UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K

(Mark one)
[x]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[x]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 2016

2019
OR
[ ]TRANSITION 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

For the transition period from to

Commission File No. 1-434
THE PROCTER & GAMBLE COMPANY
One Procter & Gamble Plaza, Cincinnati, Ohio 45202
Telephone (513) 983-1100
IRS Employer Identification No. 31-0411980
State of Incorporation: Ohio
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, without Par ValuePGNew York Stock Exchange NYSE Euronext-Paris
4.125% EUR notes due December 2020PG20ANew York Stock Exchange
0.275% Notes due 2020PG20New York Stock Exchange
2.000% Notes due 2021PG21New York Stock Exchange
2.000% Notes due 2022PG22BNew York Stock Exchange
1.125% Notes due 2023PG23ANew York Stock Exchange
0.500% Notes due 2024PG24ANew York Stock Exchange
0.625% Notes due 2024PG24BNew York Stock Exchange
1.375% Notes due 2025PG25New York Stock Exchange
4.875% EUR notes due May 2027PG27ANew York Stock Exchange
1.200% Notes due 2028PG28New York Stock Exchange
1.250% Notes due 2029PG29BNew York Stock Exchange
1.800% Notes due 2029PG29ANew York Stock Exchange
6.250% GBP notes due January 2030PG30New York Stock Exchange
5.250% GBP notes due January 2033PG33New York Stock Exchange
1.875% Notes due 2038PG38New York Stock Exchange

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). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, (as definedor 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).Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Large accelerated filerþAccelerated filer¨
Non-accelerated filer¨(Do not check if smaller reporting company)
Smaller reporting company¨
Emerging growth company¨
If an emerging growth company, oindicate 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 þ

The aggregate market value of the voting stock held by non-affiliates amounted to $215$226 billion on December 31, 2015.

2018.
There were 2,668,751,1252,502,259,668 shares of Common Stock outstanding as of July 31, 2016.2019.

Documents Incorporated by Reference
Portions of the Proxy Statement for the 20162019 Annual Meeting of Shareholders, which will be filed within one hundred and twenty days of the fiscal year ended June 30, 2016 (20162019 (2019 Proxy Statement), are incorporated by reference into Part III of this report to the extent described herein.




FORM 10-K TABLE OF CONTENTSPage
PART IItem 1.
Business
1
 Item 1A.
Risk Factors
2
 Item 1B.
Unresolved Staff Comments
6
 Item 2.
Properties
6
 Item 3.
Legal Proceedings
6
 Item 4.
Mine Safety Disclosure
6
  
Information about our Executive Officers of the Registrant
7
PART IIItem 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
8
 Item 6.
Selected Financial Data
10
 Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
11
 Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
30
29
 Item 8.
Financial Statements and Supplementary Data
31
30
   
Management's Report and Reports of Independent Registered Public Accounting Firm
31
30
   
Consolidated Statements of Earnings
34
35
   
Consolidated Statements of Comprehensive Income
35
36
   
Consolidated Balance Sheets
36
37
   
Consolidated Statements of Shareholders' Equity
37
38
   
Consolidated Statements of Cash Flows
38
39
   
Notes to Consolidated Financial Statements
39
40
   
Note 1: Summary of Significant Accounting Policies
39
40
   
Note 2: Segment Information
41
43
   
Note 3: Supplemental Financial Information
43
44
   
Note 4: Goodwill and Intangible Assets
44
46
   
Note 5: Income Taxes
46
47
   
Note 6: Earnings Per Share
48
49
   
Note 7: Stock-based Compensation
48
50
   
Note 8: Postretirement Benefits and Employee Stock Ownership Plan
50
51
   
Note 9: Risk Management Activities and Fair Value Measurements
54
56
   
Note 10: Short-term and Long-term Debt
57
59
   
Note 11: Accumulated Other Comprehensive Income/(Loss)
58
60
   
Note 12: Commitments and Contingencies
59
60
   
Note 13: Discontinued Operations
59
61
   
Note 14: Merck Acquisition
62
Note 15: Quarterly Results (Unaudited)
64
62
 Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
65
63
 Item 9A.
Controls and Procedures
65
63
 Item 9B.
Other Information
65
63
PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
65
64
 Item 11.
Executive Compensation
65
64
 Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
66
64
 Item 13.
Certain Relationships and Related Transactions and Director Independence
67
64
 Item 14.
Principal Accountant Fees and Services
67
64
PART IVItem 15.
Exhibits and Financial Statement Schedules
65
Item 16.
Form 10-K Summary
67
  
Signatures
70
68
  
Exhibit Index
71
69


The Procter & Gamble Company 1


PART I


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 goodsproducts 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 been built from a business founded 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.
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, 2016 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), are seasonal.
Additional informationInformation 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 innovative products. 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, baby stores, specialty beauty stores, e-commerce, high-frequency storesnumerous 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 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 adeliver superior brand or product.messaging to our consumers. We work collaboratively with our customers to improvedeliver superior retail execution, both in-store and online. In conjunction with the in-store presence ofabove elements, we provide superior value to consumers and our products and win the "first moment of truth" - when a consumer is shoppingretail customers, in the store. We must also win the "second moment of truth" - when a consumer uses the product, evaluates how well it met his or her expectations and decides whether it was a good value. We believeeach price tier where we must continue to provide new, innovative products and branding to the consumer in order to grow our business. Research and product development activities, designed to enable sustained organic growth, continued to carry a high priority during the past fiscal year.compete.
Key Product Categories. Information on key product categories can be found in 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, high-frequency stores and pharmacies. We also sell direct to consumers. Sales to Wal-Mart Stores,Walmart Inc. and its affiliates represent approximately 15% of our total revenuesales in 2016, 20152019 and 2014.2018 and 16% in 2017. No other customer represents more than 10% of our nettotal sales. Our top ten customers accountaccounted for approximately 35%36% of our total sales in 2016, 20152019 and 2014.2018, and 35% in 2017. The nature of our business resultsdoes 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, some of whichwhom 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 and in the transportation of input materials and of finished productproducts 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 is 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.


2 The Procter & Gamble Company

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 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 extensiveour 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 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 2016, $2.0 billion in 2015 and $1.9 billion in 2014 (reported in Net earnings from continuing operations).
Expenditures for Environmental Compliance.Expenditures for compliance with federal, state and local environmental laws

2 The Procter & Gamble Company

and regulations are fairly consistent from year to year and are not material to the Company. No material change is expected in fiscal year 2017.2020.
Employees. 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. 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 includesis not restated to exclude employees of discontinued operations.
Total Number of EmployeesTotal Number of Employees
201997,000
201892,000
201795,000
2016105,000105,000
2015110,000110,000
2014118,000118,000
2013121,000
2012126,000
2011129,000
Financial Information about Foreign and Domestic Operations. Net sales in the U.S. account for 41% 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:
 2016 2015 2014
North America (1)
44% 41% 39%
Europe23% 24% 26%
Asia Pacific9% 8% 8%
Greater China8% 9% 9%
IMEA (2)
8% 8% 8%
Latin America8% 10% 10%
(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
2016$27.0 $38.3
2015$26.8 $43.9
2014$26.7 $47.7
Total Assets (years ended June 30)
2016$64.4 $62.7
2015$65.0 $64.5
2014$68.8 $75.5


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, quarterly and annual reports, 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. 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 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.


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 and pay expenses in a variety of currencies other than the U.S. dollar, and our operations outside the U.S. generate a significant portionmore than fifty percent of our net revenue. Fluctuations in exchange rates for foreign currencies such as the recent volatility in the Russian ruble, may
reduce the U.S. dollar value of revenues, profits 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 Consolidated Financial Statements.
We also have sizable businesses and maintain local currency cash balances in a number of foreign countries with currency exchange, import authorization, pricing or other controls including Argentina,or restrictions, such as Nigeria, Algeria, Egypt Nigeria and Ukraine.Turkey. Our results of operations and financial condition 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 outside the U.S.business.
Additionally, our business, operations or employees may 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 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, such as: a slow-down 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, economic conditions may cause our suppliers, distributors, contractors or other third partythird-party partners to suffer financial difficulties that they cannot overcome, resulting in their inability to provide us with the 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. IfIn addition, if we are unable to generate sufficient income and cash flow, it could affect the Company’s ability to achieve expected share repurchase and dividend payments.



The Procter & Gamble Company 3

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 in our global supply chain may negatively impact our business results.
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 our previously-announced supply chain simplificationsoptimizations 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 or other external factors over which we have no control, could interrupt product supply and, if not effectively managed and remedied, have an adverse impact on our business, financial condition or results of operations.
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, 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.
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 be able to successfully respond to technological advances made by, and intellectual property rights granted to, competitors. Failure to continually innovate, improve and


4 The Procter & Gamble Company

respond to competitive moves and changing consumer habits could compromise our competitive position and adversely impact our results.
The ability to achieve our business objectives is dependent 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 aswhich 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.
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, high-frequency stores and pharmacies. Our success is dependent 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 consolidationconcentration 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 based on our trade terms and principles. Our business could also be negatively impacted if a key customer were to significantly reduce the inventory level or shelf space of our products as a result of increased offerings of private label brands and generic non-branded products or for other reasons, significantly tighten product delivery windows or experience a significant business disruption.
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 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 could also be negatively impacted if

4 The Procter & Gamble Company

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 could suffer. Our Company also devotes significant time and resources to programscitizenship efforts that are consistent with our corporate values and are designed to strengthen our business and protect and preserve our reputation, such as socialincluding 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 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 orand external business partners, for certain functions. If we are unable to effectively manage our third partythird-party relationships and the agreements under which our third partythird-party partners operate, our financial results could suffer. 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.
An 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.
As part of the Company’s regular review of potential risks, we maintain an information and operational technology (“IT/OT”) risk management program that is primarily supervised by information technology management and reviewed by internal cross-functional stakeholders. As part of this program, analyses of emerging cybersecurity threats as well as the Company’s plans and strategies to address them are regularly prepared and presented to senior management, the Audit Committee and the Board of Directors. Despite our policies, procedures and programs, including this IT/OT risk management program, we may not be effective in identifying and mitigating every risk to which we are exposed.
We rely extensively on information 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, somemany of which are managed, hosted, provided and/or used by third-partiesthird 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, regulatory, 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”);
summarizing and reporting results of operations;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;


The Procter & Gamble Company 5

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 the availability and integrity 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 sensitivity and attention to these threats. We continue to assess potential threats and vulnerabilities and make investments seeking to address these threats,them, including ongoing monitoring and updating of networks and systems, and upgradingincreasing specialized information security skills, deploying employee security training, and updating security policies for the Company and its third-party providers. However, because the techniques, tools and tactics used in these attackscyber-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. measures or fully mitigating harms after such an attack.
Our ITIT/OT databases and systems and our third party providers'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. Such attacks may originate from

The Procter & Gamble Company 5

outside parties, hackers, criminal organizations or other threat actors, including nation states. In addition, insider actors-malicious or otherwise-could cause technical disruptions and/or confidential data leakage. To date, we have seen no material impact on our business or operations from these attacks; however, we cannot guarantee that our security efforts or the security efforts of our third partythird-party providers will prevent material breaches, operational incidents or other breakdowns to our or our third-party providers’ IT/OT databases or systems.
Periodically, we also need to 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. Further, 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, security incidents or security breaches,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. The costs and operational consequences of responding to breachesthe above items and implementing remediation measures could be significant.significant and could adversely impact our results.
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 pending 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, the 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, tariffs, trade barriers and market contraction, could adversely affect the Company’s business and financial results.
We must successfully manage compliance with legislation, regulationlaws and enforcement,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 disposability, marketing, antitrust, privacy,data protection, environmental (including climate, water, waste), employment, anti-bribery, or anti-corruption, (such as the U.S. Foreign Corrupt Practices Act), tax, accounting and financial reporting or other matters. Rapidly changing laws, regulations, policies and related interpretations, including changes in accounting standards, 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. 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 results of operations and financial position. 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. BecauseChanges in the various tax laws can and do occur. For example, the U.S. maintains a worldwide corporategovernment enacted comprehensive tax system,legislation commonly referred to as the foreignTax Cuts and U.S. tax systems are somewhat interdependent. For example, certain income that is earned and taxedJobs Act (the “U.S. Tax Act”). The changes included in countries outside the U.S. is not taxed in the U.S., provided those earningsTax Act are indefinitely reinvested outsidebroad and complex.  The ongoing impacts of the U.S. If those same foreign earnings are instead repatriated toTax Act may differ from the U.S., additional residual U.S. taxation will likely occur,estimates provided elsewhere in this report, 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 changeCompany 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 evolving as a resultsubject to potential evolution. An outgrowth of the original Base Erosion and Profit Shifting project (“BEPS") project is a new project undertaken by the G8, G20129 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 impact all multinational businesses by potentially redefining jurisdictional taxation rights. As thesethis and other tax laws and related regulations change or evolve, our financial results 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 cumulatively positive or negative for our earnings and cash flow, but such changes could adversely impact our financial results.
IfFurthermore, we are unablesubject to successfully executeregular review and audit by both foreign and domestic tax authorities. While we believe our portfolio optimization strategy,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 well asthe fiscal 2017

6 The Procter & Gamble Company

Beauty Brands transaction with Coty, may differ materially from the tax amounts recorded in our Consolidated Financial Statements, which could adversely impact our cash flows and financial results.
We must successfully manage ongoing acquisition, joint venture and divestiture activities, it could adversely impact our business.activities.
In August 2014, the Company announced a plan to significantly streamline our product portfolio by divesting, discontinuing or consolidating about 100 non-strategic brands, resulting in a portfolio of about 65 brands. The Company has announced the Beauty Brands transaction with Coty and completed a series of other transactions that will substantially complete this plan.  Our ability to successfully execute our portfolio optimization strategy could impact our results.
In addition, asAs 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


6 The Procter & Gamble Company

objectives. Specifically, our financial results 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 could also be impacted in the event ofby acquisitions or joint venture activities, such as the integration of Merck KGaA's Consumer Health business acquired in fiscal 2019, 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 an impact on goodwill and intangible assets.
Our business results depend on our ability to successfully manage productivity improvements and ongoing organizational change.
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. Additionally, successfully executing organizational change, including the move to a new organizational structure in fiscal 2020, 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 companyFactors 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 personnel. Our success is dependent 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.
The United Kingdom’s departure from the European Union could adversely impact our business and financial results.
On June 23, 2016, the United Kingdom held a referendum in which a majority of voters voted for the United Kingdom to exit theEuropean Union (“Brexit”), the announcement of which resulted in significant currency exchangerate fluctuations and volatility in global stock markets. It is expected that the British government will commence negotiations to determine the terms of Brexit. Giventhe lack of comparable precedent, the implications of Brexit or how such implications might affect the Company are unclear. Brexit could, among other things, disrupt trade and the free movement of goods, services andpeople between the United Kingdom and the European Union or other countries as well as create legal and global economic uncertainty. These and other potential implications of Brexit could adversely affect the Company’s business and financial results.


Item 1B. Unresolved Staff Comments.
None.

Item 2. Properties.
In the U.S., we own and operate 24 manufacturing sites located in 18 different states or territories.states. In addition, we own and operate 9785 manufacturing sites in 3837 other countries. Many of the domestic and international sites manufacture products for
multiple businesses. Beauty products are manufactured at 3424 of these locations; Grooming products at 21;19; Health Care products at 17;21; Fabric & Home Care products at 46;39; and Baby, Feminine & Family Care at 42.37. We own our Corporate headquarters in Cincinnati, Ohio. We own or lease our principal regional general offices in Switzerland, Panama, Singapore and China. 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 12 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.






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 9, 2016,6, 2019, are:
Name Position Age 
First Elected to
Officer Position
 Position Age 
First Elected to
Officer Position
  
David S. Taylor Chairman of the Board, President and Chief Executive Officer 58 2013 Chairman of the Board, President and Chief Executive Officer 61 2013
  
Jon R. Moeller Chief Financial Officer 52 2009 Vice Chairman, Chief Operating Officer and Chief Financial Officer 55 2009
  
Steven D. Bishop Group President - Global Health Care 52 2016 Chief Executive Officer - Health Care 55 2016
  
Giovanni Ciserani Group President - Global Fabric and Home Care and Global Baby and Feminine Care 54 2013
 
Mary Lynn Ferguson-McHugh Group President - Global Family Care and Global Brand Creation and Innovation, P&G Ventures 56 2016 Chief Executive Officer - Family Care and P&G Ventures 59 2016
  
Patrice Louvet Group President - Global Beauty 51 2016
 
Charles E. Pierce Group President - Global Grooming 59 2016
 
Carolyn M. Tastad Group President - North America Selling and Market Operations 55 2014 Group President - North America and Chief Sales Officer 58 2014
 
Mark F. Biegger Chief Human Resources Officer 54 2012
  
Gary A. Coombe President - Europe Selling and Market Operations 52 2014 Chief Executive Officer - Grooming 55 2014
  
Kathleen B. Fish Chief Technology Officer 59 2014 Chief Research, Development and Innovation Officer 62 2014
  
Fama Francisco Chief Executive Officer - Baby and Feminine Care 51 2018
 
M. Tracey Grabowski Chief Human Resources Officer 51 2018
 
Shailesh Jejurikar Chief Executive Officer - Fabric and Home Care 52 2018
 
R. Alexandra Keith Chief Executive Officer - Beauty 51 2017
 
Deborah P. Majoras Chief Legal Officer and Secretary 52 2010 Chief Legal Officer and Secretary 55 2010
 
Juan Fernando Posada President - Latin America Selling and Market Operations 54 2015
 
Matthew Price President - Greater China Selling and Market Operations 50 2015
  
Marc S. Pritchard Chief Brand Officer 56 2008 Chief Brand Officer 59 2008
  
Mohamed Samir President - India, Middle East and Africa (IMEA) Selling and Market Operations 49 2014
 
Jeffrey K. Schomburger Global Sales Officer 54 2015
 
Valarie L. Sheppard Senior Vice President, Comptroller and Treasurer 52 2005 Controller and Treasurer and Executive Vice President - Company Transition Leader 55 2005
 
Yannis Skoufalos Global Product Supply Officer 59 2011
 
Magesvaran Suranjan President - Asia Pacific Selling and Market Operations 46 2015
All the Executive Officers named above have been employed by the Company for more than the past five years.


8 The Procter & Gamble Company


PART II
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 (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
4/1/2016 - 4/30/2016 — — — 
(3) 
5/1/2016 - 5/31/2016 6,152,153 $81.27 6,152,153 
(3) 
6/1/2016 - 6/30/2016 — — — 
(3) 
Total 6,152,153 $81.27 6,152,153 
(3) 
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
4/1/2019 - 4/30/2019 5,739,213 $104.54 5,739,213 
(3) 
5/1/2019 - 5/31/2019 6,125,301 106.12 6,125,301 
(3) 
6/1/2019 - 6/30/2019 4,567,568 109.47 4,567,568 
(3) 
Total 16,432,082 $106.50 16,432,082 
(3) 
(1) 
The total number of shares purchased for the three months ended June 30, 2016 was 6,152,153. 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.
(3) 
On April 26, 2016,23, 2019, the Company stated that in fiscal year 20162019 the Company plannedexpected to reduce Companyoutstanding shares outstanding by approximately $8 to $9 billion, through a combination of direct share repurchases and shares that were exchanged in the Duracell transaction (see Note 13 to our Consolidated Financial Statements),at a value of approximately $5 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 and exchanged in the Duracell transaction was $8.2$5.0 billion. The share repurchase plan ended on June 30, 2016.2019.
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 126129 consecutive years since its original incorporation in 1890 and has increased its dividend for 6063 consecutive years. Over the past five years, the dividend has increased at an annual compound average rate of 5%3%. Nevertheless, as in the past, further dividends will be considered after reviewing dividend yields, profitability expectations and financing needs and will be declared at the discretion of the Company's Board of Directors.

dividend.jpg

(in dollars; split-adjusted)19561966197619861996200620161959196919791989199920092019
Dividends per share$0.01$0.03$0.06$0.16$0.40$1.15$2.66$0.02$0.04$0.10$0.19$0.57$1.64$2.90



The Procter & Gamble Company 9

Quarterly Dividends
Quarter Ended2015 - 2016 2014 - 2015
September 30$0.6629 $0.6436
December 310.6629 0.6436
March 310.6629 0.6436
June 300.6695 0.6629


Common Stock Price RangeInformation
Quarter Ended2015 - 2016 2014 - 2015
 High Low High Low
September 30$82.55
 $65.02
 $85.40
 $77.29
December 3181.23
 71.30
 93.89
 81.57
March 3183.87
 74.46
 91.78
 80.82
June 3084.80
 79.10
 84.20
 77.10
P&G trades on the New York Stock Exchange and NYSE Euronext-Paris under the stock symbol PG. There were approximately 2.93.3 million common stock shareowners, including shareowners of record, participants in the P&G Shareholder Investment Program, participants in P&G stock ownership plans, participants in the P&G Direct Stock Purchase Plan, and beneficial owners with accounts at banks and brokerage firms, as ofJune 30, 2016.
2019.
Shareholder Return
The following graph compares the cumulative total return of P&G’s common stock for the five-year period ended June 30, 2016,2019, 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, 2011,2014, and that all dividends were reinvested.
tsra03.jpg

Cumulative Value of $100 Investment, through June 30Cumulative Value of $100 Investment, through June 30
Company Name/Index201120122013201420152016201420152016201720182019
P&G$100
$100
$129
$136
$140
$156
$100
$103
$115
$122
$113
$164
S&P 500 Index100
105
127
158
170
177
S&P 500 Stock Index100
107
112
132
151
166
S&P 500 Consumer Staples Index100
115
135
155
170
202
100
109
130
134
129
150


10 The Procter & Gamble Company


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 amounts2016 2015 2014 2013 2012 20112019 2018 2017 2016 2015 2014
Net sales$65,299
 $70,749
 $74,401
 $73,910
 $73,138
 $70,464
$67,684
 $66,832
 $65,058
 $65,299
 $70,749
 $74,401
Gross profit32,390
 33,693
 35,371
 35,858
 35,254
 35,110
32,916
 32,400
 32,420
 32,275
 33,649
 35,356
Operating income13,441
 11,049
 13,910
 13,051
 12,495
 13,849
5,487
 13,363
 13,766
 13,258
 11,056
 13,958
Net earnings from continuing operations10,027
 8,287
 10,658
 10,346
 8,864
 10,509
3,966
 9,861
 10,194
 10,027
 8,287
 10,658
Net earnings/(loss) from discontinued operations577
 (1,143) 1,127
 1,056
 2,040
 1,418
—
 —
 5,217
 577
 (1,143) 1,127
Net earnings attributable to Procter & Gamble10,508
 7,036
 11,643
 11,312
 10,756
 11,797
$3,897
 $9,750
 $15,326
 $10,508
 $7,036
 $11,643
Net earnings margin from continuing operations15.4% 11.7% 14.3% 14.0% 12.1% 14.9%5.9% 14.8% 15.7% 15.4% 11.7% 14.3%
Basic net earnings per common share: (1)
                      
Earnings from continuing operations$3.59
 $2.92
 $3.78
 $3.65
 $3.08
 $3.62
$1.45
 $3.75
 $3.79
 $3.59
 $2.92
 $3.78
Earnings/(loss) from discontinued operations0.21
 (0.42) 0.41
 0.39
 0.74
 0.50
—
 —
 2.01
 0.21
 (0.42) 0.41
Basic net earnings per common share$3.80
 $2.50
 $4.19
 $4.04
 $3.82
 $4.12
$1.45
 $3.75
 $5.80
 $3.80
 $2.50
 $4.19
Diluted net earnings per common share: (1)
                      
Earnings from continuing operations$3.49
 $2.84
 $3.63
 $3.50
 $2.97
 $3.46
$1.43
 $3.67
 $3.69
 $3.49
 $2.84
 $3.63
Earnings/(loss) from discontinued operations0.20
 (0.40) 0.38
 0.36
 0.69
 0.47
—
 —
 1.90
 0.20
 (0.40) 0.38
Diluted net earnings per common share$3.69
 $2.44
 $4.01
 $3.86
 $3.66
 $3.93
$1.43
 $3.67
 $5.59
 $3.69
 $2.44
 $4.01
Dividends per common share$2.66
 $2.59
 $2.45
 $2.29
 $2.14
 $1.97
$2.90
 $2.79
 $2.70
 $2.66
 $2.59
 $2.45
Research and development expense$1,879
 $1,991
 $1,910
 $1,867
 $1,874
 $1,812
$1,861
 $1,908
 $1,874
 $1,879
 $1,991
 $1,910
Advertising expense7,243
 7,180
 7,867
 8,188
 7,839
 7,713
6,751
 7,103
 7,118
 7,243
 7,180
 7,867
Total assets127,136
 129,495
 144,266
 139,263
 132,244
 138,354
115,095
 118,310
 120,406
 127,136
 129,495
 144,266
Capital expenditures3,314
 3,736
 3,848
 4,008
 3,964
 3,306
3,347
 3,717
 3,384
 3,314
 3,736
 3,848
Long-term debt18,945
 18,327
 19,807
 19,111
 21,080
 22,033
20,395
 20,863
 18,038
 18,945
 18,327
 19,807
Shareholders' equity$57,983
 $63,050
 $69,976
 $68,709
 $64,035
 $68,001
$47,579
 $52,883
 $55,778
 $57,983
 $63,050
 $69,976
(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” and “Risk Factors.” 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 actual results and events to differ materially from such forward-looking statementsthose projected herein is included, without limitation, in the section titled "Economic Conditions and Uncertainties" and the section titled “Risk Factors” (Item(Part I, 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.
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. The MD&A is organized in the following sections:
Overview
Summary of 20162019 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 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 and the fiscal 2019 adoption of new accounting standards for "Revenue from Contracts with Customers" (see Note 1 to the Consolidated Financial Statements) 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 and certain divestiture impacts.transitional tax payments related to the U.S. Tax Act. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings excluding certain one-time items. 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.
Management also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and comparability of share and consumption information. References to market share and market consumption in the MD&A are based on a combination of vendor-reported consumptionvendor purchased traditional brick-and-mortar and market sizeonline data in key markets as well as internal estimates. All market share references represent the percentage of sales 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.
OVERVIEW
P&GProcter & 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, high-frequency stores and pharmacies. 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 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
OurIn fiscal 2019, our organizational structure iswas comprised of Global Business Units (GBUs), Selling and Market Operations (SMOs), Global Business Services (GBS) and Corporate Functions (CF).
Global Business Units
Our GBUs are organized into ten product categories. Under U.S. GAAP, the GBUs 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 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
 Beauty18%20%
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
 Grooming11%15%
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 Care11%12%
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 Care32%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 Care28%26%
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
Reportable Segments
% of
Net Sales (1)
% of Net
Earnings (1)
Product Categories (Sub-Categories)Major Brands
Beauty19%22%
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, SK-II, Secret
Grooming9%13%
Grooming (2) (Shave Care - Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care; Appliances)
Braun, Gillette, Venus
Health Care12%13%
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 Care33%29%
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 Care27%23%
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
(1) 
Percent of Net sales and Net earnings from continuing operations for the year ended June 30, 20162019 (excluding results held in Corporate).
(2) 
The Grooming product category is comprised of the Shave Care and Appliances GBUs. 
Recent Developments:As of June 30, 2015,
During fiscal 2019, the Company deconsolidatedcompleted the acquisition of the over the counter (OTC) healthcare business of Merck KGaA (Merck OTC) for $3.7 billion (based on exchange rates at the time of closing). This business primarily sells OTC consumer healthcare products, mainly in Europe, Latin America and Asia markets. Total sales for the business during Merck OTC's most recent fiscal year ended December 31, 2017 were approximately $1 billion.
During fiscal 2019, the Company also dissolved our Venezuelan subsidiariesPGT Healthcare partnership, a venture between the Company and began accounting for our investmentTeva Pharmaceutical Industries, Ltd (Teva) in those subsidiaries using the cost method of accounting. This change resulted in a fiscal 2015 one-time after-tax charge of $2.1 billion ($0.71 per share). Beginning in fiscal 2016, our financial results only include sales of finished goods to our Venezuelan subsidiariesOTC consumer healthcare business. Pursuant to the extent we receive cash payments from Venezuela (expected to be largely through the DIPRO and DICOM exchange market). Accordingly, we no longer include the results of our Venezuelan subsidiaries' operations in reporting periods following fiscal 2015 (see Note 1agreement, PGT product assets were returned to the Consolidated Financial Statements and additional discussion inoriginal respective parent companies to reestablish independent OTC businesses. This transaction was accounted for as a sale of the MD&A under "Venezuela Impacts" in ResultsTeva portion of Operations).the PGT business. The Company recorded an after-tax gain on the sale of $353 million.
In August 2014, the Company announced a 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 2016,2017, the companyCompany 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. Additionally, the Batteries balance sheet positions as of June 30, 2015 are presented as held for sale in the Consolidated Balance Sheets.
On July 9, 2015, the Company announced the signing of a definitive agreement to divest four product categories, to Coty Inc. ("Coty"). Coty's offer was $12.5 billion. The divestiture was initially comprised ofwhich included 43 of the Company's beauty brands ("Beauty Brands"), including the global salon professional hair care and color, retail hair color, cosmetics and the fine fragrance businesses, along with select hair styling brands. Subsequent to signing, twoThe Beauty Brands had historically been part of the fine fragrance brands, Dolce Gabbana and Christina Aguilera, were excluded from the divestiture. While the ultimate form of the transaction has not yet been decided, the Company’s current preference is for a Reverse


The Procter & Gamble Company 13

Morris Trust split-off transaction in which P&G shareholders could elect to participate in an exchange offer to exchange their P&G shares for Coty shares. The Company expects to complete this transaction in October 2016.Beauty reportable segment. The results of the Beauty Brands are now 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 and June 30, 2015 are presented as held for sale in the Consolidated Balance Sheets.
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.
WithRefer to Notes 13 and 14 to our Consolidated Financial Statements for more details on each of these transactionstransactions.
Organization Design Changes:
The Company recently announced changes to our organization design effective July 1, 2019. In the new design, the ten product categories are being organized into six Sector Business Units (SBUs). The SBUs will be responsible for global brand strategy, innovation and other recent minor brand divestitures, the Companysupply chain. They will have substantially completeddirect profit responsibility for markets representing the strategic portfolio reshaping program.large majority

The Procter & Gamble Company 13

of the Company's sales and earnings (referred to as Focus Markets) and will be responsible for innovation plans, supply plans and operating frameworks to drive growth and value creation in the remaining markets (referred to as Enterprise Markets). For segment reporting purposes, the categories will continue to be aggregated into the same five external reporting segments.
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 over 7%nearly 6% global market share. In hair care, we compete in the retail channel. 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 Careshave 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 Gillette franchise, including our Fusion, Mach3, Prestobarba and Venus.Venus brands. Our appliances, such as electric razorsshavers 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 over 20%nearly 25% of the male electric shavers market and nearly 45%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 and Crest brands. In personal health care, we are a top ten competitor in a large, highly fragmented industry, primarily behind respiratory treatments (Vicks brand), nonprescription 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 above, in personal health care are generated throughfiscal 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 independent OTC businesses. 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 nearly 30%over 25% global market share, primarily behind our Tide, Ariel and Downy brands. Our global home care market share is nearly 25%over 20% across the categories in which we compete.
Baby, Feminine & Family Care: In baby care, we are the global market leader and compete mainly in taped diapers, pants and baby wipes with nearly 30%over 25% global market share. We arehave the number one or number two baby care competitormarket 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 nearly $9$8 billion. We are the global market leader in the feminine care category with over 25% global market share, primarily behind Always. We also compete in the adult incontinence category in certain markets behind Always Discreet, achieving overnearly 10% market share in most of the markets where we compete. Our family care business is predominantly a North American business comprised largely 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
Our SMOs are responsible for developing and executing go-to-market plans at the local level. The SMOs include dedicated retail 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. As a result of the above-mentioned changes in our organization design effective July 1, 2019, we will be organized under five regions, with Asia Pacific and IMEA being combined into a single region.
Corporate Functions
Corporate Functions 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.
Global Business Services
GBS provides technology, processes and standard data tools to enable the GBUs, and the SMOs and Corporate Functions 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.
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.
STRATEGIC FOCUS
P&GProcter & 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, 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 increasewin with consumers by delivering superiority across the numberfive key elements of users -product, packaging, brand communication, retail execution and the usage - of our brands when we win at the zero, first and second moments of truth:  when consumers research our


14 The Procter & Gamble Company

categories and brands, purchase them in a store or online and use them in their homes.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

14 The Procter & Gamble Company

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 10 product
categories. These are categories where P&G has leading market positions, strong brands and consumer-meaningful product technologies.
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 peer group:
Organic sales growth above market growth rates in the categories and geographies in which we compete;
Core EPS growth of mid-to-high single digits; and
Adjusted free cash flow productivity of 90% or greater.
In periods with significant macroeconomic pressures, 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 20162019 RESULTS
Amounts in millions, except per share amounts2016 Change vs. Prior Year 2015 Change vs. Prior Year 20142019 2018 Change vs. Prior Year
Net sales$65,299
 (8)% $70,749
 (5)% $74,401
$67,684
 $66,832
 1 %
Operating income13,441
 22 % 11,049
 (21)% 13,910
5,487
 13,363
 (59)%
Net earnings from continuing operations10,027
 21 % 8,287
 (22)% 10,658
Net earnings/(loss) from discontinued operations577
 N/A
 (1,143) N/A
 1,127
Net earnings3,966
 9,861
 (60)%
Net earnings attributable to Procter & Gamble10,508
 49 % 7,036
 (40)% 11,643
3,897
 9,750
 (60)%
Diluted net earnings per common share3.69
 51 % 2.44
 (39)% 4.01
1.43
 3.67
 (61)%
Diluted net earnings per share from continuing operations3.49
 23 % 2.84
 (22)% 3.63
Core EPS3.67
 (2)% 3.76
 (2)% 3.85
Core earnings per share4.52
 4.22
 7 %
Cash flow from operating activities15,435
 6 % 14,608
 5 % 13,958
15,242
 14,867
 3 %


Net sales decreased 8%increased 1% to $65.3$67.7 billion includingon a 3% increase in unit volume. Foreign exchange had a negative 6%4% impact from foreign exchange.on net sales. Net sales growth was driven by mid-single digit increases in Beauty and Health Care and a low single digit increase in Fabric & Home Care, partially offset by a low single digit decline in Baby, Feminine & Family Care and a mid-single digit decline in Grooming.
◦Organic sales increased 1%, as increased pricing was partially offset by5% on a reduction2% increase in organic volume. Organic sales increased high single digits in Beauty and Fabric & Home Care, increased mid-single digits in Health Care and increased low single digits in Grooming and Baby, Feminine & Family Care.
◦Unit volume decreasedvolumes increased 3%. Volume decreasedincreased mid-single digits in Health Care and Fabric & Home Care and increased low single digits in Grooming, Health Care, Fabric & Home CareBeauty and Baby, Feminine & Family Care. Volume decreased mid-singlelow single digits in Beauty. Organic volume declined 1%.Grooming.
Net earnings from continuing operations increased $1.7Operating income decreased $7.9 billion, or 21% in fiscal 201659%, due primarily to a $2.1non-cash impairment charges of $8.3 billion after-tax charge in the prior year related to the deconsolidation of our Venezuelan subsidiariesShave Care goodwill and improved gross margin,Gillette indefinite-lived intangible assets (Shave Care impairment), partially offset by the benefit from the net sales increase. For a more detailed discussion on the Shave Care impairment refer to
the Significant Accounting Policies and Estimates section in the MD&A and Note 4 to the Consolidated Financial Statements.
Net earnings decreased $5.9 billion or 60% due to the after-tax impact of the declineShave Care impairment, partially offset by a reduction in net sales.current year income tax expense, a current year gain on the dissolution of the PGT Healthcare partnership and the base period charges for the early extinguishment of debt. The reduction in current year income tax expense was driven by the impacts of the U.S. Tax Cuts and Jobs Act enacted in December 2017 (U.S. Tax Act), comprised of the reduction in tax rate on the current year earnings and the base period charges related to the transitional impacts of the U.S. Tax Act. Foreign exchange impacts negatively affected net earnings from continuing operations by $880 million or approximately 11%.
Net earnings from discontinued operations increased $1.7 billion due primarily to the net impact of a gain on the sale of our Batteries business in fiscal 2016 and higher impairment charges on that business in the prior period.$900 million.
Net earnings attributable to Procter & Gamble were $10.5$3.9 billion, an increasea decrease of $3.5$5.9 billion or 49%60% versus the prior year primarily due to the aforementioned increases in net earnings from both continuing and discontinued operations.items.
Diluted net earnings per share increased 51%decreased 61% to $3.69.$1.43.
◦Diluted net earnings per share from continuing operations increased 23% to $3.49.
◦Core EPS decreased 2%increased 7% to $3.67.$4.52.
Cash flow from operating activities was $15.4$15.2 billion.
◦Adjusted free cash flow was $12.1 billion.
◦Adjusted free cash flow productivity was 115%105%.



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. Forward-looking statements are inherently uncertain and investors must recognize that events could be significantly different from our expectations. For more information on risksrisk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A Risk Factors inof 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 factors remain dynamic, and any causes of market size contraction, such as reduced GDP in commodity-producingcommodity-dependent economies, as commodity prices decline, greater political unrest in the Middle East, andCentral & Eastern Europe furtherand the Korean peninsula, economic instability inuncertainty related to the execution of the United Kingdom's exit from the European Union, political instability in certain Latin American and Asian markets and overall economic slowdowns, in Japan and China, could reduce our sales or erode our operating margin, in either case reducing our earnings.
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. If we are unable to manage commodity and other cost fluctuations 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 and net earnings. 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 thethis MD&A, in 2012 we initiated certain non-manufacturing overhead reduction projects along with manufacturing and other supply chain cost improvements projectsimprovement projects. In fiscal 2017, we communicated specific elements of an additional multi-year cost reduction program which is resulting in 2012.enrollment reductions and other savings. If we are not successful in executing and sustaining these changes, there could be a negative impact on our operating margin and net earnings.
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. In 2016, 2015 and 2014,four of the past five years, including fiscal 2019, 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, Russia, Turkey, Brazil, Canada, Egypt, Mexico, Nigeria, RussiaChina and Turkeythe United Kingdom have had, and could continue to have, a significant impact on our sales, costs and earnings. Increased pricing in response to thesecertain 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 and profits.
Government Policies. Our net earnings could be affected by changes in U.S. or foreign government tax policies. Forpolicies, for example, the U.S. may consider corporate tax reform that could significantly impactTax Act, the corporate tax rateimplications and change the U.S. tax treatmentuncertainties of international earnings.which are disclosed elsewhere in this report. Additionally, we attempt to carefully manage our debt, currency and currency exposureother exposures in certain countries with currency exchange, import authorization and pricing controls, such as Argentina,Nigeria, Algeria, Egypt Nigeria and Ukraine.Turkey. Further, our earnings and sales 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, operating margin and net earnings.
RESULTS OF OPERATIONS
The key metrics included in ourthe 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, thecompetitive activities (the level of initiatives, pricing and other activities by competitors, geographic expansioncompetitors), 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 are generally higher than in developing markets 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

16 The Procter & Gamble Company

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 that are fixed or less variable in nature). The primary driverscomponents 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. OverheadWhile overhead costs are also variable in nature, but on a relative basis, less so than marketingto some extent, we generally experience more scale-related impacts for these costs due to our ability to leverage our organization and systems infrastructures to support business growth. Accordingly, we generally experience more scale-related impacts for these costs.


16 The Procter & Gamble Company

The Company isA detailed discussion of the fiscal 2018 year-over-year changes can be found in the midst of a productivity and cost savings plan to reduce costsMD&A section in the areasForm 8-K filed October 22, 2018, which updated our Form 10-K for the year ended June 30, 2018, to revise disclosures to reflect the adoption of supply chain, marketingthe Financial Accounting Standards Board (FASB) ASU 2017-07 and overhead expenses. The plan is designed2016-18. For more information on the adoption of this standard, refer to accelerate cost reductions by streamlining management decision making, manufacturing and other work processesNote 1 to fund the Company's growth strategy.Consolidated Financial Statements.
Net Sales
Fiscal year 2016 compared with fiscal year 2015
Net sales decreased 8%increased 1% to $65.3$67.7 billion in 20162019 on a 3% decreaseincrease in unit volume versus the prior year period.year. Volume decreased low singleincreased mid-single digits in Grooming, Health Care and Fabric & Home Care and Baby, Feminine & Family Care and decreased mid-single digits in Beauty. Volume increased low single digits in developed regionsBeauty 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.
Fiscal year 2015 compared with fiscal year 2014
Net sales decreased 5% to $70.7 billion in 2015 on a 1% decrease in unit volume versus the prior year period. Volume grew low single digits in FabricBaby, Feminine & HomeFamily Care. Volume decreased low single digits in Baby, Feminine & Family Care, Grooming, Health CareGrooming.
Volume increased mid-single digits in developed regions and Beauty. Volumelow single digits in developing regions. Excluding the impact of acquisitions and divestitures, organic volume increased low single digits in developed regions and declined low single digits in developing regions due, in part, to increased pricing to address foreign exchange devaluations.regions. Unfavorable foreign exchange reduced net sales by 6%, while higher pricing drove4%. Pricing had a positive 2% favorable impact on net sales. Favorable productProduct mix had a positive 1% impact on net sales driven by the slightly higher organic growth of 1% was offset by acquisitionthe Skin and divestiture activity.Personal Care and Personal Health Care categories and developed regions, all of which have higher than company average selling prices. Organic volume decreased 1% and organic sales grew 2%5% driven by higher pricing.a 2% increase in organic volume.




Operating Costs
Comparisons as a percentage of net sales; Years ended June 302016 Basis Point Change 2015 Basis Point Change 20142019 2018 Basis Point Change
Gross margin49.6% 200
 47.6% 10
 47.5%48.6% 48.5% 10
Selling, general and administrative expense29.0% (10) 29.1% 30
 28.8%28.2% 28.5% (30)
Operating margin20.6% 500
 15.6% (310) 18.7%8.1% 20.0% (1,190)
Earnings from continuing operations before income taxes20.5% 490
 15.6% (260) 18.2%9.0% 19.9% (1,090)
Net earnings from continuing operations15.4% 370
 11.7% (260) 14.3%
Net earnings5.9% 14.8% (890)
Net earnings attributable to Procter & Gamble16.1% 620
 9.9% (570) 15.6%5.8% 14.6% (880)


Fiscal year 2016 compared with fiscal year 2015
Gross margin increased 20010 basis points to 49.6%48.6% of net sales in 2016.2019. Gross margin increased primarily due to:
a 210benefited 160 basis point positive impactpoints from total manufacturing cost savings (130 basis points net of product and packaging reinvestments), 60 basis points of positive pricing impacts and 50 basis points from lower restructuring costs. These were offset by:
a 110 basis point benefit100 basis-point decline from unfavorable product mix and other impacts (primarily mix within segments due to the growth of lower margin product forms and the club channel in certain categories and due to the disproportionate growth of the Fabric Care category, which is one of our largest categories and has lower than company-average gross margins),
an 80 basis-point negative impact due to higher commodity costs and
a 70 basis point benefit of higher pricing.
These impacts were partially offset by:
a 70 basis point50 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.exchange.
Total SG&A decreased 8% to $18.9was relatively unchanged at $19.1 billion, primarily due to reduced overhead spending andas a decrease in foreign exchange transaction charges.marketing spending was offset by an increase in overhead costs and in other net operating expenses. SG&A as a percentage of net sales declined 10decreased 30 basis points to 29.0%,28.2%. Reductions in marketing spending as the negative scalea percentage of net sales
 
impacts of lower net sales and inflationary impacts were more thanpartially offset by cost savings efforts, mainlyan increase in overhead spending,costs and lower foreign exchange transactional charges.other net operating expenses as a percentage of sales.
Marketing spending as a percentage of net sales increased 90decreased 80 basis points due to the negativepositive scale impacts of the organic net sales increase, reductions in agency compensation and the impact of adopting the new standard on "Revenue from reducedContracts with Customers" which prospectively reclassified certain customer spending from marketing (SG&A) expense to a reduction of net sales.
Overhead costs as a percentage of net sales decreased 20increased 30 basis points, as 90 basis points of productivity savings and fixed cost leverage from the increased organic net sales, were partiallymore than offset by wagethe impact of inflation, increased sales personnel in certain businesses, investments in researchhigher incentive compensation costs and developmentother cost increases, including the ongoing and integration-related overhead costs of the negative scale impacts from reduced sales.Merck OTC acquisition.
Lower foreign exchange transactional charges reduced SG&AOther net operating expenses as a percentage of net sales by approximately 70 basis points. A pre-deconsolidation balance sheet remeasurement charge in Venezuela in the base period droveincreased 20 basis points of this decline. The balance of the reduction relatesprimarily due to loweran increase in foreign exchange transactional charges from revaluing receivables and payables from transactions denominatedthe net impact of changes in a currency other than a local entity’s functional currency.

indirect tax reserves, partially offset by the gain on sale of real estate in the current year.



The Procter & Gamble Company 17


Fiscal year 2015 compared with fiscal year 2014
GrossOperating margin increased 10decreased 1,190 basis points to 47.6% of net sales in 2015. Gross margin benefited from:
a 200 basis point impact from manufacturing cost savings and
a 90 basis point benefit from higher pricing.
These impacts were partially offset by:
a 110 basis point impact from unfavorable geographic and product mix,8.1% for fiscal 2019 primarily from declines in the higher than average margin Beauty and Grooming segments as well as within the Fabric & Home Care and Grooming segments,
a 50 basis point impact from unfavorable foreign exchange,
a 40 basis point impact from costs related to initiatives and capacity investments,
a 30 basis point impact from higher restructuring costs and
smaller impacts from lower volume scale and higher commodity costs.
Total SG&A decreased 4% to $20.6 billion, as reduced overhead and marketing spending was partially offset by increased foreign exchange transaction charges. SG&A as a percentage of net sales increased 30 basis points to 29.1%, as the negative scale impacts of lower net sales and inflationary impacts were partially offset by cost savings efforts.
Marketing spending as a percentage of net sales decreased 60 basis points behind lower spending due to efficiency efforts.
Overhead spending as a percentagethe one-time, non-cash before-tax impairment charge of net sales increased 50 basis points as productivity savings of 60 basis points from reduced overhead spending were more than offset by wage inflation, investments in research and development, the negative scale impacts of lower net sales and higher restructuring costs.
Increased foreign exchange transaction charges added approximately 40 basis points to SG&A as a percentage of net sales, as current year foreign currency transaction charges (from revaluing receivables and payables denominated in a currency other than a local entity’s functional currency) were partially offset by lower year-on-year charges$8.3 billion for Venezuela remeasurement and devaluation.
During fiscal 2015, the Company incurred a $2.0 billion ($2.1 billion after tax) charge related to the deconsolidation of its Venezuelan subsidiaries. See the “Venezuela Impacts” later in the Results of Operations section.Shave Care.
Non-Operating Items
Fiscal year 2016 compared with fiscal year 2015
Interest expense was $579$509 million in 2016,2019, a decrease of $47 million versus the prior year due to lower average debt balances.
Interest income was $182 million in 2016, anmarginal 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 gains and investment income, decreased $115 million to $325 million, 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.
Fiscal year 2015 compared with fiscal year 2014
Interest expense was $626 million in 2015 a decrease of $83 million versus the prior year due to lower average debt balances and a decrease in weighted average interest rates.
Interest income was $149 million in 2015, an increase of $50$3 million versus the prior year due to an increase in cash, cash equivalentsaverage debt balances and investment securities.an increase in U.S. interest rates.
Other non-operatingInterest income increased $231was $220 million to $440in 2019, a reduction of $27 million primarilyversus the prior year due to minor brand divestiture gains. In 2015, we had approximately $450 milliona reduction in minor brand divestiture gains, including Zest, Camay, Fekkai and Wash & Go hair care brands and Vaposteam. The prior year acquisition and divestiture activities included approximately $150 million in divestiture gains, primarily related to the sale of our bleach businesses in Europe, IMEA and Latin America, our Pert hair care business in Latin America and MDVIP.average investment securities balances.
•
Other non-operating income, which consists primarily of divestiture gains, investment income and other non-operating items increased $649 million to $871 million, primarily due to a $355 million before-tax gain from the dissolution of the PGT Healthcare partnership in the current year (discussed earlier in the Recent Developments section) and $346 million of base year charges for the early extinguishment of debt, partially offset by higher minor brand divestiture gains in the base year.
Income Taxes
Fiscal year 2016 compared with fiscal year 2015
Income taxes decreased $1.4 billion to $2.1 billion. The effective tax rate on continuing operations increased 30870 basis points to 25.0%34.7% in 2016 mainly2019. The current year Shave Care impairment charges caused a 1,750 basis-point increase in the effective tax rate, as there is no tax benefit related to the goodwill portion of the impairment. Excluding this impact, the effective tax rate declined 880 basis points, primarily due to the impacts of the Tax Cuts and Jobs Act (the "U.S. Tax Act") in December 2017. The U.S. Tax Act, among other things, lowered the U.S. corporate income tax rates, but also imposed a 260one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries and 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 million 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. In addition, because 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 our fiscal year ended June 30, 2019 and subsequent fiscal years. Combined, these impacts reduced the current year effective tax rate by 950 basis points, consisting of:
a 500 basis-point reduction from the impact of the lower blended U.S. federal tax rate on current year earnings versus the prior year rate, and
a 450 basis-point reduction due to prior year transitional impacts from the U.S. Tax Act.
The remaining 70 basis point negative impact from the unfavorable geographic mix of earnings, a 130 basis point impactnet increase in the current year income tax rate was driven by:
a 160 basis-point increase from the establishmentunfavorable impacts of valuation allowances on deferred tax assetsgeographic mix of earnings,
a 10 basis-point increase from reduced favorable discrete impacts related to net operating loss carryforwards and the impact of favorable discrete adjustments related to uncertain income tax positions (which netted to 55approximately 15 basis points in the current year versus 8525 basis points in the prior year), partially offset by and
a 400 basis point decrease related to the prior year non-deductibility100 basis-point reduction from increased excess tax benefits of the Venezuelan deconsolidation charge.
Fiscal year 2015 compared with fiscal year 2014
The effective tax rate on continuing operations increased 360 basis points to 24.7% in 2015 mainly due to the non-deductibility of the $2.0 billion Venezuelan deconsolidation charge. The rate increase caused by lower favorable discrete adjustments related to uncertain income tax positions (the net benefit was 80share-based compensation (160 basis points in fiscal 2015the current year versus 17060 basis points in fiscal 2014) was largely offset by a decrease related to favorable geographic earnings mix.the prior year).
Net Earnings
Fiscal year 2016 compared with fiscal year 2015
Net earnings from continuing operations increased $1.7Operating income decreased $7.9 billion, or 21% to $10.0 billion59%, primarily due to the $8.3 billion before tax impairment charge for Shave Care. This was partially offset by the net sales increase, along with the marginal increase in gross margin and decrease in SG&A spending as a percentage of sales, all of which are discussed above.
Earnings before income taxes decreased $7.3 billion or 54% to $6.1 billion, as the reduction in operating income discussed in the preceding paragraph was partially offset by the current year gain from the dissolution of the PGT Healthcare partnership and the base period chargeyear charges for the early extinguishment of $2.1debt, each of which was discussed earlier. Net earnings decreased $5.9 billion, after-tax relatedor 60% to the deconsolidation of


18 The Procter & Gamble Company

Venezuelan subsidiaries. Earnings also$4.0 billion. Net earnings declined less than earnings before income taxes due to the impact of the decline in net sales in fiscal 2016, partially offset by improved gross margin and theabove discussed reduction in SG&A.income taxes. Foreign exchange impacts reduced net earnings by about $880approximately $900 million in 20162019 due to weakening of certain key currencies against the U.S. dollar, primarilyincluding those in Argentina, Russia, Turkey, Brazil, Canada, MexicoChina and Russia.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 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 the current year compared to $2.1 billion in the base period) and a $422 million after-tax gain in the current period from the sale of the Batteries business. This was partially offset by a decrease in the earnings of the Beauty Brands (see Note 4 to the Consolidated Financial Statements).
Net earnings attributable to Procter & Gamble increased $3.5decreased $5.9 billion, or 49%60%, to $10.5$3.9 billion.
Diluted net earnings per share from continuing operations increased $0.65,decreased $2.24, or 23%61%, to $3.49 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. 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 margin expansion.
Fiscal year 2015 compared with fiscal year 2014
Net earnings from continuing operations decreased $2.4 billion or 22% to $8.3 billion due to the $2.1 billion after-tax charge related to the deconsolidation of Venezuelan subsidiaries and the decline in net sales, partially offset by reduced SG&A. Foreign exchange impacts negatively affected net earnings by approximately $1.3 billion in 2015 due to the weakening of certain key currencies against the U.S. dollar, primarily in Russia, Ukraine, Venezuela and Argentina, partially offset by lower after-tax charges related to balance sheet remeasurement charges in Venezuela.
Net earnings from discontinued operations decreased $2.3 billion in 2015 due primarily to $2.1 billion of after-tax impairment charges in our Batteries business (see Note 4 to the Consolidated Financial Statements) and the absence of fiscal 2015 earnings from our divested Pet Care business. Net earnings attributable to Procter & Gamble decreased $4.6 billion, or 40% to $7.0 billion.
Diluted net earnings per share from continuing operations decreased $0.79, or 22%, to $2.84 due to the decrease in net earnings. We had a diluted net loss per share from discontinued operations of $0.40$1.43 due primarily to the impairment charges on the Batteries business. This was a reduction of $0.78 per share versus the prior year. Dilutedin net earnings per share decreased $1.57, or 39%, to $2.44.earnings.
Core EPS decreased 2%increased 7% to $3.76.$4.52. Core EPS represents diluted net earnings per share from continuing operations, excluding the current year charge for the Shave Care impairment, the current year gain on the dissolution of the PGT Healthcare partnership, the base year charges for Venezuelan deconsolidation, balance sheet remeasurement charges from foreign exchange policy changesboth the net transitional impact of the U.S. Tax Act and devaluation in Venezuela, charges for certain European legal mattersearly extinguishment of debt and incremental restructuring charges in both years related to our productivity and cost savings plan.plans. The declineincrease was primarily driven by reducedthe lower effective tax rate on core earnings, resulting from the U.S. Tax Act and the net sales partially offset by minor brand divestiture gains.increase.
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 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 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.






18 The Procter & Gamble Company 19


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. See Note 2 to the Consolidated Financial Statements for additional information on items included in the Corporate segment. Eliminations to adjust segment results to arrive at our consolidated effective tax rate, including the impacts of the U.S. Tax Act in fiscal 2018, are included in Corporate. All references to net earnings throughout the discussion of segment results refer to net earnings from continuing operations.


Net Sales Change Drivers 2016 vs. 2015*
Net Sales Change Drivers 2019 vs. 2018 (1)
Volume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange Price Mix Other** Net Sales GrowthVolume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange Price Mix 
Other (2)
 Net Sales Growth
Beauty(5)% (2)% (6)% 2% — % —% (9)%3 % 2 % (4)% 2% 4% (1)% 4 %
Grooming(2)% (2)% (9)% 5% (2)% —% (8)%(1)% (1)% (5)% 2% —% (1)% (5)%
Health Care(2)% (2)% (6)% 2% 1 % —% (5)%5 % 4 % (3)% 1% 2% — % 5 %
Fabric & Home Care(1)% 1 % (6)% —% — % —% (7)%4 % 5 % (3)% 1% 1% — % 3 %
Baby, Feminine & Family Care(3)% (2)% (6)% —% — % —% (9)%1 % 1 % (4)% 1% —% — % (2)%
TOTAL COMPANY(3)% (1)% (6)% 1% — % —% (8)%3 % 2 % (4)% 2% 1% (1)% 1 %
 Net Sales Change Drivers 2015 vs. 2014*
 Volume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange Price Mix Other** Net Sales Growth
Beauty(3)% (2)% (5)% 2% —% — % (6)%
Grooming(3)% (3)% (8)% 4% —% — % (7)%
Health Care(1)% (1)% (5)% 2% 3% — % (1)%
Fabric & Home Care1 % 1 % (6)% 1% —% (1)% (5)%
Baby, Feminine & Family Care(1)% (1)% (6)% 2% 2% — % (3)%
TOTAL COMPANY(1)% (1)% (6)% 2% 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, the impact from the adoption of the new accounting standard for "Revenue from Contracts with Customers" in fiscal 2019 and rounding impacts necessary to reconcile volume to net sales.

BEAUTY
($ millions)2016 Change vs. 2015 2015 Change vs. 2014
VolumeN/A (5)% N/A (3)%
Net sales$11,477 (9)% $12,608 (6)%
Net earnings$1,975 (9)% $2,181 (5)%
% of net sales17.2% (10) bps 17.3% 10 bps
Fiscal year 2016 compared with fiscal year 2015
($ millions)2019 2018 Change vs. 2018
VolumeN/A N/A 3%
Net sales$12,897 $12,406 4%
Net earnings$2,637 $2,320 14%
% of net sales20.4% 18.7% 170 bps
Beauty net sales decreased 9%increased 4% to $11.5$12.9 billion during the fiscal yearin 2019 on a 5% decrease3% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 6%4%. Price increases had aHigher pricing increased net sales by 2% positive impact on. Favorable product mix added 4% to net sales.sales, primarily due to the disproportionate growth of the Skin and Personal Care category, including the super-premium SK-II and premium Olay Skin brands which have higher than segment average selling prices. Organic sales were unchanged on organic volume that decreased 2%increased 8%. Global market share of the Beauty segment decreased 1.00.1 points. Volume decreased low single digits in developed markets and decreased high single digits in developing markets.
Volume in Hair Care was down mid-single digits. Developed markets declined mid-single digits due to competitive activity while developing markets declined mid-single digits driven by increased pricing, the Venezuela deconsolidation and minor brand divestitures. Global market share of the hair care category decreased 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.


20 The Procter & Gamble Company

Net earnings decreased 9% to $2.0 billion primarily due to the reduction in net sales, along with a 10 basis-point decrease in net earnings margin. Net earnings margin decreased due to an increase in SG&A as a percentage of net sales, largely offset by gross margin expansion. Gross margin improved due to productivity savings, increased pricing and lower commodity costs, partially offset by negative mix. SG&A as a percentage of net sales increased as lower marketing and overhead spending from the Company's focus on efficiencies was more than offset by the negative scale impacts from the reduction in sales.
Fiscal year 2015 compared with fiscal year 2014
Beauty net sales decreased 6% to $12.6 billion in 2015 on a 3% decrease in unit volume. Organic sales were unchanged on a 2% decline in organic volume. Unfavorable foreign exchange reduced net sales by 5%. Increased pricing was a benefit of 2%. Global market share of the Beauty segment decreased 0.6 points. Volume decreased low single digits in developed markets and was down mid-single digits in developing markets.
Volume in Hair Care decreased low single digits in both developed and developing markets following minor divestituresregions.
Volume in Hair Care increased low single digits. Volume in developed regions increased low single digits due to product innovation and competitive activity.increased distribution. Developing regions volume increased low single digits due to product innovation and market growth. Global market share of the hair care category was down more than half a point.
unchanged.
Volume in Skin and Personal Care increased high single digits. Excluding the impact of minor brand acquisitions, organic volume increased mid-single digits. Developed regions volume increased mid-single digits. Excluding the impact of minor brand acquisitions, developed regions
volume was down mid-singleunchanged. Volume increased double digits driven by a high single-digits decline in developing markets, primarilyregions due to decreases in skin carepremium innovation, continued growth of SK-II, increased marketing spending and personal cleansing due to ongoing competitive activity. Volume was unchanged in developed markets.market growth. Global market share of the skin and personal care category was down half a point.
unchanged.
Net earnings decreased 5%increased 14% to $2.2$2.6 billion primarily due to lower volume and the currency-driven reduction in net sales. Net earnings margin increased 10 basis points primarily due to a reduction in SG&A as a percent of sales, behind lower spending from the Company's focus on marketing efficiencies.
GROOMING
($ millions)2016 Change vs. 2015 2015 Change vs. 2014
VolumeN/A (2)% N/A (3)%
Net sales$6,815 (8)% $7,441 (7)%
Net earnings$1,548 (13)% $1,787 (9)%
% of net sales22.7% (130) bps 24.0% (40) bps
Fiscal year 2016 compared with fiscal year 2015
Grooming net sales decreased 8% to $6.8 billion during the fiscal year 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 $1.5 billion2019 due to the reductionincrease in net sales and a 130170 basis-point decreaseincrease in net earnings margin. Net earnings margin decreasedincreased due to increaseda reduction in U.S. income tax rates and a decrease in SG&A as a percentage of net sales, partially offset by a lower tax rate.decrease in gross margin. Gross margin was unchanged as the benefits of increased pricing and productivity efforts were largely offset bydecreased slightly mainly due to unfavorable foreign exchange impacts and negative product mix caused by an increase in the proportion of disposable razor sales compared to system razor cartridges.impacts. SG&A as a percentage of sales decreased primarily due to a reduction in marketing spending driven by the positive scale impacts of the net sales increased due to increased marketing spendingincrease and the negative scale impactimpacts of lower net sales.adopting the new accounting standard on "Revenue from Contracts with Customers". The reduction in the tax rate declinedwas due to the geographic miximpacts of earnings. the U.S. Tax Act, both from overall rate reduction and the manner in which the impacts were allocated between the business and corporate segments in the prior year, as discussed in the Corporate segment below.
Fiscal year 2015 compared with fiscal year 2014GROOMING
($ millions)2019 2018 Change vs. 2018
VolumeN/A N/A (1)%
Net sales$6,199 $6,551 (5)%
Net earnings$1,529 $1,432 7%
% of net sales24.7% 21.9% 280 bps

The Procter & Gamble Company 19

Grooming net sales decreased 7%5% to $7.4$6.2 billion in 20152019 on a 3%1% decrease in unit volume. Organic sales increased 1%. Price increases in blades and razors and appliances contributed 4% to net sales while unfavorableUnfavorable foreign exchange impacts reduced net sales by 8%5%. Increased pricing had a 2% positive impact to net sales. Organic sales increased 1%. Global market share of the Grooming segment decreased 0.1 points versus year ago.0.9 points. Volume increased low single digits in developed regions and decreased low single digits in both developed and developing regions.
Shave Care volume decreased low single digits. Volume increased low single digits in developed regions due to increased competitiveness following price reductions in the prior year and product innovation. Volume in developing regions decreased low single digits due to a mid-single-digit decline in developed regions from lower trade inventory levelsreduced demand following devaluation related price increases and a low-single digit decrease in developing regions following increased pricing.competitive activity. Global market share of the shave care category was up slightly.
decreased half a point.
Appliances volume increased low single digits. Volume in Appliances increased mid-single digits due to mid-single-digit growth in developed markets and low single-digit growth in developing markets behind productregions due to innovation and market growth. Volume in developing regions was unchanged. Global market share of the Appliancesappliances category was flat.
decreased more than half a point.
Net earnings decreased 9%increased 7% to $1.8$1.5 billion in 2019 due to a 280 basis-point increase in net earnings margin, which more than offset the net sales decrease. The net earnings margin increased primarily due to a reduction in U.S. income tax rates and a reduction in SG&A as a percentage of net sales, partially offset by a decrease in gross margin. Gross margin declined due to the declinenegative impact of unfavorable mix (due to the disproportionate growth of disposable razors, lower tier products in net salesthe Appliances category and a 40 basis-point decrease in net earnings margin. Net earnings margin decreased due to higher SG&A spending as a percentlarge count packs all of sales. Decreased spending due to marketing efficiencies and overhead reductions did not keep pace with the currency-driven reduction in net sales. Gross margin was unchanged as negative geographic mix from a disproportionate decline in developed regions was offset by manufacturing cost savings.


The Procter & Gamble Company 21

HEALTH CARE
($ millions)2016 Change vs. 2015 2015 Change vs. 2014
VolumeN/A (2)% N/A (1)%
Net sales$7,350 (5)% $7,713 (1)%
Net earnings$1,250 7% $1,167 8%
% of net sales17.0% 190 bps 15.1% 120 bps
Fiscal year 2016 compared with fiscal year 2015
Health Care net sales were down 5% to $7.4 billion during the fiscal year 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 lower than segment average selling prices. Organic salesmargins), unfavorable foreign exchange impacts and 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 $1.3 billion as the reduction in net sales was more thancommodity costs, partially offset by a 190 basis-point increase in net earnings margin. Gross margin increased primarily due tothe positive impacts of manufacturing cost savings and increased pricing. SG&A as a percentage of net sales decreased due to a current year gain on the sale of operating real estate, reductions in overhead costs and marketing spending and the impacts from adoption of the new accounting standard on "Revenue from Contracts with Customers". The reduction in the tax rate was primarily due to reduced marketing spendingthe impacts of the U.S. Tax Act, both from the focus on productivityoverall rate reduction and cost savings efforts.the manner in which the impacts were allocated between the business and corporate segments in the prior year, as discussed in the Corporate segment below.
Fiscal year 2015 compared with fiscal year 2014HEALTH CARE
($ millions)2019 2018 Change vs. 2018
VolumeN/A N/A 5%
Net sales$8,218 $7,857 5%
Net earnings$1,519 $1,283 18%
% of net sales18.5% 16.3% 220 bps
Health Care net sales declined 1%increased 5% to $7.7$8.2 billion in 20152019 on a 1% decline5% increase in unit volume. OrganicUnfavorable foreign exchange impacts reduced net sales by 3%. Higher pricing increased 4%net sales by 1%. Favorable geographic and product mix increased net sales 3%, primarily driven by Oral2% due to the disproportionate growth of the Personal Health Care growthcategory and developed regions, both of which have higher
than segment average selling prices. Organic sales increased 6% on a 4% increase in developed markets,organic volume, which has higher average sales prices. Increased pricing added 2% to net sales. Unfavorable foreign exchange reduced net sales by 5%.excludes the impact of the PGT Healthcare partnership dissolution and the Merck OTC consumer healthcare acquisition. Global market share of the Health Care segment decreased 0.3increased 0.5 points. Volume increased mid-single digits in developed and developing regions. Excluding the impact of the PGT Healthcare partnership dissolution and the Merck OTC consumer healthcare acquisition, organic volume increased low single digits in developing regions.
Oral Care volume increased low single digits. Volume increased mid-single digits in developed regions due to product innovation. Volume increased low single digits in developed regions but decreased mid-single digits in developing regions.
Oral Care volume decreased low single digits as a mid-single-digit decline in developing regions due to competitive activity and following increased pricing was
product innovation, partially offset by a low single-digit increase in developed regions from product innovation.competitive activity. Global market share of the oral care category was flat. increased nearly half a point.
Volume in Personal Health Care decreased lowincreased double digits. Excluding the impacts of the acquisition and dissolution described above, organic volume increased mid-single digits. Developed regions volume was unchanged, while organic volume grew mid-single digits due to product innovation. Volume in developing regions increased double digits, while organic volume was up high single digits due to a low single-digit decrease in developed regions from competitive activity. Volume in developing markets was unchanged.innovation and market growth. Global market share of the personal health care category was down aboutincreased more than half a point.
Net earnings increased 8%18% to $1.2$1.5 billion asin 2019 due to the reductionincrease in net sales was more than offset byand a 120220 basis-point increase in net earnings margin. Net earnings margin increased due to a decrease in U.S. income tax rates, partially offset by a reduction in gross margin. Gross margin expansiondecreased due to unfavorable mix impact (from the disproportionate growth of club channel and reducedproducts with lower than segment-average margins, partially offset by the net impacts of the acquisition and dissolution in personal health care) and increases in commodity costs, partially offset by manufacturing cost savings and positive pricing impacts. SG&A as a percentage of net sales was unchanged as an increase in overhead costs was offset by a reduction in marketing spending. Overhead costs as a percentage of net sales increased due to the net impacts of the personal health care acquisition and dissolution, including both integration-related spending and higher relative levels of selling costs in the acquired business, partially offset by the positive scale impacts of the net sales increase. Marketing spending as a percentage of net sales. Gross margin increasedsales declined primarily due to the impactpositive scale impacts of higher pricing and manufacturing cost savings. SG&A declined as a percentage ofthe net sales increase and the impacts from adoption of the new accounting standard on "Revenue from Contracts with Customers". The reduction in the tax rate was due to a focus on marketing spending efficiencies.the impacts of the U.S. Tax Act, both from the overall rate reduction and the manner in which the impacts were allocated between the business and corporate segments in the prior year, as discussed in the Corporate segment below.





20 The Procter & Gamble Company

FABRIC & HOME CARE
($ millions)2016 Change vs. 2015 2015 Change vs. 20142019 2018 Change vs. 2018
VolumeN/A (1)% N/A 1%N/A N/A 4%
Net sales$20,730 (7)% $22,274 (5)%$22,080 $21,441 3%
Net earnings$2,778 5% $2,634 (5)%$3,518 $2,708 30%
% of net sales13.4% 160 bps 11.8% —15.9% 12.6% 330 bps
Fiscal year 2016 compared with fiscal year 2015
Fabric & Home Care net sales for the fiscal year were down 7%increased 3% to $20.7$22.1 billion in 2019 on a 4% increase in unit volume that declined 1%.volume. Unfavorable foreign exchange impacts reduced net sales by 6%3%. Higher pricing increased net sales by 1%. Positive mix impacts increased net sales by 1% due to the disproportionate growth of premium products. Organic sales increased 1%7% on a 1%5% increase in organic volume, which excludes minor brand divestitures and the Venezuela deconsolidation.volume. Global market share of the Fabric & Home Care segment decreased 0.2increased 0.5 points. Volume increased mid-single digits in developed regions and was down highlow single digits in developing regions. Excluding the impact of minor brand divestitures, organic volume increased mid-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 singlemid-single digits. Volume in developed markets increased mid-single digits in both developed and developing regions, due to product innovation and increased marketing.market growth. Global market share of the fabric careFabric Care category was flat.
increased less than half a point.
Home Care volume increased low singlemid-single digits. DevelopedVolume in developed regions increased mid-single digits driven by product innovation and market volumegrowth. Volume in developing regions increased low single digits as benefits fromdriven by product innovation, more than offset impacts from competitive activity. This was partially offset by a low single-digit decrease in developing regionsvolume declines following increased pricing.devaluation related price increases. Global market share of the home careHome Care category was down slightly.
increased nearly a point.
Net earnings increased 5%30% to $2.8$3.5 billion behindin 2019 due to the increase in net sales and a 160330 basis-point increase in net earnings margin, which more than offset the reduction in net sales.margin. Net earnings margin increased due to gross margin expansion, partially offset by increaseda decrease in U.S. income tax rates and a reduction in SG&A as a percentage of net sales. Increasedsales partially offset by a marginal reduction in gross margin. Gross margin was drivendecreased due to unfavorable product mix (driven by the disproportionate growth of large sizes and club channel, both of which have lower than average margins, and new innovation with higher than segment-average product costs), unfavorable foreign exchange impacts and increased commodity costs, partially offset by manufacturing cost savings and lower commodity costs.


22 The Procter & Gamble Company

increased pricing. SG&A as a percentage of net sales increaseddecreased due to an increasereductions in both overhead costs and marketing spending, driven by productivity savings, fixed cost leverage from increased net sales and the negative scale impacts from adoption of the new accounting standard on "Revenue from Contracts with Customers". The reduction in net sales.
Fiscal year 2015 compared with fiscal year 2014
Fabric & Home Care net sales decreased 5% to $22.3 billion in 2015 on a 1% increase in unit volume. Organic sales increased 2%. Unfavorable foreign exchange reduced net sales by 6%, while pricing added 1% to net sales, mixthe tax rate was neutral, and minor brand divestitures had a negative impact of about 1%. Global market share of the Fabric & Home Care segment decreased 0.1 points. Volume increased low single digits in developed regions and was unchanged in developing regions.
Fabric Care volume increased low single digits due to low single-digit growth in developed regions behind market growth and product innovation. Volume was unchanged in developing regions. Global market share of the fabric care category was flat.
Home Care volume was unchanged as decreases due to competitive activity, mainly in developed markets, were offset by increases from product innovation and expanded distribution. Global market share of the home care category was down nearly half a point.
Net earnings decreased 5% to $2.6 billion due to the net sales reduction. Gross margin was unchangedimpacts of the U.S. Tax Act, both from the overall rate reduction and the manner in which the impacts were allocated between the business and corporate segments in the prior year, as negative product mix impacts from investments to expand new innovations globally were offset by manufacturing cost savings. SG&A as a percent of net sales was unchanged as lower spending due to marketing and overhead efficiencies kept pace with reduced sales.discussed in the Corporate segment below.

BABY, FEMININE & FAMILY CARE
($ millions)2016 Change vs. 2015 2015 Change vs. 20142019 2018 Change vs. 2018
VolumeN/A (3)% N/A (1)%N/A N/A 1%
Net sales$18,505 (9)% $20,247 (3)%$17,806 $18,080 (2)%
Net earnings$2,650 (10)% $2,938 —%$2,734 $2,251 21%
% of net sales14.3% (20) bps 14.5% 50 bps15.4% 12.5% 290 bps
Fiscal year 2016 compared with fiscal year 2015
Baby, Feminine & Family Care net sales decreased 9%2% to $18.5$17.8 billion during the fiscal yearin 2019 on a 3% decline1% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 6%4%. Increased pricing had a positive 1% impact on net sales. Organic sales declined 1% on aincreased 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 innovation 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 half a point.
Net earnings decreased 10% to $2.7 billion primarily due to the reduction in net sales. Net earnings margin decreased 20 basis points as higher gross margin was more than offset by an increase in SG&A as a percentage of net sales and a higher tax rate. Gross margin increased driven by manufacturing cost savings and lower commodity costs, partially offset by negative product mix. SG&A as a percentage of net sales increased due to the negative scale impact from the reduction in net sales. The higher tax rate versus the prior year was due to the geographic mix of earnings.
Fiscal year 2015 compared with fiscal year 2014
Baby, Feminine & Family Care net sales were down 3% to $20.2 billion in 2015 on a 1% decline in unit volume. Organic sales were up 3%. Price increases, primarily in Baby Care, increased net sales by 2%. Favorable geographic mix from higher developed market volume in both Feminine Care and Baby Care and from product mix in Feminine Care increased net sales by 2%. Unfavorable foreign exchange reduced net sales by 6%. Global market share of the Baby, Feminine & Family Care segment decreased 0.6increased 0.1 points. Volume increased low single digits in developed regions. Volume in developing regions and decreased highlow single digits in developing regions.
Baby Care volume decreased mid-single digits. Volume in Baby Caredeveloped regions decreased low single digits due to a mid-single-digit decreasecompetitive activity, including competitive pricing activity in certain markets, and category contraction. Volume in developing regions decreased high single digits due to competitive activity, volume declines following increased pricing, partially offset by a low single-digit increasedevaluation related price increases and category contraction in developed regions from product innovation.certain markets. Global market share of the baby care category decreased lessmore than half a point.
Feminine Care volume increased mid-single digits. Volume in Feminine Care decreaseddeveloped regions increased mid-single digits. Excluding a minor brand acquisition, organic volume increased low single digits as high single-digit declinedue to product innovation and adult incontinence category growth. Volume in developing regions increased mid-single digits due to competition and increased pricing was partially offset by a mid-single-digit increase in developed regions from product innovation, including the entry into the female adult incontinence category.innovation. Global market share of the feminine care category was flat.
increased nearly half a point.
Volume in Family Care, was unchanged as low single-digit growth in developed regions was offsetwhich is predominantly a North American business, increased mid-single digits driven by a double-digit decline in developing regions due to discontinuation of lower priced product offerings.innovation and market growth. In the U.S., all-outlet share of the family care category decreased lessincreased more than half a point.
Net earnings in 2019 increased 21% to $2.7 billion due to a 290 basis-point increase in net earnings margin, partially offset by the reduction in net sales. Net earnings margin increased primarily due to a reduction in U.S. income tax rates and a decrease in SG&A as a percentage of net sales, partially offset by a marginal decrease in gross margin. The gross margin decrease was driven by an increase in commodity costs and unfavorable foreign exchange impacts partially offset by manufacturing cost savings and increased pricing. SG&A as a percentage of net sales decreased due to reduced marketing spending and overhead costs, driven by productivity savings and the impacts from adoption of the new accounting standard on "Revenue from Contracts with Customers". The reduction in the tax rate was due to the impacts of the U.S. Tax Act, both from the overall rate reduction and the manner in which the impacts were allocated between business and corporate segments in the prior year, as discussed in the Corporate segment below.



The Procter & Gamble Company 2321


Net earnings were unchanged at $2.9 billion as the reduction in net sales was offset by a 50 basis-point increase in net earnings margin. Net earnings margin increased due to higher gross margin, partially offset by an increase in SG&A as a percent of net sales. The increase in gross margin was driven by higher pricing and manufacturing cost savings, partially offset by foreign exchange. SG&A as a percent of net sales increased as spending reductions did not keep pace with the currency-driven decline in sales.
CORPORATE
($ millions)2016 Change vs. 2015 2015 Change vs. 2014
Net sales$422 (9)% $466 (37)%
Net loss$(174) N/A $(2,420) N/A
($ millions)2019 2018 Change vs. 2018
Net sales$484 $497 (3)%
Net earnings/(loss)$(7,971) $(133) 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; the 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; certain significant asset impairment and deconsolidation charges; and certain balance sheet impacts from significant foreign exchange devaluations.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 includesis income taxes, to adjust from blended statutory rates that are reflected in the segments to the overall Company effective tax rate.
Fiscal year 2016 compared with fiscal year 2015 For 2018, the tax impact also includes the impacts of the U.S. Tax Act, which were included in the corporate segment.
Corporate net sales decreased $443% to $484 million duringin 2019 due to a decrease in the fiscal year.incidental businesses managed at the corporate level. Corporate net earnings from continuing operations improvedloss increased by approximately $2.2$7.8 billion during the fiscal year,in 2019 primarily due to the $2.1$8.0 billion Venezuela deconsolidationafter tax ($8.3 billion before tax) charge for the Shave Care impairment as well as the impact of the allocation methodology of the lower U.S. Tax rates. The U.S. Tax Act was enacted in the priormiddle of fiscal year and2018; therefore, the net benefit was held in Corporate. Beginning in fiscal 2019, the lower foreign currency transactional charges. Additional discussion of these items impacting net earnings in Corporaterates are included in the Resultsreporting segments. These impacts were partially offset by the following benefits, each of Operations section.which was discussed earlier:
Fiscal year 2015the base period net charge for the transitional impacts of the U.S. Tax Act,
the base period loss on early debt extinguishment,
lower restructuring charges in fiscal 2019 compared with fiscal year 2014
Net sales in Corporate decreased by $271 million in 2015 primarily due to the prior year and
higher current year divestiture gains (primarily driven by gain on the dissolution of the MDVIP business. Corporate net expenses from continuing operations increased $2.0 billion in 2015, primarily duePGT healthcare partnership)
Restructuring Program to the charge related to the deconsolidation of the Venezuelan subsidiaries, increased foreign exchange transactional charges and incremental restructuring charges, which were partially offset by gains on minor brand divestitures.
deliver Productivity and Cost Savings Plan
In 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
and other work processes to fund the Company's growth strategy. In 2017, the Company communicated specific elements of an additional multi-year productivity and cost savings program.
The current 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 incurincurred approximately $5.5$1.8 billion in before-taxtotal before- tax restructuring costs over a six-year period (from fiscal 2012 through fiscal 2017). Through the endacross 2018 and 2019, with an additional
amount of fiscal 2016, 89%approximately $0.6 billion expected in 2020. This program is expected to result in additional enrollment reductions, along with further optimization of the expected costs have been incurred.supply chain and other manufacturing processes. Savings generated from the restructuring costs are difficult to estimate, given the nature of the activities, the timing of the execution and the degree of reinvestment. Overall, theseHowever, we estimate that through 2019, the underlying restructuring costs andincurred since 2012 (approximately $7.4 billion), along with other non-manufacturing enrollment reductions are expected to deliversince 2012 have delivered approximately $3.0$3.6 billion in annual before-tax gross savings. The cumulative before-tax savings realized through 2016 were approximately $2.4 billion.
Restructuring accruals of $315$468 million as of June 30, 20162019 are classified as current liabilities. During fiscal 2016, 51%Approximately 67% of the restructuring charges incurred in fiscal 2019 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 ourthe 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.
Operating Cash Flow
Fiscal year 2016 compared with fiscal year 2015
Operating cash flow was $15.4$15.2 billion in 2016,2019, a 6%3% increase from the prior year. Net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation, deferred income taxes, loss/(gain)gain on sale of businessesassets and goodwill and indefinite-lived intangible impairment charges) generated $13.6approximately $14.6 billion of operating cash


24 The Procter & Gamble Company

flow. Working capital and other impacts generated $1.8$0.7 billion of operating cash flow.flow as summarized below.
ReducedAn increase in accounts receivable generated $35used $276 million of cash due to improved collection results partially offset byincreased sales mix.and the timing of the end of the fiscal year (which fell on a weekend, resulting in fewer

22 The Procter & Gamble Company

days collection). The number of days sales outstanding increased 1approximately one day due to foreign exchange impacts.versus prior year.
LowerHigher inventory generated $116used $239 million of cash mainly due to supply chain optimizationsinventory increases to support initiatives and lower commodity costs.business growth across all segments. Inventory days on hand increased 4approximately 2 days primarily due to initiative support and foreign exchange impacts.
Accounts payable, accrued and other liabilities increased, generating $1.3$1.9 billion in operating cash flow, of which approximately $0.8 billioncash. This was primarily driven by extended payment terms with our suppliers. The balance was primarily driven bysuppliers and an increase in fourth quarter marketing activity versus the prior year. These items,factors, along with the impact of foreign exchange, drove a 24an approximate 8 day increase in days payable outstanding. Although difficult to project due to market and other dynamics, we anticipate similarincremental cash flow benefits from the extended payment terms with suppliers over the nextcould decline in fiscal year.2020.
Other operating assets and liabilities generated $204 millionused $1.0 billion of cash.
Fiscal year 2015 compared with fiscal year 2014
Operating cash, flow was $14.6 billion in 2015, a 5% increase from the prior year. Operating cash flows resulted primarily from net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation, deferred income taxes, impairment charges, gains on sale of businesses and the Venezuela deconsolidation charge) and a decrease in working capital, partially offset by the impact of other operating assets and liabilities.
Reduced accounts receivable generated $349 million of cash due to changes in customer terms and improved collection results. The number of days sales outstanding decreased 5 days due to foreign exchange impacts and improvements in collection results and customer terms.
Lower inventory generated $313 million of cash mainly due to supply chain optimizations and lower commodity costs. Inventory days on hand decreased 7 days due to foreign exchange impacts, supply chain optimizations and lower commodity costs.
Accounts payable, accrued and other liabilities increased, generating $928 million in operating cash flow primarily driven by extendedthe payment terms.
Other operating assets and liabilities utilized $976 million of cash primarilythe current year portion of taxes due related to the elimination of the deferred tax impacts associated with the Pet Care divestiture.U.S. Tax Act repatriation charge and statutory pension contributions.
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 certain divestiture impacts (tax payments in the prior year for the Pet Care divestiture)transitional tax resulting from the U.S. Tax Act, and it is one of the measures used to evaluate senior management and determine their at-risk compensation.
Fiscal year 2016 compared with fiscal year 2015
Adjusted free cash flow was $12.1 billion in 2016,2019, an increase of 4%9% versus the prior year. The increase was primarily driven by the increase in operating cash flows and decrease in capital spending.as discussed above. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings, excluding the Shave Care impairment charges and the gain on the saledissolution of the Batteries business,PGT Healthcare partnership, was 115%105% in 2016.
Fiscal year 2015 compared with fiscal year 2014
Adjusted free cash flow was $11.6 billion in 2015, an increase of 15% versus the prior year. The increase was driven by the increase in operating cash flows. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings excluding impairment charges on the Batteries business and the Venezuelan deconsolidation charge, was 102% in 2015.2019.
Investing Cash Flow
Fiscal year 2016 compared with fiscal year 2015
Net investing activities consumed $5.6$3.5 billion in cash in 20162019, mainly due to capital spending divestiture transactions and net purchases of short-term investments,business acquisitions, partially offset by proceeds from sales orand maturities of short-term investments.
Fiscal year 2015 compared with fiscal year 2014
Net investing activities consumed $2.9 billion in cash in 2015 mainly due to capital spending, net purchases of available-for-sale securities and a reduction in cash due to Venezuela deconsolidation, partially offset by asset sales.
Capital Spending. Capital expenditures, primarily to support capacity expansion, innovation and cost efficiencies, were $3.3 billion in 2016 and $3.7 billion in 2015.2019, a decrease of 10% versus prior year. Capital spending as a percentage of net sales decreased 2070 basis points to 5.1%4.9% in 2016. Capital spending as a percentage of net sales was 5.3% in 2015. 2019.
Acquisitions. Acquisition activity was not materialused cash of $3.9 billion in 2016 or 2015.2019, primarily related to the Merck OTC acquisition. Acquisition activity used $109 million in 2018, primarily related to acquisitions in the Beauty segment.
Proceeds from Divestitures and Other Asset Sales. Proceeds from asset sales in 2016 contributed $432were $394 million in cash,2019 primarily from plant asset sales and other minor brand divestitures.divestitures and the sale of real estate. Proceeds from asset sales contributed $4.5$269 million in cash in 2018 primarily from minor brand divestitures.
Short-term investments. Short-term investments generated net cash of $3.5 billion in 2019, primarily from sales and
maturities of available-for-sale investments. Net cash flow from short-term investments was not material in 2018.
Financing Cash Flow
Net financing activities consumed $10.0 billion in cash in 2015 primarily from2019, mainly due to dividends to shareholders and treasury stock purchases, partially offset by the saleimpact of our Pet Care business, the sale of our Chinese battery venture, and other minor brand divestitures.stock options.
Financing Cash Flow
Dividend Payments. Our first discretionary use of cash is dividend payments. Dividends per common share increased 3%4% to $2.66$2.90 per share in 2016.2019. Total dividend payments to common and preferred shareholders were $7.4$7.5 billion in 20162019 and $7.3 billion in 2015.2018. In April 2016,2019, the Board of Directors declared an increase in our quarterly dividend from $0.6629$0.7172 to $0.6695$0.7459 per share on Common Stock and Series A and B ESOP Convertible Class A Preferred Stock. This represents a 1%4% increase compared to the prior quarterly dividend and is the 60th63rd consecutive year that our dividend has increased. We


The Procter & Gamble Company 25

have paid a dividend for 126129 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 $30.6$30.1 billion as of June 30, 20162019 and $30.3$31.3 billion as of June 30, 2015.2018.
Treasury Purchases. Total share repurchases were $4.0$5.0 billion in 20162019 and $4.6$7.0 billion in 2015. In addition, the cash infusion of $1.7 billion in the Batteries divestiture was reflected as a purchase of treasury stock.2018.
Liquidity
At June 30, 2016, our current assets exceeded current liabilities by $3.0 billion largely due to current assets and current liabilities of the Beauty Brands business held for sale. Excluding current assets and current liabilities of the Beauty Brands business held for sale,2019, our current liabilities exceeded current assets by $1.8$7.5 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, 2016, $11.02019, $5.7 billion of the Company’s cash, cash equivalents and marketable securities is held off-shore by foreign subsidiaries. Amounts held bywas related to foreign subsidiaries, are generally subject to U.S. income taxation on repatriation to the U.S. Weprimarily various Western European and Asian countries. 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, 2016 balance of off-shore cash, cash equivalents and marketable securities, the majority relates to various Western European countries. As of June 30, 2016,2019, we did not have material cash, cash equivalents and 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, 2016,2019, our short-term credit ratings were P-1 (Moody's) and A-1+ (Standard & Poor's), while our long-term

The Procter & Gamble Company 23

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-yearfour-year facility and a $4.8 billion 364-day facility, which expire in November 20202022 and November 2016,2019, respectively. The 364-day facilityBoth 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.
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.


26 The Procter & Gamble Company

Contractual Commitments
The following table provides information on the amount and payable date of our contractual commitments as of June 30, 2016.2019.
Amounts in millionsTotal Less Than 1 Year 1-3 Years 3-5 Years After 5 YearsTotal Less Than 1 Year 1-3 Years 3-5 Years After 5 Years
RECORDED LIABILITIES                  
Total debt$30,221
 $11,635
 $3,660
 $3,467
 $11,459
$29,988
 $9,695
 $4,791
 $4,807
 $10,695
Capital leases45
 16
 21
 5
 3
33
 9
 15
 7
 2
Uncertain tax positions (1)
247
 247
 —
 —
 —
U.S. Tax Act transitional charge (1)
2,557
 214
 449
 646
 1,248
Uncertain tax positions (2)
143
 143
 —
 —
 —
OTHER                  
Interest payments relating to long-term debt6,439
 684
 1,249
 979
 3,527
4,682
 572
 979
 737
 2,394
Operating leases (2)
1,563
 237
 464
 360
 502
Operating leases1,218
 255
 375
 300
 288
Minimum pension funding (3)
640
 215
 425
 —
 —
471
 153
 318
 —
 —
Purchase obligations (4)
1,794
 881
 391
 234
 288
1,491
 633
 397
 193
 268
TOTAL CONTRACTUAL COMMITMENTS$40,949
 $13,915
 $6,210
 $5,045
 $15,779
$40,583
 $11,674
 $7,324
 $6,690
 $14,895
(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, 2016,2019, the Company's Consolidated Balance Sheet reflects a liability for uncertain tax positions of $1.2 billion,$617 million, including $343$150 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, 2016,2019, 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 20192022 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 future purchasesminimum commitments under take-or-pay agreements with suppliers and are in line with expected usage to obtain favorable pricing.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.

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 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

24 The Procter & Gamble Company

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 in the timing of recognition of certain trade promotional spending.   See Note 1 to our Consolidated Financial Statements.
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.
OurA core operating principles areprinciple 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 exposureuncertainty related to the determination of the appropriateintercompany transfer prices


The Procter & Gamble Company 27

for our various cross-border transactions. We obtainhave obtained and continue to prioritize the strategy of seeking advance rulings with tax authorities to supportreduce this uncertainty. We estimate that our positions, where possible,current portfolio of advance rulings reduces this uncertainty with respect to help manage these exposures. Nonetheless, manyover 70% of the underlying transactions are subject to audit, resulting in uncertainty until the ultimate audit resolution.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. ForSee 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 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 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 2016,2019, the average return on assets assumptions for pension plan assets and OPEB assets was 7.2%6.6% and 8.3%, respectively. A change in the rate of return of 100 basis points for both pension and OPEB assets would impact annual after-tax benefit expense by approximately $100$115 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

The Procter & Gamble Company 25

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 and OPEB plans of 2.1% and 3.6%, respectively,1.9% represents a weighted average of local rates in countries where such plans exist. A 100 basis point change in the pension discount rate would impact annual after-tax defined benefit pension expense by approximately $200 million. The average discount rate on the OPEB plan of 3.7% reflects the higher interest rates generally applicable in the U.S., which is where a majority of the plan participants receive benefits. A 100 basis point change in the OPEB discount rate of 100 basis points would impact annual after-tax OPEB expense by approximately $86$60 million. ForSee Note 8 to the Consolidated Financial Statement for additional details on our defined benefit pension and OPEB plans, see Note 8 to the Consolidated Financial Statements.plans.
Goodwill and Intangible Assets
Significant judgment is required to estimate the fair value of our goodwill reporting units and intangible assets and in assigning their respective useful lives.assets. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant tangiblegoodwill reporting units and intangible assets. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain.
expectations. We typically use an income method to estimate the fair value of intangiblethese assets using the income method, which is based on forecaststhe present value of the expectedestimated future cash flows attributable to the respective assets. SignificantThe valuations used to establish and to test goodwill and intangible assets for impairment are dependent on a number of significant estimates and assumptions, inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expectedincluding macroeconomic conditions, overall category growth rates, competitive activities, cost containment and profitability), the underlying product or technology life cycles, economic barriers to entry, a brand's relative market positionmargin progression, Company business plans and the discount rate applied to the 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 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 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 intangible assets. The test to evaluate goodwill for impairment is a 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 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 trademarks or 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. Our estimates of the useful lives of determinable-lived intangible assets are primarily based on these same factors. All of our acquired technology and customer-related intangible assets are expected to have determinable useful lives.


28 The Procter & Gamble Company

The costs of determinable-livedDeterminable-lived intangible assets are amortized to expense over their estimated lives. The valueAn impairment assessment for determinable-lived intangibles is only required when an event or change in circumstances indicates that the carrying amount of indefinite-lived intangible assets and residual goodwill isthe asset may not amortized, but is tested at least annually for impairment. Our impairment testing for goodwill is performed separately from our impairment testing of indefinite-lived intangible assets. We test goodwill for impairment by reviewing the book value compared to the fair value at the reporting unit level. We test individual indefinite-lived intangible assets by comparing the book values of each asset to the estimated fair value. We determine the fair value of our reporting units and indefinite-lived intangible assets based on the income approach. Under the income approach, we calculate the fair value of our reporting units and indefinite-lived intangible assets based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows to measure fair value. 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 such assumptions and estimates are also comparable to those that would be used by other marketplace participants.recoverable.
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 continuing 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. While both of theseThe Appliances wholly-acquired reporting units haveunit has a fair value cushions that currently exceedsignificantly exceeds the underlying carrying values,value. As previously disclosed, the fair value of the Shave Care cushion, as well as certain ofreporting unit and the related Gillette indefinite-lived intangible assets,asset have been reduced during the recent year to below 20%amounts that approximated carrying value. The fair value 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 have resulted in reduced cash flow projections. The business continued to be impacted by these factors during the quarter ended June 30, 2019, which reduced previous estimates of earnings for both fiscal 2019 and fiscal 2020. Because of this, we re-performed our step one impairment tests for these assets as of June 30, 2019 and determined that beganthe fair values have been reduced below their respective carrying values.
Therefore, we conducted a step two test of goodwill for the Shave Care reporting unit. Step two requires that we allocate the fair value of the reporting unit to identifiable assets and

26 The Procter & Gamble Company

liabilities of the reporting unit, including previously amortized or unrecognized intangible assets. Any residual fair value after this allocation is compared to the goodwill balance and any excess goodwill is charged to expense. The step two test resulted in recent yearsan implied fair value of the Shave Care goodwill that was below the carrying value. Therefore, we recognized a non-cash before and continued during fiscal 2016.after-tax impairment charge of $6.8 billion. The resulting carrying value of the Shave Care goodwill is $12.6 billion as of June 30, 2019. As a result this unitof the methodology used in the step two testing, the Shave Care fair value now exceeds the carrying value by approximately 20%. This is primarily due to higher estimated fair values for certain fixed assets and defined lived intangibles assets, both of which have been partially amortized subsequent to their initial acquisition, along with fair values assigned to intangible assets not eligible for recognition in the financial statements.
The Gillette indefinite-lived intangible asset impairment charge was $1.6 billion ($1.2 billion after tax). This charge was equal to the difference between its estimated fair value (as calculated in step one) and its carrying value. The resulting carrying value of the Gillette indefinite-lived intangible asset is $14.1 billion as of June 30, 2019, which is equal to its estimated fair value. As a result, the Gillette indefinite-lived intangible asset is more susceptible to future impairment risk fromrisk.
The Shave Care goodwill and Gillette indefinite-lived asset impairment charges are presented as a separate line item in the Consolidated Statements of Earnings. Irrespective of these impairment charges, the Shave Care business has consistently generated significant earnings and cash flow and will continue to be a strategic business for the Company, with attractive earnings, cash flow and growth opportunities.
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 and approximates expected long term category market growth rates. The net sales and earnings growth rates are dependent on overall market growth rates, the competitive environment, inflation, relative currency exchange rates, business activities that impact market share and input cost fluctuations. As a result, these growth rates could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, an increased competitive environment, increases in input costs or devaluation of currencies 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. The discount rate, which is consistent with a weighted average cost of capital that is likely to 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 andthe macroeconomic environment, conditions, including anyvolatility in the equity and debt markets or other country specific factors, such as further significant devaluation of major currencies relative toagainst the U.S. dollar. Any suchWhile 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 couldwould trigger future impairment charges of the businessreporting unit's goodwill and indefinite-lived intangibles.
The businesstable below provides a sensitivity analysis for the Shave Care reporting unit valuations used to test goodwill and the Gillette indefinite-lived intangible assetsasset, utilizing reasonably possible changes in the assumptions for impairment are dependent on a number of significant estimatesthe shorter term and assumptions, including macroeconomic conditions, overall categoryresidual growth rates competitive activities, cost containment and margin expansion and Company business plans. We believe these estimates and assumptions are reasonable. Changesthe 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 failure25 basis point decrease to achieve these business plans or a further deteriorationour shorter-term and residual growth rates, both of the macroeconomic conditions couldwhich would result in a valuation that would trigger anincremental impairment ofcharges to the goodwill andGillette indefinite-lived intangible assets of these businesses.asset.
 Approximate Percent Change in Estimated Fair Value
 +25 bps Discount Rate 
-25 bps
Growth Rate
Shave Care goodwill reporting unit(5)% (6)%
Gillette indefinite-lived intangible asset(5)% (5)%
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, 2016.2019.
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, weWe 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 Procter & Gamble Company 27

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, 2016.2019. 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.


The Procter & Gamble Company 29

Based on our interest rate exposure as of and during the year ended June 30, 2016,2019, 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 enter 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, 2016,2019, 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, 20162019 and June 30, 2015,2018, we did not have any commodity hedging activity.
Measures Not Defined By U.S. GAAP
Our discussionIn accordance with the SEC's Regulation S-K Item 10(e), the following provides definitions of financial results includes several "non-GAAP" financialthe 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,July 1, 2018 adoption of new accounting standards for "Revenue from Contracts with Customers", acquisitions, divestitures and
foreign exchange from year-over-year comparisons. The impact of the adoption of the new accounting standard for Revenue from Contracts with Customers is driven by the prospective reclassification of certain customer spending from marketing (SG&A) expense to a reduction of net sales. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis, and this measure is used in assessing achievement of management goals for at-risk compensation.
The following tables provide a numerical reconciliation of organic sales growth to reported net sales growth:
Year ended June 30, 2016Net Sales GrowthForeign Exchange ImpactAcquisition/Divestiture Impact*Organic Sales Growth
Year ended June 30, 2019Net Sales GrowthForeign Exchange Impact
Acquisition & Divestiture Impact/Other (1)
Organic Sales Growth
Beauty(9)%6%3%— %4 %4%— %8%
Grooming(8)%9%1%2 %(5)%5%1 %1%
Health Care(5)%6%1%2 %5 %3%(2)%6%
Fabric & Home Care(7)%6%2%1 %3 %3%1 %7%
Baby, Feminine & Family Care(9)%6%2%(1)%(2)%4%— %2%
TOTAL COMPANY(8)%6%3%1 %1 %4%— %5%
 
Year ended June 30, 2015Net Sales GrowthForeign Exchange ImpactAcquisition/Divestiture Impact*Organic Sales Growth
Beauty(6)%5%1%— %
Grooming(7)%8%—%1 %
Health Care(1)%5%—%4 %
Fabric & Home Care(5)%6%1%2 %
Baby, Feminine & Family Care(3)%6%—%3 %
TOTAL COMPANY(5)%6%1%2 %
*
(1)
Acquisition/Acquisition & Divestiture Impact alsoImpact/Other includes the volume and mix impact of acquisitions and divestitures, the Venezuela deconsolidationimpact from the July 1, 2018 adoption of a new accounting standard for "Revenue from Contracts with Customers" and the rounding impacts necessary to reconcile net sales to organic sales.
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 non-GAAP measures as a useful supplemental measure of Company performance over time. The table below provides a reconciliation of revised diluted net earnings per share to Core EPS, including the following reconciling items:
Incremental restructuring: While the Company has and continues to have an ongoing level of restructuring activities, beginning in 2012 we began a $10 billion strategic productivity and cost savings initiative that includes incremental restructuring activities. This results in incremental restructuring charges to accelerate productivity efforts and cost savings. The charges include only the incremental portion of the restructuring costs.
Venezuela deconsolidation charge: For accounting purposes, evolving conditions resulted in a lack of control over our Venezuelan subsidiaries. Therefore, in


30 The Procter & Gamble Company

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.
Charges 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. Management does not view these charges as indicative of underlying business results.
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 part of our sustainable results, and their exclusion from core earnings measures provides a more comparable measure of year-on-year results.
Years ended June 30201620152014
Diluted net earnings per share - continuing operations$3.49$2.84$3.63
Incremental restructuring charges0.180.170.11
Venezuela balance sheet devaluation impacts—0.040.09
Charges for European legal matters—0.010.02
Venezuelan deconsolidation—0.71—
Rounding—(0.01)—
CORE EPS$3.67$3.76$3.85
Core EPS Growth(2)%(2)%5%
*All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction.
Adjusted Free Cash Flow. Adjusted free cash flow is defined as operating cash flow less capital spending and excluding certain tax payments related to the divestituretransitional tax resulting from the U.S. Tax Act (the Company incurred a transitional tax liability of approximately $3.8 billion from the discontinued Pet business.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

28 The Procter & Gamble Company

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
Free
Cash  Flow
Divestiture impacts*
Adjusted Free
Cash Flow
2016$15,435
$(3,314)$12,121
$—
$12,121
201514,608
(3,736)10,872
729
11,601
201413,958
(3,848)10,110
—
10,110
 
Operating
Cash Flow
Capital
Spending
Adjustments to Operating Cash Flow (1)
Adjusted Free
Cash Flow
2019$15,242
$(3,347)$235
$12,130
2018$14,867
$(3,717)$—
$11,150
*
(1)
Divestiture impactsAdjustments to Operating Cash Flow relate to tax payments for the Pet Care divestiture in fiscal 2015.transitional tax resulting from the U.S. Tax Act.
Adjusted Free Cash Flow Productivity. Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings excluding Batteries impairments,1) the fiscal 2019 Shave Care impairment and 2) the fiscal 2019 gain on the saledissolution of the Batteries business and Venezuela charges.
PGT Healthcare partnership. We view adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, in allocating financial resources and for budget planning purposes. This measure is used in assessing the achievement of management goals for at-risk compensation. The Company's long-term target is to generate annual adjusted free cash flow productivity at or above 90 percent.
The following table provides a numerical reconciliation of adjusted free cash flow productivity ($ millions):
 
Net
Earnings
Gain on Batteries Sale / Impairment & Decon- solidation ChargesNet Earnings Excluding Batteries Gain/Impairment & Deconsolid- ation ChargesAdjusted Free Cash Flow
Adjusted Free
Cash Flow
Productivity
2016$10,604
$(72)$10,532
$12,121
115%
20157,144
4,187
11,331
11,601
102%
201411,785
—
11,785
10,100
86%
 
Net
Earnings
Adjustments to Net Earnings (1)
Net Earnings Excluding AdjustmentsAdjusted Free Cash Flow
Adjusted Free
Cash Flow
Productivity
2019$3,966
$7,625
$11,591
$12,130
105%
(1)
Adjustments to Net Earnings relate to the Shave Care impairment charges and the gain on the dissolution of the PGT Healthcare partnership in fiscal 2019.
Core EPS. Core EPS is a measure of the Company's diluted net earnings per share from continuing operations adjusted as indicated. Management views this non-GAAP 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: 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. In 2012, the Company began a $10 billion strategic productivity and cost savings initiative that includes incremental restructuring activities. In 2017, we communicated details of an additional multi-year productivity and cost savings plan. 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.
•
Gain on Dissolution of the PGT Healthcare Partnership: The Company dissolved our PGT Healthcare partnership, a venture between the Company 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; the Company recognized an after-tax gain on the dissolution of $353 million.
•
Transitional Impacts of the U.S. Tax Act: As discussed in Note 5 to the Consolidated Financial Statements, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Act”) in December 2017.  This resulted in a net charge of $602 million for the fiscal year 2018.  The adjustment to core earnings only includes this transitional impact.  It does not include the ongoing impacts of the lower U.S. statutory rate on pre-tax earnings.
•
Early debt extinguishment charges: In fiscal 2018, the Company recorded after-tax charges of $243 million, due to the early extinguishment of certain long-term debt.  These charges represent the difference between the reacquisition price and the par value of the debt extinguished.
•
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 one-time, non-cash after-tax charge of $8.0 billion ($8.3 billion before tax) to adjust the carrying values of the Shave Care reporting unit. 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 Gillette indefinite-lived intangible assets.
•
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 shareholders were deducted from net income to calculate earnings available to common shareholders. As a result of the non-GAAP Shave Care impairment adjustment, these instruments are dilutive for non-GAAP core earnings per share.

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 29

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)
COST OF PRODUCTS SOLD$34,768
 $—
 $(426) $—
 $—
 $—
 $34,342
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE19,084
 —
 23
 —
 —
 (1) 19,106
OPERATING INCOME5,487
 —
 403
 8,345
 —
 1
 14,236
INCOME TAX ON CONTINUING OPERATIONS2,103
 —
 69
 367
 (2) —
 2,537
NET EARNINGS ATTRIBUTABLE TO P&G3,897
 —
 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 current period 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.
CHANGE VERSUS YEAR AGO
CORE EPS7%
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
(Amounts in Millions Except Per Share Amounts)
Reconciliation of Non-GAAP Measures
Twelve Months Ended June 30, 2018
 AS REPORTED (GAAP) INCREMENTAL RESTRUCTURING TRANSITIONAL IMPACTS OF THE U.S. TAX ACT EARLY DEBT EXTINGUISHMENT ROUNDING NON-GAAP (CORE)
COST OF PRODUCTS SOLD$34,432
 $(724) $—
 $—
 $(1) $33,707
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE19,037
 (1) —
 —
 1
 19,037
OPERATING INCOME13,363
 725
 —
 —
 —
 14,088
INCOME TAX ON CONTINUING OPERATIONS3,465
 129
 (602) 103
 —
 3,095
NET EARNINGS ATTRIBUTABLE TO P&G9,750
 610
 602
 243
 (1) 11,204
            Core EPS
DILUTED NET EARNINGS PER COMMON SHARE*$3.67
 $0.23
 $0.23
 $0.09
 $—
 $4.22
* Diluted net earnings per share are calculated on Net earnings attributable to Procter & Gamble.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is incorporated by reference to the sectionsection entitled Other Information under Management's Disclosure and Analysis, and Note 9 to the Consolidated Financial Statements.



30 The Procter & Gamble Company 31


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, 2016,2019, 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, 2016,2019, 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, 2016,2019, as stated in their report which is included herein.
/s/ David S. Taylor
David S. Taylor
Chairman of the Board, President and Chief Executive Officer
 
/s/ Jon R. Moeller
Jon R. Moeller
Vice Chairman, Chief Operating Officer and Chief Financial Officer
 
August 9, 20166, 2019



32 The Procter & Gamble Company 31


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors and Stockholders of The Procter & Gamble Company
Cincinnati, OhioOpinion 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, 20162019 and 2015, and2018, 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, 2016. 2019 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2019, 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, 2019, 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, 2019 expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenue from contracts with customers in the year ended June 30, 2019 due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe 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 includesmisstatement, 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 supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded 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 Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate 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 positionstatements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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, 2018 and the Gillette brand indefinite-lived intangible asset (the “Gillette brand”) as of December 31, 2018.  Because the estimated fair values exceeded their carrying values, no impairments were recorded. Given recent reductions in cash flows caused by currency devaluations, changing consumer grooming habits affecting demand and an increase in the competitive market environment, the Company revised their cash flow estimates and

32 The Procter & Gamble Company and subsidiaries at June 30, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2016, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 and Note 13 to the Consolidated Financial Statements, on July 1, 2015,
updated their fair value estimates for both the Shave Care reporting unit and the Gillette brand as of June 30, 2019 and determined the carrying values exceeded the fair values resulting in an impairment of the Shave Care Goodwill and the Gillette brand. The Company measured the impairment of goodwill using the two-step method which requires management to make significant estimates and judgments to allocate the fair value of the Shave Care reporting unit to its identifiable assets and liabilities including estimating the fair value of property, plant and equipment and intangibles. The residual fair value of the Shave Care reporting unit was compared to the carrying value of its goodwill with the excess in carrying value of $6.8 billion before and after tax recorded as an impairment. The impairment of the Gillette brand of $1.6 billion before tax and $1.2 billion after tax was measured as the difference between its fair value and carrying value. As of June 30, 2019, after recording of the impairments, the Shave Care reporting unit goodwill was $12.6 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 recent reductions in cash flows and the significant judgments made by management to estimate the fair values of the reporting unit and the brand and to estimate the fair value of the reporting unit’s assets and liabilities for purposes of measuring the impairment of goodwill. A high degree of auditor judgment and 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 and the estimation and allocation of fair value to the reporting unit’s assets and liabilities 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 royalty rates and discount rates for the Shave Care reporting unit and the Gillette brand included the following, among others:
•
We tested the effectiveness of 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, discount rates and allocation of the reporting unit fair value to its identifiable assets and liabilities.
•
We evaluated management’s ability to accurately forecast net sales and earnings by comparing actual results to management’s historical forecasts.
•
We evaluated the 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.
•
Internal communications to management and the Board of Directors.
•
Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.
•
With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology, net sales and earnings growth rates, royalty rates, discount rates and estimation and allocation of the reporting unit fair value to its identifiable assets and liabilities by:
•
Testing the source information underlying the determination of net sales and earnings growth rates, royalty rates, discount rates, estimation and allocation of the reporting unit fair value to its identifiable assets and liabilities and the mathematical accuracy of the calculations.
•
Developing a range of independent estimates for the discount rates and comparing those to the discount rates selected by management.
Acquisition of the over the counter healthcare business of Merck KGaA - Refer to Note 14 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of the over the counter healthcare business of Merck KGaA (Merck OTC) for $3.7 billion on November 30, 2018. The Company accounted for this transaction under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $2.1 billion and resulting goodwill of $2.1 billion. Of the identified intangible assets acquired, the most significant included brand indefinite lived intangible assets of $946 million and brand defined life intangible assets of $701 million (the “brand intangible assets”). The Company estimated the fair value of the brand intangible assets using the royalty savings method, which is a specific discounted cash flow method that required management to make significant estimates and assumptions related to future cash flows and the selection of royalty rates and discount rates.

The Procter & Gamble Company adopted the new accounting guidance in ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.33
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 30, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 9, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.
We identified the brand intangible assets for Merck OTC as a critical audit matter because of the significant estimates and assumptions management makes to fair value these assets for purposes of recording the acquisition. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s forecasts of future cash flows as well as the selection of the 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 the forecasts of future cash flows and the selection of the royalty rates and discount rates for the brand intangible assets included the following, among others:
•
We tested the effectiveness of controls over the valuation of the brand intangible assets, including management’s controls over forecasts of future cash flows and selection of the royalty rates and discount rates.
•
We evaluated the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results and certain peer companies.
•
With the assistance of our fair value specialists, we evaluated the reasonableness of the valuation methodology, royalty rates and discount rates by:
•
Testing the source information underlying the determination of the royalty rates and discount rates and testing the mathematical accuracy of the calculations.
•
Developing a range of independent estimates for the discount rates and comparing those to the discount rates selected by management.


/s/ Deloitte & Touche LLP
Cincinnati, Ohio
 
August 9, 20166, 2019
We have served as the Company’s auditor since 1890.




34 The Procter & Gamble Company 33


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, 2016,2019, 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, 2019, 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, 2019, of the Company and our report dated August 6, 2019, expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the Company’s change in method of accounting for revenue from contracts with customers in the year ended June 30, 2019 due to the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606).
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'sManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’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'scompany’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'scompany’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'scompany’s assets that could have a material effect on the financial statements.
Because of theits 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 preventedprevent 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, 2016, 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, 2016 of the Company and our report dated August 9, 2016 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption on July 1, 2015 of the new accounting guidance in ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
 
August 9, 20166, 2019






34 The Procter & Gamble Company 35


Consolidated Statements of Earnings
Amounts in millions except per share amounts; Years ended June 302019 2018 2017
NET SALES$67,684
 $66,832
 $65,058
Cost of products sold34,768
 34,432
 32,638
Selling, general and administrative expense19,084
 19,037
 18,654
Goodwill and indefinite lived intangibles impairment charges8,345
 —
 —
OPERATING INCOME5,487
 13,363
 13,766
Interest expense509
 506
 465
Interest income220
 247
 171
Other non-operating income/(expense), net871
 222
 (215)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES6,069
 13,326
 13,257
Income taxes on continuing operations2,103
 3,465
 3,063
NET EARNINGS FROM CONTINUING OPERATIONS3,966
 9,861
 10,194
NET EARNINGS FROM DISCONTINUED OPERATIONS—
 —
 5,217
NET EARNINGS3,966
 9,861
 15,411
Less: Net earnings attributable to noncontrolling interests69
 111
 85
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE$3,897
 $9,750
 $15,326
      
BASIC NET EARNINGS PER COMMON SHARE: (1)
     
Earnings from continuing operations$1.45
 $3.75
 $3.79
Earnings from discontinued operations—
 —
 2.01
BASIC NET EARNINGS PER COMMON SHARE$1.45
 $3.75
 $5.80
DILUTED NET EARNINGS PER COMMON SHARE: (1)
     
Earnings from continuing operations$1.43
 $3.67
 $3.69
Earnings from discontinued operations—
 —
 1.90
DILUTED NET EARNINGS PER COMMON SHARE$1.43
 $3.67
 $5.59
Amounts in millions except per share amounts; Years ended June 302016 2015 2014
NET SALES$65,299
 $70,749
 $74,401
Cost of products sold32,909
 37,056
 39,030
Selling, general and administrative expense18,949
 20,616
 21,461
Venezuela deconsolidation charge—
 2,028
 —
OPERATING INCOME13,441
 11,049
 13,910
Interest expense579
 626
 709
Interest income182
 149
 99
Other non-operating income, net325
 440
 209
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES13,369
 11,012
 13,509
Income taxes on continuing operations3,342
 2,725
 2,851
NET EARNINGS FROM CONTINUING OPERATIONS10,027
 8,287
 10,658
NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS577
 (1,143) 1,127
NET EARNINGS10,604
 7,144
 11,785
Less: Net earnings attributable to noncontrolling interests96
 108
 142
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE$10,508
 $7,036
 $11,643
      
BASIC NET EARNINGS PER COMMON SHARE: (1)
     
Earnings from continuing operations$3.59
 $2.92
 $3.78
Earnings/(loss) from discontinued operations0.21
 (0.42) 0.41
BASIC NET EARNINGS PER COMMON SHARE$3.80
 $2.50
 $4.19
DILUTED NET EARNINGS PER COMMON SHARE: (1)
     
Earnings from continuing operations$3.49
 $2.84
 $3.63
Earnings/(loss) from discontinued operations0.20
 (0.40) 0.38
DILUTED NET EARNINGS PER COMMON SHARE$3.69
 $2.44
 $4.01
DIVIDENDS PER COMMON SHARE$2.66
 $2.59
 $2.45

(1) 
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.
The Procter & Gamble Company 35

Consolidated Statements of Comprehensive Income
Amounts in millions; Years ended June 302016 2015 2014
NET EARNINGS$10,604
 $7,144
 $11,785
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX     
Financial statement translation(1,679) (7,220) 1,044
Unrealized gains/(losses) on hedges (net of $5, $739 and $(209) tax, respectively)1
 1,234
 (347)
Unrealized gains/(losses) on investment securities (net of $7, $0 and $(4) tax, respectively)28
 24
 9
Unrealized gains/(losses) on defined benefit retirement plans (net of $(621), $328 and $(356) tax, respectively)(1,477) 844
 (869)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX(3,127) (5,118) (163)
TOTAL COMPREHENSIVE INCOME7,477
 2,026
 11,622
Less: Total comprehensive income attributable to noncontrolling interests96
 108
 150
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE$7,381
 $1,918
 $11,472


See accompanying Notes to Consolidated Financial Statements.
36 The Procter & Gamble Company


Consolidated Balance SheetsStatements of Comprehensive Income
Amounts in millions; Years ended June 302016 2015
Assets   
CURRENT ASSETS   
Cash and cash equivalents$7,102
 $6,836
Available-for-sale investment securities6,246
 4,767
Accounts receivable4,373
 4,568
INVENTORIES   
Materials and supplies1,188
 1,266
Work in process563
 525
Finished goods2,965
 3,188
Total inventories4,716
 4,979
Deferred income taxes1,507
 1,356
Prepaid expenses and other current assets2,653
 2,708
Current assets held for sale7,185
 4,432
TOTAL CURRENT ASSETS33,782
 29,646
PROPERTY, PLANT AND EQUIPMENT, NET19,385
 19,655
GOODWILL44,350
 44,622
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET24,527
 25,010
NONCURRENT ASSETS HELD FOR SALE—
 5,204
OTHER NONCURRENT ASSETS5,092
 5,358
TOTAL ASSETS$127,136
 $129,495
Liabilities and Shareholders' Equity   
CURRENT LIABILITIES   
Accounts payable$9,325
 $8,138
Accrued and other liabilities7,449
 8,091
Current liabilities held for sale2,343
 1,543
Debt due within one year11,653
 12,018
TOTAL CURRENT LIABILITIES30,770
 29,790
LONG-TERM DEBT18,945
 18,327
DEFERRED INCOME TAXES9,113
 9,179
NONCURRENT LIABILITIES HELD FOR SALE—
 717
OTHER NONCURRENT LIABILITIES10,325
 8,432
TOTAL LIABILITIES69,153
 66,445
SHAREHOLDERS' EQUITY   
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)1,038
 1,077
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: 2016 - 4,009.2, 2015 - 4,009.2 )4,009
 4,009
Additional paid-in capital63,714
 63,852
Reserve for ESOP debt retirement(1,290) (1,320)
Accumulated other comprehensive income/(loss)(15,907) (12,780)
Treasury stock, at cost (shares held: 2016 - 1,341.2, 2015 - 1,294.7)(82,176)
(77,226)
Retained earnings87,953
 84,807
Noncontrolling interest642
 631
TOTAL SHAREHOLDERS' EQUITY57,983
 63,050
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$127,136
 $129,495
Amounts in millions; Years ended June 302019 2018 2017
NET EARNINGS$3,966
 $9,861
 $15,411
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX     
Foreign currency translation (net of $78, $(279) and $(186) tax, respectively)(213) (305) (67)
Unrealized gains/(losses) on investment securities (net of $0, $0 and $(6) tax, respectively)184
 (148) (59)
Unrealized gains on defined benefit retirement plans (net of $22, $68 and $551 tax, respectively)169
 334
 1,401
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX140
 (119) 1,275
TOTAL COMPREHENSIVE INCOME4,106
 9,742
 16,686
Less: Total comprehensive income attributable to noncontrolling interests70
 109
 85
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE$4,036
 $9,633
 $16,601


See accompanying Notes to Consolidated Financial Statements.
The Procter & Gamble Company 37


Consolidated Statements of Shareholders' Equity
Balance Sheets
Dollars in millions; Shares in thousandsCommon Shares OutstandingCommon StockPreferred StockAdd-itional Paid-In CapitalReserve for ESOP Debt Retirement
Accumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury StockRetained EarningsNon-controlling InterestTotal
BALANCE JUNE 30, 20132,742,327

$4,009

$1,137

$63,538

($1,352)
($7,499)
($71,966)
$80,197

$645

$68,709
Net earnings       11,643
142
11,785
Other comprehensive income     (163)   (163)
Dividends to shareholders:          
 Common       (6,658) (6,658)
 Preferred, net of tax benefits       (253) (253)
Treasury purchases(74,987)     (6,005)  (6,005)
Employee plan issuances40,288
  364
  2,144
  2,508
Preferred stock conversions3,178
 (26)4
  22
  —
ESOP debt impacts    12
  61
 73
Noncontrolling interest, net   5
    (25)(20)
BALANCE JUNE 30, 20142,710,806

$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 issuances54,100
  156
  3,153
  3,309
Preferred stock conversions4,335
 (34)4
  30
  —
ESOP debt impacts    20
  68
 88
Noncontrolling interest, net   (219)    (239)(458)
BALANCE JUNE 30, 20152,714,571

$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 issuances52,089
  (144)  3,234
  3,090
Preferred stock conversions4,863
 (39)6
  33
  —
ESOP debt impacts    30
  74
 104
Noncontrolling interest, net        (85)(85)
BALANCE JUNE 30, 20162,668,074

$4,009

$1,038

$63,714

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

$642

$57,983
(1)
Includes $4,213 of treasury shares acquired in the divestiture of the Batteries business (see Note 13).

Amounts in millions; As of June 302019 2018
Assets   
CURRENT ASSETS   
Cash and cash equivalents$4,239
 $2,569
Available-for-sale investment securities6,048
 9,281
Accounts receivable4,951
 4,686
INVENTORIES   
Materials and supplies1,289
 1,335
Work in process612
 588
Finished goods3,116
 2,815
Total inventories5,017
 4,738
Prepaid expenses and other current assets2,218
 2,046
TOTAL CURRENT ASSETS22,473
 23,320
PROPERTY, PLANT AND EQUIPMENT, NET21,271
 20,600
GOODWILL40,273
 45,175
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET24,215
 23,902
OTHER NONCURRENT ASSETS6,863
 5,313
TOTAL ASSETS$115,095
 $118,310
    
Liabilities and Shareholders' Equity   
CURRENT LIABILITIES   
Accounts payable$11,260
 $10,344
Accrued and other liabilities9,054
 7,470
Debt due within one year9,697
 10,423
TOTAL CURRENT LIABILITIES30,011
 28,237
LONG-TERM DEBT20,395
 20,863
DEFERRED INCOME TAXES6,899
 6,163
OTHER NONCURRENT LIABILITIES10,211
 10,164
TOTAL LIABILITIES67,516
 65,427
SHAREHOLDERS' EQUITY   
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)928
 967
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: 2019 - 4,009.2, 2018 - 4,009.2)4,009
 4,009
Additional paid-in capital63,827
 63,846
Reserve for ESOP debt retirement(1,146) (1,204)
Accumulated other comprehensive income/(loss)(14,936) (14,749)
Treasury stock, at cost (shares held: 2019 - 1,504.5, 2018 -1,511.2)(100,406)
(99,217)
Retained earnings94,918
 98,641
Noncontrolling interest385
 590
TOTAL SHAREHOLDERS' EQUITY47,579
 52,883
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$115,095
 $118,310


See accompanying Notes to Consolidated Financial Statements.
38 The Procter & Gamble Company


Consolidated Statements of Cash FlowsShareholders' Equity
Dollars in millions; shares in thousandsCommon StockPreferred StockAdd-itional Paid-In CapitalReserve for ESOP Debt RetirementAccumu-lated
Other
Comp-rehensive
Income/(Loss)		Treasury StockRetained EarningsNon-controlling InterestTotal Share-holders' Equity
SharesAmount
BALANCE JUNE 30, 20162,668,074

$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 income/(loss)     1,275
   1,275
Dividends and dividend equivalents ($2.6981 per share):          
 Common       (6,989) (6,989)
 Preferred, net of tax benefits       (247) (247)
Treasury stock purchases (1)
(164,866)     (14,625)  (14,625)
Employee stock plans45,848
  (77)  3,058
  2,981
Preferred stock conversions4,241
 (32)4
  28
  —
ESOP debt impacts    41
  81
 122
Noncontrolling interest, net        (133)(133)
BALANCE JUNE 30, 20172,553,297

$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 plans21,655
  199
  1,469
  1,668
Preferred stock conversions4,580
 (39)6
  33
  —
ESOP debt impacts    45
  89
 134
Noncontrolling interest, net        (113)(113)
BALANCE JUNE 30, 20182,498,093

$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 plans55,734
  93
  3,781
  3,874
Preferred stock conversions4,638
 (39)6
  33
  —
ESOP debt impacts    58
  99
 157
Noncontrolling interest, net   (118)    (248)(366)
BALANCE JUNE 30, 20192,504,751

$4,009

$928

$63,827

($1,146)
($14,936)
($100,406)
$94,918

$385

$47,579
(1)    Includes $9,421 of treasury shares received as part of the share exchange in the Beauty Brands transaction (see Note 13).
Amounts in millions; Years ended June 302016 2015 2014
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR$6,836
 $8,548
 $5,930
OPERATING ACTIVITIES     
Net earnings10,604
 7,144
 11,785
Depreciation and amortization3,078
 3,134
 3,141
Share-based compensation expense335
 337
 360
Deferred income taxes(815) (803) (44)
Gain on sale of businesses(41) (766) (154)
Venezuela deconsolidation charge—
 2,028
 —
Goodwill and intangible asset impairment charges450
 2,174
 —
Change in accounts receivable35
 349
 87
Change in inventories116
 313
 8
Change in accounts payable, accrued and other liabilities1,285
 928
 1
Change in other operating assets and liabilities204
 (976) (1,557)
Other184
 746
 331
TOTAL OPERATING ACTIVITIES15,435
 14,608
 13,958
INVESTING ACTIVITIES     
Capital expenditures(3,314) (3,736) (3,848)
Proceeds from asset sales432
 4,498
 577
Cash related to deconsolidated Venezuela operations—
 (908) —
Acquisitions, net of cash acquired(186) (137) (24)
Purchases of short-term investments(2,815) (3,647) (568)
Proceeds from sales of short-term investments1,354
 1,203
 24
Cash transferred in Batteries divestiture(143) —
 —
Restricted cash related to Beauty Brands divestiture(996) —
 —
Change in other investments93
 (163) (261)
TOTAL INVESTING ACTIVITIES(5,575) (2,890) (4,100)
FINANCING ACTIVITIES     
Dividends to shareholders(7,436) (7,287) (6,911)
Change in short-term debt(418) (2,580) 3,304
Additions to long-term debt3,916
 2,138
 4,334
Reductions of long-term debt(2,213) (3,512) (4,095)
Treasury stock purchases(4,004) (4,604) (6,005)
Treasury stock from cash infused in Batteries divestiture(1,730) —
 —
Impact of stock options and other2,672
 2,826
 2,094
TOTAL FINANCING ACTIVITIES(9,213) (13,019) (7,279)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(381) (411) 39
CHANGE IN CASH AND CASH EQUIVALENTS266
 (1,712) 2,618
CASH AND CASH EQUIVALENTS, END OF YEAR$7,102
 $6,836
 $8,548
SUPPLEMENTAL DISCLOSURE     
Cash payments for:     
Interest$569
 $678
 $686
Income taxes3,730
 4,558
 3,320
Divestiture of Batteries business in exchange for shares of P&G stock (1)
4,213
 —
 —
Assets acquired through non-cash capital leases are immaterial for all periods.     

(1)
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.
The Procter & Gamble Company 39


Consolidated Statements of Cash Flows
Amounts in millions; Years ended June 302019 2018 2017 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR$2,569
 $5,569
 $8,098
 
OPERATING ACTIVITIES      
Net earnings3,966
 9,861
 15,411
 
Depreciation and amortization2,824
 2,834
 2,820
 
Loss on early extinguishment of debt—
 346
 543
 
Share-based compensation expense515
 395
 351
 
Deferred income taxes(411) (1,844) (601) 
Gain on sale of assets(678) (176) (5,490) 
Goodwill and indefinite-lived intangible impairment charges8,345
 —
 —
 
Change in accounts receivable(276) (177) (322) 
Change in inventories(239) (188) 71
 
Change in accounts payable, accrued and other liabilities1,856
 1,385
 (149) 
Change in other operating assets and liabilities(973) 2,000
 (43) 
Other313
 431
 162
 
TOTAL OPERATING ACTIVITIES15,242
 14,867
 12,753
 
INVESTING ACTIVITIES      
Capital expenditures(3,347) (3,717) (3,384) 
Proceeds from asset sales394
 269
 571
 
Acquisitions, net of cash acquired(3,945) (109) (16) 
Purchases of short-term investments(158) (3,909) (4,843) 
Proceeds from sales and maturities of short-term investments3,628
 3,928
 1,488
 
Cash transferred at closing related to the Beauty Brands divestiture—
 —
 (475) 
Change in other investments(62) 27
 (26) 
TOTAL INVESTING ACTIVITIES(3,490) (3,511) (6,685) 
FINANCING ACTIVITIES      
Dividends to shareholders(7,498) (7,310) (7,236) 
Change in short-term debt(2,215) (3,437) 2,727
 
Additions to long-term debt2,367
 5,072
 3,603
 
Reductions of long-term debt (1)
(969) (2,873) (4,931) 
Treasury stock purchases(5,003) (7,004) (5,204) 
Impact of stock options and other3,324
 1,177
 2,473
 
TOTAL FINANCING ACTIVITIES(9,994) (14,375) (8,568) 
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH(88) 19
 (29) 
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH1,670
 (3,000) (2,529) 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR$4,239
 $2,569
 $5,569
 
       
SUPPLEMENTAL DISCLOSURE      
Cash payments for interest$497
 $529
 $518
 
Cash payment for income taxes3,064
 2,830
 3,714
 
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 and $543 in 2018 and 2017 respectively.


See accompanying Notes to Consolidated Financial Statements.
40 The Procter & Gamble Company

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, high-frequency stores and pharmacies. 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. Prior year amounts have been reclassified to conform with current year presentation for amounts related to segment reporting (see Note 2) and discontinued operations (see Note 13).
There areBecause of a lack of control over Venezuela 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 accountingare not consolidated for our investment inany year presented. We account for 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 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.
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 whenOur revenue is realizedprimarily 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 realizablethe date of receipt by the customer. A provision for payment discounts and has been earned. Revenue transactions representproduct
return allowances is recorded as a reduction of sales of inventory.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. Our policy is to recognize revenue when title to the product, ownership and risk of loss 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.
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 necessary to acquire and convert the purchased materials and supplies into finished product. 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 $1.9 billion in 2016, $2.02019, $1.9 billion in 20152018 and $1.9 billion in 20142017 (reported in Net earnings from continuing operations). Advertising costs, charged to expense as incurred, include worldwide television,


Amounts in millions of dollars except per share amounts or as otherwise specified.
40 The Procter & Gamble Company

print, radio, internet and in-store advertising expenses and were $7.2$6.8 billion in 2016, $7.22019, $7.1 billion in 20152018 and $7.9$7.1 billion in 20142017 (reported in Net earnings from continuing operations). Non-advertising related components of the Company's total marketing spending reported in SG&A include costs associated with consumer promotions, product sampling and sales aids, which are included in SG&A, as well as coupons and customer trade funds, which are recorded as reductions to Net sales.aids.
Other Non-Operating Income,Income/(Expense), Net
Other non-operating income,income/(expense), net primarily includes net acquisition and divestiture gains, non-service components of net defined benefit costs, investment income and investment income.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 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.

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 41

Cash Flow Presentation
The Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles net earnings to cash flow from operating activities. Cash flows from foreign currency transactions and operations are translated at an average exchange rate for the 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 primarily consist of readily marketable debt and equity securities. Unrealized gains or losses from investments 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 securities are included as Available-for-sale investment securities and Other noncurrent assets in the Consolidated Balance Sheets.
Investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions, are accounted for as equity method
investments. Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for under the cost method. Both equity and cost method investments are included as Other noncurrent assets in the Consolidated Balance Sheets.
Inventory Valuation
Inventories are valued at the lower of cost or market 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 41

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.
New Accounting Pronouncements and Policies
In May 2014, the FASB issuedOn July 1, 2018, we adopted ASU 2014-09, “Revenue"Revenue from Contracts with Customers (Topic 606)”." This guidance outlines a single, comprehensive model forof accounting for revenue from contracts with customers. We will adoptadopted the standard no later than July 1, 2018. While weusing the modified retrospective transition method, under which prior periods were not revised to reflect the impacts 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. Accordingly, the timing of revenue recognition is not

Amounts in millions of dollars except per share amounts or as otherwise specified.
42 The Procter & Gamble Company

materially impacted by the new standard. Trade promotions, consisting primarily of customer pricing allowances, in-store merchandising funds, advertising and other promotional activities, and consumer coupons, are currently assessing the impactoffered through various programs to customers and consumers.  The adoption of the new standard we doaccelerated the accrual timing for certain portions of our customer and consumer promotional spending, which resulted in a cumulative reduction to Retained earnings of $534, net of tax, on the date of adoption. The provisions of the new standard also impact the classification of certain payments to customers, moving such payments from expense to a deduction from net sales. Had this standard been effective and adopted during fiscal 2018, the impact would have been to reclassify $309 for the year ended June 30, 2018, with no impact to operating income. We elected certain practical expedients included in the guidance related to shipping and handling costs, which was not expect thismaterial to our Consolidated Financial Statements. This new guidance does not have any other material impacts on our Consolidated Financial Statements, including financial disclosures.
On July 1, 2018, we adopted ASU 2017-07, "Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (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 of the income statement. It requires the service cost component to be presented with other current compensation costs for the related employees in the operating section of the income statement, with other components of net benefit cost presented outside of income from operations. We adopted the standard retrospectively, using the practical expedient which allows entities to use information previously disclosed in their pension and other postretirement benefit plans footnote as the basis to apply the retrospective presentation requirements. As such, prior periods’ results have been revised to report the other components of net defined benefit costs, previously reported in Cost of products sold and SG&A, in Other non-operating income, net.
On July 1, 2018, we adopted ASU 2016-18, "Statement of Cash Flows: Restricted Cash (Topic 230)." This guidance requires the Statement of Cash Flows to present changes in the total of cash, cash equivalents and restricted cash. Prior to the adoption of this ASU, the relevant accounting guidance did not require the Statement of Cash Flows to include changes in restricted cash. We currently have no significant restricted cash balances. Historically, we had restricted cash balances and changes related to divestiture activity. Such balances were presented as Current assets held for sale on the balance sheets, with changes presented as Investing activities on the Statements of Cash Flow. In accordance with ASU 2016-08, such balances are now included in the beginning and ending balances of Cash, cash equivalents and restricted cash for all periods presented.
On July 1, 2018, we early adopted ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220)." This guidance permits companies to make an election to reclassify stranded
tax effects from the recently enacted U.S. Tax Cuts and Jobs Act included in Accumulated other comprehensive income/(loss) (AOCI) to Retained earnings.  ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The reclassification from the adoption of this standard resulted in an increase of $326 to Retained earnings and a decrease of $326 to AOCI.
On July 1, 2018, we adopted ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity transfers of Assets other than Inventory." We adopted this standard on a modified retrospective basis. The standard eliminates the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The adoption of ASU 2016-16 did not have a material impact on our Consolidated Financial Statements.
On July 1, 2015,Statements, including the Company adopted ASU 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity". The guidance included new reporting and disclosure requirements for discontinued operations. For additional details on discontinued operations, see Note 13.cumulative effect adjustment required upon adoption.
In February 2016, the FASB issued ASU 2016-02, “Leases"Leases (Topic 842)”." The standard requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) Targeted Improvements”. The updated guidance provides an optional transition method, which allows for the application of the standard as of the adoption date with no restatement of prior period amounts. We willplan to adopt the standard no later thanon July 1, 2019.2019 under the optional transition method described above. We are currently in the process of implementing lease accounting software as well as assessing the impact that the new standard will have on our Consolidated Financial Statements. For additional details onThe impact of the standard will consist primarily of a balance sheet gross up of our operating leases see Note 12.to show equal and offsetting lease assets and lease liabilities. Subject to the completion of our assessment, we expect the adoption of the standard to result in an increase to our total assets of approximately 1%.
In March 2016,January 2017, the FASB issued ASU 2016-09, “Stock Compensation2017-04, "Intangibles-Goodwill and Other (Topic 718)350): Improvements to Employee Share-Based Payment Accounting”.Simplifying the Test for Goodwill Impairment." The standard amends several aspects ofsimplifies the accounting for employee share-based payment transactions includinggoodwill impairment by requiring a goodwill impairment to be measured using a single step impairment model, whereby the accounting for income taxes, forfeituresimpairment equals the difference between the carrying amount and statutory tax withholding requirements, as well as classificationthe fair value of the specified reporting units in their entirety. This eliminates the statementsecond step of cash flows.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 fair values and a residual measurement approach. It 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 July 1, 2017. While we are currently assessing the2020. The impact of the new standard we do not expectwill be dependent on the new guidance to have a material impact on our Consolidated Financial Statements.specific facts and circumstances of future individual impairments, if any.
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our Consolidated Financial Statements.

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 43

NOTE 2
SEGMENT INFORMATION
On July 9, 2015,During fiscal 2017, the Company announcedcompleted the signingdivestiture of a definitive agreement to divest four product categories, initially comprised of 43 of its beauty brands (“Beauty Brands”), which will be merged with Coty Inc. ("Coty").brands. The transaction
includestransactions included the global salon professional hair care and color, retail hair color, cosmetics and finethe fragrance businesses, along with select hair styling brands andbrands. This business is expected to close in October 2016. In February 2016, the Company completed the divestiture of its Batteries business to Berkshire Hathaway. The Company completed the divestiture of its Pet Care business in the previous fiscal year. Each of these businesses are reported as discontinued operations for all periods presentedthe year ended June 30, 2017 (see Note 13).
Under U.S. GAAP, our remaining Global Business Units (GBUs) are aggregated into five reportable segments: 1) Beauty, 2) Grooming, 3) Health Care, 4) Fabric & Home Care and 5) Baby, Feminine & Family Care. Our five 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
•
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); 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 (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, 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 ); and
Baby, Feminine & Family Care: Baby Care (Baby Wipes, Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper).
(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 charges 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.


Amounts in millions of dollars except per share amounts or as otherwise specified.
42 The Procter & Gamble Company

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*
% of Sales by Business Unit (1)
% of Sales by Business Unit (1)
Years ended June 302016 2015 20142019 2018 2017
Fabric Care22% 22% 22%22% 22% 22%
Baby Care14% 15% 15%12% 13% 14%
Hair Care10% 11% 11%10% 10% 10%
Home Care10% 9% 9%10% 10% 10%
Shave Care9% 9% 10%
Skin and Personal Care10% 9% 8%
Family Care8% 8% 7%9% 8% 8%
Oral Care8% 8% 7%8% 8% 8%
Skin and Personal Care8% 7% 7%
Shave Care8% 8% 9%
Feminine Care6% 6% 6%6% 6% 6%
All Other5% 5% 6%5% 6% 5%
TOTAL100% 100% 100%100% 100% 100%
*
(1)
% of sales by business unit excludes sales held in Corporate.
The Company had netNet sales in the U.S. of $27.0 billion, $26.8 billion and $26.7 billion for the years ended June 30, 2016, 2015 and 2014, respectively. Long-livedlong-lived assets in the U.S. totaled $8.5 billionUnited States and $8.3 billioninternationally were as of June 30, 2016 and 2015, respectively. Long-lived assets consists of property, plant and equipment. follows (in billions):
Years ended June 30 2019 2018 2017
NET SALES      
United States $28.6
 $27.3
 $27.3
International $39.1
 $39.5
 $37.8
LONG-LIVED ASSETS (1)
      
United States $10.0
 $9.7
 $8.8
International $11.3
 $10.9
 $11.1
(1)
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,Walmart Inc. and its affiliates, accounted for approximately 15% of consolidated net sales of approximately 15%, 15% and 16% in 2016, 20152019, 2018 and 2014.2017, respectively. No other customer represents more than 10% of our consolidated net sales.



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  (1)
2016 $11,477
 $2,636
 $1,975
 $218
 $3,888
 $435
 2015 12,608
 2,895
 2,181
 247
 4,004
 411
 2014 13,401
 3,020
 2,300
 256
 4,564
 376
GROOMING2016 6,815
 2,009
 1,548
 451
 22,819
 383
 2015 7,441
 2,374
 1,787
 540
 23,090
 372
 2014 8,009
 2,589
 1,954
 576
 23,767
 369
HEALTH CARE2016 7,350
 1,812
 1,250
 204
 5,139
 240
 2015 7,713
 1,700
 1,167
 202
 5,212
 218
 2014 7,798
 1,597
 1,083
 199
 5,879
 253
FABRIC & HOME CARE2016 20,730
 4,249
 2,778
 531
 6,919
 672
 2015 22,274
 4,059
 2,634
 547
 7,155
 986
 2014 23,506
 4,264
 2,770
 539
 7,938
 1,057
BABY, FEMININE & FAMILY CARE2016 18,505
 4,042
 2,650
 886
 9,863
 1,261
 2015 20,247
 4,317
 2,938
 924
 10,109
 1,337
 2014 20,950
 4,310
 2,940
 908
 10,946
 1,317
CORPORATE (1) (2)
2016 422
 (1,379) (174) 788
 78,508
 323
 2015 466
 (4,333) (2,420) 674
 79,925
 412
 2014 737
 (2,271) (389) 663
 91,172
 476
TOTAL COMPANY2016 $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
 2014 74,401
 13,509
 10,658
 3,141
 144,266
 3,848
(1)
Prior year adjustments were made to total assets for the Beauty and Corporate reportable segments related to certain Beauty Brands trademarks included in the scope of the Beauty Brands transaction.
(2)
The Corporate reportable segment includes depreciation and amortization, total assets and capital expenditures of the Pet Care and Batteries businesses prior to their divestiture and of the Beauty Brands businesses.


Amounts in millions of dollars except per share amounts or as otherwise specified.
44 The Procter & Gamble Company 43


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
BEAUTY2019 $12,897
 $3,282
 $2,637
 $272
 $5,362
 $634
 2018 12,406
 3,042
 2,320
 236
 4,709
 766
 2017 11,429
 2,546
 1,914
 220
 4,184
 599
GROOMING2019 6,199
 1,777
 1,529
 429
 20,882
 367
 2018 6,551
 1,801
 1,432
 447
 22,609
 364
 2017 6,642
 1,985
 1,537
 433
 22,759
 341
HEALTH CARE2019 8,218
 1,984
 1,519
 294
 7,708
 363
 2018 7,857
 1,922
 1,283
 230
 5,254
 330
 2017 7,513
 1,898
 1,280
 209
 5,194
 283
FABRIC & HOME CARE2019 22,080
 4,601
 3,518
 557
 7,620
 984
 2018 21,441
 4,191
 2,708
 534
 7,295
 1,020
 2017 20,717
 4,249
 2,713
 513
 6,886
 797
BABY, FEMININE & FAMILY CARE2019 17,806
 3,593
 2,734
 861
 9,271
 819
 2018 18,080
 3,527
 2,251
 899
 9,682
 1,016
 2017 18,252
 3,868
 2,503
 874
 9,920
 1,197
CORPORATE (1)
2019 484
 (9,168) (7,971) 411
 64,252
 180
 2018 497
 (1,157) (133) 488
 68,761
 221
 2017 505
 (1,289) 247
 571
 71,463
 167
TOTAL COMPANY2019 $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
 2017 65,058
 13,257
 10,194
 2,820
 120,406
 3,384

(1)
The Corporate reportable segment includes the $8.3 billion one-time, 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. The Corporate reportable segment also includes depreciation and amortization, total assets and capital expenditures of the Beauty Brands business prior to their divestiture in fiscal 2017.
NOTE 3
SUPPLEMENTAL FINANCIAL INFORMATION
The components of property, plant and equipment were as follows:
As of June 302019 2018
PROPERTY, PLANT AND EQUIPMENT
Buildings$7,746
 $7,188
Machinery and equipment32,263
 30,595
Land805
 841
Construction in progress2,579
 3,223
TOTAL PROPERTY, PLANT AND EQUIPMENT43,393
 41,847
Accumulated depreciation(22,122) (21,247)
PROPERTY, PLANT AND EQUIPMENT, NET$21,271
 $20,600

Years ended June 302016 2015
PROPERTY, PLANT AND EQUIPMENT
Buildings$6,885
 $6,949
Machinery and equipment29,506
 29,420
Land769
 763
Construction in progress2,706
 2,931
TOTAL PROPERTY, PLANT AND EQUIPMENT39,866
 40,063
Accumulated depreciation(20,481) (20,408)
PROPERTY, PLANT AND EQUIPMENT, NET$19,385
 $19,655
Selected components of current and noncurrent liabilities were as follows:
As of June 302019 2018
ACCRUED AND OTHER LIABILITIES - CURRENT
Marketing and promotion$4,299
 $3,208
Compensation expenses1,623
 1,298
Restructuring reserves468
 513
Taxes payable341
 268
Other2,323
 2,183
TOTAL$9,054
 $7,470
    
OTHER NONCURRENT LIABILITIES
Pension benefits$5,622
 $4,768
Other postretirement benefits1,098
 1,495
Uncertain tax positions472
 581
U.S. Tax Act transitional tax payable2,343
 2,654
Other676
 666
TOTAL$10,211
 $10,164

Years ended June 302016 2015
ACCRUED AND OTHER LIABILITIES - CURRENT
Marketing and promotion$2,820
 $2,798
Compensation expenses1,457
 1,390
Restructuring reserves315
 389
Taxes payable397
 845
Legal and environmental158
 205
Other2,302
 2,464
TOTAL$7,449
 $8,091
   
OTHER NONCURRENT LIABILITIES
Pension benefits$6,761
 $5,247
Other postretirement benefits1,808
 1,414
Uncertain tax positions952
 1,016
Other804
 755
TOTAL$10,325
 $8,432

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 45

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 expects to incur approximately $5.5 billion in before-tax restructuring costs over a six year period (fromIn fiscal
2012 through fiscal 2017), including costs incurred as part of the ongoing and incremental restructuring program. The program includes a non-manufacturing overhead enrollment reduction target of approximately 25% - 30% by the end of fiscal 2017.
Through fiscal 2016, 2017 the Company reduced non-manufacturingannounced specific elements of another incremental multi-year productivity and cost savings plan to further reduce costs in the areas of supply chain, certain marketing activities and overhead expenses. This program is expected to result in incremental enrollment by approximately 14,200, or approximately 24%. The reductions, are enabled by the elimination of duplicate work, simplification through the use of technology and optimization of various functional and business organizations. In addition, the plan includes integration of newly acquired companies and thealong 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 $977$754 and $1,068$1,070 for the years ended June 30, 20162019 and 2015,2018, respectively. Approximately $202 and $338 of theseOf the charges incurred for fiscal year 2019, $213 were recorded in SG&A, $521 in Costs of products sold, and $20 in Other non-operating income/(expense), net. Of the charges incurred for the years ended June 30, 2016 and 2015, respectively and approximately $718 and $614 of these chargesfiscal year 2018, $237 were recorded in CostSG&A, $819 in Costs of products sold, for the years ended June 30, 2016 and 2015, respectively. The remainder of the charges were included$14 in Net earnings from discontinued operations. Since the inception of this restructuring program, the Company has incurred approximately $4.9 billion of the total expected restructuring costs. Approximately $2.3 billion of these charges were related to separations, $1.4 billion were asset-related and $1.2 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, 20162019 and 2015:2018:
Amounts in millionsSeparationsAsset-Related CostsOtherTotal
RESERVE JUNE 30, 2017$228
$—
$49
$277
Charges310
366
394
1,070
Cash spent(279)—
(189)(468)
Charges against assets—
(366)—
(366)
RESERVE JUNE 30, 2018259
—
254
513
Charges260
252
242
754
Cash spent(239)—
(308)(547)
Charges against assets—
(252)—
(252)
RESERVE JUNE 30, 2019$280
$—
$188
$468




Amounts in millionsSeparationsAsset-Related CostsOtherTotal
RESERVE JUNE 30, 2014$353
$—
$28
$381
Charges516
289
263
1,068
Cash spent(507)—
(264)(771)
Charges against assets—
(289)—
(289)
RESERVE JUNE 30, 2015362
—
27
389
Charges262
432
283
977
Cash spent(381)—
(238)(619)
Charges against assets—
(432)—
(432)
RESERVE JUNE 30, 2016$243
$—
$72
$315
Separation Costs
Employee separation charges for the years ended June 30, 20162019 and 2015, related2018 relate to severance packages for approximately 2,7701,810 and 4,820 employees, respectively. For the years ended June 30, 2016 and 2015, these severance packages included approximately 920 and 2,340 non-manufacturing2,720 employees, respectively. The packages were predominantlyprimarily voluntary and the amounts were calculated based on salary levels and past


Amounts in millions of dollars except per share amounts or as otherwise specified.
44 The Procter & Gamble Company

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 17,070 employees, of which approximately 9,540 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 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 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 employee relocation related to separationsasset removal and office consolidations, termination of contracts related to supply chain redesign and the cost to change internal systems and processes to support the underlying organizational changes.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 purposes, the following table summarizes the total restructuring costs related to our reportable segments:
Years ended June 302016 2015201920182017
Beauty$72
 $63
$49
$60
$90
Grooming42
 57
65
38
45
Health Care26
 32
23
21
15
Fabric & Home Care250
 197
84
115
144
Baby, Feminine & Family Care225
 192
226
547
231
Corporate (1)
362
 527
307
289
229
Total Company$977
 $1,068
$754
$1,070
$754
(1) 
Corporate includes costs related to allocated overheads, including charges related to our Sales and Market Operations, Global Business Services and Corporate Functions activities, andalong with costs related to discontinued operations from our Batteries and Beauty Brands businesses.business in 2017.


Amounts in millions of dollars except per share amounts or as otherwise specified.
46 The Procter & Gamble Company

NOTE 4
GOODWILL AND INTANGIBLE ASSETS
The change in the net carrying amount of goodwill by reportable segment was as follows:
 BeautyGroomingHealth CareFabric & Home CareBaby, Feminine & Family CareCorporateTotal Company
Balance at June 30, 2017 - Net (1)
$12,791
$19,627
$5,878
$1,857
$4,546
$—
$44,699
Acquisitions and divestitures82
—
—
—
—
—
82
Translation and other119
193
51
8
23
—
394
Balance at June 30, 2018 - Net (1)
12,992
19,820
5,929
1,865
4,569
—
45,175
Acquisitions and divestitures132
—
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
 BeautyGroomingHealth CareFabric & Home CareBaby, Feminine & Family CareCorporateTotal Company
GOODWILL at JUNE 30, 2014 - Gross$14,065
$22,097
$6,280
$1,981
$4,910
$2,554
$51,887
Accumulated impairment losses at June 30, 2014—
(1,158)—
—
—
—
(1,158)
GOODWILL at JUNE 30, 2014 - Net14,065
20,939
6,280
1,981
4,910
2,554
50,729
Acquisitions and divestitures(136)—
(6)(3)—
(449)(594)
Goodwill impairment charges—
—
—
—
—
(2,064)(2,064)
Translation and other(1,225)(1,320)(398)(104)(361)(41)(3,449)
GOODWILL at JUNE 30, 2015 - Gross (1)
12,704
20,777
5,876
1,874
4,549
2,064
47,844
Accumulated impairment losses at June 30, 2015 (1)
—
(1,158)—
—
—
(2,064)(3,222)
GOODWILL at JUNE 30, 2015 - Net12,704
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)
GOODWILL at JUNE 30, 2016 - Gross12,645
20,635
5,840
1,856
4,532
—
45,508
Accumulated impairment losses at June 30, 2016—
(1,158)—
—
—
—
(1,158)
GOODWILL at JUNE 30, 2016 - Net$12,645
$19,477
$5,840
$1,856
$4,532
$—
$44,350

(1) 
Balances in Corporate segment reflect the gross valueGrooming goodwill balance is net of the Batteries goodwill and the corresponding$1.2 billion accumulated impairment charges recorded against the business to reflect the value of BH's shares in P&G stocklosses as of June 30, 2015. The Batteries business was divested in February 2016.2017 and 2018 and $7.9 billion as of June 30, 2019.


Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 45

On July 9, 2015, the Company announced the signing of a definitive agreement to divest four product categories, initially comprised of 43 of its beauty brands ("Beauty Brands"), which will be merged with Coty. The transaction includes the global salon professional hair careGoodwill and color, retail hair color and cosmetics businesses and a majority of 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 guidanceindefinite-lived intangibles are tested 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, 2015 and 2014 is excluded from the preceding table and is reported as Current assets held for sale in the Consolidated Balance Sheets.
During early fiscal 2015, we determined thatimpairment at least annually by comparing the estimated fair valuevalues of our Batteries reporting unit was less than itsunits and underlying indefinite-lived intangible assets to their respective carrying amount, resulting in a series of impairment charges. The underlying fair value assessment was initially triggered byvalues. We typically use an agreement in September 2014income method to sell the China-based battery joint venture and a related decision to pursue options to exit the remainder of the Batteries business. The agreement to sell the China-based battery joint venture was at a transaction value that was below the earnings multiple implied from the prior valuation of our Batteries business, which effectively eliminated our fair value cushion. As a result, the remaining business unit cash flows no longer supported the remaining carrying amount of the Batteries business. Due largely to these factors, we recorded an initial non-cash, before and after-tax impairment charge of $863 to reduce the carrying amount of goodwill for the Batteries business unit to its estimated fair value. These same factors resulted in a decline inestimate the fair value of our Duracell trade name intangible asset below its carrying value. This resulted in a non-cash, before-tax impairment charge of $110 ($69 after tax) to reduce the carrying amount of this asset to its estimated fair value.
Later in fiscal 2015, the Company reached an agreement to divest the Batteries business via a split transaction inthese assets, which the Company agreed to exchange a recapitalized Duracell Company for Berkshire Hathaway's (BH) shares of P&G stock. Basedis based on the termsforecasts of the agreement and the value of BH's shares of P&G stock as of the transaction date and changes thereto through June 30, 2015, the Company recorded additional non-cash, before and after-tax impairment charges totaling $1.2 billion.
In February 2016, the Company completed the divestiture of its Batteries business to BH. Pursuantexpected future cash flows attributable to the recapitalization provisions of the agreement, the Company infused additional cash into the Duracell Company to enable it to repurchase all 52.5 million shares of P&G stock owned by BH. Prior 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).
All of the fiscal 2016 and 2015 impairment charges in the Batteries business are included as part of discontinued operations. The Batteries goodwill is included in Corporate in the preceding table as of June 30, 2014. The remaining
Batteries goodwill at June 30, 2015 is reported in Current assets held for sale in the Consolidated Balance Sheet.
The remaining change in goodwill during fiscal 2016 and 2015 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 significantrespective assets. Significant estimates and assumptions includinginherent 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.
During fiscal 2019, we determined that the estimated fair value of our Shave Care reporting unit was less than its carrying value. Therefore, we conducted step two of the goodwill impairment test. Step two requires that we allocate the fair value of the reporting unit to identifiable assets and liabilities of the reporting unit, including previously unrecognized intangible assets. Any residual fair value after this allocation is compared to the goodwill balance and any excess goodwill is charged to expense. We also determined that the Gillette indefinite-lived intangible asset was less than its carrying amount. As a result, we recorded non-cash impairment charges for both items. As previously disclosed, the fair values of the Shave Care reporting unit and the related Gillette indefinite-lived intangible asset have been reduced in recent years, including further reductions during the year and quarter ending June 30, 2019. 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 have 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. Following the impairment charge, the carrying value of the Shave Care goodwill is $12.6 billion. 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. Following the impairment charge, the carrying value of the Gillette indefinite-lived intangible asset is $14.1 billion.
We believe thesethe 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 assetsDuring fiscal 2019, the Company completed the acquisition of the over the counter (OTC) healthcare business of Merck KGaA (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. Goodwill increases due to acquisitions were comprised of:
 2016 2015
Years ended June 30
Gross
Carrying
Amount
Accumulated
Amortization
 
Gross
Carrying
Amount
Accumulated
Amortization
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands$3,409
$(2,032) $3,039
$(1,721)
Patents and technology2,624
(2,164) 2,619
(2,028)
Customer relationships1,382
(514) 1,395
(464)
Other246
(130) 252
(123)
TOTAL$7,661
$(4,840) $7,305
$(4,336)
      
INTANGIBLE ASSETS WITH INDEFINITE LIVES
Brands21,706
—
 22,041
—
TOTAL$29,367
$(4,840) $29,346
$(4,336)
Due topartially offset by the divestiture of the Teva portion of the PGT business in the Health Care reportable segment and currency translation.
The change in goodwill during fiscal 2018 was primarily due to acquisitions of two brands within the Beauty Brandsreportable segment and Batteries businesses, intangible assets specific to these businesses are reported in Current assets held for sale in accordance with the accounting principles for assets held for sale as of June 30, 2016 and 2015.currency translation across all reportable segments.
Amortization expense of intangible assets was as follows:
Years ended June 302016 2015 2014
Intangible asset amortization$388
 $457
 $514
Estimated amortization expense over the next five fiscal years is as follows:
Years ending June 3020172018201920202021
Estimated amortization expense$326
$298
$281
$255
$206




Amounts in millions of dollars except per share amounts or as otherwise specified.
46 The Procter & Gamble Company 47


Identifiable intangible assets were comprised of:
 2019 2018
As of June 30
Gross
Carrying
Amount
Accumulated
Amortization
 
Gross
Carrying
Amount
Accumulated
Amortization
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands$3,836
$(2,160) $3,146
$(2,046)
Patents and technology2,776
(2,434) 2,617
(2,350)
Customer relationships1,787
(691) 1,372
(616)
Other145
(91) 241
(144)
TOTAL$8,544
$(5,376) $7,376
$(5,156)
      
INTANGIBLE ASSETS WITH INDEFINITE LIVES
Brands21,047
—
 21,682
—
TOTAL$29,591
$(5,376) $29,058
$(5,156)

Amortization expense of intangible assets was as follows:
Years ended June 302019 2018 2017
Intangible asset amortization$349
 $302
 $325

Estimated amortization expense over the next five fiscal years is as follows:
Years ending June 3020202021202220232024
Estimated amortization expense$359
$309
$290
$278
$267

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 are 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.
Earnings from continuing operations before income taxes consisted of the following:
Years ended June 302019 2018 2017
United States$1,659
 $9,277
 $9,031
International4,410
 4,049
 4,226
TOTAL$6,069
 $13,326
 $13,257
Years ended June 302016 2015 2014
United States$8,788
 $8,496
 $8,513
International4,581
 2,516
 4,996
TOTAL$13,369
 $11,012
 $13,509

Income taxes on continuing operations consisted of the following:
Years ended June 302019 2018 2017
CURRENT TAX EXPENSE
U.S. federal$1,064
 $3,965
 $1,531
International1,259
 1,131
 1,243
U.S. state and local191
 213
 241
 2,514
 5,309
 3,015
DEFERRED TAX EXPENSE
U.S. federal(296) (1,989) 28
International and other(115) 145
 20
 (411) (1,844) 48
TOTAL TAX EXPENSE$2,103
 $3,465
 $3,063

Years ended June 302016 2015 2014
CURRENT TAX EXPENSE
U.S. federal$1,673
 $2,127
 $1,399
International1,483
 1,142
 1,252
U.S. state and local224
 252
 237
 3,380
 3,521
 2,888
DEFERRED TAX EXPENSE
U.S. federal33
 (607) 145
International and other(71) (189) (182)
 (38) (796) (37)
TOTAL TAX EXPENSE$3,342
 $2,725
 $2,851

Amounts in millions of dollars except per share amounts or as otherwise specified.
48 The Procter & Gamble Company

A reconciliation of the U.S. federal statutory income tax rate to our actual income tax rate on continuing operations is provided below:
Years ended June 302016 2015 20142019 2018 2017
U.S. federal statutory income tax rate35.0 % 35.0 % 35.0 %21.0 % 28.1 % 35.0 %
Country mix impacts of foreign operations(9.1)% (14.0)% (10.8)%(0.5)% (4.7)% (6.8)%
Changes in uncertain tax positions(0.5)% (0.9)% (1.7)%(0.3)% (0.3)% (2.0)%
Venezuela deconsolidation charge— % 6.6 % — %
Excess tax benefits from the exercise of stock options(3.8)% (0.4)% (1.3)%
Goodwill impairment22.8 % — % — %
Net transitional impact of U.S. Tax Act— % 4.5 % — %
Other(0.4)% (2.0)% (1.4)%(4.5)% (1.2)% (1.8)%
EFFECTIVE INCOME TAX RATE25.0 % 24.7 % 21.1 %34.7 % 26.0 % 23.1 %

Changes in uncertain tax positions represent changes in our net liability related to prior year tax positions. 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 excess of actual tax benefits received on employee exercise of stock options and other share-based payments (which generally equals the income taxable to the employee) over the amount of tax benefits that were calculated at the grant dates of such instruments.
Tax costs charged to shareholders' equity totaled $80 for the year ended June 30, 2019. This primarily relates to the tax effects of Net Investment hedges and certain adjustments to pension obligations recorded in stockholders' equity. Tax benefits credited to shareholders' equity totaled $899$342 for the year ended June 30, 2016.2018. This primarily relates to the tax effects of Net Investment hedges, partially offset by the impact of certain adjustments to pension obligations recorded in stockholders' equity and the impact of excess tax benefits from the exercise of stock options. Tax costs charged to shareholders' equity totaled $634 for the year ended June 30, 2015. This primarily relatesequity.
Prior to the tax effectspassage of net investment hedges and the impactU.S. Tax Act, the Company asserted that substantially all of certain adjustments to pension obligations recorded in stockholders' equity, partially offset by excess tax benefits from the exercise of stock options.
We have undistributed earnings of its foreign subsidiaries of approximately $49.0 billion at June 30, 2016, for which deferred taxes have not been provided. Such earnings arewere considered indefinitely invested inand accordingly, no deferred taxes were provided. Pursuant to the foreign subsidiaries. If suchprovisions of the U.S. Tax Act, these earnings were repatriated, additionalsubjected to a one-time transition tax, expense may result. However, the calculation of the amount of deferredfor which a provisional charge has been recorded. This charge included taxes for all U.S. income taxtaxes 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 theseapproximately $27 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 302019 2018 2017
BEGINNING OF YEAR$470
 $465
 $857
Increases in tax positions for prior years85
 26
 87
Decreases in tax positions for prior years(94) (38) (147)
Increases in tax positions for current year71
 87
 75
Settlements with taxing authorities(37) (45) (381)
Lapse in statute of limitations(27) (20) (22)
Currency translation(2) (5) (4)
END OF YEAR$466
 $470
 $465
Years ended June 302016 2015 2014
BEGINNING OF YEAR$1,096
 $1,437
 $1,600
Increases in tax positions for prior years124
 87
 146
Decreases in tax positions for prior years(97) (146) (296)
Increases in tax positions for current year97
 118
 142
Settlements with taxing authorities(301) (250) (135)
Lapse in statute of limitations(39) (27) (33)
Currency translation(23) (123) 13
END OF YEAR$857
 $1,096
 $1,437

Included in the total liability for uncertain tax positions at June 30, 2016,2019 is $589$159 that, depending on the ultimate resolution, could impact the effective tax rate in future periods.
The Company is present in approximately 14070 countries and over 150 taxable jurisdictions and, at any point in time, has 50-6040-50 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 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 statutestatutes of limitations.limitation. Such adjustments are reflected in the tax provision


Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 47

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. Based on information currently available, we anticipate that over the next 12 month period, audit activity could be completed related to uncertain tax positions in multiple jurisdictions for which we have accrued existing liabilities of approximately $250,$140, including interest and penalties.
Accounting pronouncements require that, without discretion, weWe recognize the additional accrual of any possible related interest and penalties relating to the underlying uncertain tax position in income tax expense, unless the Company qualifies for a specific exception.expense. As of June 30, 2016, 20152019, 2018 and 2014,2017, we had accrued interest of $323, $347$133, $99 and $411$100 and accrued penalties of $20, $19$17, $15 and $32,$20, respectively, which are not included in the above table. During the fiscal years ended June 30, 2016, 20152019, 2018 and 2014,2017, we recognized $2, $15$40, $22 and $(6)$(62) in interest benefit/(expense) and $(2), $13expense/(benefit) and $2, $5 and $0 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:
Years ended June 302016 2015
DEFERRED TAX ASSETS   
Pension and postretirement benefits$2,226
 $1,739
Loss and other carryforwards1,077
 1,014
Stock-based compensation845
 949
Advance payments515
 281
Accrued marketing and promotion240
 266
Unrealized loss on financial and foreign exchange transactions122
 183
Fixed assets216
 139
Inventory61
 49
Accrued interest and taxes55
 48
Other764
 839
Valuation allowances(467) (324)
TOTAL$5,654
 $5,183
    
DEFERRED TAX LIABILITIES   
Goodwill and other intangible assets$9,461
 $9,530
Fixed assets1,533
 1,590
Unrealized gain on financial and foreign exchange transactions387
 353
Other105
 149
TOTAL$11,486
 $11,622
Net operating loss carryforwards were $3.2 billion and $3.1 billion at June 30, 2016 and 2015, respectively. If unused, $1.0 billion will expire between 2016 and 2035. The remainder, totaling $2.2 billion at June 30, 2016, may be carried forward indefinitely.



Amounts in millions of dollars except per share amounts or as otherwise specified.
48 The Procter & Gamble Company 49


Deferred income tax assets and liabilities were comprised of the following:
As of June 302019 2018
DEFERRED TAX ASSETS   
Pension and postretirement benefits$1,591
 $1,478
Loss and other carryforwards1,007
 1,067
Stock-based compensation421
 476
Fixed assets232
 223
Accrued marketing and promotion334
 223
Unrealized loss on financial and foreign exchange transactions73
 61
Inventory41
 35
Accrued interest and taxes15
 17
Advance payments—
 4
Other931
 699
Valuation allowances(442) (457)
TOTAL$4,203
 $3,826
    
DEFERRED TAX LIABILITIES   
Goodwill and intangible assets$6,506
 $6,168
Fixed assets1,413
 1,276
Foreign withholding tax on earnings to be repatriated239
 244
Unrealized gain on financial and foreign exchange transactions147
 169
Other351
 161
TOTAL$8,656
 $8,018

Net operating loss carryforwards were $3.5 billion at June 30, 2019 and $3.5 billion at June 30, 2018. If unused, $1.0 billion will expire between 2019 and 2037. The remainder, totaling $2.5 billion at June 30, 2019, may be carried forward indefinitely.

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) are divided by the weighted average number of common shares outstanding during the year to calculate Basic net earnings per common share.year. For fiscal years 2018 and 2017, Diluted net earnings per common share are calculated by dividing Net earnings attributable to giveProcter & Gamble by the diluted weighted average number of common shares outstanding during the year. The diluted shares are determined using the treasury stock method on the basis of the weighted average number of common shares outstanding plus the dilutive effect toof stock options and other stock-based awards (see Note 7) and assumethe 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/(loss)earnings driven by the Shave Care impairment charges (see Note 4). Therefore, Diluted net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble andless preferred dividends (net of related tax benefit) by the diluted weighted average number of common shares used to calculate Basicoutstanding during the year. The diluted shares are determined using the treasury stock method on the basis of the weighted average number of common shares outstanding plus the dilutive effect of stock options and Diluted netother stock-based awards.

Amounts in millions of dollars except per share amounts or as otherwise specified.
50 The Procter & Gamble Company

Net earnings per share were calculated as follows:
Years ended June 302016 2015 2014
CONSOLIDATED AMOUNTSContinuing OperationsDis-continued OperationsTotal Continuing OperationsDis-continued OperationsTotal Continuing OperationsDis-continued OperationsTotal
Net earnings/(loss)$10,027
$577
$10,604
 $8,287
$(1,143)$7,144
 $10,658
$1,127
$11,785
Net earnings attributable to noncontrolling interests(96)—
(96) (98)(10)(108) (120)(22)(142)
Net earnings/(loss) attributable to P&G (Diluted)9,931
577
10,508
 8,189
(1,153)7,036
 10,538
1,105
11,643
Preferred dividends, net of tax(255)—
(255) (259)—
(259) (253)—
(253)
Net earnings/(loss) attributable to P&G available to common shareholders (Basic)$9,676
$577
$10,253
 $7,930
$(1,153)$6,777
 $10,285
$1,105
$11,390
SHARES IN MILLIONS           
Basic weighted average common shares outstanding2,698.9
2,698.9
2,698.9
 2,711.7
2,711.7
2,711.7
 2,719.8
2,719.8
2,719.8
Add: Effect of dilutive securities           
Conversion of preferred shares(1)
103.9
103.9
103.9
 108.6
108.6
108.6
 112.3
112.3
112.3
Impact of stock options and other unvested equity awards (2)
41.6
41.6
41.6
 63.3
63.3
63.3
 72.6
72.6
72.6
Diluted weighted average common shares outstanding2,844.4
2,844.4
2,844.4
 2,883.6
2,883.6
2,883.6
 2,904.7
2,904.7
2,904.7
PER SHARE AMOUNTS           
Basic net earnings/(loss) per common share (3)
$3.59
$0.21
$3.80
 $2.92
$(0.42)$2.50
 $3.78
$0.41
$4.19
Diluted net earnings/(loss) per common share (3)
$3.49
$0.20
$3.69
 $2.84
$(0.40)$2.44
 $3.63
$0.38
$4.01
Years ended June 302019 2018 2017
CONSOLIDATED AMOUNTSTotal Total Continuing OperationsDiscontinued OperationsTotal
Net earnings$3,966
 $9,861
 $10,194
$5,217
$15,411
Less: Net earnings attributable to noncontrolling interests69
 111
 85
—
85
Net earnings attributable to P&G3,897
 9,750
 10,109
5,217
15,326
Less: Preferred dividends, net of tax263
 265
 247
—
247
Net earnings attributable to P&G available to common shareholders (Basic)$3,634
 $9,485
 $9,862
$5,217
$15,079
        
Net earnings attributable to P&G available to common shareholders (Diluted)$3,634
 $9,750
 $10,109
$5,217
$15,326
        
SHARES IN MILLIONS       
Basic weighted average common shares outstanding2,503.6
 2,529.3
 2,598.1
2,598.1
2,598.1
Add: Effect of dilutive securities       
Impact of stock options and other unvested equity awards (1)
35.9
 32.5
 43.0
43.0
43.0
Conversion of preferred shares (2)
—
 94.9
 99.3
99.3
99.3
Diluted weighted average common shares outstanding2,539.5
 2,656.7
 2,740.4
2,740.4
2,740.4
        
NET EARNINGS PER SHARE (3)
       
Basic$1.45
 $3.75
 $3.79
$2.01
$5.80
Diluted$1.43
 $3.67
 $3.69
$1.90
$5.59
(1) 
Weighted average outstanding stock options of approximately 13 million in 2019, 48 million in 2018 and 20 million in 2017 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 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)
Outstanding stock options In fiscal year 2019, weighted average outstanding preferred shares of approximately 5590 million in 2016, 8 million in 2015 and 9 million in 2014 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.,due to lower Net earnings driven by the total proceeds upon exercise would have exceeded the market value of the underlying common shares)Shave Care impairment charges (see Note 4).
(3) 
Basic netNet earnings per common share and Diluted net earnings per common share are calculated on Net earnings/(loss)earnings attributable to Procter & Gamble.


NOTE 7
STOCK-BASED COMPENSATION
We have two primary stock-based compensation plansprograms 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 vest after three 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. Since September 2002, the grants of key manager stock option awards vest after three years
and have a 10-year life. The key manager stock option awards granted from July 1998 through August 2002 vested after three years and have a 15-year life. Key managers can elect to receive up to the entire value of their option awardEffective in RSUs. Key managerfiscal year 2017, RSUs vest and are settledsettle in shares of common stock three years from the grant date. RSUs granted prior to fiscal year 2017 vest and settle in shares of common stock five years from the grant date. The
Senior-level executives participate in an additional long-term incentive program that awards providedPSUs, which are paid in shares after the end of a three-year performance period subject to pre-established performance goals. Effective in fiscal year 2019, we added a Relative Total Shareholder Return (R-TSR) modifier to the PSU, under which the number of shares ultimately granted is also impacted by the Company's actual
shareholder return relative to our consumer products competitive peer set.
In addition to these long-term incentive programs, we award RSUs to the Company's non-employee directors are in the form of RSUs. In addition to our key manager and director grants, we make other minor stock option and RSU grants to employees for which the terms are not substantially different than key managerfrom our long-term incentive awards.


Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 49

Senior-level executives receive PSU awards. Under this program, the number of PSUs that will vest three years after the respective grant date is based on the Company's performance relative to pre-established performance goals during that three year period.
A total of 185 million shares of common stock were authorized for issuance under the stock-based compensation plan approved by shareholders in 2014. A total2014, of 125which 41 million shares remain available for grant under the 2014 plan. grant.
The disclosures below includeCompany recognizes stock-based compensation relatedexpense 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 discontinued operations,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 award. Stock-based compensation expense is included as part of Cost of products sold and SG&A in the Consolidated Statement of Earnings and

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 51

includes an estimate of forfeitures, which is not material in any period presented.based on historical data. Total expense and related tax benefit were as follows:
Years ended June 302019 2018 
2017 (1)
Stock options$246
 $220
 $216
RSUs and PSUs269
 175
 150
Total stock-based expense$515
 $395
 $366
      
Income tax benefit$101
 $87
 $111

(1)
Includes amounts related to discontinued operations, which are not material.
Years ended June 302016 2015 2014
STOCK-BASED COMPENSATION EXPENSE
Stock options$199
 $223
 $246
RSUs and PSUs143
 114
 114
      
Income tax benefit$85
 $109
 $127
In calculatingWe utilize an industry standard lattice-based valuation model to calculate the compensation expensefair value for stock options granted, we utilize a binomial lattice-based valuation model.granted. Assumptions utilized in the model, which are evaluated and revised to reflect market conditions and experience, were as follows:
Years ended June 302019 2018 2017
Interest rate2.5-2.7% 1.9-2.9% 0.8-2.6%
Weighted average interest rate2.6% 2.8% 2.6%
Dividend yield3.0% 3.1% 3.2%
Expected volatility17% 18% 15%
Expected life in years9.2  9.2  9.6 
Years ended June 302016 2015 2014
Interest rate0.7-1.9% 0.1-2.1% 0.1-2.8%
Weighted average interest rate1.8% 2.0% 2.5%
Dividend yield3.2% 3.1% 3.1%
Expected volatility15-17% 11-15% 15-17%
Weighted average volatility16% 15% 16%
Expected life in years8.3  8.3  8.2 

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, 20162019 and activity during the year then ended is presented below:
OptionsOptions (in thousands)Weighted Average Exercise PriceWeighted Average Contract-ual Life in YearsAggregate Intrinsic Value
Outstanding, beginning of year205,654
$74.21
  
Granted13,451
95.78
  
Exercised(53,670)62.99
  
Forfeited/expired(694)81.58
  
OUTSTANDING, END OF YEAR164,741
$79.59
5.6$4,951
EXERCISABLE110,504
$75.07
4.2$3,822


OptionsOptions (in thousands)Weighted Average Exercise PriceWeighted Average Contract-ual Life in YearsAggregate Intrinsic Value
Outstanding, beginning of year260,292
$63.74
  
Granted21,848
79.01
  
Exercised(50,175)49.40
  
Canceled(1,568)73.70
  
OUTSTANDING, END OF YEAR230,397
$68.02
5.1$3,440
EXERCISABLE164,578
$62.63
3.6$3,263
The weighted average grant-date fair value of options granted was $8.48, $9.38 and $10.01 per share in 2016, 2015 and 2014, respectively. The total intrinsic value of options exercised was $1,388, $1,814 and $1,152 in 2016, 2015 and 2014, respectively. The total grant-date fair value of options that vested during 2016, 2015 and 2014 was $200, $241 and $319, respectively. following table provides additional information on stock options:
Years ended June 302019 2018 2017
Weighted average grant-date fair value of options granted$13.60
 $11.89
 $10.45
Intrinsic value of options exercised1,770
 500
 1,334
Grant-date fair value of options that vested180
 209
 246
Cash received from options exercised3,381
 1,245
 2,630
Actual tax benefit from options exercised221
 127
 421

At June 30, 2016,2019, there was $186$174 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 1.9 years. Cash received from options exercised was $2,332, $2,631
A summary of non-vested RSUs and $1,938 in 2016, 2015PSUs outstanding under the plans as of June 30, 2019 and 2014, respectively. The actual tax benefit realized foractivity during the tax deductions from option exercises totaled $433, $519 and $338 in 2016, 2015 and 2014, respectively.year then ended is presented below:
 RSUs PSUs
RSU and PSU awardsUnits (in thousands)Weighted Average Grant Date Fair Value Units (in thousands)Weighted Average Grant Date Fair Value
Non-vested at July 1, 20185,376
$77.17
 1,385
$84.08
Granted1,970
96.74
 555
112.83
Vested(1,685)78.40
 (642)91.40
Forfeited(168)79.67
 (3)92.72
Non-vested at June 30, 20195,493
$84.00
 1,295
$92.98
 RSUs PSUs
Other stock-based awardsUnits (in thousands)Weighted Average Grant Date Fair Value Units (in thousands)Weighted Average Grant Date Fair Value
Non-vested at July 1, 20155,008
$64.78
 1,188
$74.48
Granted1,855
66.32
 571
73.02
Vested(1,453)61.64
 (613)71.68
Forfeited(136)67.17
 —
—
Non-vested at June 30, 20165,274
$65.53
 1,146
$75.25

At June 30, 2016,2019, there was $202$261 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 3.02.0 years. The total grant date fair value of shares vested was $97, $79$205, $175 and $95$163 in 2016, 20152019, 2018 and 2014,2017, respectively.
The Company settles equity issuances with treasury shares. We have no specific policy to repurchase common shares to 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.


Amounts in millions of dollars except per share amounts or as otherwise specified.
50 The Procter & Gamble Company

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

Amounts in millions of dollars except per share amounts or as otherwise specified.
52 The Procter & Gamble Company

expense was $272, $292 $305 and $311$270 in 2016, 20152019, 2018 and 2014,2017, 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 20162019, 2018 and 2015 and 15% in 2014.2017.
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.


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 302016 2015 2016 20152019 2018 2019 2018
CHANGE IN BENEFIT OBLIGATION              
Benefit obligation at beginning of year (3)
$15,951

$17,053

$4,904

$5,505
$15,658

$16,160

$4,778

$5,187
Service cost314
 317
 124
 156
259
 280
 101
 112
Interest cost466
 545
 219
 240
339
 348
 187
 177
Participants' contributions17
 19
 74
 71
12
 13
 76
 73
Amendments8
 17
 (40) (325)9
 12
 —
 (231)
Actuarial loss/(gain)1,927
 524
 589
 (399)
Net actuarial loss/(gain)1,587
 (722) 37
 (308)
Acquisitions/(divestitures)(21) 7
 (7) —
49
 —
 —
 —
Special termination benefits6
 11
 12
 23
13
 8
 8
 7
Currency translation and other(826) (1,908) (14) (134)(283) 148
 20
 5
Benefit payments(557) (634) (229) (233)(606) (589) (243) (244)
BENEFIT OBLIGATION AT END OF YEAR (3)
$17,285
 $15,951
 $5,632
 $4,904
$17,037
 $15,658
 $4,964
 $4,778
CHANGE IN PLAN ASSETS              
Fair value of plan assets at beginning of year$10,605
 $11,098
 $3,470
 $3,574
$11,267
 $10,829
 $3,259
 $3,831
Actual return on plan assets630
 1,016
 408
 10
739
 553
 1,918
 (481)
Acquisitions/(divestitures)(13) —
 —
 —
4
 —
 —
 —
Employer contributions306
 262
 32
 18
178
 406
 31
 33
Participants' contributions17
 19
 74
 71
12
 13
 76
 73
Currency translation and other(719) (1,156) (8) (6)(212) 55
 (1) (3)
ESOP debt impacts (4)
—
 —
 40
 36
—
 —
 56
 50
Benefit payments(557) (634) (229) (233)(606) (589) (243) (244)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR$10,269
 $10,605
 $3,787
 $3,470
$11,382
 $11,267
 $5,096
 $3,259
Reclassification of net obligation to held for sale liabilities402
 336
 16
 —
FUNDED STATUS$(6,614) $(5,010) $(1,829) $(1,434)$(5,655) $(4,391) $132
 $(1,519)
(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.

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 51

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.


Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 53
 Pension Benefits Other Retiree Benefits
Years ended June 302016 2015 2016 2015
CLASSIFICATION OF NET AMOUNT RECOGNIZED       
Noncurrent assets$180
 $276
 $—
 $—
Current liabilities(33) (39) (21) (20)
Noncurrent liabilities(6,761) (5,247) (1,808) (1,414)
NET AMOUNT RECOGNIZED$(6,614) $(5,010) $(1,829) $(1,434)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)  
Net actuarial loss$6,088
 $4,488
 $2,247
 $1,731
Prior service cost/(credit)270
 300
 (334) (346)
NET AMOUNTS RECOGNIZED IN AOCI$6,358
 $4,788
 $1,913
 $1,385

 Pension Benefits Other Retiree Benefits
As of June 302019 2018 2019 2018
CLASSIFICATION OF NET AMOUNT RECOGNIZED       
Noncurrent assets$19
 $420
 $1,257
 $—
Current liabilities(52) (43) (27) (24)
Noncurrent liabilities(5,622) (4,768) (1,098) (1,495)
NET AMOUNT RECOGNIZED$(5,655) $(4,391) $132
 $(1,519)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)  
Net actuarial loss$5,062
 $3,787
 $874
 $2,366
Prior service cost/(credit)214
 244
 (424) (478)
NET AMOUNTS RECOGNIZED IN AOCI$5,276
 $4,031
 $450
 $1,888

The accumulated benefit obligation for all defined benefit pension plans was $15,546$15,790 and $14,239$14,370 as of June 30, 20162019 and 2015,2018, 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 302019 2018 2019 2018
Projected benefit obligation$11,604
 $8,467
 $16,304
 $8,962
Accumulated benefit obligation10,711
 7,573
 15,096
 7,974
Fair value of plan assets6,026
 3,740
 10,630
 4,150

 Accumulated Benefit Obligation  Exceeds the Fair Value of Plan Assets Projected Benefit Obligation  Exceeds the Fair Value of Plan Assets
Years ended June 302016 2015 2016 2015
Projected benefit obligation$15,233
 $13,411
 $15,853
 $14,057
Accumulated benefit obligation13,587
 11,918
 14,149
 12,419
Fair value of plan assets8,082
 7,931
 8,657
 8,435
Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows:
 Pension Benefits Other Retiree Benefits 
Years ended June 302019 2018 2017 2019 2018 2017 
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST 
Service cost$259
 $280
 $310
(1) 
$101
 $112
 $133
(1) 
Interest cost339
 348
 300
 187
 177
 175
 
Expected return on plan assets(732) (751) (675) (447) (451) (431) 
Amortization of net actuarial loss225
 295
 375
 66
 69
 122
 
Amortization of prior service cost/(credit)26
 28
 28
 (48) (41) (45) 
Amortization of net actuarial loss/prior service cost due to settlements and curtailments9
 —
 186
(2) 
—
 —
 16
(2) 
Special termination benefits13
 8
 4
 8
 7
 21
(2) 
GROSS BENEFIT COST/(CREDIT)139
 208
 528
 (133) (127) (9) 
Dividends on ESOP preferred stock—
 —
 —
 (28) (37) (45) 
NET PERIODIC BENEFIT COST/(CREDIT)$139
 $208
 $528
 $(161) $(164) $(54) 
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI 
Net actuarial loss/(gain) - current year$1,580
 $(524)   $(1,434) $624
   
Prior service cost/(credit) - current year9
 12
   —
 (231)   
Amortization of net actuarial loss(225) (295)   (66) (69)   
Amortization of prior service (cost)/credit(26) (28)   48
 41
   
Amortization of net actuarial loss/prior service costs due to settlements and curtailments(9) —
   —
 —
   
Currency translation and other(84) 73
   14
 (3)   
TOTAL CHANGE IN AOCI1,245
 (762)   (1,438) 362
   
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI$1,384
 $(554)   $(1,599) $198
   

(1)
Service cost includes amounts related to discontinued operations in fiscal year ended June 30, 2017, which are not material.
(2)
For fiscal year ended June 30, 2017, 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.
 Pension Benefits Other Retiree Benefits
Years ended June 302016 2015 2014 2016 2015 2014
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST          
Service cost$314
 $317
 $298
 $124
 $156
 $149
Interest cost466
 545
 590
 219
 240
 256
Expected return on plan assets(731) (732) (701) (416) (406) (385)
Prior service cost/(credit) amortization29
 30
 26
 (52) (20) (20)
Net actuarial loss amortization265
 275
 214
 78
 105
 118
Special termination benefits6
 11
 5
 12
 23
 9
GROSS BENEFIT COST/(CREDIT)349
 446
 432
 (35) 98
 127
Dividends on ESOP preferred stock—
 —
 —
 (52) (58) (64)
NET PERIODIC BENEFIT COST/(CREDIT)$349
 $446
 $432
 $(87) $40
 $63
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI      
Net actuarial loss/(gain) - current year$2,028
 $240
   $597
 $(3)  
Prior service cost/(credit) - current year8
 17
   (40) (325)  
Amortization of net actuarial loss(265) (275)   (78) (105)  
Amortization of prior service (cost)/credit(29) (30)   52
 20
  
Currency translation and other(172) (677)   (3) (34)  
TOTAL CHANGE IN AOCI1,570
 (725)   528
 (447)  
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI$1,919
 $(279)   $441
 $(407)  
Net periodic benefit costs include amounts related to discontinued operations, which are not material for any period.


Amounts in millions of dollars except per share amounts or as otherwise specified.
5254 The Procter & Gamble Company



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, unless otherwise noted. All other components are included in the Consolidated Statements of Earnings in Other non-operating income/(expense), net, unless otherwise noted.
Amounts expected to be amortized from AOCI into net periodic benefit cost during the year ending June 30, 2017,2020, are as follows:
 Pension Benefits Other Retiree Benefits
Net actuarial loss$344
 $68
Prior service cost/(credit)25
 (48)

 Pension Benefits Other Retiree Benefits
Net actuarial loss$400
 $126
Prior service cost/(credit)28
 (45)
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 BenefitsPension Benefits Other Retiree Benefits
2016 2015 2016 2015
As of June 302019 2018 2019 2018
Discount rate2.1% 3.1% 3.6% 4.5%1.9% 2.5% 3.7% 4.2%
Rate of compensation increase2.9% 3.1% N/A
 N/A
2.6% 2.6% N/A
 N/A
Health care cost trend rates assumed for next yearN/A
 N/A
 7.2% 6.8%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% 5.0%N/A
 N/A
 4.9% 4.9%
Year that the rate reaches the ultimate trend rateN/A
 N/A
 2021
 2021
N/A
 N/A
 2026
 2025
(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 302019 2018 2017 2019 2018 2017
Discount rate2.5% 2.4% 2.1% 4.2% 3.9% 3.6%
Expected return on plan assets6.6% 6.8% 6.9% 8.3% 8.3% 8.3%
Rate of compensation increase2.6% 3.0% 2.9% N/A
 N/A
 N/A
 Pension Benefits Other Retiree Benefits
Years ended June 302016 2015 2014 2016 2015 2014
Discount rate3.1% 3.5% 4.0% 4.5% 4.4% 4.8%
Expected return on plan assets7.2% 7.2% 7.2% 8.3% 8.3% 8.3%
Rate of compensation increase3.1% 3.2% 3.2% N/A
 N/A
 N/A

(1) 
Determined as of beginning of year and adjusted for acquisitions.fiscal year.
For plans that make up the majority of our obligation, 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 derived from the corporate bond yield curve used to measure the plan obligations.
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 8 - 9% for equities and 5 - 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$60
 $(45)
Effect on the accumulated postretirement benefit obligation755
 (619)
 
One-Percentage
Point Increase
 
One-Percentage
Point Decrease
Effect on the total service and interest cost components$80
 $(59)
Effect on the accumulated postretirement benefit obligation1,057
 (809)

Plan Assets. Our investment objective for defined benefit retirement plan assets is to meet the plans' benefit obligations while minimizing the potentialand to improve plan self-sufficiency for future required Company plan contributions.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

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 55

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 53

Ourmanager.Our target asset allocation for the year ended June 30, 2016,2019, and actual asset allocation by asset category as of June 30, 20162019 and 2015,2018, were as follows:
 Target Asset Allocation Actual Asset Allocation at June 30
 Pension Benefits 
Other Retiree
Benefits
 Pension Benefits Other Retiree Benefits
Asset Category  2019 2018 2019 2018
Cash—% 2% 1% 2% 3% 1%
Debt securities67% 3% 63% 59% 2% 4%
Equity securities33% 95% 36% 39% 95% 95%
TOTAL100% 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  2016 2015 2016 2015
Cash2% 2% 2% 2% 2% 1%
Debt securities55% 3% 55% 50% 4% 5%
Equity securities43% 95% 43% 48% 94% 94%
TOTAL100% 100% 100% 100% 100% 100%

The following tables set forth the fair value of the Company's plan assets as of June 30, 20162019 and 20152018 segregated by level within the fair value hierarchy (refer to Note 9 for further discussion on the fair value hierarchy and fair value principles). Collective funds are 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. Company stock listed as Level 21 in the hierarchy represents Company common stock; Level 2 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.
Pension Benefits Other Retiree BenefitsPension Benefits Other Retiree Benefits
Years ended June 30Fair Value Hierarchy Level 2016 2015 Fair Value Hierarchy Level 2016 2015
As of June 30Fair Value Hierarchy Level 2019 2018 Fair Value Hierarchy Level 2019 2018
ASSETS AT FAIR VALUE                
Cash and cash equivalents1 & 2 $262
 $266
 1 $70
 $36
1 $47
 $136
 1 $111
 $5
Company stock (1)
 —
 —
 2 3,545
 3,239
 —
  —
 1 & 2 4,836
 3,092
Collective fund - equity2 4,381
 5,054
 2 14
 17
Collective fund - fixed income2 5,498
 5,162
 2 158
 178
Other (2)
1 & 3 128
 123
 —
 —
1, 2 & 3 378
 400
 1 1
  4
TOTAL ASSETS IN THE FAIR VALUE HEIRARCHY 425
 536
 4,948
 3,101
Investments valued at net asset value 10,957
  10,731
 148
  158
TOTAL ASSETS AT FAIR VALUE $10,269
 $10,605
 $3,787
 $3,470
 $11,382
 11,267
 $5,096
  3,259
(1) 
Company stock is net of ESOP debt discussed below.
(2) 
The Company's other pension and other retiree benefit plan assets measured at fair value are generally classified as Level 3 within the fair value hierarchy. There are no material other pension and other retiree benefit plan asset balances classified as Level 1 or Level 2 within the fair value hierarchy.


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, 2017,2020, is $217$156 and $37,$39, respectively. For the defined benefit retirement plans, this is comprised of $93$94 in expected benefit payments from the Company directly to participants of unfunded plans and $124$62 of expected contributions to funded plans. For other retiree benefit plans, this is comprised of $22$27 in expected benefit payments from the Company directly to participants of unfunded plans and $15$12 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.
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
Pension
Benefits
 
Other Retiree
Benefits
EXPECTED BENEFIT PAYMENTSEXPECTED BENEFIT PAYMENTS  EXPECTED BENEFIT PAYMENTS  
2017$516
 $190
2018527
 207
2019537
 221
2020550
 233
$518
 $191
2021588
 244
536
 203
2022 - 20263,232
 1,365
2022549
 214
2023574
 224
2024583
 233
2025 - 20293,220
 1,283




Amounts in millions of dollars except per share amounts or as otherwise specified.
5456 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 $74$42 remain outstanding at June 30, 2016.2019. 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 $2.66$2.90 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 $718 is$876 are outstanding at June 30, 2016.2019. 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 $2.66$2.90 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 reserveReserve 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 thousands2019 2018 2017
Allocated31,600
 34,233
 36,488
Unallocated3,259
 4,117
 5,060
TOTAL SERIES A34,859
 38,350
 41,548
    
Allocated26,790
 25,895
 25,378
Unallocated26,471
 28,512
 30,412
TOTAL SERIES B53,261
 54,407
 55,790
Shares in thousands2016 2015 2014
Allocated39,241
 42,044
 44,465
Unallocated6,095
 7,228
 8,474
TOTAL SERIES A45,336
 49,272
 52,939
    
Allocated23,925
 23,074
 22,085
Unallocated32,319
 34,096
 35,753
TOTAL SERIES B56,244
 57,170
 57,838

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
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. To the extent we choose to manage volatility associated with the net exposures, we enter into various financial transactions that 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.
At inception, we formally designateIf the Company elects to do so and document qualifyingif 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 ofnet investment hedges. We record derivative instruments at fair value and the related underlying exposures. Fluctuations in the value of these instruments generally are offset byaccounting for changes in the fair value or cash flowsdepends on the intended use of the underlying exposures being hedged. Thisderivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is driven by thedesigned 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 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, 2016,2019, 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.


Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 55

InterestWe designate certain interest rate swaps 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. Forearnings. Historically, we had certain interest

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 57

rate swaps designated as cash flow hedges,hedges. For the effective portion of the changes in fair value of the hedging instrument is reported in OCIyears ended June 30, 2019 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 was2018, we did not material forhave any year presented, was immediately recognized in Interest expense.such contracts outstanding.
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. We leverage the Company’s diversified portfolio of exposures as a natural hedge. In certain cases, we enter into non-qualifying foreign currency contracts to hedge certain balance sheet items subject to revaluation. The change in fair value of these instruments and the underlying exposure are both immediately recognized in earnings.
To manage the exchange rate risk related to our intercompany financing, we primarily associated with the financing of our operations, we have historically used a combination ofuse forward contracts options and currency swaps. AsThe change in fair value of June 30, 2016,these non-qualifying instruments is immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related exposure.
Historically, we had utilized foreign currency swaps with original maturities up to five years, which are intended to offset the effect of exchange rate fluctuations on intercompany loans denominated in foreign currencies. Thesecurrencies; these swaps arewere accounted for as cash flow hedges. The effective portion ofFor the changes in fair value of these instruments is reported in OCIyears ended June 30, 2019 and reclassified into SG&A and Interest expense in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion, which was2018, we did not material forhave any year presented, was immediately recognized in SG&A.
The change in fair values of certain non-qualifying instruments used to manage foreign exchange exposure of intercompany financing transactions and certain balance sheet items subject to revaluation are immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related exposures.such contracts outstanding.
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 portiontime value component of these hedges, which was not materialthe net investment hedge currency swaps is excluded from the assessment of hedge effectiveness. Changes in any year presented, was immediatelythe 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, 20162019 and 2015,2018, we did not have any commodity hedging activity.



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.


Amounts in millions of dollars except per share amounts or as otherwise specified.
56 The Procter & Gamble Company

The following table sets forth the Company's financial assets as of June 30, 20162019 and 20152018 that were measured at fair value on a recurring basis during the period:
 Fair Value Asset
As of June 302019 2018
Investments:   
U.S. government securities$3,648
 $5,544
Corporate bond securities2,400
 3,737
Other investments169
 141
TOTAL$6,217
 $9,422
 Fair Value Asset
Years ended June 302016 2015
Investments:   
U.S. government securities$4,839
 $3,495
Corporate bond securities1,407
 1,272
Other investments28
 30
TOTAL$6,274
 $4,797

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 $292$100 and $700$2,003 as of June 30, 20162019 and 2015,2018, respectively. The amortized cost of the U.S. government securities with maturities between one and five years was $4,513$3,556 and $2,789$3,659 as of June 30, 20162019 and 2015,2018, respectively. The amortized cost of corporate bond securities with maturities of less than a year was $382$1,347 and $221$1,291 as of June 30, 20162019 and 2015,2018, respectively. The amortized cost of corporate bond securities with maturities between one and five years was $1,018$1,057 and $1,052$2,503 as of

Amounts in millions of dollars except per share amounts or as otherwise specified.
58 The Procter & Gamble Company

June 30, 20162019 and 2015,2018, respectively. The Company's investments measured at fair value are generally classified as Level 2 within the fair value hierarchy. Within cash and     cash equivalents, we have money market funds of $2,956 and $1,516 as of June 30, 2019 and 2018, respectively. These funds are classified as Level 1 within the fair value hierarchy. There are no other material investment balances classified as either Level 1 or Level 3 within the fair value hierarchy.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 $24,362$25,378 and $23,127$23,402 as of June 30, 20162019 and 2015,2018, respectively. This includes the current portion of debt instruments ($2,7613,390 and $2,776$1,769 as of June 30, 20162019 and 2015,2018, respectively) of. Certain long-term debt instruments. Certain(debt designated as a fair value hedge) is recorded at fair value. All other long-term debt is recorded at fair value. Certain 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-termWe consider our debt with fair value of $2,331 and $2,180 as of June 30, 2016 and 2015, respectively, is classified asto be Level 2 within the fair value hierarchy. All remaining long-term debt is classified as Level 1 withinin the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments.
Disclosures about DerivativeFinancial Instruments
The notional amounts and fair values of qualifying and non-qualifying financial instruments used in hedging transactions as of June 30, 20162019 and 20152018 are as follows:
 Notional Amount Fair Value Asset Fair Value (Liability)
As of June 302019 2018 2019 2018 2019 2018
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS      
Interest rate contracts$7,721
 $4,587
 $177
 $125
 $(1) $(53)
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS      
Foreign currency interest rate contracts$3,157
 $1,848
 $35
 $41
 $(24) $(75)
TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS$10,878
 $6,435
 $212
 $166
 $(25) $(128)
            
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS      
Foreign currency contracts$6,431
 $7,358
 $27
 $30
 $(20) $(56)
            
TOTAL DERIVATIVES AT FAIR VALUE$17,309
 $13,793
 $239
 $196
 $(45) $(184)
Years ended June 30Notional Amount Fair Value Asset Fair Value (Liability)
2016 2015 2016 2015 2016 2015
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS        
Foreign currency contracts$798
 $951
 $94
 $312
 $(63) $—
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS        
Interest rate contracts$4,993
 $7,208
 $371
 $172
 $—
 $(13)
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS    
Net investment hedges$3,013
 $537
 $28
 $96
 $(115) $(1)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS        
Foreign currency contracts$6,482
 $6,610
 $28
 $13
 $(38) $(68)

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 total notionalfair value of the interest rate derivative asset/liability directly offsets the cumulative amount of contracts outstanding at the endfair value hedging adjustment included in the carrying amount of the period is indicativeunderlying debt obligation. The carrying amount of the levelunderlying debt obligation, which includes the unamortized discount or premium and the fair value adjustment, was $7,860 and $4,639 as of June 30, 2019 and 2018, respectively. In addition to the Company'sforeign currency derivative activity duringcontracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The carrying value of those debt instruments designated as net investment hedges, which includes the period.adjustment for the foreign currency transaction gain or loss on those instruments, was $17,154 and $15,012 as of June 30, 2019 and 2018, respectively. The decreaseincrease in the notional balance of interest rate fair value hedges is due to the maturity of fixed rate debt and underlyingadditional swaps in the current period.period driven by the favorable Euro swap curve.  The increase in the notional balance of the net investment hedges, including the debt instruments designated as net investment hedges, is primarily reflectsdriven by the increase in foreign currency net assets as a movement into Euro cross currency swaps due to lower interest rates inresult of the current period. Merck acquisition. 
All of the Company's derivative assets and liabilities measured at fair value 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 (seeof 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, 20162019 and 2015.2018.




Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 5759


 
Amount of Gain/(Loss)
Recognized in AOCI
on Derivatives (Effective Portion)
Years ended June 302016 2015
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
Interest rate contracts$(2) $(1)
Foreign currency contracts—
 5
TOTAL$(2) $4
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Net investment hedges$(53) $60
During the next 12 months, the amount of the June 30, 2016 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-qualifyingBefore tax gains/(losses) on our financial instruments used in hedging transactions for the years ended June 30, 2016 and 2015 wererelationships are categorized as follows:
 
Amount of Gain/(Loss)
Reclassified from
AOCI into Earnings
Years ended June 302016 2015
DERIVATIVES IN CASH FLOW HEDGING RELATIONSHIPS
Interest rate contracts$3
 $6
Foreign currency contracts(106) 152
TOTAL$(103) $158
 Amount of Gain/(Loss) Recognized in OCI on Derivatives
Years ended June 302019 2018
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2)
Foreign currency interest rate contracts$47
 $(187)
 
Amount of Gain/(Loss)
Recognized in Earnings
Years ended June 302016 2015
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts$212
 $(9)
Debt(212) 9
TOTAL$—
 $—
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Net investment hedges$(2) $(1)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts (1)
$(120) $(987)
(1) For the derivatives in net investment hedging relationships, the amount of gain/(loss) excluded from effectiveness testing, which was recognized in earnings, was $70 and $138 for the fiscal year ended June 30, 2019 and 2018, respectively.
(1)(2) 
The gain or loss on non-qualifying foreign currency contracts substantially offsetsIn addition to the foreign currency mark-to-market impactderivative contracts designated as net investment hedges, certain of the related exposure.our foreign currency denominated debt instruments are designated as net investment hedges. The amount of gain/(loss) recognized in AOCI for such instruments was $299 and $(391), as of June 30, 2019 and 2018, respectively.

 Amount of Gain/(Loss) Recognized in Earnings
Years ended June 302019 2018
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts$104
 $(106)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts$54
 $(1)

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. To the extent we have any derivatives used for cash flow hedging relationships, the gain/(loss) reclassified from AOCI into earnings on such derivatives would be recognized in the same period during which the related item affects earnings, typically in SG&A.

NOTE 10
SHORT-TERM AND LONG-TERM DEBT
Years ended June 302016 2015
As of June 302019 2018
DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt$2,760
 $2,772
$3,388
 $1,772
Commercial paper8,690
 8,807
6,183
 7,761
Other203
 439
126
 890
TOTAL$11,653
 $12,018
$9,697
 $10,423
Short-term weighted average interest rates (1)
0.2% 0.3%0.5% 0.7%
(1) 
Short-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9.
As of June 302019 2018
LONG-TERM DEBT   
1.75% USD note due October 2019$600
 $600
1.90% USD note due November 2019550
 550
0.28% JPY note due May 2020929
 903
1.90% USD note due October 2020600
 600
4.13% EUR note due December 2020682
 698
9.36% ESOP debentures due 2019-2021 (1)
228
 327
1.85% USD note due February 2021600
 600
1.70% USD note due November 2021875
 875
2.00% EUR note due November 2021852
 873
2.30% USD note due February 20221,000
 1,000
2.15% USD note due August 20221,250
 1,250
2.00% EUR note due August 20221,137
 1,164
3.10% USD note due August 20231,000
 1,000
1.13% EUR note due November 20231,421
 1,455
0.50% EUR note due October 2024568
 582
0.63% EUR note due October 2024909
 —
2.70% USD note due February 2026600
 600
2.45% USD note due November 2026875
 875
4.88% EUR note due May 20271,137
 1,164
2.85% USD note due August 2027750
 750
1.20% EUR note due October 2028909
 —
1.25% EUR note due October 2029568
 582
5.55% USD note due March 2037763
 763
1.88% EUR note due October 2038568
 —
3.50% USD note due October 2047600
 600
Capital lease obligations33
 107
All other long-term debt3,779
 4,717
Current portion of long-term debt(3,388) (1,772)
TOTAL$20,395
 $20,863
Long-term weighted average interest rates (2)
2.4% 2.5%
Years ended June 302016 2015
LONG-TERM DEBT   
1.45% USD note due August 2016$1,000
 $1,000
0.75% USD note due November 2016500
 500
Floating rate USD note due November 2016500
 500
5.13% EUR note due October 20171,221
 1,231
1.60% USD note due November 20181,000
 1,000
4.70% USD note due February 20191,250
 1,250
1.90% USD note due November 2019550
 550
0.28% JPY note due May 2020973
 818
4.13% EUR note due December 2020666
 671
9.36% ESOP debentures due 2016-2021(1)
498
 572
1.85% USD note due February 2021600
 —
2.00% EUR note due November 2021833
 839
2.30% USD note due February 20221,000
 1,000
2.00% EUR note due August 20221,110
 1,119
3.10% USD note due August 20231,000
 1,000
1.13% EUR note due November 20231,388
 —
2.70% USD note due February 2026600
 —
4.88% EUR note due May 20271,110
 1,119
6.25% GBP note due January 2030670
 786
5.50% USD note due February 2034500
 500
5.80% USD note due August 2034600
 600
5.55% USD note due March 20371,400
 1,400
Capital lease obligations45
 52
All other long-term debt2,691
 4,592
Current portion of long-term debt(2,760) (2,772)
TOTAL$18,945 $18,327
Long-term weighted average interest rates (2)
3.1% 3.2%
(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 3020202021202220232024
Debt maturities$3,388$2,009$2,840$2,465$2,461
Years ending June 3020172018201920202021
Debt maturities$2,760$1,323$2,357$2,099$1,387

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.
5860 The Procter & Gamble Company


NOTE 11
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:
Changes in Accumulated Other Comprehensive Income/(Loss) by Component
Hedges Investment Securities Pension and Other Retiree Benefits Financial Statement Translation TotalInvestment Securities Pension and Other Retiree Benefits Foreign Currency Translation Total AOCI
BALANCE at JUNE 30, 2014$(3,876) $(18) $(5,165) $1,397
 $(7,662)
BALANCE at JUNE 30, 2017$(25) $(4,397) $(10,210) $(14,632)
OCI before reclassifications (1)
1,390
 26
 563
 (7,475) (5,496)(141) 74
 (305) (372)
Amounts reclassified from AOCI (2) (5) (6)
(156) (2) 281
 255
 378
Amounts reclassified from AOCI into the Consolidated Statement of Earnings (2)
(7) 260
 —
 253
Net current period OCI1,234
 24
 844
 (7,220) (5,118)(148) 334
 (305) (119)
BALANCE at JUNE 30, 2015(2,642) 6
 (4,321) (5,823) (12,780)
Less: Other comprehensive income/(loss) attributable to non-controlling interests—
 (5) 3
 (2)
BALANCE at JUNE 30, 2018(173) (4,058) (10,518) (14,749)
OCI before reclassifications (3)
(103) 29
 (1,710) (1,679) (3,463)167
 (43) (213) (89)
Amounts reclassified from AOCI (4) (5)
104
 (1) 233
 —
 336
Amounts reclassified from AOCI into the Consolidated Statement of Earnings (4)
17
 212
 —
 229
Net current period OCI1
 28
 (1,477) (1,679) (3,127)184
 169
 (213) 140
BALANCE at JUNE 30, 2016$(2,641) $34
 $(5,798) $(7,502) $(15,907)
Reclassification to retained earnings in accordance with ASU 2018-02 (5)
—
 (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)
(1) 
Net of tax (benefit) / expense of $741, $1$0, $(23) and $219$(279) for gains/losses on hedges, investment securities, and pension and other retiree benefit items and foreign currency translation, respectively, for the period ended June 30, 2015.2018.
(2) 
Net of tax (benefit) / expense of $(2), $(1),$0, $91 and $109$0 for gains/losses on hedges, investment securities, and pension and other retiree benefit items and foreign currency translation, respectively, for the period ended June 30, 2015.2018.
(3) 
Net of tax (benefit) / expense of $0, $(44) and $78 for gains/losses on investment securities, pension and other retiree benefit items and foreign currency translation, respectively, for the period ended June 30, 2019.
(4)
Net of tax (benefit) / expense of $6, $7, and $(708)$0, $66, $0 for gains/losses on hedges, investment securities, and pension and other retiree benefit items and foreign currency translation, respectively, for the period ended June 30, 2016.2019.
(4)
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.
(5) 
SeeAdjustment made to early adopt ASU 2018-02: "Reclassification of Certain Effects from Accumulated Other Comprehensive Income," as discussed in Note 9 for classification of gains and losses from hedges in the Consolidated Statements of Earnings. Gains and losses on investment securities are reclassified from AOCI into Other non-operating income, net. Gains and losses on pension and other retiree benefits are reclassified from AOCI into Cost of products sold and SG&A, and are included in the computation of net periodic pension cost (see Note 8 for additional details).
(6)
Amounts reclassified from AOCI for financial statement translation relate to the foreign currency losses written off as part of the deconsolidation of our Venezuelan subsidiaries in fiscal 2015. These losses were reclassified into the Venezuela deconsolidation charge in the Consolidated Statements of Earnings.1.

The below provides additional details on amounts reclassified from AOCI into the Consolidated Statement of Earnings:

Investment securities: amounts reclassified from AOCI into Other non-operating income, net.

Pension and other retiree benefits: amounts reclassified from AOCI into Other non-operating income, net and included in the computation of net periodic postretirement costs (see Note 8 for additional details).
Foreign currency translation: this number includes financial statement translation and net investment hedges. See Note 9 for classification of gains and losses from hedges in the Consolidated Statements of Earnings.

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 59

NOTE 12
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.



Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 61

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 3020202021202220232024There-after
Purchase obligations$633
$221
$176
$87
$106
$268
Years ending June 3020172018201920202021Thereafter
Purchase obligations$881
$221
$170
$129
$105
$288

Such amounts represent future purchasesminimum commitments under take-or-pay agreements with suppliers and are in line with expected usage to obtain favorable pricing. This includesusage. 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. 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 3020172018201920202021Thereafter20202021202220232024There-after
Operating leases$237
$240
$224
$206
$154
$502
$255
$213
$162
$166
$134
$288

Litigation
We are subject, from time to varioustime, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, such asincluding antitrust and trade and other governmental regulations,regulation, product liability, advertising, contracts, environmental, patent and trademark advertising, contracts, environmental,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 13
DISCONTINUED OPERATIONS
On July 9, 2015,During the year ended June 30, 2017, the Company announcedcompleted the signingdivestiture of a definitive agreement to divest four product categories which will be merged with Coty.to Coty, Inc. (“Coty”). The divestiture was initially comprised of 43included 41 of the Company's beauty brands (“Beauty Brands”), including the global salon professional hair care and color, retail hair color, cosmetics and a majority of the fine fragrance businesses, along with select hair styling brands. SubsequentThe form of the divestiture transaction was a Reverse Morris Trust split-off, in which P&G shareholders were given the election to signing,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, of Dolce & Gabbana and Christina Aguilera, were excluded from the divestiture. In connection with the decision to exclude theseThese brands the Company recorded a non-cash, before-tax impairment charge in discontinued operations of approximately $48 ($42 after tax) in fiscal 2016 in order to record the Dolce & Gabbana license intangible assetwere subsequently divested at its revised estimated net realizable value. On May 11, 2016, the Company entered into a separate transaction to sell the Christina Aguilera brand prior to or concurrent with the expected close date of the Coty transaction. On June 30, 2016, Dolce & Gabbana and the Shiseido Group announced the signing of the worldwide license agreement for the Dolce & Gabbana beauty business. The Company will transition out of the Dolce & Gabbana license upon the effectiveness of the new license, which is expected to occur prior to or concurrent with the expected close of the Coty transaction. In connection with this transition, the Company agreed to pay a termination payment of $83 ($76 after tax). This termination payment charge is included in discontinued operations for the year ended June 30, 2016.
While the ultimate form of the Beauty Brands transaction has not yet been decided, the Company’s current preference is for a Reverse Morris Trust split-off transaction in which P&G shareholders could elect to participate in an exchange offer to exchangeamounts that approximated their P&G shares for shares of a new corporation that would hold the Beauty Brands (excluding Dolce & Gabbana and Christina Aguilera) and then immediately exchange those shares for Coty shares. The Company expects to close the transaction in October 2016.


Amounts in millions of dollars except per share amounts or as otherwise specified.
60 The Procter & Gamble Company

Coty’s offer for the Beauty Brands, which was accepted by the Company, was $12.5 billion. The final value of the transaction will be determined at closing. Based on Coty’s stock price and outstanding shares and equity grants as of June 30, 2016, the value of the transaction was approximately $13.1 billion. The value is comprised of approximately 411 million shares, or 54% of the diluted equity of the newly combined company, valued at approximately $10.7 billion and the assumption of debt of $2.4 billion by the entity holding the Beauty Brands (excluding Dolce & Gabbana and Christina Aguilera) immediately prior to close of the transaction. The assumed debt is expected to vary between $3.9 billion and $1.9 billion, depending on a $22.06 to $27.06 per share collar of Coty’s stock based on the trading price prior to the close of the transaction, but will be subject to other contractual valuation adjustments.
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 Batteriesadjusted carrying value to the total estimated proceeds based on the value of BH’s shares in P&G stock 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 in an all-cash transaction. Under the terms of the agreement, Mars acquired our branded pet care products, our manufacturing sites in the United States and the majority of the employees working in 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 of the agreement, Spectrum Brands acquired our branded pet care products, our manufacturing site in the Netherlands 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.values.
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, Batteries and Pet Care businesses' balance sheet positions are presented as assets and liabilities held for sale in the Consolidated Balance Sheets.year ended June 30, 2017. 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.



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:
Years ended June 302016 2015 2014
Beauty Brands$336
 $643
 $660
Batteries241
 (1,835) 389
Pet Care—
 49
 78
Net earnings/(loss) from discontinued operations$577
 $(1,143) $1,127

Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 61

The following table summarizes total assets and liabilities held for sale and reconciles to the Consolidated Balance Sheets:
Years ended June 302016 2015
 Beauty Brands Beauty Brands Batteries Total
Current assets held for sale$7,185
 $922
 $3,510
 $4,432
Noncurrent assets held for sale—
 5,204
 —
 5,204
Total assets held for sale$7,185
 $6,126
 $3,510
 $9,636
        
Current liabilities held for sale$2,343
 $356
 $1,187
 $1,543
Noncurrent liabilities held for sale—
 717
 —
 717
Total liabilities held for sale$2,343
 $1,073
 $1,187
 $2,260
The following is selected financial information included in Net earnings/(loss)earnings from discontinued operations for the Beauty Brands:
Beauty BrandsBeauty Brands
Years ended June 302016 2015 20142017
Net sales$4,910
 $5,530
 $6,109
$1,159
Cost of products sold1,621
 1,820
 1,980
450
Selling, general and administrative expense2,763
 2,969
 3,299
783
Intangible asset impairment charges48
 —
 —
Interest expense32
 —
 1
14
Interest income2
 2
 2
Other non-operating income/(loss), net9
 91
 (3)
Earnings from discontinued operations before income taxes$457
 $834
 $828
Other non-operating income/(expense), net16
Loss from discontinued operations before income taxes(72)
Income taxes on discontinued operations121
 191
 168
46
Net earnings/(loss) from discontinued operations$336
 $643
 $660
Gain on sale of business before income taxes5,197
Income tax expense/(benefit) on sale of business (1)
(138)
Net earnings from discontinued operations$5,217
Included in Net earnings/(loss) from discontinued operations is $112 of transition costs that were incurred for the fiscal year ended June 30, 2016.
The following is selected financial information included in cash flows from discontinued operations for the Beauty Brands:
(1)
The income tax benefit of the Beauty Brands divestiture represents the reversal of underlying deferred tax balances partially offset by current tax expense related to the transaction.
 Beauty Brands
Years ended June 302016 2015 2014
NON-CASH OPERATING ITEMS     
Depreciation and amortization$106
 $125
 $127
Gain on sale of businesses8
 86
 —
Goodwill and intangible asset impairment charges48
 —
 —
CASH FLOWS FROM INVESTING ACTIVITIES     
Capital expenditures$114
 $106
 $108


Amounts in millions of dollars except per share amounts or as otherwise specified.
62 The Procter & Gamble Company


The following is selected financial information included in cash flows from discontinued operations for the Beauty Brands:
 Beauty Brands
Years ended June 302017
NON-CASH OPERATING ITEMS 
Depreciation and amortization$24
Deferred income tax benefit(649)
Gain on sale of businesses5,210
Net increase in accrued taxes93
CASH FLOWS FROM OPERATING ACTIVITIES
Cash taxes paid$418
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures$38

NOTE 14
MERCK ACQUISITION
On November 30, 2018, we completed our acquisition of the over the counter (OTC) healthcare business of Merck KGaA (Merck OTC) for $3.7 billion (based on exchange rates at the time of closing) in an all-cash transaction. 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 Company, are reported in our consolidated financial statements beginning December 1, 2018.
The major componentsfollowing table presents the preliminary allocation of purchase price related to the Merck OTC business as of the date of acquisition. The preliminary allocation of the purchase price is based on the best estimates of management and is subject to revision based on final determination of fair values of the assets and liabilities acquired, which will be completed as we complete our analysis of the Beauty Brands held for sale are provided below. Theunderlying assets and acquired liabilities, held for sale will evolve up to the closing date for normal operational changessuch as well as contractual adjustments including the assumption of debt, pension plan fundingpensions, litigation cases, environmental issues, and other provisions.tax positions.
Amounts in millionsNovember 30, 2018
Current assets$419
Property, plant and equipment121
Intangible assets2,143
Goodwill2,138
Other non-current assets143
Total Assets Acquired$4,964
  
Current liabilities$233
Deferred income taxes767
Non-current liabilities87
Total Liabilities Acquired$1,087
  
Noncontrolling Interest (1)
$169
  
Net Assets Acquired$3,708
 Beauty Brands
Years ended June 30
2016 (1)
 2015
Cash$40
 $9
 
Restricted cash996
(2) 
—
 
Accounts receivable384
 293
 
Inventories494
 476
 
Prepaid expenses and other current assets126
 144
 
Property, plant and equipment, net629
 613
(3) 
Goodwill and intangible assets, net4,411
 4,513
(3) 
Other noncurrent assets105
 78
(3) 
Total current assets held for sale$7,185
 $922
 
Total noncurrent assets held for sale—
 5,204
 
Total assets held for sale$7,185
 $6,126
 
 
 
 
Accounts payable$148
 $118
 
Accrued and other liabilities384
 238
 
Noncurrent deferred tax liabilities370
 352
(3) 
Long-term debt996
(2) 
—
 
Other noncurrent liabilities445
 365
(3) 
Total current liabilities held for sale$2,343
 $356
 
Total noncurrent liabilities held for sale—
 717
 
Total liabilities held for sale$2,343
 $1,073
 
(1) 
The Company expectsRepresents a 48% minority ownership interest in the Beauty Brands transaction to close in October 2016. Therefore, for the period ended June 30, 2016, all assets and liabilities held for sale are reported as current assets and liabilities held for sale on the Consolidated Balance Sheets.
(2)
On January 26, 2016, Beauty Brands drew on its Term B loan of $1.0 billion. The proceeds will be held in restricted cash in escrow until the anticipated legal integration activities prior to close. Beauty Brands has received additional debt funding commitments with a consortium of lenders of $3.5 billion.
(3)
Amounts as of June 30, 2015, are reflected as part of the noncurrent assets and liabilities held for sale.Merck India company.

We have preliminarily estimated the fair value of Merck OTC’s identifiable intangible assets as $2.1 billion. The preliminary allocation of identifiable intangible assets and their average useful lives is as follows:
Amounts in millionsEstimated Fair Value Avg Remaining
Useful Life
Intangible Assets with Determinable Lives
   Brands$701
 14
   Patents and technology162
 10
   Customer relationships334
 20
   Total$1,197
 15
    
Intangible Assets with Indefinite Lives
   Brands946
  
Total Intangible Assets$2,143
  


The majority of the intangible valuation relates to brand intangibles. Our preliminary 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 macroeconomic environment of the 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; these intangibles have a 10-year estimated life. The customer relationships intangibles have a 20-year estimated life and reflect the historical and projected attrition rates for Merck OTC’s relationships with health care professionals, retailers and distributors.
The acquisition resulted in $2.1 billion in goodwill, of which approximately $180 million is expected to be deductible for tax purposes. All of this goodwill was allocated to the Health Care Segment.


Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 63


Following is selected financial information included in Net earnings/(loss) from discontinued operations for the Batteries and Pet Care businesses:NOTE 15
QUARTERLY RESULTS (UNAUDITED)
Quarters Ended  Sep 30 Dec 31 Mar 31 Jun 30 Total Year
NET SALES2018-2019 $16,690
 $17,438
 $16,462
 $17,094
 $67,684
 2017-2018 16,653
 17,395
 16,281
 16,503
 66,832
OPERATING INCOME2018-2019 3,554
 3,896
 3,229
 (5,192) 5,487
 2017-2018 3,648
 3,919
 3,209
 2,587
 13,363
GROSS MARGIN2018-2019 49.2% 48.9% 48.8% 47.7% 48.6%
 2017-2018 50.3% 49.9% 48.5% 45.0% 48.5%
NET EARNINGS/(LOSS):           
Net earnings/(loss)2018-2019 3,211
 3,216
 2,776
 (5,237) 3,966
 2017-2018 2,870
 2,561
 2,540
 1,890
 9,861
Net earnings/(loss) attributable to Procter and Gamble2018-2019 3,199
 3,194
 2,745
 (5,241) 3,897
 2017-2018 2,853
 2,495
 2,511
 1,891
 9,750
DILUTED NET EARNINGS/(LOSS) PER COMMON SHARE (1) (2)
2018-2019 $1.22
 $1.22
 $1.04
 $(2.12) $1.43
 2017-2018 1.06
 0.93
 0.95
 0.72
 3.67
  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
Batteries2016$1,517
 $266
 $(402) $(45) $(288) $710
(1) 
$241
 20152,226
 479
 (2,174) (140) —
 —
 (1,835)
 20142,552
 548
 —
 (159) —
 —
 389
Pet Care2016—
 —
 —
 —
 —
 —
 —
 2015251
 —
 —
 (4) 195
 (142) 49
 20141,475
 130
 —
 (52) —
 —
 78
Total2016$1,517
 $266
 $(402) $(45) $(288) $710
(1) 
$241
 20152,477
 479
 (2,174) (144) 195
 (142) (1,786)
 20144,027
 678
 —
 (211) —
 —
 467

(1) 
The income tax benefit of the Batteries divestiture primarily represents the reversal of underlying deferred tax balances.
The major components of assets and liabilities of the Batteries business held for sale were as follows:
 Batteries
Year ended June 302015
Cash$25
Accounts receivable245
Inventories304
Prepaid expenses and other current assets28
Property, plant and equipment, net496
Goodwill and intangible assets, net2,389
Other noncurrent assets23
Total assets held for sale$3,510
  
Accounts payable$195
Accrued and other liabilities194
Long-term debt18
Noncurrent deferred tax liabilities780
Total liabilities held for sale$1,187


Amounts in millions of dollars except per share amounts or as otherwise specified.
64 The Procter & Gamble Company

NOTE 14
QUARTERLY RESULTS (UNAUDITED)
Quarters Ended  Sep 30 Dec 31 Mar 31 Jun 30  Total Year
NET SALES2015-2016 $16,527
 $16,915
 $15,755
 $16,102
  $65,299
 2014-2015 18,771
 18,495
 16,930
 16,553
  70,749
OPERATING INCOME2015-2016 3,768
 3,853
 3,318
 2,502
  13,441
 2014-2015 3,633
 3,579
 3,025
 812
(1) 
 11,049
GROSS MARGIN2015-2016 50.7% 50.0% 49.8% 47.9%  49.6%
 2014-2015 48.1% 48.3% 47.3% 46.6%  47.6%
NET EARNINGS:            
Net earnings from continuing operations2015-2016 $2,777
 $2,905
 $2,337
 $2,008
  $10,027
 2014-2015 2,716
 2,674
 2,401
 496
(1) 
 8,287
Net earnings/(loss) from discontinued operations2015-2016 (142) 323
 446
 (50)  577
 2014-2015 (696) (276) (213) 42
  (1,143)
Net earnings attributable to Procter & Gamble2015-2016 2,601
 3,206
 2,750
 1,951
  10,508
 2014-2015 1,990
 2,372
 2,153
 521
  7,036
DILUTED NET EARNINGS PER COMMON SHARE: (2)
            
Earnings from continuing operations2015-2016 $0.96
 $1.01
 $0.81
 $0.71
  $3.49
 2014-2015 0.93
 0.92
 0.82
 0.17
  2.84
Earnings/(loss) from discontinued operations2015-2016 (0.05) 0.11
 0.16
 (0.02)  0.20
 2014-2015 (0.24) (0.10) (0.07) 0.01
  (0.40)
Net earnings2015-2016 0.91
 1.12
 0.97
 0.69
  3.69
 2014-2015 0.69
 0.82
 0.75
 0.18
  2.44
(1)
The Company recorded a one-time Venezuela deconsolidation charge of $2.0 billion before tax ($2.1 billion after tax) in the quarter-ended June 30, 2015. This impact is discussed more fully in Note 1.
(2)
Diluted net earnings per share is calculated on Net earnings 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.


Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 65

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
The Company's President and Chief Executive Officer, David S. Taylor, and the Company's Chief Financial Officer, Jon R. Moeller, performed an evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act)) as of the end of the period covered by this Annual Report on Form 10-K.
Messrs. Taylor and Moeller have concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in reports we file or
submit under the Exchange Act is (1) recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including Messrs. Taylor and Moeller, to allow their timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the Company's fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


Item 9B. Other Information.
Not applicable.





Amounts in millions of dollars except per share amounts or as otherwise specified.
64 The Procter & Gamble Company

PART III


Item 10. Directors, Executive Officers and Corporate Governance.
The Board of Directors has determined that the following membersmember of the Audit Committee areis independent and areis an Audit Committee financial expertsexpert as defined by SEC rules: Ms. Patricia A. Woertz (Chair) and Mr. Kenneth I. Chenault..
The information required by this item is incorporated by reference to the following sections of the 20162019 Proxy Statement filed pursuant to Regulation 14A: the section entitled Election of Directors; the subsection of the Corporate Governance section entitled Corporate Governance, up to but not includingBoard Meetings and Committees of the subsection entitled Board Engagement and Attendance;Board; the subsectionssubsection of the Corporate Governance section entitled Code of Ethics,Ethics; the subsections of the Other Matters section entitled Director Nominations for Inclusion in the 20172020 Proxy Statement and entitled Shareholder Recommendations of Board Nominees and Committee Process for Recommending
Board Nominees; and the section entitled Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.Reports. Pursuant to the Instruction 3 ofto Item 401(b)401 of Regulation S-K, Executive Officers of the Registrant are reported in Part I of this report.

Item 11. Executive Compensation.
The information required by this item is incorporated by reference to the following sections of the 20162019 Proxy Statement filed pursuant to Regulation 14A: the subsections of the Corporate Governance section entitled Board Meetings and Committees of the Board and entitled Compensation Committee Interlocks and Insider Participation; and the portion beginning with the section entitled Director Compensation up to but not including the section entitled Security Ownership of Management and Certain Beneficial Owners.




66 The Procter & Gamble Company

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table gives information about the Company's common stock that may be issued upon the exercise of options, warrants and rights under all of the Company's equity compensation plans as of June 30, 2016.2019. The table includes the following plans: The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1993 Non-Employee Directors' Stock Plan; The Procter & Gamble Future Shares Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; The Procter & Gamble 2003 Non-Employee Directors' Stock Plan; The Gillette Company 2004 Long-Term Incentive Plan; The Procter & Gamble 2009 Stock and Incentive Compensation Plan; The Procter & Gamble 2013 Non-Employee Directors' Stock Plan; and The Procter & Gamble 2014 Stock and Incentive Compensation Plan.

Plan Category
(a)
Number of securities to be issued upon exercise of outstanding options,
warrants and rights
 
(b)
Weighted-average exercise
price of outstanding
options, warrants and
rights
 
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(a)
Number of securities to be issued upon exercise of outstanding options,
warrants and rights
 
(b)
Weighted-average exercise
price of outstanding
options, warrants and
rights
 
(c)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
Equity compensation plans approved by security holders (1)
         
Options226,562,300
 
$68.1722
 
(2) 
164,812,514
 
$79.5921
 
(1) 
Restricted Stock Units (RSUs)/Performance Stock Units (PSUs)11,125,863
 N/A
 
(2) 
11,579,025
 N/A
 
(1) 
Equity compensation plans not approved by security holders (3)
     
Options4,030,317
 59.2781
 
(4) 
GRAND TOTAL241,718,480
 
$68.0167
(5) 
125,037,146
TOTAL176,391,539
 
$79.5921
(2) 
 
(1) 
Includes The Procter & Gamble 1992 Stock Plan; The Procter & Gamble 1993 Non-Employee Directors' Stock Plan; The Procter & Gamble 2001 Stock and Incentive Compensation Plan; The Procter & Gamble 2003 Non-Employee Directors' Stock Plan; The Procter & Gamble 2009 Stock and Incentive Compensation Plan; The Procter & Gamble 2013 Non-Employee Directors' Stock Plan; and The Procter & Gamble 2014 Stock and Incentive Compensation Plan.
(2)
Of the plans listed in (1),above, only The Procter & Gamble 2014 Stock and Incentive Compensation Plan allow for future grants of securities. The maximum number of shares that may be granted under this plan is 185 million shares. Stock options and stock appreciation rights are counted on a one for one basis while full value awards (such as RSUs and PSUs) will be counted as 5 shares for each share awarded. Total shares available for future issuance under this plan is 12541 million.
(3)(2) 
Includes The Procter & Gamble Future Shares Plan and The Gillette Company 2004 Long-Term Incentive Plan.
(4)
None of the plans listed in (3) allow for future grants of securities.
(5)
Weighted average exercise price of outstanding options only.

The Procter & Gamble Future Shares Plan
On October 14, 1997, the Company's Board of Directors approved The Procter & Gamble Future Shares Plan pursuant to which options to purchase shares of the Company's common stock may be granted to employees worldwide. The purpose of this plan is to advance the interests of the Company by giving substantially all employees a stake in the Company's future growth and success and to strengthen the alignment of interests between employees and the Company's shareholders through increased ownership of shares of the Company's stock. The plan has not been submitted to shareholders for approval.
Subject to adjustment for changes in the Company's capitalization, the number of shares to be granted under the plan is not to exceed 17 million shares. Under the plan's regulations, recipients are granted options to acquire 100 shares of the Company's common stock at an exercise price equal to the average price of the Company's common stock on the date of the grant. These options vest five years after the date of grant and expire ten years following the date of grant. If a
recipient leaves the employ of the Company prior to the vesting date for a reason other than disability, retirement or special separation (as defined in the plan), then the award is forfeited.
At the time of the first grant following Board approval of the plan, each employee of the Company not eligible for an award under the 1992 Stock Plan was granted options for 100 shares. From the date of this first grant through June 30, 2003, each new employee of the Company has also received options for 100 shares. Following the grant of options on June 30, 2003, the Company suspended this part of the plan. The plan terminated on October 13, 2007.
The Gillette Company 2004 Long-Term Incentive Plan
Shareholders of The Gillette Company approved The Gillette Company 2004 Long-Term Incentive Plan on May 20, 2004, and the plan was assumed by the Company upon the merger between The Procter & Gamble Company and The Gillette Company. All options became immediately vested and exercisable on October 1, 2005 as a result of the merger. After the merger, all outstanding options became options to purchase


The Procter & Gamble Company 67

shares of The Procter & Gamble Company subject to an exchange ratio of .975 shares of P&G stock per share of Gillette stock. Only employees previously employed by The Gillette Company prior to October 1, 2005 are eligible to receive grants under this plan.
The plan was designed to attract, retain and motivate employees of The Gillette Company and, until the effective date of the merger between The Gillette Company and The Procter & Gamble Company, non-employee members of the Gillette Board of Directors. Under the plan, eligible participants are: (i) granted or offered the right to purchase stock options, (ii) granted stock appreciation rights and/or (iii) granted shares of the Company's common stock or restricted stock units (and dividend equivalents). Subject to adjustment for changes in the Company's capitalization and the addition of any shares authorized but not issued or redeemed under The Gillette Company 1971 Stock Option Plan, the number of shares to be granted under the plan is not to exceed 19,000,000 shares.
Except in the case of death of the recipient, all stock options and stock appreciation rights must expire no later than ten years from the date of grant. The exercise price for all stock options granted under the plan must be equal to or greater than the fair market value of the Company's stock on the date of grant. Any common stock awarded under the plan may be subject to restrictions on sale or transfer while the recipient is employed, as the committee administering the plan may determine.
If a recipient of a grant leaves the Company while holding an unexercised option or right: (1) any unexercisable portions immediately become void, except in the case of death, retirement, special separation (as those terms are defined in the
plan) or any grants as to which the Compensation Committee of the Board of Directors has waived the termination provisions; and (2) any exercisable portions immediately become void, except in the case of death, retirement, special separation, voluntary resignation that is not for Good Reason (as those terms are defined in the plan) or any grants as to which the Compensation Committee of the Board of Directors has waived the termination provisions.
Additional information required by this item is incorporated by reference to the 20162019 Proxy Statement filed pursuant to Regulation 14A, beginning with the subsection of the Beneficial Ownership section entitled Security Ownership of Management and Certain Beneficial Owners and up to but not including the sectionsubsection entitled Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.

Reports.
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by this item is incorporated by reference to the following sections of the 20162019 Proxy Statement filed pursuant to Regulation 14A: the subsections of the Corporate Governance section entitled Director Independence, and Review and Approval of Transactions with Related Persons.

Persons, and Compensation Committee Interlocks and Insider Participation.
Item 14. Principal Accountant Fees and Services.
The information required by this item is incorporated by reference to the following section of the 20162019 Proxy Statement

The Procter & Gamble Company 65

filed pursuant to Regulation 14A: Report of the Audit Committee, which ends with the subsection entitled Services Provided by Deloitte.




PART IV
Item 15. Exhibits and Financial Statement Schedules.
1.Financial Statements:
The following Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries, management's report and the reports of the independent registered public accounting firm are incorporated by reference in Part II, Item 8 of this Form 10-K.
Management's Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
Consolidated Statements of Earnings - for years ended June 30, 2016, 2015 and 2014
•
Consolidated Statements of Earnings - for years ended June 30, 2019, 2018 and 2017
Consolidated Statements of Other Comprehensive Income - for years ended June 30, 2016, 20152019, 2018 and 20142017
Consolidated Balance Sheets - as of June 30, 20162019 and 20152018
Consolidated Statements of Shareholders' Equity - for years ended June 30, 2016, 20152019, 2018 and 20142017
Consolidated Statements of Cash Flows - for years ended June 30, 2016, 20152019, 2018 and 20142017
Notes to Consolidated Financial Statements
2.Financial Statement Schedules:
These schedules are omitted because of the absence of the conditions under which they are required or because the information is set forth in the Consolidated Financial Statements or Notes thereto.



68 The Procter & Gamble Company

EXHIBITS
Exhibit     (2-1) -
First, Second and Third Amendments to the Transaction Agreement dated as of July 8, 2015 among The Procter & Gamble Company, Coty Inc., Galleria Co. and Green Acquisition Sub Inc. + **
   
Exhibit     (3-1) -

 Amended Articles of Incorporation (as amended by shareholders at the annual meeting on October 11, 2011 and consolidated by the Board of Directors on April 8, 2016) (Incorporated by reference to Exhibit (3-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 2016). +
   
(3-2) -

 Regulations (as approved by the Board of Directors on April 8, 2016, pursuant to authority granted by shareholders at the annual meeting on October 13, 2009) (Incorporated by reference to Exhibit (3-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 2016). +
   
Exhibit     (4-1) -

 Indenture, dated as of September 3, 2009, between the Company and Deutsche Bank Trust Company Americas, as Trustee (Incorporated by reference to Exhibit (4-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 2015).
   
     (4-2) -
The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any other instrument defining the rights of holders of the Company’s long-term debt.
     (4-3) -
Description of the Company’s Common Stock+
     (4-4) -
Description of the Company’s 0.625% Notes due 2024, 1.200% Notes due 2028, and 1.875% Notes due 2038. +
     (4-5) -
Description of the Company’s 4.125% EUR notes due December 2020, 4.875% EUR notes due May 2027, 6.250% GBP notes due January 2030, and 5.250% GBP notes due January 2033. +
     (4-6) -
Description of the Company’s 0.500% Notes due 2024 and 1.250% Notes due 2029. +
     (4-7) -
Description of the Company’s 1.375% Notes due 2025 and 1.800% Notes due 2029. +
     (4-8) -
Description of the Company’s 1.125% Notes due 2023. +
     (4-9) -
Description of the Company’s 0.275% Notes due 2020. +
     (4-10) -
Description of the Company’s 2.000% Notes due 2021. +
     (4-11) -
Description of the Company’s 2.000% Notes due 2022. +
Exhibit   (10-1) -

 The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended on August 17, 2007)amended), which was originally adopted by shareholders at the annual meeting on October 9, 2001 (Incorporated by reference to Exhibit (10-1) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended March 31, 2013),June 30, 2018; and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended December 31, 2013).*
   

66 The Procter & Gamble Company

(10-2) -

 The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001), which was originally adopted by the shareholders at the annual meeting on October 12, 1992 (Incorporated by reference to Exhibit (10-2) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2013)2018).*
   
(10-3) -

 The Procter & Gamble Executive Group Life Insurance Policy (Incorporated by reference to Exhibit (10-3) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2013)2018).*
   
(10-4) -

 The Procter & Gamble Deferred CompensationSummary of the Company’s Retirement Plan for Directors (as amended December 12, 2006), which was originally adopted by the Board of Directors on September 9, 1980Restoration Program (Incorporated by reference to Exhibit (10-4)(10-27) of the Company's Annual Report on Form 10-K for the year ended June 30, 2012)2016); and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-8) of the Company's Form 10-Q for the quarter ended September 30, 2015).*
   
(10-5) -

 The Procter & Gamble 1993 Non-Employee Directors' Stock Plan (as amended September 10, 2002), which was originally adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-5) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2013)2018).*
   
(10-6) -

 Summary of the Company’s Key Manager Long-Term Incentive Program +; related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-6)(10-2) of the Company's Form 10-Q for the quarter ended September 30, 2015).*December 31, 2018); related correspondence and terms and conditions. +
   
(10-7) -
The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004), which was originally adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-7) of the Company's Annual Report on Form 10-K for the year ended June 30, 2015).*
(10-8) -

 The Procter & Gamble 2003 Non-Employee Directors' Stock Plan (as amended in August 2007)amended), which was originally adopted by the shareholders at the annual meeting on October 14, 2003, and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1)(10-8) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended SeptemberJune 30, 2012)2018).*
   
(10-9)(10-8) -

 The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-4)(10-2) of the Company's Form 10-Q for the quarter ended December 31, 2013).*September 30, 2018) +.
   
(10-10)(10-9) -

 Summary of the Company's Short Term Achievement Reward Program +;(Incorporated by reference to Exhibit (10-10) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018); related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-2) of the Company's Form 10-Q for the quarter ended September 30, 2015).*
   
(10-11)(10-10) -

 Company's Forms of Separation Agreement & Release +; Company's Form of Separation Letter and Release (Incorporated by reference to Exhibit (10-1)(10-2)) of the Company's Form 10-Q for the quarter ended March 31, 2015)2018).*
   
(10-12)(10-11) -

 Summary of personal benefits available to certain officers and non-employee directors (Incorporated by reference to Exhibit (10-1)(10-3) of the Company's Form 10-Q for the quarter ended September 30, 2013)2018).*
   
(10-13)(10-12) -

 The Gillette Company 2004 Long-Term Incentive Plan (as amended on August 14, 2007) (Incorporated by reference to Exhibit (10-4)(10-13) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended SeptemberJune 30, 2012)2018).*
   
(10-14)(10-13) -

 The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-15)(10-14) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).*
   
(10-15)(10-14) -

 The Gillette Company Personal Financial Planning Reimbursement Program (Incorporated by reference to Exhibit (10-16)(10-15) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).*
   
(10-16)(10-15) -

 The Gillette Company Senior Executive Financial Planning Program (Incorporated by reference to Exhibit (10-17)(10-16) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).*
   
(10-17)(10-16) -

 The Gillette Company Estate Preservation (Incorporated by reference to Exhibit (10-18)(10-17) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).*
   
(10-18)(10-17) -

 The Gillette Company Deferred Compensation Plan (Incorporated by reference to Exhibit (10-19)(10-18) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).*
   

The Procter & Gamble Company 69

(10-19)(10-18) -

 Senior Executive Recoupment Policy (Incorporated by reference to Exhibit (10-20)(10-19) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2018).*
   
(10-20)(10-19) -

 The Gillette Company Deferred Compensation Plan (for salary deferrals prior to January 1, 2005) as amended through August 21, 2006 (Incorporated by reference to Exhibit (10-21)(10-20) of the Company's Annual Report on Form 10-K for the year ended June 30, 2012)2017).*
   
(10-21)(10-20) -

 The Procter & Gamble 2009 Stock and Incentive Compensation Plan, which was originally adopted by shareholders at the annual meeting on October 13, 2009 (Incorporated by reference to Exhibit (10-3)(10-21) of the Company's Annual Report on Form 10-Q10-K for the quarteryear ended December 31, 2011)June 30, 2017), and the Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2009 Stock and Incentive Compensation Plan, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, The Procter & Gamble 1992 Stock Plan, The Procter & Gamble 1992 Stock Plan (Belgium Version), The Gillette Company 2004 Long-Term Incentive Plan and the Gillette Company 1971 Stock Option Plan (Incorporated by reference to Exhibit (10-1)(10-21) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended December 31, 2012)June 30, 2018).*
   
(10-22)(10-21) -

 The Procter & Gamble 2009 Stock and Incentive Compensation Plan - Additional terms and conditions and related correspondence (Incorporated by reference to Exhibit (10-2) of the Company Form 10-Q for the quarter ended December 31, 2013).*
   
(10-23)(10-22) -

 The Procter & Gamble Performance Stock Program Summary +; related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-4)(10-1) of the Company's Form 10-Q for the quarter ended September 30, 2015).*December 31, 2018); related correspondence and terms and conditions. +
   

The Procter & Gamble Company 67

(10-24)
(10-23) -

 The Procter & Gamble 2013 Non-Employee Directors' Stock Plan (Incorporated by reference to Exhibit 10-3(10-3) of the Company's Form 10-Q for the quarter ended December 31, 2013).*
   
(10-25)(10-24) -

 The Procter & Gamble 2014 Stock and Incentive Compensation Plan, which was originally adopted by shareholders at the annual meeting on October 14, 2014 +;(Incorporated by reference to Exhibit (10-25) of the Company's Annual Report on Form 10-K for the year ended June 30, 2016); and the Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2014 Stock and Incentive Compensation Plan (Incorporated by reference to Exhibit (10-2)(10-1) of the Company's Form 10-Q for the quarter ended MarchDecember 31, 2015)2017).*
   
(10-26)(10-25) -

 The Procter & Gamble 2014 Stock and Incentive Compensation Plan - Additional terms and conditions (Incorporated by reference to Exhibit (10-9)(10-26) of the Company's Annual Report on Form 10-Q10-K for the quarteryear ended SeptemberJune 30, 2015)2017), and The Procter & Gamble 2014 Stock and Incentive Compensation Plan - Related correspondence (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended December 31, 2015)2016).*
(10-27) -
Summary of the Company’s Retirement Plan Restoration Program +; and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-8) of the Company's Form 10-Q for the quarter ended September 30, 2015).*
Exhibit      (12) -
Computation of Ratio of Earnings to Fixed Charges. +
   
Exhibit      (21) -

 Subsidiaries of the Registrant. +
   
Exhibit      (23) -

 Consent of Independent Registered Public Accounting Firm. +
   
Exhibit      (31) -

 Rule 13a-14(a)/15d-14(a) Certifications. +
   
Exhibit      (32) -

 Section 1350 Certifications. +
   
Exhibit   (99-1) -

 Summary of Directors and Officers Insurance Program. +
   
101.INS (1)

 XBRL Instance Document
101.SCH (1)

  XBRL Taxonomy Extension Schema Document
101.CAL (1)

  XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF (1)

  XBRL Taxonomy Definition Linkbase Document
101.LAB (1)

  XBRL Taxonomy Extension Label Linkbase Document
101.PRE (1)

  XBRL Taxonomy Extension Presentation Linkbase Document
   
(1) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
   
*

 Compensatory plan or arrangement.
+

 Filed herewith.
**
Schedules and similar attachments of the Third Amendment have been omitted pursuant to Item 601(b)(2) of Regulation S-K. These exhibits and attachments consist of (I) Attachment to Schedule 1.05(b)(ii) Excluded Trademarks, (II) Attachment 3-C to Schedule 1.05(a)(vii) Additional Caldera Domain Names, (III) Parent Shared Technology License Agreement, (IV) Section 1.05(a)(xx) Acquired Codes, (V) Section 5.21(k) Shared Codes and (VI) Exhibit R Galleria Business Acquired Plans. The Company agrees to furnish supplementally to the SEC, upon request, a copy of all omitted schedules and attachments.

Item 16. Form 10-K Summary.
Not applicable.

7068 The Procter & Gamble Company


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Cincinnati, State of Ohio.
 THE PROCTER & GAMBLE COMPANY
   
 By/s/ DAVID S. TAYLOR
  
(David S. Taylor)
Chairman of the Board, President and Chief Executive Officer
  August 9, 20166, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
     
/s/ DAVID S. TAYLOR
(David S. Taylor)
 Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) August 9, 20166, 2019
     
/s/ JON R. MOELLER
(Jon R. Moeller)
 
Vice Chairman, Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)
 August 9, 20166, 2019
     
/s/ VALARIE L. SHEPPARD
(Valarie L. Sheppard)
 SeniorController and Treasurer and Executive Vice President Comptroller & Treasurer- Company Transition Leader (Principal Accounting Officer) August 9, 20166, 2019
     
/s/ FRANCIS S. BLAKE
(Francis S. Blake)
 Director August 9, 20166, 2019
     
/s/ ANGELA F. BRALY
(Angela F. Braly)
 Director August 9, 20166, 2019
     
/s/ KENNETH I. CHENAULTAMY L. CHANG
(Kenneth I. Chenault)Amy L. Chang)
 Director August 9, 20166, 2019
     
/s/ SCOTT D. COOK
(Scott D. Cook)
 Director August 9, 20166, 2019
     
/s/ SUSAN DESMOND-HELLMANNJOSEPH JIMENEZ
(Susan Desmond-Hellmann)Joseph Jimenez)
 Director August 9, 20166, 2019
     
/s/ TERRY J. LUNDGREN
(Terry J. Lundgren)
 Director August 9, 20166, 2019
     
/s/ W. JAMES MCNERNEY, JR.
(W. James McNerney, Jr.)
 Director August 9, 20166, 2019
/s/ NELSON PELTZ
(Nelson Peltz)
DirectorAugust 6, 2019
     
/s/ MARGARET C. WHITMAN
(Margaret C. Whitman)
 Director August 9, 20166, 2019
     
/s/ PATRICIA A. WOERTZ
(Patricia A. Woertz)
 Director August 9, 2016
/s/ ERNESTO ZEDILLO
(Ernesto Zedillo)
DirectorAugust 9, 20166, 2019


The Procter & Gamble Company 7169


EXHIBIT INDEX
Exhibit     (2-1) -
First, Second and Third Amendments to the Transaction Agreement dated as of July 8, 2015 among The Procter & Gamble Company, Coty Inc., Galleria Co. and Green Acquisition Sub Inc. + **
   
Exhibit     (3-1) -


 
Amended Articles of Incorporation (as amended by shareholders at the annual meeting on October 11, 2011 and consolidated by the Board of Directors on April 8, 2016) (Incorporated by reference to Exhibit (3-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 2016). +
   
(3-2) -


 
Regulations (as approved by the Board of Directors on April 8, 2016, pursuant to authority granted by shareholders at the annual meeting on October 13, 2009) (Incorporated by reference to Exhibit (3-2) of the Company's Annual Report on Form 10-K for the year ended June 30, 2016). +
   
Exhibit   (4-1) -


 
Indenture, dated as of September 3, 2009, between the Company and Deutsche Bank Trust Company Americas, as Trustee (Incorporated by reference to Exhibit (4-1) of the Company's Annual Report on Form 10-K for the year ended June 30, 2015).
   
Exhibit   (10-1)     (4-2) -

 The Company agrees to furnish to the Securities and Exchange Commission, upon request, a copy of any other instrument defining the rights of holders of the Company’s long-term debt.
(4-3) -

Description of the Company’s Common Stock+
(4-4) -

Description of the Company’s 0.625% Notes due 2024, 1.200% Notes due 2028, and 1.875% Notes due 2038. +
(4-5) -

Description of the Company’s 4.125% EUR Notes due December 2020, 4.875% EUR Notes due May 2027, 6.250% GBP Notes due January 2030, and 5.250% GBP Notes due January 2033. +
(4-6) -

Description of the Company’s 0.500% Notes due 2024 and 1.250% Notes due 2029. +
(4-7) -

Description of the Company’s 1.375% Notes due 2025 and 1.800% Notes due 2029. +
(4-8) -

Description of the Company’s 1.125% Notes due 2023. +
(4-9) -

Description of the Company’s 0.275% Notes due 2020. +
(4-10) -

Description of the Company’s 2.000% Notes due 2021. +
(4-11) -

Description of the Company’s 2.000% Notes due 2022. +
Exhibit (10-1) -

The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as amended on August 17, 2007)amended), which was originally adopted by shareholders at the annual meeting on October 9, 2001 (Incorporated by reference to Exhibit (10-1) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended March 31, 2013),June 30, 2018; and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended December 31, 2013).
   
(10-2) -


 
The Procter & Gamble 1992 Stock Plan (as amended December 11, 2001), which was originally adopted by the shareholders at the annual meeting on October 12, 1992 (Incorporated by reference to Exhibit (10-2) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2013)2018).
   
(10-3) -


 
The Procter & Gamble Executive Group Life Insurance Policy (Incorporated by reference to Exhibit (10-3) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2013)2018).
   
(10-4) -


 The Procter & Gamble Deferred Compensation
Summary of the Company’s Retirement Plan for Directors (as amended December 12, 2006), which was originally adopted by the Board of Directors on September 9, 1980Restoration Program (Incorporated by reference to Exhibit (10-4)(10-27) of the Company's Annual Report on Form 10-K for the year ended June 30, 2012)2016); and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-8) of the Company's Form 10-Q for the quarter ended September 30, 2015).
   
(10-5) -


 
The Procter & Gamble 1993 Non-Employee Directors' Stock Plan (as amended September 10, 2002), which was originally adopted by the shareholders at the annual meeting on October 11, 1994 (Incorporated by reference to Exhibit (10-5) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2013)2018).
   
(10-6) -


 
Summary of the Company’s Key Manager Long-Term Incentive Program +; related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-6)(10-2) of the Company's Form 10-Q for the quarter ended September 30, 2015)December 31, 2018); related correspondence and terms and conditions. +
   
(10-7) -


 The Procter & Gamble Future Shares Plan (as adjusted for the stock split effective May 21, 2004), which was originally adopted by the Board of Directors on October 14, 1997 (Incorporated by reference to Exhibit (10-7) of the Company's Annual Report on Form 10-K for the year ended June 30, 2015).
(10-8) -
The Procter & Gamble 2003 Non-Employee Directors' Stock Plan (as amended in August 2007)amended), which was originally adopted by the shareholders at the annual meeting on October 14, 2003, and related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-1)(10-8) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended SeptemberJune 30, 2012)2018).
   
(10-9)
(10-8) -


 
The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-4)(10-2) of the Company's Form 10-Q for the quarter ended December 31, 2013)September 30, 2018).
   
(10-10)
(10-9) -


 
Summary of the Company's Short Term Achievement Reward Program +;(Incorporated by reference to Exhibit (10-10) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018); related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-2) of the Company's Form 10-Q for the quarter ended September 30, 2015).
   
(10-11)
(10-10) -


 
Company's Forms of Separation Agreement & Release +; Company's Form of Separation Letter and Release (Incorporated by reference to Exhibit (10-1)(10-2)) of the Company's Form 10-Q for the quarter ended March 31, 2015)2018).
   
(10-12)
(10-11) -


 
Summary of personal benefits available to certain officers and non-employee directors (Incorporated by reference to Exhibit (10-1)(10-3) of the Company's Form 10-Q for the quarter ended September 30, 2013)2018).
   
(10-13)
(10-12) -


 
The Gillette Company 2004 Long-Term Incentive Plan (as amended on August 14, 2007) (Incorporated by reference to Exhibit (10-4)(10-13) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended SeptemberJune 30, 2012)2018).
   

70 The Procter & Gamble Company

(10-14)
(10-13) -


 
The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-15)(10-14) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).
  
(10-15)
(10-14) -


 
The Gillette Company Personal Financial Planning Reimbursement Program (Incorporated by reference to Exhibit (10-16)(10-15) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).
   
(10-16)
(10-15) -


 
The Gillette Company Senior Executive Financial Planning Program (Incorporated by reference to Exhibit (10-17)(10-16) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).
   
(10-17)
(10-16) -


 
The Gillette Company Estate Preservation (Incorporated by reference to Exhibit (10-18)(10-17) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).
   
(10-18)
(10-17) -


 
The Gillette Company Deferred Compensation Plan (Incorporated by reference to Exhibit (10-19)(10-18) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2017).
   

72 The Procter & Gamble Company

(10-18) -
(10-19) -

 
Senior Executive Recoupment Policy (Incorporated by reference to Exhibit (10-20)(10-19) of the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2012)2018).
   
(10-20)
(10-19) -


 
The Gillette Company Deferred Compensation Plan (for salary deferrals prior to January 1, 2005) as amended through August 21, 2006 (Incorporated by reference to Exhibit (10-21)(10-20) of the Company's Annual Report on Form 10-K for the year ended June 30, 2012)2017).
   
(10-21)
(10-20) -


 
The Procter & Gamble 2009 Stock and Incentive Compensation Plan, which was originally adopted by shareholders at the annual meeting on October 13, 2009 (Incorporated by reference to Exhibit (10-3)(10-21) of the Company's Annual Report on Form 10-Q10-K for the quarteryear ended December 31, 2011)June 30, 2017), and the Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2009 Stock and Incentive Compensation Plan, The Procter & Gamble 2001 Stock and Incentive Compensation Plan, The Procter & Gamble 1992 Stock Plan, The Procter & Gamble 1992 Stock Plan (Belgium Version), The Gillette Company 2004 Long-Term Incentive Plan and the Gillette Company 1971 Stock Option Plan (Incorporated by reference to Exhibit (10-1)(10-21) of the Company'sCompany’s Annual Report on Form 10-Q10-K for the quarteryear ended December 31, 2012)June 30, 2018).
   
(10-22)
(10-21) -


 
The Procter & Gamble 2009 Stock and Incentive Compensation Plan - Additional terms and conditions and related correspondence (Incorporated by reference to Exhibit (10-2) of the Company Form 10-Q for the quarter ended December 31, 2013).
   
(10-23)
(10-22) -


 
The Procter & Gamble Performance Stock Program Summary +; related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-4)(10-1) of the Company's Form 10-Q for the quarter ended September 30, 2015)December 31, 2018); related correspondence and terms and conditions. +
   
(10-24)
(10-23) -


 
The Procter & Gamble 2013 Non-Employee Directors' Stock Plan (Incorporated by reference to Exhibit 10-3(10-3) of the Company's Form 10-Q for the quarter ended December 31, 2013).
   
(10-25)
(10-24) -


 
The Procter & Gamble 2014 Stock and Incentive Compensation Plan, which was originally adopted by shareholders at the annual meeting on October 14, 2014 +;(Incorporated by reference to Exhibit (10-25) of the Company's Annual Report on Form 10-K for the year ended June 30, 2016); and the Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2014 Stock and Incentive Compensation Plan (Incorporated by reference to Exhibit (10-2)(10-1) of the Company's Form 10-Q for the quarter ended MarchDecember 31, 2015)2017).
   
(10-26)
(10-25) -


 
The Procter & Gamble 2014 Stock and Incentive Compensation Plan - Additional terms and conditions (Incorporated by reference to Exhibit (10-9)(10-26) of the Company's Annual Report on Form 10-Q10-K for the quarteryear ended SeptemberJune 30, 2015)2017), and The Procter & Gamble 2014 Stock and Incentive Compensation Plan - Related correspondence (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended December 31, 2015)2016).
   
(10-27)
Exhibit    (21) -


 Summary
Subsidiaries of the Company’s Retirement Plan Restoration Program +; related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-8) of the Company's Form 10-Q for the quarter ended September 30, 2015)Registrant. +
   
Exhibit    (12)(23) -


 Computation
Consent of Ratio of Earnings to Fixed Charges.Independent Registered Public Accounting Firm. +
   
Exhibit    (21)(31) -


 Subsidiaries of the Registrant.
Rule 13a-14(a)/15d-14(a) Certifications. +
   
Exhibit    (23)(32) -


 Consent of Independent Registered Public Accounting Firm.
Section 1350 Certifications. +
   
Exhibit (31)(99-1) -


 Rule 13a-14(a)/15d-14(a) Certifications. +
Exhibit      (32) -
Section 1350 Certifications. +
Exhibit   (99-1) -
Summary of Directors and Officers Insurance Program.Program. +
   
101.INS (1)

 XBRL Instance Document
101.SCH (1)

  XBRL Taxonomy Extension Schema Document
101.CAL (1)

  XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF (1)

  XBRL Taxonomy Definition Linkbase Document
101.LAB (1)

  XBRL Taxonomy Extension Label Linkbase Document
101.PRE (1)

  XBRL Taxonomy Extension Presentation Linkbase Document
   
(1) Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
   
+

 Filed herewith.
**
Schedules and similar attachments of the Third Amendment have been omitted pursuant to Item 601(b)(2) of Regulation S-K. These exhibits and attachments consist of (I) Attachment to Schedule 1.05(b)(ii) Excluded Trademarks, (II) Attachment 3-C to Schedule 1.05(a)(vii) Additional Caldera Domain Names, (III) Parent Shared Technology License Agreement, (IV) Section 1.05(a)(xx) Acquired Codes, (V) Section 5.21(k) Shared Codes and (VI) Exhibit R Galleria Business Acquired Plans. The Company agrees to furnish supplementally to the SEC, upon request, a copy of all omitted schedules and attachments.