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Section 1: 10-Q (FY1819 Q2 OND 10-Q)

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
 
396456815_pglogoa15.jpg
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
 
 
Ohio
 
1-434
 
31-0411980
(State of Incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification Number)
One Procter & Gamble Plaza, Cincinnati, Ohio
 
45202
(Address of principal executive offices)
 
(Zip Code)
(513) 983-1100
(Registrant’s telephone number, including area code)
 
 
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
 ¨
 
 
 
 
 
 
Emerging growth company
 ¨
 
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
There were 2,501,579,709 shares of Common Stock outstanding as of December 31, 2018.



PART I. FINANCIAL INFORMATION 
Item 1.
Financial Statements


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
 
Three Months Ended December 31
 
Six Months Ended December 31
Amounts in millions except per share amounts
2018
 
2017
 
2018
 
2017
NET SALES
$
17,438

 
$
17,395

 
$
34,128

 
$
34,048

Cost of products sold
8,919

 
8,709

 
17,403

 
16,978

Selling, general and administrative expense
4,623

 
4,767

 
9,275

 
9,503

OPERATING INCOME
3,896

 
3,919

 
7,450

 
7,567

Interest expense
138

 
122

 
267

 
237

Interest income
63

 
66

 
116

 
115

Other non-operating income, net
95

 
170

 
557

 
339

EARNINGS BEFORE INCOME TAXES
3,916

 
4,033

 
7,856

 
7,784

Income taxes
700

 
1,472

 
1,429

 
2,353

NET EARNINGS
3,216

 
2,561

 
6,427

 
5,431

Less: Net earnings attributable to noncontrolling interests
22

 
66

 
34

 
83

NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE
$
3,194

 
$
2,495

 
$
6,393

 
$
5,348

 
 
 
 
 
 
 
 
NET EARNINGS PER SHARE (1)
 
 
 
 
 
 
 
Basic
$
1.25

 
$
0.96

 
$
2.51

 
$
2.05

Diluted
$
1.22

 
$
0.93

 
$
2.44

 
$
2.00

 
 
 
 
 
 
 
 
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
2,623.0

 
2,669.6

 
2,617.6

 
2,680.1


(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 31
 
Six Months Ended December 31
Amounts in millions
2018
 
2017
 
2018
 
2017
NET EARNINGS
$
3,216

 
$
2,561

 
$
6,427

 
$
5,431

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
 
 
 
 
 
 
 
Financial statement foreign currency translation
(370
)
 
188

 
(586
)
 
1,028

Unrealized gains/(losses) on hedges
192

 
(167
)
 
199

 
(630
)
Unrealized gains/(losses) on investment securities
58

 
(61
)
 
53

 
(65
)
Unrealized gains/(losses) on defined benefit retirement plans
98

 
161

 
250

 
128

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
(22
)
 
121

 
(84
)
 
461

TOTAL COMPREHENSIVE INCOME
3,194

 
2,682

 
6,343

 
5,892

Less: Total comprehensive income attributable to noncontrolling interests
23

 
66

 
31

 
83

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE
$
3,171

 
$
2,616

 
$
6,312

 
$
5,809



See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in millions
 
 
 
 
December 31, 2018
 
June 30, 2018
Assets
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$
3,696

 
$
2,569

Available-for-sale investment securities
 
 
 
 
8,421

 
9,281

Accounts receivable
 
 
 
 
5,055

 
4,686

INVENTORIES
 
 
 
 
 
 
 
Materials and supplies
 
 
 
 
1,524

 
1,335

Work in process
 
 
 
 
593

 
588

Finished goods
 
 
 
 
3,164

 
2,815

Total inventories
 
 
 
 
5,281

 
4,738

Prepaid expenses and other current assets
 
 
 
 
1,978

 
2,046

TOTAL CURRENT ASSETS
 
 
 
 
24,431

 
23,320

PROPERTY, PLANT AND EQUIPMENT, NET
 
 
 
 
20,822

 
20,600

GOODWILL
 
 
 
 
46,932

 
45,175

TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET
 
 
 
25,947

 
23,902

OTHER NONCURRENT ASSETS
 
 
 
 
5,555

 
5,313

TOTAL ASSETS
 
 
 
 
$
123,687

 
$
118,310

 
 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
Accounts payable
 
 
 
 
$
10,266

 
$
10,344

Accrued and other liabilities
 
 
 
 
8,868

 
7,470

Debt due within one year
 
 
 
 
12,113

 
10,423

TOTAL CURRENT LIABILITIES
 
 
 
 
31,247

 
28,237

LONG-TERM DEBT
 
 
 
 
21,514

 
20,863

DEFERRED INCOME TAXES
 
 
 
 
6,872

 
6,163

OTHER NONCURRENT LIABILITIES
 
 
 
 
9,611

 
10,164

TOTAL LIABILITIES
 
 
 
 
69,244

 
65,427

SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
946

 
967

Common stock – shares issued –
December 2018
 
4,009.2

 
 
 
 
 
June 2018
 
4,009.2

 
4,009

 
4,009

Additional paid-in capital
 
 
 
 
63,679

 
63,846

Reserve for ESOP debt retirement
 
 
 
 
(1,178
)
 
(1,204
)
Accumulated other comprehensive income/(loss)
 
 
 
 
(15,156
)
 
(14,749
)
Treasury stock
 
 
 
 
(99,480
)
 
(99,217
)
Retained earnings
 
 
 
 
101,170

 
98,641

Noncontrolling interest
 
 
 
 
453

 
590

TOTAL SHAREHOLDERS’ EQUITY
 
 
 
 
54,443

 
52,883

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
$
123,687

 
$
118,310


See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 
Three Months Ended December 31, 2018
Dollars in millions; shares in thousands
Common Stock
Preferred Stock
Add-itional Paid-In Capital
Reserve for ESOP Debt Retirement
Accumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury Stock
Retained Earnings
Non-controlling Interest
Total Share-holders' Equity
Shares
Amount
BALANCE SEPTEMBER 30, 2018
2,491,408


$4,009


$951


$63,711


($1,177
)

($15,133
)

($99,956
)

$99,831


$268


$52,504

Net earnings
 
 
 
 
 
 
 
3,194

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 plans
18,021

 
 
(73
)
 
 
1,222

 
 
1,149

Preferred stock conversions
798

 
(5
)

 
 
5

 
 

ESOP debt impacts
 
 
 
 
(1
)
 
 

 
(1
)
Noncontrolling interest, net
 
 
 
41

 
 
 
 
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 Stock
Preferred Stock
Add-itional Paid-In Capital
Reserve for ESOP Debt Retirement
Accumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury Stock
Retained Earnings
Non-controlling Interest
Total Share-holders' Equity
Shares
Amount
BALANCE
JUNE 30, 2018
2,498,093


$4,009


$967


$63,846


($1,204
)

($14,749
)

($99,217
)

$98,641


$590


$52,883

Impact of adoption of new accounting standards
 
 
 
 
 
(326
)
 
(200
)
(27
)
(553
)
Net earnings
 
 
 
 
 
 
 
6,393

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 plans
25,389

 
 
(53
)
 
 
1,722

 
 
1,669

Preferred stock conversions
2,435

 
(21
)
3

 
 
18

 
 

ESOP debt impacts
 
 
 
 
26

 
 
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 SHAREHOLDERS EQUITY (cont.)

 
Three Months Ended December 31, 2017
Dollars in millions; shares in thousands
Common Stock
Preferred Stock
Add-itional Paid-In Capital
Reserve for ESOP Debt Retirement
Accumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury Stock
Retained Earnings
Non-controlling Interest
Total Share-holders' Equity
Shares
Amount
BALANCE
SEPTEMBER 30, 2017
2,536,958


$4,009


$991


$63,705


($1,229
)

($14,292
)

($95,563
)

$97,197


$597


$55,415

Net earnings
 
 
 
 
 
 
 
2,495

66

2,561

Other comprehensive income/(loss)
 
 
 
 
 
121

 
 

121

Dividends and dividend equivalents
($0.6896 per share):
 
 
 
 
 
 
 
 
 
 
Common
 
 
 
 
 
 
 
(1,751
)
 
(1,751
)
Preferred, net of tax benefits
 
 
 
 
 
 
 
(62
)
 
(62
)
Treasury stock purchases
(19,409
)
 
 
 
 
 
(1,751
)
 
 
(1,751
)
Employee stock plans
2,791

 
 
51

 
 
189

 
 
240

Preferred stock conversions
664

 
(5
)
1

 
 
4

 
 

ESOP debt impacts
 
 
 
 

 
 
2

 
2

Noncontrolling interest, net
 
 
 
 
 
 
 
 
(54
)
(54
)
BALANCE
DECEMBER 31, 2017
2,521,004


$4,009


$986


$63,757


($1,229
)

($14,171
)

($97,121
)

$97,881


$609


$54,721


 
Six Months Ended December 31, 2017
Dollars in millions; shares in thousands
Common Stock
Preferred Stock
Add-itional Paid-In Capital
Reserve for ESOP Debt Retirement
Accumu-lated
Other
Comp-rehensive
Income/(Loss)
Treasury Stock
Retained Earnings
Non-controlling Interest
Total Share-holders' Equity
Shares
Amount
BALANCE
JUNE 30, 2017
2,553,297


$4,009


$1,006


$63,641


($1,249
)

($14,632
)

($93,715
)

$96,124


$594


$55,778

Net earnings
 
 
 
 
 
 
 
5,348

83

5,431

Other comprehensive income/(loss)
 
 
 
 
 
461

 
 

461

Dividends and dividend equivalents ($1.3792 per share):
 
 
 
 
 
 
 
 
 
 
Common
 
 
 
 
 
 
 
(3,512
)
 
(3,512
)
Preferred, net of tax benefits
 
 
 
 
 
 
 
(124
)
 
(124
)
Treasury stock purchases
(46,736
)
 
 
 
 
 
(4,253
)
 
 
(4,253
)
Employee stock plans
12,239

 
 
113

 
 
830

 
 
943

Preferred stock conversions
2,204

 
(20
)
3

 
 
17

 
 

ESOP debt impacts
 
 
 
 
20

 
 
45

 
65

Noncontrolling interest, net
 
 
 
 
 
 
 
 
(68
)
(68
)
BALANCE
DECEMBER 31, 2017
2,521,004


$4,009


$986


$63,757


($1,229
)

($14,171
)

($97,121
)

$97,881


$609


$54,721




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 millions
2018
 
2017
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
$
2,569

 
$
5,569

OPERATING ACTIVITIES
 
 
 
Net earnings
6,427

 
5,431

Depreciation and amortization
1,293

 
1,368

Share-based compensation expense
181

 
157

Deferred income taxes
37

 
(2,008
)
Gain on sale of assets
(370
)
 
(158
)
Changes in:
 
 
 
Accounts receivable
(398
)
 
(547
)
Inventories
(531
)
 
(457
)
Accounts payable, accrued and other liabilities
1,141

 
857

Other operating assets and liabilities
(370
)
 
2,524

Other
164

 
148

TOTAL OPERATING ACTIVITIES
7,574

 
7,315

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,781
)
 
(1,900
)
Proceeds from asset sales
18

 
201

Acquisitions, net of cash acquired
(3,848
)
 
(101
)
Purchases of short-term investments
(158
)
 
(3,598
)
Proceeds from sales and maturities of short-term investments
1,117

 
1,643

Change in other investments
(58
)
 
50

TOTAL INVESTING ACTIVITIES
(4,710
)
 
(3,705
)
FINANCING ACTIVITIES
 
 
 
Dividends to shareholders
(3,703
)
 
(3,636
)
Change in short-term debt
1,206

 
1,524

Additions to long-term debt
2,368

 
5,072

Reductions of long-term debt
(978
)
 
(1,281
)
Treasury stock purchases
(2,003
)
 
(4,253
)
Impact of stock options and other
1,486

 
698

TOTAL FINANCING ACTIVITIES
(1,624
)
 
(1,876
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(113
)
 
129

CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
1,127

 
1,863

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
$
3,696

 
$
7,432




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, 2018 and the Form 8-K filed October 22, 2018 to update the Form 10-K to revise disclosures to reflect the adoption of the Financial Accounting Standards Board (FASB) ASU 2017-07 and 2016-18. For additional details on the impacts of adoption, see Note 2. 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 and U.S. Tax Reform
On July 1, 2018, we adopted ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." This guidance outlines a single, comprehensive model of accounting for revenue from contracts with customers. We adopted the standard using the modified retrospective transition method, under which prior periods were not revised to reflect the impacts of the new standard. Our revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer. Accordingly, the timing of revenue recognition is not materially impacted by the new standard. Trade promotions, consisting primarily of customer pricing allowances, in-store merchandising funds, advertising and other promotional activities, and consumer coupons, are offered through various programs to customers and consumers.  The adoption of the new standard impacts the accrual timing for certain portions of our customer and consumer promotional spending, which resulted in a cumulative adjustment to Retained earnings of $534, net of tax, on the date of adoption. The provisions of the new standard also impact the classification of certain payments to customers, moving an immaterial amount of such payments from expense to a deduction from net sales. Had this standard been effective and adopted during fiscal 2018, the impact would have been to reclassify $157 from Selling, General and Administrative expense (SG&A) to a reduction of Net sales for the six months ended December 31, 2017 and $309 for the year ended June 30, 2018, with no impact to operating profit. This guidance included practical expedients, none of which are material to our Consolidated Financial Statements. This new guidance does not have any other material impacts on our Consolidated Financial Statements, including financial disclosures.
On July 1, 2018, we adopted ASU 2017-07, "Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715)." This guidance requires an entity to disaggregate the current service cost component from the other components of net benefit costs in the face of the income statement. It requires the service cost component to be presented with other current compensation costs for the related employees in the operating section of the income statement, with other components of net benefit cost presented outside of income from operations. We adopted the standard retrospectively, using the practical expedient which allows entities to use information previously disclosed in their pension and other postretirement benefit plans footnote as the basis to apply the retrospective presentation requirements. As such, prior periods’ results have been revised to report the other components of net defined benefit costs, previously reported in Cost of products sold and SG&A, in Other non-operating income, net.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows: Restricted Cash (Topic 230)." This guidance requires the Statement of Cash Flows to present changes in the total of cash, cash equivalents and restricted cash. Prior to the adoption of this ASU, the relevant accounting guidance did not require the Statement of Cash Flows to include changes in restricted cash. We adopted the standard retrospectively on July 1, 2018. We currently have no significant restricted cash balances. Historically, we had restricted cash balances and changes related to divestiture activity. Such balances were presented as Current assets held for sale on the balance sheets, with changes presented as Investing activities on the Statements of Cash Flow. In accordance with ASU 2016-08, such balances are now included in the beginning and ending balances of Cash, cash equivalents and restricted cash for all periods presented.
In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220)." This guidance permits companies to make an election to reclassify stranded tax effects from the recently enacted U.S. Tax Cuts and Jobs Act included in Accumulated other comprehensive income (AOCI) to Retained earnings.  ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company elected to early adopt this guidance in the quarter ended September 30, 2018. The reclassification from the adoption of this standard resulted in an increase of $326 to Retained earnings and a decrease of $326 to AOCI.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity transfers of Assets other than Inventory." The standard eliminates the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. We have adopted this standard effective July 1, 2018 on a modified

Amounts in millions of dollars unless otherwise specified.


retrospective basis. The adoption of ASU 2016-16 did not have a material impact on our Consolidated Financial Statements, including the cumulative effect adjustment required upon adoption.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The standard requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) Targeted Improvements”. The updated guidance provides an optional transition method, which allows for the application of the standard as of the adoption date with no restatement of prior period amounts. We plan to adopt the standard on July 1, 2019 under the optional transition method described above. We are currently in the process of implementing lease accounting software as well as assessing the impact that the new standard will have on our Consolidated Financial Statements, which will consist primarily of a balance sheet gross up of our operating leases to show equal and offsetting lease assets and lease liabilities.
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 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 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.
U.S. Tax Reform
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 revises 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 eliminates the domestic manufacturing deduction and moves to a hybrid territorial system, which also largely eliminates the ability to credit certain foreign taxes that existed prior to enactment of the U.S. Tax Act.
There are also certain transitional impacts of the U.S. Tax Act. As part of the transition to the new hybrid territorial tax system, the U.S. Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. In addition, the reduction of the U.S. corporate tax rate caused us to adjust our U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. These transitional impacts resulted in a provisional net charge of $602 million for the fiscal year ended June 30, 2018, and $628 million for the three months ended December 31, 2017 (the quarter of enactment), comprised of an estimated repatriation tax charge of $3.8 billion (comprised of U.S. repatriation taxes and foreign withholding taxes) and an estimated net deferred tax benefit of $3.2 billion. We have finalized our assessment of the transitional impacts of the U.S. Tax Act, which did not have a significant impact on tax expense during the six months ended December 31, 2018. Any legislative changes, including the final Section 965 transition tax regulations issued on January 15, 2019, whose impact is currently being assessed due to the complexity and interdependency of the legislative provisions, as well as any other new or proposed Treasury regulations, which have yet to be issued, may result in additional income tax impacts which could be material in the period any such changes are enacted.
3. Segment Information
Under U.S. GAAP, our Global Business Units (GBUs) are aggregated into five reportable segments: 1) Beauty, 2) Grooming, 3) Health Care, 4) Fabric & Home Care and 5) Baby, Feminine & Family Care. Our five reportable segments are comprised of:
Beauty: Hair Care (Conditioner, Shampoo, Styling Aids, Treatments); Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care);
Grooming: Shave Care (Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care); Appliances
Health Care: Oral Care (Toothbrushes, Toothpaste, Other Oral Care); Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Other Personal Health Care);
Fabric & Home Care: Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents); Home Care (Air Care, Dish Care, P&G Professional, Surface Care); and
Baby, Feminine & Family Care: Baby Care (Baby Wipes, Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper).

Amounts in millions of dollars unless otherwise specified.


Our business units are comprised of similar product categories. Nine business units individually accounted for 5% or more of consolidated net sales as follows:
 
% of Net sales by Business Unit (1)
 
Three Months Ended December 31
 
Six Months Ended December 31
 
2018
 
2017
 
2018
 
2017
Fabric Care
22%
 
21%
 
22%
 
22%
Baby Care
12%
 
13%
 
12%
 
13%
Home Care
10%
 
10%
 
10%
 
10%
Skin and Personal Care
10%
 
9%
 
10%
 
9%
Hair Care
9%
 
10%
 
10%
 
10%
Family Care
9%
 
8%
 
9%
 
8%
Oral Care
9%
 
9%
 
8%
 
8%
Shave Care
7%
 
8%
 
8%
 
8%
Feminine Care
6%
 
6%
 
6%
 
6%
All Other
6%
 
6%
 
5%
 
6%
Total
100%
 
100%
 
100%
 
100%
(1) 
% of Net sales by business unit excludes sales held in Corporate.
Following is a summary of reportable segment results:
 
 
Three Months Ended December 31
 
Six Months Ended December 31
 
 
Net Sales
 
Earnings/(Loss) Before Income Taxes
 
Net Earnings/(Loss)
 
Net Sales
 
Earnings/(Loss) Before Income Taxes
 
Net Earnings/(Loss)
Beauty
2018
$
3,357

 
$
964

 
$
772

 
$
6,646

 
$
1,911

 
$
1,531

 
2017
3,233

 
853

 
655

 
6,371

 
1,689

 
1,287

Grooming
2018
1,617

 
448

 
378

 
3,179

 
865

 
718

 
2017
1,776

 
531

 
423

 
3,353

 
945

 
752

Health Care
2018
2,220

 
669

 
520

 
4,065

 
1,109

 
852

 
2017
2,212

 
668

 
455

 
4,114

 
1,123

 
760

Fabric & Home Care
2018
5,557

 
1,134

 
860

 
11,045

 
2,278

 
1,737

 
2017
5,434

 
1,101

 
714

 
10,817

 
2,280

 
1,483

Baby, Feminine & Family Care
2018
4,558

 
930

 
707

 
8,948

 
1,832

 
1,399

 
2017
4,613

 
933

 
597

 
9,158

 
1,897

 
1,227

Corporate
2018
129

 
(229
)
 
(21
)
 
245

 
(139
)
 
190

 
2017
127

 
(53
)
 
(283
)
 
235

 
(150
)
 
(78
)
Total Company
2018
$
17,438

 
$
3,916

 
$
3,216

 
$
34,128

 
$
7,856

 
$
6,427

 
2017
17,395

 
4,033

 
2,561

 
34,048

 
7,784

 
5,431


4. Goodwill and Other Intangible Assets
Goodwill is allocated by reportable segment as follows:
 
Beauty
 
Grooming
 
Health Care
 
Fabric & Home Care
 
Baby, Feminine & Family Care
 
Total Company
Goodwill at June 30, 2018
$
12,992

 
$
19,820

 
$
5,929

 
$
1,865

 
$
4,569

 
$
45,175

Acquisitions and divestitures
132

 

 
1,955

 
6

 

 
2,093

Translation and other
(116
)
 
(135
)
 
(36
)
 
(13
)
 
(36
)
 
(336
)
Goodwill at December 31, 2018
$
13,008

 
$
19,685

 
$
7,848

 
$
1,858

 
$
4,533

 
$
46,932



Amounts in millions of dollars unless otherwise specified.


Goodwill from current year acquisitions primarily reflects the acquisition of the over-the-counter (OTC) healthcare business of Merck KGaA (Merck OTC) in the Health Care reportable segment (see Note 11), along with other minor acquisitions in the Beauty and Fabric & Home Care reportable segments. Goodwill increases due to acquisitions was partially offset by the divestiture of the Teva portion of the PGT business in the Health Care reportable segment and currency translation.
Identifiable intangible assets at December 31, 2018 were comprised of:
 
Gross Carrying Amount
 
Accumulated Amortization
Intangible assets with determinable lives
$
8,580

 
$
(5,251
)
Intangible assets with indefinite lives
22,618

 

Total identifiable intangible assets
$
31,198

 
$
(5,251
)

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 intangible assets for the three months ended December 31, 2018 and 2017 was $81 and $75, respectively. For the six months ended December 31, 2018 and 2017, the amortization expense of intangible assets was $154 and $152, respectively.
Goodwill and indefinite lived intangible assets are not amortized, but are tested annually for impairment. The test to evaluate goodwill for impairment is a two-step process. In the first step, 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 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. If the resulting implied fair value of the reporting unit's goodwill is less than its carrying value, that difference represents an impairment.
The business unit valuations used 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, 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. Our annual impairment testing for goodwill and indefinite lived intangible assets occurs during the 3 months ended December 31.
Most of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have fair value cushions that, at a minimum, exceed two times their underlying carrying values. Certain of our goodwill reporting units, in particular Shave Care and Appliances, are comprised entirely of acquired businesses and as a result, have fair value cushions that are not as high. Both of these wholly acquired reporting units have fair value cushions that currently equal or exceed the underlying carrying values. However, the overall Shave Care goodwill cushion has been reduced in recent years, with the fair value in the current year being reduced to an amount that approximates the reporting unit's carrying value. The related Gillette indefinite-lived intangible asset cushion has also been reduced to below 5%. These reductions are due in large part to an increased competitive market environment in the U.S. and certain other markets, a deceleration of category growth caused by changing grooming habits and significant currency devaluations in a number of countries relative to the U.S. dollar, which collectively have resulted in reduced cash flow projections. The current year reduction in the fair value was primarily caused by further currency devaluations, along with competitive activities. As a result of these factors and the reduction in the fair values and related cushions, goodwill for the Shave Care reporting unit and the related indefinite-lived intangible asset are more susceptible to impairment risk.
The most significant assumptions utilized in the determination of the estimated fair values of 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, 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.

Amounts in millions of dollars unless otherwise specified.


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 reporting unit's goodwill and indefinite-lived intangibles. As of December 31, 2018, the carrying values of Shave Care goodwill and the Gillette indefinite-lived intangible asset were $19.4 billion and $15.7 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 to discount rate or a 25 basis point decrease to our shorter-term and residual growth rates, both of which would result in impairment charges.
 
Approximate Percent Change in Estimated Fair Value
 
+25 bps Discount Rate
 
-25 bps Growth Rate
Shave Care goodwill reporting unit
(5
)%
 
(6
)%
Gillette indefinite-lived intangible asset
(5
)%
 
(6
)%

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 using the treasury stock method on the basis of the weighted average number of common shares outstanding plus the dilutive effect of stock options and other stock-based awards and the assumed conversion of preferred stock.
Net earnings per share were as follows:
CONSOLIDATED AMOUNTS
Three Months Ended December 31
 
Six Months Ended December 31
 
2018
 
2017
 
2018
 
2017
Net earnings
$
3,216

 
$
2,561

 
$
6,427

 
$
5,431

Less: Net earnings attributable to noncontrolling interests
22

 
66

 
34

 
83

Net earnings attributable to P&G (Diluted)
3,194

 
2,495

 
6,393

 
5,348

Preferred dividends, net of tax
(65
)
 
(62
)
 
(131
)
 
(124
)
Net earnings attributable to P&G available to common shareholders (Basic)
$
3,129

 
$
2,433

 
$
6,262

 
$
5,224

 
 
 
 
 
 
 
 
SHARES IN MILLIONS
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
2,499.7

 
2,533.9

 
2,497.8

 
2,542.2

Add: Effect of dilutive securities
 
 
 
 
 
 
 
Conversion of preferred shares (1)
90.7

 
95.5