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Section 1: 10-Q (FY1920 Q1 JAS 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark one)
x
True
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2019
OR
o
False
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
 
400547435_pglogoa18.jpg
PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
 
 
Ohio
OH
1-434
 
31-0411980
(State of Incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification Number)
One Procter & Gamble Plaza
 
Cincinnati
OH
 
One Procter & Gamble Plaza, Cincinnati, Ohio
45202
(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 class
Trading Symbol
Name of each exchange on which registered
Common Stock, without Par Value
PG
NYSE
4.125% EUR notes due December 2020
PG20A
NYSE
0.275% Notes due 2020
PG20
NYSE
2.000% Notes due 2021
PG21
NYSE
2.000% Notes due 2022
PG22B
NYSE
1.125% Notes due 2023
PG23A
NYSE
0.500% Notes due 2024
PG24A
NYSE
0.625% Notes due 2024
PG24B
NYSE
1.375% Notes due 2025
PG25
NYSE
4.875% EUR notes due May 2027
PG27A
NYSE
1.200% Notes due 2028
PG28
NYSE
1.250% Notes due 2029
PG29B
NYSE
1.800% Notes due 2029
PG29A
NYSE
6.250% GBP notes due January 2030
PG30
NYSE
5.250% GBP notes due January 2033
PG33
NYSE
1.875% Notes due 2038
PG38
NYSE
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 2,493,812,048 shares of Common Stock outstanding as of September 30, 2019.



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 amounts
2019
 
2018
NET SALES
$
17,798

 
$
16,690

Cost of products sold
8,723

 
8,484

Selling, general and administrative expense
4,785

 
4,652

OPERATING INCOME
4,290

 
3,554

Interest expense
(108
)
 
(129
)
Interest income
58

 
53

Other non-operating income, net
103

 
462

EARNINGS BEFORE INCOME TAXES
4,343

 
3,940

Income taxes
726

 
729

NET EARNINGS
3,617

 
3,211

Less: Net earnings attributable to noncontrolling interests
24

 
12

NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE
$
3,593

 
$
3,199

 
 
 
 
NET EARNINGS PER SHARE (1)
 
 
 
Basic
$
1.41

 
$
1.26

Diluted
$
1.36

 
$
1.22

 
 
 
 
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
2,647.5

 
2,612.1


(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 September 30
Amounts in millions
2019
 
2018
NET EARNINGS
$
3,617

 
$
3,211

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
 
 
 
Foreign currency translation
(540
)
 
(209
)
Unrealized gains/(losses) on investment securities
(5
)
 
(5
)
Unrealized gains/(losses) on defined benefit retirement plans
179

 
152

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
(366
)
 
(62
)
TOTAL COMPREHENSIVE INCOME
3,251

 
3,149

Less: Total comprehensive income attributable to noncontrolling interests
20

 
8

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE
$
3,231

 
$
3,141



See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in millions
 
 
 
 
September 30, 2019
 
June 30, 2019
Assets
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$
9,304

 
$
4,239

Available-for-sale investment securities
 
 
 
 

 
6,048

Accounts receivable
 
 
 
 
5,143

 
4,951

INVENTORIES
 
 
 
 
 
 
 
Materials and supplies
 
 
 
 
1,394

 
1,289

Work in process
 
 
 
 
656

 
612

Finished goods
 
 
 
 
3,415

 
3,116

Total inventories
 
 
 
 
5,465

 
5,017

Prepaid expenses and other current assets
 
 
 
 
2,013

 
2,218

TOTAL CURRENT ASSETS
 
 
 
 
21,925

 
22,473

PROPERTY, PLANT AND EQUIPMENT, NET
 
 
 
 
20,901

 
21,271

GOODWILL
 
 
 
 
39,605

 
40,273

TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET
 
 
 
24,002

 
24,215

OTHER NONCURRENT ASSETS
 
 
 
 
7,625

 
6,863

TOTAL ASSETS
 
 
 
 
$
114,058

 
$
115,095

 
 
 
 
 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
Accounts payable
 
 
 
 
$
10,951

 
$
11,260

Accrued and other liabilities
 
 
 
 
9,950

 
9,054

Debt due within one year
 
 
 
 
9,352

 
9,697

TOTAL CURRENT LIABILITIES
 
 
 
 
30,253

 
30,011

LONG-TERM DEBT
 
 
 
 
20,161

 
20,395

DEFERRED INCOME TAXES
 
 
 
 
6,325

 
6,899

OTHER NONCURRENT LIABILITIES
 
 
 
 
10,335

 
10,211

TOTAL LIABILITIES
 
 
 
 
67,074

 
67,516

SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
915

 
928

Common stock – shares issued –
September 2019
 
4,009.2

 
 
 
 
 
June 2019
 
4,009.2

 
4,009

 
4,009

Additional paid-in capital
 
 
 
 
63,949

 
63,827

Reserve for ESOP debt retirement
 
 
 
 
(1,112
)
 
(1,146
)
Accumulated other comprehensive income/(loss)
 
 
 
 
(15,298
)
 
(14,936
)
Treasury stock
 
 
 
 
(102,510
)
 
(100,406
)
Retained earnings
 
 
 
 
96,625

 
94,918

Noncontrolling interest
 
 
 
 
406

 
385

TOTAL SHAREHOLDERS’ EQUITY
 
 
 
 
46,984

 
47,579

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
$
114,058

 
$
115,095


See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 
Three Months Ended September 30, 2019
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, 2019
2,504,751


$4,009


$928


$63,827


($1,146
)

($14,936
)

($100,406
)

$94,918


$385


$47,579

Net earnings
 
 
 
 
 
 
 
3,593

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 plans
13,050

 
 
120

 
 
885

 
 
1,005

Preferred stock conversions
1,416

 
(13
)
2

 
 
11

 
 

ESOP debt impacts
 
 
 
 
34

 
 
53

 
87

Noncontrolling interest, net
 
 
 


 
 
 
 
1

1

BALANCE
SEPTEMBER 30, 2019
2,493,812


$4,009


$915


$63,949


($1,112
)

($15,298
)

($102,510
)

$96,625


$406


$46,984


 
Three Months Ended September 30, 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
 
 
 
 
 
 
 
3,199

12

3,211

Other comprehensive income/(loss)
 
 
 
 
 
(58
)
 
 
(4
)
(62
)
Dividends and dividend equivalents
($0.7172 per share):
 
 
 
 
 
 
 
 
 
 
Common
 
 
 
 
 
 
 
(1,791
)
 
(1,791
)
Preferred, net of tax benefits
 
 
 
 
 
 
 
(66
)
 
(66
)
Treasury stock purchases
(15,690
)
 
 
 
 
 
(1,252
)
 
 
(1,252
)
Employee stock plans
7,368

 
 
20

 
 
500

 
 
520

Preferred stock conversions
1,637

 
(16
)
3

 
 
13

 
 

ESOP debt impacts
 
 
 
 
27

 
 
48

 
75

Noncontrolling interest, net
 
 
 
(158
)
 
 
 
 
(303
)
(461
)
BALANCE
SEPTEMBER 30, 2018
2,491,408


$4,009


$951


$63,711


($1,177
)

($15,133
)

($99,956
)

$99,831


$268


$52,504




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 millions
2019
 
2018
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
$
4,239

 
$
2,569

OPERATING ACTIVITIES
 
 
 
Net earnings
3,617

 
3,211

Depreciation and amortization
723

 
643

Share-based compensation expense
110

 
102

Deferred income taxes
(586
)
 
34

Gain on sale of assets
(2
)
 
(361
)
Changes in:
 
 
 
Accounts receivable
(261
)
 
(475
)
Inventories
(549
)
 
(494
)
Accounts payable, accrued and other liabilities
1,151

 
933

Other operating assets and liabilities
(35
)
 
(84
)
Other
1

 
58

TOTAL OPERATING ACTIVITIES
4,169

 
3,567

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,079
)
 
(1,080
)
Proceeds from asset sales
6

 
9

Acquisitions, net of cash acquired

 
(237
)
Purchases of short-term investments

 
(158
)
Proceeds from sales and maturities of investment securities
6,151

 
649

Change in other investments
1

 
(48
)
TOTAL INVESTING ACTIVITIES
5,079

 
(865
)
FINANCING ACTIVITIES
 
 
 
Dividends to shareholders
(1,932
)
 
(1,853
)
Change in short-term debt
(61
)
 
24

Treasury stock purchases
(3,000
)
 
(1,252
)
Impact of stock options and other
875

 
425

TOTAL FINANCING ACTIVITIES
(4,118
)
 
(2,656
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(65
)
 
(70
)
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
5,065

 
(24
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
$
9,304

 
$
2,545




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 required 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 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.
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
 
2019
 
2018
Fabric Care
23%
 
23%
Baby Care
11%
 
12%
Home Care
10%
 
10%
Hair Care
10%
 
10%
Skin and Personal Care
10%
 
9%
Family Care
9%
 
9%
Oral Care
7%
 
8%
Shave Care
7%
 
8%
Feminine Care
6%
 
6%
Personal Health Care
5%
 
3%
Other
2%
 
2%
Total
100%
 
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 Sales
 
Earnings/(Loss) Before Income Taxes
 
Net Earnings
Beauty
2019
$
3,552

 
$
1,092

 
$
874

 
2018
3,289

 
947

 
759

Grooming
2019
1,531

 
426

 
353

 
2018
1,562

 
417

 
340

Health Care
2019
2,221

 
540

 
401

 
2018
1,845

 
440

 
332

Fabric & Home Care
2019
5,832

 
1,338

 
1,028

 
2018
5,488

 
1,144

 
877

Baby, Feminine & Family Care
2019
4,567

 
1,134

 
871

 
2018
4,390

 
902

 
692

Corporate
2019
95

 
(187
)
 
90

 
2018
116

 
90

 
211

Total Company
2019
$
17,798

 
$
4,343

 
$
3,617

 
2018
16,690

 
3,940

 
3,211



Amounts in millions of dollars unless otherwise specified.


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, 2019
$
12,985

 
$
12,881

 
$
7,972

 
$
1,855

 
$
4,580

 
$
40,273

Acquisitions and divestitures
(1
)
 

 
(53
)
 

 

 
(54
)
Translation and other
(222
)
 
(159
)
 
(153
)
 
(18
)
 
(62
)
 
(614
)
Goodwill at September 30, 2019
$
12,762

 
$
12,722

 
$
7,766

 
$
1,837

 
$
4,518

 
$
39,605


Goodwill from current year acquisitions and divestitures primarily reflects opening balance sheet adjustments from the prior year acquisition of the over-the-counter (OTC) healthcare business of Merck KGaA (Merck OTC) in the Health Care reportable segment (see Note 12), along with adjustments from a prior year Beauty acquisition.
Identifiable intangible assets at September 30, 2019 were comprised of:
 
Gross Carrying Amount
 
Accumulated Amortization
Intangible assets with determinable lives
$
8,452

 
$
(5,443
)
Intangible assets with indefinite lives
20,993

 

Total identifiable intangible assets
$
29,445

 
$
(5,443
)

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, 2019 and 2018 was $96 and $73, 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 (the step two testing) to determine the implied fair value of the reporting unit's goodwill. The step two testing 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 three 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. The Appliances wholly-acquired 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 year ended June 30, 2019.  The underlying reductions in fair values were due in large part to significant currency devaluations in a number of countries relative to the U.S. dollar, a deceleration of category growth caused by changing grooming habits, primarily in the developed markets, and an increased competitive market environment in the U.S. and certain other markets. As a result of the impairment determined by the step two testing, the Shave Care fair value exceeded the carrying value by approximately 20% as of June 30, 2019. Because the impairment testing for intangible assets is a one step process, the Gillette indefinite-lived intangible asset fair value approximated its carrying value at that date.  As a result, the Gillette indefinite-lived intangible asset is more susceptible to future impairment risk.




Amounts in millions of dollars unless otherwise specified.


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. Based on developments in the macroeconomic environment during the quarter ended September 30, 2019, the discount rate utilized in our annual impairment testing for goodwill and indefinite lived intangible assets during the three months ended December 31 will likely decline, resulting in an increase in the implied fair value estimates. 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 reporting unit's goodwill and indefinite-lived intangibles. As of September 30, 2019, the carrying values of the Shave Care goodwill and the Gillette indefinite-lived intangible asset were $12.4 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 to discount rate or a 25 basis point decrease to our shorter-term and residual growth rates.
 
Approximate Percent Change in Estimated Fair Value
 
+25 bps Discount Rate
 
-25 bps Growth Rate
Shave Care goodwill reporting unit
(5
)%
 
(6
)%
Gillette indefinite-lived intangible asset
(5
)%
 
(5
)%



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 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 September 30
 
2019
 
2018
Net earnings
$
3,617

 
$
3,211

Less: Net earnings attributable to noncontrolling interests
24

 
12

Net earnings attributable to P&G (Diluted)
3,593

 
3,199

Preferred dividends
(65
)
 
(66
)
Net earnings attributable to P&G available to common shareholders (Basic)
$
3,528

 
$
3,133

 
 
 
 
SHARES IN MILLIONS
 
 
 
Basic weighted average common shares outstanding
2,504.0

 
2,495.8

Add: Effect of dilutive securities
 
 
 
Conversion of preferred shares (1)
87.4

 
91.9

Impact of stock options and other unvested equity awards (2)
56.1

 
24.4

Diluted weighted average common shares outstanding
2,647.5

 
2,612.1

 
 
 
 
NET EARNINGS PER SHARE (3)
 
 
 
Basic
$
1.41

 
$
1.26

Diluted
$
1.36

 
$
1.22

(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 and 69 million for the three months ended September 30, 2019 and 2018 were not included in the Diluted net earnings per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the 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
 
2019
 
2018
Share-based compensation expense
$
110

  
$
102

Net periodic benefit cost for pension benefits (1)
40

 
28

Net periodic benefit cost/(credit) for other retiree benefits (1)
(52
)
 
(41
)
(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 for the fiscal year ended June 30, 2019.


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, 2019.
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, 2019.
Other investments had a fair value of $62 and $169 as of September 30, 2019 and June 30, 2019, respectively, and are presented in Other noncurrent assets. During the three months ended September 30, 2019, the Company sold all of its existing U.S. government securities and corporate bond securities. Such securities were presented in Available-for-sale investment securities at June 30, 2019, and had fair values of $3,648 and $2,400, respectively. The Company's investments measured at fair value are generally classified as Level 2 within the fair value hierarchy. Cash equivalents were $7,955 and $2,956 as of September 30, 2019 and June 30, 2019, respectively, and are classified as Level 1 within the fair value hierarchy. There are no other material investment balances classified as Level 1 or Level 3 within the fair value hierarchy, or using net asset value as a practical expedient. Fair values are generally estimated based upon quoted market prices for similar instruments.
The fair value of long-term debt was $25,196 and $25,378 as of September 30, 2019 and June 30, 2019, respectively. This includes the current portion of debt instruments ($3,291 and $3,390 as of September 30, 2019 and June 30, 2019, respectively). Certain long-term debt (debt designated as a fair value hedge) is recorded at fair value. All other long-term debt is recorded at amortized cost, but is measured at fair value for disclosure purposes. We consider our debt to be Level 2 in the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments.
Disclosures about Financial Instruments
The notional amounts and fair values of financial instruments used in hedging transactions as of September 30, 2019 and June 30, 2019 are as follows:
 
Notional Amount
 
Fair Value Asset
 
Fair Value (Liability)
 
September 30, 2019
 
June 30, 2019
 
September 30, 2019
 
June 30, 2019
 
September 30, 2019
 
June 30, 2019
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts
$
7,524

 
$
7,721

 
$
266

 
$
177

 
$

 
$
(1
)
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Foreign currency interest rate contracts
$
3,309

 
$
3,157

 
$
104

 
$
35

 
$
(16
)
 
$
(24
)
TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS
$
10,833

 
$
10,878

 
$
370

 
$
212

 
$
(16
)
 
$
(25
)
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts
$
6,196

 
$
6,431

 
$
19

 
$
27

 
$
(49
)
 
$
(20
)
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL DERIVATIVES AT FAIR VALUE
$
17,029

 
$
17,309

 
$
389

 
$
239

 
$
(65
)
 
$
(45
)

All derivative assets are presented in Prepaid expenses and other current assets or Other noncurrent assets. All derivative liabilities are presented in Accrued and other liabilities or Other noncurrent liabilities.
The fair value of the interest rate derivative asset/liability directly offsets the cumulative amount of the fair value hedging adjustment included in the carrying amount of the underlying debt obligation. The carrying amount of the underlying debt obligation, which includes the unamortized discount or premium and the fair value adjustment, was $7,756 and $7,860 as of September 30, 2019 and June 30, 2019, respectively. In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The carrying value of those debt instruments designated as net investment hedges, which includes the adjustment for the foreign currency transaction gain or loss on those instruments, was $16,995 and $17,154 as of September 30, 2019 and June 30, 2019, respectively. 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
 
2019
 
2018
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2)
Foreign exchange contracts
$
113

 
$
(43
)

(1) 
For the derivatives in net investment hedging relationships, the amount of gain/(loss) excluded from effectiveness testing, which was recognized in earnings, was $19 and $14 for the three months ended September 30, 2019 and 2018, 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 $609 and $207, for the three months ended September 30, 2019 and 2018, respectively.
 
Amount of Gain/(Loss) Recognized in Earnings
 
Three Months Ended September 30
 
2019
 
2018
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts
$
90

 
$
(24
)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts
$
(97
)
 
$
(2
)

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 Securities
 
Pension and Other Retiree Benefits
 
Foreign Currency Translation
 
Total AOCI
Balance at June 30, 2019
$
11

 
$
(4,198
)
 
$
(10,749
)
 
$
(14,936
)
OCI before reclassifications (1)
(3
)
 
104

 
(540
)
 
(439
)
Amounts reclassified from AOCI into the Consolidated Statements of Earnings (2)
(2
)
 
75

 

 
73

Net current period OCI
(5
)
 
179

 
(540
)
 
(366
)
Less: Other comprehensive income/(loss) attributable to non-controlling interests

 

 
(4
)
 
(4
)
Balance at September 30, 2019
$
6

 
$
(4,019
)
 
$
(11,285
)
 
$
(15,298
)

(1) 
Net of tax expense/(benefit) of $0, $51 and $170 for gains/losses on investment securities, pension and other retiree benefit items and foreign currency translation, respectively.
(2) 
Net of tax expense/(benefit) of $0, $20 and $0 for gains/losses on investment securities, pension and other retiree 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.
Pension and other retiree benefits: amounts reclassified from AOCI into Other non-operating income, net and included in the computation of net periodic postretirement costs.

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 a multi-year productivity and cost savings plan to further reduce costs in the areas of supply chain, certain marketing activities and overhead expenses. This program is expected to result in incremental enrollment reductions, along with further optimization of the supply chain and other manufacturing processes.
Restructuring costs incurred consist primarily of costs to separate employees, asset-related costs to exit facilities and other costs. For the three month period ended September 30, 2019, the Company incurred total restructuring charges of $93. Approximately $70 of these charges were recorded in Cost of products sold and approximately $22 of these charges were recorded in SG&A. The remainder of these charges were recorded in Other non-operating income, net. The following table presents restructuring activity for the three months ended September 30, 2019:
 
Reserve Balance
 
Three Months Ended September 30, 2019
 
Reserve Balance
 
June 30, 2019
 
Charges
 
Cash Spent
 
Charges Against Assets
 
September 30, 2019
Separations
$
280

 
$
34

 
$
(60
)
 
$

 
$
254

Asset-related costs

 
45

 

 
(45
)
 

Other costs
188

 
14

 
(25
)
 

 
177

Total
$
468

 
$
93

 
$
(85
)
 
$
(45
)
 
$
431


Separation Costs
Employee separation charges for the three month period ended September 30, 2019 relate to severance packages for approximately 180 employees. The packages were primarily voluntary and the amounts were calculated based on salary levels and past service periods. Severance costs related to voluntary separations are generally charged to earnings when the employee accepts the offer.
Asset-Related Costs
Asset-related costs consist of both asset write-downs and accelerated depreciation. Asset write-downs relate to the establishment of a new fair value basis for assets held-for-sale or disposal. These assets were written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less minor disposal costs. Charges for accelerated depreciation relate to long-lived assets that will be taken out of service prior to the end of their normal service period. These assets relate primarily to manufacturing consolidations and technology standardizations. The asset-related charges will not have a significant impact on future depreciation charges.
Other Costs
Other restructuring-type charges are incurred as a direct result of the restructuring program. Such charges primarily include asset removal and termination of contracts related to supply chain optimization.
Consistent with our historical policies for ongoing restructuring-type activities, the restructuring program charges are funded by and included within Corporate for both management and segment reporting. Accordingly, all of the charges under the program are included within the Corporate reportable segment. However, for informative purposes, the following table summarizes the total restructuring costs related to our reportable segments:
 
Three Months Ended September 30, 2019
Beauty
$
8

Grooming
18

Health Care
12

Fabric & Home Care
4

Baby, Feminine & Family Care
20

Corporate (1)
31

Total Company
$
93

(1) 
Corporate includes costs related to allocated overheads, including charges related to our Market Operations, Global Business Services and Corporate Functions activities.

Amounts in millions of dollars unless otherwise specified.


10. Leases
The Company determines whether a contract contains a lease at the inception of a contract by determining if the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. We lease certain real estate, machinery, equipment, vehicles and office equipment for varying periods. Many of these leases include an option to either renew or terminate the lease. For purposes of calculating lease liabilities, these options are included within the lease term when it has become reasonably certain that the Company will exercise such options. The incremental borrowing rate utilized to calculate our lease liabilities is based on the information available at commencement date, as most of the leases do not provide an implicit borrowing rate. The Company does not have any material financing lease or sublease activities.
The Company incurred lease expense for operating leases of $85 for the three months ended September 30, 2019. Total cash paid related to leases during the three months ended September 30, 2019 was $71, including amounts expensed and amounts capitalized. Commitments related to finance leases are not material. Short-term leases, defined as leases with initial terms of 12 months or less, are not reflected on the Consolidated Balance Sheets. Lease expense for such short-term leases is not material. The most significant assets in our leasing portfolio relate to real estate and vehicles. For purposes of calculating lease liabilities for such leases, we have combined lease and non-lease components.
The right-of-use assets obtained in exchange for new lease liabilities was $9 for the three months ended September 30, 2019.
Supplemental balance sheet and other information related to leases is as follows:
 
September 30, 2019
Operating leases:
 
Other noncurrent assets
$
887

 
 
Accrued and other liabilities
263

Other noncurrent liabilities
630

Total operating lease liabilities
$
893

 
 
Weighted average remaining lease term:
 
Operating leases
7 years

 
 
Weighted average discount rate:
 
Operating leases
4.3
%

At September 30, 2019, future payments of operating lease liabilities were as follows:
 
Operating Leases
 
September 30, 2019
1 year
$
263

2 years
177

3 years
158

4 years
134

5 years
114

Over 5 years
218

Total lease payments
1,064

Less: Interest
(171
)
Present value of lease liabilities
$
893






Amounts in millions of dollars unless otherwise specified.


As of June 30, 2019, minimum lease payments under non-cancelable operating leases by fiscal year were expected to be:
 
Operating Leases
 
June 30, 2019
2020
$
263

2021
209

2022
165

2023
141

2024
121

After 2024
244

Total lease payments
$
1,143


11. 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 $140, 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 for the year ended June 30, 2019.


Amounts in millions of dollars unless otherwise specified.


12. Merck Acquisition
On November 30, 2018, we completed our acquisition of the over the counter (OTC) healthcare business of Merck KGaA (Merck OTC) for $3.7 billion (based on exchange rates at the time of closing) in an all-cash transaction. This business primarily sells OTC consumer healthcare products, mainly in Europe, Latin America and Asia markets. The results of Merck OTC, which are not material to the Company, are reported in our consolidated financial statements beginning December 1, 2018.
The following table presents the preliminary allocation of purchase price related to the Merck OTC business as of the date of acquisition. The preliminary allocation of the purchase price is based on the best estimates of management and is subject to revision based on final determination of fair values of the assets and liabilities acquired, which will be finalized during the quarter ended December 31, 2019, as we complete our analysis of the underlying assets and acquired liabilities, such as pensions, litigation cases, environmental issues and tax positions.
Amounts in millions
November 30, 2018
Current assets
$
420

Property, plant and equipment
121

Intangible assets
2,134

Goodwill
2,085

Other non-current assets
209

Total assets acquired
$
4,969

 
 
Current liabilities
$
233

Deferred income taxes
764

Non-current liabilities
95

Total liabilities acquired
$
1,092

 
 
Noncontrolling interest (1)
$
169

 
 
Net assets acquired
$
3,708

(1) 
Represents a 48% minority ownership interest in the Merck India company.
The acquisition resulted in $2.1 billion in goodwill, of which approximately $180 million is expected to be deductible for tax purposes. All of this goodwill was allocated to the Health Care Segment.
We have preliminarily estimated the fair value of Merck OTC’s identifiable intangible assets as $2.1 billion. The preliminary allocation of identifiable intangible assets and their average useful lives is as follows:
Amounts in millions
Estimated Fair Value
 
Avg Remaining
Useful Life
Intangible assets with determinable lives
 
 
 
   Brands
$
701

 
14
   Patents and technology
162

 
10
   Customer relationships
325

 
20
   Total
$
1,188

 
15
 
 
 
 
Intangible assets with indefinite lives
 
 
 
   Brands
946

 
 
Total intangible assets
$
2,134

 
 





Amounts in millions of dollars unless otherwise specified.


The majority of the intangible valuation relates to brand intangibles. Our preliminary assessment as to brand intangibles that have an indefinite life and those that have a definite life was based on a number of factors, including competitive environment, market share, brand history, product life cycles, operating plan and the macroeconomic environment of the countries in which the brands are sold. The indefinite-lived brand intangibles include Neurobion and Dolo Neurobion. The definite-lived brand intangibles primarily include regional or local brands. The definite-lived brand intangibles have estimated lives ranging from 10 to 20 years. The technology intangibles are related to R&D and manufacturing know-how; these intangibles have a 10 year estimated life. The customer relationships intangibles have a 20 year estimated life and reflect the historical and projected attrition rates for Merck OTC’s relationships with health care professionals, retailers and distributors.
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 11 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.
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 and acts of war or terrorism; (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 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 decision to leave 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, 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; and (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.  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, 2019
Economic Conditions and Uncertainties
Results of Operations – Three Months Ended September 30, 2019
Business Segment Discussion – Three Months Ended September 30, 2019
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), including 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 as well as details on the use and the derivation of these measures.
Management also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and comparability of share and consumption information. References to market share and market consumption in the MD&A are based on a combination of vendor 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 in dollar terms on a constant currency basis of our products, relative to all product sales in the category. The Company measures fiscal-year-to-date market shares through the most recent period for which market share data is available, which typically reflects a lag time of one or two months.
OVERVIEW
P&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, high-frequency stores and pharmacies. We also sell direct to consumers. We have on-the-ground operations in approximately 70 countries.
Our market environment is highly competitive with global, regional and local competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products as well as retailers' private-label brands. Additionally, many of the product segmen