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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
xTrueQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2020
OR
oFalseTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
pg-20200930_g1.jpg
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
 

OhioOH1-43431-0411980
(State of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)
One Procter & Gamble PlazaCincinnatiOH
One Procter & Gamble Plaza, Cincinnati, Ohio45202
(Address of principal executive offices)(Zip Code)
(513) 983-1100
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, without Par ValuePGNYSE
4.125% EUR notes due December 2020PG20ANYSE
2.000% Notes due 2021PG21NYSE
2.000% Notes due 2022PG22BNYSE
1.125% Notes due 2023PG23ANYSE
0.500% Notes due 2024PG24ANYSE
0.625% Notes due 2024PG24BNYSE
1.375% Notes due 2025PG25NYSE
4.875% EUR notes due May 2027PG27ANYSE
1.200% Notes due 2028PG28NYSE
1.250% Notes due 2029PG29BNYSE
1.800% Notes due 2029PG29ANYSE
6.250% GBP notes due January 2030PG30NYSE
5.250% GBP notes due January 2033PG33NYSE
1.875% Notes due 2038PG38NYSE
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 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 filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 þ
Accelerated filer
 ¨
Non-accelerated filer
 ¨
Smaller reporting company
 ¨
False
Emerging growth company
 ¨
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

There were 2,479,605,893 shares of Common Stock outstanding as of September 30, 2020.



PART I. FINANCIAL INFORMATION 

Item 1.Financial Statements

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 30
Amounts in millions except per share amounts2020 2019
NET SALES$19,318 $17,798 
Cost of products sold9,142 8,723 
Selling, general and administrative expense4,895 4,785 
OPERATING INCOME5,281 4,290 
Interest expense(136)(108)
Interest income10 58 
Other non-operating income, net 142 103 
EARNINGS BEFORE INCOME TAXES5,297 4,343 
Income taxes989 726 
NET EARNINGS4,308 3,617 
Less: Net earnings attributable to noncontrolling interests31 24 
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE$4,277 $3,593 
NET EARNINGS PER SHARE (1)
Basic$1.69 $1.41 
Diluted$1.63 $1.36 
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING2,625.3 2,647.5 
(1) Basic net earnings per share and Diluted net earnings per share are calculated on Net earnings attributable to Procter & Gamble.

See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
Three Months Ended September 30
Amounts in millions20202019
NET EARNINGS$4,308 $3,617 
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Foreign currency translation352 (540)
Unrealized gains/(losses) on investment securities6 (5)
Unrealized gains/(losses) on defined benefit retirement plans(69)179 
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX289 (366)
TOTAL COMPREHENSIVE INCOME4,597 3,251 
Less: Total comprehensive income attributable to noncontrolling interests36 20 
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE$4,561 $3,231 

See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in millionsSeptember 30, 2020June 30, 2020
Assets
CURRENT ASSETS
Cash and cash equivalents$13,392 $16,181 
Accounts receivable5,043 4,178 
INVENTORIES
Materials and supplies1,424 1,414 
Work in process678 674 
Finished goods3,605 3,410 
Total inventories5,707 5,498 
Prepaid expenses and other current assets1,884 2,130 
TOTAL CURRENT ASSETS26,026 27,987 
PROPERTY, PLANT AND EQUIPMENT, NET20,876 20,692 
GOODWILL40,569 39,901 
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET23,814 23,792 
OTHER NONCURRENT ASSETS8,614 8,328 
TOTAL ASSETS$119,899 $120,700 
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable$11,935 $12,071 
Accrued and other liabilities10,366 9,722 
Debt due within one year7,707 11,183 
TOTAL CURRENT LIABILITIES30,008 32,976 
LONG-TERM DEBT23,948 23,537 
DEFERRED INCOME TAXES6,294 6,199 
OTHER NONCURRENT LIABILITIES11,073 11,110 
TOTAL LIABILITIES71,323 73,822 
SHAREHOLDERS’ EQUITY
Preferred stock888 897 
Common stock – shares issued –September 20204,009.2 
June 20204,009.2 4,009 4,009 
Additional paid-in capital64,467 64,194 
Reserve for ESOP debt retirement(1,046)(1,080)
Accumulated other comprehensive loss(15,881)(16,165)
Treasury stock(106,794)(105,573)
Retained earnings102,539 100,239 
Noncontrolling interest394 357 
TOTAL SHAREHOLDERS’ EQUITY48,576 46,878 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$119,899 $120,700 

See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended September 30, 2020
Dollars in millions;
shares in thousands
Common StockPreferred StockAdd-itional Paid-In CapitalReserve for ESOP Debt RetirementAccumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury StockRetained EarningsNon-controlling InterestTotal Share-holders' Equity
SharesAmount
BALANCE
JUNE 30, 2020
2,479,746 $4,009 $897 $64,194 ($1,080)($16,165)($105,573)$100,239 $357 $46,878 
Net earnings4,277 31 4,308 
Other comprehensive income/(loss)284 5 289 
Dividends and dividend equivalents ($0.7907 per share):
Common(1,969)(1,969)
Preferred, net of tax benefits(66)(66)
Treasury stock purchases(14,642)(2,000)(2,000)
Employee stock plans13,504 271 772 1,043 
Preferred stock conversions998 (9)2 7  
ESOP debt impacts34 58 92 
Noncontrolling interest, net1 1 
BALANCE
SEPTEMBER 30, 2020
2,479,606 $4,009 $888 $64,467 ($1,046)($15,881)($106,794)$102,539 $394 $48,576 

Three Months Ended September 30, 2019
Dollars in millions;
shares in thousands
Common StockPreferred StockAdd-itional Paid-In CapitalReserve for ESOP Debt RetirementAccumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury StockRetained EarningsNon-controlling InterestTotal Share-holders' Equity
SharesAmount
BALANCE
JUNE 30, 2019
2,504,751 $4,009 $928 $63,827 ($1,146)($14,936)($100,406)$94,918 $385 $47,579 
Net earnings3,593 24 3,617 
Other comprehensive income/(loss)(362)(4)(366)
Dividends and dividend equivalents
($0.7459 per share):
Common(1,874)(1,874)
Preferred, net of tax benefits(65)(65)
Treasury stock purchases(25,405)(3,000)(3,000)
Employee stock plans13,050 120 885 1,005 
Preferred stock conversions1,416 (13)2 11  
ESOP debt impacts34 53 87 
Noncontrolling interest, net1 1 
BALANCE
SEPTEMBER 30, 2019
2,493,812 $4,009 $915 $63,949 ($1,112)($15,298)($102,510)$96,625 $406 $46,984 

See accompanying Notes to Consolidated Financial Statements.




THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30
Amounts in millions20202019
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD$16,181 $4,239 
OPERATING ACTIVITIES
Net earnings4,308 3,617 
Depreciation and amortization671 723 
Share-based compensation expense89 110 
Deferred income taxes193 (586)
Gain on sale of assets(12)(2)
Changes in:
Accounts receivable(825)(261)
Inventories(137)(549)
Accounts payable, accrued and other liabilities442 1,151 
Other operating assets and liabilities(30)(35)
Other40 1 
TOTAL OPERATING ACTIVITIES4,739 4,169 
INVESTING ACTIVITIES
Capital expenditures(850)(1,079)
Proceeds from asset sales21 6 
Proceeds from sales and maturities of investment securities 6,151 
Change in other investments 1 
TOTAL INVESTING ACTIVITIES(829)5,079 
FINANCING ACTIVITIES
Dividends to shareholders(2,030)(1,932)
Reductions in short-term debt(3,568)(61)
Reductions to long-term debt(25) 
Treasury stock purchases(2,000)(3,000)
Impact of stock options and other893 875 
TOTAL FINANCING ACTIVITIES(6,730)(4,118)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH31 (65)
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(2,789)5,065 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD$13,392 $9,304 


See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
These statements should be read in conjunction with the Company’s Annual Report on Form 10-K/A for the fiscal year ended June 30, 2020. In the opinion of management, the accompanying unaudited Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries (the "Company," "Procter & Gamble," "P&G," "we" or "our") contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.
2. New Accounting Pronouncements and Policies
On July 1, 2020, we adopted 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 eliminated the second step of the previous impairment model that required 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. It also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The impact of the new standard will depend 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 accounting principles generally accepted in the United States of America (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 to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by the new standard.
No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a material impact on our Consolidated Financial Statements.
3. 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); Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care);
Grooming: Shave Care (Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care); Appliances
Health Care: Oral Care (Toothbrushes, Toothpaste, Other Oral Care); Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care);
Fabric & Home Care: Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents); Home Care (Air Care, Dish Care, P&G Professional, Surface Care); and
Baby, Feminine & Family Care: Baby Care (Baby Wipes, Taped Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper).









Amounts in millions of dollars unless otherwise specified.


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)
Three Months Ended September 30
20202019
Fabric Care22%23%
Home Care12%10%
Baby Care10%11%
Hair Care10%10%
Skin and Personal Care10%10%
Family Care9%9%
Oral Care8%7%
Shave Care6%7%
Feminine Care6%6%
Personal Health Care5%5%
Other2%2%
Total100%100%
(1)% of Net sales by operating segment excludes sales held in Corporate.
Following is a summary of reportable segment results:
Three Months Ended September 30
Net SalesEarnings/(Loss) Before Income TaxesNet Earnings
Beauty2020$3,786 $1,228 $976 
20193,552 1,092 874 
Grooming20201,601 426 355 
20191,531 426 353 
Health Care20202,471 679 525 
20192,221 540 401 
Fabric & Home Care20206,644 1,743 1,349 
20195,832 1,338 1,028 
Baby, Feminine & Family Care20204,723 1,318 1,010 
20194,567 1,134 871 
Corporate202093 (97)93 
201995 (187)90 
Total Company2020$19,318 $5,297 $4,308 
201917,798 4,343 3,617 

4. Goodwill and Other Intangible Assets
Goodwill is allocated by reportable segment as follows:
BeautyGroomingHealth CareFabric & Home CareBaby, Feminine & Family CareTotal Company
Goodwill at June 30, 2020$12,902 $12,815 $7,786 $1,841 $4,557 $39,901 
Translation and other251 182 148 19 68 668 
Goodwill at September 30, 2020$13,153 $12,997 $7,934 $1,860 $4,625 $40,569 
Goodwill increased from June 30, 2020 due to currency translation.
Amounts in millions of dollars unless otherwise specified.



Identifiable intangible assets at September 30, 2020 were comprised of:
Gross Carrying AmountAccumulated Amortization
Intangible assets with determinable lives$8,571 $(5,849)
Intangible assets with indefinite lives21,092  
Total identifiable intangible assets$29,663 $(5,849)
Intangible assets with determinable lives consist of brands, patents, technology and customer relationships. The intangible assets with indefinite lives consist of brands. The amortization expense of determinable lived intangible assets for the three months ended September 30, 2020 and 2019 was $84 and $96, respectively.
Goodwill and indefinite-lived intangible assets are not amortized but are tested at least annually for impairment 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 fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. If the resulting fair value is less than its carrying value, that difference represents an impairment. Our annual impairment testing for goodwill and indefinite-lived intangible assets occurs during the three months ended December 31.
The business unit valuations used to test goodwill and intangible assets for impairment depend on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, competitive activities, cost containment, margin expansion and Company business plans. We believe these estimates and assumptions are reasonable. However, 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. To the extent changes in 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 non-cash impairment charges in the future.
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 reporting unit has a fair value that significantly exceeds the underlying carrying value. As previously disclosed, the carrying value of the Shave Care reporting unit and the related Gillette indefinite-lived intangible asset were impaired during the quarter ended June 30, 2019. Also as previously disclosed, the Shave Care reporting unit fair value exceeded its carrying value by more than 20% and the Gillette indefinite-lived intangible asset fair value approximated its carrying value as of our most recent impairment testing dates. Accordingly, no impairment charge was recorded during the year ended June 30, 2020.
The most significant assumptions utilized in the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset are the net sales and earnings growth rates (including residual growth rates) and discount rate. The residual growth rate represents the expected rate at which the reporting unit and Gillette brand are expected to grow beyond the shorter-term business planning period. The residual growth rate utilized in our fair value estimates is consistent with the reporting unit and brand operating plans and approximates expected long term category market growth rates. The residual growth rate depends on overall market growth rates, the competitive environment, inflation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rate could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies against the U.S. dollar or an increased competitive environment. The discount rate, which is consistent with a weighted average cost of capital that is likely to 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.
While management can and has implemented strategies to address these events, changes in operating plans or adverse changes in the business or in the macroeconomic environment 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. The duration and severity of the COVID-19 pandemic could also result in additional future impairment charges for the Shave Care reporting unit goodwill and the Gillette indefinite-lived intangible asset. While we have concluded that a triggering event did not occur during the quarter ended September 30, 2020, the Gillette indefinite-lived intangible asset is most susceptible to future impairment risk. Our assessment of the Gillette intangible asset assumes the pandemic’s impact on net sales will be largely eliminated in the second half of the fiscal year. There continues to be an extreme
Amounts in millions of dollars unless otherwise specified.


level of uncertainty relating to how the pandemic will evolve and how governments and consumers will react. Accordingly, there is a significant amount of risk related to this key assumption. A more prolonged pandemic could impact the assumptions utilized in the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset that are significant enough to trigger an impairment. Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our shave care 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, 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. As of September 30, 2020, the carrying values of the Shave Care goodwill and the Gillette indefinite-lived intangible asset were $12.7 billion and $14.1 billion, respectively.
The table below provides a sensitivity analysis for the Shave Care reporting unit and the Gillette indefinite-lived intangible asset, utilizing reasonably possible changes in the assumptions for the shorter term and residual growth rates and the discount rate, to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to a 25 basis-point increase in the discount rate or a 25 basis-point decrease in our shorter-term and residual growth rates, either of which, in isolation, would result in an additional impairment of the Gillette indefinite-lived intangible asset.
Approximate Percent Change in Estimated Fair Value
+25 bps Discount Rate-25 bps Growth Rates
Shave Care goodwill reporting unit(6)%(6)%
Gillette indefinite-lived intangible asset(6)%(6)%



Amounts in millions of dollars unless otherwise specified.


5. 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 period. 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 during the period. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method and the assumed conversion of preferred stock.
Net earnings per share were calculated as follows:
CONSOLIDATED AMOUNTSThree Months Ended September 30
20202019
Net earnings$4,308 $3,617 
Less: Net earnings attributable to noncontrolling interests31 24 
Net earnings attributable to P&G (Diluted)4,277 3,593 
Less: Preferred dividends, net of tax66 65 
Net earnings attributable to P&G available to common shareholders (Basic)$4,211 $3,528 
SHARES IN MILLIONS
Basic weighted average common shares outstanding2,486.1 2,504.0 
Add: Effect of dilutive securities
Conversion of preferred shares (1)
83.9 87.4 
Impact of stock options and other unvested equity awards (2)
55.3 56.1 
Diluted weighted average common shares outstanding2,625.3 2,647.5 
NET EARNINGS PER SHARE (3)
Basic$1.69 $1.41 
Diluted$1.63 $1.36 
(1)Despite being included currently in Diluted net earnings per common share, the actual conversion to common stock occurs when the preferred shares are sold. Shares may only be sold after being allocated to the ESOP participants pursuant to the repayment of the ESOP's obligations through 2035.
(2)Weighted average outstanding stock options of approximately 1 million for the three months ended September 30, 2020 and 2019 were not included in the Diluted net earnings per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the total proceeds upon exercise would have exceeded the market value of the underlying common shares).
(3)Net earnings per share are calculated on Net earnings attributable to Procter & Gamble.
6. Share-Based Compensation and Postretirement Benefits
The following table provides a summary of our share-based compensation expense and postretirement benefit costs:
Three Months Ended September 30
20202019
Share-based compensation expense$89   $110 
Net periodic benefit cost for pension benefits (1)
47 40 
Net periodic benefit credit for other retiree benefits (1)
(80)(52)
(1)The components of the total net periodic benefit cost for both pension benefits and other retiree benefits for these interim periods, on an annualized basis, do not differ materially from the amounts disclosed in the Annual Report on Form 10-K/A for the fiscal year ended June 30, 2020.

Amounts in millions of dollars unless otherwise specified.



7. 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. There have been no significant changes in our risk management policies or activities during the three months ended September 30, 2020.
The Company has not changed its valuation techniques used in measuring the fair value of any financial assets and liabilities during the period. 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. Also, there was no significant activity within the Level 3 assets and liabilities during the periods presented. There were no significant assets or liabilities that were remeasured at fair value on a non-recurring basis for the three months ended September 30, 2020.
Other investments had a fair value of $66 and $67 as of September 30, 2020 and June 30, 2020, respectively, and are presented in Other noncurrent assets. The Company's investments measured at fair value are generally classified as Level 2 within the fair value hierarchy. Cash equivalents were $12.2 billion and $14.6 billion as of September 30, 2020 and June 30, 2020, 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 $29.5 billion and $29.0 billion as of September 30, 2020 and June 30, 2020, respectively. This includes the current portion of long-term debt instruments ($2.5 billion as of September 30, 2020 and June 30, 2020). 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.
Disclosures about Financial Instruments
The notional amounts and fair values of financial instruments used in hedging transactions as of September 30, 2020 and June 30, 2020 are as follows:
Notional AmountFair Value AssetFair Value (Liability)
September 30, 2020June 30, 2020September 30, 2020June 30, 2020September 30, 2020June 30, 2020
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts$7,339 $7,114 $276 $269 $ $ 
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Foreign currency interest rate contracts$8,089 $3,856 $21 $26 $(196)$(41)
TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS$15,428 $10,970 $297 $295 $(196)$(41)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts$5,944 $5,986 $40 $23 $(32)$(25)
TOTAL DERIVATIVES AT FAIR VALUE$21,372 $16,956 $337 $318 $(228)$(66)
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 $7.6 billion and $7.4 billion as of September 30, 2020 and June 30, 2020, 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 $12.5 billion and $16.0 billion as of September 30, 2020 and June 30, 2020, respectively. The increase in the notional balance of derivative instruments designated as net investment hedges is largely offset by the decrease in the principal balance of debt instruments designated as net investment hedges, reflecting the Company’s decision to leverage favorable interest rates in the foreign currency swap market versus the short-term debt market.
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. Changes in the fair value of net investment hedges are recognized in the Foreign currency translation component of Other comprehensive income (OCI). All of the Company's derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy.
Amounts in millions of dollars unless otherwise specified.


Before tax gains/(losses) on our financial instruments in hedging relationships are categorized as follows:
Amount of Gain/(Loss) Recognized in OCI on Derivatives
Three Months Ended September 30
20202019
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2)
Foreign exchange contracts$(186)$113 
(1)For the derivatives in net investment hedging relationships, the amount of gain excluded from effectiveness testing, which was recognized in earnings, was $14 and $19 for the three months ended September 30, 2020 and 2019, respectively.
(2)In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The amount of gain/(loss) recognized in Accumulated other comprehensive income/(loss) (AOCI) for such instruments was $(646) and $609 for the three months ended September 30, 2020 and 2019, respectively.
Amount of Gain/(Loss) Recognized in Earnings
Three Months Ended September 30
20202019
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts$7 $90 
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts$106 $(97)
The gain/(loss) on the derivatives in fair value hedging relationships is fully offset by the mark-to-market impact of the related exposure. These are both recognized in the Consolidated Statements of Earnings in Interest expense. The gain/(loss) on derivatives not designated as hedging instruments is substantially offset by the currency mark-to-market of the related exposure. These are both recognized in the Consolidated Statements of Earnings in Selling, general and administrative expense (SG&A).
8. Accumulated Other Comprehensive Income/(Loss)
The table below presents the changes in AOCI, including the reclassifications out of AOCI by component:
Investment SecuritiesPost-retirement BenefitsForeign Currency TranslationTotal AOCI
Balance at June 30, 2020$(1)$(4,350)$(11,814)$(16,165)
OCI before reclassifications (1)
6 (152)352 206 
Amounts reclassified from AOCI into the Consolidated Statements of Earnings (2)
 83  83 
Net current period OCI6 (69)352 289 
Less: Other comprehensive income/(loss) attributable to non-controlling interests  5 5 
Balance at September 30, 2020$5 $(4,419)$(11,467)$(15,881)
(1)Net of tax expense/(benefit) of $0, $(42) and $(195) for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively.
(2)Net of tax expense/(benefit) of $0, $24 and $0 for gains/losses on investment securities, postretirement benefit items and foreign currency translation, respectively.
The below provides additional details on amounts reclassified from AOCI into the Consolidated Statements 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.
Amounts in millions of dollars unless otherwise specified.


9. Restructuring Program
The Company has historically incurred an ongoing annual level of restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization. Before-tax costs incurred under the ongoing program have generally ranged from $250 to $500 annually.
In fiscal 2017, the Company announced specific elements of an additional multi-year productivity and cost savings plan to further reduce costs in the areas of supply chain, certain marketing activities and overhead expenses, which resulted in incremental restructuring charges through fiscal 2020. We expect fiscal 2021 restructuring charges to be more in line with our ongoing level of spending noted above.
Restructuring costs incurred consist primarily of costs to separate employees, asset-related costs to exit facilities and other costs. Employee separation costs relate to severance packages that 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 consist of both asset write-downs and accelerated depreciation. Asset write-downs relate to the establishment of a new fair value basis for assets held-for-sale or disposal. These assets were written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less minor disposal costs. Charges for accelerated depreciation relate to long-lived assets that will be taken out of service prior to the end of their normal service period. These assets relate primarily to manufacturing consolidations and technology standardizations. The asset-related charges will not have a significant impact on future depreciation charges. Other 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.
The following table presents restructuring activity for the three months ended September 30, 2020. The majority of the charges during the three months ended September 30, 2020 and the remaining reserve balance as of September 30, 2020 related to employee separations.
Reserve BalanceThree Months Ended September 30, 2020Reserve Balance
June 30, 2020Cost Incurred and Charged to ExpenseCost Paid/SettledSeptember 30, 2020
Total$472 $22 $(191)$303 

10. Commitments and Contingencies
Litigation
We are subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental, patent and trademark matters, labor and employment matters and tax. While considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsuits and claims will not materially affect our financial position, results of operations or cash flows.
We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information, we do not believe the ultimate resolution of environmental remediation will materially affect our financial position, results of operations or cash flows.
Income Tax Uncertainties
The Company is present in approximately 70 countries and over 150 taxable jurisdictions and, at any point in time, has 4050 jurisdictional audits underway at various stages of completion. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitations. 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.
Additional information on the Commitments and Contingencies of the Company can be found in our Annual Report on Form 10-K/A for the year ended June 30, 2020.
Amounts in millions of dollars unless otherwise specified.



Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

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 10 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 ability to successfully manage global financial risks, 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 affect the expected share repurchases and dividend payments; (3) the ability to manage disruptions in credit markets or changes to our credit rating; (4) the ability to maintain key manufacturing and supply arrangements (including execution of supply chain optimizations and sole supplier and sole manufacturing plant arrangements) and to manage disruption of business due to factors outside of our control, such as natural disasters, acts of war or terrorism, or disease outbreaks; (5) the ability to successfully manage cost fluctuations and pressures, including prices of commodities and raw materials, and costs of labor, transportation, energy, pension and healthcare; (6) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to changing consumer habits and technological advances attained by, and patents granted to, competitors; (7) the ability to compete with our local and global competitors in new and existing sales channels, including by successfully responding to competitive factors such as prices, promotional incentives and trade terms for products; (8) the ability to manage and maintain key customer relationships; (9) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, ingredients, efficacy or similar matters that may arise; (10) the ability to successfully manage the financial, legal, reputational and operational risk associated with third-party relationships, such as our suppliers, contract manufacturers, distributors, contractors and external business partners; (11) the ability to rely on and maintain key company and third party information and operational technology systems, networks and services, and maintain the security and functionality of such systems, networks and services and the data contained therein; (12) the ability to successfully manage uncertainties related to changing political conditions (including the United Kingdom’s exit from the European Union) and potential implications such as exchange rate fluctuations and market contraction; (13) the ability to successfully manage regulatory and legal requirements and matters (including, without limitation, those laws and regulations involving product liability, product and packaging composition, intellectual property, labor and employment, antitrust, data protection, tax, environmental, and accounting and financial reporting) and to resolve pending matters within current estimates; (14) the ability to manage changes in applicable tax laws and regulations including maintaining our intended tax treatment of divestiture transactions; (15) the ability to successfully manage our ongoing acquisition, divestiture and joint venture activities, in each case to achieve the Company’s overall business strategy and financial objectives, without impacting the delivery of base business objectives; (16) the ability to successfully achieve productivity improvements and cost savings and manage ongoing organizational changes, while successfully identifying, developing and retaining key employees, including in key growth markets where the availability of skilled or experienced employees may be limited; and (17) the ability to successfully manage the demand, supply, and operational challenges associated with a disease outbreak, including epidemics, pandemics, or similar widespread public health concerns (including the novel coronavirus, COVID-19, outbreak). A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from those projected herein, is included in the section titled "Economic Conditions and Uncertainties" and the section titled "Risk Factors" (Part II, Item 1A) of this Form 10-Q.
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 Results – Three Months Ended September 30, 2020
Economic Conditions and Uncertainties
Results of Operations – Three Months Ended September 30, 2020
Business Segment Discussion – Three Months Ended September 30, 2020
Liquidity and Capital Resources
Reconciliation of Measures Not Defined by U.S. GAAP
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 net earnings per share (Core EPS), adjusted free cash flow and adjusted free cash flow productivity. The explanation at the end of the MD&A provides the definition of these non-GAAP measures, 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 market 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
P&G is a global leader in the fast-moving consumer goods industry, focused on providing branded consumer packaged goods of superior quality and value to our consumers around the world. Our products are sold in more than 180 countries and territories, primarily through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores (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.
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.

The table below provides detail on our reportable segments, including the product categories and brand composition within each segment.
Reportable SegmentsProduct Categories (Sub-Categories)Major Brands
Beauty
Hair Care (Conditioner, Shampoo, Styling Aids, Treatments)
Head & Shoulders, Herbal Essences, Pantene, Rejoice
Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care)
Olay, Old Spice, Safeguard, Secret, SK-II
Grooming
Grooming (1) (Shave Care - Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care; Appliances)
Braun, Gillette, Venus
Health Care
Oral Care (Toothbrushes, Toothpaste, Other Oral Care)
Crest, Oral-B
Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care)
Metamucil, Neurobion, Pepto-Bismol, Vicks
Fabric & Home Care
Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents)
Ariel, Downy, Gain, Tide
Home Care (Air Care, Dish Care, P&G Professional, Surface Care)
Cascade, Dawn, Fairy, Febreze, Mr. Clean, Swiffer
Baby, Feminine & Family Care
Baby Care (Baby Wipes, Taped Diapers and Pants)
Luvs, Pampers
Feminine Care (Adult Incontinence, Feminine Care)
Always, Always Discreet, Tampax
Family Care (Paper Towels, Tissues, Toilet Paper)
Bounty, Charmin, Puffs
(1)The Grooming product category is comprised of the Shave Care and Appliances operating segments.
The following table provides the percentage of net sales and net earnings by reportable business segment for the three months ended September 30, 2020 (excluding net sales and net earnings in Corporate):
Three Months Ended September 30, 2020
Net Sales