Item 8. Financial Statements and Supplementary Data.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting of The Procter & Gamble Company (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

Strong internal controls is an objective that is reinforced through our Worldwide Business Conduct Manual, which sets forth our commitment to conduct business with integrity, and within both the letter and the spirit of the law. Our people are deeply committed to our Purpose, Values and Principles, which unite us in doing what’s right. Our system of internal controls includes written policies and procedures, segregation of duties and the careful selection and development of employees. Additional key elements of our internal control structure include our Global Leadership Council, which is actively involved in oversight of the business strategies, initiatives, results and controls, our Disclosure Committee, which is responsible for evaluating disclosure implications of significant business activities and events, our Board of Directors, which provides strong and effective corporate governance, and our Audit Committee, which reviews significant accounting policies, financial reporting and internal control matters.

Global Internal Audit performs audits of internal controls over financial reporting as well as broader financial, operational and compliance audits around the world, provides training and continually improves our internal control processes. The Company’s internal control over financial reporting also includes a robust Control Self-Assessment Program that is conducted annually on critical financial reporting areas of the Company. Management takes the appropriate action to correct any identified control deficiencies.

Because of its inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, because of changes in conditions, internal control effectiveness may vary over time.

Management assessed the effectiveness of the Company's internal control over financial reporting as of June 30, 2022, using criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the Company maintained effective internal control over financial reporting as of June 30, 2022, based on these criteria.

Deloitte & Touche LLP, an independent registered public accounting firm, has audited the effectiveness of the Company's internal control over financial reporting as of June 30, 2022, as stated in their report which is included herein.

/s/ Jon R. Moeller
(Jon R. Moeller)
Chairman of the Board, President and Chief Executive Officer
/s/ Andre Schulten
(Andre Schulten)
Chief Financial Officer
August 5, 2022

34 The Procter & Gamble Company

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of The Procter & Gamble Company

Opinion on the Financial Statements

We have audited the accompanying Consolidated Balance Sheets of The Procter & Gamble Company and subsidiaries (the "Company") as of June 30, 2022 and 2021, the related Consolidated Statements of Earnings, Comprehensive Income, Shareholders’ Equity and Cash Flows, for each of the three years in the period ended June 30, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 5, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Intangible Assets — Gillette Indefinite Lived Intangible Asset — Refer to Notes 1 and 4 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of indefinite lived intangible assets for impairment involves the comparison of the fair value of each indefinite lived intangible asset to its carrying value. The Company estimates fair value using the income method, which is based on the present value of estimated future cash flows attributable to the respective assets. This requires management to make significant estimates and assumptions related to forecasts of future net sales and earnings, including growth rates beyond a 10-year time period, royalty rates, and discount rate. Changes in the assumptions could have a significant impact on either the fair value, the amount of any impairment charge, or both. The Company performed their annual impairment assessment of the Gillette brand indefinite lived intangible asset (the “Gillette brand”) as of December 31, 2021. Because the estimated fair value exceeds the carrying value, no impairment was recorded. As of June 30, 2022, the carrying value of Gillette indefinite lived intangible asset was $14.1 billion.

We identified the Company’s impairment evaluation of the Gillette indefinite lived intangible asset as a critical audit matter because of the significant judgments made by management to estimate the fair value of the indefinite lived intangible asset. A high degree of auditor judgment and an increased extent of effort was required when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to the forecasts of future net sales and earnings as well as the selection of royalty rates and discount rate, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to forecasts of future net sales and earnings and the selection of the royalty rates and discount rate for the Gillette indefinite lived intangible asset included the following, among others:

The Procter & Gamble Company 35

• We tested the effectiveness of controls over indefinite lived intangible assets, including those over the determination of fair value, such as controls related to management’s development of forecasts of future net sales and earnings, and the selection of royalty rates and discount rate.

• We evaluated management’s ability to accurately forecast net sales and earnings by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s forecast of net sales and earnings by comparing the forecasts to:

• Historical net sales and earnings.

• Underlying analysis detailing business strategies and growth plans including consideration of the effects related to the COVID-19 pandemic.

• Internal communications to management and the Board of Directors.

• Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.

• With the assistance of our fair value specialists, we evaluated the net sales and earnings growth rates, royalty rates, and discount rate by:

• Testing the source information underlying the determination of net sales and earnings growth rates, royalty rates, and discount rate and the mathematical accuracy of the calculations.

• Developing a range of independent estimates for the discount rate and comparing the discount rate selected by management to that range.

/s/ Deloitte & Touche LLP
Cincinnati, Ohio
August 5, 2022
We have served as the Company’s auditor since 1890.

36 The Procter & Gamble Company

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of The Procter & Gamble Company

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of The Procter & Gamble Company and subsidiaries (the "Company") as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June 30, 2022, of the Company and our report dated August 5, 2022, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP
Cincinnati, Ohio
August 5, 2022

The Procter & Gamble Company 37

Consolidated Statements of Earnings

Amounts in millions except per share amounts; Years ended June 30			2022						2021						2020
NET SALES			$	80,187					$	76,118					$	70,950
Cost of products sold			42,157						37,108						35,250
Selling, general and administrative expense			20,217						21,024						19,994
OPERATING INCOME			17,813						17,986						15,706
Interest expense			(439)						(502)						(465)
Interest income			51						45						155
Other non-operating income, net			570						86						438
EARNINGS BEFORE INCOME TAXES			17,995						17,615						15,834
Income taxes			3,202						3,263						2,731
NET EARNINGS			14,793						14,352						13,103
Less: Net earnings attributable to noncontrolling interests			51						46						76
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE			$	14,742					$	14,306					$	13,027
NET EARNINGS PER COMMON SHARE: (1)
Basic			$	6.00					$	5.69					$	5.13
Diluted			$	5.81					$	5.50					$	4.96

(1)Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings attributable to Procter & Gamble.

See accompanying Notes to Consolidated Financial Statements.

38 The Procter & Gamble Company

Consolidated Statements of Comprehensive Income

Amounts in millions; Years ended June 30			2022						2021						2020
NET EARNINGS			$	14,793					$	14,352					$	13,103
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Foreign currency translation (net of tax of $515, $(266) and $59, respectively)			(1,450)						1,023						(1,083)
Unrealized gains/(losses) on investment securities (net of tax of $1, $5 and $(1), respectively)			5						16						(12)
Unrealized gains/(losses) on defined benefit postretirement plans (net of tax of $1,022, $445 and $(42), respectively)			2,992						1,386						(150)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX			1,547						2,425						(1,245)
TOTAL COMPREHENSIVE INCOME			16,340						16,777						11,858
Less: Comprehensive income attributable to noncontrolling interests			43						50						60
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE			$	16,297					$	16,727					$	11,798

See accompanying Notes to Consolidated Financial Statements.

The Procter & Gamble Company 39

Consolidated Balance Sheets

Amounts in millions except stated values; As of June 30			2022						2021
Assets
CURRENT ASSETS
Cash and cash equivalents			$	7,214					$	10,288
Accounts receivable			5,143						4,725
INVENTORIES
Materials and supplies			2,168						1,645
Work in process			856						719
Finished goods			3,900						3,619
Total inventories			6,924						5,983
Prepaid expenses and other current assets			2,372						2,095
TOTAL CURRENT ASSETS			21,653						23,091
PROPERTY, PLANT AND EQUIPMENT, NET			21,195						21,686
GOODWILL			39,700						40,924
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET			23,679						23,642
OTHER NONCURRENT ASSETS			10,981						9,964
TOTAL ASSETS			$	117,208					$	119,307
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable			$	14,882					$	13,720
Accrued and other liabilities			9,554						10,523
Debt due within one year			8,645						8,889
TOTAL CURRENT LIABILITIES			33,081						33,132
LONG-TERM DEBT			22,848						23,099
DEFERRED INCOME TAXES			6,809						6,153
OTHER NONCURRENT LIABILITIES			7,616						10,269
TOTAL LIABILITIES			70,354						72,653
SHAREHOLDERS' EQUITY
Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)			843						870
Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)			—						—
Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2022 - 4,009.2, 2021 - 4,009.2)			4,009						4,009
Additional paid-in capital			65,795						64,848
Reserve for ESOP debt retirement			(916)						(1,006)
Accumulated other comprehensive loss			(12,189)						(13,744)
Treasury stock, at cost (shares held: 2022 - 1,615.4, 2021 - 1,579.5)			(123,382)						(114,973)
Retained earnings			112,429						106,374
Noncontrolling interest			265						276
TOTAL SHAREHOLDERS' EQUITY			46,854						46,654
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			$	117,208					$	119,307

See accompanying Notes to Consolidated Financial Statements.

40 The Procter & Gamble Company

Consolidated Statements of Shareholders' Equity

Dollars in millions except per share amounts; shares in thousands			Common Stock						Preferred Stock			Additional Paid-In Capital			Reserve for ESOP Debt Retirement			Accumulated 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																								13,027			76			13,103
Other comprehensive income/(loss)																		(1,229)									(16)			(1,245)
Dividends and dividend equivalents ($3.0284 per share):
Common																								(7,551)						(7,551)
Preferred																								(263)						(263)
Treasury stock purchases			(61,346)																		(7,405)									(7,405)
Employee stock plans			32,603									362									2,212									2,574
Preferred stock conversions			3,738						(31)			5									26									—
ESOP debt impacts															66									108						174
Noncontrolling interest, net																											(88)			(88)
BALANCE JUNE 30, 2020			2,479,746			$4,009			$897			$64,194			($1,080)			($16,165)			($105,573)			$100,239			$357			$46,878
Net earnings																								14,306			46			14,352
Other comprehensive income/(loss)																		2,421									4			2,425
Dividends and dividend equivalents ($3.2419 per share):
Common																								(8,020)						(8,020)
Preferred																								(271)						(271)
Treasury stock purchases			(81,343)																		(11,009)									(11,009)
Employee stock plans			28,001									650									1,586									2,236
Preferred stock conversions			3,302						(27)			4									23									—
ESOP debt impacts															74									120						194
Noncontrolling interest, net																											(131)			(131)
BALANCE JUNE 30, 2021			2,429,706			$4,009			$870			$64,848			($1,006)			($13,744)			($114,973)			$106,374			$276			$46,654
Net earnings																								14,742			51			14,793
Other comprehensive income/(loss)																		1,555									(8)			1,547
Dividends and dividend equivalents ($3.5227 per share):
Common																								(8,514)						(8,514)
Preferred																								(281)						(281)
Treasury stock purchases			(67,088)																		(10,003)									(10,003)
Employee stock plans			28,042									945									1,571									2,516
Preferred stock conversions			3,217						(27)			4									23									—
ESOP debt impacts															90									108						198
Noncontrolling interest, net												(2)															(54)			(56)
BALANCE JUNE 30, 2022			2,393,877			$4,009			$843			$65,795			($916)			($12,189)			($123,382)			$112,429			$265			$46,854

See accompanying Notes to Consolidated Financial Statements.

The Procter & Gamble Company 41

Consolidated Statements of Cash Flows

Amounts in millions; Years ended June 30			2022						2021						2020
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR			$	10,288					$	16,181					$	4,239
OPERATING ACTIVITIES
Net earnings			14,793						14,352						13,103
Depreciation and amortization			2,807						2,735						3,013
Loss on early extinguishment of debt			—						512						—
Share-based compensation expense			528						540						558
Deferred income taxes			(402)						(258)						(596)
Loss/(gain) on sale of assets			(85)						(16)						7
Change in accounts receivable			(694)						(342)						634
Change in inventories			(1,247)						(309)						(637)
Change in accounts payable, accrued and other liabilities			1,429						1,391						1,923
Change in other operating assets and liabilities			(635)						(369)						(710)
Other			229						135						108
TOTAL OPERATING ACTIVITIES			16,723						18,371						17,403
INVESTING ACTIVITIES
Capital expenditures			(3,156)						(2,787)						(3,073)
Proceeds from asset sales			110						42						30
Acquisitions, net of cash acquired			(1,381)						(34)						(58)
Purchases of investment securities			—						(55)						—
Proceeds from sales and maturities of investment securities			—						—						6,151
Change in other investments			3						—						(5)
TOTAL INVESTING ACTIVITIES			(4,424)						(2,834)						3,045
FINANCING ACTIVITIES
Dividends to shareholders			(8,770)						(8,263)						(7,789)
Additions to short-term debt with original maturities of more than three months			10,411						7,675						14,371
Reductions in short-term debt with original maturities of more than three months			(11,478)						(7,577)						(12,984)
Additions/(reductions) in other short-term debt			917						(3,431)						958
Additions to long-term debt			4,385						4,417						4,951
Reductions of long-term debt (1)			(2,343)						(4,987)						(2,447)
Treasury stock purchases			(10,003)						(11,009)						(7,405)
Impact of stock options and other			2,005						1,644						1,978
TOTAL FINANCING ACTIVITIES			(14,876)						(21,531)						(8,367)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(497)						101						(139)
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH			(3,074)						(5,893)						11,942
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR			$	7,214					$	10,288					$	16,181
SUPPLEMENTAL DISCLOSURE
Cash payments for interest			$	451					$	531					$	434
Cash payments for income taxes			3,818						3,822						3,550

(1) Includes early extinguishment of debt costs of $512 in 2021.

See accompanying Notes to Consolidated Financial Statements.

42 The Procter & Gamble Company

Notes to Consolidated Financial Statements

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Procter & Gamble Company's (the "Company," "Procter & Gamble," "we" or "us") business is focused on providing branded consumer packaged goods of superior quality and value. Our products are sold in approximately 180 countries and territories primarily through mass merchandisers, e-commerce (including social commerce) channels, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, specialty beauty stores (including airport duty-free stores), high-frequency stores, pharmacies, electronics stores and professional channels. We also sell direct to consumers. We have on-the-ground operations in approximately 70 countries.

Basis of Presentation

The Consolidated Financial Statements include the Company and its controlled subsidiaries. Intercompany transactions are eliminated.

Because of a lack of control over Venezuelan subsidiaries caused by a number of currency and other operating controls and restrictions, our Venezuelan subsidiaries are not consolidated for any year presented. We account for those subsidiaries at cost, less impairments, plus or minus observable price changes.

Beginning in fiscal year 2022, the Company began to present increases and reductions in short-term debt with maturities of more than three months separately within the Consolidated Statements of Cash Flows. The presentation for the twelve months ended June 30, 2021, and June 30, 2020, have been revised to align with the current period presentation. This change had no impact on total financing activities, and we have concluded the change is not material.

Use of Estimates

Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying disclosures. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, consumer and trade promotion accruals, restructuring reserves, pensions, postretirement benefits, stock options, valuation of acquired intangible assets, useful lives for depreciation and amortization of long-lived assets, future cash flows associated with impairment testing for goodwill, indefinite-lived intangible assets and other long-lived assets, deferred tax assets and liabilities, uncertain income tax positions and contingencies. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the financial statements in any individual year. However, regarding

ongoing impairment testing of goodwill and indefinite-lived intangible assets, significant deterioration in future cash flow projections or other assumptions used in estimating fair values versus those anticipated at the time of the initial valuations, could result in impairment charges that materially affect the financial statements in a given year.

Revenue Recognition

Our revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single performance obligation and revenue is recognized at a single point in time when ownership, risks and rewards transfer, which can be on the date of shipment or the date of receipt by the customer. A provision for payment discounts and product return allowances is recorded as a reduction of sales in the same period the revenue is recognized. The revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities. The revenue includes shipping and handling costs, which generally are included in the list price to the customer.

Trade promotions, consisting primarily of customer pricing allowances, merchandising funds and consumer coupons, are offered through various programs to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred at the time of the sale. Most of these arrangements have terms of approximately one year. Accruals for expected payouts under these programs are included as accrued marketing and promotion in the Accrued and other liabilities line item in the Consolidated Balance Sheets.

Cost of Products Sold

Cost of products sold is primarily comprised of direct materials and supplies consumed in the manufacturing of product, as well as manufacturing labor, depreciation expense and direct overhead expenses necessary to acquire and convert the purchased materials and supplies into finished products. Cost of products sold also includes the cost to distribute products to customers, inbound freight costs, internal transfer costs, warehousing costs and other shipping and handling activity.

Selling, General and Administrative Expense

Selling, general and administrative expense (SG&A) is primarily comprised of marketing expenses, selling expenses, research and development costs, administrative and other indirect overhead costs, depreciation and amortization expense on non-manufacturing assets and other miscellaneous operating items. Research and development costs are charged to expense as incurred and were $2.0 billion in 2022, $1.9 billion in 2021 and $1.8 billion in 2020. Advertising costs, charged to expense as incurred, include worldwide television, print, radio, internet and in-store advertising expenses and were $7.9 billion in 2022, $8.2 billion in 2021 and $7.3 billion in 2020. Non-advertising related components of the Company's total marketing spending reported in SG&A include costs associated with consumer promotions, product sampling and sales aids.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 43

Other Non-Operating Income, Net

Other non-operating income, net primarily includes net acquisition and divestiture gains, net non-service impacts related to postretirement benefit plans, investment income and other non-operating items.

Currency Translation

Financial statements of operating subsidiaries outside the U.S. generally are measured using the local currency as the functional currency. Adjustments to translate those statements into U.S. dollars are recorded in Other comprehensive income (OCI). For subsidiaries operating in highly inflationary economies, the U.S. dollar is the functional currency. Re-measurement adjustments for financial statements in highly inflationary economies and other transactional exchange gains and losses are reflected in earnings.

Cash Flow Presentation

The Consolidated Statements of Cash Flows are prepared using the indirect method, which reconciles net earnings to cash flows from operating activities. Cash flows from foreign currency transactions and operations are translated at monthly exchange rates for each period. Cash flows from hedging activities are included in the same category as the items being hedged. Cash flows from derivative instruments designated as net investment hedges are classified as financing activities. Realized gains and losses from non-qualifying derivative instruments used to hedge currency exposures resulting from intercompany financing transactions are also classified as financing activities. Cash flows from other derivative instruments used to manage interest rates, commodity or other currency exposures are classified as operating activities. Cash payments related to income taxes are classified as operating activities.

Investments

The Company holds minor equity investments in certain companies over which we exert significant influence, but do not control the financial and operating decisions. These are accounted for as equity method investments. Other equity investments that are not controlled, and over which we do not have the ability to exercise significant influence, and for which there is a readily determinable market value, are recorded at fair value, with gains and losses recorded through net earnings. Equity investments without readily determinable fair values are measured at cost, less impairments, plus or minus observable price changes. Equity investments are included as Other noncurrent assets in the Consolidated Balance Sheets.

The Company also holds highly-liquid investments, primarily money market funds and time deposits. Such investments are considered cash equivalents and are included within Cash and cash equivalents in the Consolidated Balance Sheets.

Inventory Valuation

Inventories are valued at the lower of cost or net realizable value. Product-related inventories are maintained on the

first-in, first-out method. The cost of spare part inventories is maintained using the average-cost method.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost reduced by accumulated depreciation. Depreciation expense is recognized over the assets' estimated useful lives using the straight-line method. Machinery and equipment includes office furniture and fixtures (15-year life), computer equipment and capitalized software (3- to 5-year lives) and manufacturing equipment (3- to 20-year lives). Buildings are depreciated over an estimated useful life of 40 years. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.

Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized but are evaluated for impairment annually or more often if indicators of a potential impairment are present. Our annual impairment testing of goodwill is performed separately from our impairment testing of indefinite-lived intangible assets.

We have acquired brands that have been determined to have indefinite lives. We evaluate several factors to determine whether an indefinite life is appropriate, including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment of the countries in which the brands are sold. In addition, when certain events or changes in operating conditions occur, an additional impairment assessment is performed and indefinite-lived assets may be adjusted to a determinable life.

The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed, either on a straight-line or accelerated basis over the estimated periods benefited. Patents, technology and other intangible assets with contractual terms are generally amortized over their respective legal or contractual lives. Customer relationships, brands and other non-contractual intangible assets with determinable lives are amortized over periods generally ranging from 5 to 30 years. When certain events or changes in operating conditions occur, an impairment assessment is performed and remaining lives of intangible assets with determinable lives may be adjusted.

For additional details on goodwill and intangible assets see Note 4.

Amounts in millions of dollars except per share amounts or as otherwise specified.

44 The Procter & Gamble Company

Fair Values of Financial Instruments

Certain financial instruments are required to be recorded at fair value. Changes in assumptions or estimation methods could affect the fair value estimates; however, we do not believe any such changes would have a material impact on our financial condition, results of operations or cash flows. Other financial instruments, including cash equivalents, certain investments and certain short-term debt, are recorded at cost, which approximates fair value. The fair values of long-term debt and financial instruments are disclosed in Note 9.

New Accounting Pronouncements and Policies

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope." The amendments were effective upon issuance and provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. We have completed our evaluation of significant contracts. Most contracts reviewed will mature prior to the termination of LIBOR or will be modified to apply a new reference rate, primarily the Secured Overnight Financing Rate (SOFR) where applicable. As a result, the guidance has not had, and is not expected to have, a material impact on the Company's Consolidated Financial Statements.

In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance". This guidance requires annual disclosures for transactions with a government authority that are accounted for by applying a grant or contribution model. These amendments are effective for annual periods beginning after December 15, 2021, with early adoption permitted. We plan to adopt the standard for the fiscal year ending June 30, 2023. We are currently assessing the impact of this guidance and do not expect a material impact at this time.

No other new accounting pronouncements issued or effective during the fiscal year or in future years had, or are expected to have, a material impact on our Consolidated Financial Statements.

NOTE 2

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).

While none of our reportable segments are highly seasonal, components within certain reportable segments, such as Appliances (Grooming) and Personal Health Care (Health), are seasonal.

The accounting policies of the segments are generally the same as those described in Note 1. Differences between these policies and U.S. GAAP primarily reflect income taxes, which are reflected in the segments using applicable blended statutory rates. Adjustments to arrive at our effective tax rate are included in Corporate. In addition, capital expenditures in the segments are on an accrual basis consistent with the balance sheet. Adjustments to move from an accrual to cash basis, for purposes of the cash flow statement, are reflected in Corporate.

Corporate includes certain operating and non-operating activities that are not reflected in the operating results used internally to measure and evaluate the businesses, as well as items to adjust management reporting principles to U.S. GAAP. Operating activities in Corporate include the results of incidental businesses managed at the corporate level. Operating elements also include certain employee benefit costs, the costs of certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization, asset impairment charges and other general Corporate items. The non-operating elements in Corporate primarily include interest expense, certain pension and other postretirement benefit costs, certain acquisition and divestiture gains, interest and investing income and other financing costs.

Total assets for the reportable segments include those assets managed by the reportable segment, primarily inventory, fixed assets and intangible assets. Other assets, primarily cash, accounts receivable, investment securities and goodwill, are included in Corporate.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 45

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)
Years ended June 30			2022						2021						2020
Fabric Care			23%						22%						22%
Home Care			12%						12%						11%
Baby Care			10%						10%						11%
Skin and Personal Care			9%						10%						10%
Hair Care			9%						9%						9%
Family Care			9%						9%						9%
Oral Care			8%						8%						8%
Shave Care			6%						7%						7%
Feminine Care			6%						6%						6%
Personal Health Care			6%						5%						5%
All Other			2%						2%						2%
TOTAL			100%						100%						100%

(1) % of Net sales by operating segment excludes sales recorded in Corporate.

Net sales and long-lived assets in the United States and internationally were as follows (in billions):

Years ended June 30						2022						2021						2020
NET SALES
United States						$	36.5					$	33.7					$	31.3
International						$	43.7					$	42.4					$	39.7
LONG-LIVED ASSETS (1)
United States						$	10.7					$	10.1					$	9.9
International						$	10.5					$	11.6					$	10.8

(1) Long-lived assets consists of property, plant and equipment.

No country, other than the United States, exceeds 10% of the Company's consolidated net sales or long-lived assets.

Our largest customer, Walmart Inc. and its affiliates, accounted for consolidated net sales of approximately 15% in 2022, 2021 and 2020. No other customer represents more than 10% of our consolidated net sales.

Global Segment Results									Net Sales						Earnings/(Loss) Before Income Taxes						Net Earnings/(Loss)						Depreciation and Amortization						Total Assets						Capital Expenditures
BEAUTY			2022						$	14,740					$	3,946					$	3,160					$	348					$	6,055					$	331
			2021						14,417						4,018						3,210						333						5,587						386
			2020						13,359						3,437						2,737						320						5,531						397
GROOMING			2022						6,587						1,835						1,490						361						20,482						260
			2021						6,440						1,728						1,427						378						20,668						291
			2020						6,069						1,613						1,329						406						20,589						305
HEALTH CARE			2022						10,824						2,618						2,006						376						7,888						410
			2021						9,956						2,398						1,851						372						7,976						364
			2020						9,028						2,156						1,652						350						7,726						338
FABRIC & HOME CARE			2022						27,556						5,729						4,386						672						8,567						988
			2021						26,014						5,986						4,622						646						8,334						1,006
			2020						23,735						5,426						4,154						605						7,745						887
BABY, FEMININE & FAMILY CARE			2022						19,736						4,267						3,266						826						8,443						932
			2021						18,850						4,723						3,629						846						8,666						814
			2020						18,364						4,534						3,465						839						8,628						764
CORPORATE			2022						744						(400)						485						224						65,773						235
			2021						441						(1,238)						(387)						160						68,076						(74)
			2020						395						(1,332)						(234)						493						70,481						382
TOTAL COMPANY			2022						$	80,187					$	17,995					$	14,793					$	2,807					$	117,208					$	3,156
			2021						76,118						17,615						14,352						2,735						119,307						2,787
			2020						70,950						15,834						13,103						3,013						120,700						3,073

Amounts in millions of dollars except per share amounts or as otherwise specified.

46 The Procter & Gamble Company

NOTE 3

SUPPLEMENTAL FINANCIAL INFORMATION

The components of property, plant and equipment were as follows:

As of June 30			2022						2021
PROPERTY, PLANT AND EQUIPMENT
Buildings			$	8,087					$	8,165
Machinery and equipment			35,098						35,367
Land			756						808
Construction in progress			2,756						2,358
TOTAL PROPERTY, PLANT AND EQUIPMENT			46,697						46,698
Accumulated depreciation			(25,502)						(25,012)
PROPERTY, PLANT AND EQUIPMENT, NET			$	21,195					$	21,686

Selected components of current and noncurrent liabilities were as follows:

As of June 30			2022						2021
ACCRUED AND OTHER LIABILITIES - CURRENT
Marketing and promotion			$	3,878					$	4,140
Compensation expenses			1,797						2,145
Taxes payable			587						637
Restructuring reserves			147						278
Leases			205						219
Other			2,940						3,104
TOTAL			$	9,554					$	10,523
OTHER NONCURRENT LIABILITIES
Pension benefits			$	3,139					$	5,452
U.S. Tax Act transitional tax payable			1,661						1,891
Other retiree benefits			672						922
Uncertain tax positions			752						794
Long term operating leases			595						631
Other			797						579
TOTAL			$	7,616					$	10,269

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 ongoing programs have generally ranged from $250 to $500 annually.

Restructuring costs incurred consist primarily of costs to separate employees, asset-related costs to exit facilities and other costs. Employee separation costs relate to severance packages that are primarily voluntary and the amounts calculated are based on salary levels and past service periods. Severance costs related to voluntary separations are generally charged to earnings when the employee accepts the offer. Asset-related costs consist of both asset write-downs and accelerated depreciation. Asset write-downs relate to the establishment of a new fair value basis for assets held-for-sale or for disposal. These assets are written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less minor disposal costs. Charges for accelerated depreciation relate to long-lived assets that will be taken out of service prior to the end of their normal service period. These assets relate primarily to manufacturing consolidations and technology standardizations. The asset-related charges will not have a significant impact on future depreciation charges. Other restructuring-type charges primarily include asset removal and termination of contracts related to supply chain and overhead optimization. The Company incurred total restructuring charges of $253 and $330 for the years ended June 30, 2022 and 2021. Of the charges incurred for fiscal year 2022, $67 were recorded in SG&A, $182 in Costs of products sold and $4 in Other non-operating income, net. Of the charges incurred in fiscal year 2021, $176 were recorded in SG&A, $134 in Costs of products sold and $20 in Other non-operating income, net. The following table presents restructuring activity for the years ended June 30, 2022 and 2021:

			Separations			Asset-Related Costs			Other			Total
RESERVE JUNE 30, 2020			$	285		$	—		$	187		$	472
Cost incurred and charged to expense			127			24			179			330
Cost paid/settled			(236)			(24)			(264)			(524)
RESERVE JUNE 30, 2021			176			—			102			278
Cost incurred and charged to expense			88			87			78			253
Cost paid/settled			(143)			(87)			(154)			(384)
RESERVE JUNE 30, 2022			$	121		$	—		$	26		$	147

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 47

Consistent with our historical policies for ongoing restructuring-type activities, the restructuring charges are funded by and included within Corporate for both management and segment reporting. Accordingly, all of the charges are included within the Corporate reportable segment.

However, for information purposes, the following table summarizes the total restructuring costs related to our reportable segments:

Years ended June 30			2022			2021			2020 (2)
Beauty			$	11		$	13		$	54
Grooming			14			25			102
Health Care			32			51			136
Fabric & Home Care			42			22			75
Baby, Feminine & Family Care			83			29			192
Corporate (1)			71			190			223
Total Company			$	253		$	330		$	782

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

(2) Fiscal 2020 includes incremental restructuring charges above ongoing programs and tied to a multi-year productivity and cost savings plan (announced in 2017) to further reduce costs in the areas of supply chain, certain marketing activities and overhead expense.

NOTE 4

GOODWILL AND INTANGIBLE ASSETS

The change in the net carrying amount of goodwill by reportable segment was as follows:

			Beauty			Grooming			Health Care			Fabric & Home Care			Baby, Feminine & Family Care			Total Company
BALANCE AT JUNE 30, 2020 - NET (1)			$	12,902		$	12,815		$	7,786		$	1,841		$	4,557		$	39,901
Acquisitions and divestitures			—			—			16			—			—			16
Translation and other			355			280			244			32			96			1,007
BALANCE AT JUNE 30, 2021 - NET (1)			13,257			13,095			8,046			1,873			4,653			40,924
Acquisitions and divestitures			781			—			1			—			—			782
Translation and other			(742)			(524)			(458)			(65)			(217)			(2,006)
BALANCE AT JUNE 30, 2022 - NET (1)			$	13,296		$	12,571		$	7,589		$	1,808		$	4,436		$	39,700

(1) Grooming goodwill balance is net of $7.9 billion accumulated impairment losses.

Goodwill and indefinite-lived intangibles are tested for impairment at least annually by comparing the estimated fair values of our reporting units and underlying indefinite-lived intangible assets to their respective carrying values. We typically use an income method to estimate the fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability). Significant judgement by management is required to estimate the impact of macroeconomic and other factors on future cash flows, including those related to the COVID-19 pandemic and the Russia-Ukraine War. Estimates utilized in the projected cash flows include consideration of macroeconomic conditions, overall category growth rates, competitive activities, cost containment and margin expansion, Company business plans, the underlying product or technology life cycles, economic barriers to entry, a brand's relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

We believe the estimates and assumptions utilized in our impairment testing are reasonable and are comparable to those that would be used by other marketplace participants. However, actual events and results could differ substantially from those used in our valuations. To the extent such factors result in a failure to achieve the level of projected cash flows initially used to estimate fair value for purposes of establishing or subsequently impairing the carrying amount of goodwill and related intangible assets, we may need to record additional non-cash impairment charges in the future.

Goodwill decreased during fiscal 2022 due to currency translation across all reportable segments, partially offset by three acquisitions (Farmacy Beauty, Ouai and TULA) in the Beauty reportable segment.

Amounts in millions of dollars except per share amounts or as otherwise specified.

48 The Procter & Gamble Company

Goodwill increased during fiscal 2021 driven by a minor brand acquisition in the Health Care reportable segment and currency translation across all reportable segments. Identifiable intangible assets were comprised of:

			2022									2021
As of June 30			Gross Carrying Amount			Accumulated Amortization						Gross Carrying Amount			Accumulated Amortization
INTANGIBLE ASSETS WITH DETERMINABLE LIVES
Brands			$	4,299		$	(2,628)					$	3,908		$	(2,546)
Patents and technology			2,769			(2,609)						2,781			(2,575)
Customer relationships			1,797			(939)						1,789			(882)
Other			147			(97)						150			(97)
TOTAL			$	9,012		$	(6,273)					$	8,628		$	(6,100)
INTANGIBLE ASSETS WITH INDEFINITE LIVES
Brands			20,940			—						21,114			—
TOTAL			$	29,952		$	(6,273)					$	29,742		$	(6,100)

Amortization expense of intangible assets was as follows:

Years ended June 30			2022						2021						2020
Intangible asset amortization			$	312					$	318					$	360

Estimated amortization expense over the next five fiscal years is as follows:

Years ending June 30			2023			2024			2025			2026			2027
Estimated amortization expense			$	316		$	305		$	288		$	268		$	258

NOTE 5

INCOME TAXES

Income taxes are recognized for the amount of taxes payable for the current year and for the impact of deferred tax assets and liabilities, which represent future tax consequences of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using the enacted statutory tax rates and are adjusted for any changes in such rates in the period of change.

We have elected to account for the tax effects of Global Intangible Low-Taxed Income (GILTI) as a current period expense when incurred.

Earnings before income taxes consisted of the following:

Years ended June 30			2022						2021						2020
United States			$	11,698					$	10,858					$	10,338
International			6,297						6,757						5,496
TOTAL			$	17,995					$	17,615					$	15,834

Income taxes consisted of the following:

Years ended June 30			2022						2021						2020
CURRENT TAX EXPENSE
U.S. federal			$	1,916					$	1,663					$	1,266
International			1,333						1,534						1,769
U.S. state and local			355						324						292
TOTAL			3,604						3,521						3,327
DEFERRED TAX EXPENSE/(BENEFIT)
U.S. federal			(320)						(65)						39
International and other			(82)						(193)						(635)
TOTAL			(402)						(258)						(596)
TOTAL TAX EXPENSE			$	3,202					$	3,263					$	2,731

A reconciliation of the U.S. federal statutory income tax rate to our actual effective income tax rate is provided below:

Years ended June 30			2022						2021						2020
U.S. federal statutory income tax rate			21.0		%				21.0		%				21.0		%
Country mix impacts of foreign operations			(0.3)		%				(0.5)		%				(0.1)		%
State income taxes, net of federal benefit			1.5		%				1.3		%				1.4		%
Excess tax benefits from the exercise of stock options			(2.0)		%				(1.6)		%				(1.6)		%
Tax benefit from simplification of legal entity structure			—		%				—		%				(1.4)		%
Foreign derived intangible income deduction (FDII)			(1.1)		%				(1.0)		%				(1.0)		%
Changes in uncertain tax positions			(0.4)		%				(0.1)		%				0.1		%
Other			(0.9)		%				(0.6)		%				(1.2)		%
EFFECTIVE INCOME TAX RATE			17.8		%				18.5		%				17.2		%

Country mix impacts of foreign operations includes the effects of foreign subsidiaries' earnings taxed at rates other than the U.S. statutory rate, the U.S. tax impacts of non-U.S. earnings repatriation and any net impacts of intercompany transactions. Changes in uncertain tax positions represent changes in our net liability related to prior year tax positions. Excess tax benefits from the exercise of stock options reflect the excess of actual tax benefits received on employee exercises of stock options and other share-based payments (which generally equals the income taxable to the employee) over the amount of tax benefits that were calculated and recognized based on the grant date fair values of such instruments.

Tax costs charged to shareholders' equity totaled $1,538 for the year ended June 30, 2022. This primarily relates to the tax effects of certain adjustments to pension obligations recorded in shareholders' equity and the tax effects of net investment hedges. Tax costs charged to shareholders' equity totaled $215 for the year ended June 30, 2021. This primarily relates to the tax effects of certain adjustments to

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 49

pension obligations recorded in shareholders' equity, partially offset by the tax effects of net investment hedges.

Prior to the passage of the U.S. Tax Act, the Company asserted that substantially all of the undistributed earnings of its foreign subsidiaries were considered indefinitely invested and, accordingly, no deferred taxes were provided. Pursuant to the provisions of the U.S. Tax Act, these earnings were subjected to a one-time transition tax. This charge included taxes for all U.S. income taxes and for the related foreign withholding taxes for the portion of those earnings which are no longer considered indefinitely invested. We have not provided deferred taxes on approximately $22 billion of earnings that are considered indefinitely invested.

A reconciliation of the beginning and ending liability for uncertain tax positions is as follows:

Years ended June 30			2022						2021						2020
BEGINNING OF YEAR			$	627					$	485					$	466
Increases in tax positions for prior years			102						157						60
Decreases in tax positions for prior years			(118)						(34)						(21)
Increases in tax positions for current year			53						60						82
Settlements with taxing authorities			(42)						(26)						(83)
Lapse in statute of limitations			(17)						(24)						(12)
Currency translation			(22)						9						(7)
END OF YEAR			$	583					$	627					$	485

Included in the total liability for uncertain tax positions at June 30, 2022, is $363 that, depending on the ultimate resolution, could impact the effective tax rate in future periods.

The Company is present in approximately 70 countries and over 150 taxable jurisdictions and, at any point in time, has 40-50 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 the closing of statutes of limitation. Such adjustments are reflected in the tax provision as appropriate. We have tax years open ranging from 2010 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 $12, including interest and penalties.

We recognize the additional accrual of any possible related interest and penalties relating to the underlying uncertain tax position in income tax expense. As of June 30, 2022, 2021 and 2020, we had accrued interest of $179, $166 and $141 and accrued penalties of $12, $10 and $17, respectively, which are not included in the above table. During the fiscal years ended June 30, 2022, 2021 and 2020, we recognized $21, $38 and $39 in interest expense and $2, $6 and $1 in penalties expense, respectively.

Deferred income tax assets and liabilities were comprised of the following:

As of June 30			2022						2021
DEFERRED TAX ASSETS
Loss and other carryforwards			914						1,030
Pension and other retiree benefits			$	740					$	1,476
Capitalized research & development			646						358
Accrued marketing and promotion			420						424
Stock-based compensation			386						386
Fixed assets			209						223
Lease liabilities			185						196
Unrealized loss on financial and foreign exchange transactions			138						109
Advance payments			82						—
Inventory			41						31
Accrued interest and taxes			22						22
Other			717						878
Valuation allowances			(409)						(569)
TOTAL			$	4,091					$	4,564
DEFERRED TAX LIABILITIES
Goodwill and intangible assets			$	5,783					$	5,761
Fixed assets			1,542						1,512
Other retiree benefits			1,031						645
Unrealized gain on financial and foreign exchange transactions			439						111
Lease right-of-use assets			179						191
Foreign withholding tax on earnings to be repatriated			70						108
Other			244						175
TOTAL			$	9,288					$	8,503

Net operating loss carryforwards were $2.5 billion at June 30, 2022, and $3.0 billion at June 30, 2021. If unused, approximately $300 will expire between 2022 and 2041. The remainder, totaling $2.2 billion at June 30, 2022, may be carried forward indefinitely.

Amounts in millions of dollars except per share amounts or as otherwise specified.

50 The Procter & Gamble Company

NOTE 6

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 year. Diluted net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble by the diluted weighted average number of common shares outstanding during the year. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method (see Note 7) and the assumed conversion of preferred stock (see Note 8).

Net earnings per share were calculated as follows:

Years ended June 30			2022						2021						2020
CONSOLIDATED AMOUNTS
Net earnings			$	14,793					$	14,352					$	13,103
Less: Net earnings attributable to noncontrolling interests			51						46						76
Net earnings attributable to P&G			14,742						14,306						13,027
Less: Preferred dividends			281						271						263
Net earnings attributable to P&G available to common shareholders (Basic)			$	14,461					$	14,035					$	12,764
Net earnings attributable to P&G available to common shareholders (Diluted)			$	14,742					$	14,306					$	13,027
SHARES IN MILLIONS
Basic weighted average common shares outstanding			2,410.3						2,465.8						2,487.1
Add effect of dilutive securities:
Stock options and other unvested equity awards (1)			49.5						52.5						52.7
Convertible preferred shares (2)			79.3						82.7						86.0
Diluted weighted average common shares outstanding			2,539.1						2,601.0						2,625.8
NET EARNINGS PER SHARE (3)
Basic			$	6.00					$	5.69					$	5.13
Diluted			$	5.81					$	5.50					$	4.96

(1)Excludes 11 million, 9 million and 6 million in 2022, 2021 and 2020, respectively, of weighted average stock options outstanding because the exercise price of these options was greater than the average market value of the Company's stock or their effect was antidilutive.

(2)An overview of preferred shares can be found in Note 8.

(3)Net earnings per share are calculated on Net earnings attributable to Procter & Gamble.

NOTE 7

STOCK-BASED COMPENSATION

The Company has two primary stock-based compensation programs under which we annually grant stock option, restricted stock unit (RSU) and performance stock unit (PSU) awards to key managers and directors.

In our main long-term incentive program, key managers can elect to receive options or RSUs. All options vest after three years and have a 10-year life. Exercise prices on options are set equal to the market price of the underlying shares on the date of the grant. RSUs vest and settle in shares of common stock three years from the grant date.

Senior-level executives participate in an additional long-term incentive program that awards PSUs, which are paid in shares after the end of a three-year performance period subject to pre-established performance goals. The program includes a Relative Total Shareholder Return (R-TSR) modifier under which the number of shares ultimately granted is also impacted by the Company's actual

shareholder return relative to our consumer products competitive peer set.

In addition to these long-term incentive programs, we award RSUs to the Company's non-employee directors and make other minor stock option and RSU grants to employees for which the terms are not substantially different from our long-term incentive awards.

A total of 150 million shares of common stock were newly authorized for issuance under the stock-based compensation plan approved by shareholders in 2019. A total of 119 million shares remain available for grant under the 2019 plan.

The Company recognizes stock-based compensation expense based on the fair value of the awards at the date of grant. The fair value is amortized on a straight-line basis over the requisite service period. Awards to employees eligible for retirement prior to the award becoming fully vested are recognized as compensation expense from the grant date through the date the employee first becomes eligible to retire

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 51

and/or is no longer required to provide services to earn the award. Stock-based compensation expense is included as part of Cost of products sold and SG&A in the Consolidated Statement of Earnings and includes an estimate of forfeitures, which is based on historical data. Total expense and related tax benefit were as follows:

Years ended June 30			2022						2021						2020
Stock options			$	271					$	279					$	249
RSUs and PSUs			257						261						309
Total stock-based expense			$	528					$	540					$	558
Income tax benefit			$	88					$	102					$	97

We utilize an industry standard lattice-based valuation model to calculate the fair value for stock options granted. Assumptions utilized in the model, which are evaluated and revised to reflect market conditions and experience, were as follows:

Years ended June 30			2022												2021												2020
Interest rate			0.1			-			1.6		%				0.1			-			0.7		%				1.1			-			1.4		%
Weighted average interest rate			1.5								%				0.6								%				1.3								%
Dividend yield			2.4								%				2.4								%				2.4								%
Expected volatility			19								%				20								%				17								%
Expected life in years			9.1												9.2												9.2

Lattice-based option valuation models incorporate ranges of assumptions for inputs and those ranges are disclosed in the preceding table. Expected volatilities are based on a combination of historical volatility of our stock and implied volatilities of call options on our stock. We use historical data to estimate option exercise and employee termination patterns within the valuation model. The expected life of options granted is derived from the output of the option valuation model and represents the average period of time that options granted are expected to be outstanding. The interest rate for periods within the contractual life of the options is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of options outstanding under the plans as of June 30, 2022, and activity during the year then ended is presented below:

Options			Options (in thousands)			Weighted Average Exercise Price			Weighted Average Contract-ual Life in Years			Aggregate Intrinsic Value
Outstanding at July 1, 2021			138,272			$	91.24
Granted			14,369			141.67
Exercised			(25,040)			77.07
Forfeited/expired			(886)			116.38
Outstanding at June 30, 2022			126,715			$	99.59		5.4			$	5,618
Exercisable			86,992			$	84.89		4.0			$	5,124

The following table provides additional information on stock options:

Years ended June 30			2022						2021						2020
Weighted average grant-date fair value of options granted			$	21.55					$	20.94					$	15.60
Intrinsic value of options exercised			1,886						1,401						1,455
Grant-date fair value of options that vested			177						236						217
Cash received from options exercised			1,930						1,705						2,019
Actual tax benefit from options exercised			399						292						298

At June 30, 2022, $166 of compensation cost had not yet been recognized related to stock option grants. That cost is expected to be recognized over a remaining weighted average period of 1.5 years.

A summary of non-vested RSUs and PSUs outstanding under the plans as of June 30, 2022, and activity during the year then ended is presented below:

			RSUs									PSUs
RSU and PSU awards			Units (in thousands)			Weighted Average Grant Date Fair Value						Units (in thousands)			Weighted Average Grant Date Fair Value
Non-vested at July 1, 2021			3,237			$	114.68					971			$	135.24
Granted			1,365			141.13						539			152.69
Vested			(1,656)			109.08						(550)			121.62
Forfeited			(114)			123.06						(32)			152.89
Non-vested at June 30, 2022			2,832			$	130.37					928			$	152.94

At June 30, 2022, $216 of compensation cost had not yet been recognized related to RSUs and PSUs. That cost is expected to be recognized over a remaining weighted average period of 1.6 years. The total grant date fair value of shares vested was $248, $266 and $264 in 2022, 2021 and 2020, respectively.

The Company settles equity issuances with treasury shares. We have no specific policy to repurchase common shares to mitigate the dilutive impact of options, RSUs and PSUs. However, we have historically made adequate discretionary purchases, based on cash availability, market trends and other factors, to offset the impacts of such activity.

NOTE 8

POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN

We offer various postretirement benefits to our employees.

Defined Contribution Retirement Plans

We have defined contribution plans, which cover the majority of our U.S. employees, as well as employees in certain other countries. These plans are fully funded. We generally make contributions to participants' accounts based on individual base salaries and years of service. Total global defined contribution expense was $366, $340 and $317 in 2022, 2021 and 2020, respectively.

Amounts in millions of dollars except per share amounts or as otherwise specified.

52 The Procter & Gamble Company

The primary U.S. defined contribution plan (the U.S. DC plan) comprises the majority of the expense for the Company's defined contribution plans. For the U.S. DC plan, the contribution rate is set annually. Total contributions for this plan approximated 14% of total participants' annual wages and salaries in 2022, 2021 and 2020.

We maintain The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. DC plan and other retiree benefits (described below). Operating details of the ESOP are provided at the end of this Note. The fair value of the ESOP Series A shares allocated to participants reduces our cash contribution required to fund the U.S. DC plan.

Defined Benefit Retirement Plans and Other Retiree Benefits

We offer defined benefit retirement pension plans to certain employees. These benefits relate primarily to plans outside the U.S. and, to a lesser extent, plans assumed in previous acquisitions covering U.S. employees.

We also provide certain other retiree benefits, primarily health care benefits for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. The plans require cost sharing with retirees and pay a stated percentage of expenses, reduced by deductibles and other coverages. These benefits are funded by ESOP Series B shares and certain other assets contributed by the Company.

Obligation and Funded Status*.* The following provides a reconciliation of benefit obligations, plan assets and funded status of these defined benefit plans:

			Pension Benefits (1)												Other Retiree Benefits (2)
Years ended June 30			2022						2021						2022						2021
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year (3)			$	18,469					$	17,761					$	4,206					$	4,770
Service cost			253						275						86						94
Interest cost			253						240						99						114
Participants' contributions			14						13						67						76
Amendments (5)			5						34						(586)						—
Net actuarial loss/(gain)			(4,067)						(466)						(586)						(678)
Special termination benefits			4						17						1						2
Currency translation and other			(1,720)						1,220						51						64
Benefit payments			(603)						(625)						(268)						(236)
BENEFIT OBLIGATION AT END OF YEAR (3)			$	12,608					$	18,469					$	3,070					$	4,206

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year			$	13,041					$	11,484					$	6,444					$	5,618
Actual return on plan assets			(1,233)						1,058						526						879
Employer contributions			222						202						37						34
Participants' contributions			14						13						67						76
Currency translation and other			(1,268)						909						1						2
ESOP debt impacts (4)			—						—						82						71
Benefit payments			(603)						(625)						(268)						(236)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR			$	10,173					$	13,041					$	6,889					$	6,444
FUNDED STATUS			$	(2,435)					$	(5,428)					$	3,819					$	2,238

(1)Primarily non-U.S.-based defined benefit retirement plans.

(2)Primarily U.S.-based other postretirement benefit plans.

(3)For the pension benefit plans, the benefit obligation is the projected benefit obligation. For other retiree benefit plans, the benefit obligation is the accumulated postretirement benefit obligation.

(4)Represents the net impact of ESOP debt service requirements, which is netted against plan assets for other retiree benefits.

(5)Primarily relates to adjustments in the self-insured U.S. retiree health care program to utilize fully-insured Medicare Advantage Programs beginning in January 2022.

The actuarial gain for pension plans in 2022 was primarily related to increases in discount rates. The actuarial gain for other retiree benefits in 2022 was primarily related to increases in discount rates, partially offset by unfavorable medical claim experience. The actuarial gain for pension plans in 2021 was primarily related to increases in discount rates, partially offset by unfavorable actuarial assumptions, including inflation assumptions. The actuarial gain for other retiree benefits in 2021 was primarily related to favorable medical cost trends.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 53

The underfunding of pension benefits is primarily a function of the different funding incentives that exist outside of the U.S. In certain countries, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations prior to their due date. In these instances, benefit payments are typically paid directly from the Company's cash as they become due.

			Pension Benefits												Other Retiree Benefits
As of June 30			2022						2021						2022						2021
CLASSIFICATION OF NET AMOUNT RECOGNIZED
Noncurrent assets			$	765					$	88					$	4,525					$	3,193
Current liabilities			(61)						(64)						(34)						(33)
Noncurrent liabilities			(3,139)						(5,452)						(672)						(922)
NET AMOUNT RECOGNIZED			$	(2,435)					$	(5,428)					$	3,819					$	2,238
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE (INCOME)/LOSS (AOCI)
Net actuarial loss/(gain)			$	1,906					$	4,869					$	(1,093)					$	(504)
Prior service cost/(credit)			170						198						(907)						(471)
NET AMOUNTS RECOGNIZED IN AOCI			$	2,076					$	5,067					$	(2,000)					$	(975)

The accumulated benefit obligation for all defined benefit pension plans, which differs from the projected obligation in that it excludes the assumption of future salary increases, was $11.9 billion and $17.3 billion as of June 30, 2022 and 2021, respectively. Information related to the funded status of selected pension and other retiree benefits at June 30 is as follows:

As of June 30			2022						2021
PENSION PLANS WITH A PROJECTED BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS
Projected benefit obligation			$	7,989					$	11,747
Fair value of plan assets			4,789						6,231
PENSION PLANS WITH AN ACCUMULATED BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS
Accumulated benefit obligation			$	7,191					$	11,005
Fair value of plan assets			4,433						6,226
OTHER RETIREE BENEFIT PLANS WITH AN ACCUMULATED BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS
Accumulated benefit obligation			$	808					$	1,082
Fair value of plan assets			102						127

Amounts in millions of dollars except per share amounts or as otherwise specified.

54 The Procter & Gamble Company

Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows:

			Pension Benefits																		Other Retiree Benefits
Years ended June 30			2022						2021						2020						2022						2021						2020
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST/(CREDIT)
Service cost			$	253					$	275					$	247					$	86					$	94					$	100
Interest cost			253						240						276						99						114						160
Expected return on plan assets			(684)						(783)						(740)						(564)						(508)						(473)
Amortization of net actuarial loss			337						423						340						11						47						68
Amortization of prior service cost/(credit)			28						25						25						(107)						(60)						(48)
Amortization of net actuarial (gain)/loss due to settlements			(5)						5						7						—						—						—
Special termination benefits			4						17						11						1						2						2
GROSS BENEFIT COST/(CREDIT)			186						202						166						(474)						(311)						(191)
Dividends on ESOP preferred stock			—						—						—						—						(8)						(19)
NET PERIODIC BENEFIT COST/(CREDIT)			$	186					$	202					$	166					$	(474)					$	(319)					$	(210)
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI
Net actuarial loss/(gain) - current year			$	(2,150)					$	(741)											$	(548)					$	(1,049)
Prior service cost/(credit) - current year			5						34												(586)						—
Amortization of net actuarial loss			(337)						(423)												(11)						(47)
Amortization of prior service (cost)/credit			(28)						(25)												107						60
Amortization of net actuarial loss/(gain) due to settlements			5						(5)												—						—
Currency translation and other			(486)						367												13						—
TOTAL CHANGE IN AOCI			(2,991)						(793)												(1,025)						(1,036)
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST/(CREDIT) AND AOCI			$	(2,805)					$	(591)											$	(1,499)					$	(1,355)

The service cost component of the net periodic benefit cost is included in the Consolidated Statements of Earnings in Cost of products sold and SG&A. All other components are included in the Consolidated Statements of Earnings in Other non-operating income/(expense), net, unless otherwise noted.

Assumptions*.* We determine our actuarial assumptions on an annual basis. These assumptions are weighted to reflect each country that may have an impact on the cost of providing retirement benefits. The weighted average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of June 30, 2022 and 2021, were as follows: (1)

			Pension Benefits												Other Retiree Benefits
As of June 30			2022						2021						2022						2021
Discount rate			3.7		%				1.7		%				5.0		%				3.2		%
Rate of compensation increase			2.8		%				2.7		%				N/A						N/A
Interest crediting rate for cash balance plans			4.3		%				4.4		%				N/A						N/A
Health care cost trend rates assumed for next year			N/A						N/A						6.4		%				6.4		%
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate)			N/A						N/A						4.5		%				4.5		%
Year that the rate reaches the ultimate trend rate			N/A						N/A						2028						2028

(1)Determined as of end of fiscal year.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 55

The weighted average assumptions used to determine net benefit cost recorded on the Consolidated Statement of Earnings for the years ended June 30 were as follows: (1)

			Pension Benefits																		Other Retiree Benefits
Years ended June 30			2022						2021						2020						2022						2021						2020
Discount rate			1.7		%				1.5		%				1.9		%				3.2		%				3.1		%				3.7		%
Expected return on plan assets			5.5		%				6.5		%				6.6		%				8.4		%				8.4		%				8.4		%
Rate of compensation increase			2.7		%				2.5		%				2.6		%				N/A						N/A						N/A
Interest crediting rate for cash balance plans			4.4		%				4.4		%				4.4		%				N/A						N/A						N/A

(1) Determined as of beginning of fiscal year.

For plans that make up the majority of our obligation, the Company calculates the benefit obligation and the related impacts on service and interest costs using specific spot rates along the corporate bond yield curve. For the remaining plans, the Company determines these amounts utilizing a single weighted average discount rate derived from the corporate bond yield curve used to measure the plan obligations.

Several factors are considered in developing the estimate for the long-term expected rate of return on plan assets. For the defined benefit retirement plans, these factors include historical rates of return of broad equity and bond indices and projected long-term rates of return obtained from pension investment consultants. The expected long-term rates of return for plan assets are 8 - 9% for equities and 3 - 5% for bonds. For other retiree benefit plans, the expected long-term rate of return reflects that the assets are comprised primarily of Company stock. The expected rate of return on Company stock is based on the long-term projected return of 8.5% and reflects the historical pattern of returns.

Plan Assets*.* Our investment objective for defined benefit retirement plan assets is to meet the plans' benefit obligations and to improve plan self-sufficiency for future benefit obligations. The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by assessing different investment risks and matching the actuarial projections of the plans' future liabilities and benefit payments with current as well as expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and with continual monitoring of investment managers' performance relative to the investment guidelines established with each investment manager.

Our target asset allocation for the year ended June 30, 2022, and actual asset allocation by asset category as of June 30, 2022 and 2021, were as follows:

			Target Asset Allocation												Actual Asset Allocation at June 30
			Pension Benefits						Other Retiree Benefits						Pension Benefits												Other Retiree Benefits
Asset Category									2022						2021						2022						2021
Cash			—		%				2		%				1		%				1		%				2		%				2		%
Debt securities			61		%				2		%				58		%				59		%				1		%				2		%
Equity securities			39		%				96		%				41		%				40		%				97		%				96		%
TOTAL			100		%				100		%				100		%				100		%				100		%				100		%

Amounts in millions of dollars except per share amounts or as otherwise specified.

56 The Procter & Gamble Company

The following table sets forth the fair value of the Company's plan assets as of June 30, 2022 and 2021, segregated by level within the fair value hierarchy (refer to Note 9 for further discussion on the fair value hierarchy and fair value principles). Investments valued using net asset value as a practical expedient are not valued using the fair value hierarchy, but rather valued using the net asset value reported by the managers of the funds and as supported by the unit prices of actual purchase and sale transactions.

			Pension Benefits																		Other Retiree Benefits
As of June 30			Fair Value Hierarchy Level						2022						2021						Fair Value Hierarchy Level						2022						2021
ASSETS AT FAIR VALUE
Cash and cash equivalents			1						$	78					$	82					1						$	130					$	131
Company common stock									—						—						1						319						275
Company preferred stock (1)									—						—						2						6,340						5,911
Fixed income securities (2)			2						1,545						1,931						2						—						3
Insurance contracts (3)			3						94						111												—						—
TOTAL ASSETS IN THE FAIR VALUE HIERARCHY									1,717						2,124												6,789						6,320
Investments valued at net asset value (4)									8,456						10,917												100						124
TOTAL ASSETS AT FAIR VALUE									$	10,173					13,041												$	6,889					6,444

(1)Company preferred stock is valued based on the value of Company common stock and is presented net of ESOP debt discussed below.

(2)Fixed income securities, classified as Level 2, are estimated by using pricing models or quoted prices of securities with similar characteristics.

(3)Fair values of insurance contracts are valued based on either their cash equivalent value or models that project future cash flows and discount the future amounts to a present value using market-based observable inputs, including credit risk and interest rate curves. The activity for Level 3 assets is not significant for all years presented.

(4)Investments valued using net asset value as a practical expedient are primarily equity and fixed income collective funds.

Cash Flows*.* Management's best estimate of cash requirements and discretionary contributions for the defined benefit retirement plans and other retiree benefit plans for the year ending June 30, 2023, is $244 and $47, respectively. Expected contributions are dependent on many variables, including the variability of the market value of the plan assets as compared to the benefit obligation and other market or regulatory conditions. In addition, we take into consideration our business investment opportunities and resulting cash requirements. Accordingly, actual funding may differ significantly from current estimates.

Total benefit payments expected to be paid to participants, which include payments funded from the Company's assets and payments from the plans are as follows:

Years ending June 30			Pension Benefits						Other Retiree Benefits
EXPECTED BENEFIT PAYMENTS
2023			$	571					$	177
2024			564						186
2025			590						190
2026			585						193
2027			601						198
2028 - 2032			3,459						1,076

Employee Stock Ownership Plan

We maintain the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs.

The ESOP borrowed $1.0 billion in 1989 and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the U.S. DC plan. Principal and interest requirements of the borrowing were paid by the Trust from dividends on the preferred shares and from advances provided by the Company. The original borrowing of $1.0 billion has been repaid in full, and advances from the Company of $15 remain outstanding at June 30, 2022. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $3.52 per share. The liquidation value is $6.82 per share.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 57

In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares, net of the ESOP's debt, are considered plan assets of the other retiree benefits plan discussed above. The original borrowings of $1.0 billion were repaid in 2021. Debt service requirements were funded by preferred stock dividends, cash contributions and advances provided by the Company, of which $901 are outstanding at June 30, 2022. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $3.52 per share. The liquidation value is $12.96 per share.

Our ESOP accounting practices are consistent with current ESOP accounting guidance, including the permissible continuation of certain provisions from prior accounting guidance. ESOP debt, which was guaranteed by the Company, was recorded as debt with an offset to the Reserve for ESOP debt retirement, which is presented within Shareholders' equity. Advances to the ESOP by the Company are recorded as an increase in the Reserve for ESOP debt retirement. Interest incurred on the ESOP debt was recorded as Interest expense. Dividends on all preferred shares are charged to Retained earnings.

The series A and B preferred shares of the ESOP are allocated to employees based on debt service requirements. The number of preferred shares outstanding at June 30 was as follows:

Shares in thousands			2022						2021						2020
Allocated			25,901						27,759						29,591
Unallocated			1,123						1,769						2,479
TOTAL SERIES A			27,024						29,528						32,070
Allocated			30,719						29,203						27,894
Unallocated			20,120						22,349						24,418
TOTAL SERIES B			50,839						51,552						52,312

For purposes of calculating diluted net earnings per common share, the preferred shares held by the ESOP are considered converted from inception.

NOTE 9

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. We evaluate exposures on a centralized basis to take advantage of natural exposure correlation and netting. To the extent we choose to manage volatility associated with the net exposures, we enter into various financial transactions that we account for using the applicable accounting guidance for derivative instruments and hedging activities. These financial transactions are governed by our policies covering

acceptable counterparty exposure, instrument types and other hedging practices.

If the Company elects to do so and if the instrument meets certain specified accounting criteria, management designates derivative instruments as cash flow hedges, fair value hedges or net investment hedges. We record derivative instruments at fair value and the accounting for changes in the fair value depends on the intended use of the derivative, the resulting designation and the effectiveness of the instrument in offsetting the risk exposure it is designed to hedge. We generally have a high degree of effectiveness between the exposure being hedged and the hedging instrument.

Credit Risk Management

We have counterparty credit guidelines and normally enter into transactions with investment grade financial institutions, to the extent commercially viable. Counterparty exposures are monitored daily and downgrades in counterparty credit ratings are reviewed on a timely basis. We have not incurred, and do not expect to incur, material credit losses on our risk management or other financial instruments.

Substantially all of the Company's financial instruments used in hedging transactions are governed by industry standard netting and collateral agreements with counterparties. If the Company's credit rating were to fall below the levels stipulated in the agreements, the counterparties could demand either collateralization or termination of the arrangements. The aggregate fair value of the instruments covered by these contractual features that are in a net liability position as of June 30, 2022, was not material. The Company has not been required to post collateral as a result of these contractual features.

Interest Rate Risk Management

Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage this risk in a cost-efficient manner, we enter into interest rate swaps whereby we agree to exchange with the counterparty, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional amount.

We designate certain interest rate swaps on fixed rate debt that meet specific accounting criteria as fair value hedges. For fair value hedges, the changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in earnings.

Foreign Currency Risk Management

We manufacture and sell our products and finance our operations in a number of countries throughout the world. As a result, we are exposed to movements in foreign currency exchange rates. We leverage the Company’s diversified portfolio of exposures as a natural hedge. In certain cases, we enter into non-qualifying foreign currency contracts to hedge certain balance sheet items subject to revaluation. The change in fair value of these instruments and the underlying exposure are both immediately recognized in earnings.

Amounts in millions of dollars except per share amounts or as otherwise specified.

58 The Procter & Gamble Company

To manage exchange rate risk related to our intercompany financing, we primarily use forward contracts and currency swaps. The change in fair value of these non-qualifying instruments is immediately recognized in earnings, substantially offsetting the foreign currency mark-to-market impact of the related exposure.

Net Investment Hedging

We hedge certain net investment positions in foreign subsidiaries. To accomplish this, we either borrow directly in foreign currencies and designate all or a portion of the foreign currency debt as a hedge of the applicable net investment position or we enter into foreign currency swaps that are designated as hedges of net investments. Changes in the fair value of these instruments are recognized in the Foreign Currency Translation component of OCI and offset the change in the value of the net investment being hedged. The time value component of the net investment hedge currency swaps is excluded from the assessment of hedge effectiveness. Changes in the fair value of the swap, including changes in the fair value of the excluded time value component, are recognized in OCI and offset the value of the underlying net assets. The time value component is subsequently reported in income on a systematic basis.

Commodity Risk Management

Certain raw materials used in our products or production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. As of and during the years ended June 30, 2022 and 2021, we did not have any material financial commodity hedging activity.

Insurance

We self-insure for most insurable risks. However, we purchase insurance for Directors and Officers Liability and

certain other coverage where it is required by law or by contract.

Fair Value Hierarchy

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that financial assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

• Level 1: Quoted market prices in active markets for identical assets or liabilities.

• Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

• Level 3: Unobservable inputs reflecting the reporting entity's own assumptions or external inputs from inactive markets.

When applying fair value principles in the valuation of assets and liabilities, we are required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company has not changed its valuation techniques used in measuring the fair value of any financial assets or liabilities during the year.

When active market quotes are not available for financial assets and liabilities, we use industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including credit risk, interest rate curves and forward and spot prices for currencies. In circumstances where market-based observable inputs are not available, management judgment is used to develop assumptions to estimate fair value.

Assets and Liabilities Measured at Fair Value

Cash equivalents were $6.0 billion and $9.1 billion as of June 30, 2022 and 2021, respectively, and are classified as Level 1 within the fair value hierarchy. Other investments had a fair value of $140 and $192 as of June 30, 2022 and 2021, respectively, including equity securities of $113 and $163 as of June 30, 2022 and 2021, respectively, and are presented in Other noncurrent assets. Investments are measured at fair value and primarily classified as Level 1 and Level 2 within the fair value hierarchy. Level 1 are based on quoted market prices in active markets for identical assets, and Level 2 are based on quoted market prices for similar investments. There are no material investment balances classified as Level 3 within the fair value hierarchy or using net asset value as a practical expedient. Unrealized gains/(losses) on equity securities were $(45) and $69 for the fiscal years ended June 30, 2022 and 2021, respectively, and are recognized in the Consolidated Statements of Earnings in Other non-operating income, net.

The fair value of long-term debt was $25.7 billion and $28.8 billion as of June 30, 2022 and 2021, respectively. This includes the current portion of long-term debt instruments ($3.6 billion as of June 30, 2022 and 2021). 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.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 59

Disclosures about Financial Instruments

The notional amounts and fair values of financial instruments used in hedging transactions as of June 30, 2022 and 2021, are as follows:

			Notional Amount												Fair Value Asset												Fair Value (Liability)
As of June 30			2022						2021						2022						2021						2022						2021
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts			$	4,972					$	7,415					$	3					$	146					$	(307)					$	—
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Foreign currency interest rate contracts			$	7,943					$	8,484					$	561					$	89					$	(1)					$	(94)
TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS			$	12,915					$	15,899					$	564					$	235					$	(308)					$	(94)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts			$	5,625					$	5,060					$	6					$	20					$	(61)					$	(22)
TOTAL DERIVATIVES AT FAIR VALUE			$	18,540					$	20,959					$	570					$	255					$	(369)					$	(116)

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 $4.7 billion and $7.5 billion as of June 30, 2022 and 2021, 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 $11.2 billion and $12.0 billion as of June 30, 2022 and 2021, respectively. The decrease in the notional balance of interest rate contracts was primarily due to the maturity of interest rate swaps that were associated with multiple bonds maturing in the period.

All of the Company's derivative assets and liabilities are measured at fair value that is derived from observable market data, including interest rate yield curves and foreign exchange rates, and are classified as Level 2 within the fair value hierarchy. 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 re-measured at fair value on a non-recurring basis during the years ended June 30, 2022 and 2021.

Amounts in millions of dollars except per share amounts or as otherwise specified.

60 The Procter & Gamble Company

Before tax gains/(losses) on our financial instruments in hedging relationships are categorized as follows:

			Amount of Gain/(Loss) Recognized in OCI on Derivatives
Years ended June 30			2022						2021
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2)
Foreign currency interest rate contracts			$	1,033					$	(232)

(1) For the derivatives in net investment hedging relationships, the amount of gain excluded from effectiveness testing, which was recognized in earnings, was $73 and $60 for the fiscal years ended June 30, 2022 and 2021, 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 AOCI for such instruments was $1,639 and $(918), for the fiscal years ended June 30, 2022 and 2021, respectively.

			Amount of Gain/(Loss) Recognized in Earnings
Years ended June 30			2022						2021
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts			$	(450)					$	(123)
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts			$	(149)					$	296

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 Statement 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 SG&A.

NOTE 10

SHORT-TERM AND LONG-TERM DEBT

As of June 30			2022						2021
DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt			$	3,647					$	3,620
Commercial paper			4,805						5,171
Other			193						98
TOTAL			$	8,645					$	8,889
Short-term weighted average interest rates (1)			0.8		%				0.2		%

(1)Short-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9.

As of June 30			2022						2021
LONG-TERM DEBT
2.15% USD note due August 2022			$	1,250					$	1,250
2.00% EUR note due August 2022			1,045						1,190
3.10% USD note due August 2023			1,000						1,000
1.13% EUR note due November 2023			1,306						1,488
0.50% EUR note due October 2024			523						595
0.63% EUR note due October 2024			836						952
0.55% USD note due October 2025			1,000						1,000
2.70% USD note due February 2026			600						600
1.00% USD note due April 2026			1,000						1,000
2.45% USD note due November 2026			875						875
1.90% USD note due February 2027			1,000						—
2.80% USD note due March 2027			500						500
4.88% EUR note due May 2027			1,045						1,190
2.85% USD note due August 2027			750						750
1.20% EUR note due October 2028			836						952
1.25% EUR note due October 2029			523						595
3.00% USD note due March 2030			1,500						1,500
0.35% EUR note due May 2030			523						—
1.20% USD note due October 2030			1,250						1,250
1.95% USD note due April 2031			1,000						1,000
2.30% USD note due February 2032			850						—
5.55% USD note due March 2037			716						716
1.88% EUR note due October 2038			523						595
3.55% USD note due March 2040			516						516
0.90% EUR note due November 2041			627						—
All other long-term debt			4,901						7,205
Current portion of long-term debt			(3,647)						(3,620)
TOTAL			$	22,848					$	23,099
Long-term weighted average interest rates (1)			2.2%						2.0%

(1)Long-term weighted average interest rates include the effects of interest rate swaps discussed in Note 9.

Long-term debt maturities during the next five fiscal years are as follows:

Years ending June 30			2023			2024			2025			2026			2027
Debt maturities			$3,647			$2,298			$1,879			$2,713			$3,686

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 61

NOTE 11

ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

The table below presents the changes in Accumulated other comprehensive income/(loss) attributable to Procter & Gamble (AOCI), including the reclassifications out of AOCI by component:

Changes in Accumulated Other Comprehensive Income/(Loss) by Component
			Investment Securities						Post-retirement Benefit Plans						Foreign Currency Translation						Total AOCI
BALANCE at JUNE 30, 2020			$	(1)					$	(4,350)					$	(11,814)					$	(16,165)
OCI before reclassifications (1)			20						1,046						1,023						2,089
Amounts reclassified to the Consolidated Statement of Earnings (2)			(4)						340						—						336
Net current period OCI			16						1,386						1,023						2,425
Less: OCI attributable to non-controlling interests			—						(1)						5						4
BALANCE at JUNE 30, 2021			15						(2,963)						(10,796)						(13,744)
OCI before reclassifications (3)			4						2,797						(1,451)						1,350
Amounts reclassified to the Consolidated Statement of Earnings (4)			1						195						1						197
Net current period OCI			5						2,992						(1,450)						1,547
Less: OCI attributable to non-controlling interests			—						2						(10)						(8)
BALANCE at JUNE 30, 2022			$	20					$	27					$	(12,236)					$	(12,189)

(1)Net of tax (benefit)/expense of $5, $345 and $(266) for gains/losses on investment securities, postretirement benefit plans and foreign currency translation, respectively, for the period ended June 30, 2021. Income tax effects within foreign currency translation include impacts from items such as net investment hedge transactions. Foreign cumulative translation is not adjusted for income taxes related to permanent investments in international subsidiaries.

(2)Net of tax (benefit)/expense of $0, $100 and $0 for gains/losses on investment securities, postretirement benefit plans and foreign currency translation, respectively, for the period ended June 30, 2021.

(3)Net of tax (benefit)/expense of $1, $953 and $515 for gains/losses on investment securities, postretirement benefit plans and foreign currency translation, respectively, for the period ended June 30, 2022. Income tax effects within foreign currency translation include impacts from items such as net investment hedge transactions. Foreign cumulative translation is not adjusted for income taxes related to permanent investments in international subsidiaries.

(4)Net of tax (benefit)/expense of $0, $69 and $0 for gains/losses on investment securities, postretirement benefit plans and foreign currency translation, respectively, for the period ended June 30, 2022.

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

• Investment securities: amounts reclassified from AOCI into Other non-operating income, net.

• Postretirement benefit plans: amounts reclassified from AOCI into Other non-operating income, net and included in the computation of net periodic postretirement costs (see Note 8).

Amounts in millions of dollars except per share amounts or as otherwise specified.

62 The Procter & Gamble Company

NOTE 12

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. Our operating lease agreements do not contain any material guarantees or restrictive covenants. The Company does not have any material finance leases or sublease activities. 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 components of the Company’s total operating lease cost for the years ended June 30, 2022, 2021 and 2020, were as follows:

Years ended June 30			2022						2021						2020
Operating lease cost			220						245						271
Variable lease cost (1)			89						75						76
Total lease cost			$	309					$	320					$	347

(1) Includes primarily costs for utilities, common area maintenance, property taxes and other operating costs associated with operating leases that are not included in the lease liability and are recognized in the period in which they are incurred.

Supplemental balance sheet and other information related to leases is as follows:

As of June 30			2022						2021
Operating leases:
Right-of-use assets (Other noncurrent assets)			$	760					$	808
Current lease liabilities (Accrued and other liabilities)			205						219
Noncurrent lease liabilities (Other noncurrent liabilities)			595						631
Total operating lease liabilities			$	800					$	850
Weighted average remaining lease term:
Operating leases			6.4 years						6.4 years
Weighted average discount rate:
Operating leases			3.2		%				3.8		%

At June 30, 2022, future payments of operating lease liabilities were as follows:

			Operating Leases
			June 30, 2022
1 year			$	206
2 years			179
3 years			135
4 years			92
5 years			64
Over 5 years			209
Total lease payments			885
Less: Interest			(85)
Present value of lease liabilities			$	800

Total cash paid for amounts included in the measurement of lease liabilities was $228 and $253 for the years ended June 30, 2022, and June 30, 2021, respectively.

The right-of-use assets obtained in exchange for lease liabilities were $217 and $163 for the years ended June 30, 2022, and June 30, 2021, respectively.

Amounts in millions of dollars except per share amounts or as otherwise specified.

The Procter & Gamble Company 63

NOTE 13

COMMITMENTS AND CONTINGENCIES

Guarantees

In conjunction with certain transactions, primarily divestitures, we may provide routine indemnifications (e.g., indemnification for representations and warranties and retention of previously existing environmental, tax and employee liabilities) for which terms range in duration and, in some circumstances, are not explicitly defined. The maximum obligation under some indemnifications is also not explicitly stated and, as a result, the overall amount of these obligations cannot be reasonably estimated. Other than obligations recorded as liabilities at the time of divestiture, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss on any of these matters, the loss would not have a material effect on our financial position, results of operations or cash flows.

In certain situations, we guarantee loans for suppliers and customers. The total amount of guarantees issued under such arrangements is not material.

Off-Balance Sheet Arrangements

We do not have off-balance sheet financing arrangements, including variable interest entities, that have a material impact on our financial statements.

Purchase Commitments

We have purchase commitments for materials, supplies, services and property, plant and equipment as part of the normal course of business. Commitments made under take-or-pay obligations are as follows:

Years ending June 30			2023			2024			2025			2026			2027			There-after
Purchase obligations			$	1,082		$	494		$	332		$	259		$	193		$	425

Such amounts represent minimum commitments under take-or-pay agreements with suppliers and are in line with expected usage. These amounts include purchase commitments related to service contracts for information technology, human resources management and facilities management activities that have been outsourced to third-party suppliers. Due to the proprietary nature of many of our materials and processes, certain supply contracts contain penalty provisions for early termination. We do not expect to incur penalty payments under these provisions that would materially affect our financial position, results of operations or cash flows.

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.