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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one) | | | | | | | | |
x | True | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended December 31, 2022
OR | | | | | | | | |
o | False | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Ohio | OH | 1-434 | | 31-0411980 |
(State of Incorporation) | | (Commission File Number) | | (I.R.S. Employer Identification Number) |
One Procter & Gamble Plaza | | Cincinnati | OH | |
One Procter & Gamble Plaza, Cincinnati, Ohio | 45202 |
(Address of principal executive offices) | (Zip Code) |
(513) 983-1100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, without Par Value | PG | NYSE |
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 | þ | | | Accelerated filer | ¨ | |
| Non-accelerated filer | ¨ | | | Smaller reporting company | ¨ | False |
| | | | | Emerging growth company | ¨ | False |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ False
There were 2,359,144,096 shares of Common Stock outstanding as of December 31, 2022.
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 | 2022 | | 2021 | | 2022 | | 2021 |
NET SALES | $ | 20,773 | | | $ | 20,953 | | | $ | 41,385 | | | $ | 41,291 | |
Cost of products sold | 10,897 | | | 10,664 | | | 21,743 | | | 21,029 | |
Selling, general and administrative expense | 5,091 | | | 5,121 | | | 9,918 | | | 10,071 | |
OPERATING INCOME | 4,785 | | | 5,168 | | | 9,724 | | | 10,191 | |
Interest expense | (171) | | | (106) | | | (294) | | | (215) | |
Interest income | 66 | | | 10 | | | 108 | | | 21 | |
Other non-operating income, net | 155 | | | 167 | | | 294 | | | 277 | |
EARNINGS BEFORE INCOME TAXES | 4,835 | | | 5,239 | | | 9,832 | | | 10,274 | |
Income taxes | 876 | | | 997 | | | 1,910 | | | 1,906 | |
NET EARNINGS | 3,959 | | | 4,242 | | | 7,922 | | | 8,368 | |
Less: Net earnings attributable to noncontrolling interests | 26 | | | 19 | | | 50 | | | 33 | |
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE | $ | 3,933 | | | $ | 4,223 | | | $ | 7,872 | | | $ | 8,335 | |
| | | | | | | |
NET EARNINGS PER SHARE (1) | | | | | | | |
Basic | $ | 1.63 | | | $ | 1.72 | | | $ | 3.25 | | | $ | 3.39 | |
Diluted | $ | 1.59 | | | $ | 1.66 | | | $ | 3.16 | | | $ | 3.27 | |
| | | | | | | |
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 2,481.2 | | | 2,544.2 | | | 2,492.4 | | | 2,551.6 | |
(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 | 2022 | | 2021 | | 2022 | | 2021 |
NET EARNINGS | $ | 3,959 | | | $ | 4,242 | | | $ | 7,922 | | | $ | 8,368 | |
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX | | | | | | | |
Foreign currency translation | 379 | | | (241) | | | (333) | | | (706) | |
Unrealized gains/(losses) on investment securities | (1) | | | 2 | | | (3) | | | 7 | |
Unrealized gains/(losses) on defined benefit retirement plans | (76) | | | 737 | | | 11 | | | 879 | |
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX | 302 | | | 498 | | | (325) | | | 180 | |
TOTAL COMPREHENSIVE INCOME | 4,261 | | | 4,740 | | | 7,597 | | | 8,548 | |
Less: Total comprehensive income attributable to noncontrolling interests | 23 | | | 19 | | | 42 | | | 33 | |
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE | $ | 4,238 | | | $ | 4,721 | | | $ | 7,555 | | | $ | 8,515 | |
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | | | | | | | | | | | | | |
Amounts in millions | | | | | December 31, 2022 | | June 30, 2022 |
Assets | | | | | | | |
CURRENT ASSETS | | | | | | | |
Cash and cash equivalents | | | | | $ | 6,854 | | | $ | 7,214 | |
Accounts receivable | | | | | 5,767 | | | 5,143 | |
INVENTORIES | | | | | | | |
Materials and supplies | | | | | 2,232 | | | 2,168 | |
Work in process | | | | | 946 | | | 856 | |
Finished goods | | | | | 4,363 | | | 3,900 | |
Total inventories | | | | | 7,541 | | | 6,924 | |
Prepaid expenses and other current assets | | | | | 1,704 | | | 2,372 | |
TOTAL CURRENT ASSETS | | | | | 21,866 | | | 21,653 | |
PROPERTY, PLANT AND EQUIPMENT, NET | | | | | 21,167 | | | 21,195 | |
GOODWILL | | | | | 39,951 | | | 39,700 | |
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET | | | | 23,594 | | | 23,679 | |
OTHER NONCURRENT ASSETS | | | | | 11,137 | | | 10,981 | |
TOTAL ASSETS | | | | | $ | 117,715 | | | $ | 117,208 | |
| | | | | | | |
Liabilities and Shareholders' Equity | | | | | | | |
CURRENT LIABILITIES | | | | | | | |
Accounts payable | | | | | $ | 14,153 | | | $ | 14,882 | |
Accrued and other liabilities | | | | | 10,293 | | | 9,554 | |
Debt due within one year | | | | | 14,300 | | | 8,645 | |
TOTAL CURRENT LIABILITIES | | | | | 38,746 | | | 33,081 | |
LONG-TERM DEBT | | | | | 20,582 | | | 22,848 | |
DEFERRED INCOME TAXES | | | | | 6,462 | | | 6,809 | |
OTHER NONCURRENT LIABILITIES | | | | | 7,200 | | | 7,616 | |
TOTAL LIABILITIES | | | | | 72,990 | | | 70,354 | |
SHAREHOLDERS’ EQUITY | | | | | | | |
Preferred stock | | | | | 831 | | | 843 | |
Common stock – shares issued – | December 2022 | | 4,009.2 | | | | | |
| June 2022 | | 4,009.2 | | | 4,009 | | | 4,009 | |
Additional paid-in capital | | | | | 66,145 | | | 65,795 | |
Reserve for ESOP debt retirement | | | | | (870) | | | (916) | |
Accumulated other comprehensive loss | | | | | (12,506) | | | (12,189) | |
Treasury stock | | | | | (129,012) | | | (123,382) | |
Retained earnings | | | | | 115,858 | | | 112,429 | |
Noncontrolling interest | | | | | 270 | | | 265 | |
TOTAL SHAREHOLDERS’ EQUITY | | | | | 44,725 | | | 46,854 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | $ | 117,715 | | | $ | 117,208 | |
See accompanying Notes to Consolidated Financial Statements.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2022 |
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, 2022 | 2,369,697 | | $4,009 | | $834 | | $65,955 | | ($870) | | ($12,811) | | ($127,205) | | $114,163 | | $259 | | $44,334 | |
Net earnings | | | | | | | | 3,933 | | 26 | | 3,959 | |
Other comprehensive income/(loss) | | | | | | 305 | | | | (3) | | 302 | |
Dividends and dividend equivalents ($0.9133 per share): | | | | | | | | | | |
Common | | | | | | | | (2,168) | | | (2,168) | |
Preferred | | | | | | | | (70) | | | (70) | |
Treasury stock purchases | (14,426) | | | | | | | (2,002) | | | | (2,002) | |
Employee stock plans | 3,441 | | | | 189 | | | | 193 | | | | 382 | |
Preferred stock conversions | 432 | | | (3) | | 1 | | | | 2 | | | | — | |
ESOP debt impacts | | | | | — | | | | — | | | — | |
Noncontrolling interest, net | | | | — | | | | | | (12) | | (12) | |
BALANCE DECEMBER 31, 2022 | 2,359,144 | | $4,009 | | $831 | | $66,145 | | ($870) | | ($12,506) | | ($129,012) | | $115,858 | | $270 | | $44,725 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended December 31, 2022 |
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, 2022 | 2,393,877 | | $4,009 | | $843 | | $65,795 | | ($916) | | ($12,189) | | ($123,382) | | $112,429 | | $265 | | $46,854 | |
Net earnings | | | | | | | | 7,872 | | 50 | | 7,922 | |
Other comprehensive income/(loss) | | | | | | (317) | | | | (8) | | (325) | |
Dividends and dividend equivalents (1.8266 per share): | | | | | | | | | | |
Common | | | | | | | | (4,357) | | | (4,357) | |
Preferred | | | | | | | | (141) | | | (141) | |
Treasury stock purchases | (42,615) | | | | | | | (6,002) | | | | (6,002) | |
Employee stock plans | 6,452 | | | | 348 | | | | 362 | | | | 710 | |
Preferred stock conversions | 1,430 | | | (12) | | 2 | | | | 10 | | | | — | |
ESOP debt impacts | | | | | 46 | | | | 55 | | | 101 | |
Noncontrolling interest, net | | | | — | | | | | | (37) | | (37) | |
BALANCE DECEMBER 31, 2022 | 2,359,144 | | $4,009 | | $831 | | $66,145 | | ($870) | | ($12,506) | | ($129,012) | | $115,858 | | $270 | | $44,725 | |
See accompanying Notes to Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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.
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | |
| Six Months Ended December 31 |
Amounts in millions | 2022 | | 2021 |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | $ | 7,214 | | | $ | 10,288 | |
OPERATING ACTIVITIES | | | |
Net earnings | 7,922 | | | 8,368 | |
Depreciation and amortization | 1,316 | | | 1,395 | |
Share-based compensation expense | 250 | | | 268 | |
Deferred income taxes | (398) | | | (101) | |
Gain on sale of assets | (3) | | | (82) | |
Changes in: | | | |
Accounts receivable | (654) | | | (644) | |
Inventories | (655) | | | (840) | |
Accounts payable, accrued and other liabilities | 177 | | | 1,431 | |
Other operating assets and liabilities | (535) | | | (84) | |
Other | 224 | | | 53 | |
TOTAL OPERATING ACTIVITIES | 7,644 | | | 9,764 | |
INVESTING ACTIVITIES | | | |
Capital expenditures | (1,598) | | | (1,717) | |
Proceeds from asset sales | 8 | | | 97 | |
Acquisitions, net of cash acquired | (76) | | | (349) | |
Other investing activity | 344 | | | 3 | |
TOTAL INVESTING ACTIVITIES | (1,322) | | | (1,966) | |
FINANCING ACTIVITIES | | | |
Dividends to shareholders | (4,486) | | | (4,353) | |
Additions to short-term debt with original maturities of more than three months | 10,447 | | | 6,747 | |
Reductions in short-term debt with original maturities of more than three months | (3,260) | | | (1,730) | |
Net reductions to other short-term debt | (1,759) | | | (1,124) | |
Additions to long-term debt | — | | | 2,136 | |
Reductions in long-term debt | (1,877) | | | (1,673) | |
Treasury stock purchases | (6,002) | | | (7,504) | |
Impact of stock options and other | 437 | | | 1,215 | |
TOTAL FINANCING ACTIVITIES | (6,500) | | | (6,286) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (182) | | | (256) | |
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (360) | | | 1,256 | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 6,854 | | | $ | 11,544 | |
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, 2022. In the opinion of management, the accompanying unaudited Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries (the "Company," "Procter & Gamble," "P&G," "we" or "our") contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.
2. New Accounting Pronouncements and Policies
In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 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 have completed our evaluation of significant transactions. The guidance has not had, and is not expected to have, a material impact on the Company's Consolidated Financial Statements.
In September 2022, the FASB issued ASU No. 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 are currently assessing the impact of this guidance on our Consolidated Financial Statements.
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: 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, 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 |
| 2022 | | 2021 | | 2022 | | 2021 |
Fabric Care | 23% | | 22% | | 23% | | 23% |
Home Care | 11% | | 11% | | 11% | | 11% |
Skin and Personal Care | 10% | | 10% | | 10% | | 10% |
Baby Care | 10% | | 11% | | 10% | | 10% |
Hair Care | 8% | | 9% | | 9% | | 9% |
Family Care | 8% | | 8% | | 8% | | 8% |
Grooming (2) | 8% | | 7% | | 8% | | 7% |
Oral Care | 8% | | 8% | | 8% | | 8% |
Feminine Care | 7% | | 6% | | 7% | | 6% |
Personal Health Care | 7% | | 6% | | 6% | | 6% |
Other | —% | | 2% | | —% | | 2% |
Total | 100% | | 100% | | 100% | | 100% |
(1)% of Net sales by operating segment excludes sales held in Corporate.
(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 three and six months ended December 31, 2021, Appliances was presented in Other.
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/(Loss) | | Net Sales | | Earnings/(Loss) Before Income Taxes | | Net Earnings/(Loss) |
Beauty | 2022 | $ | 3,807 | | | $ | 1,145 | | | $ | 911 | | | $ | 7,768 | | | $ | 2,416 | | | $ | 1,922 | |
| 2021 | 3,926 | | | 1,179 | | | 947 | | | 7,890 | | | 2,421 | | | 1,938 | |
Grooming | 2022 | 1,643 | | | 496 | | | 404 | | | 3,268 | | | 999 | | | 808 | |
| 2021 | 1,811 | | | 576 | | | 476 | | | 3,498 | | | 1,094 | | | 893 | |
Health Care | 2022 | 3,051 | | | 887 | | | 686 | | | 5,808 | | | 1,687 | | | 1,303 | |
| 2021 | 2,976 | | | 905 | | | 701 | | | 5,652 | | | 1,600 | | | 1,230 | |
Fabric & Home Care | 2022 | 7,032 | | | 1,538 | | | 1,171 | | | 14,114 | | | 3,081 | | | 2,343 | |
| 2021 | 6,972 | | | 1,463 | | | 1,137 | | | 13,981 | | | 3,009 | | | 2,328 | |
Baby, Feminine & Family Care | 2022 | 5,065 | | | 1,112 | | | 848 | | | 9,999 | | | 2,167 | | | 1,653 | |
| 2021 | 5,116 | | | 1,187 | | | 914 | | | 9,980 | | | 2,262 | | | 1,740 | |
Corporate | 2022 | 175 | | | (343) | | | (61) | | | 428 | | | (518) | | | (107) | |
| 2021 | 152 | | | (71) | | | 67 | | | 290 | | | (112) | | | 239 | |
Total Company | 2022 | $ | 20,773 | | | $ | 4,835 | | | $ | 3,959 | | | $ | 41,385 | | | $ | 9,832 | | | $ | 7,922 | |
| 2021 | 20,953 | | | 5,239 | | | 4,242 | | | 41,291 | | | 10,274 | | | 8,368 | |
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, 2022 | $ | 13,296 | | | $ | 12,571 | | | $ | 7,589 | | | $ | 1,808 | | | $ | 4,436 | | | $ | 39,700 | |
Acquisitions and divestitures | — | | | — | | | — | | | — | | | 34 | | | 34 | |
Translation and other | 88 | | | 53 | | | 44 | | | 4 | | | 28 | | | 217 | |
Goodwill at December 31, 2022 | $ | 13,384 | | | $ | 12,624 | | | $ | 7,633 | | | $ | 1,812 | | | $ | 4,498 | | | $ | 39,951 | |
Goodwill increased from June 30, 2022 primarily due to minor brand acquisitions in the Baby, Feminine & Family Care segment and currency translation.
Identifiable intangible assets at December 31, 2022 were comprised of:
| | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization |
Intangible assets with determinable lives | $ | 8,897 | | | $ | (6,268) | |
Intangible assets with indefinite lives | 20,965 | | | — | |
Total identifiable intangible assets | $ | 29,862 | | | $ | (6,268) | |
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, 2022 and 2021 was $79 and $74, respectively. For the six-months ended December 31, 2022 and 2021, amortization expense was $159 and $151, respectively.
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.
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 3, we concluded that the Shave Care and Appliances categories are one reporting unit (Grooming) for goodwill impairment testing. Based on our impairment testing performed during the three months ended December 31, 2022, our Grooming goodwill reporting unit, which is comprised entirely of acquired businesses, has a fair value cushion of over 30% and the Gillette indefinite-lived intangible asset's fair value exceeded its carrying value by approximately 5%.
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%.
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.
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 approximate 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 consideration of both debt and equity components of the
Amounts in millions of dollars unless otherwise specified.
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.
We performed a sensitivity analysis for the Gillette indefinite-lived intangible asset during our annual impairment testing, 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 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 short-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 Rates | | -50 bps Royalty Rate |
Gillette indefinite-lived intangible asset | (6)% | | (6)% | | (4)% |
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 outstanding 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 |
| 2022 | | 2021 | | 2022 | | 2021 |
Net earnings | $ | 3,959 | | | $ | 4,242 | | | $ | 7,922 | | | $ | 8,368 | |
Less: Net earnings attributable to noncontrolling interests | 26 | | | 19 | | | 50 | | | 33 | |
Net earnings attributable to P&G (Diluted) | 3,933 | | | 4,223 | | | 7,872 | | | 8,335 | |
Less: Preferred dividends | 70 | | | 70 | | | 141 | | | 140 | |
Net earnings attributable to P&G available to common shareholders (Basic) | $ | 3,863 | | | $ | 4,153 | | | $ | 7,731 | | | $ | 8,195 | |
| | | | | | | |
SHARES IN MILLIONS | | | | | | | |
Basic weighted average common shares outstanding | 2,365.9 | | | 2,413.4 | | | 2,375.7 | | | 2,420.7 | |
Add: Effect of dilutive securities | | | | | | | |
Convertible preferred shares (1) | 76.7 | | | 79.6 | | | 77.0 | | | 80.1 | |
Stock options and other unvested equity awards (2) | 38.6 | | | 51.2 | | | 39.7 | | | 50.8 | |
Diluted weighted average common shares outstanding | 2,481.2 | | | 2,544.2 | | | 2,492.4 | | | 2,551.6 | |
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NET EARNINGS PER SHARE |