		70
		Exhibit Index		73		71



	Total Number of Employees
2017	95,000
2016	105,000
2015	110,000
2014	118,000
2013	121,000
2012	126,000



Net Sales (years ended June 30)	United States	International
2017	$27.3	$37.8
2016	$27.0	$38.3
2015	$26.8	$43.9
Total Assets (years ended June 30)
2017	$59.8	$60.6
2016	$64.4	$62.7
2015	$65.0	$64.5



Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share⁽²⁾	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽³⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under Our Share Repurchase Program
4/1/2017 - 4/30/2017	5,568,038	89.80	5,568,038	⁽³⁾
5/1/2017 - 5/31/2017	2,315,036	86.39	2,315,036	⁽³⁾
6/1/2017 - 6/30/2017	—	—	—	⁽³⁾
Total	7,883,074	$88.80	7,883,074	⁽³⁾


⁽¹⁾	All transactions were made in the open market with large financial institutions. This table excludes shares withheld from employees to satisfy minimum tax withholding requirements on option exercises and other equity-based transactions. The Company administers cashless exercises through an independent third party and does not repurchase stock in connection with cashless exercises.


⁽²⁾	~~Average price paid per share is calculated on a settlement basis and excludes commission.~~



(in dollars; split-adjusted)	1957		1967		1977		1987		1997		2007		2017
Dividends per share	$	0.01	$	0.03	$	0.08	$	0.17	$	0.45	$	1.28	$	2.70



Quarter Ended	2016 - 2017		2015 - 2016
September 30	$	0.6695	$	0.6629
December 31	0.6695		0.6629
March 31	0.6695		0.6629
June 30	0.6896		0.6695



Reportable Segments	% of Net Sales ⁽¹⁾	% of Net Earnings ⁽¹⁾	Product Categories (Sub-Categories)	Major Brands
Beauty	18%	19%	Hair Care (Conditioner, Shampoo, Styling Aids, Treatments)	Head & Shoulders, Pantene, Rejoice
Beauty	18%	19%	Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care)	Olay, Old Spice, Safeguard, SK-II
Grooming	10%	16%	Grooming⁽²⁾ (Shave Care - Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care; Appliances)	Braun, Fusion, Gillette, Mach3, Prestobarba, Venus
Health Care	12%	13%	Oral Care (Toothbrushes, Toothpaste, Other Oral Care)	Crest, Oral-B
Health Care	12%	13%	Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Other Personal Health Care)	Prilosec, Vicks
Fabric & Home Care	32%	27%	Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents)	Ariel, Downy, Gain, Tide
Fabric & Home Care	32%	27%	Home Care (Air Care, Dish Care, P&G Professional, Surface Care)	Cascade, Dawn, Febreze, Mr. Clean, Swiffer
Baby, Feminine & Family Care	28%	25%	Baby Care (Baby Wipes, Diapers and Pants)	Luvs, Pampers
			Feminine Care (Adult Incontinence, Feminine Care)	Always, Tampax
			Family Care (Paper Towels, Tissues, Toilet Paper)	Bounty, Charmin



Year ended June 30, 2017	Net Sales Growth		Foreign Exchange Impact		Acquisition/Divestiture Impact ⁽¹⁾		Organic Sales Growth
Beauty	—	%	2	%	1	%	3	%
Grooming	(3	)%	2	%	1	%	—	%
Health Care	2	%	2	%	1	%	5	%
Fabric & Home Care	—	%	2	%	1	%	3	%
Baby, Feminine & Family Care	(1	)%	2	%	—	%	1	%
TOTAL COMPANY	—	%	2	%	—	%	2	%

Year ended June 30, 2016	Net Sales Growth		Foreign Exchange Impact		Acquisition/Divestiture Impact ⁽¹⁾		Organic Sales Growth
Beauty	(9	)%	6	%	3	%	—	%
Grooming	(8	)%	9	%	1	%	2	%
Health Care	(5	)%	6	%	1	%	2	%
Fabric & Home Care	(7	)%	6	%	2	%	1	%
Baby, Feminine & Family Care	(9	)%	6	%	2	%	(1	)%
TOTAL COMPANY	(8	)%	6	%	3	%	1	%



	Operating Cash Flow		Capital Spending			Divestiture impacts ⁽¹⁾		Adjusted Free Cash Flow
2017	$	12,753	$	(3,384	)	$	418	$	9,787
2016	15,435		(3,314		)	—		12,121
2015	14,608		(3,736		)	729		11,601



	Net Earnings		Adjustments to Net Earnings ⁽¹⁾			Net Earnings Excluding Adjustments		Adjusted Free Cash Flow		Adjusted Free Cash Flow Productivity
2017	$	15,411	$	(4,990	)	$	10,421	$	9,787	94	%
2016	10,604		(72		)	10,532		12,121		115	%
2015	7,144		4,187			11,331		11,601		102	%



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2017
	AS REPORTED (GAAP)		DISCONTINUED OPERATIONS			INCREMENTAL RESTRUCTURING			EARLY DEBT EXTINGUISHMENT		ROUNDING			NON-GAAP (CORE)
COST OF PRODUCTS SOLD	$	32,535	$	—		$	(498	)	$	—	$	—		$	32,037
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE	18,568		—			99			—		—			18,667
OPERATING INCOME	13,955		—			399			—		—			14,354
INCOME TAX ON CONTINUING OPERATIONS	3,063		—			120			198		—			3,381
NET EARNINGS ATTRIBUTABLE TO P&G	15,326		(5,217		)	279			345		(1		)	10,732
			—			—			—		—			Core EPS
DILUTED NET EARNINGS PER COMMON SHARE*	$	5.59	$	(1.90	)	$	0.10		$	0.13	$	—		$	3.92



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2016
	AS REPORTED (GAAP)		DISCONTINUED OPERATIONS			INCREMENTAL RESTRUCTURING			CHARGES FOR EUROPEAN LEGAL MATTERS			ROUNDING			NON-GAAP (CORE)
COST OF PRODUCTS SOLD	$	32,909	$	—		$	(624	)	$	—		$	—		$	32,285
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE	18,949		—			31			(13		)	—			18,967
OPERATING INCOME	13,441		—			593			13			—			14,047
INCOME TAX ON CONTINUING OPERATIONS	3,342		—			94			2			(1		)	3,437
NET EARNINGS ATTRIBUTABLE TO P&G	10,508		(577		)	499			11			—			10,441
															Core EPS
DILUTED NET EARNINGS PER COMMON SHARE*	$	3.69	$	(0.20	)	$	0.18		$	—		$	—		$	3.67



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2015
	AS REPORTED (GAAP)		DISCON-TINUED OPERATIONS		INCRE-MENTAL RESTRUC-TURING			VENEZUELA BALANCE SHEET DEVALUA-TION			VENEZUELA DECONSOL-IDATION			CHARGES FOR EUROPEAN LEGAL MATTERS			ROUND-ING			NON-GAAP (CORE)
COST OF PRODUCTS SOLD	$	37,056	$	—	$	(518	)	$	—		$	—		$	—		$	(1	)	$	36,537
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE	20,616		—		(103		)	(138		)	—			(28		)	1			20,348
OPERATING INCOME	11,049		—		621			138			2,028			28			—			13,864
INCOME TAX ON CONTINUING OPERATIONS	2,725		—		145			34			(24		)	—			(1		)	2,879
NET EARNINGS ATTRIBUTABLE TO P&G	7,036		1,153		476			104			2,052			28			1			10,850
																				Core EPS
DILUTED NET EARNINGS PER COMMON SHARE*	$	2.44	$	0.40	$	0.17		$	0.04		$	0.71		$	0.01		$	(0.01	)	$	3.76



Dollars in millions; shares in thousands	Common Shares Outstanding		Common Stock		Preferred Stock			Add-itional Paid-In Capital			Reserve for ESOP Debt Retirement			Accumu-lated Other Comp-rehensive Income/(Loss)			Treasury Stock			Retained Earnings			Non-controlling Interest			Total Share-holders' Equity
BALANCE JUNE 30, 2014	2,710,806			$4,009		$1,111			$63,911			($1,340	)		($7,662	)		($75,805	)		$84,990			$762			$69,976
Net earnings																				7,036			108			7,144
Other comprehensive loss														(5,118		)										(5,118		)
Dividends to shareholders:
Common																				(7,028		)				(7,028		)
Preferred, net of tax benefits																				(259		)				(259		)
Treasury purchases	(54,670	)															(4,604		)							(4,604		)
Employee plan issuances	54,100							156									3,153									3,309
Preferred stock conversions	4,335				(34		)	4									30									—
ESOP debt impacts											20									68						88
Noncontrolling interest, net								(219		)													(239		)	(458		)
BALANCE JUNE 30, 2015	2,714,571			$4,009		$1,077			$63,852			($1,320	)		($12,780	)		($77,226	)		$84,807			$631			$63,050
Net earnings																				10,508			96			10,604
Other comprehensive loss														(3,127		)										(3,127		)
Dividends to shareholders:
Common																				(7,181		)				(7,181		)
Preferred, net of tax benefits																				(255		)				(255		)
Treasury purchases ⁽¹⁾	(103,449	)															(8,217		)							(8,217		)
Employee plan issuances	52,089							(144		)							3,234									3,090
Preferred stock conversions	4,863				(39		)	6									33									—
ESOP debt impacts											30									74						104
Noncontrolling interest, net																							(85		)	(85		)
BALANCE JUNE 30, 2016	2,668,074			$4,009		$1,038			$63,714			($1,290	)		($15,907	)		($82,176	)		$87,953			$642			$57,983
Net earnings																				15,326			85			15,411
Other comprehensive loss														1,275												1,275
Dividends to shareholders:
Common																				(6,989		)				(6,989		)
Preferred, net of tax benefits																				(247		)				(247		)
Treasury purchases ⁽²⁾	(164,866	)															(14,625		)							(14,625		)
Employee plan issuances	45,848							(77		)							3,058									2,981
Preferred stock conversions	4,241				(32		)	4									28									—
ESOP debt impacts											41									81						122
Noncontrolling interest, net																							(133		)	(133		)
BALANCE JUNE 30, 2017	2,553,297			$4,009		$1,006			$63,641			($1,249	)		($14,632	)		($93,715	)		$96,124			$594			$55,778



% of Sales by Business Unit ⁽¹⁾
Years ended June 30	2017	2016	2015
Fabric Care	22%	22%	22%
Baby Care	14%	14%	15%
Hair Care	10%	10%	11%
Home Care	10%	10%	9%
Shave Care	9%	9%	9%
Family Care	8%	8%	8%
Oral Care	8%	8%	8%
Skin and Personal Care	8%	8%	7%
Feminine Care	6%	6%	6%
All Other	5%	5%	5%
TOTAL	100%	100%	100%



Global Segment Results		Net Sales		Earnings/(Loss) from Continuing Operations Before Income Taxes			Net Earnings/(Loss) from Continuing Operations			Depreciation and Amortization		Total Assets		Capital Expenditures
BEAUTY	2017	$	11,429	$	2,546		$	1,914		$	220	$	4,184	$	599
	2016	11,477		2,636			1,975			218		3,888		435
	2015	12,608		2,895			2,181			247		4,004		411
GROOMING	2017	6,642		1,985			1,537			433		22,759		341
	2016	6,815		2,009			1,548			451		22,819		383
	2015	7,441		2,374			1,787			540		23,090		372
HEALTH CARE	2017	7,513		1,898			1,280			209		5,194		283
	2016	7,350		1,812			1,250			204		5,139		240
	2015	7,713		1,700			1,167			202		5,212		218
FABRIC & HOME CARE	2017	20,717		4,249			2,713			513		6,886		797
	2016	20,730		4,249			2,778			531		6,919		672
	2015	22,274		4,059			2,634			547		7,155		986
BABY, FEMININE & FAMILY CARE	2017	18,252		3,868			2,503			874		9,920		1,197
	2016	18,505		4,042			2,650			886		9,863		1,261
	2015	20,247		4,317			2,938			924		10,109		1,337
CORPORATE ⁽¹⁾	2017	505		(1,289		)	247			571		71,463		167
	2016	422		(1,379		)	(174		)	788		78,508		323
	2015	466		(4,333		)	(2,420		)	674		79,925		412
TOTAL COMPANY	2017	$	65,058	$	13,257		$	10,194		$	2,820	$	120,406	$	3,384
	2016	65,299		13,369			10,027			3,078		127,136		3,314
	2015	70,749		11,012			8,287			3,134		129,495		3,736


⁽¹⁾	⁽¹⁾Grooming goodwill balance is net of $1.2 ~~billion accumulated impairment losses.~~


⁽²⁾	~~The Batteries goodwill at June 30, 2015, net of $2.1~~ billion accumulated impairment losses ~~was reported in Current assets held for sale in the Consolidated Balance Sheet. The Batteries business was divested in February 2016.~~



	RSUs				PSUs
Other stock-based awards	Units (in thousands)		Weighted Average Grant Date Fair Value		Units (in thousands)		Weighted Average Grant Date Fair Value
Non-vested at July 1, 2016	5,274		$	65.53	1,146		$	75.25
Granted	1,730		89.74		623		91.03
Vested	(1,586	)	66.70		(575	)	77.55
Forfeited	(59	)	69.21		—		—
Non-vested at June 30, 2017	5,359		$	74.98	1,194		$	82.40



CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	10,269		$	10,605		$	3,787		$	3,470
Actual return on plan assets	884			630			136			408
Acquisitions/(divestitures) ⁽⁴⁾	(34		)	(13		)	—			—
Employer contributions	316			306			36			32
Participants' contributions	14			17			74			74
Currency translation and other	(18		)	(719		)	(4		)	(8		)
ESOP debt impacts ⁽⁵⁾	—			—			44			40
Benefit payments	(602		)	(557		)	(242		)	(229		)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR	$	10,829		$	10,269		$	3,831		$	3,787
Reclassification of net obligation to held for sale liabilities	—			402			—			16
FUNDED STATUS	$	(5,331	)	$	(6,614	)	$	(1,356	)	$	(1,829	)



	Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets				Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
As of June 30	2017		2016		2017		2016
Projected benefit obligation	$	13,699	$	15,233	$	14,181	$	15,853
Accumulated benefit obligation	12,276		13,587		12,630		14,149
Fair value of plan assets	8,279		8,082		8,654		8,657


⁽¹⁾			~~Company stock is net of ESOP debt discussed below.~~


⁽²⁾	The Company's other pension plan assets measured at fair value are generally classified as Level 3 within the fair value hierarchy. There are no material other pension plan asset balances classified as Level 1 or Level 2 within the fair value hierarchy.


Changes in Accumulated Other Comprehensive Income/(Loss) by Component
	Investment Securities		Post-retirement Benefits		Foreign Currency Translation		Total AOCI
BALANCE at JUNE 30, 2018	$	(173)	$	(4,058)	$	(10,518)	$	(14,749)
OCI before reclassifications ⁽¹⁾	167		(43)		(213)		(89)
Amounts reclassified from AOCI into the Consolidated Statement of Earnings ⁽²⁾	17		212		—		229
Net current period OCI	184		169		(213)		140
Reclassification to retained earnings in accordance with ASU 2018-02 ⁽³⁾	—		(308)		(18)		(326)
Less: Other comprehensive income/(loss) attributable to non-controlling interests	—		1		—		1
BALANCE at JUNE 30, 2019	11		(4,198)		(10,749)		(14,936)
OCI before reclassifications ⁽⁴⁾	(10)		(453)		(1,083)		(1,546)
Amounts reclassified from AOCI into the Consolidated Statement of Earnings ⁽⁵⁾	(2)		303		—		301
Net current period OCI	(12)		(150)		(1,083)		(1,245)

Less: Other comprehensive income/(loss) attributable to non-controlling interests	—		2		(18)		(16)
BALANCE at JUNE 30, 2020	$	(1)	$	(4,350)	$	(11,814)	$	(16,165)



Changes in Accumulated Other Comprehensive Income/(Loss) by Component
	Hedges			Investment Securities			Pension and Other Retiree Benefits			Financial Statement Translation			Total
BALANCE at JUNE 30, 2015	$	(2,642	)	$	6		$	(4,321	)	$	(5,823	)	$	(12,780	)
OCI before reclassifications ⁽¹⁾	(103		)	29			(1,710		)	(1,679		)	(3,463		)
Amounts reclassified from AOCI ⁽²⁾	104			(1		)	233			—			336
Net current period OCI	1			28			(1,477		)	(1,679		)	(3,127		)
BALANCE at JUNE 30, 2016	(2,641		)	34			(5,798		)	(7,502		)	(15,907		)
OCI before reclassifications ⁽³⁾	(237		)	(49		)	910			356			980
Amounts reclassified from AOCI ⁽⁴⁾	(69		)	(10		)	491			(117		)	295
Net current period OCI	(306		)	(59		)	1,401			239			1,275
BALANCE at JUNE 30, 2017	$	(2,947	)	$	(25	)	$	(4,397	)	$	(7,263	)	$	(14,632	)


⁽²⁾	~~Net of tax (benefit) / expense of $(1), $0 and $87 for gains/losses on hedges, investment securities and pension and other retiree benefit items, respectively, for the period ended June 30, 2016.~~