PG Operating Cash Flow

Operating cash flow was $16.8 billion in 2023, a 1% increase versus the prior year. Net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation, deferred income taxes and gain on sale of assets) generated approximately $17.5 billion of operating cash flow. Working capital and other impacts used $656 million of operating cash flow as summarized below. •An increase in Accounts receivable used $307 million of cash primarily due to sales growth. The number of days sales outstanding increased approximately 1 day versus prior year. •Higher inventory used $119 million of cash due to increased safety stock levels to strengthen supply chain sufficiency. Inventory days on hand was flat versus year ago. •Accounts payable and Accrued and other liabilities provided $313 million of cash, primarily driven by increases in taxes payable and accrued compensation expense, partially offset by a reduction in trade payables. The reduction in trade payables was due to lower supply chain payables from a decrease in commodity and transportation costs, partially offset by the impact of extended payment terms with suppliers (see Extended Payment Terms and Supply Chain Financing below). Days payable outstanding decreased approximately 3 days versus prior year. •Other net operating assets and liabilities used $543 million of cash primarily driven by pension-related contributions.


PG Operating Cash Flow

Adjusted Free Cash Flow. We view adjusted free cash flow as an important non-GAAP measure because it is a factor impacting the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments. It is defined as operating cash flow less capital expenditures and excluding payments for the transitional tax resulting from the U.S. Tax Act. Adjusted free cash flow is one of the measures used to evaluate senior management and determine their at-risk compensation.


PG Operating Cash Flow

Adjusted free cash flow was $14.0 billion in 2023, an increase of 2% versus the prior year. The increase was primarily driven by the increase in operating cash flows as discussed above. Adjusted free cash flow productivity, defined as the ratio of adjusted free cash flow to net earnings, was 95% in 2023.


PG Operating Cash Flow

Extended Payment Terms and Supply Chain Financing. Beginning in fiscal 2014, in response to evolving market practices, the Company began a program to negotiate extended payment terms with its suppliers. At the same time, the Company initiated a Supply Chain Finance program (the "SCF") with a number of global financial institutions (the "SCF Banks"). Under the SCF, qualifying suppliers may elect to sell their receivables from the Company to an SCF Bank. These participating suppliers negotiate their receivables sales arrangements directly with the respective SCF Bank. While the Company is not party to those agreements, the SCF Banks allow the participating suppliers to utilize the Company’s creditworthiness in establishing credit spreads and associated costs. This generally provides the suppliers with more favorable terms than they would be able to secure on their own. The Company has no economic interest in a supplier’s decision to sell a receivable. Once a qualifying supplier elects to participate in the SCF and reaches an agreement with an SCF Bank, they elect which individual Company invoices they sell to the SCF bank. However, all the Company’s payments to participating suppliers are paid to the SCF Bank on the invoice due date, regardless of whether the individual invoice is sold by the supplier to the SCF Bank. The SCF Bank pays the supplier on the invoice due date for any invoices that were not previously sold to the SCF Bank under the SCF.


PG The Procter & Gamble Company 25

The terms of the Company’s payment obligation are not impacted by a supplier’s participation in the SCF. Our payment terms with our suppliers for similar services and materials within individual markets are consistent between suppliers that elect to participate in the SCF and those that do not participate. Accordingly, our average days outstanding are not significantly impacted by the portion of suppliers or related input costs that are included in the SCF. In addition, the SCF is available to both material suppliers, where the underlying costs are largely included in Cost of goods sold, and to service suppliers, where the underlying costs are largely included in SG&A. As of June 30, 2023, approximately 3% of our global suppliers have elected to participate in the SCF. Payments to those suppliers during fiscal year 2023 were approximately $18 billion, which equals approximately 29% of our total Cost of goods sold and SG&A for the year. For participating suppliers, we believe substantially all of their receivables with the Company are sold to the SCF Banks. Accordingly, we would expect that at each balance sheet date, a similar proportion of amounts originally due to suppliers would instead be payable to SCF Banks. All outstanding amounts related to suppliers participating in the SCF are recorded within Accounts payable in our Consolidated Balance Sheets, and the associated payments are included in operating activities within our Consolidated Statements of Cash Flows. As of June 30, 2023 and 2022, the amounts due to suppliers participating in the SCF and included in Accounts payable were approximately $6 billion.


PG The Procter & Gamble Company 25

Although difficult to project due to market and other dynamics, we anticipate incremental cash flow benefits from the extended payment terms with suppliers could increase at a slower rate in fiscal 2024. Future changes in our suppliers’ financing policies or economic developments, such as changes in interest rates, general market liquidity or the Company’s credit-worthiness relative to participating suppliers, could impact suppliers’ participation in the SCF and/or our ability to negotiate extended payment terms with our suppliers. However, any such impacts are difficult to predict.


PG Investing Cash Flow

Net investing activities used $3.5 billion of cash in 2023, primarily due to capital spending and acquisitions.


PG Investing Cash Flow

Capital Spending. Capital expenditures, primarily to support capacity expansion, innovation and cost efficiencies, were $3.1 billion in 2023. Capital spending as a percentage of net sales decreased 20 basis points to 3.7% in 2023.


PG Investing Cash Flow

Acquisitions. Acquisition activity used cash of $765 million in 2023, primarily related to a Beauty acquisition.


PG Financing Cash Flow

Net financing activities consumed $12.1 billion of cash in 2023, mainly due to dividends to shareholders and treasury stock purchases, partially offset by a net debt increase and the impact of stock options and other.


PG Financing Cash Flow

Dividend Payments. Our first discretionary use of cash is dividend payments. Dividends per common share increased 4% to $3.6806 per share in 2023. Total dividend payments to common and preferred shareholders were $9.0 billion in 2023. In April 2023, the Board of Directors declared a 3% increase in our quarterly dividend from $0.9133 to $0.9407 per share on Common Stock and Series A and B Employee Stock Ownership Plan (ESOP) Convertible Class A Preferred Stock. This is the 67th consecutive year that our dividend has increased. We have paid a dividend for 133 consecutive years, every year since our incorporation in 1890.


PG Financing Cash Flow

Long-Term and Short-Term Debt. We maintain debt levels we consider appropriate after evaluating a number of factors, including cash flow expectations, cash requirements for ongoing operations, investment and financing plans (including acquisitions and share repurchase activities) and the overall cost of capital. Total debt was $34.6 billion as of June 30, 2023. We generated $2.9 billion from net debt issuances in short-term debt and long-term debt markets.


PG Financing Cash Flow

Treasury Purchases. Total share repurchases were $7.4 billion in 2023.


PG Financing Cash Flow

Impact of Stock Options and Other. The exercise of stock options and other financing activities generated $1.3 billion of cash in 2023.


PG Liquidity

At June 30, 2023, our current liabilities exceeded current assets by $13.1 billion, largely due to short-term borrowings under our commercial paper program. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. The Company regularly assesses its cash needs and the available sources to fund these needs. As of June 30, 2023, the Company had $5.1 billion of cash and cash equivalents related to foreign subsidiaries, primarily in various European and Asian countries. We did not have material cash and cash equivalents related to any country subject to exchange controls that significantly restrict our ability to access or repatriate the funds. Under current law, we do not expect restrictions or taxes on repatriation of cash held outside of the U.S. to have a material effect on our overall liquidity, financial condition or the results of operations for the foreseeable future.


PG Liquidity

We utilize short- and long-term debt to fund discretionary items, such as acquisitions and share repurchases. We have strong short- and long-term debt ratings, which have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, we have agreements with a diverse group of financial institutions that, if needed, should provide sufficient funding to meet short-term financing requirements.


PG Liquidity

On June 30, 2023, our short-term credit ratings were P-1 (Moody's) and A-1+ (Standard & Poor's), while our long-term credit ratings were Aa3 (Moody's) and AA- (Standard & Poor's), all with a stable outlook.


PG Liquidity

We maintain bank credit facilities to support our ongoing commercial paper program. The current facility is an $8.0 billion facility split between a $3.2 billion five-year facility and a $4.8 billion 364-day facility, which expire in November 2027 and


PG 26 The Procter & Gamble Company

November 2023, respectively. Both facilities can be extended for certain periods of time as specified in the terms of the credit agreement. These facilities are currently undrawn and we anticipate that they will remain undrawn. These credit facilities do not have cross-default or ratings triggers, nor do they have material adverse events clauses, except at the time of signing. In addition to these credit facilities, we have an automatically effective registration statement on Form S-3 filed with the SEC that is available for registered offerings of short- or long-term debt securities. For additional details on debt, see Note 10 to the Consolidated Financial Statements.


PG Guarantees and Other Off-Balance Sheet Arrangements

We do not have guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.


PG Contractual Commitments

The following table provides information on the amount and payable date of our contractual commitments as of June 30, 2023. ($ millions)####Total####Less Than 1 Year####1-3 Years####3-5 Years####After 5 Years RECORDED LIABILITIES#################### Total debt##$##35,248##$##10,316##$##5,328##$##5,899##$##13,705 Leases####911####222####322####171####196 U.S. Tax Act transitional charge (1)####1,575####421####1,154####—####— OTHER#################### Interest payments relating to long-term debt####5,727####713####1,245####946####2,823 Minimum pension funding (2)####591####192####399####—####— Purchase obligations (3)####2,989####1,169####976####482####362 TOTAL CONTRACTUAL COMMITMENTS##$##47,041##$##13,033##$##9,424##$##7,498##$##17,086


PG Contractual Commitments

(1)Represents the U.S. federal tax liability associated with the repatriation provisions of the U.S. Tax Act.


PG Contractual Commitments

(2)Represents future pension payments to comply with local funding requirements. These future pension payments assume the Company continues to meet its future statutory funding requirements. Considering the current economic environment in which the Company operates, the Company believes its cash flows are adequate to meet the future statutory funding requirements. The projected payments beyond fiscal year 2026 are not currently determinable.


PG Contractual Commitments

(3)Primarily reflects future contractual payments under various take-or-pay arrangements entered into as part of the normal course of business. Commitments made under take-or-pay obligations represent minimum commitments with suppliers and are in line with expected usage. This includes service contracts for information technology, human resources management and facilities management activities that have been outsourced. While the amounts listed represent contractual obligations, we do not believe it is likely that the full contractual amount would be paid if the underlying contracts were canceled prior to maturity. In such cases, we generally are able to negotiate new contracts or cancellation penalties, resulting in a reduced payment. The amounts do not include other contractual purchase obligations that are not take-or-pay arrangements. Such contractual purchase obligations are primarily purchase orders at fair value that are part of normal operations and are reflected in historical operating cash flow trends. We do not believe such purchase obligations will adversely affect our liquidity position.


PG CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements in accordance with U.S. GAAP, there are certain accounting policies that may require a choice between acceptable accounting methods or may require substantial judgment or estimation in their application. These include revenue recognition, income taxes, certain employee benefits and goodwill and intangible assets. We believe these accounting policies, and others set forth in Note 1 to the Consolidated Financial Statements, should be reviewed as they are integral to understanding the results of operations and financial condition of the Company.


The Company has discussed the selection of critical accounting policies and the effect of estimates with the Audit Committee of the Company's Board of Directors.


PG 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. Trade promotions, consisting primarily of customer pricing allowances, in-store merchandising funds, advertising and other promotional activities and consumer coupons, are offered through various programs to customers and consumers. Sales are recorded net of trade promotion spending, which is recognized as incurred at the time of the sale. Amounts accrued for trade promotions at the end of a period require estimation, based on contractual terms, sales volumes and historical utilization and redemption rates. The actual amounts paid may be different from such estimates. These differences, which have historically not been significant, are recognized as a change in management estimate in a subsequent period.


PG Income Taxes

Our annual tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes. Also inherent in determining our annual tax rate are judgements and


PG The Procter & Gamble Company 27

assumptions regarding the recoverability of certain deferred tax balances, primarily net operating loss and other carryforwards, and our ability to uphold certain tax positions.


PG The Procter & Gamble Company 27

Realization of net operating losses and other carryforwards is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods, which involves business plans, planning opportunities and expectations about future outcomes. Although realization is not assured, management believes it is more likely than not that our deferred tax assets, net of valuation allowances, will be realized.


PG The Procter & Gamble Company 27

We operate in multiple jurisdictions with complex tax policy and regulatory environments. In certain of these jurisdictions, we may take tax positions that management believes are supportable but are potentially subject to successful challenge by the applicable taxing authority. These interpretational differences with the respective governmental taxing authorities can be impacted by the local economic and fiscal environment.


PG The Procter & Gamble Company 27

A core operating principle is that our tax structure is based on our business operating model, such that profits are earned in line with the business substance and functions of the various legal entities in the jurisdictions where those functions are performed. However, because of the complexity of transfer pricing concepts, we may have income tax uncertainty related to the determination of intercompany transfer prices for our various cross-border transactions. We have obtained and continue to prioritize the strategy of seeking advance rulings with tax authorities to reduce this uncertainty. We estimate that our current portfolio of advance rulings reduces this uncertainty with respect to over 70% of our global earnings. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. We review these tax uncertainties considering changing facts and circumstances, such as the progress of tax audits, and adjust them accordingly. We have several audits in process in various jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available information, we believe that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows.


PG The Procter & Gamble Company 27

Because there are several estimates and assumptions inherent in calculating the various components of our tax provision, certain future events such as changes in tax legislation, geographic mix of earnings, completion of tax audits or earnings repatriation plans could have an impact on those estimates and our effective tax rate. See Note 5 to the Consolidated Financial Statements for additional details on the Company's income taxes.


PG Employee Benefits

We sponsor various postretirement benefits throughout the world. These include pension plans, both defined contribution plans and defined benefit plans, and other postretirement benefit (OPRB) plans consisting primarily of health care and life insurance for retirees. For accounting purposes, the defined benefit pension and OPRB plans require assumptions to estimate the net projected and accumulated benefit obligations, including the following variables: discount rate; expected salary increases; certain employee-related factors, such as turnover, retirement age and mortality; expected return on assets; and health care cost trend rates. These and other assumptions affect the annual expense and net obligations recognized for the underlying plans. Our assumptions reflect our historical experiences and management's best judgment regarding future expectations. As permitted by U.S. GAAP, the net amount by which actual results differ from our assumptions is deferred. If this net deferred amount exceeds 10% of the greater of plan assets or liabilities, a portion of the deferred amount is included in expense for the following year. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the employees expected to receive benefits.


PG Employee Benefits

The expected return on plan assets assumption impacts our defined benefit expense since many of our defined benefit pension plans and our primary OPRB plan are partially funded. The process for setting the expected rates of return is described in Note 8 to the Consolidated Financial Statements. For 2023, the average return on assets assumptions for pension plan assets and OPRB assets was 5.9% and 8.4%, respectively. A change in the rate of return of 100 basis points for both pension and OPRB assets would impact annual after-tax benefit/expense by approximately $135 million.


PG Employee Benefits

Since pension and OPRB liabilities are measured on a discounted basis, the discount rate impacts our plan obligations and expenses. Discount rates used for our U.S. defined benefit pension and OPRB plans are based on a yield curve constructed from a portfolio of high-quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA or better. The average discount rate on the defined benefit pension plans of 4.2% represents a weighted average of local rates in countries where such plans exist. A 100 basis-point change in the discount rate would impact annual after-tax benefit expense by approximately $130 million. The average discount rate on the OPRB plan of 5.6% reflects the higher interest rates generally applicable in the U.S., which is where most of the plan participants receive benefits. A 100 basis-point change in the discount rate would impact annual after-tax OPRB expense by approximately $30 million. See Note 8 to the Consolidated Financial Statements for additional details on our defined benefit pension and OPRB plans.


PG Goodwill and Intangible Assets

Significant judgment is required to estimate the fair value of our goodwill reporting units and intangible assets. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant goodwill reporting units and intangible assets. Determining the useful life of an intangible asset also requires judgment. Certain brand intangible assets are expected to have indefinite lives based on their history and our plans to continue to support and build the acquired brands. Other acquired intangible assets (e.g., certain brands, customer relationships, patents and technologies) are expected to have determinable


PG 28 The Procter & Gamble Company

useful lives. Our assessment as to brands that have an indefinite life and those that have a determinable life is based on a number of factors including 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. Determinable-lived intangible assets are amortized to expense over their estimated lives. An impairment assessment for determinable-lived intangibles is only required when an event or change in circumstances indicates that the carrying amount of the asset may not be recoverable.


PG 28 The Procter & Gamble Company

Goodwill and indefinite-lived intangible assets are not amortized but are tested at least annually for impairment. We use the 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. If the resulting fair value is less than the asset's carrying value, that difference represents an impairment. Our annual impairment testing for goodwill and indefinite-lived intangible assets occurs during the three months ended December 31.


PG 28 The Procter & Gamble Company

Most of our goodwill reporting units have fair value cushions that significantly exceed their underlying carrying values. In connection with the Grooming operating segment integration as described further in Note 2, we concluded that the Shave Care and Appliances categories now operate as one reporting unit for goodwill impairment testing. Based on our annual impairment testing during the three months ended December 31, 2022, our Grooming reporting unit goodwill has a fair value cushion of over 30%. As of June 30, 2023, the carrying value of the Grooming reporting unit goodwill was $12.7 billion.


PG 28 The Procter & Gamble Company

Most of our indefinite-lived intangible assets have fair value cushions that significantly exceed their underlying carrying value. Based on our annual impairment testing during the three months ended December 31, 2022, the Gillette indefinite-lived intangible asset's fair value exceeded its carrying value by approximately 5%. As of June 30, 2023, the carrying value of the Gillette indefinite-lived intangible asset was $14.1 billion. While we have concluded that no triggering event has occurred during the fiscal year ended June 30, 2023, the Gillette indefinite-lived intangible asset is most susceptible to future impairment risk. Adverse changes in the business or in the macroeconomic environment, including foreign currency devaluation, increasing global inflation, market contraction from an economic recession and the Russia-Ukraine War, could reduce the underlying cash flows used to estimate the fair value of the Gillette indefinite-lived intangible asset and trigger a future impairment charge. Further reduction of the Gillette business activities in Russia could reduce the estimated fair value by up to 5%.


PG 28 The Procter & Gamble Company

The most significant assumptions utilized in the determination of the estimated fair value of the Gillette indefinite-lived intangible asset are the net sales growth rates (including residual growth rates), discount rate and royalty rates.


PG 28 The Procter & Gamble Company

Net sales growth rates could be negatively impacted by reductions or changes in demand for our Gillette products, which may be caused by, among other things: changes in the use and frequency of grooming products, shifts in demand away from one or more of our higher priced products to lower priced products or potential supply chain constraints. In addition, relative global and country/regional macroeconomic factors, including the Russia-Ukraine War, could result in additional and prolonged devaluation of other countries’ currencies relative to the U.S. dollar. The residual growth rates represent the expected rate at which the Gillette brand is expected to grow beyond the shorter-term business planning period. The residual growth rates utilized in our fair value estimates are consistent with the brand operating plans and approximates expected long-term category market growth rates. The residual growth rates depend on overall market growth rates, the competitive environment, inflation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rates could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies against the U.S. dollar or an increased competitive environment.


PG 28 The Procter & Gamble Company

The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. Our discount rate may be impacted by adverse changes in the macroeconomic environment, volatility in the equity and debt markets or other country specific factors, such as further devaluation of currencies against the U.S. dollar. Spot rates as of the fair value measurement date are utilized in our fair value estimates for cash flows outside the U.S.


PG 28 The Procter & Gamble Company

The royalty rates are driven by historical and estimated future profitability of the underlying Gillette business. The royalty rate may be impacted by significant adverse changes in long-term operating margins.


PG 28 The Procter & Gamble Company

We performed a sensitivity analysis for the Gillette indefinite-lived intangible asset as part of our annual impairment testing during the three months ended December 31, 2022, utilizing reasonably possible changes in the assumptions for the discount rate, the short-term and residual growth rates and the royalty rates to demonstrate the potential impacts to the estimated fair values. The table below provides, in isolation, the estimated fair value impacts related to a 25 basis-point increase in the discount rate, a 25 basis-point decrease in our shorter-term and residual growth rates, or a 50 basis-point decrease in our royalty rates, which may result in an impairment of the Gillette indefinite-lived intangible asset. ####Approximate Percent Change in Estimated Fair Value## ##+25 bps Discount Rate##-25 bps Growth Rate##-50 bps Royalty Rate Gillette indefinite-lived intangible asset##(6)%##(6)%##(4)%


PG 28 The Procter & Gamble Company

See Note 4 to the Consolidated Financial Statements for additional discussion on goodwill and intangible assets.


PG New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of June 30, 2023.


PG Hedging and Derivative Financial Instruments

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. We leverage the Company's diversified portfolio of exposures as a natural hedge and prioritize operational hedging activities over financial market instruments. To the extent we choose to further manage volatility within our financing operations, as discussed below, we enter into various financial transactions which 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. See Note 9 to the Consolidated Financial Statements for a discussion of our accounting policies for derivative instruments.


Derivative positions are monitored using techniques including market valuation, sensitivity analysis and value-at-risk modeling. The tests for interest rate, currency rate and commodity derivative positions discussed below are based on the RiskManagerTM value-at-risk model using a one-year horizon and a 95% confidence level. The model incorporates the impact of correlation (the degree to which exposures move together over time) and diversification (from holding multiple currency, commodity and interest rate instruments) and assumes that financial returns are normally distributed. Estimates of volatility and correlations of market factors are drawn from the RiskMetricsTM dataset as of June 30, 2023. In cases where data is unavailable in RiskMetricsTM, a reasonable proxy is included.


Our market risk exposures relative to interest rates, currency rates and commodity prices, as discussed below, have not changed materially versus the previous reporting period. In addition, we are not aware of any facts or circumstances that would significantly impact such exposures in the near term.


Interest Rate Exposure on Financial Instruments. Interest rate swaps are used to manage exposures to interest rates on underlying debt obligations. Certain interest rate swaps denominated in foreign currencies are designated to hedge exposures to currency exchange rate movements on our investments in foreign operations. These currency interest rate swaps are designated as hedges of the Company's foreign net investments.


Based on our interest rate exposure as of and during the fiscal year ended June 30, 2023, including derivative and other instruments sensitive to interest rates, we believe a near-term change in interest rates, at a 95% confidence level based on historical interest rate movements, would not materially affect our financial statements.


Currency Rate Exposure on Financial Instruments. Because we manufacture and sell products and finance operations in a number of countries throughout the world, we are exposed to the impact on revenue and expenses of movements in currency exchange rates. Corporate policy prescribes the range of allowable hedging activity. To manage the exchange rate risk associated with the financing of our operations, we primarily use forward contracts and currency swaps with maturities of less than 18 months.


Based on our currency rate exposure on derivative and other instruments as of and during the fiscal year ended June 30, 2023, we believe, at a 95% confidence level based on historical currency rate movements, the impact on such instruments of a near-term change in currency rates would not materially affect our financial statements.


Commodity Price Exposure on Financial Instruments. We use raw materials that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. We may use futures, options and swap contracts to manage the volatility related to the above exposures. During the fiscal years ended June 30, 2023 and 2022, we did not have any financial commodity hedging activity.


PG Measures Not Defined By U.S. GAAP

In accordance with the SEC's Regulation S-K Item 10(e), the following provides definitions of the non-GAAP measures and the reconciliation to the most closely related GAAP measure. We believe that these measures provide useful perspective on underlying business trends (i.e., trends excluding non-recurring or unusual items) and results and provide a supplemental measure of year-on-year results. The non-GAAP measures described below are used by management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors, as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of management. These measures are also used to evaluate senior management and are a factor in determining their at-risk compensation. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP measures but rather as supplemental information to our business results. These non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted. These measures include:


PG Measures Not Defined By U.S. GAAP

Organic Sales Growth. Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe this measure provides investors with a


PG 30 The Procter & Gamble Company

supplemental understanding of underlying sales trends by providing sales growth on a consistent basis. This measure is used in assessing the achievement of management goals for at-risk compensation.


PG 30 The Procter & Gamble Company

The following tables provide a numerical reconciliation of organic sales growth to reported net sales growth: Fiscal year ended June 30, 2023##Net Sales Growth####Foreign Exchange Impact####Acquisition & Divestiture  Impact/Other (1)####Organic Sales Growth## Beauty##2##%##5##%##(1)##%##6##% Grooming##(3)##%##7##%##1##%##5##% Health Care##4##%##4##%##—##%##8##% Fabric & Home Care##3##%##5##%##—##%##8##% Baby, Feminine & Family Care##2##%##4##%##—##%##6##% TOTAL COMPANY##2##%##5##%##—##%##7##%


PG 30 The Procter & Gamble Company

(1)Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.


PG 30 The Procter & Gamble Company

Adjusted Free Cash Flow. Adjusted free cash flow is defined as operating cash flow less capital spending and excluding payments for the transitional tax resulting from the U.S. Tax Act. Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. We view adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments.


PG 30 The Procter & Gamble Company

The following table provides a numerical reconciliation of adjusted free cash flow ($ millions): ####Operating Cash Flow####Capital Spending####Adjustments to Operating Cash Flow (1)####Adjusted Free Cash Flow 2023##$##16,848##$##(3,062)##$##225##$##14,011 2022##$##16,723##$##(3,156)##$##225##$##13,792


PG 30 The Procter & Gamble Company

(1)Adjustments to Operating Cash Flow include transitional tax payments resulting from the U.S. Tax Act of $225 in 2023 and 2022.


PG 30 The Procter & Gamble Company

Adjusted Free Cash Flow Productivity. Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings. We view adjusted free cash flow productivity as a useful measure to help investors understand P&G’s ability to generate cash. Adjusted free cash flow productivity is used by management in making operating decisions, in allocating financial resources and for budget planning purposes. This measure is used in assessing the achievement of management goals for at-risk compensation.


PG 30 The Procter & Gamble Company

The following table provides a numerical reconciliation of adjusted free cash flow productivity ($ millions): ####Adjusted Free Cash Flow####Net Earnings##Adjusted Free Cash Flow Productivity## 2023##$##14,011##$##14,738##95##% 2022##$##13,792##$##14,793##93##%


PG 30 The Procter & Gamble Company

Core EPS. Core EPS is a measure of the Company's diluted EPS excluding items that are not judged by management to be part of the Company's sustainable results or trends. Management views this non-GAAP measure as a useful supplemental measure of Company performance over time. This measure is also used in assessing the achievement of management goals for at-risk compensation. For the fiscal years ended June 30, 2023 and 2022, there were no adjustments to or reconciling items for diluted EPS.


PG Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is incorporated by reference to the section entitled Other Information in the MD&A and Note 9 to the Consolidated Financial Statements.


PG 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 critical accounting policies and estimates, 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, 2023, 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, 2023, 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, 2023, as stated in their report which is included herein.


PG REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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


PG 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.


PG Opinion on the Financial Statements

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, 2023, 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 4, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.


PG 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.


PG Basis for Opinion

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.


PG 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.


PG Critical Audit Matter

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


PG Critical Audit Matter Description

The Company’s evaluation of the Gillette indefinite lived intangible asset (the "Gillette Brand") for impairment involves the comparison of the fair value 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 asset. 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 as of December 31, 2022. Because the estimated fair value exceeds the carrying value, no impairment was recorded. As of June 30, 2023, the carrying value of the Gillette Brand was $14.1 billion.


PG Critical Audit Matter Description

We identified the Company’s impairment evaluation of the Gillette Brand 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.


PG 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 Brand included the following, among others: •We tested the effectiveness of controls over the Gillette Brand, 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.


PG The Procter & Gamble Company 33

•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. •Internal communications to management and the Board of Directors. •Forecasted information included 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.


PG August 4, 2023

We have served as the Company’s auditor since 1890.


PG 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, 2023, 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, 2023, 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, 2023, of the Company and our report dated August 4, 2023, expressed an unqualified opinion on those financial statements.


PG 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.


PG Basis for Opinion

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.


PG 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.


PG Consolidated Statements of Earnings

Amounts in millions except per share amounts; fiscal years ended June 30####2023####2022####2021 NET SALES##$##82,006##$##80,187##$##76,118 Cost of products sold####42,760####42,157####37,108 Selling, general and administrative expense####21,112####20,217####21,024 OPERATING INCOME####18,134####17,813####17,986 Interest expense####(756)####(439)####(502) Interest income####307####51####45 Other non-operating income, net####668####570####86 EARNINGS BEFORE INCOME TAXES####18,353####17,995####17,615 Income taxes####3,615####3,202####3,263 NET EARNINGS####14,738####14,793####14,352 Less: Net earnings attributable to noncontrolling interests####85####51####46 NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE##$##14,653##$##14,742##$##14,306 NET EARNINGS PER COMMON SHARE (1)############ Basic##$##6.07##$##6.00##$##5.69 Diluted##$##5.90##$##5.81##$##5.50


PG Consolidated Statements of Earnings

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


PG Consolidated Statements of Comprehensive Income

Amounts in millions; fiscal years ended June 30####2023####2022####2021 NET EARNINGS##$##14,738##$##14,793##$##14,352 OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX############ Foreign currency translation (net of tax (benefit)/expense of $(197), $515 and $(266), respectively)####(71)####(1,450)####1,023 Unrealized gains/(losses) on investment securities (net of tax (benefit)/expense of $(2), $1 and $5, respectively)####(7)####5####16 Unrealized gains on defined benefit postretirement plans (net of tax expense of $9, $1,022 and $445, respectively)####40####2,992####1,386 TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX####(38)####1,547####2,425 TOTAL COMPREHENSIVE INCOME####14,700####16,340####16,777 Less: Comprehensive income attributable to noncontrolling interests####78####43####50 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE##$##14,622##$##16,297##$##16,727


See accompanying Notes to Consolidated Financial Statements.


PG Consolidated Balance Sheets

Amounts in millions except stated values; as of June 30####2023####2022 Assets######## CURRENT ASSETS######## Cash and cash equivalents##$##8,246##$##7,214 Accounts receivable####5,471####5,143 INVENTORIES######## Materials and supplies####1,863####2,168 Work in process####956####856 Finished goods####4,254####3,900 Total inventories####7,073####6,924 Prepaid expenses and other current assets####1,858####2,372 TOTAL CURRENT ASSETS####22,648####21,653 PROPERTY, PLANT AND EQUIPMENT, NET####21,909####21,195 GOODWILL####40,659####39,700 TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET####23,783####23,679 OTHER NONCURRENT ASSETS####11,830####10,981 TOTAL ASSETS##$##120,829##$##117,208 Liabilities and Shareholders' Equity######## CURRENT LIABILITIES######## Accounts payable##$##14,598##$##14,882 Accrued and other liabilities####10,929####9,554 Debt due within one year####10,229####8,645 TOTAL CURRENT LIABILITIES####35,756####33,081 LONG-TERM DEBT####24,378####22,848 DEFERRED INCOME TAXES####6,478####6,809 OTHER NONCURRENT LIABILITIES####7,152####7,616 TOTAL LIABILITIES####73,764####70,354 SHAREHOLDERS' EQUITY######## Convertible Class A preferred stock, stated value $1 per share (600 shares authorized)####819####843 Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized)####—####— Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2023 - 4,009.2, 2022 - 4,009.2)####4,009####4,009 Additional paid-in capital####66,556####65,795 Reserve for ESOP debt retirement####(821)####(916) Accumulated other comprehensive loss####(12,220)####(12,189) Treasury stock (shares held: 2023 - 1,647.1; 2022 - 1,615.4)####(129,736)####(123,382) Retained earnings####118,170####112,429 Noncontrolling interest####288####265 TOTAL SHAREHOLDERS' EQUITY####47,065####46,854 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY##$##120,829##$##117,208


PG Consolidated Balance Sheets


PG Consolidated Statements of Shareholders' Equity

Dollars in millions except per share amounts; shares in thousands####Common Stock## ##Shares####Amount BALANCE JUNE 30, 2020##2,479,746####$4,009 Net earnings###### Other comprehensive income/(loss)###### Dividends and dividend equivalents ($3.2419 per share):###### Common###### Preferred###### Treasury stock purchases##(81,343)#### Employee stock plans##28,001#### Preferred stock conversions##3,302#### ESOP debt impacts###### Noncontrolling interest, net###### BALANCE JUNE 30, 2021##2,429,706####$4,009 Net earnings###### Other comprehensive income/(loss)###### Dividends and dividend equivalents ($3.5227 per share):###### Common###### Preferred###### Treasury stock purchases##(67,088)#### Employee stock plans##28,042#### Preferred stock conversions##3,217#### ESOP debt impacts###### Noncontrolling interest, net###### BALANCE JUNE 30, 2022##2,393,877####$4,009 Net earnings###### Other comprehensive income/(loss)###### Dividends and dividend equivalents ($3.6806 per share):###### Common###### Preferred###### Treasury stock purchases##(52,021)#### Employee stock plans##17,424#### Preferred stock conversions##2,840#### ESOP debt impacts###### Noncontrolling interest, net###### BALANCE JUNE 30, 2023##2,362,120####$4,009


PG Consolidated Statements of Cash Flows

Amounts in millions; fiscal years ended June 30####2023####2022####2021 CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR##$##7,214##$##10,288##$##16,181 OPERATING ACTIVITIES############ Net earnings####14,738####14,793####14,352 Depreciation and amortization####2,714####2,807####2,735 Loss on early extinguishment of debt####—####—####512 Share-based compensation expense####545####528####540 Deferred income taxes####(453)####(402)####(258) Loss/(gain) on sale of assets####(40)####(85)####(16) Change in accounts receivable####(307)####(694)####(342) Change in inventories####(119)####(1,247)####(309) Change in accounts payable and accrued and other liabilities####313####1,429####1,391 Change in other operating assets and liabilities####(1,107)####(635)####(369) Other####564####229####135 TOTAL OPERATING ACTIVITIES####16,848####16,723####18,371 INVESTING ACTIVITIES############ Capital expenditures####(3,062)####(3,156)####(2,787) Proceeds from asset sales####46####110####42 Acquisitions, net of cash acquired####(765)####(1,381)####(34) Other investing activity####281####3####(55) TOTAL INVESTING ACTIVITIES####(3,500)####(4,424)####(2,834) FINANCING ACTIVITIES############ Dividends to shareholders####(8,999)####(8,770)####(8,263) Additions to short-term debt with original maturities of more than three months####17,168####10,411####7,675 Reductions in short-term debt with original maturities of more than three months####(13,031)####(11,478)####(7,577) Net additions/(reductions) to other short-term debt####(3,319)####917####(3,431) Additions to long-term debt####3,997####4,385####4,417 Reductions in long-term debt (1)####(1,878)####(2,343)####(4,987) Treasury stock purchases####(7,353)####(10,003)####(11,009) Impact of stock options and other####1,269####2,005####1,644 TOTAL FINANCING ACTIVITIES####(12,146)####(14,876)####(21,531) EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH####(170)####(497)####101 CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH####1,032####(3,074)####(5,893) CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR##$##8,246##$##7,214##$##10,288 SUPPLEMENTAL DISCLOSURE############ Cash payments for interest##$##721##$##451##$##531 Cash payments for income taxes####4,278####3,818####3,822


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


PG 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.


PG Basis of Presentation

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


PG Basis of Presentation

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.


PG Basis of Presentation

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 fiscal year ended June 30, 2021, has 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.


PG 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.


PG 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.


PG Revenue Recognition

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.


PG 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.


PG 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 2023 and 2022 and $1.9 billion in 2021. Advertising costs, charged to expense as incurred, include television, print, radio, digital and in-store advertising expenses and were $8.0 billion in 2023, $7.9 billion in 2022 and


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


PG 40 The Procter & Gamble Company

$8.2 billion in 2021. 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.


PG Other Non-Operating Income, Net

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


PG 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.


PG 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 investing activities. Realized gains and losses from non-qualifying derivative instruments used to hedge currency exposures resulting from intercompany financing transactions are 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.


PG 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.


PG Investments

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.


PG 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.


PG 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.


PG 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.


PG Goodwill and Other 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.


PG Goodwill and Other Intangible Assets

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.


PG Goodwill and Other Intangible Assets

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


PG Goodwill and Other Intangible Assets


PG 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.


PG New Accounting Pronouncements and Policies

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations". This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. We will adopt the guidance effective July 1, 2023. Additional disclosures will be included in the Notes to the Consolidated Financial Statements.


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.


PG 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 (Conditioners, Shampoos, Styling Aids, Treatments); Skin and Personal Care (Antiperspirants and Deodorants, Personal Cleansing, Skin Care); •Grooming: Grooming (Appliances, Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Grooming); •Health Care: Oral Care (Toothbrushes, Toothpaste, Other Oral Care); Personal Health Care (Gastrointestinal, Pain Relief, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Other Personal Health Care); •Fabric & Home Care: Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents); Home Care (Air Care, Dish Care, P&G Professional, Surface Care); and •Baby, Feminine & Family Care: Baby Care (Baby Wipes, Taped Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper).


PG SEGMENT INFORMATION

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.


PG SEGMENT INFORMATION

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.


PG SEGMENT INFORMATION

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.


PG SEGMENT INFORMATION

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.


PG SEGMENT INFORMATION

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


PG 42 The Procter & Gamble Company

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)#### Fiscal years ended June 30##2023####2022##2021 Fabric Care##23%####23%##22% Home Care##12%####12%##12% Baby Care##10%####10%##10% Skin and Personal Care##9%####9%##10% Hair Care##9%####9%##9% Family Care##8%####9%##9% Grooming (2)##8%####6%##7% Oral Care##8%####8%##8% Feminine Care##7%####6%##6% Personal Health Care##6%####6%##5% Other (2)##—%####2%##2% TOTAL##100%####100%##100%


PG 42 The Procter & Gamble Company

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


PG 42 The Procter & Gamble Company

(2)Effective July 1, 2022, the Grooming Sector Business Unit completed the full integration of its Shave Care and Appliances categories to cohesively serve consumers' grooming needs. This transition included the integration of the management team, strategic decision-making, innovation plans, financial targets, budgets and internal management reporting. For the fiscal years ended June 30, 2022 and 2021, Appliances was presented in Other.


PG 42 The Procter & Gamble Company

Net sales and long-lived assets in the United States and internationally were as follows (in billions): Fiscal years ended June 30####2023####2022####2021 NET SALES############ United States##$##38.7##$##36.5##$##33.7 International##$##43.3##$##43.7##$##42.4 LONG-LIVED ASSETS (1)############ United States##$##11.4##$##10.7##$##10.1 International##$##10.5##$##10.5##$##11.6


PG 42 The Procter & Gamble Company

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


PG 42 The Procter & Gamble Company

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


PG 42 The Procter & Gamble Company

Our largest customer, Walmart Inc. and its affiliates, accounted for consolidated net sales of approximately 15% in 2023, 2022 and 2021. No other customer represents more than 10% of our consolidated net sales.


PG 42 The Procter & Gamble Company


PG The Procter & Gamble Company 43

Global Segment Results######Net Sales####Earnings/(Loss) Before Income Taxes####Net Earnings/(Loss)####Depreciation and Amortization####Total Assets####Capital Expenditures BEAUTY##2023##$##15,008##$##4,009##$##3,178##$##376##$##6,196##$##287 ##2022####14,740####3,946####3,160####348####6,055####331 ##2021####14,417####4,018####3,210####333####5,587####386 GROOMING##2023####6,419####1,806####1,461####335####20,601####300 ##2022####6,587####1,835####1,490####361####20,482####260 ##2021####6,440####1,728####1,427####378####20,668####291 HEALTH CARE##2023####11,226####2,759####2,125####352####8,480####466 ##2022####10,824####2,618####2,006####376####7,888####410 ##2021####9,956####2,398####1,851####372####7,976####364 FABRIC & HOME CARE##2023####28,371####6,303####4,828####675####8,669####979 ##2022####27,556####5,729####4,386####672####8,567####988 ##2021####26,014####5,986####4,622####646####8,334####1,006 BABY, FEMININE & FAMILY CARE##2023####20,217####4,623####3,545####804####8,517####994 ##2022####19,736####4,267####3,266####826####8,443####932 ##2021####18,850####4,723####3,629####846####8,666####814 CORPORATE##2023####765####(1,147)####(399)####172####68,366####36 ##2022####744####(400)####485####224####65,773####235 ##2021####441####(1,238)####(387)####160####68,076####(74) TOTAL COMPANY##2023##$##82,006##$##18,353##$##14,738##$##2,714##$##120,829##$##3,062 ##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


PG The Procter & Gamble Company 43


PG SUPPLEMENTAL FINANCIAL INFORMATION

The components of property, plant and equipment were as follows: As of June 30####2023######2022 ######PROPERTY, PLANT AND EQUIPMENT#### Buildings##$##8,277####$##8,087 Machinery and equipment####36,521######35,098 Land####867######756 Construction in progress####2,980######2,756 TOTAL PROPERTY, PLANT AND EQUIPMENT####48,645######46,697 Accumulated depreciation####(26,736)######(25,502) PROPERTY, PLANT AND EQUIPMENT, NET##$##21,909####$##21,195


PG SUPPLEMENTAL FINANCIAL INFORMATION

Selected components of current and noncurrent liabilities were as follows: As of June 30####2023######2022 ######ACCRUED AND OTHER LIABILITIES - CURRENT#### Marketing and promotion##$##3,894####$##3,878 Compensation expenses####2,030######1,797 Taxes payable####828######587 Derivative liabilities####631######1 Leases####222######205 Restructuring reserves####174######147 Other####3,150######2,939 TOTAL##$##10,929####$##9,554 ######OTHER NONCURRENT LIABILITIES#### Pension benefits##$##3,116####$##3,139 U.S. Tax Act transitional tax payable####1,154######1,661 Other retiree benefits####690######672 Uncertain tax positions####622######752 Long term operating leases####595######595 Derivative liabilities####445######307 Other####530######490 TOTAL##$##7,152####$##7,616


PG 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.


PG RESTRUCTURING PROGRAM

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 $329 and $253 for the fiscal years ended June 30, 2023 and 2022. Of the charges incurred for fiscal year 2023, $160 were recorded in Costs of products sold, $160 in SG&A and $9 in Other non-operating income, net. Of the


PG RESTRUCTURING PROGRAM


PG The Procter & Gamble Company 45

charges incurred in fiscal year 2022, $182 were recorded in Costs of products sold, $67 in SG&A, and $4 in Other non-operating income, net. The following table presents restructuring activity for the fiscal years ended June 30, 2023 and 2022: ####Separations####Asset-Related Costs####Other####Total RESERVE JUNE 30, 2021##$##176##$##—##$##102##$##278 Cost incurred and charged to expense####88####87####78####253 Cost paid/settled####(143)####(87)####(154)####(384) RESERVE JUNE 30, 2022####121####—####26####147 Cost incurred and charged to expense####175####43####111####329 Cost paid/settled####(141)####(43)####(118)####(302) RESERVE JUNE 30, 2023##$##155##$##—##$##19##$##174


PG The Procter & Gamble Company 45

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


PG The Procter & Gamble Company 45

However, for information purposes, the following table summarizes the total restructuring costs related to our reportable segments: Fiscal years ended June 30####2023####2022####2021 Beauty##$##15##$##11##$##13 Grooming####17####14####25 Health Care####28####32####51 Fabric & Home Care####87####42####22 Baby, Feminine & Family Care####21####83####29 Corporate (1)####161####71####190 Total Company##$##329##$##253##$##330


PG The Procter & Gamble Company 45

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


PG 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, 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 Acquisitions and divestitures####405####—####—####—####33####438 Translation and other####187####132####129####13####60####521 Balance at June 30, 2023 - Net (1)##$##13,888##$##12,703##$##7,718##$##1,821##$##4,529##$##40,659


PG GOODWILL AND INTANGIBLE ASSETS

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


PG GOODWILL AND INTANGIBLE ASSETS

Goodwill and indefinite-lived intangibles are tested for impairment at least annually by comparing the estimated fair values of our reporting units and indefinite-lived intangible assets to their respective carrying values. We use the 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 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.


PG GOODWILL AND INTANGIBLE ASSETS

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


PG 46 The Procter & Gamble Company

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.


PG 46 The Procter & Gamble Company

Goodwill increased during fiscal 2023 primarily due to an acquisition in the Beauty segment, other minor brand acquisitions in the Baby, Feminine & Family Care segment and currency translation across all reportable segments.


PG 46 The Procter & Gamble Company

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.


PG 46 The Procter & Gamble Company

Identifiable intangible assets were comprised of: ######2023##########2022## As of June 30####Gross Carrying Amount####Accumulated Amortization######Gross Carrying Amount####Accumulated Amortization ##########INTANGIBLE ASSETS WITH DETERMINABLE LIVES######## Brands##$##4,352##$##(2,540)####$##4,299##$##(2,628) Patents and technology####2,775####(2,649)######2,769####(2,609) Customer relationships####1,847####(1,039)######1,797####(939) Other####73####(28)######147####(97) TOTAL##$##9,047##$##(6,256)####$##9,012##$##(6,273) ##########INTANGIBLE ASSETS WITH INDEFINITE LIVES######## Brands####20,992####—######20,940####— TOTAL INTANGIBLE ASSETS##$##30,039##$##(6,256)####$##29,952##$##(6,273)


PG 46 The Procter & Gamble Company

Amortization expense of intangible assets was as follows: Fiscal years ended June 30####2023####2022####2021 Intangible asset amortization##$##327##$##312##$##318


PG 46 The Procter & Gamble Company

Estimated amortization expense over the next five fiscal years is as follows: Fiscal years ending June 30####2024####2025####2026####2027####2028 Estimated amortization expense##$##340##$##320##$##297##$##287##$##247


PG 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.


PG INCOME TAXES

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


PG INCOME TAXES

Earnings before income taxes consisted of the following: Fiscal years ended June 30####2023####2022####2021 United States##$##12,107##$##11,698##$##10,858 International####6,246####6,297####6,757 TOTAL##$##18,353##$##17,995##$##17,615


PG INCOME TAXES


PG The Procter & Gamble Company 47

Income taxes consisted of the following: Fiscal years ended June 30####2023####2022####2021 ######CURRENT TAX EXPENSE###### U.S. federal##$##2,303##$##1,916##$##1,663 International####1,412####1,333####1,534 U.S. state and local####353####355####324 TOTAL####4,068####3,604####3,521 ######DEFERRED TAX EXPENSE/(BENEFIT)###### U.S. federal####(224)####(320)####(65) International and other####(229)####(82)####(193) TOTAL####(453)####(402)####(258) TOTAL TAX EXPENSE##$##3,615##$##3,202##$##3,263


PG The Procter & Gamble Company 47

A reconciliation of the U.S. federal statutory income tax rate to our actual effective income tax rate is provided below: Fiscal years ended June 30##2023####2022####2021## U.S. federal statutory income tax rate##21.0##%##21.0##%##21.0##% Country mix impacts of foreign operations##(0.5)##%##(0.3)##%##(0.5)##% State income taxes, net of federal benefit##1.6##%##1.5##%##1.3##% Excess tax benefits from the exercise of stock options##(1.0)##%##(2.0)##%##(1.6)##% Foreign derived intangible income deduction (FDII)##(0.8)##%##(1.1)##%##(1.0)##% Changes in uncertain tax positions##0.1##%##(0.4)##%##(0.1)##% Other##(0.7)##%##(0.9)##%##(0.6)##% EFFECTIVE INCOME TAX RATE##19.7##%##17.8##%##18.5##%


PG The Procter & Gamble Company 47

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.


PG The Procter & Gamble Company 47

Tax benefits credited to shareholders' equity totaled $190 for the fiscal year ended June 30, 2023. This primarily relates to the tax effects of net investment hedges. Tax costs charged to shareholders' equity totaled $1,538 for the fiscal 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.


PG The Procter & Gamble Company 47

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 $24 billion of earnings that are considered indefinitely invested.


PG The Procter & Gamble Company 47

A reconciliation of the beginning and ending liability for uncertain tax positions is as follows: Fiscal years ended June 30####2023####2022####2021 BEGINNING OF YEAR##$##583##$##627##$##485 Increases in tax positions for prior years####113####102####157 Decreases in tax positions for prior years####(119)####(118)####(34) Increases in tax positions for current year####60####53####60 Settlements with taxing authorities####(108)####(42)####(26) Lapse in statute of limitations####(7)####(17)####(24) Currency translation####(7)####(22)####9 END OF YEAR##$##515##$##583##$##627


PG The Procter & Gamble Company 47


PG 48 The Procter & Gamble Company

Included in the total liability for uncertain tax positions at June 30, 2023, is $354 that, depending on the ultimate resolution, could impact the effective tax rate in future periods.


PG 48 The Procter & Gamble Company

The Company is present in approximately 70 countries and over 150 taxable jurisdictions and, at any point in time, has 30-40 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 $40, including interest and penalties.


PG 48 The Procter & Gamble Company

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, 2023, 2022 and 2021, we had accrued interest of $143, $179 and $166 and accrued penalties of $12, $12 and $10, respectively, which are not included in the above table. During the fiscal years ended June 30, 2023, 2022 and 2021, we recognized $23, $21 and $38 in interest expense and $1, $2 and $6 in penalties expense, respectively.


PG 48 The Procter & Gamble Company

Deferred income tax assets and liabilities were comprised of the following: As of June 30####2023####2022 DEFERRED TAX ASSETS######## Loss and other carryforwards##$##1,014##$##914 Capitalized research & development####930####646 Pension and other retiree benefits####737####740 Accrued marketing and promotion####421####420 Stock-based compensation####412####386 Unrealized loss on financial and foreign exchange transactions####282####138 Fixed assets####223####209 Lease liabilities####197####185 Other####874####862 Valuation allowances####(403)####(409) TOTAL##$##4,687##$##4,091 DEFERRED TAX LIABILITIES######## Goodwill and other intangible assets##$##5,811##$##5,783 Fixed assets####1,556####1,542 Other retiree benefits####1,101####1,031 Unrealized gain on financial and foreign exchange transactions####198####439 Lease right-of-use assets####191####179 Foreign withholding tax on earnings to be repatriated####96####70 Other####381####244 TOTAL##$##9,334##$##9,288


PG 48 The Procter & Gamble Company

Net operating loss carryforwards were $2.9 billion at June 30, 2023, and $2.5 billion at June 30, 2022. If unused, approximately $300 will expire between 2023 and 2042. The remainder, totaling $2.6 billion at June 30, 2023, may be carried forward indefinitely.


PG 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 share-based awards based on the treasury stock method (see Note 7) and the assumed conversion of preferred stock (see Note 8).


PG EARNINGS PER SHARE

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