Procter & Gamble Annual Report 2020

Plain-text annual report

2020 Annual Report F I N A N CIA L H IG H LIG HT S (U N AU D ITE D) Amounts in billions, except per share amounts 2 02 0 N E T SA LE S BY BU S I N E S S S EG M E NT 3 2020 2019 2018 2017 2016 Fabric & Home Care 33% Net Sales $71.0 $67.7 $66.8 $65.1 $65.3 Operating Income $15.7 $5.5 $13.4 $13.8 $13.3 $13.0 $3.9 $9.8 $15.3 $10.5 18.5% 5.9% 14.8% 15.7% 15.4% Net Earnings Attributable to P&G Net Earnings Margin from Continuing Operations Diluted Net Earnings per Common Share from Continuing Operations 1 Diluted Net Earnings per Common Share 1 Core Earnings per Share 2 $4.96 $1.43 $3.67 $5.59 $3.69 $5.12 $4.52 $4.22 $3.92 $3.67 Operating Cash Flow $17.4 $15.2 $14.9 $12.8 $15.4 Dividends per Common Share $3.03 $2.90 $2.79 $2.70 $2.66 Baby, Feminine & Family Care Beauty Health Care Grooming North America 4 Europe Asia Paciﬁc Greater China Latin America India, Middle East & Africa (IMEA) 26% 19% 13% 9% 47% 22% 10% 9% 6% 6% $4.96 $1.43 $3.67 $3.69 $3.49 2 02 0 N E T SA LE S BY G EOG R A PH IC R EG IO N (1) Diluted net earnings per common share are calculated based on net earnings attributable to Procter & Gamble. (2) Core EPS is a measure of the Company’s diluted net earnings per common share from continuing operations adjusted for certain items not viewed as part of our sustainable results. Please see page 74 of the Annual Report for detail on the reconciling items. (3) These results exclude net sales in Corporate. (4) North America includes the United States, Canada and Puerto Rico. VARIOUS STATEMENTS IN THIS ANNUAL REPORT, including estimates, projections, objectives and expected results, 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 and are generally identiﬁed by the words “believe,” “expect,” “anticipate,” “intend,” “opportunity,” “plan,” “project,” “will,” “should,” “could,” “would,” “likely” and similar expressions. Forward-looking statements are based on current assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements, including the risks and uncertainties discussed in Item 1A – Risk Factors of the Form 10-K/A included in this Annual Report. Such forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise publicly any forward-looking statements, except as required by law. TA B LE O F CO NTE NT S Letter to Shareowners Stepping Up in Response to COVID-19 P&G’s Integrated Growth Strategy i iii v Measures Not Deﬁned by U.S. GAAP Board of Directors Company Leadership Citizenship at P&G xiv Company and Shareholder Information 74 76 77 78 Form 10-K xvii Recognitions and Awards Inside Back Cover Dear Shareowners, Fiscal year 2020 will go down as one of the most challenging years for P&G in our 183-year history. Despite numerous issues presented by the global COVID-19 pandemic, P&G people delivered strong results, meeting or exceeding our ﬁnancial goals for the year with 6% organic sales growth and 13% core earnings per share growth. Before I go into more detail on our ﬁscal year 2020 results, I want to brieﬂy outline the immediate priorities we established to carry us through the pandemic: DAV I D S . TAY LO R Chairman of the Board, President and Chief Executive Ofﬁcer • Protect the health and well-being of P&G people; • Maximize the availability of our products that help people and their families with their health, hygiene and cleaning needs, which have never been greater; • Support the communities, relief agencies and people on the front lines of this global pandemic. P&G Chairman, President and CEO David Taylor visits our Lima, Ohio plant, one of several global locations where we began producing hand sanitizer for use in our facilities to help us operate safely, and to share with hospitals, health care facilities and relief organizations. Taken together, these priorities ensure P&G is there for the employees, consumers and communities who have always been there for us, and they remain in place today. Fiscal Year 2020 Results Importantly, they work hand-in-hand with our strategic Last ﬁscal year, we grew markets and increased choices — a portfolio of daily use brands; meaningful household penetration in multiple categories — driving superiority across products, packages, communication, top-line growth, bottom-line growth and market share. retail execution and value; driving productivity in everything we do; constructive disruption across all areas of our business; and a more empowered, agile and accountable organization. Organic sales grew 6%. On a two-year stacked basis, organic sales growth has accelerated from 3% (across ﬁscal years 17 and 18) to 6% (across ﬁscal years 18 and 19) to 11% (across ﬁscal years 19 and 20) indicating the This strategy is unwavering, and it’s delivering strong, underlying strength of our brands and our strategy balanced growth and value creation. which are driving our business. +6% O RGA N IC SA LE S G ROW TH +13% CO R E E PS G ROW TH 114% A DJ U S TE D F R E E C A S H F LOW PRO DUC TIV IT Y ii • The Procter & Gamble Company On the bottom line, core earnings per share were Credit for these results goes to all of the employees up 13% versus the prior year. On a constant currency of P&G, who have demonstrated incredible creativity, basis, core earnings per share were up 17%. All-in agility and commitment to serving consumers, GAAP earnings per share were up signiﬁcantly versus customers and communities every day during these a year ago because of last year’s one-time, non-cash unprecedented circumstances. accounting charge to reduce the carrying value of the Gillette Shave Care business. Adjusted free cash ﬂow productivity was 114%. It’s important to note that we were at 6% organic sales growth, 18% core earnings per share growth, and 96% adjusted free cash ﬂow productivity for the ﬁrst half of the ﬁscal year, before the impact of the pandemic. We maintained this strong momentum in the second half of ﬁscal year 2020, overcoming many challenges, including the lockdown in China, channel shutdowns, operational challenges to safely staff our facilities and source materials necessary to maintain production, and a signiﬁcant increase in production in some categories to serve heightened consumer cleaning, health and hygiene needs. Nine of 10 product categories grew organic sales. Home Care and Personal Health Care grew in the teens. Family Care grew double digits. Fabric Care and Feminine Care grew high single digits. Hair Care, Skin & Personal Care, and Oral Care grew mid-single digits. Grooming grew 1%, and Baby Care was down 1%. We delivered very strong results in our two largest and most proﬁtable markets. The U.S. grew organic sales 10% for the year, including 5% growth in the ﬁrst half of the ﬁscal year. Greater China grew 8%, including 13% organic growth in the ﬁrst half of the ﬁscal year. E-commerce organic sales grew 40% and are now over 10% of our total Company sales. We returned $15.2 billion of value to shareowners through a combination of share repurchases and dividends. In April, we announced a 6% increase in the dividend. This was the 64th consecutive annual increase and the 130th consecutive year in which P&G has paid a dividend. Summing up, we delivered or over-delivered on each of our going-in targets for the year — organic sales growth, core EPS growth, free cash ﬂow productivity and cash returned to shareowners. We built strong momentum heading into the COVID-19 crisis, and arguably built this further during the challenging second half of the ﬁscal year. Stepping Up During the Pandemic P&G people have stepped up to deliver on each of the priorities that guide our actions and our choices in this crisis period. We’re protecting P&G people and the safety of our work environments. This is our top priority. We moved quickly and early based on learnings from our experience in China. With this information and guidance from medical professionals, we put robust safety measures in place for all employees working at a P&G location, including temperature scans, increased disinfection, shift rotations, distancing and the use of masks. We quickly pivoted P&G’s global disaster relief program to focus on the needs created by COVID-19. Millions of P&G products are being donated from more than 50 of our brands in more than 55 countries, helping ensure that families have basic access to the everyday essentials many of us take for granted. We’re also partnering with and supporting more than 200 NGOs, agencies and some of the world’s leading relief organizations, providing help to nursing homes, shelters, community groups, food banks and more. S TE PPI N G U P A S A FO RCE FO R GOO D I N R E S PO N S E TO COV I D -1 9 The Procter & Gamble Company • iii Our people can work confidently We’re bringing trusted brands P&G has a long history of knowing that P&G stands that help people clean, take care supporting those in need, and behind them, with robust of their personal health and we’re supporting the communities, safety measures we constantly hygiene, and create healthy relief agencies and people on the evaluate and update. homes for their families. front lines of this global pandemic. PROTEC TI N G P&G PEO PLE S E RV I N G CO N S U M E R S S U PPO R TI N G CO M M U N ITI E S • Serving consumers and supporting communities starts with ensuring our employees are safe and protected, with robust safety measures that include comprehensive cleaning of work areas, temperature scans, hand sanitizers and face masks, shift rotations, physical distancing, working from home and using collaboration tools to stay connected. • Maximizing the availability of products that help people and their families with their health, hygiene and cleaning needs, which have never been greater, by running extra shifts, putting idled equipment back into service quickly, partnering with suppliers, and constantly finding new ways to deliver more of the products consumers depend on. • Equipping and encouraging all employees to make smart, appropriate choices like staying at home if they feel unwell. • Continuing sustainable employee policies, industry-leading benefits, and a culture that can support, nurture, and endure — including robust health coverage, paid leave programs, emergency loans and flexible solutions for work and dependent care. To directly address the pandemic, we implemented no-cost access to virtual medical visits and for COVID-19 testing and treatment, pay continuity for workers unable to work due to COVID-19, and expanded flexible work arrangements to help employees manage dependent care. • Leveraging our marketing expertise to support public health measures to help flatten the curve and slow the spread of the virus, through initiatives including hand-washing education from our Safeguard soap brand, creating the #DistanceDance campaign to encourage social distancing, and creating the “Masks On, Ohio” campaign for P&G’s global headquarters state, joining forces with businesses across Ohio. • Sharing useful information and services from our brands, such as Braun “haircuts at home” tutorials, Tide Cleaners’ free laundry services for first responders and Pampers virtual childbirth classes. • Using our R&D, engineering and manufacturing expertise to make critically needed non-medical face masks, face shields and hand sanitizer to support our operations and to share with hospitals, health care facilities and relief organizations. • Making cash, product and in-kind donations of tens of millions of dollars across more than 50 brands, more than 200 different relief organizations, and more than 55 countries. • Creating a series of films from P&G and our brands and sponsoring events to bring needed attention and support to the most disproportionately affected populations. • Helping ensure families have basic access to the everyday cleaning, health and hygiene essentials many of us take for granted. Visit www.pg.com/covid19 to learn more. iv • The Procter & Gamble Company Personal Protective Equipment (PPE) is critical to Importantly, delivering on each of these priorities is operating safely, and we rapidly built the capability helping us continue to advance our integrated strategy, to make our own to protect P&G people. Importantly, and we will keep raising the bar on the excellent we are donating signiﬁcant amounts of PPE to execution of this strategy for the months, quarters communities, health facilities and front-line workers. and years ahead. Our industry-leading beneﬁts play a critical role in providing P&G people with the resources they need to care for themselves and their families. From paid leave and comprehensive medical care, to ﬂexible work arrangements and ﬁnancial support, P&G people can work conﬁdently knowing the Company stands with and behind them every day — but especially during times of crisis. We’re maximizing the availability of our products to serve consumers around the world who count on our brands and the beneﬁts they provide. Trusted brands are more important than ever given the needs generated by the pandemic, the increased focus on health and hygiene, and the additional time people are spending in their homes. P&G products play an essential role in helping consumers maintain proper hygiene, personal health and healthy home environments. Our products clean laundry, homes, hair, bodies, and hands, as well as clean and shave faces. We provide hygiene products for feminine protection, baby care, adult incontinence and bathroom needs. As a result, demand for many of our categories increased in the face of the pandemic. We’re supporting our communities, providing much needed product donations and ﬁnancial support. These donations ensure that families who do not have basic access to the everyday essentials many of us take for granted can have the cleaning, health and hygiene beneﬁts P&G brands can provide. We partnered with some of the world’s leading relief organizations, including the International Federation of Red Cross, Americares and Direct Relief, as well as key regional organizations, such as Feeding America, Matthew 25: Ministries, the China Youth Development Foundation, One Foundation, the Korea Disaster Relief Association, the United Way, and more. Our efforts to meet these three priorities — protecting employees, serving consumers and supporting communities — have been critical as we have navigated the effects of the pandemic, and we will continue to step up to support each other, our consumers and our communities. Our Integrated Strategy to Win Our integrated strategy is the foundation for strong balanced growth and value creation for the near and long term — to focus and strengthen our portfolio in daily use categories where performance drives brand choice; to establish and extend the superiority of our brands across product, packaging, communication, retail execution and value; to make productivity as integral to our culture as innovation; to lead constructive disruption across the value chain; and to improve organization focus, agility and accountability. These are not independent strategic choices. They reinforce and build on each other, and when executed well, lead to balanced top- and bottom- line growth and value creation. This strategy is working, and we believe it puts us in a good position to deal with and overcome the challenges of the current macroeconomic environment we ﬁnd ourselves in. A Focused Portfolio We have built a focused portfolio of 10 categories that leverage P&G strengths. In these categories, we typically occupy the number one or two share position. These are daily use categories where performance drives brand choice, which means our products must be superior. Looking ahead, we will serve what will likely be an environment of continued focus on health, hygiene and cleaning, with consumers potentially using our products multiple times each day. Because of this, the relevance of our categories in consumers’ lives may remain high, with related consumption impacts. For example, there may be continued focus on home with additional time at home and more meals at home. This creates more opportunities for our brands to help consumers with products like Dawn, Fairy and Cascade to clean dishes, and Swiffer, Bounty, Mr. Clean and Microban 24, our new antimicrobial surface sanitization product, to clean surfaces. P&G’s integrated and mutually reinforcing strategies are the foundation for strong, balanced growth and value creation. The Procter & Gamble Company • v We have a portfolio of daily-use products, many providing health, hygiene and cleaning benefits in categories where performance plays a significant role in brand choice. We’re operating through a more focused, agile, accountable organization operating at the speed of the market. We’re creating and extending brand superiority across product, package, communication, retail execution and value. PORTFOLIO performance drives brand choice ORGAN IZ ATION INTEGR ATE D SU PE RIORIT Y empowered, agile accountable GROW TH STR ATEGY to win with consumers CON STRUC TIVE DI S RU PTION across our business PRODUC TIVIT Y to fuel investments We’re leading the constructive We’re driving productivity disruption of our industry across improvements in both cost all areas of the value chain, to win and cash to fund investments in today’s dynamic world. and improve profitability. vi • The Procter & Gamble Company P&G’s 10-Category Portfolio H E A LTH C A R E Personal Health Care Oral Care FA B R IC A N D H O M E C A R E Fabric Care Home Care There may be sustained attention on personal cleanliness with a higher frequency of washing of hair, body and clothing. Again, this creates further opportunities to help with products, like Head & Shoulders, Pantene and Herbal Essences to clean hair; Safeguard, Olay and Old Spice to clean skin; and Tide, Ariel and Gain to clean clothing. We have many other occasions to serve new and changing consumer needs. For example, our over- the-counter health care products provide proactive health beneﬁts as well as important symptom relief. Proper shaving is important when wearing an N95 mask, or similar respiratory mask, to ensure a good ﬁt for protection. Even toilet paper has seen an increase in demand as people think about the one item they can’t live without. Overall, we have a signiﬁcant opportunity to help consumers in their pursuit of health and hygiene in a clean home. Superiority to Win with Consumers Within our 10 categories we’re creating superior, science- based products delivered with superior packaging, consumer communication, retail execution and value in all price tiers where we compete. This is the basis for competitive advantage — meaningful and noticeable superiority across all elements of our consumer proposition. Superior offerings drive market growth, creating a winning proposition for all concerned. Superiority is a high bar. Our products must be so good that consumers recognize the difference. Our packages must be attractive, convey brand equity and close the sale. Our communications must create awareness, demonstrate superior performance, and create the desire to purchase. In stores, our retail execution must include the right product forms, sizes, price points, The Procter & Gamble Company • vii B E AUT Y G ROO M I N G Skin & Personal Care Hair Care Grooming BA BY A N D F E M I N I N E C A R E FA M I LY C A R E A N D P&G V E NTU R E S Baby Care Feminine Care Family Care S U PE R I O R PR O D U C T S S U PE R I O R PAC K AG I N G S U PE R I O R B R A N D CO M M U N I C ATI O N S U PE R I O R R E TA I L E X ECU TI O N S U PE R I O R CO N S U M E R & CU S TO M E R VA LU E Tide Power PODS and Gain Ultra Flings laundry pacs, introduced in ﬁscal 2020, have more cleaning power than two regular Tide PODS Original pacs. This innovation contributed to high single-digit growth in the U.S. laundry category with Tide and Gain driving about 75% of U.S. category growth. Vicks developed a superior bottle design for NyQuil and DayQuil in ﬁscal 2020. Recently launched, it ﬁts better on retailer shelves, helps consumers locate the right product for them, and is easier to hold and store at home — all while reducing the plastic used in each bottle. Charmin Ultra Soft is 2X more absorbent so consumers can use less than the leading bargain brand. Communicating this superior performance contributed to Charmin’s double-digit organic sales growth in ﬁscal 2020. During the COVID-19 pandemic’s impact on beauty counter closures in China, the Olay team moved swiftly to provide online beauty counseling, continuing to delight consumers and delivering a second consecutive year of double-digit growth in ﬁscal 2020. SkinGuard is designed to delight the more than 65% of men who report skin sensitivity and may shave less often. Launched in the U.S. in ﬁscal 2019 and in several countries in ﬁscal 2020, it contributed to our share growth globally in the male blades and razors segment during the year. Read more about our examples of superiority across categories at www.pg.com/annualreport2020. viii • The Procter & Gamble Company Noticeable Superiority to Win with Consumers In 2017, we raised the bar on all DAWN POWE RWA S H F E B R E Z E S M A LL S PACE S The unique spray technology Febreze Small Spaces is and superior formula of Dawn activated with the click of a Powerwash provide powerful button and eliminates odors suds that cut grease on for up to 45 days. The sleek contact. Priced at a premium packaging blends into the to regular Dawn, Powerwash décor of any room in the house. is driving growth in the Hand First launched in Japan and Dish market category and now in the U.S., it has helped contributed to the 1.5 points drive ﬁscal 2020 share growth of share growth of Dawn in for the Febreze brand of more the U.S. in ﬁscal 2020. than two points in Japan and one point in the U.S. aspects of superiority, in all 10 of our categories. With this new standard in place, we assessed our portfolio and found only 30% to be superior across all dimensions. Today, more than 70% of our portfolio is judged as superior — and we’re making continuous improvements to respond to consumer needs, improving options for consumers around the world. Let’s look at how this comes to life in Home Care, where since ﬁscal 2018 we’ve driven about 60% of global category market growth and step-changed organic sales growth from low single digits, to high single digits, to double digits in ﬁscal 2020. SU PE R IO R PRO DUC T S SU PE R IO R PACK AG I N G Together, these ﬁve elements drive category growth, help prevent commoditization and provide the basis to build Products so good, consumers Packaging that attracts recognize the difference. consumers, conveys brand Superior products raise equity, helps consumers expectations for performance select the best product for sustainable competitive advantage. in the category. their needs, and delights consumers during use. The Procter & Gamble Company • ix C A SC A D E SWI F F E R M ICRO BA N 2 4 Superior brand communication Swiffer gave more visibility to In February we launched Microban can drive sustainability and grow the product and established clear 24, with antimicrobial technology markets. Cascade launched vertical blocks on shelf for Swiffer that keeps killing bacteria for up a campaign with hard-hitting Sweeper, Wet Jet, Dusters, Heavy to 24 hours when used as directed. facts that tackle the top myths Duty and Pet — differentiated It helps keep homes clean and limiting dishwasher use. The by color and signage to help sanitized — providing value with campaign helped the Cascade the consumer choose the right a new beneﬁt for consumers and brand grow organic sales in the product for them. First in the a new addition to the category mid-teens in ﬁscal 2020 — and U.S. and most recently in Europe, for retailers. is helping consumers save water. this strategy helped increase ﬁscal 2020 sales by double digits in markets where executed. Microban 24 is effective for 24 hours against Staphylococcus aureus and Enterobacter aerogenes bacteria. Microban 24 does not provide 24-hour residual virus protection. SU PE R IO R B R A N D CO M M U N IC ATIO N SU PE R IO R R E TA I L E XECUTIO N SU PE R IO R CON SU M E R & CU S TO M E R VA LU E Product and packaging In-store: with the right store For consumers: all these elements beneﬁts communicated with coverage, product forms, sizes, presented in a clear and shoppable exceptional advertising that price points, shelving and way at a compelling price. For makes you think, talk, laugh, merchandising. Online: with customers: margin, penny proﬁt, cry, smile, act and buy — and that drives category and brand growth. the right content, assortment, trip generation, basket size, ratings, reviews, search and and category growth. subscription offerings. x • The Procter & Gamble Company shelving and merchandising execution. Online, our retail execution must include the right content, assortment, ratings, reviews, search and subscription offerings. Finally, our consumer value equations must represent a good value of the total proposition, and for customers, include important items like market growth, penny proﬁt and margin. We continue to raise the bar on all ﬁve vectors of superiority because when we’re superior on at least four of ﬁve, we more consistently drive market growth, sales, proﬁt, household penetration and value share. P&G recently received two honors that recognize the progress we’ve made. The Cannes Lions Festival of Creativity named us the #1 Brand Marketer of the Decade, and Target recognized us as their supplier of the year, across all product categories. We’ve made investments to strengthen the superiority of our brands, and we’ll continue to invest to extend our margin of advantage and quality of execution, improving options for consumers around the world. Productivity to Fuel Investments The strategic need for this investment, the need to manage through the pandemic, and the ongoing need to drive balanced top- and bottom-line growth, including margin expansion, underscores the importance of productivity. We’re driving cost savings and efﬁciency improvement in all facets of our business — cost and cash productivity up and down the income statement and across the balance sheet. During the COVID-19 crisis, we’ve learned that some work, previously thought of as in-person only, can progress remotely — with signiﬁcant productivity beneﬁts. As a result, we’re rethinking the necessity of some travel. We understand the value in face-to- face interaction and don’t expect all work to continue virtually indeﬁnitely, but we can achieve an improved, more optimal balance. CO N S TRUC TIV E D I S RU P TIO N AT P&G In a world with a rapidly changing retail environment, quickly evolving consumer needs, media ecosystem transformation and revolutionary changes in technology, we’re leading the constructive disruption of our industry. Here are just a few examples: I N N OVATIO N B R A N D BU I LD I N G P&G is embracing lean innovation, acting with the speed and agility of a startup to create the future. We combine robust, consumer-based insights with breakthrough science that is inspired by how people live, work and play — both in our core business and in new areas. One such innovation is OPTE, a handheld beauty device from our P&G Ventures startup studio, which digitally scans your skin, detects age spots, sunspots and hyperpigmentation and precisely corrects them by immediately camouﬂaging them and fading their appearance over time. We’re reinventing media using precision tools like propensity modeling that help us understand where a consumer is on their path to purchase, letting us reduce spend while increasing our reach. And we’re reinventing advertising by bringing some advertising creation and media planning in-house — such as on our Secret brand — providing complete control and ﬂexibility for as little as 1/10 the cost and less than 1/3 the time of traditional executions. There’s also savings in media spending, building on the $1 billion of savings we delivered over the previous ﬁve years. As a number of industries have pulled back on advertising, we have been able to work closely with our media partners to increase the reach and effectiveness of our communications to consumers. Productivity is now as integral to our culture as innovation and helps to fuel our investments in superiority. Productivity has become part of who we are, and an area of ongoing commitment only accelerated by the current disruption in how we work. The Procter & Gamble Company • xi Constructive Disruption Across the Value Chain Success in our highly competitive industry requires agility that comes with a mindset of constructive disruption — a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. Constructive is a carefully chosen word. It’s one thing to disrupt and destroy value. It’s another thing to disrupt in a constructive way that drives market growth and creates value for retailers, investors, employees and consumers alike. We must lead the constructive disruption of our industry across all areas of the value chain, including but not limited to how we innovate, how we build brands, how we run our supply chain, and how we use digitization and data analytics. S U PPLY CH A I N D IG ITI Z ATIO N & DATA A N A LY TIC S We’ve advanced our supply network capabilities in the face of the COVID-19 crisis, and we’ll build some of these changes into how we work in the future. This includes shipping directly to customers when needed, and accelerating the use of data platforms and machine learning to better understand consumer consumption and raw material availability. In the U.S., Europe, Latin America and Asia, we’re using data and analytics to better ensure we’re in precisely the right stores — down to the neighborhood level — with the right shelf sets, placement, sampling and marketing — resulting in a better consumer experience and category growth. xii • The Procter & Gamble Company This mindset of constructive disruption has been particularly important to overcome the challenges of working during the pandemic. Here are a few examples. The foundation of everything we do is the consumer, and we’ve increased the use of virtual consumer research — doing customized research with more than 250,000 consumers virtually since early February to sense and understand shifting consumer needs. We’ve advanced our supply network capabilities to support consumption surges to serve consumers for an extended period of time. Some of the changes we made will be built into how we work in the future, including shipping directly to customers when needed and accelerating the use of data platforms and machine learning capabilities to better understand consumer consumption and raw material availability. We’ve developed innovative new ways to create consumer communications with smaller teams, with more internal and external collaboration, and at fractions of the time and costs of traditional methods. we manage our 10 product categories within these SBUs. The SBUs have sales, proﬁt, cash and value creation responsibility for our largest markets, called Focus Markets — accounting for about 80% of sales We’ve accelerated digital capability and learning, and 90% of proﬁt. and we’re using the power of technology to enable faster business decisions and results. Decisions that used to take weeks now take days, and decisions that used to take days now take hours. The rest of the world is organized into Enterprise Markets — a separate unit with sales, proﬁt and value creation responsibility. Enterprise Markets are important to the future of P&G because of their attractive market Constructive disruption is important in any environment growth rates. Our organization structures in the and even more so in the environment we’re currently Enterprise Markets are being optimized to accelerate operating in — requiring an ongoing mindset of top- and bottom-line growth in these dynamic constructive disruption and disruptive possibility. macro environments. Empowered, Agile and Accountable Organization and Culture Key corporate resources provide support with best-in-class expertise focused on scaled services, governance, stewardship and areas requiring high mastery. The pandemic has been a true test of our new organization structure, and it’s serving us well. P&G people are more empowered, agile and accountable — closer to the consumers they serve. There’s more focus At the beginning of ﬁscal year 2020, we moved to a new on action, a scarcity mentality, and an entrepreneurial organization structure. We now operate P&G through spirit to quickly come together to solve problems, ﬂow six industry-based Sector Business Units or SBUs, and to new demands, and seamlessly support each other. The Procter & Gamble Company • xiii Providing greater clarity Strengthening on responsibilities and reporting lines leadership accountability Operating through six industry-based Sector Business Units Enabling P&G people to accelerate growth and value creation OU R N EW O RGA N I Z ATIO N S TRUC TU R E A more empowered, agile and accountable organization, ﬂowing to new demands, seamlessly supporting each other to deliver our priorities around the world. xiv • The Procter & Gamble Company CO M M U N IT Y I M PAC T Giving back to communities is part of who we are as a Company. P&G people are stepping up and serving others as a force for good in service to people everywhere caring for their families and communities — all day, every day. E TH IC S & CO R PO R ATE R E S PO N S I B I LIT Y At P&G, we are governed by our Purpose, Values and Principles. Our philosophy is that a reputation of trust and integrity is built over time, earned every day, and is what sets us apart. We’re committed to doing what’s right and being a good corporate citizen. D IV E R S IT Y & I N CLU S IO N We believe in diversity and inclusion and will continue to build a diverse employee and leadership base to reﬂect the consumers we serve around the world, and foster an inclusive, respectful, welcoming and afﬁrming culture. We’re also driving action on the world stage to make a difference. CITI Z E N S H I P A Force for Good and A Force for Growth Learn more about our goals, metrics, progress and risks in our Citizenship Report at www.pg.com/citizenship. E N V I RO N M E NTA L S U S TA I N A B I LIT Y Environmental sustainability is embedded in how we do business. We have a responsibility to make the world better — through the products we create and the positive impact we can have in communities worldwide. G E N D E R EQUA LIT Y We aspire to build a better world with equal voice and equal representation — from an inclusive, gender-equal environment at P&G, to removing barriers to education for girls and economic opportunities for women through P&G programs and policy advocacy. Citizenship Built into Business Results Citizenship is built into how we do business every day. We’re focused on being a force for good and a force for growth in each area of our Citizenship work: Community Impact, Diversity & Inclusion, Gender Equality, and Environmental Sustainability, all built on a foundation of Ethics & Corporate Responsibility. Ethics & Corporate Responsibility is always critical but never more so than when operating in a crisis. Because of our track record and strong reputation as a good and responsible company, we were able to work closely with governments around the world to ensure our operations generally continued, with important safety protocols in place, enabling us to help people and their families meet their health, hygiene and cleaning needs. We quickly pivoted our Community Impact efforts to address the COVID-19 pandemic, working with 200 relief organizations to help communities in need — donating essential health, hygiene and cleaning products, as well as much needed masks, face shields and hand sanitizer. We also responded to a number of natural disasters around the world — ﬁres, ﬂoods, hurricanes and typhoons — providing people the comforts of home, health and hygiene. And, our P&G Children’s Safe Drinking Water Program continued to reach those in need of clean drinking water, delivering 17 billion liters of clean drinking water around the world since the start of the program. In Gender Equality, we continue to make progress on our aspiration to reach 50/50 representation of women and men at every level of our organization, and to achieve equitable advancement of multicultural women at every level in the U.S. We remain steadfast in our commitment to ﬂexible work, intentional career planning, pay equity and paid parental leave, which are all proven accelerators of gender equality. And, we continue to partner with organizations that help remove barriers to education for girls and create economic opportunities for women. In Environmental Sustainability, we recently made a new commitment to advance a series of natural climate solutions over the next 10 years that will put us on track for our operations to be carbon neutral by 2030. Working closely with leading climate experts, P&G will fund a range of projects designed to protect, improve and restore forests, wetlands, grasslands and peatlands. Our efforts will increase carbon storage or avoid greenhouse gas emissions, while supporting local communities and economic recovery. These The Procter & Gamble Company • xv E TH IC S & CO R PO R ATE R E S PO N S I B I LIT Y P&G brands, employees, operations and partners work together to be a force for good and a force for growth, governed by our Purpose, Values and Principles and doing what’s right. We’re proud that many of our ongoing Citizenship efforts deliver on the majority of the U.N. Sustainable Development Goals. CO M M U N IT Y I M PAC T Nearly a billion people globally struggle with access to clean drinking water. We’ve delivered 17 billion liters to those in need since our Children’s Safe Drinking Water Program began — through our P&G Puriﬁer of Water packets that act as a water treatment plant in a 4-gram package. D IV E R S IT Y & I N CLU S IO N Building on our longstanding efforts on equality, we stepped up our ongoing actions to address bias and racism that Black Americans face by establishing the Take on Race Fund and an educational website (www.pg.com/takeonrace), and releasing short ﬁlms to inspire conversation and action, “The Talk,” “The Look” and “The Choice.” G E N D E R EQUA LIT Y We’re leveraging our signiﬁcant voice in advertising to tackle gender bias and promote equality. Secret’s “Not the First” International Women’s Day campaign built on the brand’s efforts in support of equality for women, highlighting that in order to achieve equal representation, it takes more than celebrating the women who came ﬁrst. E N V I RO N M E NTA L S U S TA I N A B I LIT Y We’re highly engaged in working to minimize our own environmental footprint — including our most recent Ambition 2030 commitment to be carbon neutral for the decade — and in innovating to create products and solutions that make responsible consumption irresistible for people everywhere. xvi • The Procter & Gamble Company natural climate solutions will help accelerate efforts to address climate change, while enabling people and our planet to thrive. The need for equality for all was laid bare by the tragic events in the spring that took the lives of Black Americans and sparked a movement around the world to address the systemic racism and inequality that have been institutionalized in our society. Unfortunately, far too often, the burden of seeking equality has rested on the shoulders of those most marginalized. This simply won’t work. It’s time for inequality to end, and we’re committed to being part of the solution with deliberate, sustained action. P&G and our brands have stepped up our ongoing efforts to advance equality for all people, and especially at this moment in history for Black Americans. We established the P&G Take On Race fund to help fuel organizations that ﬁght for justice, advance economic Our portfolio is now focused on daily use items where opportunity, enable greater access to education and performance drives brand choice. We have much less health care, and make our communities more equitable. exposure to discretionary items than we had during Internally, we’re committed to continue to build a diverse employee and leadership base to reﬂect the consumers we serve, and foster an inclusive, respectful, welcoming and afﬁrming culture. We’re ensuring our policies and practices are not just inclusive, but deliberately advance and enable equity and inclusion. However, our Company is not perfect, and we still have work to do. But, we’re building on a strong foundation, and we’re committed to meaningful change. In summary, while the pandemic has brought into sharp focus the many challenges we still face as a society, we’re focused on doing our part to address these — stepping up to be a force for good and force for growth in our world. Stepping Up and Stepping Forward Looking ahead, we believe that the volatility and challenges we face may continue for some time. While parts of the world have returned to some sense of normality, there are many parts still well in the midst of the pandemic. There also may be a resurgence of the virus in many places now thought of as generally safe. And, the economic impact has yet to be fully realized. Over the long term, we believe we are well-positioned to serve consumers and create value in an attractive industry. While we are not immune to recession, the last downturn. We’ve increased the superiority of our offerings, which makes the proposition of switching to a lower performance product a much more difﬁcult decision for consumers. While not perfect, we have stronger entries across price tiers. We are emphasizing performance-based, value messaging. We have relevant pack sizes designed to hit key cash outlay thresholds for consumers who need to make week-to-week purchase decisions based on cash availability. Our productivity muscle is now well developed. We’re embracing disruption constructively. And, we have a more empowered, agile and accountable organization. The best response to the uncertainties and sources of volatility we face is to double down on our integrated set of strategic choices, which are delivering very strong results. These mutually reinforcing strategies are the foundation for strong, balanced growth and value creation. The weeks and months ahead will not be easy, but we take a long view, and I believe our best days are ahead of us because of P&G people. We’ll come out of this stronger than before — stepping up and stepping forward together to win with consumers, shoppers and customers, individually and collectively unleashing our capability to deliver outstanding results. our strategy puts us on better footing than prior DAV I D S . TAY LO R downturns to weather economic headwinds. Chairman of the Board, President and Chief Executive Ofﬁcer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K/A Amendment No. 1 (Mark one) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 TRUE [ ]]FALSE TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2020 OR Cincinnati One Procter & Gamble Plaza 513 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: OH 45202 983-1100 31-041198 0 OH Title of each class Trading Symbol Name of each exchange on which registered Common Stock, without Par Value 4.125% EUR notes due December 2020 2.000% notes due 2021 2.000% notes due 2022 1.125% notes due 2023 0.500% notes due 2024 0.625% notes due 2024 1.375% notes due 2025 4.875% EUR notes due May 2027 1.200% notes due 2028 1.250% notes due 2029 1.800% notes due 2029 6.250% GBP notes due January 2030 5.250% GBP notes due January 2033 1.875% notes due 2038 PG PG20A PG21 PG22B PG23A PG24A PG24B PG25 PG27A PG28 PG29B PG29A PG30 PG33 PG38 New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New 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 every Interactive Data File required to be submitted 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filed," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer þ ¨ Accelerated filer Smaller reporting company Emerging growth company ¨ ¨ ¨ FALSE FALSE If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ False Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes þ No o TRUE The aggregate market value of the voting stock held by non-affiliates amounted to $304 billion on December 31, 2019. There were 2,486,086,692 shares of Common Stock outstanding as of July 31, 2020. Portions of the Proxy Statement for the 2020 Annual Meeting of Shareholders, which will be filed within one hundred and twenty days of the fiscal year ended June 30, 2020 (2020 Proxy Statement), are incorporated by reference into Part III of this report to the extent described herein. Documents Incorporated by Reference Explanatory Note This Amendment No. 1 on Form 10-K/A amends The Procter & Gamble Company’s Annual Report on Form 10-K for the year ended June 30, 2020, which the Company previously filed with the Securities and Exchange Commission on August 6, 2020. The Company is filing this Amendment solely to address technical issues with the formatting of portions of the original Form 10-K filing. These issues caused some information in the original filing to appear misaligned or illegible, even though properly included. In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended, this Amendment includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, dated as of the filing date of this Amendment. Except as described above, this Form 10-K/A does not modify or update disclosure in, or exhibits to, the original Form 10-K. Furthermore, this Form 10-K/A does not change any previously reported financial results, nor does it reflect events occurring after the date of the original Form 10-K. Information not affected by this Form 10-K/A remains unchanged and reflects the disclosures made at the time the original Form 10-K was filed. For ease of reference, the entire original Form 10-K, including all other exhibits filed therewith, is included with this Amendment. /s/ JON R. MOELLER (Jon R. Moeller) Vice Chairman, Chief Operating Officer and Chief Financial Officer August 7, 2020 Date FORM 10-K TABLE OF CONTENTS PART I Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Mine Safety Disclosure Properties Legal Proceedings PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Information about our Executive Officers Equity Securities Selected Financial Data Item 6. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Item 8. Management's Report and Reports of Independent Registered Public Accounting Firm Consolidated Statements of Earnings Consolidated Statements of Comprehensive Income Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies Note 2: Segment Information Note 3: Supplemental Financial Information Note 4: Goodwill and Intangible Assets Note 5: Income Taxes Note 6: Earnings Per Share Note 7: Stock-based Compensation Note 8: Postretirement Benefits and Employee Stock Ownership Plan Note 9: Risk Management Activities and Fair Value Measurements Note 10: Short-term and Long-term Debt Note 11: Accumulated Other Comprehensive Income/(Loss) Note 12: Leases Note 13: Commitments and Contingencies Note 14: Merck Acquisition Note 15: Quarterly Results (Unaudited) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9. Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions and Director Independence Item 14. Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Form 10-K Summary Signatures Exhibit Index Item 16. Page 1 2 7 7 7 7 8 9 11 11 32 33 33 37 38 39 40 41 42 42 44 46 47 48 50 51 53 58 61 62 62 63 64 65 65 65 65 66 66 66 67 67 67 69 70 71 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 indicates Unless Financial Statements. 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 context The Procter & Gamble Company is focused on providing branded products of superior quality and value to improve the lives of the world's consumers, now and for generations to come. The Company was incorporated in Ohio in 1905, having first been established as a New Jersey corporation in 1890, and was built from a business founded in Cincinnati in 1837 by William Procter and James Gamble. Today, our products are sold in more than 180 countries and territories. Throughout this Form 10-K, we incorporate by reference information from other documents filed with the Securities and Exchange Commission (SEC). The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments thereto, are filed electronically with the SEC. The SEC maintains an internet site that contains these reports at: www.sec.gov. You can also access these reports through links from our website at: www.pginvestor.com. P&G includes the website link solely as a textual reference. The is not incorporated by reference into this report. information contained on our website Copies of these reports are also available, without charge, by contacting EQ Shareowner Services, 1100 Centre Pointe Curve, Suite 101, Mendota, MN 55120-4100. Financial Information about Segments Information about our reportable segments can be found in the MD&A and Note 2 to our Consolidated Financial Statements. Narrative Description of Business Our business model relies on the Business Model. continued growth and success of existing brands and products, as well as the creation of new innovative products and brands. The markets and industry segments in which we offer our products are highly competitive. Our products are sold in more than 180 countries and territories through numerous channels as well as direct-to-consumer. Our growth strategy is to deliver meaningful and noticeable superiority in all elements of our consumer proposition - product, packaging, brand communication, retail execution and consumer and customer value equation. We use our research and development and consumer insights to provide superior products and packaging. We utilize our marketing and online presence to deliver superior brand messaging to our consumers. We work collaboratively with our customers to deliver superior retail execution, both in-store and online. In conjunction with the above elements, we provide superior value to consumers and our retail customers in each price tier in which we compete. Productivity improvement is also critical to delivering our objectives of balanced top and bottom-line growth and value creation. Key Product Categories. Information on key product categories can be found in the MD&A and Note 2 to our Consolidated Financial Statements. customers Key Customers. Our include mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. These customers sell our products to individual consumers. We also sell direct to consumers. Sales to Walmart Inc. and its affiliates represent approximately 15% of our total sales in 2020, 2019 and 2018. No other customer represents more than 10% of our total sales. Our top ten customers accounted for approximately 38% of our total sales in 2020 and 36% in 2019 and 2018. The nature of our business does not result in 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 third parties, some of whom are single- source suppliers. We produce certain raw materials, primarily chemicals, for further use in the manufacturing process. In addition, fuel, natural gas and derivative products are important commodities consumed in our manufacturing processes and in the transportation of input materials and finished products to customers. The prices we pay for materials and other commodities are subject to fluctuation. When prices for these items change, we may or may not pass the change to our customers. The Company purchases a substantial variety of other raw and packaging materials, none of which are 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. In part, our success can be attributed to the existence and continued protection of these trademarks, patents and licenses. Competitive Condition. The markets in which our products are sold are highly competitive. Our products compete against similar products of many large and small companies, including well-known global competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products as well as retailers' private-label brands. We are well positioned in 2 The Procter & Gamble Company the industry segments and markets in which we operate, often holding a leadership or significant market share position. We support our products with advertising, promotions and other marketing vehicles to build awareness and trial of our brands and products in conjunction with our sales force. We believe this combination provides the most efficient method of marketing for these types of products. Product quality, performance, value and packaging are also important differentiating factors. for Environmental Expenditures Compliance. Expenditures for compliance with federal, state and local environmental laws and regulations are fairly consistent from year to year and are not material to the Company. No material change is expected in fiscal year 2021. Employees. As of June 30, 2020, the Company had approximately 99,000 employees, an increase of two percent versus the prior year due to business growth and in-sourcing of certain media planning and other services. The total number of employees is an estimate of total Company interns, co-ops, contractors and employees excluding employees of joint ventures. The number of employees includes manufacturing and non-manufacturing employees. Item 1A. Risk Factors. We discuss our expectations regarding future performance, events and outcomes, such as our business outlook and objectives in this Form 10-K, as well as in our quarterly and annual reports, current reports on Form 8-K, press releases and other written and oral communications. All statements, except for historical and present factual information, are “forward-looking statements” and are based on financial data and business plans available only as of the time the statements are made, which may become outdated or incomplete. We assume no obligation to update any forward-looking statements as a result of new information, future events or other factors, except to the extent required inherently Forward-looking statements are by uncertain, and investors must recognize that events could significantly differ from our expectations. law. or financial This future information should be The following discussion of “risk factors” identifies significant factors that may adversely affect our business, financial operations, position performance. in read conjunction with Management's Discussion and Analysis and the Consolidated Financial Statements and related Notes incorporated in this report. The following discussion of risks is not all inclusive, but is designed to highlight what we believe are important factors to consider when evaluating our expectations. These and other factors could cause our future results to differ from those in the forward-looking statements and from historical trends, perhaps materially. Our business is subject to numerous risks as a result of in our having international markets, foreign currency fluctuations, currency exchange or pricing controls and localized volatility. significant operations and including sales 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, generate sales and pay expenses in a variety of currencies other than the U.S. dollar, and our operations outside the U.S. generate more than fifty percent of our annual net sales. Fluctuations in exchange rates for foreign currencies have and could continue to reduce the U.S. dollar value of sales, earnings and cash flows we receive from non- U.S. markets, increase our supply costs (as measured in U.S. dollars) impact our those markets, negatively competitiveness in those markets or otherwise adversely impact our business financial condition. results or 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 the Consolidated Financial Statements and related Notes. in We also have businesses and maintain local currency cash balances in a number of countries with currency exchange, import authorization, pricing or other controls or restrictions, such as Nigeria, Algeria, Argentina, Egypt and Turkey. Our results of operations, financial condition and cash flows could be adversely impacted if we are unable to successfully manage such controls and restrictions, continue existing business operations and repatriate earnings from overseas, or if new or increased tariffs, quotas, exchange or price controls, trade barriers or similar restrictions are imposed on our business. Additionally, our business, operations or employees have been and could continue to be adversely affected by political volatility, labor market disruptions or other crises or vulnerabilities in individual countries or regions, including political instability or upheaval, broad economic instability or sovereign risk related to a default by or deterioration in the creditworthiness of local governments, particularly in emerging markets. Uncertain economic conditions may adversely impact demand for our products or cause our customers and other business partners to suffer financial hardship, which could adversely impact our business. Our business could be negatively impacted by reduced demand for our products related to one or more significant local, regional or global economic disruptions. These disruptions have included and may in the future include: a slow-down or recession in the general economy; reduced market growth rates; tighter credit markets for our suppliers, vendors or customers; a significant shift in government policies; the deterioration of economic relations between countries or regions, including potential negative consumer sentiment toward non-local products or sources; or the inability to conduct day-to-day transactions through our financial intermediaries to pay funds to or collect funds from our customers, vendors and suppliers. Additionally, these and other economic conditions may cause our suppliers, distributors, contractors or other third-party partners to suffer they cannot financial or operational difficulties overcome, resulting in their inability to provide us with the that materials and services we need, in which case our business and results of operations could be adversely affected. Customers may also suffer financial hardships due to economic conditions such that their accounts become uncollectible or are subject to longer collection cycles. In addition, if we are unable to generate sufficient sales, income and cash flow, it could affect the Company’s ability to achieve expected share repurchase and dividend payments. Disruptions in credit markets or changes to our credit ratings may reduce our access to credit. A disruption in the credit markets or a downgrade of our current credit rating could increase our future borrowing costs and impair our ability to access capital and credit markets on terms commercially acceptable to us, which could adversely affect our liquidity and capital resources or significantly increase our cost of capital. Our business results depend on our ability to manage disruptions in our global supply chain. Our ability to meet our customers’ needs and achieve cost targets depends on our ability to maintain key manufacturing and supply arrangements, including execution of supply chain optimizations and certain sole supplier or sole manufacturing plant arrangements. The loss or disruption of such manufacturing and supply arrangements, including for issues such as labor disputes, loss or impairment of key manufacturing sites, discontinuity in our internal information and data systems, inability to procure sufficient raw or input trade policy, natural materials, significant changes disasters, increasing severity or frequency of extreme weather events due to climate change or otherwise, acts of war or terrorism, disease outbreaks or other external factors over which we have no control, have interrupted product supply and, if not effectively managed and remedied, could have an adverse impact on our business, financial condition, results of operations or cash flows. Our businesses face cost fluctuations and pressures that could affect our business results. in 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 depend, in part, on our continued ability to manage these fluctuations through pricing actions, cost saving projects and sourcing decisions, while maintaining and improving margins and market share. Failure to manage these fluctuations could adversely impact our results of operations or cash flows. Our ability to meet our growth targets depends on successful product, marketing and operations innovation and successful responses to competitive innovation and changing consumer habits. We are a consumer products company that relies on continued global demand for our brands and products. Achieving our business results depends, in part, on successfully developing, introducing and marketing new products and on making significant improvements to our equipment and manufacturing processes. The success of such innovation depends on our ability to correctly anticipate The Procter & Gamble Company 3 customer and consumer acceptance and trends, to obtain, maintain and enforce necessary intellectual property protections and to avoid infringing upon the intellectual property rights of others. We must also successfully respond to technological advances made by, and intellectual property rights granted to, competitors. Failure to continually innovate, improve and respond to competitive moves and compromise our changing competitive position and adversely impact our financial condition, results of operations or cash flows. The ability to achieve our business objectives depends on how well we can compete with our local and global competitors in new and existing markets and channels. consumer habits could in ongoing pressures 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 the competitive environments in which we operate, which may result in challenges in maintaining profit margins. To address these challenges, we must be able to successfully respond to competitive factors and emerging retail trends, including pricing, promotional incentives, product delivery windows and trade terms. In addition, evolving sales channels and business models may affect customer and consumer preferences as well as market dynamics, which, for example, may be seen in the growing consumer preference for shopping online, 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 of operations or cash flows. A significant change in customer relationships or in customer demand for our products could have a significant impact on our business. We sell most of our products via retail customers, which include mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. Our success depends on our ability to successfully manage relationships with our retail trade customers, which includes our ability to offer trade terms that are mutually acceptable and are aligned with our pricing and profitability targets. Continued concentration among our retail customers could create significant cost and margin pressure on our business, and our business performance could suffer if we cannot reach agreement with a key customer on trade terms and principles. Our business could also be negatively impacted if a key customer were to significantly reduce the inventory level of or shelf space allocated to our products as a result of increased offerings of other branded manufacturers, private label brands and generic non-branded products or for other reasons, significantly tighten product delivery windows or experience a significant business disruption. 4 The Procter & Gamble Company 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 and certain ingredients perceptions foundation of our The Company's reputation, and the reputation of our brands, form 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 directly depends on the success of our brands. The success of our brands can suffer if our marketing plans or product initiatives do not have the desired impact on a brand's image or its ability to attract consumers. Our results of operations or cash flows could also be negatively impacted if one of our brands suffers substantial harm to its reputation due to a significant product recall, product-related litigation, defects or impurities in our products, product misuse, changing consumer or of environmental impacts, allegations of product tampering or counterfeit products. sale of the distribution 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 similar matters, sentiments toward the Company or our products could be negatively impacted, and our results of operations or cash flows could suffer. Our Company also devotes time and resources to citizenship efforts that are consistent with our corporate values and are designed to strengthen our business and protect and preserve our reputation, including programs driving strong corporate 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 results of operations or cash flows could be adversely impacted. We rely on third parties in many aspects of our business, which creates additional risk. responsibility, impacts or ethics and Due to the scale and scope of our business, we must rely on relationships with third parties, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, for certain functions. If we are unable to effectively manage our third-party relationships and the agreements under which our third-party partners operate, our results of operations and cash flows could be adversely impacted. Further, failure of these third parties to meet their obligations to the Company or substantial disruptions in the relationships between the Company and these third parties could adversely impact our operations and financial results. Additionally, while we have policies and procedures 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. for managing A significant information security or operational technology incident, including a cybersecurity breach, or the failure of one or more key information or operations technology systems, networks, hardware, processes, and/ or associated sites owned or operated by the Company or one of its service providers could have a material adverse impact on our business or reputation. information and operational We rely extensively on technology ("IT/OT") systems, networks and services, including internet and intranet sites, data hosting and processing facilities and technologies, physical security technical systems and other hardware, software and applications and platforms, many of which are managed, hosted, provided and/or used by third parties or their vendors, to assist in conducting our business. The various uses of these IT/OT systems, networks and services include, but are not limited to: • • • ordering and managing materials from suppliers; converting materials to finished products; shipping products to customers; • marketing and selling products to consumers; • • collecting, transferring, storing and/or processing customer, consumer, employee, vendor, investor, and other stakeholder information and personal data, including such data from persons covered by an expanding landscape of privacy and data regulations, such as citizens of the European Union who are covered by the General Data Protection Regulation (“GDPR”) or residents of California covered by the California Consumer Privacy Act ("CCPA"); summarizing and reporting results of operations, including financial reporting; • managing our banking and other cash liquidity systems and platforms; • • • • • hosting, processing and sharing, as appropriate, confidential and proprietary research, business plans and financial information; 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. information security Numerous and evolving threats, including advanced persistent cybersecurity threats, pose a risk to the security of our services, systems, networks and supply chain, as well as to the confidentiality, availability and integrity of our data and of our critical business operations. In addition, because the techniques, tools and tactics used in cyber-attacks frequently change and may be difficult to detect for periods of time, we may face difficulties implementing adequate preventative measures or fully mitigating harms after such an attack. in anticipating and Our IT/OT databases and systems and our third-party providers’ databases and systems have been, and will likely continue to be, subject to advanced computer viruses or other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other cyber-attacks. Such attacks may originate from 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. We cannot guarantee that our security efforts or the security efforts of our third-party providers will prevent material breaches, operational incidents or other breakdowns to our or our third-party providers’ IT/OT databases or systems. If the IT/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 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 employee error or malfeasance, and our business continuity plans do not effectively address these failures on a timely basis, we may be exposed to reputational, competitive, operational, financial and business harm as well as litigation and regulatory action. Periodically, we also upgrade our IT/ OT systems or adopt new technologies. If such a new system or technology does not function properly or otherwise exposes us to increased cybersecurity breaches and failures, it could affect our ability to order materials, make and ship orders, and process payments in addition to other operational and information integrity and loss issues. The costs and operational consequences of responding to the above items and implementing remediation measures could be significant and could adversely impact our results of operations and cash flows. Changing political conditions could adversely impact our business and financial results. Changes in the political conditions in markets in which we manufacture, sell or distribute our products may be difficult to predict and may adversely affect our business and financial results. For example, the United Kingdom’s withdrawal from the European Union ("Brexit") has created uncertainty regarding, among other things, the U.K.'s future legal and economic framework and how the U.K. will interact with other countries, including with respect to the free movement of goods, services, capital and people. In addition, results of elections, referendums or other political processes in certain markets in which our products are manufactured, sold or distributed could create uncertainty regarding how existing governmental policies, laws and regulations may change, including with respect to sanctions, taxes, tariffs, import and export controls and the general movement of goods, services, capital and people between countries and other matters. The potential implications of such uncertainty, which include, among others, exchange rate fluctuations, new or increased tariffs, trade barriers and The Procter & Gamble Company 5 market contraction, could adversely affect the Company’s results of operations and cash flows. We must successfully manage compliance with laws and regulations, as well as manage new and pending legal and regulatory matters in the U.S. and abroad. for the Company, antitrust, data protection, Our business is subject to a wide variety of laws and regulations across the countries in which we do business, including those laws and regulations involving intellectual property, product liability, product composition or formulation, packaging content or end-of-life responsibility, marketing, environmental (including increasing focus on the climate, water, and waste impacts of consumer packaged goods companies' operations and products), employment, anti-bribery, anti-corruption, tax, accounting and financial reporting or other matters. Rapidly changing laws, regulations, policies and related interpretations, as well as increased enforcement actions, create challenges including our compliance and ethics programs, may alter the environment in which we do business and may increase the ongoing costs of compliance, which could adversely impact our results of operations and cash flows. If we are unable to continue to meet these challenges and comply with all laws, regulations, policies and related interpretations, it could negatively impact our reputation and our business results. Failure to successfully manage regulatory and legal matters and resolve such matters without significant liability or damage to our reputation may materially adversely impact our financial condition, flows. Furthermore, if pending legal or regulatory matters result in fines or costs in excess of the amounts accrued to date, that may also materially impact our results of operations and financial position. Changes in applicable tax regulations and resolutions of tax disputes could negatively affect our financial results. results of operations cash and The Company is subject to taxation in the U.S. and numerous foreign jurisdictions. Changes in the various tax laws can and do occur. For example, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Act”). The changes included in the U.S. Tax Act are broad and complex. The ongoing impacts of the U.S. Tax Act may differ from the estimates provided elsewhere in the reports we file with the Securities and Exchange Commission, possibly materially, due to, among other things, changes in interpretations, any regulatory guidance or legislative action to address questions that arise or any updates or changes to estimates the Company has used to calculate the impacts. Additionally, longstanding international tax norms that determine each country’s jurisdiction to tax cross-border international trade are subject to potential evolution. An outgrowth of the original Base Erosion and Profit Shifting (“BEPS") project is a project undertaken by the more than 130 member countries of the expanded OECD Inclusive Framework focused on "Addressing the Challenges of the Digitalization of the Economy." The breadth of this project extends beyond pure digital businesses and is likely to 6 The Procter & Gamble Company impact all multinational businesses by potentially redefining jurisdictional taxation rights. As this and other tax laws and related regulations change or evolve, our financial condition, results of operations and cash flows could be materially impacted. Given the unpredictability of these possible changes, it is very difficult to assess whether the overall effect of such potential tax changes would be cumulatively positive or negative, but such changes could adversely impact our results of operations and cash flows. Furthermore, we are subject to regular review and audit by both foreign and domestic tax authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation, including maintaining our intended tax treatment of divestiture transactions such as the fiscal 2017 Beauty Brands transaction with Coty, may differ in our materially Consolidated Financial Statements, which could adversely impact our results of operations and cash flows. We must successfully manage ongoing acquisition, joint venture and divestiture activities. tax amounts recorded from the As a company that manages a portfolio of consumer brands, our ongoing business model includes a certain level of acquisition, joint venture and divestiture activities. We must be able to successfully manage the impacts of these activities, while at the same time delivering against our business objectives. Specifically, our financial results have been, and in the future could be, adversely impacted by the dilutive impacts from the loss of earnings associated with divested brands or dissolution of joint ventures. Our results of operations and cash flows have been and, in the future could also be, impacted by acquisitions or joint venture activities, if: 1) changes in the cash flows or other market- based assumptions cause the value of acquired assets to fall below book value, or 2) we are not able to deliver the expected cost and growth synergies associated with such acquisitions and joint ventures, including as a result of integration and collaboration challenges, which could also result in an impairment of goodwill and intangible assets. Our business results depend on our ability to successfully improvements and ongoing manage productivity organizational change, including attracting and retaining key talent as part of our overall succession planning. assume financial projections Our 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 results of operations and cash flows. Additionally, successfully executing organizational change, management transitions at leadership levels of the Company and motivation and retention of key employees, is critical to our business success. Factors that may affect our ability to attract and retain sufficient numbers of qualified employees include employee morale, our reputation, competition from other employers and availability of qualified individuals. Our success depends on identifying, developing and retaining key employees to provide uninterrupted leadership and direction for our business. This includes developing and retaining organizational capabilities in key growth markets where the depth of skilled or experienced employees may be limited and competition for these resources is intense, as well as continuing the development and execution of robust leadership succession plans. We must successfully manage the demand, supply, and operational challenges associated with the actual or perceived effects of a disease outbreak, including epidemics, pandemics, or similar widespread public health concerns. Our business may be negatively impacted by the fear of exposure to or actual effects of a disease outbreak, epidemic, pandemic, or similar widespread public health concern, such as travel restrictions or recommendations or mandates from governmental authorities to avoid large gatherings or to self- quarantine as a result of the novel coronavirus (COVID-19) pandemic. These impacts include, but are not limited to: • • • • Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar pantry-loading activity. If prolonged, such impacts can further increase the difficulty of business or operations planning and may adversely impact our results of operations and cash flows; Inability to meet our customers’ needs and achieve cost targets due to disruptions in our manufacturing and supply arrangements caused by constrained workforce capacity or the loss or disruption of other essential manufacturing and supply elements such as raw finished product components, materials or other transportation, or other manufacturing and distribution capability; Failure of third parties on which we rely, including our distributors, contract manufacturers, suppliers, contractors, commercial banks, joint venture partners and external business partners, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations; or Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, import/export restrictions, price controls, or governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which sufficiently from The Procter & Gamble Company 7 could adversely impact our results of operations and cash flows. Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. In the U.S., we own and operate 23 manufacturing sites located in 17 different states. In addition, we own and operate 84 manufacturing sites in 37 other countries. Many of the domestic and international sites manufacture products for multiple businesses. Beauty products are manufactured at 24 of these locations; Grooming products at 19; Health Care products at 21; Fabric & Home Care products at 38; and Baby, Feminine & Family Care at 36. We own our Corporate headquarters in Cincinnati, Ohio. We own or lease our principal regional general offices in Switzerland, Panama, Singapore, China and Dubai. We own or lease our principal regional shared service centers in Costa Rica, the United Kingdom and the Philippines. Management believes that the Company's 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, contracts, environmental issues, patent and trademark matters, labor and employment matters and tax. See Note 13 to our Consolidated Financial Statements for information on certain legal proceedings for which there are contingencies. advertising, liability, product This item should be read in conjunction with the Company's Risk Factors in Part I, Item 1A for additional information. Item 4. Mine Safety Disclosure. Not applicable. 8 The Procter & Gamble Company INFORMATION ABOUT OUR EXECUTIVE OFFICERS The names, ages and positions held by the Executive Officers of the Company on August 6, 2020, are: Name Position Age First Elected to Officer Position David S. Taylor Jon R. Moeller Chairman of the Board, President and Chief Executive Officer Vice Chairman, Chief Operating Officer and Chief Financial Officer Steven D. Bishop Chief Executive Officer - Health Care Gary A. Coombe Chief Executive Officer - Grooming Mary Lynn Ferguson-McHugh Chief Executive Officer - Family Care and P&G Ventures Ma. Fatima D. Francisco Chief Executive Officer - Baby and Feminine Care Shailesh Jejurikar Chief Executive Officer - Fabric and Home Care R. Alexandra Keith Chief Executive Officer - Beauty 62 56 56 56 60 52 53 52 Carolyn M. Tastad Group President - North America and Chief Sales Officer 59 M. Tracey Grabowski Chief Human Resources Officer Kathleen B. Fish Chief Research, Development and Innovation Officer Deborah P. Majoras Chief Legal Officer and Secretary Marc S. Pritchard Chief Brand Officer Valarie L. Sheppard Controller and Treasurer and Group Vice President - Company Transition Leader 52 63 56 60 56 2013a 2009b 2016c 2014d 2016e 2018f 2018g 2017h 2014i 2018j 2014 2010 2008 2005 All the Executive Officers named above have been employed by the Company for more than the past five years. aMr. Taylor previously served as Group President - Global Beauty, Grooming & Health Care (February - October 2015). bMr. Moeller previously served as Vice Chairman and Chief Financial Officer (2017 - 2019) and as Chief Financial Officer (2009 - 2017). cMr. Bishop previously served as Group President - Global Oral Care (January - October 2015). dMr. Coombe previously served as President - Europe Selling & Market Operations (November 2014 - February 2018). eMs. Ferguson-McHugh previously served as Group President - Global Family Care (2014-2015). fMs. Francisco previously served as President - Global Feminine Care (November 2015 - August 2018) and as Vice President - Brand Franchise Leader, Feminine Care (January - October 2015). gMr. Jejurikar previously served as President - Global Fabric Care and Brand-Building Officer Global Fabric & Home Care (November 2015 - July 2018) and as President - Fabric Care, North America; Brand-Building Officer Fabric & Home Care New Business Creation (November 2014 - October 2015). hMs. Keith previously served as President - Global Skin & Personal Care (November 2014 - June 2017). iMs. Tastad previously served as Group President - North America Selling & Market Operations (January 2015 - May 2019). jMs. Grabowski previously served as Vice President - Human Resources, North America Selling and Market Operations (April 2015 - July 2018). The Procter & Gamble Company 9 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. ISSUER PURCHASES OF EQUITY SECURITIES PART II Period 4/1/2020 - 4/30/2020 5/1/2020 - 5/31/2020 6/1/2020 - 6/30/2020 Total Total Number of Shares Purchased Average Price Paid per Share 0 0 0 0 n/a n/a n/a n/a Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) 0 0 0 0 Approximate Dollar Value of Shares that May Yet Be Purchased Under Our Share Repurchase Program (1) (1) (1) (1) (1) On April 17, 2020, the Company stated that in fiscal year 2020 the Company expected to reduce outstanding shares through direct share repurchases at a value of $7 to $8 billion, notwithstanding any purchases under the Company's compensation and benefit plans. The share repurchases were authorized pursuant to a resolution issued by the Company's Board of Directors and were financed through a combination of operating cash flows and issuance of long-term and short-term debt. The total value of the shares purchased under the share repurchase plan was $7.4 billion. The share repurchase plan ended on June 30, 2020. Additional information required by this item can be found in Part III, Item 12 of this Form 10-K. SHAREHOLDER RETURN PERFORMANCE GRAPHS Market and Dividend Information P&G has been paying a dividend for 130 consecutive years since its original incorporation in 1890 and has increased its dividend for 64 consecutive years. Nevertheless, as in the past, further dividends will be considered after reviewing dividend yields, profitability and cash flow expectations and financing needs and will be declared at the discretion of the Company's Board of Directors. (in dollars; split-adjusted) Dividends per share 1956 1970 1980 1990 2000 2010 2020 $ 0.01 $ 0.04 $ 0.11 $ 0.22 $ 0.64 $ 1.80 $ 3.03 10 The Procter & Gamble Company Common Stock Information P&G trades on the New York Stock Exchange under the stock symbol PG. As of June 30, 2020, there were approximately 4 million common stock shareowners, including shareowners of record, participants in P&G stock ownership plans and beneficial owners with accounts at banks and brokerage firms. Shareholder Return The following graph compares the cumulative total return of P&G’s common stock for the five-year period ended June 30, 2020, against the cumulative total return of the S&P 500 Stock Index (broad market comparison) and the S&P 500 Consumer Staples Index (line of business comparison). The graph and table assume $100 was invested on June 30, 2015, and that all dividends were reinvested. Company Name/Index P&G S&P 500 Stock Index S&P 500 Consumer Staples Index Cumulative Value of $100 Investment, through June 30 2015 2016 2017 2018 2019 2020 $ 100 $ 100 100 112 $ 104 119 119 $ 123 122 110 $ 140 117 160 $ 155 137 179 166 142 The Procter & Gamble Company 11 Item 6. Selected Financial Data. The information required by this item is incorporated by reference to Note 1 and Note 2 to our Consolidated Financial Statements. For further details behind the business drivers for recent results presented below, see the Management's Discussion and Analysis. Financial Summary (Unaudited) Amounts in millions, except per share amounts 2020 2019 2018 2017 2016 Net sales Gross profit Operating income Net earnings from continuing operations Net earnings from discontinued operations Net earnings attributable to Procter & Gamble Net earnings margin from continuing operations Basic net earnings per common share: (1) Earnings from continuing operations Earnings from discontinued operations Basic net earnings per common share Diluted net earnings per common share: (1) Earnings from continuing operations Earnings from discontinued operations Diluted net earnings per common share Dividends per common share Research and development expense Advertising expense Total assets Capital expenditures Long-term debt $ 70,950 $ 67,684 $ 66,832 $ 65,058 $ 65,299 35,700 32,916 32,400 32,420 32,275 15,706 13,103 — 13,027 18.5 % 5,487 13,363 13,766 13,258 3,966 — 3,897 5.9 % 9,861 10,194 10,027 — 5,217 577 9,750 15,326 10,508 14.8 % 15.7 % 15.4 % $ 5.13 $ 1.45 $ 3.75 $ — — — $ 5.13 $ 1.45 $ 3.75 $ $ 4.96 $ 1.43 $ 3.67 $ — 4.96 3.03 $ $ — 1.43 2.90 $ $ — 3.67 2.79 $ $ $ $ 3.79 2.01 5.80 3.69 1.90 5.59 2.70 $ $ $ $ $ 3.59 0.21 3.80 3.49 0.20 3.69 2.66 $ 1,834 $ 1,861 $ 1,908 $ 1,874 $ 1,879 7,326 6,751 7,103 7,118 7,243 120,700 115,095 118,310 120,406 127,136 3,073 3,347 3,717 3,384 3,314 23,537 20,395 20,863 18,038 18,945 Shareholders' equity (1) Basic net earnings per common share and Diluted net earnings per common share are calculated based on Net earnings attributable to $ 52,883 $ 47,579 $ 57,983 $ 55,778 $ 46,878 Procter & Gamble. 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, the following sections: “Management's Discussion and Analysis,” “Risk Factors” and "Notes 4 and 13 to the Consolidated Financial Statements." These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” 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. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, except to the extent required by law. Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the to successfully manage global financial risks, ability 12 The Procter & Gamble Company responding successfully including by including foreign currency fluctuations, currency exchange or pricing controls and localized volatility; (2) the ability to successfully manage local, regional or global economic volatility, including reduced market growth rates, and to generate sufficient income and cash flow to allow the Company to effect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to factors outside of our control, such as natural disasters, acts of war or terrorism, or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third- party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information and operational technology systems, networks and services, and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions (including the United Kingdom’s exit from the European Union) and potential implications such as exchange rate fluctuations and market contraction; (13) the ability legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, data protection, tax, environmental, and accounting and financial reporting) and to resolve pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes, while successfully identifying, developing and to successfully manage regulatory and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; and (17) the ability to successfully manage the demand, supply, and operational challenges associated with a disease outbreak, including epidemics, pandemics, or similar widespread public health concerns (including the novel coronavirus, COVID-19, outbreak). A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from those projected herein, titled "Economic Conditions and Uncertainties" and the section titled "Risk Factors" (Part I, Item 1A) of this Form 10-K. the section included in is 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 2020 Results Economic Conditions and Uncertainties Results of Operations Segment Results Cash Flow, Financial Condition and Liquidity Significant Accounting Policies and Estimates Other Information Throughout the MD&A we refer to measures used by management to evaluate performance, including unit volume growth, net sales and net earnings. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), consisting of organic sales growth, core earnings per share (Core EPS), adjusted free cash flow and adjusted free cash flow productivity. Organic sales growth is net sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year- over-year comparisons. Core EPS is diluted net earnings per share from continuing operations excluding certain items that are not judged to be part of the Company's sustainable results or trends. Adjusted free cash flow is operating cash flow less capital spending, transitional tax payments related to the U.S. Tax Act and tax payments related to the Merck OTC consumer healthcare acquisition. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings. We believe these measures provide our investors with additional information about our underlying results and trends, as well as insight to some of the metrics used to evaluate management. The explanation at the end of the MD&A provides more details on the use and the derivation of these measures, as well as reconciliations to the most directly comparable U.S. GAAP measures. Management also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and comparability of share and consumption information. References to market share and consumption in the MD&A are based on a combination of vendor purchased traditional brick-and-mortar and online data in key markets as well as internal estimates. All market share references represent the percentage of sales of our products in dollar terms on a constant currency basis, relative to all product sales in the category. The Company measures fiscal-year-to-date market shares through the most recent period for which market share data is available, which typically reflects a lag time of one or two months as compared to the end of the reporting period. Management also uses unit volume growth to evaluate and explain drivers of changes in net sales. Organic volume growth reflects year-over-year changes in unit volume excluding the impacts of acquisitions and divestitures and certain one-time items, if applicable, and is used to explain changes in organic sales. OVERVIEW Procter & Gamble is a global leader in the fast-moving consumer goods industry, focused on providing branded consumer packaged goods of superior quality and value to ORGANIZATIONAL STRUCTURE The Procter & Gamble Company 13 e-commerce, our consumers around the world. Our products are sold in more than 180 countries and territories primarily through mass merchandisers, stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. We also sell direct to consumers. We have on-the-ground operations in approximately 70 countries. grocery Our market environment is highly competitive with global, regional and local competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products, as well as retailers' private-label brands. Additionally, many of the product segments in which we compete are differentiated by price tiers (referred to as super-premium, premium, mid-tier and value-tier products). We believe we are well positioned in the industry segments and markets in which we operate, often holding a leadership or significant market share position. In fiscal 2020, our organizational structure was comprised of Sector Business Units (SBUs), Enterprise Markets (EMs), Corporate Functions (CF) and Global Business Services (GBS). Sector Business Units Our SBUs are organized into ten product categories. Under U.S. GAAP, the SBUs underlying the ten product categories are aggregated into five reportable segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The SBUs are responsible for developing overall brand strategy, new product upgrades and innovations and marketing plans. The following provides additional detail on our reportable segments and the ten product categories and brand composition within each segment. Reportable Segments % of Net Sales (1) % of Net Earnings (1) Beauty 19% 21% Grooming 9% 10% Product Categories (Sub-Categories) Hair Care (Conditioner, Shampoo, Styling Aids, Treatments) Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care) Grooming (2) (Shave Care - Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care; Appliances) Major Brands Head & Shoulders, Herbal Essences, Pantene, Rejoice Olay, Old Spice, Safeguard, Secret, SK-II Braun, Gillette, Venus Health Care 13% 12% Fabric & Home Care 33% 31% Baby, Feminine & Family Care 26% 26% Crest, Oral-B Oral Care (Toothbrushes, Toothpaste, Other Oral Care) Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care) Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents) Home Care (Air Care, Dish Care, P&G Professional, Surface Care) Baby Care (Baby Wipes, Taped Diapers and Pants) Feminine Care (Adult Incontinence, Feminine Care) Always, Always Discreet, Cascade, Dawn, Fairy, Febreze, Mr. Clean, Swiffer Luvs, Pampers Metamucil, Neurobion, Pepto-Bismol, Vicks Ariel, Downy, Gain, Tide Family Care (Paper Towels, Tissues, Toilet Paper) Tampax Bounty, Charmin, Puffs Percent of Net sales and Net earnings from continuing operations for the year ended June 30, 2020 (excluding results held in Corporate). (1) (2) The Grooming product category is comprised of the Shave Care and Appliances operating segments. 14 The Procter & Gamble Company Recent Developments: During fiscal 2019, the Company completed 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 markets in Europe, Latin America and Asia. Total sales for the business during Merck OTC's fiscal year ended December 31, 2017 were approximately $1 billion. Refer to Note 14 to our Consolidated Financial Statements for more details on this transaction. During fiscal 2019, the Company also dissolved our PGT Healthcare partnership, a venture between the Company and Teva Pharmaceutical Industries, Ltd (Teva) in the OTC consumer healthcare business. Pursuant to the agreement, PGT product assets were returned to the original respective parent independent OTC businesses. This transaction was accounted for as a sale of the Teva portion of the PGT business. The Company recorded an after-tax gain on the sale of $353 million. Organization Design Changes: companies reestablish to The Company implemented changes to our organization design effective July 1, 2019. In the new design, the ten product categories were organized into six SBUs. The SBUs are responsible for global brand strategy, innovation and supply chain. They have direct profit responsibility for markets representing the large majority of the Company's sales and earnings (referred to as Focus Markets) and are responsible for innovation plans, supply plans and operating frameworks to drive growth and value creation in the remaining markets (referred to as Enterprise Markets). For segment reporting purposes, the product categories continue to be aggregated into the same five external reporting segments. Throughout the MD&A, we reference business results by region, which are comprised of North America, Europe, Greater China, Latin America, Asia Pacific and India, Middle East and Africa (IMEA). Beauty: We are a global market leader in the beauty category. Most of the beauty markets in which we compete are highly fragmented with a large number of global and local competitors. We compete in skin and personal care and in hair care. In skin and personal care, we offer a wide variety of products, ranging from deodorants to personal cleansing to skin care, such as our Olay brand, which is one of the top facial skin care brands in the world with approximately 6% global market share. We are the global market leader in the retail hair care market with over 20% global market share primarily behind our Pantene and Head & Shoulders brands. Grooming: We compete in shave care and appliances. In shave care, we are the global market leader in the blades and razors market. Our global blades and razors market share is over 60%, primarily behind our Gillette and Venus brands. Our appliances, such as electric shavers and epilators, are sold under the Braun brand in a number of markets around the world where we compete against both global and regional competitors. We hold nearly 25% of the male electric shavers market and over 50% of the female epilators market. Health Care: We compete in oral care and personal health care. In oral care, there are several global competitors in the market and we have the number two market share position with nearly 20% global market share behind our Crest and Oral-B brands. In personal health care, we are a top ten competitor in a large, highly fragmented industry, primarily behind respiratory treatments (Vicks brand) and digestive wellness products (Metamucil, Pepto Bismol and Align brands). As discussed earlier, in fiscal 2019, we dissolved the PGT Healthcare partnership with Teva, which previously managed nearly all of our personal health care sales outside the U.S., and reestablished an independent OTC business. We also acquired Merck OTC as discussed above. Fabric & Home Care: This segment is comprised of a variety of fabric care products, including laundry detergents, additives and fabric enhancers; and home care products, including dishwashing liquids and detergents, surface cleaners and air fresheners. In fabric care, we generally have the number one or number two market share position in the markets in which we compete and are the global market leader with over 25% global market share, primarily behind our Tide, Ariel and Downy brands. Our global home care market share is approximately 25% across the categories in which we compete primarily behind our Cascade, Dawn, Febreze and Swiffer brands. Baby, Feminine & Family Care: In baby care, we are the global market leader and compete mainly in taped diapers, pants and baby wipes with nearly 25% global market share. We have the number one or number two market share position in most of the key markets in which we compete, primarily behind Pampers, the Company's largest brand, with annual net sales of over $7 billion. We are the global market leader in the feminine care category with 25% global market share, primarily behind our Always and Tampax brands. We also compete in the adult incontinence category in certain markets behind Always Discreet, achieving nearly 10% market share in most of the key markets in which we compete. Our family care business is predominantly a North American business comprised primarily of the Bounty paper towel and Charmin toilet paper brands. U.S. market shares are over 40% for Bounty and over 25% for Charmin. Enterprise Markets As a result of the changes in our organization design effective July 1, 2019, EMs are responsible for sales and profit delivery in specific countries, supported by SBU agreed innovation and supply chain plans, along with scaled services customer management. Corporate Functions distribution planning, like and CF provides company-level strategy and portfolio analysis, corporate accounting, tax, external relations, treasury, governance, human resources and legal services. Global Business Services GBS provides technology, processes and standard data tools to enable the SBUs, the EMs and CF to better understand the business and better serve consumers and customers. The GBS organization is responsible for providing world-class solutions at a low cost and with minimal capital investment. STRATEGIC FOCUS Procter & Gamble aspires to serve the world’s consumers better than our best competitors in every category and in every country in which we compete, and, as a result, deliver total shareholder return in the top one-third of our peer group. Delivering and sustaining leadership levels of shareholder value creation requires balanced top- and bottom-line growth and strong cash generation. 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 ten product categories where P&G has leading market positions, strong brands and consumer-meaningful product technologies. Within these categories, our strategic choices are focused on winning with consumers. The consumers who purchase and use our products are at the center of everything we do. We win with consumers by delivering superiority across the five key elements of product, packaging, brand communication, retail execution and value equation. Winning with the world and against our best consumers around competitors requires innovation. Innovation has always been, and continues to be, P&G’s lifeblood. Innovation requires consumer insights and technology advancements that lead to product improvements, improved marketing and merchandising programs and game-changing inventions that create new brands and categories. Productivity improvement is critical to delivering our balanced top- and bottom-line growth and value creation SUMMARY OF 2020 RESULTS Amounts in millions, except per share amounts Net sales Operating income Net earnings Net earnings attributable to Procter & Gamble Diluted net earnings per common share Core earnings per share Cash flow from operating activities The Procter & Gamble Company 15 objectives. Productivity improvement and sales growth reinforce and fuel each other. Our objective is to drive productivity improvement across all elements of cost, including cost of goods sold, marketing and promotional spending and non-manufacturing overhead. We plan to reinvest productivity improvements and cost savings in product and packaging improvements, brand awareness- building advertising and trial-building sampling programs, increased sales coverage and R&D programs as well as to offset cost increases (including commodity and foreign exchange impacts) and improve operating margins. We are constructively disrupting our industry and the way we do business, including how we innovate, communicate and leverage new technologies, to create more value. are improving operational We and organizational culture through enhanced clarity of roles and responsibilities, accountability and incentive compensation programs. effectiveness We believe these strategies are right for the long-term health of the Company and our objective of delivering total shareholder return in the top one-third of our peer group. The Company expects the delivery of the following long- term annual financial targets will result in total shareholder returns in the top third of the competitive fast-moving consumer goods peer group: • • • Organic sales growth above market growth rates in the categories and geographies in which we compete; Core earnings per share (EPS) growth of mid-to-high single digits; and Adjusted free cash flow productivity of 90% or greater. In periods with significant macroeconomic pressures, such as the current COVID-19 pandemic, we intend to maintain a disciplined approach to investing so as not to sacrifice the long-term health of our businesses to meet short-term objectives in any given year. 2020 2019 Change vs. Prior Year $ 70,950 $ 15,706 13,103 13,027 4.96 5.12 67,684 5,487 3,966 3,897 1.43 4.52 17,403 15,242 5 % 186 % 230 % 234 % 247 % 13 % 14 % • Net sales increased 5% to $71.0 billion on a 4% increase in unit volume. Foreign exchange had a negative 2% impact on net sales. Net sales growth was driven by a double digit increase in Health Care, a high single digit increase in Fabric & Home Care, a mid-single digit increase in Beauty and a low single digit increase in Baby, Feminine & Family Care. Grooming net sales decreased low single digits. Organic sales increased 6% on a 4% increase in organic volume. Organic sales increased high single digits in Health Care and in Fabric & Home Care, increased mid-single digits in Beauty and in Baby, Feminine & Family Care and increased low single digits in Grooming. 16 The Procter & Gamble Company • • • • • Operating income increased $10.2 billion, or 186% versus year ago, due primarily to the $8.3 billion base period non-cash impairment charges related to Shave Care goodwill and Gillette indefinite-lived intangible assets (Shave Care impairment). The remaining $1.9 billion increase was driven by the net sales increase and an increase in operating margin. Net earnings increased $9.1 billion or 230% versus year ago, due to the aforementioned items and a reduction in current year effective tax rates, partially offset by the base period gain on the dissolution of the PGT Healthcare partnership and other minor divestitures. Foreign exchange impacts negatively affected net earnings by approximately $390 million. Net earnings attributable to Procter & Gamble were $13.0 billion, an increase of $9.1 billion or 234% versus the prior year primarily due to the aforementioned items. Diluted net earnings per share (EPS) increased 247% to $4.96. ◦ Core EPS increased 13% to $5.12. Cash flow from operating activities was $17.4 billion. ◦ Adjusted free cash flow was $14.9 billion. ◦ Adjusted free cash flow productivity was 114%. 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, except as required by law. Forward-looking statements are inherently uncertain and investors must recognize that events could be significantly different from our expectations. For more information on risk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A of this Form 10-K. Global Economic Conditions. Our products are sold in numerous countries across North America, Europe, Latin America, Asia and Africa, with more than half our sales generated outside the United States. As such, we are exposed to and impacted by global macro-economic factors, U.S. and foreign exchange foreign government policies and fluctuations. Current global economic conditions are highly volatile due to the COVID-19 pandemic, resulting in both market size contractions in certain countries due to economic slowdowns and government restrictions on movement, as well as market size increases in certain countries due to pantry loading and increased consumption of household cleaning and personal health and hygiene products by consumers. Other macro-economic factors also remain dynamic, and any causes of market size contraction, such as reduced GDP in commodity-dependent economies, greater political unrest or instability in the Middle East, Central & Eastern Europe, certain Latin American markets, the Hong Kong market in Greater China and the Korean peninsula and economic uncertainty related to the United Kingdom's exit from the European Union, could reduce our sales or erode our operating margin, in either case reducing our net earnings and cash flows. to changes Changes in Costs. Our costs are subject to fluctuations, particularly due in commodity prices, transportation costs and our own productivity efforts. We have significant exposures to certain commodities, in particular certain oil-derived materials like resins and paper- based materials like pulp, and volatility in the market price of these commodity input materials has a direct impact on our costs. Disruptions in our manufacturing, supply and distribution operations due to the COVID-19 pandemic may also impact our costs. If we are unable to manage these impacts through pricing actions, cost savings projects and through consistent sourcing decisions, as well as productivity improvements, it may adversely impact our gross margin, operating margin, net earnings and cash flows. Sales could also be adversely impacted following pricing actions if there is a negative impact on consumption of our products. We strive to implement, achieve and sustain cost improvement plans, including outsourcing projects, supply chain optimization and general overhead and workforce optimization. As discussed later in the MD&A, in 2012 we initiated overhead and supply chain cost improvement projects. In fiscal 2017, we communicated specific elements of an additional multi-year cost reduction program which is resulting in targeted enrollment reductions and other savings. If we are not successful in executing and sustaining these changes, there could be a negative impact on our gross margin, operating margin, net earnings and cash flows. Foreign Exchange. We have both translation and transaction exposure to the fluctuation of exchange rates. Translation exposures relate to exchange rate impacts of measuring income statements of foreign subsidiaries that do not use the U.S. dollar as their functional currency. Transaction exposures relate to 1) the impact from input costs that are denominated in a currency other than the local reporting currency and 2) the revaluation of transaction- related working capital balances denominated in currencies other than the functional currency. In four of the past five years, including fiscal 2020, the U.S. dollar has strengthened versus a number of foreign currencies, leading to lower sales and earnings from these foreign exchange impacts. Certain countries experiencing significant exchange rate fluctuations, like Argentina, Brazil, Greater China, Turkey and the United Kingdom have had, and could continue to have, a significant impact on our sales, costs and net earnings. Increased pricing in response to certain fluctuations in foreign currency exchange rates may offset portions of the currency impacts but could also have a negative impact on consumption of our products, which would affect our sales, gross margin, operating margin, net earnings and cash flows. is to jurisdictional Government Policies. Our net earnings could be affected by changes in U.S. or foreign government tax policies, for example, the U.S. Tax Act, and the current work being led by the OECD for the G20 focused on "Addressing the Challenges of the Digitalization of the Economy." The this project extends beyond pure digital breadth of impact all multinational businesses and likely taxation rights. businesses by redefining Further, our sales, net earnings and cash flows may be impacted by U.S. and foreign government policies to manage the COVID-19 pandemic, such as movement restrictions or site closures. Additionally, we attempt to carefully manage our debt, currency and other exposures in certain import authorization and pricing controls, such as Nigeria, Algeria, Egypt, Argentina and Turkey. Further, our sales, net earnings and cash flows could be affected by changes to in North America and international elsewhere, tariffs, both increases of currently effective and future potential changes. Changes in government policies in these areas might cause an increase or decrease in our sales, gross margin, operating margin, net earnings and cash flows. COVID-19 Pandemic disclosures trade agreements countries with exchange, including currency import The Company’s priorities during the COVID-19 pandemic are protecting the health and safety of our employees; maximizing the availability of products that help consumers with their health, hygiene and cleaning needs; and using our employees’ talents and our resources to help society meet and overcome the current challenges. Because the Company sells products that are essential to the daily lives of consumers, the COVID-19 pandemic has not had a material net impact to our consolidated sales, net earnings and cash flows in the current year. However, the pandemic has had offsetting impacts during the period. For example, during the second half of fiscal 2020 we experienced a significant increase in demand and consumption of certain of our product categories (health, hygiene and home cleaning products) primarily in North America, caused in part by changing consumer habits and pantry stocking, due to the COVID-19 pandemic, contributing to increases in sales, net earnings and cash flows. At the same time, we experienced a decrease in sales due to the economic slowdown and restricted consumer movements in certain regions, including Europe, IMEA, Asia Pacific and Latin America, in certain channels, including travel retail, professional and electronics stores, and in certain of our beauty and grooming products. While we experienced a decrease in sales in Greater China during the third quarter of fiscal 2020, demand recovered in the fourth quarter as restrictions on consumer movement were relaxed. In the future, the pandemic may cause reduced demand for our products if it results in a recessionary global economic environment. Demand in certain of our Enterprise Markets, including certain countries in Latin America, Asia Pacific, and IMEA may be particularly susceptible to recession. It could also lead to volatility in consumer access to our products due to government actions impacting our impacting ability to produce and ship products or The Procter & Gamble Company 17 consumers’ movements and access to our products. We believe that over the long term, there will continue to be strong demand for categories in which we operate, particularly our products that deliver essential health, hygiene and cleaning benefits. However, the timing and extent of demand recovery in markets such as Greater China and Japan, the resumption of international travel, the timing and impact of potential consumer pantry destocking in markets including North America and Europe, and product demand volatility caused by future economic trends are unclear. Accordingly, there may be heightened volatility in sales, net earnings and cash flows during and subsequent to the duration of the pandemic. Our retail customers are also being impacted by the pandemic. Their success in addressing the issues and maintaining their operations could impact consumer access to, and as a result, sales of our products. Our ability to continue to operate without any significant negative impacts will in part depend on our ability to protect our employees and our supply chain. The Company has endeavored to follow actions recommended by governments and health authorities to protect our employees world-wide, with particular measures in place for those working in our plants and distribution facilities. We have also worked closely with local and national officials to keep our manufacturing facilities open due to the essential nature of the majority our products. We were able to broadly maintain our operations in the current fiscal year, but we have experienced some disruption in our supply chain in certain Enterprise Markets due primarily to the restriction of employee movements as well as increased transportation and manufacturing costs. We intend to continue to work with government authorities and implement our employee safety to continue measures manufacturing and distributing our products during the pandemic. the pandemic could result in an unforeseen disruption to our supply chain (for example a closure of a key manufacturing or distribution facility or the inability of a key material or transportation supplier to source and transport materials) that could impact our operations. However, uncertainty resulting from that we are able to ensure Because the pandemic has not had a material negative impact on our operations or demand for our products and resulting sales and net earnings, it has also not negatively impacted the Company’s liquidity position. We continue to generate operating cash flows to meet our short-term liquidity needs, and we expect to maintain access to the capital markets enabled by our strong short- and long-term credit ratings. We have also not observed any material impairments of our assets or a significant change in the fair value of assets due to the COVID-19 pandemic. For additional information on risk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A of this Form 10-K. 18 The Procter & Gamble Company RESULTS OF OPERATIONS in included The key metrics the discussion of our consolidated results of operations include net sales, gross margin, selling, general and administrative costs (SG&A), other non-operating items and income taxes. The primary factors driving year-over-year changes in net sales include overall market growth in the categories in which we compete, product initiatives, competitive activities (the level of initiatives, pricing and other activities by competitors), 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 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 North America are generally higher than the Company average for similar products), product mix (for example, the Beauty segment has higher gross margins than the Company average), foreign exchange rate fluctuations (in situations where certain input costs may be tied to a different functional currency than the underlying sales), the impacts of manufacturing savings projects and reinvestments (for example, product or package improvements) and to a lesser extent scale impacts (for costs that are fixed or less variable in nature). The primary components of SG&A are marketing-related costs and non-manufacturing overhead costs. Marketing-related costs are primarily variable in nature, although we may achieve some level of scale benefit over time due to overall growth and other marketing efficiencies. While overhead costs are variable to some extent, we generally experience more scale-related impacts Operating Costs Comparisons as a percentage of net sales; Years ended June 30 Gross margin Selling, general and administrative expense Operating margin Earnings before income taxes Net earnings Net earnings attributable to Procter & Gamble for these costs due to our ability to leverage our organization and systems' infrastructures to support business growth. For a detailed discussion of the fiscal 2019 year over year changes, please refer to the MD&A in Part II, Item 7 of the Company's Form 10-K for the fiscal year ended June 30, 2019. Net Sales Net sales increased 5% to $71.0 billion in fiscal 2020 on a 4% increase in unit volume versus the prior year. Volume increased double digits in Health Care, increased mid-single digits in Fabric & Home Care and increased low single digits in Beauty and Baby, Feminine & Family Care. Volume decreased low single digits in Grooming. Excluding the impacts of acquisitions and divestitures, including the Merck OTC acquisition, organic volume increased mid-single digits in Health Care and increased high single digits in Fabric & Home Care. and On a regional basis, volume increased high single digits in North America and increased low single digits in Greater China, Europe, Asia Pacific and Latin America driven by innovation, market growth increased demand, particularly in household cleaning and personal health and hygiene products in the second half of the fiscal year, driven in part by increased consumption and pantry loading due to the COVID-19 pandemic. Volume decreased low single digits in IMEA as growth in the first half of the year was more than offset by market contraction in the second half of the fiscal year driven by economic slowdown resulting from the COVID-19 pandemic. Unfavorable foreign exchange reduced net sales by 2%. Increased pricing had a positive 1% impact on net sales. Mix had a positive 1% impact on net sales driven by the disproportionate organic growth of the Personal Health Care and Home Care categories and the North America region, all of which have higher than company average selling prices. Organic sales grew 6% on a 4% increase in organic volume. 2020 2019 Basis Point Change 50.3 % 28.2 % 22.1 % 22.3 % 18.5 % 18.4 % 48.6 % 28.2 % 8.1 % 9.0 % 5.9 % 5.8 % 170 — 1,400 1,330 1,260 1,260 Gross margin increased 170 basis points to 50.3% of net sales in fiscal 2020. Gross margin benefited from: • 150 basis points from total manufacturing cost savings (130 basis points net of product and packaging reinvestments), • • 90 basis points from lower commodity costs and 60 basis points of positive pricing impacts. These were offset by a 70 basis-point decline from unfavorable product mix (due to the disproportionate organic growth of the Fabric & Home Care segment which has lower than company average gross margin and mix within segments due to the growth of lower margin product forms and larger sizes in certain categories), a 20 basis-point negative impact from unfavorable foreign exchange and 20 basis points of other impacts. Total SG&A increased 5% to $20.0 billion, primarily due to increases in marketing spending and, to a lesser extent, increases in other net operating expenses and overhead costs. SG&A as a percentage of net sales was unchanged at 28.2%. An increase in marketing spending and other net operating expenses as a percentage of net sales was offset by a decrease in overhead costs as a percentage of net sales. • Marketing spending as a percentage of net sales increased 10 basis points due to investments in media and other marketing spending, partially offset by the positive scale impacts of the net sales increase and savings in agency compensation, production costs and advertising spending. • • Overhead costs as a percentage of net sales decreased 40 basis points due to the positive scale impacts of the net sales increase and productivity savings, partially offset by inflation and other cost increases. Other net operating expenses as a percentage of net sales increased approximately 30 basis points primarily due to the base period gain on sale of real estate. Operating margin increased 1,400 basis points to 22.1% for fiscal 2020. 1,230 basis points of this increase is due to the Shave Care impairment charge in the base period. The remaining increase is due to the increase in gross margin as discussed above. Non-Operating Items • • • Interest expense was $465 million in fiscal 2020, a decrease of $44 million versus the prior year due primarily to a reduction in U.S. interest rates, partially offset by an increase in debt. Interest income was $155 million in fiscal 2020, a reduction of $65 million versus the prior year due to a reduction in average cash and investment securities balances and a reduction in U.S. interest rates. Other non-operating income, which consists primarily of divestiture gains and other non-operating items decreased $433 million to $438 million, primarily due to the base period gains from brand divestitures including a $355 million before-tax gain from the dissolution of the PGT Healthcare partnership. Income Taxes Income taxes increased $628 million to $2.7 billion due to increased earnings, partially offset by a decline in the effective tax rate. The effective tax rate decreased 1,750 basis points to 17.2% in 2020 due to: • a 1,750 basis-point reduction due to the prior year impact of the Shave Care impairment charge as there was no tax benefit related to the goodwill portion of the charge and The Procter & Gamble Company 19 • a 135 basis-point current year reduction from a tax benefit arising from transactions to simplify our legal entity structure. These reductions were partially offset by: • • • • a 60 basis-point increase from unfavorable impacts from geographic mix of current year earnings, caused primarily by disproportionately higher sales and earnings in the U.S., a 40 basis-point increase related to the prior year tax impact of the gain on the dissolution of the PGT Healthcare partnership, a 30 basis-point increase from current year unfavorable discrete impacts related to uncertain tax positions (15 basis-point increase in the current year rate versus a 15 basis-point decrease in the prior year rate) and a 5 basis-point increase from lower excess tax benefits of share-based compensation (155 basis-point reduction in the current year versus 160 basis-point reduction in the prior year). Net Earnings Operating income increased 186% or $10.2 billion to $15.7 billion. $8.3 billion of the increase was due to the base period charge for the Shave Care impairment. The remaining $1.9 billion increase was due to the net sales increase and the increase in gross margin partially offset by the increase in SG&A, all of which are discussed above. Earnings before income taxes increased 161% or $9.8 billion to $15.8 billion, as the increase in operating income discussed above was partially offset by the base period gains from the dissolution of the PGT Healthcare partnership and other minor brand divestitures. Net earnings increased 230% or $9.1 billion to $13.1 billion due to the increase in operating income and the reduction in effective income taxes rates discussed above. Foreign exchange impacts reduced net earnings by approximately $390 million in fiscal 2020 due to weakening of certain currencies against the U.S. dollar, including those in Argentina, Brazil, China, Turkey and the United Kingdom. This impact includes both transactional charges and translational impacts from converting earnings from foreign subsidiaries to U.S. dollars. Net earnings attributable to Procter & Gamble increased $9.1 billion, or 234%, to $13.0 billion. Diluted net EPS increased $3.53, or 247%, to $4.96 due primarily to the increase in net earnings. Core EPS increased 13% to $5.12. Core EPS represents diluted net EPS from continuing operations, excluding the base year charge for the Shave Care impairment, the base year gain on the dissolution of the PGT Healthcare partnership and incremental restructuring charges in both years related to our productivity and cost savings plans. The increase was primarily driven by the increase in net sales and the increase in operating margin discussed previously. 20 The Procter & Gamble Company SEGMENT RESULTS Segment results reflect information on the same basis we use for internal management reporting and performance evaluation. The results of these reportable segments do not include certain non-business unit specific costs. These costs, including the Shave Care impairment in fiscal 2019, are reported in our Corporate segment and are included as part of our Corporate segment discussion. Additionally, we apply blended statutory tax rates in the segments. Eliminations to adjust segment results to arrive at our consolidated effective tax rate are included in Corporate. See Note 2 to the Consolidated Financial Statements for additional information on items included in the Corporate segment. Beauty Grooming Health Care Fabric & Home Care Baby, Feminine & Family Care Net Sales Change Drivers 2020 vs. 2019 (1) Volume with Acquisitions & Divestitures Volume Excluding Acquisitions & Divestitures Foreign Exchange 3 % (1) % 10 % 6 % 3 % 2 % (1) % 5 % 7 % 3 % (2) % (3) % (2) % (1) % (2) % Price Mix Other (2) Net Sales Growth 2 % 2 % 1 % 1 % 1 % 1 % — % 1 % 1 % 1 % — % — % — % — % — % 4 % (2) % 10 % 7 % 3 % TOTAL COMPANY 4 % (1) Net sales percentage changes are approximations based on quantitative formulas that are consistently applied. (2) Other includes the sales mix impact from acquisitions and divestitures and rounding impacts necessary to reconcile volume to net sales. (2) % 1 % 1 % 4 % 1 % 5 % BEAUTY ($ millions) Volume Net sales Net earnings 2020 N/A 2019 N/A $13,359 $12,897 $2,737 $2,637 Change vs. 2019 3% 4% 4% 20.4% 10 bps 20.5% % of net sales Beauty net sales increased 4% to $13.4 billion in fiscal 2020 on a 3% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 2%. Higher pricing increased net sales by 2%. Favorable product mix added 1% to net sales due to the disproportionate growth of the Skin and Personal Care category, including the Olay skin care brand, which has higher than segment average selling prices. Organic sales increased 5% on a 2% increase in organic volume. Global market share of the Beauty segment increased 0.2 points. Volume increased mid-single digits in North America, Europe and Asia Pacific and increased low single digits in Greater China and Latin America. Volume decreased high single digits in IMEA. • Volume in Hair Care increased low single digits. Volume increased mid-single digits in Europe and Asia Pacific and increased low single digits in North America and Latin America due to product innovation and market growth. Volume decreased double digits in IMEA and decreased low single digits in Greater China due the COVID-19 pandemic in the second half of the fiscal year and market declines in certain countries. Global market share of the hair care category was unchanged. the economic slowdown caused by to • Volume in Skin and Personal Care increased mid-single digits. Volume increased double digits in Greater China, innovation, to premium increased mid-single digits in North America, and increased low single digits in Europe and Asia Pacific due increased marketing spending and market growth, partially offset by a volume decrease in the SK-II brand and a mid-single digits decline in IMEA due to the COVID-19 pandemic related travel restrictions. Global market share of the skin and personal care category increased nearly half a point. Net earnings increased 4% to $2.7 billion in fiscal 2020 due to the increase in net sales and a 10 basis-point increase in net earnings margin. Net earnings margin increased due to a decrease in SG&A as a percentage of net sales, partially offset by a decrease in gross margin and an increase in the effective tax rate. The gross margin decrease was mainly driven by the negative impacts of unfavorable mix (due to the decline of the super-premium SK-II brand, driven by the impacts the disproportionate growth of large sizes) and other hurts related to new manufacturing startup costs partially offset by increased selling prices. SG&A as a percentage of net sales decreased due to the positive scale impacts of the net sales increase and a reduction in marketing spending due to productivity savings. The increase in the effective tax rate was driven by the unfavorable geographic mix of earnings. GROOMING the COVID-19 pandemic, and of ($ millions) Volume Net sales Net earnings % of net sales 2020 N/A $6,069 $1,329 21.9% 2019 N/A $6,199 $1,529 24.7% Change vs. 2019 (1)% (2)% (13)% (280) bps Grooming net sales decreased 2% to $6.1 billion in fiscal 2020 on a 1% decrease in unit volume. Unfavorable foreign exchange impacts reduced net sales by 3%. Increased pricing had a 2% positive impact to net sales. Organic sales increased 1%. Global market share of the Grooming segment decreased 0.2 points. Volume increased mid-single digits in Asia Pacific and was unchanged in Europe and Latin America. Volume decreased low single digits in North America and Greater China and decreased mid-single digits in IMEA. • • Shave Care volume decreased low single digits. Volume decreased mid-single digits in IMEA and decreased low single digits in North America and Europe due to market decline and reduced shaving incidents resulting from the COVID-19 pandemic and competitive activity. This was partially offset by a mid- single digit volume increase in Asia Pacific due to innovation. Global market share of the shave care category was unchanged. related movement Appliances volume increased low single digits. Volume increased mid-teens in North America and mid-single digits in Europe due to innovation and increased consumption of at-home styling products due to restrictions. Volume pandemic decreased double digits in Asia Pacific, decreased high single digits in Greater China and decreased low single digits in IMEA due to market contraction, competitive activity and the economic slowdown caused by the COVID-19 pandemic. Global market share of the appliances category increased more than a point. Net earnings decreased 13% to $1.3 billion in fiscal 2020 due to the decrease in net sales and a 280 basis-point decrease in net earnings margin. The net earnings margin decreased due to an increase in SG&A as a percentage of net sales, an increase in the effective tax rate and a decrease in gross margin. Gross margin decreased due to the negative impact of unfavorable mix (due to the disproportionate growth of disposable razors, styling appliances and the Asia Pacific region all of which have lower than segment average margins) partially offset by impacts of manufacturing cost savings and increased selling prices. SG&A as a percentage of net sales increased primarily due to a base period gain on the sale of operating real estate partially offset by current period reductions in overhead costs and marketing spending due to productivity savings. The increase in the effective tax rate was primarily due to a base period benefit from the favorable adjustments to reserves for uncertain tax positions. HEALTH CARE the positive ($ millions) Volume Net sales Net earnings % of net sales 2020 N/A $9,028 $1,652 18.3% 2019 N/A $8,218 $1,519 18.5% Change vs. 2019 10% 10% 9% (20) bps The Procter & Gamble Company 21 Health Care net sales increased 10% to $9.0 billion in fiscal 2020 on a 10% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 2%. Increased pricing had a 1% positive impact to net sales. Favorable mix increased net sales by 1% due to the disproportionate organic growth of the Personal Health Care category which has higher than segment average selling prices. Excluding the net impacts of the Merck OTC consumer healthcare acquisition and minor brand divestitures, organic sales increased 7% on a 5% increase in organic volume. Global market share of the Health Care segment increased 0.4 in IMEA, points. Volume increased double digits in Latin America and Europe, increased high single digits in Asia Pacific and increased mid-single digits in North America. Excluding the net impacts of the Merck OTC consumer healthcare acquisition and minor brand divestitures, organic volume increased high single digits in IMEA, increased mid-single digits in Latin America and increased low single digits in Europe and Asia Pacific. increased more than 20% • • Oral Care volume increased low single digits. Volume increased double digits in IMEA, increased mid-single digits in Latin America and increased low single digits in North America and Asia Pacific due to product innovation and market growth. This growth was partially offset by low single digits volume decreases in Europe and Greater China due to competitive activities and related economic slowdown and electronics stores closures. Excluding the impact of minor brand divestitures, organic volume increased low single digits in Europe. Global market share of the oral care category increased less than half a point. the COVID-19 pandemic Volume in Personal Health Care increased over 20%. Excluding the impacts of the Merck OTC consumer healthcare acquisition, organic volume increased double digits. Organic volume increased mid-teens in North America and Europe and increased mid-single digits in IMEA due to product innovation, increased marketing spending and increased consumption and retailer inventory increases in certain markets driven by the COVID-19 pandemic. This was partially offset by a low single digit volume decrease in Asia Pacific and Latin America due to devaluation related price increases and the COVID-19 related economic slowdown. Global market share of the personal health care category increased nearly a point. Net earnings increased 9% to $1.7 billion in fiscal 2020 due to the increase in net sales partially offset by a 20 basis-point decrease in net earnings margin. The net earnings margin decreased due to an increase in SG&A as a percentage of net sales and a reduction in non-operating income, partially offset by an increase in gross margin. Gross margin increased due to manufacturing cost savings and increased selling prices partially offset by unfavorable mix impact (from the disproportionate growth of certain products and certain markets in IMEA both of which have lower than segment-average margins). SG&A as a percentage of net 22 The Procter & Gamble Company sales increased due to an increase in overhead costs and other operating expenses primarily caused by the Merck OTC consumer healthcare acquisition, partially offset by the positive scale impacts of the net sales increase. Non- operating income declined due to a base period gain from minor brand divestitures. FABRIC & HOME CARE ($ millions) Volume Net sales Net earnings % of net sales 2020 N/A 2019 N/A $23,735 $22,080 $4,154 17.5% $3,518 15.9% Change vs. 2019 6% 7% 18% 160 bps Fabric & Home Care net sales increased 7% to $23.7 billion in fiscal 2020 on a 6% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 1%. Higher pricing increased net sales by 1%. Positive mix impacts increased net sales by 1% due to the disproportionate growth of the Home Care category and the North America region, both of which have higher than segment average selling prices. Organic sales increased 9% on a 7% increase in organic volume. Global market share of the Fabric & Home Care segment increased 0.7 points. Volume increased double digits in North America, increased high single digits in Latin America, increased mid-single digits in Greater China and Europe and increased low single digits in Asia Pacific. Volume decreased low single digits in IMEA. • • innovation and Fabric Care volume increased mid-single digits. Volume grew double digits in North America and Latin America, grew mid-single digits in Greater China and grew low single digits in Europe. Volume growth was driven by product the consumption increase and pantry loading driven by the COVID-19 pandemic. This growth was partially offset by a low single digit volume decrease in IMEA due to the COVID-19 pandemic related economic slowdown. Volume in Asia Pacific was unchanged. Global market share of the Fabric Care category increased a point. lesser extent to a Home Care volume increased double digits. Volume increased in all regions led by double digit growth in North America and Europe, high single digits growth in Asia Pacific, mid-single digits growth in Latin America and low single digits growth in IMEA. The volume growth was driven by product innovation as well as the consumption increase and pantry loading driven by the COVID-19 pandemic. Global market share of the Home Care category increased more than half a point. Net earnings increased 18% to $4.2 billion in fiscal 2020 due to the increase in net sales and a 160 basis-point increase in net earnings margin. The net earnings margin increased due to an increase in gross margin partially offset by an increase in the effective tax rate. The gross margin increase was driven by manufacturing cost savings and a reduction in commodity costs, partially offset by unfavorable product mix (due to the disproportionate growth of premium innovation that has not yet been cost optimized). SG&A as a percentage of net sales was unchanged as an increase in marketing spending was offset by the positive scale benefits of increased net sales on overhead costs. The increase in the effective tax rate was driven by the unfavorable geographical mix of earnings. BABY, FEMININE & FAMILY CARE ($ millions) Volume Net sales Net earnings % of net sales 2020 N/A 2019 N/A $18,364 $17,806 $3,465 18.9% $2,734 15.4% Change vs. 2019 3% 3% 27% 350 bps Baby, Feminine & Family Care net sales increased 3% to $18.4 billion in fiscal 2020 on a 3% increase in unit volume. Unfavorable foreign exchange impacts reduced net sales by 2%. Increased pricing was a positive 1% impact to net sales. Positive mix impact increased net sales by 1% due to the disproportionate growth of the North America region which has higher than segment average selling prices. Organic sales increased 4%. Global market share of the Baby, Feminine & Family Care segment decreased 0.3 points. Volume increased high single digits in North America and was unchanged in Asia Pacific. Volume decreased high single digits in Latin America, decreased mid-single digits in IMEA and decreased low single digits in Greater China and Europe. • • Baby Care volume decreased mid-single digits. Volume decreased double digits in Latin America, decreased high single digits in IMEA, decreased mid-single digits in Europe and decreased low single digits in Greater China and Asia Pacific due to competitive activity, devaluation related price increases, category contraction in certain markets (partly due to declining birth rates in China) and to a lesser extent the economic slowdown caused by the COVID-19 pandemic. This was partially offset by a low single digit volume increase in North America driven by market growth and product innovation. Global market share of the baby care category decreased more than a point. increased marketing Feminine Care volume increased low single digits. Volume growth was led by a double digit increase in Asia Pacific due to a new launch in the adult incontinence category in Japan, as well as high single digits growth in North America, mid-single digits growth in Europe and low single digits growth in Greater China and Latin America, all due to product spending, adult innovation, incontinence category growth and to a lesser extent the increased consumption and pantry loading related to the COVID-19 pandemic in certain markets. Excluding the impact of a minor brand acquisition, volume in North America increased mid-single digits. This was partially offset by a low single digit volume decrease in IMEA due the COVID-19 pandemic. Global market share of the feminine care category increased nearly a point. the economic slowdown caused by to • Volume in Family Care, which is predominantly a North American business, increased high single digits driven by the COVID-19 pandemic related market growth, consumption increase and pantry loading, product innovation, increased marketing spending and market growth. In the U.S., all-outlet share of the family care category decreased more than half a point. Net earnings in fiscal 2020 increased 27% to $3.5 billion due to the increase in net sales and a 350 basis-point increase in net earnings margin. Net earnings margin increased primarily due to an increase in gross margin, partially offset by an increase in the effective tax rate and a marginal increase in SG&A as a percentage of net sales. The gross margin increase was driven by manufacturing cost savings, a reduction in commodity costs and higher selling prices partially offset by unfavorable product mix (due to the disproportionate growth of large sizes and product forms with lower than segment average margins). SG&A as a percentage of net sales increased marginally due primarily to an increase in marketing spending, partially offset by a reduction in overhead costs driven by productivity savings and the positive scale benefits of the net sales increase. The increase in the effective tax rate was driven by an unfavorable geographic mix of earnings. CORPORATE ($ millions) Net sales 2020 $395 2019 $484 Net earnings/(loss) $(234) $(7,971) Change vs. 2019 (18)% N/A Corporate includes certain operating and non-operating activities not allocated to specific business segments. These include: the incidental businesses managed at the corporate level; financing and investing activities; certain employee benefit costs; other general corporate items; gains and losses related to certain divested brands and categories; certain asset impairment charges; and certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization. Corporate also includes reconciling items to adjust the accounting policies used in the segments to U.S. GAAP. The most significant ongoing reconciling item is income taxes, to adjust from blended statutory rates that are reflected in the segments to the overall Company effective tax rate. Corporate net sales decreased 18% to $395 million in fiscal 2020 due to a decrease in the net sales of the incidental businesses managed at the corporate level. Corporate net loss decreased by $7.7 billion in fiscal 2020 primarily due to the $8.0 billion after tax ($8.3 billion before tax) base period charge for the Shave Care impairment, partially offset by higher base period divestiture gains (primarily driven by gain on the dissolution of the PGT healthcare partnership). Restructuring Program to Deliver Productivity and Cost Savings In fiscal 2012, the Company initiated a productivity and cost savings plan to reduce costs and better leverage scale in the areas of supply chain, research and development, marketing The Procter & Gamble Company 23 and overheads. The plan was designed to accelerate cost reductions by streamlining management decision making, manufacturing and other work processes to both fund the Company's growth strategy and increase the Company's operating margin. the Company communicated specific elements of an additional multi-year productivity and cost savings program. fiscal 2017, In The current productivity and cost savings plan is further reducing costs in the areas of supply chain, certain marketing activities and overhead expenses. As part of this plan, the Company incurred approximately $1.5 billion in total before- tax restructuring costs across 2019 and 2020. In fiscal 2021 and onwards, the Company expects to incur restructuring costs within the range of our historical ongoing level of $250 to $500 million annually. Savings generated from the Company's restructuring program are difficult to estimate, given the nature of the activities, the timing of the execution and the degree of reinvestment. However, we estimate that through 2020, the underlying restructuring costs incurred since 2012 (approximately $8.2 billion), along with other non-manufacturing enrollment reductions since 2012 have delivered approximately $3.7 billion in annual before-tax gross savings. Restructuring accruals of $472 million as of June 30, 2020 are classified as current liabilities. Approximately 52% of the restructuring charges incurred in fiscal 2020 either have been or will be settled with cash. Consistent with our historical policies for ongoing restructuring-type activities, the resulting charges are funded by and included within Corporate for segment reporting. In addition to our restructuring programs, we have additional ongoing savings efforts in our supply chain, marketing and overhead areas that yield additional benefits to our operating margins. Refer to Note 3 to the Consolidated Financial Statements for more details on the restructuring program and to the Operating Costs section of the MD&A for more information about the total benefit to operating margins from our total savings efforts. CASH FLOW, FINANCIAL CONDITION AND LIQUIDITY We believe our financial condition continues to be of high quality, as evidenced by our ability to generate substantial cash from operations and to readily access capital markets at competitive rates. Operating cash flow provides the primary source of cash to fund operating needs and capital expenditures. Excess operating cash is used first to fund shareholder dividends. Other discretionary uses include share repurchases and acquisitions to complement our portfolio of businesses, brands and geographies. As necessary, we may supplement operating cash flow with debt to fund these activities. The overall cash position of the Company reflects our strong business results and a global cash management strategy that takes into account liquidity management, economic factors and tax considerations. 24 The Procter & Gamble Company Operating Cash Flow Operating cash flow was $17.4 billion in 2020, a 14% increase from the prior year. Net earnings, adjusted for non- cash items (depreciation and amortization, share-based compensation and deferred taxes) generated approximately $16.1 billion of operating cash flow. Working capital and other impacts generated $1.3 billion of operating cash flow as summarized below. income • • • • A decrease in accounts receivable generated $634 million of cash primarily due to the timing of the end of the fiscal year (which fell on a Tuesday versus Sunday in the prior year end, resulting in additional collection days in the current year) and lower relative sales at the end of in certain markets driven by COVID-19. The number of days sales outstanding decreased approximately 5 days versus prior year. the period Higher inventory used $637 million of cash mainly due to inventory increases to support initiatives, business growth across all segments and to replenish stocks in certain categories depleted by the COVID-19 pandemic related demand increases. Inventory days on hand increased approximately 4 days primarily due to initiative support and inventory replenishment. of $1.9 billion generating liabilities Accounts payable, accrued and other increased, cash. Approximately $700 million of this was driven by extended payment terms with our suppliers (see Extended Payment Terms and Supply Chain Financing below). The remaining amount was driven by higher payables from increased manufacturing activity due to the pandemic related demand increases, an increase in marketing spending in the fourth quarter versus the prior year and increases in taxes payable related to the Merck integration. Days payable outstanding increased approximately 4 days to 81 days as of June 30, 2020 due to the above. Other net operating assets and liabilities declined, using $710 million of cash, primarily driven by the payment of the current year portion of taxes due related to the U.S. Tax Act repatriation charge ($215 million) and pension related accruals and contributions. and other acquisitions Adjusted Free Cash Flow. We view adjusted free cash flow as an important non-GAAP measure because it is a factor impacting the amount of cash available for dividends, share repurchases, discretionary investments. It is defined as operating cash flow less capital expenditures and excluding payments for the transitional tax resulting from the U.S. Tax Act and tax payments related to the Merck acquisition. Adjusted free cash flow is one of the measures used to evaluate senior management and determine their at-risk compensation. Adjusted free cash flow was $14.9 billion in 2020, an increase of 23% versus the prior year. The increase was primarily driven by the increase in operating cash flows as discussed above. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings, was 114% in 2020. Extended Payment Terms and Supply Chain Financing. Beginning in fiscal 2014, in response to evolving market practices, the Company began a program to negotiate extended payment terms with its suppliers. At about the same time, the Company initiated a Supply Chain Finance program (SCF) with several global financial institutions (SCF Banks). Under the SCF, qualifying suppliers may elect to sell their receivables from the Company to an SCF Bank. These participating suppliers negotiate their receivables sales arrangements directly with the respective SCF Bank. While the Company is not party to those agreements, the SCF Banks allow the participating suppliers to utilize the Company’s creditworthiness in establishing credit spreads and associated costs. This generally provides the suppliers with more favorable terms than they would be able to secure on their own. The Company has no economic interest in a supplier’s decision to sell a receivable. Once a qualifying supplier elects to participate in the SCF and reaches an agreement with an SCF Bank, the supplier elects which individual Company invoices they sell to the SCF bank. However, all the Company’s payments to participating suppliers are paid to the SCF Bank on the invoice due date, regardless of whether the individual invoice is sold by the supplier to the SCF Bank. The SCF Bank pays the supplier on the invoice due date for any invoices that were not previously sold by the supplier to the SCF Bank. The terms of the Company’s payment obligation are not impacted by a supplier’s participation in the SCF. Our payment terms with our suppliers for similar materials within individual markets are consistent between suppliers that elect to participate in the SCF and those that do not participate. Accordingly, our average days outstanding are not significantly impacted by the portion of suppliers or related input costs that are included in the SCF. In addition, the SCF is available to both material suppliers, where the underlying costs are largely included in Cost of goods sold, and to service suppliers, where the underlying costs are largely included in SG&A. As of June 30, 2020, approximately 3% of our global suppliers have elected to participate in the SCF. Payments to those suppliers during total approximately $13 billion, which equals 2020 approximately 24% of our total Cost of goods sold and SG&A for the period. For participating suppliers, we believe substantially all of their receivables with the Company are sold to the SCF Banks. Accordingly, we would expect that at each balance sheet date, a similar proportion of amounts originally due to suppliers would instead be payable to SCF Banks. All outstanding amounts related to suppliers participating in the SCF are recorded within Accounts payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows. As of both June 30, 2020 and 2019, the amount due to suppliers participating in the SCF and included in Accounts payable were approximately $4 billion. Although difficult to project due to market and other dynamics, we anticipate incremental cash flow benefits from the extended payment terms with suppliers could increase at a slower rate in fiscal 2021. Future changes in our suppliers’ financing policies or economic developments, such as changes in interest rates, general market liquidity or the to participating Company’s creditworthiness suppliers could impact suppliers’ participation in the SCF and/or our ability to negotiate extended payment terms with our suppliers. However, any such impacts are difficult to predict. Investing Cash Flow relative Net investing activities generated $3.0 billion in cash in 2020, mainly due to proceeds from sales and maturities of investment securities, partially offset by capital spending. Net investing activities consumed $3.5 billion in cash in 2019, mainly due to capital spending and business acquisitions, partially offset by proceeds from sales and maturities of short-term investments. Capital Spending. Capital expenditures, primarily to support capacity expansion, innovation and cost efficiencies, were $3.1 billion in 2020 and $3.3 billion in 2019. Capital spending as a percentage of net sales decreased 60 basis points to 4.3% in 2020. Acquisitions. Acquisition activity used cash of $58 million in 2020, primarily related to final contractual payments from the prior year acquisition of Merck OTC along with a minor Baby Care acquisition. Acquisition activity used $3.9 billion in 2019, primarily related to the Merck OTC acquisition. Proceeds from Divestitures and Other Asset Sales. Proceeds from asset sales were $30 million and $394 million in 2020 and 2019, respectively, primarily from minor brand divestitures in both years and the sale of real estate in 2019. Investment Securities. Investments generated net cash of $6.2 billion in 2020 and $3.5 billion in 2019 primarily from sales and maturities of investment securities. Financing Cash Flow Net financing activities consumed $8.4 billion of cash in 2020, mainly due to dividends to shareholders and treasury stock purchases, partially offset by a net increase in debt and the impact of stock options. Net financing activities consumed $10.0 billion in cash in 2019, mainly due to dividends to shareholders and treasury stock purchases, partially offset by the impact of stock options. Dividend Payments. Our first discretionary use of cash is dividend payments. Dividends per common share increased 5% to $3.0284 per share in 2020. Total dividend payments to common and preferred shareholders were $7.8 billion in 2020 and $7.5 billion in 2019. In April 2020, the Board of Directors declared an increase in our quarterly dividend from $0.7459 to $0.7907 per share on Common Stock and Series A and B ESOP Convertible Class A Preferred Stock. This represents a 6% increase compared to the prior quarterly dividend and is the 64th consecutive year that our dividend has increased. We have paid a dividend for 130 consecutive years, every year since our incorporation in 1890. Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for The Procter & Gamble Company 25 investment and ongoing operations, financing plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt was $34.7 billion as of June 30, 2020 and $30.1 billion as of June 30, 2019. The increase is primarily due to the issuance of bonds generating $5.0 billion of cash. Treasury Purchases. Total share repurchases were $7.4 billion in 2020 and $5.0 billion in 2019. Liquidity At June 30, 2020, our current liabilities exceeded current assets by $5.0 billion largely due to short-term borrowings under our commercial paper program. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. The Company regularly assesses its cash needs and the available sources to fund these needs. As of June 30, 2020, the Company did not have material net cash and cash equivalents related to foreign subsidiaries nor related to any country subject to exchange controls that significantly restrict our ability to access or repatriate the funds. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the U.S. to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future. 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, to meet short-term should provide sufficient funding financing requirements. On June 30, 2020, our short-term credit ratings were P-1 (Moody's) and A-1+ (Standard & Poor's), while our long- (Moody's) and AA- term credit (Standard & Poor's), all with a stable outlook. ratings were Aa3 We maintain bank credit facilities to support our ongoing commercial paper program. The current facility is an $8.0 billion facility split between a $3.2 billion five-year facility and a $4.8 billion 364-day facility, which expire in November 2024 and November 2020, respectively. Both facilities can be extended for certain periods of time as specified in the terms of the credit agreement. These facilities are currently undrawn and we anticipate that they will remain undrawn. These credit facilities do not have cross-default or ratings triggers, nor do they have material adverse events clauses, except at the time of signing. In addition to these credit facilities, we have an automatically effective registration statement on Form S-3 filed with the SEC that is available for registered offerings of short- or long-term debt securities. For additional details on debt see Note 10 to the Consolidated Financial Statements. 26 The Procter & Gamble Company Guarantees and Other Off-Balance Sheet Arrangements We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity. Contractual Commitments The following table provides information on the amount and payable date of our contractual commitments as of June 30, 2020. ($ millions) RECORDED LIABILITIES Total debt Leases U.S. Tax Act transitional charge (1) Uncertain tax positions (2) OTHER Total Less Than 1 Year 1-3 Years 3-5 Years After 5 Years $ 34,589 $ 11,189 $ 5,154 $ 5,148 $ 13,098 1,023 2,346 59 239 224 59 352 450 — 220 984 — 212 688 — Interest payments relating to long-term debt Minimum pension funding (3) Purchase obligations (4) 46,873 $ TOTAL CONTRACTUAL COMMITMENTS (1) Represents the U.S. federal tax liability associated with the repatriation provisions of the U.S. Tax Act. Does not include any provisions 13,362 $ 7,948 $ 7,452 $ 18,111 1,577 3,875 6,676 1,173 955 407 238 412 782 145 196 673 603 — — $ made for foreign withholding taxes on expected repatriations as the timing of those payments is uncertain. (2) As of June 30, 2020, the Company's Consolidated Balance Sheet reflects a liability for uncertain tax positions of $643 million, including $158 million of interest and penalties. Due to the high degree of uncertainty regarding the timing of future cash outflows of liabilities for uncertain tax positions beyond one year, a reasonable estimate of the period of cash settlement beyond twelve months from the balance sheet date of June 30, 2020 cannot be made. (4) (3) Represents future pension payments to comply with local funding requirements. These future pension payments assume the Company continues to meet its future statutory funding requirements. Considering the current economic environment in which the Company operates, the Company believes its cash flows are adequate to meet the future statutory funding requirements. The projected payments beyond fiscal year 2023 are not currently determinable. Primarily reflects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represent minimum commitments under take-or-pay agreements with suppliers and are in line with expected usage. This includes service contracts for information technology, human resources management and facilities management activities that have been outsourced. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position. 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 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 allowances, customer pricing trade promotion spending, which 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 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 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. 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, future planning opportunities and expectations about 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. In certain of regulatory environments. We operate in multiple jurisdictions with complex tax policy and 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 the respective governmental taxing authorities can be impacted by the local economic and fiscal environment. interpretational differences with A core operating principle is that our tax structure is based on our business operating model, such that profits are earned in line with the business substance and functions of the various legal entities. However, because of the complexity of transfer pricing concepts, we may have income tax uncertainty related to the determination of intercompany transfer prices for our various cross-border transactions. We have obtained and continue to prioritize the strategy of seeking advance rulings with tax authorities to reduce this uncertainty. We estimate that our current portfolio of advance rulings reduces this uncertainty with respect to over 70% of our global earnings. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties in light of changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We have a number of audits in process in various jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available information, we believe that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows. Because there are a number of estimates and assumptions inherent in calculating the various components of our tax provision, certain changes or future events such as changes in tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans could have an impact on those estimates and our effective tax rate. See Note 5 to the Consolidated Financial Statements for additional details on the Company's income taxes. The Procter & Gamble Company 27 Employee Benefits We sponsor various post-employment benefits throughout the world. These include pension plans, both defined contribution plans and defined benefit plans, and other post- employment benefit (OPEB) plans, consisting primarily of health care and life insurance for retirees. For accounting purposes, the defined benefit pension and OPEB plans require assumptions to estimate the net projected and accumulated benefit obligations, including the following variables: discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected return on assets; and health care cost trend rates. These and other assumptions affect the annual expense and net obligations recognized for the underlying plans. Our assumptions reflect our historical experiences future and management's best 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. regarding judgment 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 2020, the average return on assets assumptions for pension plan assets and OPEB assets was 6.6% and 8.4%, respectively. A change in the rate of return of 100 basis points for both pension and OPEB assets would impact annual after-tax benefit/expense by approximately $130 million. Since pension and OPEB liabilities are measured on a discounted basis, impacts our plan the discount rate obligations and expenses. Discount rates used for our U.S. defined benefit pension and OPEB plans are based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA or better. The average discount rate on the defined benefit pension plans of 1.5% represents a weighted average of local rates in countries where such plans exist. A 100 basis point change in the discount rate would impact annual after-tax benefit expense by approximately $220 million. The average discount rate on the OPEB plan of 3.1% reflects the higher interest rates generally applicable in the U.S., which is where a majority of the plan participants receive benefits. A 100 basis point change in the discount rate would impact annual after-tax OPEB expense by approximately $50 million. See Note 8 to the Consolidated Financial Statements for 28 The Procter & Gamble Company additional details on our defined benefit pension and OPEB plans. Goodwill and Intangible Assets reporting units and Significant judgment is required to estimate the fair value of our goodwill intangible assets. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant goodwill reporting units and intangible assets. The fair value estimates are based on available historical information and on future expectations. We typically estimate the fair value of these assets using the income method, which is based on the present value of estimated future cash flows attributable to the respective assets. The valuations used to establish and to test goodwill and intangible assets for impairment are dependent on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, competitive activities, cost containment and margin progression, Company business plans and the discount rate applied to cash flows. Indefinite-lived intangible assets and goodwill are not amortized, but are tested at least annually for impairment. Our ongoing annual impairment testing for goodwill and indefinite-lived intangible assets occurs during the 3 months ended December 31. Assumptions used in our impairment evaluations, such as forecasted growth rates and cost of capital, are consistent with internal projections and operating plans. We believe these estimates and assumptions are reasonable and comparable to those that would be used by other marketplace participants. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. For example, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived 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 brands, all customer relationships, patents and technologies) are expected to have determinable useful lives. Our assessment as to brands that have an indefinite life and those that have a determinable life is based on a number of factors including competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. Determinable-lived intangible assets are amortized lives. An impairment assessment for determinable-lived intangibles is only required when an event or change in circumstances indicates that the carrying amount of the asset may not be recoverable. to expense over their estimated Most of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have fair value cushions that, at a minimum, exceed two times their underlying carrying values. Certain of our goodwill reporting units, in particular Shave Care and Appliances, are comprised entirely of acquired businesses and as a result have fair value cushions that are not as high. The Appliances wholly-acquired reporting unit has a fair value that significantly exceeds the underlying carrying value. During fiscal 2019, a non-cash before- and after-tax impairment charge of $6.8 billion was recognized to reduce the carrying amount of goodwill for the Shave Care reporting unit, and 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 fair value. The underlying reductions in fair values 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. As a result of the fiscal 2019 impairment determined by the step two testing, the Shave Care the carrying value by approximately 20% as of June 30, 2019. Because the impairment testing for intangible assets is a one-step process, the Gillette indefinite-lived intangible asset fair value approximated its carrying value at that date. During our annual the quarter ended testing during December 31, 2019, we reduced the discount rate used in the valuation based on developments in the macroeconomic environment. As a result of this change and updates to other underlying cash flow projections, the Shave Care fair value exceeded the carrying value by more than 20% and the fair value exceeded impairment The Procter & Gamble Company 29 in to how significant the Gillette reporting unit and assumptions utilized the U.S. dollar or an the competitive environment, The most the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset are the net sales and earnings growth rates (including residual growth rates) and discount rate. The residual growth rate represents the expected rate at which the reporting unit and Gillette brand are expected to grow beyond the shorter- term business planning period. The residual growth rate utilized in our fair value estimates is consistent with the reporting unit and brand operating plans and approximates expected long-term category market growth rates. The residual growth rate is dependent on overall market growth rates, inflation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rate could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies increased competitive against environment. 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 the macroeconomic environment, volatility in the equity and debt markets or other country specific factors, such as further 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. Gillette indefinite-lived intangible asset fair value exceeded impact on net sales will begin to abate during the first half of the carrying value by approximately 5%. fiscal 2021 and be largely eliminated by the second half of the fiscal year. There is an extreme level of uncertainty the pandemic will evolve and how relating governments and consumers will react. Accordingly, there is a significant amount of uncertainty related to this key assumption. A more prolonged pandemic could impact the results of operations due to changes to assumptions utilized in the determination of the estimated fair values of Shave Care indefinite-lived intangible asset that are significant enough to trigger an impairment. Net sales and earnings growth rates could be negatively impacted by more prolonged reductions or changes in demand for our shave care products, which may be caused by, among other things: the temporary inability of illness, to purchase our products due consumers quarantine or other travel restrictions, financial hardship, changes in the use and frequency of grooming products or by shifts in demand away from one or more of our higher priced products to lower priced products. In addition, relative global and country/regional macroeconomic factors could result in additional and prolonged devaluation of other countries’ currencies relative to the U.S. dollar. Finally, the discount rate utilized in our valuation model could be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital. The table below provides a sensitivity analysis for the Shave Care indefinite-lived intangible asset, utilizing reasonably possible changes in the assumptions for the shorter term and residual growth rates and the discount rate, to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to a 25 basis point increase to discount rate or a 25 basis point decrease to our shorter-term and residual growth rates, either of which, in isolation, would result in an additional impairment of the Gillette indefinite-lived intangible asset. While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the Shave Care reporting unit's goodwill and indefinite-lived intangibles. As of June 30, 2020, the carrying values of the Shave Care goodwill and the Gillette indefinite-lived intangible asset were $12.5 billion and $14.1 billion, respectively. reporting unit and the Gillette to The COVID-19 pandemic that occurred during the second half of fiscal 2020 resulted in a reduction in shave incidents by consumers and a weakening of certain currencies relative to the U.S. dollar, which led to a reduction in net sales for Gillette-branded products. This resulted in a triggering event for the Gillette indefinite-lived intangible asset, which caused us to perform an additional impairment assessment for that asset as of June 30, 2020. That assessment indicated that the fair value of the Gillette trade name approximated its carrying value. Accordingly, no impairment charge was recorded during the year ended June 30, 2020. The duration and severity of the pandemic could result in additional future impairment charges for the Shave Care reporting unit goodwill and the Gillette indefinite-lived intangible asset. Our June 30, 2020 impairment assessment of the Gillette intangible asset assumes the pandemic’s Approximate Percent Change in Estimated Fair Value +25 bps Discount Rate -25 bps Growth Rate Shave Care goodwill reporting unit Gillette indefinite-lived intangible asset (6)% (6)% (6)% (6)% See Note 4 to the Consolidated Financial Statements for additional discussion on goodwill and intangible asset impairment testing results. New Accounting Pronouncements Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of June 30, 2020. 30 The Procter & Gamble Company 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. We leverage the Company's diversified portfolio of exposures as a natural hedge and prioritize operational hedging activities over financial market instruments. To the extent we choose to further manage volatility 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. techniques Derivative positions are monitored using 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 RiskManager™ value-at-risk model using a one-year horizon and a 95% confidence The model incorporates the impact of correlation (the degree to which exposures move together over time) and diversification (from holding multiple currency, commodity and interest rate instruments) and assumes that financial returns are normally distributed. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics™ dataset as of June 30, 2020. In cases where data is unavailable in RiskMetrics™, a reasonable proxy is included. level. Our market risk exposures relative to interest rates, currency rates and commodity prices, as discussed below, have not changed materially versus the previous reporting period. In addition, we are not aware of any facts or circumstances that would significantly impact such exposures in the near term. Interest Rate Exposure on Financial Instruments. Interest rate swaps are used to hedge exposures to interest rate movement on underlying debt obligations. Certain interest rate swaps denominated in foreign currencies are designated to hedge exposures to currency exchange rate movements on our investments in foreign operations. These currency interest rate swaps are designated as hedges of the Company's foreign net investments. Based on our interest rate exposure as of and during the year ended June 30, 2020, including derivative and other instruments sensitive to interest rates, we believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would not materially affect our financial statements. Currency Rate Exposure on Financial Instruments. Because we manufacture and sell products and finance operations in a number of countries throughout the world, we are exposed to the impact on revenue and expenses of movements in currency exchange rates. Corporate policy prescribes the range of allowable hedging activity. To manage the exchange rate risk associated with the financing of our operations, we primarily use forward contracts and currency swaps with maturities of less than 18 months. Based on our currency rate exposure on derivative and other instruments as of and during the year ended June 30, 2020, we believe, at a 95% confidence level based on historical currency rate movements, the impact on such instruments of a near-term change in currency rates would not materially affect our financial statements. Commodity Price Exposure on Financial Instruments. We use raw materials that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. We may use futures, options and swap contracts to manage the volatility related to the above exposures. As of and during the years ended June 30, 2020 and June 30, 2019, we did not have any commodity hedging activity. Measures Not Defined By U.S. GAAP trends (i.e. In accordance with the SEC's Regulation S-K Item 10(e), the following provides definitions of the non-GAAP measures and the reconciliation to the most closely related GAAP measures. We believe that these measures provide useful perspective of underlying business trends 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 acquisitions, divestitures and foreign exchange from year- over-year comparisons. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. in assessing achievement of is used This measure management goals for at-risk compensation. The Procter & Gamble Company 31 The following tables provide a numerical reconciliation of organic sales growth to reported net sales growth: dividends, share discretionary investments. repurchases, acquisitions and other Year ended June 30, 2020 Net Sales Growth Acquisition & Divestiture Impact/ Other (1) Organic Sales Growth Foreign Exchange Impact Beauty Grooming 4 % (2) % 2 % 3 % (1) % — % 5 % 1 % The following table provides a numerical reconciliation of adjusted free cash flow ($ millions): Operating Cash Flow Capital Spending Adjustments to Operating Cash Flow (1) Adjusted Free Cash Flow 2020 $ 17,403 $ (3,073) $ 543 $ 14,873 4 % 6 % 7 % 9 % 7 % 1 % 3 % 2 % 2 % 2 % 5 % 1 % (1) % (5) % (1) % 10 % Health Care Fabric & Home Care Baby, Feminine & Family Care TOTAL COMPANY (1) Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales. Adjusted Free Cash Flow. Adjusted free cash flow is defined as operating cash flow less capital spending, tax payments related to the Merck OTC Consumer Healthcare acquisition in 2020 and the transitional tax resulting from the U.S. Tax Act in 2020 and 2019 (the Company incurred a transitional tax liability of approximately $3.8 billion from the U.S. Tax Act, which is payable over a period of 8 years). Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. We view adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for 2019 $ 15,242 $ 12,130 (3,347) $ (1) Adjustments to Operating Cash Flow include tax payments for the transitional tax resulting from the U.S. Tax Act of $215 and $235 in 2020 and 2019, respectively, and tax payments related to the Merck acquisition of $328 in 2020. 235 $ Adjusted Free Cash Flow Productivity. Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings. We view adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, in allocating financial resources and for budget planning purposes. This measure is used in assessing the achievement of management goals for at-risk compensation. The Company's long-term target is to generate annual adjusted free cash flow productivity at or above 90 percent. The following table provides a numerical reconciliation of adjusted free cash flow productivity ($ millions): Adjusted Free Cash Flow Net Earnings Adjusted Free Cash Flow Productivity 2020 $ 14,873 $ 13,103 114 % 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 included 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 and the Company recognized an after-tax gain on the dissolution of $353 million. Shave Care Impairment: As discussed in Note 4 to the Consolidated Financial Statements and in the Significant Accounting Policies and Estimates section of the MD&A, in the fourth quarter of fiscal 2019, the Company recognized a non-cash after-tax charge of $8.0 billion ($8.3 billion before tax) to adjust the carrying values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset. This was comprised of a before and after-tax impairment charge of $6.8 billion related to goodwill and an after-tax impairment charge of $1.2 billion ($1.6 billion before tax) to reduce the carrying value of the Gillette indefinite-lived intangible asset. Anti-Dilutive Impacts: As discussed in Note 6 to the Consolidated Financial Statements, the Shave Care impairment charges caused preferred shares that are normally dilutive (and hence, normally assumed converted for purposes of determining diluted earnings per share) to be anti-dilutive. Accordingly, for U.S. GAAP the preferred shares were not assumed to be converted into common shares for diluted earnings per share and the related dividends paid to the preferred 32 The Procter & Gamble Company shareholders were deducted from net income to calculate net earnings available to common shareholders. As a result of the non-GAAP Shave Care impairment adjustment, these instruments are dilutive for non-GAAP core EPS. We do not view the above items to be indicative of underlying business results and their exclusion from Core earnings measures provides a more comparable measure of year-on-year results. These items are also excluded when evaluating senior management in determining their at-risk compensation. THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Reconciliation of Non-GAAP Measures Twelve Months Ended June 30, 2020 NET EARNINGS ATTRIBUTABLE TO P&G 13,027 415 13,442 DILUTED NET EARNINGS PER COMMON SHARE (1) (1) Diluted net earnings per share are calculated on Net earnings attributable to Procter & Gamble. $ 4.96 $ 0.16 $ 5.12 Core EPS AS REPORTED (GAAP) INCREMENTAL RESTRUCTURING NON-GAAP (CORE) CHANGE VERSUS YEAR AGO CORE EPS 13 % THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES (Amounts in Millions Except Per Share Amounts) Reconciliation of Non-GAAP Measures Twelve Months Ended June 30, 2019 AS REPORTED (GAAP) ANTI- DILUTIVE IMPACTS INCREMENTAL RESTRUCTURING SHAVE CARE IMPAIRMENT GAIN ON DISSOLUTION OF PGT PARTNERSHIP ROUNDING NON-GAAP (CORE) NET EARNINGS ATTRIBUTABLE TO P&G 3,897 — 354 7,978 (353) 1 11,877 Core EPS 263 3,634 Diluted Net Earnings attributable to common shareholders (1) Diluted Weighted Average Common Shares Outstanding (1) DILUTED NET EARNINGS PER COMMON SHARE (1) The reduction in net earnings from the 2019 charge for the Shave Care impairment caused the preferred shares outstanding to be anti-dilutive. Accordingly, for U.S. GAAP, the preferred shares were not assumed to be converted into common shares for diluted earnings per share and the related dividends paid to the preferred shareholders were deducted from net income to calculate earnings available to common shareholders. Excluding the impairment charge results in higher non-GAAP earnings which causes the preferred shares to be dilutive. The adjustments in this row are made to reflect the dilutive preferred share impact resulting from the Shave Care impairment adjustment. (0.13) $ 1.43 $ 0.13 $ 3.03 $ 0.06 $ 2,539.5 — $ 7,978 (353) 90.2 354 $ 1 2,629.7 11,877 4.52 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The information required by this item is incorporated by reference to the section entitled Other Information under Management's Disclosure and Analysis, and Note 9 to the Consolidated Financial Statements. The Procter & Gamble Company 33 Item 8. Financial Statements and Supplementary Data. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting of The Procter & Gamble Company (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Strong internal controls is an objective that is reinforced through our Worldwide Business Conduct Manual, which sets forth our commitment to conduct business with integrity, and within both the letter and the spirit of the law. Our people are deeply committed to our Purpose, Values, and Principles, which unite us in doing what’s right. Our system of internal controls includes written policies and procedures, segregation of duties, and the careful selection and development of employees. Additional key elements of our internal control structure include our Global Leadership Council, which is actively involved in oversight of the business strategies, initiatives, results and controls, our Disclosure Committee, which is responsible for evaluating disclosure implications of significant business activities and events, our Board of Directors, which provides strong and effective corporate governance, and our Audit Committee, which reviews significant accounting policies, financial reporting and internal control matters. The Company's internal control over financial reporting includes a Control Self-Assessment Program that is conducted annually for critical financial reporting areas of the Company and is audited by our Global Internal Audit organization. Management takes the appropriate action to correct any identified control deficiencies. Global Internal Audit also performs financial and compliance audits around the world, provides training, and continuously improves our internal control processes. Because of its inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Management assessed the effectiveness of the Company's internal control over financial reporting as of June 30, 2020, using criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the Company maintained effective internal control over financial reporting as of June 30, 2020, based on these criteria. Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of the Company's internal control over financial reporting as of June 30, 2020, 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 6, 2020 34 The Procter & Gamble Company REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of The Procter & Gamble Company Opinion on the Financial Statements We have audited the accompanying Consolidated Balance Sheets of The Procter & Gamble Company and subsidiaries (the "Company") as of June 30, 2020 and 2019, the related Consolidated Statements of Earnings, Comprehensive Income, Shareholders’ Equity and Cash Flows for each of the three years in the period ended June 30, 2020 and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 6, 2020 expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the 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, 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 regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill and Intangible Assets - Shave Care Goodwill and Gillette Indefinite Lived Intangible Asset - Refer to Notes 1 and 4 to the financial statements Critical Audit Matter Description The Company’s evaluation of goodwill and indefinite lived intangible assets for impairment involves the comparison of the fair value of each reporting unit or indefinite lived intangible asset to its carrying value. The Company estimates fair value using the income method, which is based on the present value of estimated future cash flows attributable to the respective assets. This requires management to make significant estimates and assumptions related to forecasts of future net sales and earnings, including growth rates beyond a 10-year time period, royalty rates and discount rates. Changes in the assumptions could have a significant impact on either the fair value, the amount of any impairment charge, or both. The Company performed their annual impairment assessments of the Shave Care reporting unit as of October 1, 2019 and the Gillette brand indefinite lived intangible asset (the “Gillette brand”) as of December 31, 2019. Because the estimated fair values exceeded their carrying values, no impairments were recorded. Given reductions in cash flows caused by currency devaluations, changing consumer grooming habits, the COVID-19 pandemic affecting demand and an increase in the competitive market environment, the Company revised their cash flow estimates and updated their fair value estimates for the Gillette brand as of June 30, 2020 and determined that the fair value of the Gillette brand approximated its carrying value. As of June 30, 2020, the Shave Care reporting unit goodwill was $12.5 billion, and the Gillette brand was $14.1 billion. We identified the Company’s impairment evaluations of goodwill for the Shave Care reporting unit and the Gillette brand as a critical audit matter because of the reductions in cash flows and the significant judgments made by management to estimate the The Procter & Gamble Company 35 fair values of the reporting unit and the brand. 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, 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, and discount rates. • 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 including consideration of the effects related to the COVID-19 pandemic. 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 net sales and earnings growth rates, royalty rates, and discount rates by: • • Testing the source information underlying the determination of net sales and earnings growth rates, royalty rates, and discount rates 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. /s/ Deloitte & Touche LLP Cincinnati, Ohio August 6, 2020 We have served as the Company’s auditor since 1890. 36 The Procter & Gamble Company REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of The Procter & Gamble Company 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, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2020, of the Company and our report dated August 6, 2020, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Cincinnati, Ohio August 6, 2020 Consolidated Statements of Earnings Amounts in millions except per share amounts; Years ended June 30 NET SALES Cost of products sold Selling, general and administrative expense Goodwill and indefinite-lived intangibles impairment charges OPERATING INCOME Interest expense Interest income Other non-operating income, net EARNINGS BEFORE INCOME TAXES Income taxes NET EARNINGS Less: Net earnings attributable to noncontrolling interests The Procter & Gamble Company 37 2020 2019 2018 $ 70,950 $ 67,684 $ 66,832 35,250 19,994 — 15,706 34,768 19,084 8,345 5,487 34,432 19,037 — 13,363 (465) (509) (506) 155 438 15,834 2,731 13,103 76 220 871 6,069 2,103 3,966 69 247 222 13,326 3,465 9,861 111 NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE (1) $ 13,027 $ 3,897 $ 9,750 NET EARNINGS PER COMMON SHARE: (2) Basic $ 5.13 $ 1.45 $ 3.75 Diluted 3.67 (1) Net earnings attributable to Procter & Gamble in fiscal 2019 was negatively impacted by the impairment charges of $8.3 billion related 4.96 $ 1.43 $ $ to Shave Care goodwill and Gillette indefinite-lived intangible assets. (2) Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings attributable to Procter & Gamble. See accompanying Notes to Consolidated Financial Statements. 38 The Procter & Gamble Company Consolidated Statements of Comprehensive Income Amounts in millions; Years ended June 30 NET EARNINGS OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX Foreign currency translation (net of $59, $78 and $(279) tax, respectively) Unrealized gains/(losses) on investment securities (net of $(1), $0 and $0 tax, respectively) Unrealized gains/(losses) on defined benefit retirement plans (net of $(42), $22 and $68 tax, respectively) TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX TOTAL COMPREHENSIVE INCOME Less: Total comprehensive income attributable to noncontrolling interests 2020 2019 2018 $ 13,103 $ 3,966 $ 9,861 (1,083) (213) (305) (12) (150) (1,245) 11,858 60 184 169 140 4,106 70 (148) 334 (119) 9,742 109 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE $ 11,798 $ 4,036 $ 9,633 See accompanying Notes to Consolidated Financial Statements. Consolidated Balance Sheets Amounts in millions except stated values; As of June 30 2020 2019 The Procter & Gamble Company 39 Assets CURRENT ASSETS Cash and cash equivalents Available-for-sale investment securities Accounts receivable INVENTORIES Materials and supplies Work in process Finished goods Total inventories Prepaid expenses and other current assets TOTAL CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT, NET GOODWILL TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET OTHER NONCURRENT ASSETS TOTAL ASSETS Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable Accrued and other liabilities Debt due within one year TOTAL CURRENT LIABILITIES LONG-TERM DEBT DEFERRED INCOME TAXES OTHER NONCURRENT LIABILITIES TOTAL LIABILITIES SHAREHOLDERS' EQUITY Convertible Class A preferred stock, stated value $1 per share (600 shares authorized) Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized) Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2020 - 4,009.2, 2019 - 4,009.2) Additional paid-in capital Reserve for ESOP debt retirement Accumulated other comprehensive income/(loss) Treasury stock, at cost (shares held: 2020 - 1,529.5, 2019 - 1,504.5) Retained earnings Noncontrolling interest TOTAL SHAREHOLDERS' EQUITY $ 16,181 $ — 4,178 1,414 674 3,410 5,498 2,130 27,987 20,692 39,901 23,792 8,328 4,239 6,048 4,951 1,289 612 3,116 5,017 2,218 22,473 21,271 40,273 24,215 6,863 $ 120,700 $ 115,095 $ 12,071 $ 11,260 9,722 11,183 32,976 23,537 6,199 11,110 73,822 897 — 9,054 9,697 30,011 20,395 6,899 10,211 67,516 928 — 4,009 64,194 4,009 63,827 (1,080) (1,146) (16,165) (14,936) (105,573) (100,406) 100,239 357 46,878 94,918 385 47,579 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 120,700 $ 115,095 See accompanying Notes to Consolidated Financial Statements. 40 The Procter & Gamble Company Consolidated Statements of Shareholders' Equity Dollars in millions except per share amounts; shares in thousands Common Stock Shares Amount Preferred Stock Add- itional Paid-In Capital Reserve for ESOP Debt Retirement Accumu- lated Other Comp- rehensive Income/ (Loss) Treasury Stock Retained Earnings Non- controlling Interest Total Share- holders' Equity BALANCE JUNE 30, 2017 2,553,297 $4,009 $1,006 $63,641 ($1,249) ($14,632) ($93,715) $96,124 $594 $55,778 Net earnings Other comprehensive income/(loss) Dividends and dividend equivalents ($2.7860 per share): Common Preferred, net of tax benefits Treasury stock purchases Employee stock plans Preferred stock conversions ESOP debt impacts Noncontrolling interest, net (81,439) 21,655 4,580 199 6 (39) 9,750 111 9,861 (117) (2) (119) (7,057) (265) (7,004) 1,469 33 45 89 (7,057) (265) (7,004) 1,668 — 134 (113) (113) BALANCE JUNE 30, 2018 2,498,093 $4,009 $967 $63,846 ($1,204) ($14,749) ($99,217) $98,641 $590 $52,883 Impact of adoption of new accounting standards Net earnings Other comprehensive income/(loss) Dividends and dividend equivalents ($2.8975 per share): Common Preferred, net of tax benefits Treasury stock purchases Employee stock plans Preferred stock conversions ESOP debt impacts Noncontrolling interest, net (326) (200) (27) (553) 3,897 69 3,966 139 1 140 (53,714) 55,734 4,638 (39) 93 6 (118) (7,256) (263) (5,003) 3,781 33 58 99 (7,256) (263) (5,003) 3,874 — 157 (248) (366) BALANCE JUNE 30, 2019 2,504,751 $4,009 $928 $63,827 ($1,146) ($14,936) ($100,406) $94,918 $385 $47,579 Net earnings Other comprehensive income/(loss) Dividends and dividend equivalents ($3.0284 per share): Common Preferred, net of tax benefits Treasury stock purchases Employee stock plans Preferred stock conversions ESOP debt impacts Noncontrolling interest, net (61,346) 32,603 3,738 362 5 (31) 13,027 76 13,103 (1,229) (16) (1,245) (7,551) (263) (7,405) 2,212 26 66 108 (7,551) (263) (7,405) 2,574 — 174 (88) (88) BALANCE JUNE 30, 2020 2,479,746 $4,009 $897 $64,194 ($1,080) ($16,165) ($105,573) $100,239 $357 $46,878 See accompanying Notes to Consolidated Financial Statements. Consolidated Statements of Cash Flows Amounts in millions; Years ended June 30 The Procter & Gamble Company 41 2020 2019 2018 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR $ 4,239 OPERATING ACTIVITIES $ 2,569 $ 5,569 Net earnings Depreciation and amortization Loss on early extinguishment of debt Share-based compensation expense Deferred income taxes Loss/(gain) on sale of assets Goodwill and indefinite-lived intangible impairment charges Change in accounts receivable Change in inventories Change in accounts payable, accrued and other liabilities Change in other operating assets and liabilities Other TOTAL OPERATING ACTIVITIES INVESTING ACTIVITIES Capital expenditures Proceeds from asset sales Acquisitions, net of cash acquired Purchases of short-term investments Proceeds from sales and maturities of investment securities Change in other investments TOTAL INVESTING ACTIVITIES FINANCING ACTIVITIES Dividends to shareholders Increases/(reductions) in short-term debt Additions to long-term debt Reductions of long-term debt (1) Treasury stock purchases Impact of stock options and other TOTAL FINANCING ACTIVITIES EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR SUPPLEMENTAL DISCLOSURE Cash payments for interest Cash payment for income taxes Assets acquired through non-cash finance leases are immaterial for all periods. (1) Includes early extinguishment of debt costs of $346 in 2018. 13,103 3,013 — 558 (596) 7 — 634 (637) 1,923 (710) 108 17,403 3,966 2,824 — 515 (411) (678) 8,345 (276) (239) 1,856 (973) 313 15,242 9,861 2,834 346 395 (1,844) (176) — (177) (188) 1,385 2,000 431 14,867 (3,073) 30 (58) — 6,151 (5) 3,045 (7,789) 2,345 4,951 (2,447) (7,405) 1,978 (8,367) (3,347) 394 (3,945) (158) 3,628 (62) (3,490) (7,498) (2,215) 2,367 (969) (5,003) 3,324 (9,994) (3,717) 269 (109) (3,909) 3,928 27 (3,511) (7,310) (3,437) 5,072 (2,873) (7,004) 1,177 (14,375) (139) 11,942 $ 16,181 (88) 1,670 $ 4,239 19 (3,000) $ 2,569 $ 434 3,550 $ 497 3,064 $ 529 2,830 See accompanying Notes to Consolidated Financial Statements. 42 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 (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores We have on-the-ground and professional channels. operations in approximately 70 countries. Basis of Presentation The Consolidated Financial Statements include the Company and its controlled subsidiaries. Intercompany transactions are eliminated. Because of a lack of control over Venezuelan subsidiaries caused by a number of currency and other operating controls and restrictions, our Venezuelan subsidiaries are not consolidated for any year presented. We account for those subsidiaries at cost, less impairments, plus or minus observable price changes. Use of Estimates lives long-lived assets, 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 for depreciation and intangible assets, useful amortization of 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 future cash Our revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a Amounts in millions of dollars except per share amounts or as otherwise specified. 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. A provision for payment discounts and product return allowances is recorded as a reduction of sales in the same period the revenue is recognized. The revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. The revenue includes shipping and handling costs, which generally are included in the list price to the customer. through various programs Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are offered to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred at the time of the sale. 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 these arrangements have Most of 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 expenses necessary to acquire and convert the purchased materials and supplies into finished products. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity. Selling, General and Administrative Expense Selling, general and administrative expense (SG&A) is primarily comprised of marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Research and development costs are charged to expense as incurred and were $1.8 billion in 2020, $1.9 billion in 2019 and $1.9 billion in 2018. Advertising costs, charged to expense as incurred, include worldwide television, print, radio, internet and in-store advertising expenses and were $7.3 billion in 2020, $6.8 billion in 2019 and $7.1 billion in 2018. 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. Other Non-Operating Income, Net Other non-operating income, net primarily includes net acquisition and divestiture gains, net non-service costs related to defined benefit plans, investment income and other non-operating items. Currency Translation Financial statements of operating subsidiaries outside the U.S. generally are measured using the local currency as the those Adjustments functional currency. translate to recorded into U.S. dollars are statements in Other comprehensive income (OCI). For subsidiaries operating in highly inflationary economies, the U.S. dollar is the Re-measurement adjustments for functional currency. financial statements in highly inflationary economies and other transactional exchange gains and losses are reflected in earnings. Cash Flow Presentation The Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles net earnings to cash flows from operating activities. Cash flows from foreign currency transactions and operations are translated at monthly exchange rates for each period. Cash flows from hedging activities are included in the same category as the items being hedged. Cash flows from derivative instruments designated as net investment hedges are classified as financing activities. Realized gains and losses from non- qualifying derivative instruments used to hedge currency exposures 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. Investments intercompany resulting from Investment securities have primarily consisted of readily marketable debt securities. Unrealized gains or losses from debt securities classified as trading, if any, are charged to earnings. Unrealized gains or losses on debt securities classified as available-for-sale are recorded in OCI. If an available-for-sale 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. Debt securities are included as Available-for-sale investment securities and Other noncurrent assets in the Consolidated Balance Sheets. is other security than In addition to debt securities, we hold minor equity investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions. These are accounted for as equity method investments. Other equity investments that are not controlled, and over which we do not have the ability to exercise significant influence, and for which there is a readily determinable market value, are recorded at fair value, with gains and losses recorded through net earnings. Equity investments without readily determinable fair values are measured at cost, less impairments, plus or minus observable price changes. Equity investments are included as Other noncurrent assets in the Consolidated Balance Sheets. Inventory Valuation Inventories are valued at the lower of cost or net realizable value. Product-related inventories are maintained on the first-in, first-out method. The cost of spare part inventories is maintained using the average-cost method. The Procter & Gamble Company 43 Property, Plant and Equipment Depreciation expense Property, plant and equipment is recorded at cost reduced by accumulated depreciation. 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 testing of performed separately from our indefinite-lived intangible assets. impairment We have acquired brands that have been determined to have indefinite lives. 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. Fair Values of Financial Instruments Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash equivalents, certain investments and short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and financial instruments are disclosed in Note 9. Amounts in millions of dollars except per share amounts or as otherwise specified. 44 The Procter & Gamble Company New Accounting Pronouncements and Policies NOTE 2 On July 1, 2019, we adopted ASU 2016-02, "Leases (Topic 842)." The new accounting standard requires the recognition of right-of-use assets and lease liabilities for all long-term leases, including operating leases, on the balance sheet. We elected the optional transition method and adopted the new guidance on a modified retrospective basis with no restatement of prior period amounts. As allowed under the new accounting standard, we elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting of initial direct costs for all asset classes at the time of adoption. The adoption did not have a material impact on our financial statements, resulting in an increase of approximately 1% to each of our total assets and total liabilities on our balance sheet as of July 1, 2019. See Note 12 for further information. the FASB In January 2017, issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured using a single step impairment model, whereby the impairment equals the difference between the carrying amount and the estimated fair value of the specified reporting units in their entirety. This eliminates the second step of the current impairment model that requires companies to first estimate the fair value of all assets in a reporting unit and measure impairments based on those estimated fair values and a residual measurement approach. The new standard also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We will adopt the standard effective July 1, 2020. The impact of the new standard will be dependent on the specific facts and circumstances of future individual impairments, if any. In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due These reference amendments are effective immediately and may be applied prospectively to contract modifications made and hedging into or evaluated on or before relationships entered December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by the new standard. No other new accounting pronouncements issued or effective during the fiscal year or in future years had, or are expected to have, a material impact on our Consolidated Financial Statements. reform. rate to SEGMENT INFORMATION Under U.S. GAAP, our operating segments 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); Personal Care Skin (Antiperspirant and Deodorant, Personal Cleansing, Skin Care); and Grooming: Shave Care (Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care); Appliances Care); Personal Health Health Care: Oral Care (Toothbrushes, Toothpaste, Other Oral 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 (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, 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 including maintain manufacturing 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, interest and investing income and other financing costs. Total assets for the reportable segments include those assets managed by the reportable segment, primarily inventory, cost competitive and workforce structure, optimization, a Amounts in millions of dollars except per share amounts or as otherwise specified. fixed assets and intangible assets. Other assets, primarily cash, accounts receivable, investment securities, leased assets and goodwill, are included in Corporate. Our operating segments are comprised of similar product categories. Operating segments that individually accounted for 5% or more of consolidated net sales are as follows: % of Net sales by operating segment (1) Years ended June 30 Fabric Care Baby Care Home Care Skin and Personal Care Hair Care Family Care Oral Care Shave Care Feminine Care Personal Health Care All Other TOTAL (1) % of Net sales by operating segment excludes sales held in 2019 22% 12% 10% 10% 10% 9% 8% 8% 6% 4% 1% 100% 100% 2018 22% 13% 10% 9% 10% 8% 8% 8% 6% 4% 2% 100% 2020 22% 11% 11% 10% 9% 9% 8% 7% 6% 5% 2% The Procter & Gamble Company 45 Net sales and long-lived assets in the United States and internationally were as follows (in billions): Years ended June 30 2020 2019 2018 NET SALES United States International LONG-LIVED ASSETS (1) $ 31.3 $ 28.6 $ 27.3 $ 39.7 $ 39.1 $ 39.5 United States $ 9.9 $ 10.0 $ 9.7 (1) $ 10.8 $ 11.3 $ 10.9 International Long-lived assets consists of property, plant and equipment. No country, other than the United States, exceeds 10% of the consolidated net sales or long-lived assets. Our largest customer, Walmart Inc. and its affiliates, accounted for consolidated net sales of approximately 15% in 2020, 2019 and 2018. No other customer represents more than 10% of our consolidated net sales. Corporate. Global Segment Results Net Sales Earnings/(Loss) Before Income Taxes Net Earnings /(Loss) Depreciation and Amortization Total Assets Capital Expenditures BEAUTY GROOMING HEALTH CARE FABRIC & HOME CARE BABY, FEMININE & FAMILY CARE CORPORATE (1) TOTAL COMPANY 2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018 2020 2019 2018 $ 13,359 $ 3,437 $ 2,737 $ 320 $ 5,531 $ 12,897 12,406 6,069 6,199 6,551 9,028 8,218 7,857 23,735 22,080 21,441 18,364 17,806 18,080 395 484 497 3,282 3,042 1,613 1,777 1,801 2,156 1,984 1,922 5,426 4,601 4,191 4,534 3,593 3,527 2,637 2,320 1,329 1,529 1,432 1,652 1,519 1,283 4,154 3,518 2,708 3,465 2,734 2,251 272 236 5,362 4,709 406 20,589 429 20,882 447 22,609 350 294 230 605 557 534 839 861 899 7,726 7,708 5,254 7,745 7,620 7,295 8,628 9,271 9,682 (1,332) (9,168) (1,157) (234) (7,971) (133) 493 70,481 411 488 64,252 68,761 $ 70,950 $ 15,834 $ 13,103 $ 3,013 $ 120,700 $ 67,684 66,832 6,069 13,326 3,966 9,861 2,824 115,095 2,834 118,310 397 634 766 305 367 364 338 363 330 887 984 1,020 764 819 1,016 382 180 221 3,073 3,347 3,717 (1) The Corporate reportable segment includes the $8.3 billion non-cash before-tax ($8.0 billion after-tax) goodwill and intangible asset impairment charge in fiscal 2019. For additional details on goodwill and intangible assets see Note 4. Amounts in millions of dollars except per share amounts or as otherwise specified. 46 The Procter & Gamble Company NOTE 3 SUPPLEMENTAL FINANCIAL INFORMATION The components of property, plant and equipment were as follows: As of June 30 2020 2019 PROPERTY, PLANT AND EQUIPMENT Buildings Machinery and equipment Land Construction in progress TOTAL PROPERTY, PLANT AND EQUIPMENT Accumulated depreciation PROPERTY, PLANT AND EQUIPMENT, NET $ 7,700 $ 7,746 33,260 32,263 777 2,034 805 2,579 43,771 43,393 (23,079) (22,122) $ 20,692 $ 21,271 Selected components of current and noncurrent liabilities were as follows: As of June 30 2020 2019 ACCRUED AND OTHER LIABILITIES - CURRENT Marketing and promotion $ 3,531 $ 4,299 In fiscal 2017, the Company announced specific elements of an additional incremental multi-year productivity and cost savings plan to further reduce costs in the areas of supply chain, certain marketing activities and overhead expenses. This program is resulting in incremental targeted enrollment reductions, along with further optimization of the supply chain and other manufacturing processes. Restructuring costs incurred consist primarily of costs to separate employees, asset-related costs to exit facilities and other costs. The Company incurred total restructuring charges of $782 and $754 for the years ended June 30, 2020 and 2019, respectively. Of the charges incurred for fiscal year 2020, $155 were recorded in SG&A, $614 in Costs of products sold, and $13 in Other non-operating income/ (expense), net. Of the charges incurred for fiscal year 2019, $213 were recorded in SG&A, $521 in Costs of products sold, and $20 in Other non-operating income/(expense), net. The following table presents restructuring activity for the years ended June 30, 2020 and 2019: Separations Asset- Related Costs Other Total RESERVE JUNE 30, 2018 $ 259 $ — $ 254 $ 513 1,921 1,623 Charges 260 252 242 754 Compensation expenses Restructuring reserves Taxes payable Other TOTAL 472 693 468 341 3,105 2,323 $ 9,722 $ 9,054 OTHER NONCURRENT LIABILITIES Pension benefits $ 6,223 $ 5,622 Other postretirement benefits U.S. Tax Act transitional tax payable Uncertain tax positions Long term operating leases Other 965 2,121 580 652 569 1,098 2,343 472 — 676 TOTAL $ 11,110 $ 10,211 RESTRUCTURING PROGRAM restructuring-type activities The Company has historically incurred an ongoing annual to maintain a level of competitive cost structure, including manufacturing and workforce optimization. Before-tax costs incurred under the ongoing program have generally ranged from $250 to $500 In fiscal 2012, the Company initiated an annually. 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 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. Amounts in millions of dollars except per share amounts or as otherwise specified. Cash spent Charges against assets RESERVE JUNE 30, 2019 Charges Cash spent Charges against assets RESERVE JUNE 30, 2020 Separation Costs (239) — (308) (547) — (252) — (252) 280 — 221 372 188 189 468 782 (216) — (190) (406) — (372) — (372) $ 285 $ — $ 187 $ 472 relate severance packages Employee separation charges for the years ended June 30, for to 2020 and 2019 approximately 1,200 and 1,810 employees, respectively. The packages were primarily voluntary and the amounts were calculated based on salary levels and past service periods. Severance costs related to voluntary separations are generally charged to earnings when the employee accepts the offer. Asset-Related Costs Asset-related costs consist of both asset write-downs and accelerated depreciation. Asset write-downs relate to the establishment of a new fair value basis for assets held-for- sale or for disposal. These assets were written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less minor disposal costs. Charges for accelerated depreciation relate to long-lived assets that will be taken out of service prior to the end of their normal service period. These assets relate primarily to consolidations manufacturing technology standardizations. The asset-related charges will not have a significant impact on future depreciation charges. Other Costs and Other restructuring-type charges are incurred as a direct result of the restructuring program. Such charges primarily include asset removal and termination of contracts related to supply chain optimization. for ongoing Consistent with our historical policies restructuring-type activities, 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. the The Procter & Gamble Company 47 However, for information purposes, the following table summarizes the total restructuring costs related to our reportable segments: Years ended June 30 2020 2019 2018 Beauty Grooming Health Care $ 54 $ 49 $ 102 136 65 23 60 38 21 115 84 75 Fabric & Home Care Baby, Feminine & Family Care Corporate (1) Total Company 754 $ 1,070 (1) Corporate includes costs related to allocated overheads, including charges related to our Enterprise Markets, Global Business Services and Corporate Functions activities. 782 $ 307 226 223 192 289 547 $ NOTE 4 GOODWILL AND INTANGIBLE ASSETS The change in the net carrying amount of goodwill by reportable segment was as follows: Beauty Grooming Health Care Fabric & Home Care Baby, Feminine & Family Care Corporate Total Company BALANCE AT JUNE 30, 2018 - NET (1) $ 12,992 $ 19,820 $ 5,929 $ 1,865 $ 4,569 $ — $ 45,175 Acquisitions and divestitures Goodwill impairment charges Translation and other 132 — 2,084 — (6,783) (139) (156) — (41) 6 — (16) 57 — (46) — 2,279 — (6,783) — (398) BALANCE AT JUNE 30, 2019 - NET (1) 12,985 12,881 7,972 1,855 4,580 — 40,273 Acquisitions and divestitures Translation and other (1) (82) — (66) (46) (140) — (14) 5 (28) — — (42) (330) BALANCE AT JUNE 30, 2020 - NET (1) $ 12,902 $ 12,815 $ 7,786 $ 1,841 $ 4,557 $ — $ 39,901 (1) Grooming goodwill balance is net of $1.2 billion accumulated impairment losses as of June 30, 2018 and $7.9 billion as of June 30, 2019 and 2020. Goodwill and indefinite-lived intangibles are tested for impairment at least annually by comparing the estimated fair values of our reporting units and underlying indefinite-lived intangible assets to their respective carrying values. We typically use an income method to estimate the fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future rates and (including expected growth cash profitability). Estimates utilized in the projected cash flows include consideration of macroeconomic conditions, overall category growth cost containment and margin expansion, Company business plans, the underlying product or technology life cycles, economic barriers to entry, a brand's relative market position and flows. Unanticipated market or macroeconomic events and the discount rate applied competitive the cash activities, flows rates, to circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. We believe the estimates and assumptions utilized in our impairment testing are reasonable and are comparable to those that would be used by other marketplace participants. However, actual events and results could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows initially used to estimate fair value for purposes of establishing or subsequently impairing the carrying amount of goodwill and related intangible assets, we may need to record additional non-cash impairment charges in the future. The change in goodwill during fiscal 2020 primarily reflects opening balance sheet adjustments from the prior year acquisition of (OTC) healthcare business of Merck KGaA (Merck OTC) in the Health Care reportable segment (see Note 14) and currency translation across all reportable segments. the over-the-counter Amounts in millions of dollars except per share amounts or as otherwise specified. 48 The Procter & Gamble Company During fiscal 2019, we determined that the estimated fair value of our Shave Care reporting unit was less than its carrying value. We also determined that the estimated fair value of the Gillette indefinite-lived intangible asset was less than its carrying value. As a result, we recorded non-cash impairment charges for both assets. These reductions were due in large part to significant currency devaluations in a number of countries relative to the U.S. dollar, a deceleration of category growth caused by changing grooming habits, primarily in the developed markets, and an increased competitive market environment in the U.S. and certain other markets, which collectively resulted in reduced cash flow projections. A non-cash, before and after-tax impairment charge of $6.8 billion was recognized to reduce the carrying amount of goodwill for the Shave Care reporting unit. Additionally, a non-cash, before-tax impairment charge of $1.6 billion ($1.2 billion after-tax) was recognized to reduce the carrying amount of the Gillette indefinite-lived intangible asset to its estimated fair value as of June 30, 2019. During fiscal 2019, the Company completed the acquisition of the healthcare business of Merck OTC, which is included in the Health Care reportable segment (see Note 14), along with other minor acquisitions in the Beauty, the Baby, Feminine & Family Care and the Fabric & Home Care reportable segments. These goodwill increases were partially offset by the divestiture of the Teva portion of the PGT business in the Health Care reportable segment and currency translation in fiscal 2019. Identifiable intangible assets were comprised of: 2020 2019 Gross Carrying Amount Accumulated Accumulated As of June 30 Amortization Amortization INTANGIBLE ASSETS WITH DETERMINABLE LIVES Gross Carrying Amount Brands $ 3,820 $ (2,347) $ 3,836 $ (2,160) Patents and technology 2,776 (2,513) 2,776 (2,434) Customer relationships 1,752 (778) 1,787 Other TOTAL 143 $ 8,491 $ (92) 145 (5,730) $ 8,544 $ (691) (91) (5,376) INTANGIBLE ASSETS WITH INDEFINITE LIVES Brands 21,031 — 21,047 — TOTAL $ 29,522 $ (5,730) $ 29,591 $ (5,376) Amortization expense of intangible assets was as follows: Years ended June 30 2020 2019 2018 Intangible asset amortization $ 360 $ 349 $ 302 Estimated amortization expense over the next five fiscal years is as follows: Years ending June 30 Estimated amortization expense 2021 2022 2023 2024 2025 $ 310 $ 291 $ 280 $ 268 $ 250 Amounts in millions of dollars except per share amounts or as otherwise specified. NOTE 5 INCOME TAXES Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the U.S. Tax Act). The U.S. Tax Act significantly revised the future ongoing U.S. corporate income tax by, among other things, lowering the U.S. corporate income tax rates and implementing a hybrid territorial tax system. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate was phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ended June 30, 2018, and 21% for subsequent fiscal years. However, the U.S. Tax Act eliminated the domestic manufacturing deduction and moved to a hybrid territorial system, which also largely eliminated the ability to credit certain foreign taxes that existed prior to enactment of the U.S. Tax Act. There were also certain transitional impacts of the U.S. Tax Act. As part of the transition to the new hybrid territorial tax system, the U.S. Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. In addition, the reduction of the U.S. corporate tax rate caused us to adjust our U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. These transitional impacts resulted in a provisional net charge of $602 for the fiscal year ended June 30, 2018, comprised of tax charge of $3.8 billion an estimated repatriation foreign taxes and repatriation (comprised of U.S. 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. Income Intangible Low-Taxed The Global (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 before income taxes consisted of the following: Years ended June 30 2020 2019 2018 United States International TOTAL $ 10,338 $ 1,659 $ 9,277 5,496 4,410 4,049 $ 15,834 $ 6,069 $ 13,326 Income taxes consisted of the following: Years ended June 30 2020 2019 2018 CURRENT TAX EXPENSE U.S. federal International $ 1,266 $ 1,064 $ 3,965 1,769 1,259 1,131 U.S. state and local 292 191 213 3,327 2,514 5,309 DEFERRED TAX EXPENSE/(BENEFIT) U.S. federal 39 (296) (1,989) International and other (635) (115) 145 (596) (411) (1,844) TOTAL TAX EXPENSE $ 2,731 $ 2,103 $ 3,465 A reconciliation of the U.S. federal statutory income tax rate to our actual effective income tax rate is provided below: 2020 2019 2018 21.0 % 21.0 % 28.1 % The Procter & Gamble Company 49 Excess tax benefits from the exercise of stock options reflect the excess of actual tax benefits received on employee exercises 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 benefits credited to shareholders' equity totaled $18 for the year ended June 30, 2020. This primarily relates to the tax effects of certain adjustments to pension obligations and unrealized foreign exchange losses recorded in stockholders' equity, partially offset by the tax effects of net investment hedges. Tax 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. Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings were subjected to a one-time transition tax. This charge included taxes for all U.S. income taxes and for the related foreign withholding taxes for the portion of those earnings which are no longer considered indefinitely invested. We have not provided deferred taxes on approximately $19 billion of earnings that are considered permanently reinvested. A reconciliation of the beginning and ending liability for uncertain tax positions is as follows: (0.1) % (0.5) % (4.7) % Years ended June 30 2020 2019 2018 1.4 % 2.6 % 1.4 % (1.6) % (3.8) % (0.4) % (1.4) % — % — % (1.0) % (2.2) % — % 0.1 % (0.3) % (0.3) % BEGINNING OF YEAR $ Increases in tax positions for prior years Decreases in tax positions for prior years Increases in tax positions for current year Settlements with taxing authorities Lapse in statute of limitations Currency translation 466 $ 470 $ 465 60 85 26 (21) (94) (38) 82 71 87 (83) (37) (45) (12) (27) (7) (2) (20) (5) — % 22.8 % — % END OF YEAR $ 485 $ 466 $ 470 Years ended June 30 U.S. federal statutory income tax rate Country mix impacts of foreign operations State income taxes, net of federal benefit Excess tax benefits from the exercise of stock options Tax benefit from simplification of legal entity structure Foreign derived intangible income deduction (FDII) Changes in uncertain tax positions Goodwill impairment Net transitional impact of U.S. Tax Act Other EFFECTIVE INCOME TAX RATE — % — % 4.5 % (1.2) % (4.9) % (2.6) % 17.2 % 34.7 % 26.0 % 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. Included in the total liability for uncertain tax positions at June 30, 2020 is $278 that, depending on the ultimate resolution, could impact the effective tax rate in future periods. The Company is present in approximately 70 countries and over 150 taxable jurisdictions and, at any point in time, has 40-50 jurisdictional audits underway at various stages of completion. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Uncertain tax positions are reviewed on an Amounts in millions of dollars except per share amounts or as otherwise specified. 50 The Procter & Gamble Company of tax progress including ongoing basis and are adjusted in light of changing facts and circumstances, audits, developments in case law and the closing of statutes of limitation. Such adjustments are reflected in the tax provision as appropriate. We have tax years open ranging from 2008 and forward. We are generally not able to reliably estimate the ultimate settlement amounts until the close of the audit. 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 $60, including interest and penalties. We recognize the additional accrual of any possible related interest and penalties relating to the underlying uncertain tax position in income tax expense. As of June 30, 2020, 2019 and 2018, we had accrued interest of $141, $133 and $99 and accrued penalties of $17, $17 and $15, respectively, which are not included in the above table. During the fiscal years ended June 30, 2020, 2019 and 2018, we recognized $39, $40 and $22 in interest expense and $1, $2 and $5 in penalties expense, respectively. Deferred income tax assets and liabilities were comprised of the following: As of June 30 2020 2019 DEFERRED TAX ASSETS Pension and postretirement benefits $ 1,602 $ 1,591 Loss and other carryforwards Stock-based compensation Accrued marketing and promotion Fixed assets Lease liabilities Unrealized loss on financial and foreign exchange transactions Inventory Accrued interest and taxes Other Valuation allowances TOTAL 875 398 353 218 190 64 27 20 829 1,007 421 334 232 — 73 41 15 931 (486) (442) $ 4,090 $ 4,203 DEFERRED TAX LIABILITIES Goodwill and intangible assets $ 5,775 $ 6,506 Fixed assets Lease right-of-use assets Unrealized gain on financial and foreign exchange transactions Foreign withholding tax on earnings to be repatriated Other TOTAL 1,485 185 1,413 — 169 118 366 147 239 351 $ 8,098 $ 8,656 Net operating loss carryforwards were $2.9 billion at June 30, 2020 and $3.5 billion at June 30, 2019. If unused, approximately $900 will expire between 2020 and 2039. The remainder, totaling $2.0 billion at June 30, 2020, may be carried forward indefinitely. NOTE 6 EARNINGS PER SHARE Basic net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble less preferred dividends (net of related tax benefits) by the weighted average number of common shares outstanding during the year. For fiscal years 2020 and 2018, Diluted net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble by the diluted weighted average number of common shares outstanding during the year. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method (see Note 7) and the assumed conversion of preferred stock (see Note 8). For fiscal year 2019, Diluted net earnings per common share do not include the assumed conversion of preferred stock because to do so would have been antidilutive, due to the lower Net earnings driven by the Shave Care impairment charges (see Note 4). Therefore, Diluted net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble less preferred dividends (net of related tax benefit) by the diluted weighted average number of common shares outstanding during the year. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method. Amounts in millions of dollars except per share amounts or as otherwise specified. Net earnings per share were calculated as follows: Years ended June 30 CONSOLIDATED AMOUNTS Net earnings Less: Net earnings attributable to noncontrolling interests Net earnings attributable to P&G Less: Preferred dividends, net of tax The Procter & Gamble Company 51 2020 2019 2018 $ 13,103 $ 3,966 $ 9,861 76 13,027 263 69 3,897 263 111 9,750 265 Net earnings attributable to P&G available to common shareholders (Basic) $ 12,764 $ 3,634 $ 9,485 Net earnings attributable to P&G available to common shareholders (Diluted) $ 13,027 $ 3,634 $ 9,750 SHARES IN MILLIONS Basic weighted average common shares outstanding 2,487.1 2,503.6 2,529.3 Add: Effect of dilutive securities Impact of stock options and other unvested equity awards (1) Conversion of preferred shares (2) Diluted weighted average common shares outstanding NET EARNINGS PER SHARE (3) Basic 52.7 86.0 35.9 — 32.5 94.9 2,625.8 2,539.5 2,656.7 $ 5.13 $ 1.45 $ 3.75 3.67 Diluted (1) Weighted average outstanding stock options of approximately 6 million in 2020, 13 million in 2019 and 48 million in 2018 were not included in the Diluted net earnings per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the assumed proceeds upon exercise would have exceeded the market value of the underlying common shares). 1.43 $ 4.96 $ $ (2) Despite being included in Diluted net earnings per common share, the actual conversion to common stock occurs when the preferred shares are sold. Shares may only be sold after being allocated to the ESOP participants pursuant to the repayment of the ESOP's obligations through 2035. In fiscal year 2019, weighted average outstanding preferred shares of 90 million were not included in the Diluted net earnings per share calculation because to do so would have been antidilutive, due to lower Net earnings driven by the Shave Care impairment charges (see Note 4). (3) Net earnings per share are calculated on Net earnings attributable to Procter & Gamble. NOTE 7 STOCK-BASED COMPENSATION The Company has two primary stock-based compensation programs under which we annually grant stock option, restricted stock unit (RSU) and performance stock unit (PSU) awards to key managers and directors. In our main long-term incentive program, key managers can elect to receive options or RSUs. All options vest after three years and have a 10-year life. Exercise prices on options are set equal to the market price of the underlying shares on the date of the grant. Effective in fiscal year 2017, RSUs vest and settle 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. Senior-level executives participate in an additional long-term incentive program that awards PSUs, which are paid in shares after the end of a three-year performance period subject to pre-established performance goals. Effective in fiscal year 2019, we added a Relative Total Shareholder Return (R-TSR) modifier to the PSUs, under which the number of shares ultimately granted is also impacted by the to our Company's actual shareholder consumer products competitive peer set. relative return In addition to these long-term incentive programs, we award RSUs to the Company's non-employee directors and make other minor stock option and RSU grants to employees for which the terms are not substantially different from our long- term incentive awards. A total of 150 million shares of common stock were newly authorized for issuance under the stock-based compensation plan approved by shareholders in 2019. Additionally, the number of shares available for award under the 2019 plan includes 37 million previously authorized but not awarded under the shareholders approved plan in 2014 plus any shares of Common Stock subject to outstanding awards under the 2014 Plan that are forfeited, cancelled or otherwise terminated without the issuance of shares of Common Stock as set forth in the 2019 Plan. A total of 166 million shares remain available for grant under the 2019 plan. The Company recognizes stock-based compensation expense based on the fair value of the awards at the date of grant. The fair value is amortized on a straight-line basis over the requisite service period. Awards to employees eligible for retirement prior to the award becoming fully vested are recognized as compensation expense from the grant date through the date the employee first becomes eligible to retire and is no longer required to provide services to earn the Amounts in millions of dollars except per share amounts or as otherwise specified. 52 The Procter & Gamble Company award. Stock-based compensation expense is included as part of Cost of products sold and SG&A in the Consolidated Statement of Earnings and includes an estimate of forfeitures, which is based on historical data. Total expense and related tax benefit were as follows: Years ended June 30 Stock options RSUs and PSUs Total stock-based expense 2018 2020 2019 $ 249 $ 246 $ 220 309 175 269 $ 558 $ 515 $ 395 Income tax benefit $ 97 $ 101 $ 87 We utilize an industry standard lattice-based valuation model to calculate the fair value for stock options granted. Assumptions utilized in the model, which are evaluated and revised to reflect market conditions and experience, were as follows: Years ended June 30 2020 2019 2018 Interest rate Weighted average interest rate Dividend yield Expected volatility Expected life in years 1.1 - 1.4 % 2.5 - 2.7 % 1.9 - 2.9 % 1.3 % 2.4 % 17 % 9.2 2.6 % 3.0 % 17 % 9.2 2.8 % 3.1 % 18 % 9.2 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. Amounts in millions of dollars except per share amounts or as otherwise specified. A summary of options outstanding under the plans as of June 30, 2020 and activity during the year then ended is presented below: Weighted Average Exercise Price Weighted Average Contract- ual Life in Years Aggregate Intrinsic Value Options (in thousands) 164,741 $ 79.59 14,277 115.01 (28,722) 70.34 Options Outstanding, beginning of year Granted Exercised Forfeited/expired (424) 83.23 OUTSTANDING, END OF YEAR 149,872 $ 84.71 EXERCISABLE 102,702 $ 79.54 5.5 $ 5,241 4.2 $ 4,111 The following table provides additional information on stock options: Years ended June 30 2020 2019 2018 Weighted average grant-date fair value of options granted $ 15.60 $ 13.60 $ 11.89 Intrinsic value of options exercised Grant-date fair value of options that vested Cash received from options exercised Actual tax benefit from options exercised 1,455 1,770 500 217 180 209 2,019 3,381 1,245 298 221 127 At June 30, 2020, there was $171 of compensation cost that has not yet been recognized related to stock option grants. That cost is expected to be recognized over a remaining weighted average period of 2.0 years. A summary of non-vested RSUs and PSUs outstanding under the plans as of June 30, 2020 and activity during the year then ended is presented below: RSUs PSUs Units (in thousands) Weighted Average Grant Date Fair Value Units (in thousands) Weighted Average Grant Date Fair Value 5,493 $ 84.00 1,516 114.44 88.61 (2,376) 84.61 (135) 1,295 $ 92.98 562 123.52 79.64 (799) 94.94 (10) RSU and PSU awards Non-vested at July 1, 2019 Granted Vested Forfeited Non-vested at June 30, 2020 4,498 $ 92.15 1,048 $ 117.02 At June 30, 2020, there was $251 of compensation cost that has not yet been recognized related to RSUs and PSUs. That cost is expected to be recognized over a remaining weighted average period of 1.9 years. The total grant date fair value of shares vested was $264, $205 and $175 in 2020, 2019 and 2018, 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. NOTE 8 POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN We offer various postretirement benefits to our employees. Defined Contribution Retirement Plans We have defined contribution plans, which cover the majority of our U.S. employees, as well as employees in certain other countries. These plans are fully funded. We generally make contributions to participants' accounts based on individual base salaries and years of service. Total global defined contribution expense was $317, $272 and $292 in 2020, 2019 and 2018, respectively. The primary U.S. defined contribution plan (the U.S. DC plan) comprises the majority of the expense for the Company's defined contribution plans. For the U.S. DC plan, Total contributions for this plan approximated 14% of total participants' annual wages and salaries in 2020, 2019 and 2018. is set annually. the contribution rate The Procter & Gamble Company 53 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 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, for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require cost sharing with retirees and pay a stated percentage of expenses, reduced by deductibles and other coverages. These benefits are primarily funded by ESOP Series B shares and certain other assets contributed by the Company. Amounts in millions of dollars except per share amounts or as otherwise specified. 54 The Procter & Gamble Company Obligation and Funded Status. The following provides a reconciliation of benefit obligations, plan assets and funded status of these defined benefit plans: Years ended June 30 CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year (3) Service cost Interest cost Participants' contributions Amendments Net actuarial loss/(gain) Acquisitions Special termination benefits Currency translation and other Benefit payments BENEFIT OBLIGATION AT END OF YEAR (3) CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year Actual return on plan assets Acquisitions Employer contributions Participants' contributions Currency translation and other ESOP debt impacts (4) Benefit payments FAIR VALUE OF PLAN ASSETS AT END OF YEAR FUNDED STATUS (1) Pension Benefits (1) 2019 2020 Other Retiree Benefits (2) 2020 2019 $ 17,037 $ 15,658 259 339 12 9 1,587 49 13 (283) (606) $ 17,761 $ 17,037 247 276 11 3 951 — 11 (218) (557) 664 — 180 11 (196) — (557) $ 11,382 $ 11,267 739 4 178 12 (212) — (606) $ 11,484 $ 11,382 $ (6,277) $ $ (5,655) $ $ $ $ 4,964 $ 100 160 74 (136) (85) — 2 (64) (245) 4,770 $ 5,096 $ 595 — 33 74 2 63 (245) 5,618 $ 848 $ 4,778 101 187 76 — 37 — 8 20 (243) 4,964 3,259 1,918 — 31 76 (1) 56 (243) 5,096 132 (2) (3) Primarily non-U.S.-based defined benefit retirement plans. Primarily U.S.-based other postretirement benefit plans. 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. 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. As of June 30 CLASSIFICATION OF NET AMOUNT RECOGNIZED Noncurrent assets Current liabilities Noncurrent liabilities NET AMOUNT RECOGNIZED Pension Benefits Other Retiree Benefits 2020 2019 2020 2019 $ 12 $ 19 $ 1,843 $ 1,257 (66) (52) (30) (27) (6,223) (5,622) (965) (1,098) $ (6,277) $ (5,655) $ 848 $ 132 AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI) Net actuarial loss Prior service cost/(credit) NET AMOUNTS RECOGNIZED IN AOCI $ 5,662 $ 5,062 $ 572 $ 198 214 (511) $ 5,860 $ 5,276 $ 61 $ 874 (424) 450 Amounts in millions of dollars except per share amounts or as otherwise specified. The Procter & Gamble Company 55 The accumulated benefit obligation for all defined benefit pension plans was $16.5 billion and $15.8 billion as of June 30, 2020 and 2019, respectively. Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consisted of the following: As of June 30 Projected benefit obligation Accumulated benefit obligation Fair value of plan assets Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets Projected Benefit Obligation Exceeds the Fair Value of Plan Assets 2020 2019 2020 2019 $ 12,095 $ 11,604 $ 17,635 $ 11,196 5,994 10,711 6,026 16,377 11,347 16,304 15,096 10,630 Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows: Years ended June 30 2020 2019 2018 2020 2019 2018 Pension Benefits Other Retiree Benefits AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST Service cost Interest cost Expected return on plan assets Amortization of net actuarial loss Amortization of prior service cost/(credit) Amortization of net actuarial loss/prior service cost due to settlements and curtailments Special termination benefits GROSS BENEFIT COST/(CREDIT) Dividends on ESOP preferred stock $ 247 276 $ 259 339 $ 280 348 $ (740) (732) (751) 340 25 7 11 166 — 225 26 9 13 139 — 295 28 — 8 208 — 100 160 (473) 68 (48) — 2 (191) (19) $ 101 187 (447) 66 (48) — 8 (133) (28) $ 112 177 (451) 69 (41) — 7 (127) (37) NET PERIODIC BENEFIT COST/(CREDIT) $ 166 $ 139 $ 208 $ (210) $ (161) $ (164) CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI Net actuarial loss/(gain) - current year $ 1,027 $ 1,580 $ (207) $ (1,434) Prior service cost/(credit) - current year Amortization of net actuarial loss Amortization of prior service (cost)/credit Amortization of net actuarial loss/prior service costs due to settlements and curtailments Currency translation and other TOTAL CHANGE IN AOCI NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI 3 (340) (25) 9 (225) (26) (7) (74) 584 (9) (84) 1,245 (136) (68) 48 — (26) (389) — (66) 48 — 14 (1,438) $ 750 $ 1,384 $ (599) $ (1,599) The service cost component of the net periodic benefit cost is included in the Consolidated Statements of Earnings in Cost of products sold and SG&A. All other components are included in the Consolidated Statements of Earnings in Other non- operating income/(expense), net, unless otherwise noted. Amounts expected to be amortized from AOCI into net periodic benefit cost during the year ending June 30, 2021, are as follows: Net actuarial loss Prior service cost/(credit) Pension Benefits Other Retiree Benefits $ 401 $ 25 47 (59) Amounts in millions of dollars except per share amounts or as otherwise specified. 56 The Procter & Gamble Company Assumptions. We determine our actuarial assumptions on an annual basis. These assumptions are weighted to reflect each country that may have an impact on the cost of providing retirement benefits. The weighted average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of June 30, were as follows: (1) As of June 30 Discount rate Rate of compensation increase Health care cost trend rates assumed for next year Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate) Year that the rate reaches the ultimate trend rate (1) Determined as of end of fiscal year. Pension Benefits Other Retiree Benefits 2020 2019 2020 2019 1.5 % 1.9 % 3.1 % 3.7 % 2.5 % N/A N/A N/A 2.6 % N/A N/A N/A N/A 6.6 % 4.9 % 2026 N/A 6.6 % 4.9 % 2026 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) Years ended June 30 Discount rate Expected return on plan assets Rate of compensation increase (1) Determined as of beginning of fiscal year. Pension Benefits Other Retiree Benefits 2020 2019 2018 2020 2019 2018 1.9 % 2.5 % 2.4 % 3.7 % 4.2 % 3.9 % 6.6 % 6.6 % 6.8 % 8.4 % 8.3 % 8.3 % 2.6 % 2.6 % 3.0 % N/A N/A N/A 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: Effect on the total service and interest cost components Effect on the accumulated postretirement benefit obligation One-Percentage Point Increase One-Percentage Point Decrease $ 56 $ 669 (43) (543) Plan Assets. Our investment objective for defined benefit retirement plan assets is to meet the plans' benefit obligations and to improve plan self-sufficiency for future benefit obligations. The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by assessing different investment risks and matching the actuarial projections of the plans' future liabilities and benefit payments with current as well as expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and with continual monitoring of investment managers' performance relative to the investment guidelines established with each investment manager. Amounts in millions of dollars except per share amounts or as otherwise specified. The Procter & Gamble Company 57 Our target asset allocation for the year ended June 30, 2020, and actual asset allocation by asset category as of June 30, 2020 and 2019, were as follows: Target Asset Allocation Actual Asset Allocation at June 30 Asset Category Pension Benefits Other Retiree Benefits Pension Benefits Other Retiree Benefits 2020 2019 2020 2019 Cash Debt securities Equity securities TOTAL — % 67 % 33 % 100 % 2 % 3 % 95 % 100 % 1 % 66 % 33 % 100 % 1 % 63 % 36 % 100 % 3 % 2 % 95 % 100 % 3 % 2 % 95 % 100 % The following table sets forth the fair value of the Company's plan assets as of June 30, 2020 and 2019 segregated by level within the fair value hierarchy (refer to Note 9 for further discussion on the fair value hierarchy and fair value principles). Investments valued using net asset value as a practical expedient 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. As of June 30 ASSETS AT FAIR VALUE Cash and cash equivalents Company common stock Company preferred stock (1) Fixed income securities (2) Insurance contracts (3) Pension Benefits Other Retiree Benefits Fair Value Hierarchy Level 2020 2019 Fair Value Hierarchy Level 2020 2019 1 2 3 $ 61 $ — — 1,991 115 47 — — 265 113 1 1 2 2 $ 121 $ 217 5,139 12 — 111 179 4,657 1 — TOTAL ASSETS IN THE FAIR VALUE HIERARCHY Investments valued at net asset value (4) TOTAL ASSETS AT FAIR VALUE (1) Company preferred stock is valued based on the value of Company common stock and is presented net of ESOP debt discussed below. (2) $ 5,618 11,382 10,957 $ 11,484 5,489 9,317 2,167 Fixed income securities, classified as Level 2, are estimated by using pricing models or quoted prices of securities with similar characteristics. Fair values of insurance contracts are valued based on either their cash equivalent value 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. The activity for Level 3 assets is not significant for all years presented. Investments valued using net asset value as a practical expedient are primarily equity and fixed income collective funds. (3) (4) 5,096 4,948 129 425 148 Management's best estimate of cash Cash Flows. requirements and discretionary contributions for the defined benefit retirement plans and other retiree benefit plans for the year ending June 30, 2021, is $197 and $44, respectively. 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 EXPECTED BENEFIT PAYMENTS 2021 2022 2023 2024 2025 $ 559 $ 534 556 573 608 196 205 214 221 225 2026 - 2030 3,258 1,199 Amounts in millions of dollars except per share amounts or as otherwise specified. 58 The Procter & Gamble Company Employee Stock Ownership Plan We maintain the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs. The ESOP borrowed $1.0 billion in 1989 and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the U.S. DC plan. Principal and interest requirements of the borrowing were paid by the Trust from dividends on the preferred shares and from advances provided by the Company. The original borrowing of $1.0 billion has been repaid in full, and advances from the Company of $33 remain outstanding at June 30, 2020. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $3.03 per share. The liquidation value is $6.82 per share. In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares, net of the ESOP's debt, are considered plan assets of the other retiree benefits plan discussed above. Debt service requirements are funded by preferred stock dividends, cash contributions and advances provided by the Company, of which $928 are outstanding at June 30, 2020. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $3.03 per share. The liquidation value is $12.96 per share. including Our ESOP accounting practices are consistent with current ESOP accounting guidance, the permissible continuation of certain provisions from prior accounting guidance. ESOP debt, which is guaranteed by the Company, is recorded as debt (see Note 10) with an offset to the Reserve for ESOP debt retirement, which is presented within Shareholders' equity. Advances to the ESOP by the Company are recorded as an increase in the Reserve for ESOP debt retirement. Interest incurred on the ESOP debt is recorded as Interest expense. Dividends on all preferred shares, net of related tax benefits, are charged to Retained earnings. The series A and B preferred shares of the ESOP are allocated to employees based on debt service requirements. The number of preferred shares outstanding at June 30 was as follows: Shares in thousands 2020 2019 2018 Allocated Unallocated 29,591 31,600 34,233 2,479 3,259 4,117 TOTAL SERIES A 32,070 34,859 38,350 Allocated Unallocated 27,894 26,790 25,895 24,418 26,471 28,512 TOTAL SERIES B 52,312 53,261 54,407 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 the net to manage volatility associated with exposures, we enter into various financial transactions that we account for using the applicable accounting guidance for These instruments and hedging activities. derivative financial transactions are governed by our policies covering acceptable counterparty exposure, instrument types and other hedging practices. If the Company elects to do so and if the instrument meets certain specified accounting criteria, management designates derivative instruments as cash flow hedges, fair value hedges or net investment hedges. We record derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge. We generally have a high degree of effectiveness between the exposure being hedged and the hedging instrument. 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 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, 2020, was not material. The Company has not been required to post collateral as a result of these contractual features. Interest Rate Risk Management termination of 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. We designate certain interest rate swaps on fixed rate debt that meet specific accounting criteria as fair value 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 earnings. Foreign Currency Risk Management We manufacture and sell our products and finance our operations in a number of countries throughout the world. As a result, we are exposed to movements in foreign currency exchange rates. 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 immediately recognized in earnings. the underlying exposure are both To manage exchange rate risk related to our intercompany financing, we primarily use forward contracts and currency swaps. The change in fair value of these non-qualifying in earnings, instruments substantially offsetting the foreign currency mark-to-market impact of the related exposure. Net Investment Hedging immediately recognized is 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 and offset the change in the value of the net investment being hedged. The time value component of the net investment hedge currency swaps is excluded from the assessment of hedge effectiveness. Changes in the fair value of the swap, including changes in the fair value of the excluded time value component, are recognized in 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. As of and during the years ended June 30, 2020 and 2019, we did not have any financial commodity hedging activity to manage such exposures. Insurance We self-insure for most insurable risks. However, we purchase insurance for Directors and Officers Liability and certain other coverage where it is required by law or by contract. Fair Value Hierarchy Accounting guidance on fair value measurements for certain financial assets and liabilities requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following categories: The Procter & Gamble Company 59 • • • Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: inputs or Observable market-based 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. 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 and forward and spot prices for currencies. In circumstances where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value. Generally, the fair value of our Level 3 instruments is estimated as the net present value of expected future cash flows based on external inputs. Assets and Liabilities Measured at Fair Value Other investments had a fair value of $67 and $169 as of June 30, 2020 and 2019, respectively, and are presented in Other noncurrent assets. During the year ended June 30, 2020, the Company sold all of its existing U.S. government securities and corporate bond securities. Such securities had fair values of $3.6 billion and $2.4 billion, respectively, and were presented in Available-for-sale investment securities at June 30, 2019. The Company's investments measured at fair value are generally classified as Level 2 within the fair value hierarchy. Cash equivalents were $14.6 billion and $3.0 billion as of June 30, 2020 and 2019, respectively and are classified as Level 1 within the fair value hierarchy. There are no other material investment balances classified as Level 1 or Level 3 within the fair value hierarchy, or using net asset value as a practical expedient. Fair values are generally estimated based upon quoted market prices for similar instruments. The fair value of long-term debt was $29.0 billion and $25.4 billion as of June 30, 2020 and 2019, respectively. This includes the current portion of long-term debt instruments ($2.5 billion and $3.4 billion as of June 30, 2020 and 2019, respectively). Certain long-term debt (debt designated as a fair value hedge) is recorded at fair value. All other long- term debt is recorded at amortized cost, but is measured at fair value for disclosure purposes. We consider our debt to be Level 2 in the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments. Amounts in millions of dollars except per share amounts or as otherwise specified. 60 The Procter & Gamble Company Disclosures about Financial Instruments The notional amounts and fair values of financial instruments used in hedging transactions as of June 30, 2020 and 2019 are as follows: As of June 30 Notional Amount Fair Value Asset Fair Value (Liability) 2020 2019 2020 2019 2020 2019 DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS Interest rate contracts $ 7,114 $ 7,721 $ 269 $ 177 $ — $ (1) DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS Foreign currency interest rate contracts TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS $ 3,856 $ 3,157 $ 10,970 $ 10,878 $ $ 26 $ 35 295 $ 212 $ $ (41) $ (24) (41) $ (25) DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS Foreign currency contracts $ 5,986 $ 6,431 $ 23 $ 27 $ (25) $ (20) TOTAL DERIVATIVES AT FAIR VALUE $ 16,956 $ 17,309 $ 318 $ 239 $ (66) $ (45) 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 fair value of the interest rate derivative asset/liability directly offsets the cumulative amount of the fair value hedging adjustment included in the carrying amount of the underlying debt obligation. The carrying amount of the underlying debt obligation, which includes the unamortized discount or premium and the fair value adjustment, was $7.4 billion and $7.9 billion as of June 30, 2020 and 2019, respectively. In addition to the foreign currency derivative contracts 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 adjustment for the foreign currency transaction gain or loss on those instruments, was $16.0 billion and $17.2 billion as of June 30, 2020 and 2019, respectively. All of the Company's derivative assets and liabilities are measured at fair value that is derived from observable market data, including interest rate yield curves and foreign exchange rates, and are classified as Level 2 within the fair value hierarchy. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers between levels during the periods presented. In addition, there was no significant activity within the Level 3 assets and liabilities during the periods presented. Except for the impairment of the Gillette indefinite-lived intangible asset discussed in Note 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, 2020 and 2019. Before tax gains/(losses) on our financial instruments in hedging relationships are categorized as follows: Amount of Gain/(Loss) Recognized in OCI on Derivatives 2019 2020 66 $ Years ended June 30 DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2) Foreign currency interest $ rate contracts (1) For the derivatives in net investment hedging relationships, the amount of gain/(loss) excluded from effectiveness testing, which was recognized in earnings, was $69 and $70 for the fiscal year ended June 30, 2020 and 2019, respectively. In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The amount of gain/(loss) recognized in AOCI for such instruments was $189 and $299, as of June 30, 2020 and 2019, respectively. 47 (2) Amounts in millions of dollars except per share amounts or as otherwise specified. Amount of Gain/(Loss) Recognized in Earnings Years ended June 30 DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS 2020 2019 Interest rate contracts DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS 93 $ $ 104 Foreign currency contracts $ (83) $ 54 The gain/(loss) on the derivatives in fair value hedging relationships is fully offset by the mark-to-market impact of the related exposure. These are both recognized in the Consolidated Statement of Earnings in Interest Expense. The gain/(loss) on derivatives not designated as hedging instruments is substantially offset by the currency mark-to- market of the related exposure. These are both recognized in the Consolidated Statements of Earnings in SG&A. NOTE 10 SHORT-TERM AND LONG-TERM DEBT As of June 30 LONG-TERM DEBT 2020 2019 The Procter & Gamble Company 61 2020 2019 1.90% USD note due October 2020 $ As of June 30 DEBT DUE WITHIN ONE YEAR Current portion of long-term debt $ 2,508 $ 3,388 Commercial paper Other TOTAL Short-term weighted average interest rates (1) 8,545 130 6,183 126 $ 11,183 $ 9,697 (1) 0.5 % Short-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9. 0.7 % 4.13% EUR note due December 2020 9.36% ESOP debentures due 2020-2021 (1) 1.85% USD note due February 2021 1.70% USD note due November 2021 2.00% EUR note due November 2021 2.30% USD note due February 2022 2.15% USD note due August 2022 2.00% EUR note due August 2022 3.10% USD note due August 2023 $ 600 674 119 600 875 843 1,000 1,250 1,124 1,000 1.13% EUR note due November 2023 1,405 0.50% EUR note due October 2024 0.63% EUR note due October 2024 2.45% USD note due March 2025 2.70% USD note due February 2026 2.45% USD note due November 2026 2.80% USD note due March 2027 562 899 750 600 875 500 600 682 228 600 875 852 1,000 1,250 1,137 1,000 1,421 568 909 — 600 875 — 4.88% EUR note due May 2027 1,124 1,137 2.85% USD note due August 2027 1.20% EUR note due October 2028 1.25% EUR note due October 2029 3.00% USD note due March 2030 5.55% USD note due March 2037 1.88% EUR note due October 2038 3.55% USD note due March 2040 3.50% USD note due October 2047 3.60% USD note due March 2050 Finance lease obligations All other long-term debt 750 899 562 1,500 763 562 1,000 600 1,250 — 750 909 568 — 763 568 — 600 — 33 3,359 5,858 Current portion of long-term debt (2,508) (3,388) TOTAL Long-term weighted average interest rates (2) (1) Debt issued by the ESOP is guaranteed by the Company and is $ 20,395 $ 23,537 2.3 % 2.4 % 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: 2022 Years ending June 30 2021 2023 Debt maturities $2,508 $2,830 $2,425 $2,481 $2,743 The Procter & Gamble Company fully and unconditionally guarantees the registered debt and securities issued by its 100% owned finance subsidiaries. 2024 2025 Amounts in millions of dollars except per share amounts or as otherwise specified. 62 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 AOCI by component: Changes in Accumulated Other Comprehensive Income/(Loss) by Component BALANCE at JUNE 30, 2018 OCI before reclassifications (1) Amounts reclassified from AOCI into the Consolidated Statement of Earnings (2) Net current period OCI Reclassification to retained earnings in accordance with ASU 2018-02 (3) Less: Other comprehensive income/(loss) attributable to non-controlling interests BALANCE at JUNE 30, 2019 OCI before reclassifications (4) Amounts reclassified from AOCI into the Consolidated Statement of Earnings (5) Net current period OCI Less: Other comprehensive income/(loss) attributable to non-controlling interests Investment Securities Post- retirement Benefits Foreign Currency Translation Total AOCI $ (173) $ (4,058) $ (10,518) $ (14,749) 167 17 184 — — 11 (43) (213) (89) 212 169 — (213) 229 140 (308) (18) (326) 1 — 1 (4,198) (10,749) (14,936) (10) (453) (1,083) (1,546) (2) (12) 303 — 301 (150) (1,083) (1,245) — 2 (18) (16) BALANCE at JUNE 30, 2020 (4,350) $ (11,814) $ (16,165) (1) Net of tax benefit)/expense of $0, $(44) and $78 for gains/losses on investment securities, postretirement benefit items and foreign (1) $ $ currency translation, respectively, for the period ended June 30, 2019. (2) Net of tax (benefit)/expense of $0, $66 and $0 for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively, for the period ended June 30, 2019. (3) Adjustment made to early adopt ASU 2018-02: "Reclassification of Certain Effects from Accumulated Other Comprehensive Income." (4) Net of tax (benefit)/expense of $(1), $(131) and $59 for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively, for the period ended June 30, 2020. (5) Net of tax (benefit)/expense of $0, $89 and $0 for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively, for the period ended June 30, 2020. The below provides additional details on amounts reclassified from AOCI into the Consolidated Statement of Earnings: • • Investment securities: amounts reclassified from AOCI into Other non-operating income, net. Postretirement 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). NOTE 12 LEASES The Company determines whether a contract contains a lease at the inception of a contract by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. We lease certain real estate, machinery, equipment, vehicles and office equipment for varying periods. Many of these leases include an option to either renew or terminate the lease. For purposes of calculating lease liabilities, these options are included within the lease term when it has become reasonably certain that the Company will exercise such options. The incremental borrowing rate utilized to calculate our lease liabilities is based on the information available at commencement date, as most of the leases do not provide an implicit borrowing rate. Our operating lease agreements do not contain any material guarantees or restrictive covenants. The Company does not have any material finance leases or sublease activities. The Company incurred lease expense for operating leases of $347, $341 and $340 during the years ended June 30, 2020, 2019 and 2018, respectively. Total cash paid for amounts included in the measurement of lease liabilities during the year ended June 30, 2020 was $271. Short-term leases, defined as leases with initial terms of 12 months or less, are not reflected on the Consolidated Balance Sheets. Lease expense for such short-term leases is not material. The most significant assets in our leasing portfolio relate to real estate and vehicles. For purposes of calculating lease liabilities for Amounts in millions of dollars except per share amounts or as otherwise specified. leases, we have combined such components. lease and non-lease The right-of-use assets obtained in exchange for new lease liabilities were $126 for the year ended June 30, 2020. Supplemental balance sheet and other information related to leases is as follows: Operating leases: Other noncurrent assets $ 850 June 30, 2020 Accrued and other liabilities Other noncurrent liabilities Total operating lease liabilities $ 239 652 891 Weighted average remaining lease term: Operating leases 6.5 years Weighted average discount rate: Operating leases 4.3 % At June 30, 2020, future payments of operating lease liabilities were as follows: $ 1 year 2 years 3 years 4 years 5 years Over 5 years Total lease payments Less: Interest Present value of lease liabilities $ Operating Leases June 30, 2020 239 191 161 134 86 212 1,023 (132) 891 The Procter & Gamble Company 63 As of June 30, 2019, minimum lease payments under non- cancelable operating leases by fiscal year were expected to be: 2020 2021 2022 2023 2024 After 2024 $ Operating Leases June 30, 2019 263 209 165 141 121 244 Total lease payments $ 1,143 NOTE 13 COMMITMENTS AND CONTINGENCIES Guarantees conjunction with transactions, primarily certain In 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 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. for In certain situations, we guarantee loans for suppliers and customers. The total amount of guarantees issued under such arrangements is not material. Off-Balance Sheet Arrangements We do not have off-balance sheet financing arrangements, including variable interest entities, that have a material impact on our financial statements. Purchase Commitments 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: 2022 2023 2024 2025 2021 There- after Years ending June 30 Purchase obligations $ 782 $ 257 $ 155 $ 92 $ 53 $ 238 Such amounts represent minimum commitments under take- or-pay agreements with suppliers and are in line with expected usage. include purchase These amounts commitments related to service contracts for information technology, human resources management and facilities management activities that have been outsourced to third- Amounts in millions of dollars except per share amounts or as otherwise specified. 64 The Procter & Gamble Company 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. Litigation We are subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, contracts, environmental, patent and trademark matters, labor and employment matters and tax. advertising, liability, product 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. to contingencies pursuant We are also subject 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 14 MERCK ACQUISITION On November 30, 2018, we completed our acquisition of the OTC healthcare business of Merck OTC for $3.7 billion (based on exchange rates at the time of closing) in an all- This business primarily sells OTC cash transaction. 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. During the quarter ended December 31, 2019, we completed the allocation of the purchase price to the individual assets acquired and liabilities assumed. The allocation is based on the final determination of fair values of the assets and Amounts in millions of dollars except per share amounts or as otherwise specified. liabilities acquired. The following the allocation of purchase price related to the Merck OTC business as of the date of the acquisition: table presents Amounts in millions Current assets Property, plant and equipment Intangible assets Goodwill Other non-current assets Total Assets Acquired Current liabilities Deferred income taxes Non-current liabilities Total Liabilities Acquired Noncontrolling Interest (1) November 30, 2018 421 $ 119 2,134 2,083 209 4,966 232 763 94 1,089 169 $ $ $ $ 3,708 Net Assets Acquired (1) Represents a 48% minority ownership interest in the Merck $ India company. The acquisition resulted in $2.1 billion in goodwill, of which approximately $180 million was expected to be deductible for tax purposes as of the acquisition date. All of this goodwill was allocated to the Health Care Segment. The purchase price allocation to Merck OTC's identifiable intangible assets and their average useful lives is as follows: Amounts in millions Intangible Assets with Determinable Lives Fair Value Brands $ Patents and technology Customer relationships 701 162 325 Total $ 1,188 Average Useful Life 14 10 20 15 Intangible Assets with Indefinite Lives 946 Brands Total Intangible Assets $ 2,134 The majority of the intangible valuation relates to brand intangibles. Our assessment as to brand intangibles that have an indefinite life and those that have a definite life was based on a number of factors, including competitive environment, market share, brand history, product life cycles, operating plan and the 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. The customer relationships intangibles are related to Merck OTC’s relationships with health care professionals, retailers and distributors. NOTE 15 QUARTERLY RESULTS (UNAUDITED) Quarters Ended NET SALES OPERATING INCOME GROSS MARGIN NET EARNINGS/(LOSS): Net earnings/(loss) The Procter & Gamble Company 65 Sep 30 Dec 31 Mar 31 Jun 30 Total Year 2019-2020 $ 17,798 $ 18,240 $ 17,214 $ 17,698 $ 70,950 2018-2019 16,690 17,438 16,462 17,094 67,684 2019-2020 4,290 2018-2019 3,554 2019-2020 2018-2019 51.0 % 49.2 % 2019-2020 3,617 2018-2019 3,211 4,482 3,896 51.4 % 48.9 % 3,743 3,216 3,717 3,194 3,453 3,481 15,706 3,229 (5,192) 5,487 49.4 % 48.8 % 49.5 % 47.7 % 50.3 % 48.6 % 2,957 2,786 13,103 2,776 (5,237) 3,966 2,917 2,800 13,027 2,745 (5,241) 3,897 Net earnings/(loss) attributable to Procter & Gamble 2019-2020 3,593 2018-2019 3,199 DILUTED NET EARNINGS/(LOSS) PER COMMON SHARE (1) (2) 2019-2020 $ 2018-2019 1.36 1.22 $ 1.41 1.22 $ 1.12 1.04 $ 1.07 $ (2.12) 4.96 1.43 (1) Diluted net earnings/(loss) per share is calculated on Net earnings/(loss) attributable to Procter & Gamble. (2) Diluted net earnings/(loss) per share in each quarter is computed using the weighted average number of shares outstanding during that quarter while Diluted net earnings/(loss) per share for the full year is computed using the weighted average number of shares outstanding during the year. In the quarter ended June 30, 2019, the Company reported a Net loss attributable to P&G, driven by the Shave Care impairment charges discussed in Note 4. This caused certain of our equity instruments to be antidilutive for the full year (preferred shares) and for the quarter ended June 30, 2019 (preferred shares and equity awards). Because these securities were dilutive during the first three quarters of this fiscal year, the sum of the four quarters' Diluted net earnings/(loss) per share will not equal the full-year Diluted net earnings per common share. 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 Chairman of the Board, President and Chief Executive Officer, David S. Taylor, and the Company's Vice Chairman, Chief Operating Officer and 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. 66 The Procter & Gamble Company PART III Item 10. Directors, Executive Officers and Corporate Governance. The Board of Directors has determined that the following members of the Audit Committee are independent and are Audit Committee financial experts as defined by SEC rules: Ms. Patricia A. Woertz (Chair) and Ms. Christine M. McCarthy. The information required by this item is incorporated by reference to the following sections of the 2020 Proxy Statement filed pursuant to Regulation 14A: the section entitled Election of Directors; the Corporate Governance section entitled Board Meetings and Committees of the Board; the subsection of the Corporate Governance section entitled Code of Ethics; the subsections of the Other Matters section entitled Director Nominations for Inclusion in the 2021 Proxy Statement and entitled Shareholder Recommendations of Board Nominees and Committee Process for Recommending Board Nominees; the subsection of and the section entitled Delinquent Section 16(a) Reports. Pursuant to the Instruction to Item 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 2020 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 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. Interlocks and 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, 2020. The table includes the following plans: The Procter & Gamble 1992 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 2014 Stock and Incentive Compensation Plan; and The Procter & Gamble 2019 Stock and Incentive Compensation Plan. (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)) Plan Category Equity compensation plans approved by security holders $84.7316 149,915,111 Options Restricted Stock Units (RSUs)/Performance Stock Units (PSUs) TOTAL (1) Of the plans listed above, only The Procter & Gamble 2019 Stock and Incentive Compensation Plan (the “2019 Plan”) allows for future grants of securities. The maximum number of shares that may be granted under the 2019 Plan is approximately 187 million shares (inclusive of unissued shares that were carried over from the Procter & Gamble Company 2014 Stock and Incentive Compensation Plan), plus any shares of Common Stock subject to outstanding awards under the 2014 Plan that are forfeited, cancelled or otherwise terminated without the issuance of shares of Common Stock as set forth in the 2019 Plan. 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 five shares for each share awarded. Total shares available for future issuance under this plan is 166 million. 9,814,991 159,730,102 N/A $84.7316 (1) (2) (1) (2) Weighted average exercise price of outstanding options only. Additional information required by this item is incorporated by reference to the 2020 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 entitled Delinquent subsection the including Section 16(a) 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 2020 Proxy Statement filed pursuant to Regulation 14A: the subsections The Procter & Gamble Company 67 of the Corporate Governance section entitled Director Independence and Review and Approval of Transactions with Related Persons. Item 14. Principal Accountant Fees and Services. The information required by this item is incorporated by reference to the following section of the 2020 Proxy Statement filed pursuant to Regulation 14A: Report of the Audit Committee, which ends with the subsection entitled Services Provided by Deloitte. Item 15. Exhibits and Financial Statement Schedules. 1. Financial Statements: PART IV 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, 2020, 2019 and 2018 Consolidated Statements of Other Comprehensive Income - for years ended June 30, 2020, 2019 and 2018 Consolidated Balance Sheets - as of June 30, 2020 and 2019 Consolidated Statements of Shareholders' Equity - for years ended June 30, 2020, 2019 and 2018 Consolidated Statements of Cash Flows - for years ended June 30, 2020, 2019 and 2018 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. EXHIBITS 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 (Incorporated by reference to Exhibit (4-3) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). (4-4) - Description of the Company’s 0.625% Notes due 2024, 1.200% Notes due 2028, and 1.875% Notes due 2038 (Incorporated by reference to Exhibit (4-4) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). (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 (Incorporated by reference to Exhibit (4-5) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). (4-6) - Description of the Company’s 0.500% Notes due 2024 and 1.250% Notes due 2029 (Incorporated by reference to Exhibit (4-6) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). 68 The Procter & Gamble Company (4-7) - Description of the Company’s 1.375% Notes due 2025 and 1.800% Notes due 2029 (Incorporated by reference to Exhibit (4-7) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). (4-8) - Description of the Company’s 1.125% Notes due 2023 (Incorporated by reference to Exhibit (4-8) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). (4-9) - Description of the Company’s 2.000% Notes due 2021 (Incorporated by reference to Exhibit (4-10) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). (4-10) - Description of the Company’s 2.000% Notes due 2022 (Incorporated by reference to Exhibit (4-11) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). Exhibit (10-1) - The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as 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’s Annual Report on Form 10-K for the year ended 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’s Annual Report on Form 10-K for the year ended June 30, 2018).* (10-3) - The Procter & Gamble Executive Group Life Insurance Policy (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018).* (10-4) - Summary of the Company’s Retirement Plan Restoration Program (Incorporated by reference to Exhibit (10-5) of the Company's Form 10-Q for the quarter ended December 31, 2019); 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) - Summary of the Company’s Long-Term Incentive Program (Incorporated by reference to Exhibit (10-3) of the Company's Form 10-Q for the quarter ended December 31, 2019); related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-6) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019).* (10-6) - The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-2) of the Company's Form 10-Q for the quarter ended March 31, 2020).* (10-7) - Summary of the Company's Short Term Achievement Reward Program (Incorporated by reference to Exhibit (10-4) of the Company’s Form 10-Q for the quarter ended December 31, 2019); 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).* (10-8) - Company's Forms of Separation Agreement & Release (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended March 31, 2020) ; Company's Form of Separation Letter and Release (Incorporated by reference to Exhibit (10-6) of the Company's Form 10-Q for the quarter ended December 31, 2019).* (10-9) - Summary of personal benefits available to certain officers and non-employee directors (Incorporated by reference to Exhibit (10-3) of the Company's Form 10-Q for the quarter ended September 30, 2018).* (10-10) - The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-14) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). * (10-11) - The Gillette Company Personal Financial Planning Reimbursement Program (Incorporated by reference to Exhibit (10-15) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). * (10-12) - The Gillette Company Senior Executive Financial Planning Program (Incorporated by reference to Exhibit (10-16) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). * (10-13) - The Gillette Company Estate Preservation (Incorporated by reference to Exhibit (10-17) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). * (10-14) - The Gillette Company Deferred Compensation Plan (Incorporated by reference to Exhibit (10-18) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). * (10-15) - Senior Executive Recoupment Policy (Incorporated by reference to Exhibit (10-19) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018).* (10-16) - 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 (10-20) of the Company's Annual Report on Form 10-K for the year ended June 30, 2017). * (10-17) - 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 (10-21) of the Company's Annual Report on Form 10-K for the year ended 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 (10-21) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018). * The Procter & Gamble Company 69 (10-18) - 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). * (10-19) - The Procter & Gamble Performance Stock Program Summary (Incorporated by reference to Exhibit (10-3) of the Company's Form 10-Q for the quarter ended March 31, 2020); related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-22) of the Company's Annual Report on Form 10-K for the year ended June 30, 2019).* (10-20) - The Procter & Gamble 2013 Non-Employee Directors' Stock Plan (Incorporated by reference to Exhibit (10-3) of the Company's Form 10-Q for the quarter ended December 31, 2013). * (10-21) - 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 2019 Stock and Incentive Compensation Plan and The Procter & Gamble 2014 Stock and Incentive Compensation Plan (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended December 31, 2019). * (10-22) - The Procter & Gamble 2014 Stock and Incentive Compensation Plan - Additional terms and conditions (Incorporated by reference to Exhibit (10-26) of the Company's Annual Report on Form 10-K for the year ended June 30, 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, 2016). * (10-23) - The Procter & Gamble 2019 Stock and Incentive Compensation Plan, which was originally adopted by shareholders at the annual meeting on October 8, 2019 (Incorporated by reference to Exhibit (10-1) of the Company’s Current Report on Form 8-K filed October 11, 2019); and the Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2019 Stock and Incentive Compensation Plan and The Procter & Gamble 2014 Stock and Incentive Compensation Plan (Incorporated by reference to Exhibit (10-1) of the Company Form 10-Q for the quarter ended December 31, 2019). * (10-24) - The Procter & Gamble 2019 Stock and Incentive Compensation Plan - Additional terms and conditions. * + (10-25) - The Procter & Gamble 2019 Stock and Incentive Compensation Plan - Related correspondence. * + 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) Inline XBRL Instance Document 101.SCH (1) Inline XBRL Taxonomy Extension Schema Document 101.CAL (1) Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF (1) Inline XBRL Taxonomy Definition Linkbase Document 101.LAB (1) Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE (1) Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) (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. Item 16. Form 10-K Summary. Not applicable. 70 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 06, 2020 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 06, 2020 /s/ JON R. MOELLER (Jon R. Moeller) /s/ VALARIE L. SHEPPARD (Valarie L. Sheppard) /s/ FRANCIS S. BLAKE (Francis S. Blake) /s/ ANGELA F. BRALY (Angela F. Braly) /s/ AMY L. CHANG (Amy L. Chang) /s/ SCOTT D. COOK (Scott D. Cook) /s/ JOSEPH JIMENEZ (Joseph Jimenez) /s/ TERRY J. LUNDGREN (Terry J. Lundgren) /s/ CHRISTINE M. MCCARTHY (Christine M. McCarthy) /s/ W. JAMES MCNERNEY, JR. (W. James McNerney, Jr.) /s/ NELSON PELTZ (Nelson Peltz) /s/ MARGARET C. WHITMAN (Margaret C. Whitman) /s/ PATRICIA A. WOERTZ (Patricia A. Woertz) Vice Chairman, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) Controller and Treasurer and Group Executive Vice President - Company Transition Leader (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director Director Director August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 August 06, 2020 The Procter & Gamble Company 71 EXHIBIT INDEX 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 (Incorporated by reference to Exhibit (4-3) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019) + (4-4) - Description of the Company’s 0.625% Notes due 2024, 1.200% Notes due 2028, and 1.875% Notes due 2038 (Incorporated by reference to Exhibit (4-4) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). + (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 (Incorporated by reference to Exhibit (4-5) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). + (4-6) - Description of the Company’s 0.500% Notes due 2024 and 1.250% Notes due 2029 (Incorporated by reference to Exhibit (4-6) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). + (4-7) - Description of the Company’s 1.375% Notes due 2025 and 1.800% Notes due 2029 (Incorporated by reference to Exhibit (4-7) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). + (4-8) - Description of the Company’s 1.125% Notes due 2023 (Incorporated by reference to Exhibit (4-8) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). + (4-9) - Description of the Company’s 2.000% Notes due 2021 (Incorporated by reference to Exhibit (4-10) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). + (4-10) - Description of the Company’s 2.000% Notes due 2022 (Incorporated by reference to Exhibit (4-11) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). + Exhibit (10-1) - The Procter & Gamble 2001 Stock and Incentive Compensation Plan (as 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’s Annual Report on Form 10-K for the year ended 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’s Annual Report on Form 10-K for the year ended June 30, 2018). (10-3) - The Procter & Gamble Executive Group Life Insurance Policy (Incorporated by reference to Exhibit (10-3) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018). (10-4) - Summary of the Company’s Retirement Plan Restoration Program (Incorporated by reference to Exhibit (10-5) of the Company's Form 10-Q for the quarter ended December 31, 2019); 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) - Summary of the Company’s Long-Term Incentive Program (Incorporated by reference to Exhibit (10-3) of the Company's Form 10-Q for the quarter ended December 31, 2019); related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-6) of the Company’s Annual report on Form 10-K for the year ended June 30, 2019). (10-6) - The Procter & Gamble Company Executive Deferred Compensation Plan (Incorporated by reference to Exhibit (10-2) of the Company's Form 10-Q for the quarter ended March 31, 2020). (10-7) - Summary of the Company's Short Term Achievement Reward Program (Incorporated by reference to Exhibit (10-4) of the Company’s Form 10-Q for the quarter ended December 31, 2019); 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). (10-8) - Company's Forms of Separation Agreement & Release (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended March 31, 2020) ; Company's Form of Separation Letter and Release (Incorporated by reference to Exhibit (10-6) of the Company's Form 10-Q for the quarter ended December 31, 2019). 72 The Procter & Gamble Company (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). (10-10) - The Gillette Company Executive Life Insurance Program (Incorporated by reference to Exhibit (10-14) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). (10-11) - The Gillette Company Personal Financial Planning Reimbursement Program (Incorporated by reference to Exhibit (10-15) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). (10-12) - The Gillette Company Senior Executive Financial Planning Program (Incorporated by reference to Exhibit (10-16) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). (10-13) - The Gillette Company Estate Preservation (Incorporated by reference to Exhibit (10-17) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). (10-14) - The Gillette Company Deferred Compensation Plan (Incorporated by reference to Exhibit (10-18) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2017). (10-15) - Senior Executive Recoupment Policy (Incorporated by reference to Exhibit (10-19) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018). (10-16) - 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 (10-20) of the Company's Annual Report on Form 10-K for the year ended June 30, 2017). (10-17) - 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 (10-21) of the Company's Annual Report on Form 10-K for the year ended 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 (10-21) of the Company’s Annual Report on Form 10-K for the year ended June 30, 2018). (10-18) - 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). (10-19) - The Procter & Gamble Performance Stock Program Summary (Incorporated by reference to Exhibit (10-3) of the Company's Form 10-Q for the quarter ended March 31, 2020); related correspondence and terms and conditions (Incorporated by reference to Exhibit (10-22) of the Company's Annual Report on Form 10-K for the year ended June 30, 2019). (10-20) - The Procter & Gamble 2013 Non-Employee Directors' Stock Plan (Incorporated by reference to Exhibit (10-3) of the Company's Form 10-Q for the quarter ended December 31, 2013). (10-21) - 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 2019 Stock and Incentive Compensation Plan and The Procter & Gamble 2014 Stock and Incentive Compensation Plan (Incorporated by reference to Exhibit (10-1) of the Company's Form 10-Q for the quarter ended December 31, 2019). (10-22) - The Procter & Gamble 2014 Stock and Incentive Compensation Plan - Additional terms and conditions (Incorporated by reference to Exhibit (10-26) of the Company's Annual Report on Form 10-K for the year ended June 30, 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, 2016). (10-23) - The Procter & Gamble 2019 Stock and Incentive Compensation Plan, which was originally adopted by shareholders at the annual meeting on October 8, 2019 (Incorporated by reference to Exhibit (10-1) of the Company’s Current Report on Form 8-K filed October 11, 2019); and the Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2019 Stock and Incentive Compensation Plan and The Procter & Gamble 2014 Stock and Incentive Compensation Plan (Incorporated by reference to Exhibit (10-1) of the Company Form 10-Q for the quarter ended December 31, 2019). (10-24) - The Procter & Gamble 2019 Stock and Incentive Compensation Plan - Additional terms and conditions. + (10-25) - The Procter & Gamble 2019 Stock and Incentive Compensation Plan - Related correspondence. + 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. + The Procter & Gamble Company 73 Exhibit (99-1) - Summary of Directors and Officers Insurance Program. + 101.INS (1) 101.SCH (1) 101.CAL (1) 101.DEF (1) 101.LAB (1) 101.PRE (1) Inline XBRL Instance Document Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculation Linkbase Document Inline XBRL Taxonomy Definition Linkbase Document Inline XBRL Taxonomy Extension Label Linkbase Document Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) (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. 74 • The Procter & Gamble Company Measures Not Defined by U.S. GAAP In accordance with the SEC’s Regulation G, the following provides definitions of the non-GAAP measures used in Procter & Gamble’s 2020 Annual Report and the reconciliation to the most closely related GAAP measure. We believe that these measures provide useful perspective on 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. Of these, certain 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. Organic sales growth* Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of the July 1, 2018 adoption of new accounting standard for “Revenue from Contracts with Customers,” the impact of India Goods and Services Tax (GST) in fiscal 2018, acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. The following tables provide a numerical reconciliation of organic sales growth to reported net sales growth: Net Sales Growth Foreign Exchange Impact Acquisitions & Divestitures Impact/Other 1 Organic Sales Growth 2% 4% (2)% 2% -1% -% -% -% 6% 5% 1% 2% FY 2020 2019 2018 5% 1% 3% 2017 -% Past 2 Years Stacked Organic Growth 11% 6% 3% Adjusted free cash flow and Adjusted free cash flow productivity* Adjusted free cash flow is defined as operating cash flow less capital spending, tax payments related to the Merck OTC Consumer Healthcare acquisition in 2020 and payments for transitional tax resulting from the U.S. Tax Act in 2020 and 2019. 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 investments. Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings. We view adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. ($ millions) Operating Cash Flow Capital Spending Adjustments3 Adjusted Free Cash Flow FY 2020 $17,403 $(3,073) $543 $14,873 July– December 2019 $8,533 $(1,684) $215 $7,064 (1) Acquisitions & Divestitures Impact/Other includes the volume and mix impact of acquisitions and divestitures, the impact from the July 1, 2018 adoption of (3) Adjustments relate to tax payments for the Merck OTC Consumer Healthcare new accounting standard for “Revenue from Contracts with Customers” in acquisition and the transitional tax resulting from the U.S. Tax Act. FY 2019, the impact of India GST in FY 2018 and rounding impacts necessary to reconcile net sales to organic sales. July– December Net Sales Growth Foreign Exchange Impact Acquisitions & Divestitures Impact/Other 2 Organic Sales Growth 2019 6% 1% -1% 6% (2) Acquisitions & Divestitures Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales. ($ millions) Adjusted Free Cash Flow Net Earnings Adjusted Free Cash Flow Productivity FY 2020 $14,873 $13,103 July– December 2019 $7,064 $7,360 114% 96% * Measure is used to evaluate senior management and is a factor in determining their at-risk compensation. 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 following table 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. 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 Form 10-K included in this Annual Report, in the fourth quarter of fiscal 2019, the Company recognized a one-time, non-cash after-tax charge to adjust the carrying values of the Shave Care reporting unit. This was comprised of an impairment charge related to goodwill and an impairment charge 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 in the Form 10-K included in this Annual Report, 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. The Procter & Gamble Company • 75 Transitional Impacts of the U.S. Tax Act: As discussed in Note 5 to the Consolidated Financial Statements in the Form 10-K included in this Annual Report, 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 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 and 2017, the Company recorded after-tax charges 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. We do not view these items to be part of our sustainable results and their exclusion from Core earnings per share provides a more comparable measure of year-on-year results. Years ended June 30 2020 2019 2018 2017 2016 Diluted net earnings per share from continuing operations Incremental restructuring charges Gain on dissolution of PGT Healthcare partnership Shave Care impairment Anti-dilutive impacts Transitional impacts of the U.S. Tax Act Early debt extinguishment charge $4.96 $1.43 $3.67 $3.69 $3.49 $0.16 $0.13 $0.23 $0.10 $0.18 - - - - - $(0.13) $3.03 $0.06 - - - - - $0.23 - - - - $0.09 $0.13 - - - - - Core EPS $5.12 $4.52 $4.22 $3.92 $3.67 Core EPS growth Currency Impact to Core Earnings Currency neutral Core EPS Currency neutral Core EPS growth 13% 0.15 $5.27 17% Core EPS Diluted net EPS Incremental Restructuring Gain on dissolution of PGT partnership Core EPS July–December 2019 July–December 2018 Core EPS growth $2.77 0.02 - $2.79 $2.44 0.06 (0.14) $2.36 18% * Measure is used to evaluate senior management and is a factor in determining their at-risk compensation. 76 • The Procter & Gamble Company Board of Directors Francis S. Blake Christine M. McCarthy Former Chairman of the Board and Chief Executive Officer of The Home Depot, Inc. (national retailer). Director since 2015. Also non-Executive Chairman of the Board of Delta Airlines and Director of Macy’s, Inc. Age 71. Angela F. Braly Former Chair of the Board, President and Chief Executive Officer of WellPoint, Inc. (healthcare insurance), now known as Anthem, Inc. Director since 2009. Also a Director of Lowe’s Companies, Inc., Brookfield Asset Management, and ExxonMobil Corporation. Age 59. Senior Executive Vice President and Chief Financial Officer of The Walt Disney Company (global entertainment). Director since 2019. Age 65. W. James McNerney, Jr. Senior Advisor at Clayton, Dubilier & Rice, LLC (private equity investment). Former Chairman of the Board of The Boeing Company (aerospace, commercial jetliners and military defense systems). President of The Boeing Company from 2005 to 2013, and Chief Executive Officer from 2005 to 2015. Director since 2003. Age 71. Amy L. Chang Nelson Peltz Executive Vice President and Executive Advisor at Cisco Systems, Inc. (networking). Founder and former Chief Executive Officer of Accompany, Inc. (relationship intelligence) from 2013 to 2018. Director since 2017. Former Director of Cisco Systems, Inc., Splunk, Inc., and Informatica. Age 43. Scott D. Cook Chairman of the Executive Committee of the Board of Intuit Inc. (software and web services). Director since 2000. Age 68. Joseph Jimenez Co-Founder and Managing Partner of Aditum Bio (biotech venture fund). Former Chief Executive Officer of Novartis AG (global healthcare), a position he held from 2010 to 2018. Director since 2018. Also a Director of General Motors. Age 60. Debra L. Lee Chief Executive Officer of Leading Women Defined, Inc. (association of strategic thought leaders). Former Chairman and Chief Executive Officer of BET Networks (media and entertainment) from 2006 to 2018. Director since August 2020. Also a Director of Marriott International, Inc., Burberry Group plc, and AT&T, Inc. Age 66. Terry J. Lundgren Operating Partner of Long-Term Private Capital (a BlackRock private equity fund). Former Executive Chairman and Chairman of the Board of Macy’s, Inc. (national retailer), a position he held from 2017 to 2018. Mr. Lundgren held the title of Chairman and Chief Executive Officer of Macy’s from 2003 to 2017. Director since 2013. Age 68. Chief Executive Officer and Founding Partner of Trian Fund Management, L.P. (investment management) since its formation in 2005. Director since 2018. Also a Director of The Madison Square Garden Sports Corp., The Wendy’s Company, and Sysco Corporation. Age 78. David S. Taylor Chairman of the Board, President and Chief Executive Officer of the Company. Director since 2015. Also a Director of Delta Airlines. Age 62. Margaret C. Whitman Chief Executive Officer of Quibi (mobile media) since 2018. Former President and Chief Executive Officer of Hewlett Packard Enterprise (multinational information technology) from 2015 to 2017. President and Chief Executive Officer of the Hewlett-Packard Company from 2011 to 2015, as well as Chairman of the Board from 2014 to 2015. Director since 2011, having previously served as a Director from 2003 to 2008. Age 64. Patricia A. Woertz Former Chairman of the Board, President and Chief Executive Officer of Archer Daniels Midland Company (agricultural processors of oilseeds, corn, wheat and cocoa, etc.). Director since 2008. Also a Director of 3M Company. Age 67. The Board of Directors Has Four Committees: • Audit • Compensation & Leadership Development • Governance & Public Responsibility • Innovation & Technology The Procter & Gamble Company • 77 Company Leadership David S. Taylor Chairman of the Board, President and Chief Executive Officer Jon R. Moeller Vice Chairman, Chief Operating Officer and Chief Financial Officer Steven D. Bishop Chief Executive Officer – Health Care Gary Coombe Chief Executive Officer – Grooming Mary Lynn Ferguson-McHugh Shailesh G. Jejurikar Chief Executive Officer – Family Care and P&G Ventures Chief Executive Officer – Fabric and Home Care Ma. Fatima D. Francisco R. Alexandra Keith Chief Executive Officer – Baby and Feminine Care Chief Executive Officer – Beauty Laura Becker Henry Karamanoukian Valarie Sheppard President – Global Business Services Vittorio Cretella Chief Information Officer Jennifer Davis President – Feminine Care Philip J. Duncan Chief Design Officer Kathleen B. Fish Chief Research, Development and Innovation Officer Paul Gama President – Personal Health Care Tracey Grabowski Chief Human Resources Officer Virginie Helias Chief Sustainability Officer Damon Jones Chief Communications Officer President – Go-to-Market, China and Hair Care, Greater China Deborah P. Majoras Chief Legal Officer and Secretary Controller and Treasurer; and Group Vice President – Company Transition Leader Mindy Sherwood President – Global Walmart Shelly McNamara Chief Equality & Inclusion Officer Kirti Singh Julio Nemeth Chief Product Supply Officer Ken Patel Chief Ethics & Compliance Officer and Chief Patent Counsel Juan Fernando Posada President – Latin America Matthew S. Price President – Greater China Marc S. Pritchard Chief Brand Officer Sundar Raman President – Home Care and P&G Professional Chief Analytics and Insights Officer Markus Strobel President – Skin & Personal Care Magesvaran Suranjan President – Asia Pacific, Middle East and Africa Loïc Tassel President – Europe Carolyn Tastad Group President – North America and Chief Sales Officer Monica Turner Executive Vice President – Sales, North America As of August 1, 2020 Visit us at us.pg.com/leadership-team to learn more about P&G’s global leaders. 78 • The Procter & Gamble Company Company and Shareholder Information P&G’s Purpose Shareowner Services Registrar We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, proﬁt and value creation, allowing our people, our shareholders and the communities in which we live and work to prosper. To learn more, please visit www.pg.com. EQ Shareowner Services serves as transfer and dividend paying agent for P&G Common Stock and Administrator of the Procter & Gamble Direct Stock Purchase Plan. Registered shareholders and Plan participants needing account assistance with share transfers, plan purchases/sales, lost stock certiﬁcates, etc., should contact EQ Shareowner Services at: Brands P&G products have made a name for themselves by combining “what’s needed” with “what’s possible”— making laundry rooms, living rooms, bedrooms, kitchens, nurseries, and bathrooms a little more enjoyable since 1837. For information on our portfolio of brands and our latest innovations, please visit www.pg.com/brands. Citizenship We are committed to doing what’s right and being a good corporate citizen. We focus our Citizenship efforts in ﬁve areas: Ethics & Corporate Responsibility, Community Impact, Diversity & Inclusion, Gender Equality and Environmental Sustainability. To learn more, please visit www.pg.com/citizenship. P&G Online pg.com news.pg.com facebook.com/proctergamble twitter.com/proctergamble linkedin.com/company/ procter-and-gamble youtube.com/proctergamble instagram.com/proctergamble Stock Symbol PG Website www.shareowneronline.com Email www.shareowneronline.com Click Contact Us under the Email section. Phone (M–F, 7am–7pm CST) 1-800-742-6253 or 1-651-450-4064 P&G Direct Stock Purchase Plan The Procter & Gamble Direct Stock Purchase Plan (DSPP) is a direct stock purchase and dividend reinvestment plan. The DSPP is open to current P&G shareholders as well as new investors and is designed to encourage long-term investment in P&G by providing a convenient and economical way to purchase P&G stock and reinvest dividends. Highlights of the plan include: • Minimum initial investment — $250 • Twice-weekly purchases • 24/7 online account access • Optional cash investment — minimum $50 • Administered by EQ Shareowner Services For complete information on the DSPP, please read the Plan Prospectus. The Prospectus and online Plan Application are available at www.shareowneronline.com or by contacting EQ Shareowner Services. Transfer Agent EQ Shareowner Services 1110 Centre Pointe Curve, Suite 101 Mendota Heights, MN 55120-4100 EQ Shareowner Services P.O. Box 64874 St. Paul, MN 55164-0874 Exchange Listings New York Stock Exchange Corporate Headquarters The Procter & Gamble Company 1 P&G Plaza Cincinnati, OH 45202-3315 Annual Meeting The next annual meeting of shareholders will be held on Tuesday, October 13, 2020. A full transcript of the meeting will be available from P&G’s Assistant Secretary, who can be reached at 1 P&G Plaza, Cincinnati, OH 45202-3315. Form 10-K Shareholders may obtain a copy of P&G’s 2020 report to the Securities and Exchange Commission on Form 10-K at no charge by going to www.pginvestor.com or by sending a written request to EQ Shareowner Services, P.O. Box 64874, St. Paul, MN 55164-0874. The most recent certiﬁcations by our Chief Executive and Chief Financial Ofﬁcers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are ﬁled as exhibits to our Form 10-K/A for the ﬁscal year ended June 30, 2020. We have also ﬁled with the New York Stock Exchange the most recent Annual CEO certiﬁcation as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual. The paper utilized in the printing of this annual report is certiﬁed to the FSC® Standards, which promotes environmentally appropriate, socially beneﬁcial and economically viable management of the world’s forests. Design: Madison Design Recognitions and Awards P&G’s dedication to superiority allows us to serve the world’s consumers better and create shareholder value in the process. These recognitions demonstrate our impact as a force for good and a force for growth. BR ANDS & INNOVATION 2019 IRI New Products Pacesetter Report: Six of the Top 25 non-food launches I C A’SM O R S T AM E C OMPA N I S E 2020 Ranked in Top 10 ETHICS & CORPOR ATE RESPONSIBILIT Y U.S. CHAMBER OF COMMERCE FOUNDATION Social Responsibility in Action Among Fast Company’s 2020 World Changing Ideas in Creativity COMMUNIT Y IMPACT DIVERSIT Y & INCLUSION ™ GENDER EQUALIT Y ENVIRONMENTAL SUSTAINABILIT Y 5 years in a row Since 2001 TOP 100 Most Sustainable Companies 2020 Logos are property of their respective owners; used with permission. Explore the digital version of the 2020 P&G Annual Report at www.pg.com/annualreport2020 © 2020 Procter & Gamble ∙ 00387135

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