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Section 1: 10-Q (10-Q)

pg-20191231
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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 December 31, 2019
OR
oFalseTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
402412939_pg-20191231_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
0.275% Notes due 2020PG20NYSE
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 2,469,452,884 shares of Common Stock outstanding as of December 31, 2019.



PART I. FINANCIAL INFORMATION 

Item 1.Financial Statements


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended December 31Six Months Ended December 31
Amounts in millions except per share amounts2019 20182019 2018
NET SALES$18,240  $17,438  $36,038  $34,128  
Cost of products sold8,869  8,919  17,592  17,403  
Selling, general and administrative expense4,889  4,623  9,674  9,275  
OPERATING INCOME4,482  3,896  8,772  7,450  
Interest expense(100) (138) (208) (267) 
Interest income36  63  94  116  
Other non-operating income, net 114  95  217  557  
EARNINGS BEFORE INCOME TAXES4,532  3,916  8,875  7,856  
Income taxes789  700  1,515  1,429  
NET EARNINGS3,743  3,216  7,360  6,427  
Less: Net earnings attributable to noncontrolling interests26  22  50  34  
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE$3,717  $3,194  $7,310  $6,393  
NET EARNINGS PER SHARE (1)
Basic$1.47  $1.25  $2.88  $2.51  
Diluted$1.41  $1.22  $2.77  $2.44  
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING2,630.1  2,623.0  2,638.8  2,617.6  
(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 December 31Six Months Ended December 31
Amounts in millions2019201820192018
NET EARNINGS$3,743  $3,216  $7,360  $6,427  
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Foreign currency translation392  (178) (148) (387) 
Unrealized gains/(losses) on investment securities(1) 58  (6) 53  
Unrealized gains/(losses) on defined benefit retirement plans(37) 98  142  250  
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX354  (22) (12) (84) 
TOTAL COMPREHENSIVE INCOME4,097  3,194  7,348  6,343  
Less: Total comprehensive income attributable to noncontrolling interests24  23  44  31  
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE$4,073  $3,171  $7,304  $6,312  

See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in millionsDecember 31, 2019June 30, 2019
Assets
CURRENT ASSETS
Cash and cash equivalents$6,279  $4,239  
Available-for-sale investment securities  6,048  
Accounts receivable5,196  4,951  
INVENTORIES
Materials and supplies1,458  1,289  
Work in process632  612  
Finished goods3,431  3,116  
Total inventories5,521  5,017  
Prepaid expenses and other current assets1,921  2,218  
TOTAL CURRENT ASSETS18,917  22,473  
PROPERTY, PLANT AND EQUIPMENT, NET21,250  21,271  
GOODWILL39,998  40,273  
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET23,980  24,215  
OTHER NONCURRENT ASSETS7,578  6,863  
TOTAL ASSETS$111,723  $115,095  
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable$10,781  $11,260  
Accrued and other liabilities10,230  9,054  
Debt due within one year9,153  9,697  
TOTAL CURRENT LIABILITIES30,164  30,011  
LONG-TERM DEBT18,985  20,395  
DEFERRED INCOME TAXES6,242  6,899  
OTHER NONCURRENT LIABILITIES10,424  10,211  
TOTAL LIABILITIES65,815  67,516  
SHAREHOLDERS’ EQUITY
Preferred stock911  928  
Common stock – shares issued –December 20194,009.2  
June 20194,009.2  4,009  4,009  
Additional paid-in capital64,019  63,827  
Reserve for ESOP debt retirement(1,112) (1,146) 
Accumulated other comprehensive income/(loss)(14,942) (14,936) 
Treasury stock(105,761) (100,406) 
Retained earnings98,414  94,918  
Noncontrolling interest370  385  
TOTAL SHAREHOLDERS’ EQUITY45,908  47,579  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$111,723  $115,095  

See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
Three Months Ended December 31, 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
SEPTEMBER 30, 2019
2,493,812  $4,009  $915  $63,949  ($1,112) ($15,298) ($102,510) $96,625  $406  $46,984  
Net earnings3,717  26  3,743  
Other comprehensive income/(loss)356  (2) 354  
Dividends and dividend equivalents ($0.7459 per share):
Common(1,863) (1,863) 
Preferred, net of tax benefits(64) (64) 
Treasury stock purchases(28,628) (3,504) (3,504) 
Employee stock plans3,681  69  250  319  
Preferred stock conversions588  (4) 1  3    
ESOP debt impacts  (1) (1) 
Noncontrolling interest, net  (60) (60) 
BALANCE
DECEMBER 31, 2019
2,469,453  $4,009  $911  $64,019  ($1,112) ($14,942) ($105,761) $98,414  $370  $45,908  

Six Months Ended December 31, 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 earnings7,310  50  7,360  
Other comprehensive income/(loss)(6) (6) (12) 
Dividends and dividend equivalents
($1.4918 per share)
Common(3,737) (3,737) 
Preferred, net of tax benefits(129) (129) 
Treasury stock purchases(54,033) (6,504) (6,504) 
Employee stock plans16,731  189  1,135  1,324  
Preferred stock conversions2,004  (17) 3  14    
ESOP debt impacts34  52  86  
Noncontrolling interest, net  (59) (59) 
BALANCE
DECEMBER 31, 2019
2,469,453  $4,009  $911  $64,019  ($1,112) ($14,942) ($105,761) $98,414  $370  $45,908  

See accompanying Notes to Consolidated Financial Statements.



Three Months Ended December 31, 2018  
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
SEPTEMBER 30, 2018
2,491,408  $4,009  $951  $63,711  ($1,177) ($15,133) ($99,956) $99,831  $268  $52,504  
Net earnings3,194  22  3,216  
Other comprehensive income/(loss)(23) 1  (22) 
Dividends and dividend equivalents
($0.7172 per share):
Common(1,790) (1,790) 
Preferred, net of tax benefits(65) (65) 
Treasury stock purchases(8,647) (751) (751) 
Employee stock plans18,021  (73) 1,222  1,149  
Preferred stock conversions798  (5)   5    
ESOP debt impacts(1)   (1) 
Noncontrolling interest, net41  162  203  
BALANCE
DECEMBER 31, 2018
2,501,580  $4,009  $946  $63,679  ($1,178) ($15,156) ($99,480) $101,170  $453  $54,443  

Six Months Ended December 31, 2018  
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, 2018
2,498,093  $4,009  $967  $63,846  ($1,204) ($14,749) ($99,217) $98,641  $590  $52,883  
Impact of adoption of new accounting standards(326) (200) (27) (553) 
Net earnings6,393  34  6,427  
Other comprehensive income/(loss)(81) (3) (84) 
Dividends and dividend equivalents ($1.4344 per share):
Common(3,581) (3,581) 
Preferred, net of tax benefits(131) (131) 
Treasury stock purchases(24,337) (2,003) (2,003) 
Employee stock plans25,389  (53) 1,722  1,669  
Preferred stock conversions2,435  (21) 3  18    
ESOP debt impacts26  48  74  
Noncontrolling interest, net(117) (141) (258) 
BALANCE
DECEMBER 31, 2018
2,501,580  $4,009  $946  $63,679  ($1,178) ($15,156) ($99,480) $101,170  $453  $54,443  


See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31
Amounts in millions20192018
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD$4,239  $2,569  
OPERATING ACTIVITIES
Net earnings7,360  6,427  
Depreciation and amortization1,400  1,293  
Share-based compensation expense202  181  
Deferred income taxes(549) 37  
Gain on sale of assets(13) (370) 
Changes in:
Accounts receivable(257) (398) 
Inventories(533) (531) 
Accounts payable, accrued and other liabilities958  1,141  
Other operating assets and liabilities(55) (370) 
Other20  164  
TOTAL OPERATING ACTIVITIES8,533  7,574  
INVESTING ACTIVITIES
Capital expenditures(1,684) (1,781) 
Proceeds from asset sales15  18  
Acquisitions, net of cash acquired(54) (3,848) 
Purchases of short-term investments   (158) 
Proceeds from sales and maturities of investment securities6,151  1,117  
Change in other investments1  (58) 
TOTAL INVESTING ACTIVITIES4,429  (4,710) 
FINANCING ACTIVITIES
Dividends to shareholders(3,855) (3,703) 
(Reductions)/increases in short-term debt(68) 1,206  
Additions to long-term debt  2,368  
Reductions to long-term debt(1,546) (978) 
Treasury stock purchases(6,504) (2,003) 
Impact of stock options and other1,060  1,486  
TOTAL FINANCING ACTIVITIES(10,913) (1,624) 
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH(9) (113) 
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH2,040  1,127  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD$6,279  $3,696  


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 for the fiscal year ended June 30, 2019. 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, 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 10 for further information.
In January 2017, the FASB 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. It also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We will adopt the standard no later than July 1, 2020. The impact of the new standard will be dependent on the specific facts and circumstances of future individual impairments, if any.
No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a material impact on our Consolidated Financial Statements.
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 December 31Six Months Ended December 31
2019201820192018
Fabric Care22 22 22 22 
Baby Care11 12 11 12 
Home Care10 10 10 10 
Hair Care10 9 10 10 
Skin and Personal Care10 10 10 10 
Family Care8 9 9 9 
Oral Care9 9 8 8 
Shave Care7 7 7 8 
Feminine Care6 6 6 6 
Personal Health Care5 4 5 4 
Other2 2 2