PROCTER & GAMBLE Co [PG] Filings

10-Q 1 pg-20211231.htm FY2122 Q2 OND 10-Q pg-20211231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)


x			True			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended December 31, 2021


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

For the transition period from to

THE PROCTER & GAMBLE COMPANY

(Exact name of registrant as specified in its charter)

Ohio

1-434

31-0411980

(State of Incorporation)

(Commission File Number)

(I.R.S. Employer Identification Number)

One Procter & Gamble Plaza

Cincinnati

One Procter & Gamble Plaza, Cincinnati, Ohio

45202

(Address of principal executive offices)

(Zip Code)

(513) 983-1100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, without Par Value	PG	NYSE
2.000% Notes due 2022	PG22B	NYSE
1.125% Notes due 2023	PG23A	NYSE
0.500% Notes due 2024	PG24A	NYSE
0.625% Notes due 2024	PG24B	NYSE
1.375% Notes due 2025	PG25	NYSE
0.110% Notes due 2026	PG26D	NYSE
4.875% EUR notes due May 2027	PG27A	NYSE
1.200% Notes due 2028	PG28	NYSE
1.250% Notes due 2029	PG29B	NYSE
1.800% Notes due 2029	PG29A	NYSE
6.250% GBP notes due January 2030	PG30	NYSE
0.350% Notes due 2030	PG30C	NYSE
0.230% Notes due 2031	PG31A	NYSE
5.250% GBP notes due January 2033	PG33	NYSE
1.875% Notes due 2038	PG38	NYSE
0.900% Notes due 2041	PG41	NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

False

Emerging growth company

False

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ False

There were 2,397,065,706 shares of Common Stock outstanding as of December 31, 2021.

PART I. FINANCIAL INFORMATION


Item 1.			Financial Statements

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS


	Three Months Ended December 31				Six Months Ended December 31
Amounts in millions except per share amounts	2021		2020		2021		2020
NET SALES	$	20,953	$	19,745	$	41,291	$	39,063
Cost of products sold	10,664		9,253		21,029		18,395
Selling, general and administrative expense	5,121		5,112		10,071		10,007
OPERATING INCOME	5,168		5,380		10,191		10,661
Interest expense	(106)		(143)		(215)		(279)
Interest income	10		9		21		19
Other non-operating income/(expense), net	167		(369)		277		(227)
EARNINGS BEFORE INCOME TAXES	5,239		4,877		10,274		10,174
Income taxes	997		990		1,906		1,979
NET EARNINGS	4,242		3,887		8,368		8,195
Less: Net earnings attributable to noncontrolling interests	19		33		33		64
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE	$	4,223	$	3,854	$	8,335	$	8,131

NET EARNINGS PER SHARE (1)
Basic	$	1.72	$	1.53	$	3.39	$	3.22
Diluted	$	1.66	$	1.47	$	3.27	$	3.10

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING	2,544.2		2,615.4		2,551.6		2,620.4

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

See accompanying Notes to Consolidated Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended December 31				Six Months Ended December 31
Amounts in millions	2021		2020		2021		2020
NET EARNINGS	$	4,242	$	3,887	$	8,368	$	8,195
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Foreign currency translation	(241)		885		(706)		1,237
Unrealized gains on investment securities	2		8		7		14
Unrealized gains/(losses) on defined benefit retirement plans	737		(101)		879		(170)
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX	498		792		180		1,081
TOTAL COMPREHENSIVE INCOME	4,740		4,679		8,548		9,276
Less: Total comprehensive income attributable to noncontrolling interests	19		35		33		71
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE	$	4,721	$	4,644	$	8,515	$	9,205

See accompanying Notes to Consolidated Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


Amounts in millions			December 31, 2021		June 30, 2021
Assets
CURRENT ASSETS
Cash and cash equivalents			$	11,544	$	10,288
Accounts receivable			5,241		4,725
INVENTORIES
Materials and supplies			2,061		1,645
Work in process			766		719
Finished goods			3,846		3,619
Total inventories			6,673		5,983
Prepaid expenses and other current assets			2,087		2,095
TOTAL CURRENT ASSETS			25,545		23,091
PROPERTY, PLANT AND EQUIPMENT, NET			21,357		21,686
GOODWILL			40,315		40,924
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET			23,538		23,642
OTHER NONCURRENT ASSETS			10,661		9,964
TOTAL ASSETS			$	121,416	$	119,307

Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable			$	14,154	$	13,720
Accrued and other liabilities			10,542		10,523
Debt due within one year			13,331		8,889
TOTAL CURRENT LIABILITIES			38,027		33,132
LONG-TERM DEBT			22,322		23,099
DEFERRED INCOME TAXES			6,506		6,153
OTHER NONCURRENT LIABILITIES			9,668		10,269
TOTAL LIABILITIES			76,523		72,653
SHAREHOLDERS’ EQUITY
Preferred stock			856		870
Common stock – shares issued –	December 2021	4,009.2
	June 2021	4,009.2	4,009		4,009
Additional paid-in capital			65,432		64,848
Reserve for ESOP debt retirement			(965)		(1,006)
Accumulated other comprehensive loss			(13,564)		(13,744)
Treasury stock			(121,543)		(114,973)
Retained earnings			110,393		106,374
Noncontrolling interest			275		276
TOTAL SHAREHOLDERS’ EQUITY			44,893		46,654
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			$	121,416	$	119,307

See accompanying Notes to Consolidated Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


	Three Months Ended December 31, 2021
Dollars in millions; shares in thousands	Common Stock		Preferred Stock	Add-itional Paid-In Capital	Reserve for ESOP Debt Retirement	Accumulated Other Comp-rehensive Income/(Loss)	Treasury Stock	Retained Earnings	Non-controlling Interest	Total Share-holders' Equity
	Shares	Amount
BALANCE SEPTEMBER 30, 2021	2,419,948	$4,009	$859	$65,148	($964)	($14,062)	($117,240)	$108,361	$297	$46,408
Net earnings								4,223	19	4,242
Other comprehensive income/(loss)						498			—	498
Dividends and dividend equivalents ($0.8698 per share):
Common								(2,108)		(2,108)
Preferred								(70)		(70)
Treasury stock purchases	(31,433)						(4,754)			(4,754)
Employee stock plans	7,986			284			448			732
Preferred stock conversions	565		(3)	—			3			—
ESOP debt impacts					(1)			(13)		(14)
Noncontrolling interest, net				—					(41)	(41)
BALANCE DECEMBER 31, 2021	2,397,066	$4,009	$856	$65,432	($965)	($13,564)	($121,543)	$110,393	$275	$44,893


	Six Months Ended December 31, 2021
Dollars in millions; shares in thousands	Common Stock		Preferred Stock	Add-itional Paid-In Capital	Reserve for ESOP Debt Retirement	Accumulated Other Comp-rehensive Income/(Loss)	Treasury Stock	Retained Earnings	Non-controlling Interest	Total Share-holders' Equity
	Shares	Amount
BALANCE JUNE 30, 2021	2,429,706	$4,009	$870	$64,848	($1,006)	($13,744)	($114,973)	$106,374	$276	$46,654
Net earnings								8,335	33	8,368
Other comprehensive income/(loss)						180			—	180
Dividends and dividend equivalents ($1.7396 per share):
Common								(4,226)		(4,226)
Preferred								(140)		(140)
Treasury stock purchases	(50,786)						(7,504)			(7,504)
Employee stock plans	16,423			584			922			1,506
Preferred stock conversions	1,723		(14)	2			12			—
ESOP debt impacts					41			50		91
Noncontrolling interest, net				(2)					(34)	(36)
BALANCE DECEMBER 31, 2021	2,397,066	$4,009	$856	$65,432	($965)	($13,564)	($121,543)	$110,393	$275	$44,893

See accompanying Notes to Consolidated Financial Statements.


	Three Months Ended December 31, 2020
Dollars in millions; shares in thousands	Common Stock		Preferred Stock	Add-itional Paid-In Capital	Reserve for ESOP Debt Retirement	Accumulated Other Comp-rehensive Income/(Loss)	Treasury Stock	Retained Earnings	Non-controlling Interest	Total Share-holders' Equity
	Shares	Amount
BALANCE SEPTEMBER 30, 2020	2,479,606	$4,009	$888	$64,467	($1,046)	($15,881)	($106,794)	$102,539	$394	$48,576
Net earnings								3,854	33	3,887
Other comprehensive income/(loss)						790			2	792
Dividends and dividend equivalents ($0.7907 per share):
Common								(1,966)		(1,966)
Preferred								(66)		(66)
Treasury stock purchases	(21,485)						(3,008)			(3,008)
Employee stock plans	3,836			205			216			421
Preferred stock conversions	519		(3)	—			3			—
ESOP debt impacts					(26)			—		(26)
Noncontrolling interest, net									(70)	(70)
BALANCE DECEMBER 31, 2020	2,462,476	$4,009	$885	$64,672	($1,072)	($15,091)	($109,583)	$104,361	$359	$48,540


	Six Months Ended December 31, 2020
Dollars in millions; shares in thousands	Common Stock		Preferred Stock	Add-itional Paid-In Capital	Reserve for ESOP Debt Retirement	Accumulated Other Comp-rehensive Income/(Loss)	Treasury Stock	Retained Earnings	Non-controlling Interest	Total Share-holders' Equity
	Shares	Amount
BALANCE JUNE 30, 2020	2,479,746	$4,009	$897	$64,194	($1,080)	($16,165)	($105,573)	$100,239	$357	$46,878
Net earnings								8,131	64	8,195
Other comprehensive income/(loss)						1,074			7	1,081
Dividends and dividend equivalents ( $1.5814 per share):
Common								(3,935)		(3,935)
Preferred								(132)		(132)
Treasury stock purchases	(36,127)						(5,008)			(5,008)
Employee stock plans	17,340			476			988			1,464
Preferred stock conversions	1,517		(12)	2			10			—
ESOP debt impacts					8			58		66
Noncontrolling interest, net									(69)	(69)
BALANCE DECEMBER 31, 2020	2,462,476	$4,009	$885	$64,672	($1,072)	($15,091)	($109,583)	$104,361	$359	$48,540

See accompanying Notes to Consolidated Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended December 31
Amounts in millions	2021		2020
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	$	10,288	$	16,181
OPERATING ACTIVITIES
Net earnings	8,368		8,195
Depreciation and amortization	1,395		1,342
Loss on early extinguishment of debt	—		512
Share-based compensation expense	268		254
Deferred income taxes	(101)		145
Gain on sale of assets	(82)		(14)
Changes in:
Accounts receivable	(644)		(462)
Inventories	(840)		(217)
Accounts payable, accrued and other liabilities	1,431		312
Other operating assets and liabilities	(84)		(14)
Other	53		110
TOTAL OPERATING ACTIVITIES	9,764		10,163
INVESTING ACTIVITIES
Capital expenditures	(1,717)		(1,417)
Proceeds from asset sales	97		39
Acquisitions, net of cash acquired	(349)		—
Change in other investments	3		—
TOTAL INVESTING ACTIVITIES	(1,966)		(1,378)
FINANCING ACTIVITIES
Dividends to shareholders	(4,353)		(4,055)
Increases in short-term debt with original maturities of more than three months	6,747		5,267
Reductions in short-term debt with original maturities of more than three months	(1,730)		(2,602)
Increases/(reductions) in other short-term debt	(1,124)		(6,083)
Additions to long-term debt	2,136		2,429
Reductions to long-term debt (1)	(1,673)		(4,220)
Treasury stock purchases	(7,504)		(5,008)
Impact of stock options and other	1,215		1,101
TOTAL FINANCING ACTIVITIES	(6,286)		(13,171)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(256)		146
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	1,256		(4,240)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	11,544	$	11,941

(1) Includes early extinguishment of debt costs of $512 during the six months ended December 31, 2020.

See accompanying Notes to Consolidated Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021. In the opinion of management, the accompanying unaudited Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries (the "Company," "Procter & Gamble," "P&G," "we" or "our") contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.

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 six months ended December 31, 2020 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.

2. New Accounting Pronouncements and Policies

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The amendments provide optional expedients and exceptions for applying generally accepted accounting principles ("GAAP") to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU No. 2021-01, "Reference Rate Reform (Topic 848): Scope", which clarified that certain optional expedients and exceptions in Topic 848 apply to derivative instruments that are affected by the discounting transition due to reference rate reform. These ASUs were effective upon issuance and may be applied prospectively to contract modifications and hedging relationships entered into or evaluated through December 31, 2022. We have completed our evaluation of significant contracts and the guidance has not had, and is not expected to have, a material impact on the Company's Consolidated Financial Statements. Specific elections of expedients and exceptions provided under the ASUs will be made when contract modifications in response to reference rate reform commence.

In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance". This guidance requires annual disclosures for transactions with a government authority that are accounted for by applying a grant or contribution model. These amendments are effective for annual periods beginning after December 15, 2021, with early adoption permitted. We plan to adopt the standard for the fiscal year ending June 30, 2023. We are currently assessing the impact of this guidance on our Consolidated Financial Statements and disclosures.

No other new accounting pronouncement issued or effective during the fiscal year had, or is expected to have, a material impact on our Consolidated Financial Statements.

3. Segment Information

Under U.S. GAAP, our operating segments are aggregated into five reportable segments: 1) Beauty, 2) Grooming, 3) Health Care, 4) Fabric & Home Care and 5) Baby, Feminine & Family Care. Our five reportable segments are comprised of:

•Beauty: Hair Care (Conditioners, Shampoos, Styling Aids, Treatments); Skin and Personal Care (Antiperspirants and Deodorants, Personal Cleansing, Skin Care);

•Grooming: Shave Care (Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care); Appliances;

•Health Care: Oral Care (Toothbrushes, Toothpaste, Other Oral Care); Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Pain Relief, Other Personal Health Care);

•Fabric & Home Care: Fabric Care (Fabric Enhancers, Laundry Additives, Laundry Detergents); Home Care (Air Care, Dish Care, P&G Professional, Surface Care); and

•Baby, Feminine & Family Care: Baby Care (Baby Wipes, Taped Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper).

Amounts in millions of dollars unless otherwise specified.

Our operating segments are comprised of similar product categories. Operating segments that individually accounted for 5% or more of consolidated net sales are as follows:


	% of Net sales by operating segment (1)
	Three Months Ended December 31		Six Months Ended December 31
	2021	2020	2021	2020
Fabric Care	22%	22%	23%	22%
Home Care	11%	11%	11%	12%
Baby Care	11%	10%	10%	10%
Skin and Personal Care	10%	10%	10%	10%
Hair Care	9%	9%	9%	9%
Family Care	8%	9%	8%	9%
Oral Care	8%	9%	8%	8%
Shave Care	7%	7%	7%	7%
Feminine Care	6%	6%	6%	6%
Personal Health Care	6%	5%	6%	5%
Other	2%	2%	2%	2%
Total	100%	100%	100%	100%

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

The following is a summary of reportable segment results:


		Three Months Ended December 31						Six Months Ended December 31
		Net Sales		Earnings/(Loss) Before Income Taxes		Net Earnings		Net Sales		Earnings/(Loss) Before Income Taxes		Net Earnings
Beauty	2021	$	3,926	$	1,179	$	947	$	7,890	$	2,421	$	1,938
	2020	3,806		1,196		955		7,591		2,424		1,931
Grooming	2021	1,811		576		476		3,498		1,094		893
	2020	1,735		537		452		3,336		963		807
Health Care	2021	2,976		905		701		5,652		1,600		1,230
	2020	2,746		830		655		5,217		1,509		1,180
Fabric & Home Care	2021	6,972		1,463		1,137		13,981		3,009		2,328
	2020	6,498		1,599		1,250		13,142		3,341		2,599
Baby, Feminine & Family Care	2021	5,116		1,187		914		9,980		2,262		1,740
	2020	4,858		1,352		1,044		9,581		2,670		2,053
Corporate	2021	152		(71)		67		290		(112)		239
	2020	102		(637)		(469)		196		(733)		(375)
Total Company	2021	$	20,953	$	5,239	$	4,242	$	41,291	$	10,274	$	8,368
	2020	19,745		4,877		3,887		39,063		10,174		8,195

Amounts in millions of dollars unless otherwise specified.

4. Goodwill and Other Intangible Assets

Goodwill is allocated by reportable segment as follows:


	Beauty		Grooming		Health Care		Fabric & Home Care		Baby, Feminine & Family Care		Total Company
Goodwill at June 30, 2021	$	13,257	$	13,095	$	8,046	$	1,873	$	4,653	$	40,924
Acquisitions and divestitures	188		—		1		—		—		189
Translation and other	(288)		(200)		(194)		(26)		(90)		(798)
Goodwill at December 31, 2021	$	13,157	$	12,895	$	7,853	$	1,847	$	4,563	$	40,315

Goodwill decreased from June 30, 2021 due to currency translation, partially offset by acquisitions in Beauty and Health Care.

Identifiable intangible assets at December 31, 2021 were comprised of:


	Gross Carrying Amount		Accumulated Amortization
Intangible assets with determinable lives	$	8,688	$	(6,198)
Intangible assets with indefinite lives	21,048		—
Total identifiable intangible assets	$	29,736	$	(6,198)

Intangible assets with determinable lives consist of brands, patents, technology and customer relationships. The intangible assets with indefinite lives primarily consist of brands. The amortization expense of determinable-lived intangible assets for the three months ended December 31, 2021 and 2020 was $74 million and $79 million, respectively. For the six months ended December 31, 2021 and 2020, the amortization expense was $151 million and $163 million, respectively.

Goodwill and indefinite-lived intangible assets are not amortized but are tested at least annually for impairment by comparing the estimated fair values of our reporting units and underlying indefinite-lived intangible assets to their respective carrying values. We typically use an income method to estimate the fair value of these assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. 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.

The business unit valuations used to test goodwill and intangible assets for impairment depend on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, competitive activities, cost containment, margin expansion and Company business plans. We believe these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in our impairment testing for goodwill and indefinite-lived intangible assets, including discount rates, tax rates or future cash flow projections, could result in significantly different estimates of the fair values. To the extent changes in 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 non-cash impairment charges in the future.

Most of our goodwill reporting units are comprised of a combination of legacy and acquired businesses and as a result have fair value cushions that, at a minimum, exceed three times their underlying carrying values. Certain of our goodwill reporting units, in particular Shave Care and Appliances, are comprised entirely of acquired businesses and as a result, have historically had fair value cushions that are not as high. The Appliances reporting unit has a fair value that significantly exceeds the underlying carrying value. As previously disclosed, the carrying values of the Shave Care reporting unit and the related Gillette indefinite-lived intangible asset were impaired during the quarter ended June 30, 2019. Based on our impairment testing during the three months ended December 31, 2021, the Shave Care reporting unit fair value exceeded its carrying value by more than 30% and the Gillette indefinite-lived intangible asset fair value exceeded its carrying value by approximately 5%.

The most significant assumptions utilized in the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset are the net sales and earnings growth rates (including residual growth rates), the discount rate and the royalty rate. The residual growth rate represents the expected rate at which the Shave Care reporting unit and Gillette brand are expected to grow beyond the shorter-term business planning period. The residual growth rate utilized in our fair value estimates is consistent with the reporting unit and brand operating plans and approximates expected long-term category market growth rates. The residual growth rate depends on overall market growth rates, the competitive environment, inflation, relative currency exchange rates and business activities that impact market share. As a result, the residual growth rate could be adversely impacted by a sustained deceleration in category growth, grooming habit changes, devaluation of currencies against the U.S. dollar or an increased competitive environment. The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including

Amounts in millions of dollars unless otherwise specified.

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. The royalty rate used to determine the estimated fair value for the Gillette indefinite-lived intangible asset is 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.

While management has implemented strategies to address these events, changes in operating plans or adverse changes in the business or in the macroeconomic environment in the future could reduce the underlying cash flows used to estimate fair values and could result in a decline in fair value that would trigger future impairment charges of the Shave Care reporting unit's goodwill and indefinite-lived intangibles. The duration and severity of the pandemic could also result in future impairment charges for the Shave Care reporting unit goodwill and the Gillette indefinite-lived intangible asset. While we have concluded that no impairment exists based on our annual testing during the quarter ended December 31, 2021, the Gillette indefinite-lived intangible asset is most susceptible to future impairment risk. Our assessment of the Gillette intangible asset assumes the net sales growth rates will continue to recover from the impact of the COVID-19 pandemic during the current fiscal year. There continues to be a high level of uncertainty relating to how the pandemic will evolve, how governments and consumers will react, progress on the distribution of vaccines and whether the pandemic will have a longer-term effect on consumer habits. Accordingly, there continues to be risk related to this key assumption. A more prolonged pandemic recovery period could impact the assumptions utilized in the determination of the estimated fair values of the Shave Care reporting unit and the Gillette indefinite-lived intangible asset that are significant enough to trigger an impairment. Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our Shave Care products, which may be caused by, among other things: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, or financial hardship, changes in the use and frequency of grooming products, by shifts in demand away from one or more of our higher priced products to lower priced products, or by impacts of potential supply chain constraints. In addition, relative global and country/regional macroeconomic factors could result in additional and prolonged devaluation of other countries’ currencies relative to the U.S. dollar. Finally, the discount rate utilized in our valuation model could be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital. As of December 31, 2021, the carrying values of the Shave Care goodwill and the Gillette indefinite-lived intangible asset were $12.6 billion and $14.1 billion, respectively.

We performed a sensitivity analysis for the Shave Care reporting unit and the Gillette indefinite-lived intangible asset as part of our annual impairment testing during the three months ended December 31, 2021, utilizing reasonably possible changes in the assumptions for the shorter-term and residual growth rates, discount rate and royalty rate to demonstrate the potential impacts to 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 rate, some of which would 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 Rates	-50 bps Royalty Rate
Shave Care goodwill reporting unit	(6)%	(6)%	N/A
Gillette indefinite-lived intangible asset	(6)%	(6)%	(3)%

Amounts in millions of dollars unless otherwise specified.

5. Earnings Per Share

Basic net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble less preferred dividends by the weighted average number of common shares outstanding during the period. Diluted net earnings per common share are calculated by dividing Net earnings attributable to Procter & Gamble by the diluted weighted average number of common shares during the period. The diluted shares include the dilutive effect of stock options and other stock-based awards based on the treasury stock method and the assumed conversion of preferred stock.

Net earnings per share were calculated as follows:


CONSOLIDATED AMOUNTS	Three Months Ended December 31				Six Months Ended December 31
	2021		2020		2021		2020
Net earnings	$	4,242	$	3,887	$	8,368	$	8,195
Less: Net earnings attributable to noncontrolling interests	19		33		33		64
Net earnings attributable to P&G (Diluted)	4,223		3,854		8,335		8,131
Less: Preferred dividends	70		66		140		132
Net earnings attributable to P&G available to common shareholders (Basic)	$	4,153	$	3,788	$	8,195	$	7,999

SHARES IN MILLIONS
Basic weighted average common shares outstanding	2,413.4		2,475.8		2,420.7		2,481.0
Add: Effect of dilutive securities
Convertible preferred shares (1)	79.6		83.1		80.1