Item 1. Financial Statements
Item 1. Financial Statements
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 30
Amounts in millions except per share amounts 2024 2023
NET SALES $ 21,737 $ 21,871
Cost of products sold 10,421 10,501
Selling, general and administrative expense 5,519 5,604
OPERATING INCOME 5,797 5,767
Interest expense ( 238 ) ( 225 )
Interest income 135 128
Other non-operating income/(expense), net ( 554 ) 132
EARNINGS BEFORE INCOME TAXES 5,140 5,802
Income taxes 1,152 1,246
NET EARNINGS 3,987 4,556
Less: Net earnings attributable to noncontrolling interests 28 35
NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE $ 3,959 $ 4,521
NET EARNINGS PER COMMON SHARE (1)
Basic $ 1.65 $ 1.89
Diluted $ 1.61 $ 1.83
(1) Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings attributable to Procter & Gamble.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended September 30
Amounts in millions 2024 2023
NET EARNINGS $ 3,987 $ 4,556
OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
Foreign currency translation 1,026 ( 409 )
Unrealized gains/(losses) on investment securities 2 ( 1 )
Unrealized gains/(losses) on defined benefit postretirement plans ( 21 ) 45
TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX 1,007 ( 366 )
TOTAL COMPREHENSIVE INCOME 4,994 4,190
Less: Comprehensive income attributable to noncontrolling interests 28 33
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE $ 4,965 $ 4,157
See accompanying Notes to Consolidated Financial Statements.
2 The Procter & Gamble Company
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in millions September 30, 2024 June 30, 2024
Assets
CURRENT ASSETS
Cash and cash equivalents $ 12,156 $ 9,482
Accounts receivable 6,314 6,118
INVENTORIES
Materials and supplies 1,820 1,617
Work in process 921 929
Finished goods 4,546 4,470
Total inventories 7,287 7,016
Prepaid expenses and other current assets 1,692 2,095
TOTAL CURRENT ASSETS 27,449 24,709
PROPERTY, PLANT AND EQUIPMENT, NET 22,506 22,152
GOODWILL 40,970 40,303
TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET 22,053 22,047
OTHER NONCURRENT ASSETS 13,503 13,158
TOTAL ASSETS $ 126,482 $ 122,370
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 15,350 $ 15,364
Accrued and other liabilities 10,661 11,073
Debt due within one year 10,409 7,191
TOTAL CURRENT LIABILITIES 36,420 33,627
LONG-TERM DEBT 25,744 25,269
DEFERRED INCOME TAXES 6,420 6,516
OTHER NONCURRENT LIABILITIES 5,757 6,398
TOTAL LIABILITIES 74,341 71,811
SHAREHOLDERS’ EQUITY
Preferred stock 791 798
Common stock – shares issued – September 2024 4,009.2
June 2024 4,009.2 4,009 4,009
Additional paid-in capital 68,102 67,684
Reserve for ESOP debt retirement ( 707 ) ( 737 )
Accumulated other comprehensive loss ( 10,893 ) ( 11,900 )
Treasury stock ( 134,823 ) ( 133,379 )
Retained earnings 125,361 123,811
Noncontrolling interest 300 272
TOTAL SHAREHOLDERS’ EQUITY 52,141 50,559
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 126,482 $ 122,370
See accompanying Notes to Consolidated Financial Statements.
The Procter & Gamble Company 3
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Months Ended September 30, 2024
Dollars in millions;
shares in thousands Common Stock Preferred Stock Additional Paid-In Capital Reserve for ESOP Debt Retirement Accumulated Other Comprehensive Income/(Loss) Treasury Stock Retained Earnings Noncontrolling Interest Total Shareholders' Equity
Shares Amount
BALANCE JUNE 30, 2024 2,357,051 $ 4,009 $ 798 $ 67,684 ($ 737 ) ($ 11,900 ) ($ 133,379 ) $ 123,811 $ 272 $ 50,559
Net earnings 3,959 28 3,987
Other comprehensive income/(loss) 1,006 1 1,007
Dividends and dividend equivalents
($ 1.0065 per share):
Common ( 2,378 ) ( 2,378 )
Preferred ( 72 ) ( 72 )
Treasury stock purchases ( 11,552 ) ( 1,942 ) ( 1,942 )
Employee stock plans 8,769 417 492 910
Preferred stock conversions 774 ( 7 ) 1 6 —
ESOP debt impacts 30 41 71
Noncontrolling interest, net — — —
BALANCE SEPTEMBER 30, 2024 2,355,042 $ 4,009 $ 791 $ 68,102 ($ 707 ) ($ 10,893 ) ($ 134,823 ) $ 125,361 $ 300 $ 52,141
Three Months Ended September 30, 2023
Dollars in millions;
shares in thousands Common Stock Preferred Stock Additional Paid-In Capital Reserve for ESOP Debt Retirement Accumulated Other Comprehensive Income/(Loss) Treasury Stock Retained Earnings Noncontrolling Interest Total Shareholders' Equity
Shares Amount
BALANCE JUNE 30, 2023 2,362,120 $ 4,009 $ 819 $ 66,556 ($ 821 ) ($ 12,220 ) ($ 129,736 ) $ 118,170 $ 288 $ 47,065
Net earnings 4,521 35 4,556
Other comprehensive income/(loss) ( 363 ) ( 2 ) ( 366 )
Dividends and dividend equivalents
($ 0.9407 per share):
Common ( 2,225 ) ( 2,225 )
Preferred ( 70 ) ( 70 )
Treasury stock purchases ( 9,843 ) ( 1,508 ) ( 1,508 )
Employee stock plans 3,721 265 209 474
Preferred stock conversions 888 ( 7 ) 1 6 —
ESOP debt impacts 39 48 87
Noncontrolling interest, net — — —
BALANCE SEPTEMBER 30, 2023 2,356,886 $ 4,009 $ 812 $ 66,822 ($ 782 ) ($ 12,583 ) ($ 131,029 ) $ 120,443 $ 321 $ 48,014
See accompanying Notes to Consolidated Financial Statements.
4 The Procter & Gamble Company
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30
Amounts in millions 2024 2023
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD $ 9,482 $ 8,246
OPERATING ACTIVITIES
Net earnings 3,987 4,556
Depreciation and amortization 728 702
Share-based compensation expense 105 125
Deferred income taxes 184 102
Loss/(gain) on sale of assets 794 ( 3 )
Change in accounts receivable ( 134 ) ( 830 )
Change in inventories ( 188 ) ( 142 )
Change in accounts payable and accrued and other liabilities ( 648 ) 857
Change in other operating assets and liabilities ( 558 ) ( 671 )
Other 32 208
TOTAL OPERATING ACTIVITIES 4,302 4,904
INVESTING ACTIVITIES
Capital expenditures ( 993 ) ( 925 )
Proceeds from asset sales 45 3
Acquisitions, net of cash acquired ( 6 ) —
Other investing activity ( 154 ) ( 300 )
TOTAL INVESTING ACTIVITIES ( 1,108 ) ( 1,222 )
FINANCING ACTIVITIES
Dividends to shareholders ( 2,445 ) ( 2,290 )
Additions to short-term debt with original maturities of more than three months 4,090 2,179
Reductions in short-term debt with original maturities of more than three months ( 571 ) ( 1,906 )
Net additions/(reductions) to other short-term debt ( 444 ) 2,172
Reductions in long-term debt ( 70 ) ( 1,004 )
Treasury stock purchases ( 1,939 ) ( 1,500 )
Impact of stock options and other 745 312
TOTAL FINANCING ACTIVITIES ( 634 ) ( 2,038 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH 116 ( 156 )
CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 2,675 1,487
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD $ 12,156 $ 9,733
See accompanying Notes to Consolidated Financial Statements.
The Procter & Gamble Company 5
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries ("the Company," "Procter & Gamble," "P&G," "we" or "our") should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024. We have prepared these statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) for interim financial information. Note that certain columns and rows may not add due to rounding. In the opinion of management, the accompanying Consolidated Financial Statements contain all normal recurring 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 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, “Segment Reporting: Improvements to Reportable Segment Disclosures.” This guidance requires disclosure of incremental segment information on an annual and interim basis. This amendment is effective for our fiscal year ending June 30, 2025 and our interim periods within the fiscal year ending June 30, 2026. The guidance will require additional disclosures in the Segment Information footnote, but will not have a material impact on our Consolidated Financial Statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes: Improvements to Income Tax Disclosures.” This guidance requires consistent categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. This amendment is effective for our fiscal year ending June 30, 2026. We are currently assessing the impact of this guidance on our 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); Personal Care (Antiperspirants and Deodorants, Personal Cleansing); Skin Care (Facial Moisturizers, Cleaners and Treatments);
• 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, Menstrual Care); Family Care (Paper Towels, Tissues, Toilet Paper).
Amounts in millions of dollars except per share amounts or as otherwise specified.
6 The Procter & Gamble Company
Operating segments as a percentage of consolidated net sales are as follows:
% of Net sales by operating segment (1)
Three Months Ended September 30
2024 2023
Fabric Care 23 % 23 %
Home Care 13 % 12 %
Baby Care 9 % 9 %
Hair Care 9 % 9 %
Family Care 8 % 8 %
Grooming 8 % 8 %
Oral Care 8 % 8 %
Personal Health Care 7 % 6 %
Feminine Care 6 % 7 %
Personal Care (2)
6 % 6 %
Skin Care (2)
3 % 4 %
Total 100 % 100 %
(1) % of Net sales by operating segment excludes sales recorded in Corporate.
(2) Effective July 1, 2024, the Beauty reportable business segment separated Skin and Personal Care into individual operating segments, Skin Care and Personal Care. This transition included separation of the management team, strategic decision-making, innovation plans, financial targets, budgets and management reporting.
The following is a summary of reportable segment results:
Three Months Ended September 30
Net Sales Earnings/(Loss) Before Income Taxes Net Earnings/(Loss)
Beauty 2024 $ 3,892 $ 1,067 $ 840
2023 4,097 1,249 971
Grooming 2024 1,723 522 426
2023 1,724 533 421
Health Care 2024 3,147 953 741
2023 3,074 889 689
Fabric & Home Care 2024 7,710 2,077 1,621
2023 7,646 2,031 1,569
Baby, Feminine & Family Care 2024 5,102 1,383 1,066
2023 5,186 1,408 1,075
Corporate 2024 163 ( 862 ) ( 707 )
2023 144 ( 308 ) ( 168 )
Total Company 2024 $ 21,737 $ 5,140 $ 3,987
2023 21,871 5,802 4,556
4. Goodwill and 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, 2024 $ 13,723 $ 12,633 $ 7,638 $ 1,810 $ 4,499 $ 40,303
Acquisitions and divestitures — — — — — —
Translation and other 251 179 151 20 67 667
Goodwill at September 30, 2024 $ 13,974 $ 12,812 $ 7,789 $ 1,831 $ 4,566 $ 40,970
Goodwill increased from June 30, 2024, primarily due to currency translation.
Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 7
Identifiable intangible assets at September 30, 2024, were comprised of:
Gross Carrying Amount Accumulated Amortization
Intangible assets with determinable lives $ 9,107 $ ( 6,700 )
Intangible assets with indefinite lives 19,646 —
Total identifiable intangible assets $ 28,754 $ ( 6,700 )
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 September 30, 2024 and 2023, was $ 83 and $ 87 , 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. When appropriate, the market approach, which leverages comparable company revenue and earnings multiples, is weighted with the income approach to estimate fair value. 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. Other than our Gillette indefinite-lived intangible asset, our goodwill reporting units and indefinite-lived intangible assets have fair values that significantly exceed their underlying carrying values.
As previously disclosed, the carrying value of the Gillette indefinite-lived intangible asset was impaired during the year ended June 30, 2024. The impairment charge arose due to a higher discount rate, weakening of several currencies relative to the U.S. dollar and the impact of a new restructuring program focused primarily in certain Enterprise Markets, including Argentina and Nigeria. Following the impairment charge, the carrying value of the Gillette indefinite-lived intangible asset was $ 12.8 billion, which was equivalent to the estimated fair value as of December 31, 2023.
While we have concluded that no triggering event has occurred during the quarter ended September 30, 2024, the Gillette indefinite-lived intangible asset is susceptible to further impairment risk. Adverse changes in the business or in the macroeconomic environment, including foreign currency devaluation, increasing global inflation, or market contraction from an economic recession, could reduce the underlying cash flows used to estimate the fair value of the Gillette indefinite-lived intangible asset and trigger a further impairment charge.
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 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 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.
Amounts in millions of dollars except per share amounts or as otherwise specified.
8 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, 2023, utilizing reasonably possible changes in the assumptions for the discount rate, the short-term and residual growth rates and the 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 short-term and residual growth rates or a 50 basis-point decrease in our royalty rate, which may result in an additional 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 ( 5 ) % ( 5 ) % ( 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 share-based awards based on the treasury stock method and the assumed conversion of preferred stock.
Net earnings per common share were calculated as follows:
CONSOLIDATED AMOUNTS Three Months Ended September 30
2024 2023
Net earnings $ 3,987 $ 4,556
Less: Net earnings attributable to noncontrolling interests 28 35
Net earnings attributable to P&G 3,959 4,521
Less: Preferred dividends 72 70
Net earnings attributable to P&G available to common shareholders (Basic) $ 3,887 $ 4,450
SHARES IN MILLIONS
Basic weighted average common shares outstanding 2,356.2 2,360.0
Add effect of dilutive securities:
Convertible preferred shares (1)
71.9 74.6
Stock options and other unvested equity awards (2)
37.9 40.6
Diluted weighted average common shares outstanding 2,466.0 2,475.2
NET EARNINGS PER COMMON SHARE
Basic $ 1.65 $ 1.89
Diluted $ 1.61 $ 1.83
(1) An overview of preferred shares can be found in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
(2) Excludes approximately 1 million for the three months ended September 30, 2024 and 2023 respectively, of weighted average stock options outstanding because the exercise price of these options was greater than their average market value or their effect was antidilutive.
6. Share-Based Compensation and Postretirement Benefits
The following table provides a summary of our share-based compensation expense and postretirement benefit impacts:
Three Months Ended September 30
2024 2023
Share-based compensation expense $ 105 $ 125
Net periodic benefit cost for pension benefits 37 57
Net periodic benefit (credit) for other retiree benefits ( 180 ) ( 156 )
Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 9
7. Risk Management Activities and Fair Value Measurements
As a multinational company with diverse product offerings, we are exposed to market risks, such as changes in interest rates, currency exchange rates and commodity prices. There have been no significant changes in our risk management policies or activities during the three months ended September 30, 2024.
The Company has not changed its valuation techniques used in measuring the fair value of any financial assets and liabilities during the period. The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers between levels during the periods presented. Also, there was no significant activity within the Level 3 assets and liabilities during the periods presented. Except for the impairment of the Gillette indefinite-lived intangible asset discussed in Note 4, there were no significant assets or liabilities that were re-measured at fair value on a non-recurring basis during the three months ended September 30, 2024 or during the fiscal year ended June 30, 2024.
Cash equivalents were $ 10.7 billion and $ 8.0 billion as of September 30, 2024 and June 30, 2024, respectively, and are classified as Level 1 within the fair value hierarchy. The Company had no other material investments in debt or equity securities during the periods presented.
The fair value of long-term debt was $ 29.0 billion and $ 27.7 billion as of September 30, 2024 and June 30, 2024, respectively. This includes the current portion of long-term debt instruments ($ 3.9 billion and $ 3.8 billion as of September 30, 2024 and June 30, 2024, respectively). Certain long-term debt (debt designated as a fair value hedge) is recorded at fair value. All other long-term debt is recorded at amortized cost but is measured at fair value for disclosure purposes. We consider our debt to be Level 2 in the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments.
Disclosures about Financial Instruments
The notional amounts and fair values of financial instruments used in hedging transactions as of September 30, 2024 and June 30, 2024, are as follows:
Notional Amount Fair Value Asset Fair Value (Liability)
September 30, 2024 June 30, 2024 September 30, 2024 June 30, 2024 September 30, 2024 June 30, 2024
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts $ 3,127 $ 2,993 $ — $ — $ ( 249 ) $ ( 325 )
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS
Foreign currency interest rate contracts $ 12,531 $ 10,140 $ — $ 119 $ ( 310 ) $ ( 31 )
TOTAL DERIVATIVES DESIGNATED AS HEDGING INSTRUMENTS $ 15,658 $ 13,133 $ — $ 119 $ ( 559 ) $ ( 356 )
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts $ 3,900 $ 3,192 $ 36 $ 1 $ ( 3 ) $ ( 23 )
TOTAL DERIVATIVES AT FAIR VALUE $ 19,558 $ 16,325 $ 36 $ 120 $ ( 562 ) $ ( 379 )
The fair value of the interest rate derivative asset/(liability) directly offsets the cumulative amount of the fair value hedging adjustment included in the carrying amount of the underlying debt obligation. The carrying amount of the underlying debt obligation, which includes the unamortized discount or premium and the fair value adjustment, was $ 2.9 billion and $ 2.7 billion as of September 30, 2024 and June 30, 2024, respectively. In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The carrying value of those debt instruments designated as net investment hedges, which includes the adjustment for the foreign currency transaction gain or loss on those instruments, was $ 12.6 billion and $ 11.9 billion as of September 30, 2024 and June 30, 2024, respectively. The increase in notional balance of the derivative instruments designated as net investment hedges is primarily driven by the Company's decision to leverage favorable interest rate spreads in the foreign currency swap market.
Derivative assets are presented in Prepaid expenses and other current assets or Other noncurrent assets. Derivative liabilities are presented in Accrued and other liabilities or Other noncurrent liabilities. Changes in the fair value of net investment hedges are recognized in the Foreign currency translation component of Other comprehensive income (OCI). All of the Company's derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy.
Certain of the Company's financial instruments used in hedging transactions are governed by industry standard netting and collateral agreements with counterparties. If the Company's credit rating were to fall below the levels stipulated in the agreements, the counterparties could demand either collateralization or termination of the arrangements. The aggregate fair value of the instruments covered by these contractual features that are in a liability position was $ 559 and $ 307 as of
Amounts in millions of dollars except per share amounts or as otherwise specified.
10 The Procter & Gamble Company
September 30, 2024 and June 30, 2024, respectively. The Company has not been required to post collateral as a result of these contractual features.
Before tax gains and losses on our financial instruments in hedging relationships are categorized as follows:
Amount of Gain/(Loss) Recognized in OCI on Derivatives
Three Months Ended September 30
2024 2023
DERIVATIVES IN NET INVESTMENT HEDGING RELATIONSHIPS (1) (2)
Foreign currency interest rate contracts $ ( 501 ) $ 285
(1) For the derivatives in net investment hedging relationships, the amount of gain excluded from effectiveness testing, which was recognized in earnings, was $ 50 and $ 67 for the three months ended September 30, 2024 and 2023, respectively.
(2) In addition to the foreign currency derivative contracts designated as net investment hedges, certain of our foreign currency denominated debt instruments are designated as net investment hedges. The amount of gain/(loss) recognized in Accumulated other comprehensive income (AOCI) for such instruments was $( 611 ) and $ 344 for the three months ended September 30, 2024 and 2023, respectively.
Amount of Gain/(Loss) Recognized in Earnings
Three Months Ended September 30
2024 2023
DERIVATIVES IN FAIR VALUE HEDGING RELATIONSHIPS
Interest rate contracts $ 76 $ 11
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
Foreign currency contracts $ 126 $ ( 71 )
The gains on the derivatives in fair value hedging relationships are fully offset by the mark-to-market impact of the related exposure. These are both recognized in Interest expense. The gains/(losses) on derivatives not designated as hedging instruments are substantially offset by the currency mark-to-market of the related exposure. These are both recognized in Selling, general and administrative expense (SG&A).
8. Accumulated Other Comprehensive Income/(Loss)
The table below presents the changes in Accumulated other comprehensive income/(loss) attributable to Procter & Gamble (AOCI), including the reclassifications out of AOCI by component:
Investment Securities Postretirement Benefit Plans Foreign Currency Translation Total AOCI
Balance at June 30, 2024, net of tax $ 10 $ 613 $ ( 12,522 ) $ ( 11,900 )
Other comprehensive income/(loss), before tax:
OCI before reclassifications 2 ( 15 ) 13 ( 1 )
Amounts reclassified to the Consolidated Statement of Earnings — ( 14 ) 752 738
Total other comprehensive income/(loss), before tax 2 ( 29 ) 765 737
Tax effect — 8 261 269
Total other comprehensive income/(loss), net of tax 2 ( 21 ) 1,026 1,007
Less: OCI attributable to noncontrolling interests, net of tax — 1 — 1
Balance at September 30, 2024, net of tax $ 12 $ 591 $ ( 11,496 ) $ ( 10,893 )
The below provides additional details on amounts reclassified from AOCI into the Consolidated Statement of Earnings:
• Postretirement benefit plan amounts are reclassified from AOCI into Other non-operating income/(expense) and included in the computation of net periodic postretirement costs.
• Foreign currency translation amounts are reclassified from AOCI into Other non-operating income/(expense). These amounts relate to accumulated foreign currency translation losses recognized due to the substantial liquidation of operations in certain Enterprise Markets, including Argentina.
9. Commitments and Contingencies
Litigation
We are subject, from time to time, to certain legal proceedings and claims arising out of our business, which cover a wide range of matters, including antitrust and trade regulation, product liability, advertising, contracts, environmental, patent and trademark matters, labor and employment matters and tax. While considerable uncertainty exists, in the opinion of management and our
Amounts in millions of dollars except per share amounts or as otherwise specified.
The Procter & Gamble Company 11
counsel, the ultimate resolution of the various lawsuits and claims will not materially affect our financial position, results of operations or cash flows.
We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information, we do not believe the ultimate resolution of environmental remediation will materially affect our financial position, results of operations or cash flows.
Income Tax Uncertainties
The Company is present in approximately 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 closing of statutes of limitations. 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 timing and ultimate settlement amounts until the close of an audit. Based on information currently available, we do not anticipate over the next 12-month period any significant audit activity concluding related to uncertain tax positions for which we have existing accrued liabilities.
Additional information on the Commitments and Contingencies of the Company can be found in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
10. Supplier Finance Programs
The Company has an ongoing program to negotiate extended payment terms with its suppliers consistent with market practices. The Company also supports a Supply Chain Finance program (“SCF”) with several global financial institutions. Under SCF, the Company maintains an accounts payable system to facilitate participating suppliers' ability to sell receivables from the Company to a SCF bank. These participating suppliers negotiate their sales of receivables arrangements directly with the respective SCF bank. The Company is not party to those agreements, but the SCF banks allow the suppliers to utilize the Company’s creditworthiness in establishing credit spreads and associated costs. Under this model, this arrangement 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 chooses to participate in SCF, the supplier selects which individual Company invoices to sell to the SCF bank. The Company’s obligations to its suppliers, including the amounts due and scheduled payment dates, are not impacted by the supplier’s decisions to finance amounts under these arrangements. The Company does not provide any form of guarantee under these financing arrangements. Our payment terms for suppliers under this program generally range from 60 to 180 days. All outstanding amounts related to suppliers participating in 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. The amount due to suppliers participating in SCF and included in Accounts payable was approximately $ 5.7 billion as of September 30, 2024 and $ 5.6 billion as of June 30, 2024.
11. Restructuring Program
The Company has historically incurred an ongoing annual level of restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization. Before tax costs incurred under the ongoing program have generally ranged from $ 250 to $ 500 annually. Consistent with our historical policies for restructuring-type activities, the restructuring program charges will be funded by and included within Corporate for management and segment reporting.
In the fiscal year ended June 30, 2024, the Company started a limited market portfolio restructuring of its business operations, primarily in certain Enterprise Markets, including Argentina and Nigeria, to address challenging macroeconomic and fiscal conditions. During the period ended September 30, 2024, the Company completed this limited market portfolio restructuring with the substantial liquidation of its operations in Argentina and recorded approximately $ 0.8 billion after tax of incremental charges, comprised primarily of non-cash charges for accumulated foreign currency translation losses previously included in Accumulated other comprehensive income/(loss). The total incremental restructuring charges incurred under the program beginning in the three-month period ended December 31, 2023, through the three-month period ended September 30, 2024, were approximately $ 1.2 billion after tax.
For the three months ended September 30, 2024, the Company incurred total before tax charges of $ 886 including $ 41 in Costs of products sold, $ 54 in SG&A and $ 791 in Other non-operating income/(expense).
Amounts in millions of dollars except per share amounts or as otherwise specified.
12 The Procter & Gamble Company
The following table presents restructuring activity for the three months ended September 30, 2024:
Separation Costs Asset-Related Costs Other Costs Total
RESERVE JUNE 30, 2024 $ 133 $ — $ 32 $ 166
Costs incurred for the three months ended September 30, 2024 16 30 839 886
Costs paid/settled for the three months ended September 30, 2024 ( 33 ) ( 30 ) ( 815 ) ( 879 )
RESERVE SEPTEMBER 30, 2024 $ 116 $ — $ 56 $ 172
Separation 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.
Asset-Related Costs
Asset-related costs consist of both asset write-downs and accelerated depreciation for manufacturing consolidations. 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.
Other Costs
Other restructuring-type charges are incurred as a direct result of the restructuring plan. Such charges include accumulated foreign currency translation losses, asset removal and termination of contracts related to Enterprise Market portfolio restructuring.