Edgar Filing: PROCTER & GAMBLE Co

Document

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 March 31, 2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated 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	¨	(Do not check if smaller reporting company)
			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 2,514,599,476 shares of Common Stock outstanding as of March 31, 2018.

PART I. FINANCIAL INFORMATION



Item 1.	Financial Statements

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS



	Three Months Ended March 31				Nine Months Ended March 31
Amounts in millions except per share amounts	2018		2017		2018		2017
NET SALES	$	16,281	$	15,605	$	50,329	$	48,979
Cost of products sold	8,343		7,836		25,239		24,236
Selling, general and administrative expense	4,642		4,409		14,056		13,737
OPERATING INCOME	3,296		3,360		11,034		11,006
Interest expense	133		96		370		349
Interest income	69		46		184		123
Other non-operating income/(expense), net	21		26		189		(450		)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	3,253		3,336		11,037		10,330
Income taxes on continuing operations	713		780		3,066		2,338
NET EARNINGS FROM CONTINUING OPERATIONS	2,540		2,556		7,971		7,992
NET EARNINGS FROM DISCONTINUED OPERATIONS	—		—		—		5,217
NET EARNINGS	2,540		2,556		7,971		13,209
Less: Net earnings attributable to noncontrolling interests	29		34		112		98
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE	$	2,511	$	2,522	$	7,859	$	13,111

BASIC NET EARNINGS PER COMMON SHARE ⁽¹⁾
Earnings from continuing operations	$	0.97	$	0.96	$	3.02	$	2.95
Earnings from discontinued operations	—		—		—		2.00
BASIC NET EARNINGS PER COMMON SHARE	0.97		0.96		3.02		4.95
DILUTED NET EARNINGS PER COMMON SHARE ⁽¹⁾
Earnings from continuing operations	$	0.95	$	0.93	$	2.94	$	2.87
Earnings from discontinued operations	—		—		—		1.89
DILUTED NET EARNINGS PER COMMON SHARE	0.95		0.93		2.94		4.76
DIVIDENDS PER COMMON SHARE	$	0.6896	$	0.6695	$	2.0690	$	2.0085
Diluted Weighted Average Common Shares Outstanding	2,645.6		2,705.5		2,668.6		2,755.4


⁽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 March 31						Nine Months Ended March 31
Amounts in millions	2018			2017			2018			2017
NET EARNINGS	$	2,540		$	2,556		$	7,971		$	13,209
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Financial statement translation	925			726			1,953			(1,263		)
Unrealized gains/(losses) on hedges	(558		)	(192		)	(1,188		)	557
Unrealized gains/(losses) on investment securities	(70		)	4			(135		)	(64		)
Unrealized gains/(losses) on defined benefit retirement plans	(17		)	29			111			722
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX	280			567			741			(48		)
TOTAL COMPREHENSIVE INCOME	2,820			3,123			8,712			13,161
Less: Total comprehensive income attributable to noncontrolling interests	29			34			112			98
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE	$	2,791		$	3,089		$	8,600		$	13,063

See accompanying Notes to Consolidated Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



Amounts in millions			March 31, 2018			June 30, 2017
Assets
CURRENT ASSETS
Cash and cash equivalents			$	5,326		$	5,569
Available-for-sale investment securities			10,208			9,568
Accounts receivable			5,149			4,594
INVENTORIES
Materials and supplies			1,415			1,308
Work in process			617			529
Finished goods			3,175			2,787
Total inventories			5,207			4,624
Prepaid expenses and other current assets			2,070			2,139
TOTAL CURRENT ASSETS			27,960			26,494
PROPERTY, PLANT AND EQUIPMENT, NET			20,925			19,893
GOODWILL			46,175			44,699
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET			24,129			24,187
OTHER NONCURRENT ASSETS			5,180			5,133
TOTAL ASSETS			$	124,369		$	120,406

Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable			$	9,716		$	9,632
Accrued and other liabilities			8,133			7,024
Debt due within one year			12,862			13,554
TOTAL CURRENT LIABILITIES			30,711			30,210
LONG-TERM DEBT			22,437			18,038
DEFERRED INCOME TAXES			6,083			8,126
OTHER NONCURRENT LIABILITIES			10,192			8,254
TOTAL LIABILITIES			69,423			64,628
SHAREHOLDERS’ EQUITY
Preferred stock			972			1,006
Common stock – shares issued –	March 2018	4,009.2
	June 2017	4,009.2	4,009			4,009
Additional paid-in capital			63,717			63,641
Reserve for ESOP debt retirement			(1,203		)	(1,249		)
Accumulated other comprehensive income/(loss)			(13,891		)	(14,632		)
Treasury stock			(97,912		)	(93,715		)
Retained earnings			98,623			96,124
Noncontrolling interest			631			594
TOTAL SHAREHOLDERS’ EQUITY			54,946			55,778
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			$	124,369		$	120,406

See accompanying Notes to Consolidated Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Nine Months Ended March 31
Amounts in millions	2018			2017
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	$	5,569		$	7,102
OPERATING ACTIVITIES
Net earnings	7,971			13,209
Depreciation and amortization	2,084			2,100
Loss on early extinguishment of debt	—			543
Share-based compensation expense	249			197
Deferred income taxes	(1,826		)	(382		)
Gain on sale of assets	(187		)	(5,452		)
Changes in:
Accounts receivable	(450		)	(159		)
Inventories	(457		)	(145		)
Accounts payable, accrued and other liabilities	752			(1,113		)
Other operating assets and liabilities	2,331			219
Other	201			48
TOTAL OPERATING ACTIVITIES	10,668			9,065
INVESTING ACTIVITIES
Capital expenditures	(2,810		)	(2,230		)
Proceeds from asset sales	246			411
Acquisitions, net of cash acquired	(108		)	(16		)
Purchases of short-term investments	(3,770		)	(3,369		)
Proceeds from sales and maturities of short-term investments	2,790			834
Pre-divestiture addition of restricted cash related to the Beauty Brands divestiture	—			(874		)
Cash transferred at closing related to the Beauty Brands divestiture	—			(475		)
Release of restricted cash upon closing of the Beauty Brands divestiture	—			1,870
Change in other investments	44			26
TOTAL INVESTING ACTIVITIES	(3,608		)	(3,823		)
FINANCING ACTIVITIES
Dividends to shareholders	(5,449		)	(5,410		)
Change in short-term debt	(1,259		)	3,556
Additions to long-term debt	5,072			2,641
Reductions of long-term debt	(1,402		)	(5,020		)	⁽¹⁾
Treasury stock purchases	(5,634		)	(4,504		)
Impact of stock options and other	1,158			2,398
TOTAL FINANCING ACTIVITIES	(7,514		)	(6,339		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	211			(188		)
CHANGE IN CASH AND CASH EQUIVALENTS	(243		)	(1,285		)
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	5,326		$	5,817


⁽¹⁾	Includes $543 of costs related to early extinguishment of debt.

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, 2017. 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

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)." This guidance outlines a single, comprehensive model for accounting for revenue from contracts with customers. We plan to adopt the standard on July 1, 2018, using the modified retrospective transition method. While we are currently assessing the impact 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. The timing of revenue recognition is not materially impacted by the new standard. The provisions of the new standard may impact the classification of certain payments to customers, moving an immaterial amount of such payments from expense to a deduction from net sales. The impact would reduce net sales by less than 1%. We are still assessing the impact on financial disclosures related to the new standard. We do not expect this new guidance to have any other material impacts on our Consolidated Financial Statements.

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. We plan to adopt the standard on July 1, 2019. We are currently 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.

In March 2017, the FASB issued 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 currently classify all net periodic pension costs within operating costs (as part of Cost of products sold and Selling, general and administrative expense). We will adopt the standard retrospectively no later than July 1, 2018. The adoption of ASU 2017-07 is not expected to have a material impact on our Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." This standard enables entities to better portray the economics of their risk management activities in the financial statements and enhances the transparency and understandability of hedge results through improved disclosures. The new standard is effective for us beginning July 1, 2019, with early adoption permitted. We elected to early adopt the new guidance in the first quarter of fiscal year 2018. The amended presentation and disclosure guidance was applied on a prospective basis. The primary impact of adoption is the required disclosure changes. The adoption of the new standard did not have a material impact on our Consolidated Financial Statements, including the cumulative-effect adjustment required upon adoption.

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.

Amounts in millions of dollars unless otherwise specified.

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 U. S. corporate income tax rates and implementing a territorial tax system. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a U.S. statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years. However, the U.S. Tax Act eliminates the domestic manufacturing deduction and moves to a territorial system, which also eliminates the ability to credit certain foreign taxes that existed prior to enactment of the U.S. Tax Act. For the nine months ended March 31, 2018, these impacts resulted in a net tax benefit of approximately $210 million, as the majority of the impact of the lower blended U.S. federal rate was offset by the inability to fully credit foreign taxes that were previously included in our estimated annual effective tax rate. This impact, along with the transitional taxes discussed in the paragraph below, are being reflected in the Corporate Segment for both management and segment reporting for fiscal 2018.

There are also certain transitional impacts of the U.S. Tax Act. As part of the transition to the new territorial tax system, the U.S. Tax Act imposes 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 will cause 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 $650 million for the nine months ended March 31, 2018, comprised of an estimated repatriation tax charge of $3.9 billion (comprised of the U.S. repatriation taxes and foreign withholding taxes) and an estimated net deferred tax benefit of $3.2 billion.

The changes included in the U.S. Tax Act are broad and complex. The final transition impacts of the U.S. Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the U.S. Tax Act, any legislative action to address questions that arise because of the U.S. Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the U.S. Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the U.S. Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments within the one year time period provided by the Securities Exchange Commission.

Amounts in millions of dollars unless otherwise specified.

3. Segment Information

As discussed in Note 11, the Company completed the divestiture of the Beauty Brands business on October 1, 2016. The Beauty Brands business is presented as discontinued operations and is excluded from segment results for the nine months ended March 31, 2017.

Following is a summary of reportable segment results:



		Three Months Ended March 31							Nine Months Ended March 31
		Net Sales		Earnings/(Loss) from Continuing Operations Before Income Taxes			Net Earnings/(Loss) from Continuing Operations		Net Sales		Earnings/(Loss) from Continuing Operations Before Income Taxes			Net Earnings/(Loss) from Continuing Operations
Beauty	2018	$	2,934	$	642		$	488	$	9,305	$	2,331		$	1,775
	2017	2,675		531			396		8,613		2,028			1,528
Grooming	2018	1,550		422			334		4,903		1,367			1,086
	2017	1,525		437			333		4,972		1,580			1,217
Health Care	2018	1,934		467			305		6,048		1,590			1,065
	2017	1,841		470			310		5,774		1,574			1,052
Fabric & Home Care	2018	5,262		1,001			635		16,079		3,281			2,118
	2017	4,957		972			599		15,529		3,226			2,052
Baby, Feminine & Family Care	2018	4,458		852			539		13,616		2,749			1,766
	2017	4,471		890			555		13,711		2,973			1,932
Corporate	2018	143		(131		)	239		378		(281		)	161
	2017	136		36			363		380		(1,051		)	211
Total Company	2018	$	16,281	$	3,253		$	2,540	$	50,329	$	11,037		$	7,971
	2017	15,605		3,336			2,556		48,979		10,330			7,992

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, 2017	$	12,791	$	19,627	$	5,878	$	1,857	$	4,546	$	44,699
Acquisitions and divestitures	82		—		—		—		—		82
Translation and other	474		587		166		41		126		1,394
Goodwill at March 31, 2018	$	13,347	$	20,214	$	6,044	$	1,898	$	4,672	$	46,175

Goodwill increased from June 30, 2017 due to currency translation and acquisitions.

Identifiable intangible assets at March 31, 2018 are comprised of:



	Gross Carrying Amount		Accumulated Amortization
Intangible assets with determinable lives	$	7,468	$	(5,129	)
Intangible assets with indefinite lives	21,790		—
Total identifiable intangible assets	$	29,258	$	(5,129	)

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 March 31, 2018 and 2017 was $75 and $79, respectively. For the nine months ended March 31, 2018 and 2017, the amortization expense of intangible assets was $227 and $248, respectively.

Amounts in millions of dollars unless otherwise specified.

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.

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 (the fair values currently exceed the underlying carrying values). However, the overall Shave Care cushion and the related Gillette indefinite-lived intangible asset cushion have both been reduced to below 10%, both due in large part to an increased competitive market environment in the U.S., 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 that have occurred in recent years and resulted in reduced cash flow projections. As a result, this reporting unit and 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 residual net sales and earnings 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. While management can and has implemented strategies to address these events, significant 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 could trigger future impairment charges of the business unit's goodwill and indefinite-lived intangibles. As of March 31, 2018, the carrying values of Shave Care goodwill and the Gillette indefinite-lived intangible asset are $19.9 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 residual growth rate 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 50 basis point decrease to our residual growth rate or a 50 basis point increase to our discount rate.



	Approximate Percent Change in Estimated Fair Value
	+50 bps Discount Rate		-50 bps Long-term Growth
Shave Care goodwill reporting unit	(10	)%	(7	)%
Gillette indefinite-lived intangible asset	(10	)%	(7	)%

Amounts in millions of dollars unless otherwise specified.

5. Earnings Per Share

Basic net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble, less preferred dividends (net of related tax benefits), by the weighted average number of common shares outstanding during the period. Diluted net earnings per common share are calculated 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:



	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
CONSOLIDATED AMOUNTS	Total			Continuing Operations			Discontinued Operations		Total
Net earnings	$	2,540		$	2,556		$	—	$	2,556
Net earnings attributable to noncontrolling interests	(29		)	(34		)	—		(34		)
Net earnings attributable to P&G (Diluted)	2,511			2,522			—		2,522
Preferred dividends, net of tax benefit	(74		)	(60		)	—		(60		)
Net earnings attributable to P&G available to common shareholders (Basic)	$	2,437		$	2,462		$	—	$	2,462

SHARES IN MILLIONS
Basic weighted average common shares outstanding	2,522.7			2,563.3			2,563.3		2,563.3
Effect of dilutive securities
Conversion of preferred shares ⁽¹⁾	94.3			98.7			98.7		98.7
Exercise of stock options and other unvested equity awards ⁽²⁾	28.6			43.5			43.5		43.5
Diluted weighted average common shares outstanding	2,645.6			2,705.5			2,705.5		2,705.5

PER SHARE AMOUNTS ⁽³⁾
Basic net earnings per common share	$	0.97		$	0.96		$	—	$	0.96
Diluted net earnings per common share	$	0.95		$	0.93		$	—	$	0.93

	Nine Months Ended March 31, 2018			Nine Months Ended March 31, 2017
CONSOLIDATED AMOUNTS	Total			Continuing Operations			Discontinued Operations		Total
Net earnings	$	7,971		$	7,992		$	5,217	$	13,209
Net earnings attributable to noncontrolling interests	(112		)	(98		)	—		(98		)
Net earnings attributable to P&G (Diluted)	7,859			7,894			5,217		13,111
Preferred dividends, net of tax benefit	(198		)	(184		)	—		(184		)
Net earnings attributable to P&G available to common shareholders (Basic)	$	7,661		$	7,710		$	5,217	$	12,927

SHARES IN MILLIONS
Basic weighted average common shares outstanding	2,535.7			2,611.5			2,611.5		2,611.5
Effect of dilutive securities
Conversion of preferred shares ⁽¹⁾	95.4			99.9			99.9		99.9
Exercise of stock options and other unvested equity awards ⁽²⁾	37.5			44.0			44.0		44.0
Diluted weighted average common shares outstanding	2,668.6			2,755.4			2,755.4		2,755.4

PER SHARE AMOUNTS ⁽³⁾
Basic net earnings per common share	$	3.02		$	2.95		$	2.00	$	4.95
Diluted net earnings per common share	$	2.94		$	2.87		$	1.89	$	4.76

Amounts in millions of dollars unless otherwise specified.


⁽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 54 million and 7 million for the three months ended March 31, 2018 and 2017, and approximately 24 million and 16 million for the nine months ended March 31, 2018 and 2017, respectively, 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⁾	Basic net earnings per common share and Diluted net earnings per common 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 March 31						Nine Months Ended March 31
	2018			2017			2018			2017
Share-based compensation expense	$	92		$	93		$	249		$	211
Net periodic benefit cost for pension benefits ⁽¹⁾	53			77			156			430
Net periodic benefit cost/(credit) for other retiree benefits ⁽¹⁾	(44		)	(23		)	(120		)	16

⁽¹⁾

The components of the total net periodic benefit cost for both pension benefits and other retiree benefits for those 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, 2017, excluding the settlement, curtailment, and special termination costs related to the divestiture of the Beauty Brands business reported in Net earnings from discontinued operations.

The disclosures above for both share-based compensation and postretirement benefits include amounts related to discontinued operations for the nine months ended March 31, 2017, including $186 of pension benefit costs and $34 of other retiree benefit costs related to settlements, curtailments and special terminations included in Net earnings from discontinued operations.

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 nine months ended March 31, 2018.

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 nine months ended March 31, 2018.

The following table sets forth the Company’s financial assets as of March 31, 2018 and June 30, 2017 that are measured at fair value on a recurring basis during the period:



	Fair Value Asset
	March 31, 2018		June 30, 2017
Investments
U.S. government securities	$	6,156	$	6,297
Corporate bond securities	4,052		3,271
Other investments	124		132
Total	$	10,332	$	9,700

Investment securities are presented in Available-for-sale investment securities and Other noncurrent assets. The amortized cost of U.S. government securities with maturities less than one year was $2,303 as of March 31, 2018 and $2,494 as of June 30, 2017. The amortized cost of U.S. government securities with maturities between one and five years was $3,961 as of March 31, 2018 and $3,824 as of June 30, 2017. The amortized cost of Corporate bond securities with maturities of less than a year was $1,216 as of March 31, 2018 and $730 as of June 30, 2017. The amortized cost of Corporate bond securities with maturities between one and five years was $2,894 as of March 31, 2018 and $2,547 as of June 30, 2017. The Company's investments measured at fair

Amounts in millions of dollars unless otherwise specified.

value are generally classified as Level 2 within the fair value hierarchy. There are no 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 $25,472 and $21,396 as of March 31, 2018 and June 30, 2017, respectively. This includes the current portion ($1,763 and $1,694 as of March 31, 2018 and June 30, 2017, respectively) of debt instruments. Certain long-term debt is recorded at fair value. Certain long-term debt is not recorded at fair value on a recurring basis but is measured at fair value for disclosure purposes. Long-term debt with fair value of $1,862 and $1,716 as of March 31, 2018 and June 30, 2017, respectively, is classified as Level 2 within the fair value hierarchy. All remaining long-term debt is classified as Level 1 within the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments.

The following table sets forth the notional amounts and fair values of qualifying and non-qualifying financial instruments used in hedging transactions as of March 31, 2018 and June 30, 2017:



	Notional Amount				Derivative Fair Value Asset/(Liability)
	March 31, 2018		June 30, 2017		March 31, 2018			June 30, 2017
Derivatives in Fair Value Hedging Relationships
Interest rate contracts ⁽¹⁾	$	4,705	$	4,552	$	91		$	178
Derivatives in Net Investment Hedging Relationships
Foreign exchange contracts	$	5,256	$	6,102	$	(350	)	$	(163	)
Derivatives Not Designated as Hedging Instruments
Foreign currency contracts	$	5,793	$	4,969	$	(35	)	$	18


⁽¹⁾	The fair value of the 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, net of the fair value adjustment, was $4,775 as of March 31, 2018 and $4,705 as of June 30, 2017, respectively.

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 total notional amount of contracts outstanding at the end of the period is indicative of the Company's derivative activity during the period. All of the Company's derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy.



	Amount of Gain/(Loss) Recognized in AOCI on Derivatives
	March 31, 2018			June 30, 2017
Derivatives in Net Investment Hedging Relationships
Foreign exchange contracts	$	(239	)	$	(104	)

Amounts in millions of dollars unless otherwise specified.

The amounts of gains and losses on qualifying and non-qualifying financial instruments used in hedging transactions for the three and nine months ended March 31, 2018 and 2017 are as follows:



	Amount of Gain/(Loss) Reclassified from AOCI into Earnings
	Three Months Ended March 31						Nine Months Ended March 31
	2018			2017			2018			2017
Derivatives in Cash Flow Hedging Relationships ⁽¹⁾
Foreign currency contracts	$	—		$	(25	)	$	—		$	74

	Amount of Gain/(Loss) Recognized in Earnings
	Three Months Ended March 31						Nine Months Ended March 31
	2018			2017			2018			2017
Derivatives in Fair Value Hedging Relationships ⁽²⁾
Interest rate contracts	$	(46	)	$	(22	)	$	(87	)	$	(202	)
Debt	46			22			87			202
Total	$	—		$	—		$	—		$	—
Derivatives Not Designated as Hedging Instruments⁽³⁾
Foreign currency contracts	$	123		$	155		$	121		$	(29	)


⁽¹⁾	The gain or loss on cash flow hedging relationships is reclassified from AOCI into net income in the same period during which the related item affects earnings. Such amounts related to foreign currency contracts are included in the Consolidated Statements of Earnings in Selling, general and administrative expense (SG&A).


⁽²⁾	The gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are both recognized in the Consolidated Statements of Earnings in Interest expense.


⁽³⁾	The gain or loss on foreign currency contracts not designated as hedging instruments is included in the Consolidated Statements of Earnings in SG&A. This gain or loss substantially offsets the foreign currency mark-to-market impact of the related exposure.

8. Accumulated Other Comprehensive Income/(Loss)

The table below presents the changes in Accumulated other comprehensive income/(loss) by component and the reclassifications out of Accumulated other comprehensive income/(loss):



	Changes in Accumulated Other Comprehensive Income/(Loss) by Component
	Hedges			Investment Securities			Pension and Other Retiree Benefits			Financial Statement Translation			Total
Balance at June 30, 2017	$	(2,947	)	$	(25	)	$	(4,397	)	$	(7,263	)	$	(14,632	)
OCI before reclassifications ⁽¹⁾	(1,188		)	(129		)	(83		)	1,953			553
Amounts reclassified from AOCI ⁽²⁾	—			(6		)	194			—			188
Net current period OCI	(1,188		)	(135		)	111			1,953			741
Balance at March 31, 2018	$	(4,135	)	$	(160	)	$	(4,286	)	$	(5,310	)	$	(13,891	)


⁽¹⁾	Net of tax expense/(benefit) of $(578), $0 and $(12) for gains/losses on hedges, investment securities and pension and other retiree benefit items, respectively.


⁽²⁾	Net of tax expense/(benefit) of $0, $0 and $69 for gains/losses on hedges, investment securities and pension and other retiree benefit items, respectively.

The below provides additional details on the amounts reclassified from AOCI into the Consolidated Statement of Earnings:


•	Hedges: see Note 7 for classification of gains and losses from hedges in 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 Cost of products sold and SG&A 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. During fiscal years 2018 and 2019, the Company expects to incur approximately $1.2 billion in before-tax restructuring costs under the plan. This program is expected to result in meaningful incremental non-manufacturing 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 and nine month periods ended March 31, 2018, the Company incurred total restructuring charges of approximately $205 and $516, respectively. For the three and nine month periods ended March 31, 2018, $75 and $162 of these charges were recorded in SG&A, respectively. For the three and nine month periods ended March 31, 2018, $130 and $354 of these charges were recorded in Cost of products sold, respectively. The following table presents restructuring activity for the nine months ended March 31, 2018:



							Nine Months Ended March 31, 2018
	Accrual Balance June 30, 2017		Charges Previously Reported (Six Months Ended December 31, 2017)		Charges for the Three Months Ended March 31, 2018		Cash Spent			Charges Against Assets			Accrual Balance March 31, 2018
Separations	$	228	$	113	$	69	$	(177	)	$	—		$	233
Asset-related costs	—		144		88		—			(232		)	—
Other costs	49		54		48		(113		)	—			38
Total	$	277	$	311	$	205	$	(290	)	$	(232	)	$	271

Separation Costs

Employee separation charges for the three and nine month periods ended March 31, 2018 relate to severance packages for approximately 430 and 1,410 employees, respectively. Separations related to non-manufacturing employees were approximately 190 and 580 for the three and nine month periods ended March 31, 2018, respectively. The packages were predominantly 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 March 31, 2018		Nine Months Ended March 31, 2018
Beauty	$	11	$	44
Grooming	10		21
Health Care	7		14
Fabric & Home Care	26		81
Baby, Feminine & Family Care	65		166
Corporate ⁽¹⁾	86		190
Total Company	$	205	$	516


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

10. Commitments and Contingencies

Litigation

The Company is subject to various legal proceedings and claims arising out of our business which cover a wide range of matters such as antitrust, trade and other governmental regulations, product liability, patent and trademark, advertising, contracts, environmental, labor and employment and tax. With respect to these and other litigation and claims, 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 140 taxable jurisdictions and, at any point in time, has 50 – 60 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. While we do not expect material changes, it is possible that the amount of unrecognized benefit with respect to our uncertain tax positions could increase or decrease within the next 12 months. At this time, we are not able to make a reasonable estimate of the range of impact on the balance of uncertain tax positions or the impact on the effective tax rate related to these items.

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, 2017.

11. Discontinued Operations

On October 1, 2016, the Company completed the divestiture of four product categories to Coty, Inc. (“Coty”). The divestiture included 41 of the Company's beauty brands (“Beauty Brands”), including the global salon professional hair care and color, retail hair color, cosmetics and a majority of the fine fragrance businesses, along with select hair styling brands. The form of the divestiture transaction was a Reverse Morris Trust split-off, in which P&G shareholders were given the election to exchange their P&G shares for shares of a new corporation that held the Beauty Brands (Galleria Co.), and then immediately exchange those shares for Coty shares. The value P&G received in the transaction was $11.4 billion. The value was comprised of 105 million shares of common stock of the Company, which were tendered by shareholders of the Company and exchanged for the Galleria Co. shares, valued at approximately $9.4 billion, and the assumption of $1.9 billion of debt by Galleria Co. The shares tendered

Amounts in millions of dollars unless otherwise specified.

in the transaction were reflected as an addition to treasury stock and the cash received related to the debt assumed by Coty was reflected as an investing activity in the Consolidated Statement of Cash Flows. The Company recorded an after-tax gain on the final transaction of $5.3 billion, net of transaction and related costs.

In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Beauty Brands business are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for the nine months ended March 31, 2017. The Beauty Brands were historically part of the Company's Beauty reportable segment.

The following is selected financial information underlying the Net earnings from discontinued operations for the Beauty Brands:



	Nine Months Ended March 31, 2017
Net sales	$	<