UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2015
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to

Commission file number 1-434
 
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
 
 
 
Ohio
 
31-0411980
(State of Incorporation)
 
(I.R.S. Employer Identification Number)
 
One Procter & Gamble Plaza, Cincinnati, Ohio
 
45202
(Address of principal executive offices)
 
(Zip Code)
(513) 983-1100
(Registrant’s telephone number, including area code)
 
 
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    
Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer þ                    Accelerated filer  o                   Non-accelerated filer  o

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

There were 2,712,995,590 shares of Common Stock outstanding as of March 31, 2015.



PART I. FINANCIAL INFORMATION 
Item 1.
Financial Statements


THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
 
Three Months Ended March 31
 
Nine Months Ended March 31
Amounts in millions except per share amounts
2015
 
2014
 
2015
 
2014
NET SALES
$
18,142

 
$
19,641

 
$
58,489

 
$
60,914

Cost of products sold
9,327

 
10,040

 
29,619

 
30,722

Selling, general and administrative expense
5,680

 
6,295

 
18,010

 
18,614

OPERATING INCOME
3,135

 
3,306

 
10,860

 
11,578

Interest expense
149

 
180

 
479

 
531

Interest income
38

 
29

 
103

 
73

Other non-operating income, net
53

 
20

 
93

 
68

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
3,077

 
3,175

 
10,577

 
11,188

Income taxes on continuing operations
602

 
644

 
2,287

 
2,426

NET EARNINGS FROM CONTINUING OPERATIONS
2,475

 
2,531

 
8,290

 
8,762

NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS
(287
)
 
105

 
(1,684
)
 
403

NET EARNINGS
2,188

 
2,636

 
6,606

 
9,165

Less: Net earnings attributable to noncontrolling interests
35

 
27

 
91

 
101

NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE
$
2,153

 
$
2,609

 
$
6,515

 
$
9,064

 
 
 
 
 
 
 
 
BASIC NET EARNINGS PER COMMON SHARE (1):
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.88

 
$
0.90

 
$
2.96

 
$
3.12

Earnings/(loss) from discontinued operations
(0.11
)
 
0.04

 
(0.63
)
 
0.14

BASIC NET EARNINGS PER COMMON SHARE
0.77

 
0.94

 
2.33

 
3.26

DILUTED NET EARNINGS PER COMMON SHARE (1):
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.85

 
$
0.87

 
$
2.84

 
$
2.99

Earnings/(loss) from discontinued operations
(0.10
)
 
0.03

 
(0.58
)
 
0.13

DILUTED NET EARNINGS PER COMMON SHARE
0.75

 
0.90

 
2.26

 
3.12

DIVIDENDS PER COMMON SHARE
$
0.644

 
$
0.602

 
$
1.931

 
$
1.805

Diluted Weighted Average Common Shares Outstanding
2,882.5

 
2,894.1

 
2,885.3

 
2,908.9


(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/(LOSS)

 
Three Months Ended March 31
 
Nine Months Ended March 31
Amounts in millions
2015
 
2014
 
2015
 
2014
NET EARNINGS
$
2,188

 
$
2,636

 
$
6,606

 
$
9,165

OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
 
 
 
 
 
 
 
Financial statement translation
(3,696
)
 
(316
)
 
(8,623
)
 
1,164

Hedges
780

 
(12
)
 
1,553

 
(322
)
Investment securities
28

 
(1
)
 
26

 
(2
)
Defined benefit retirement plans
354

 
60

 
855

 
24

TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX
(2,534
)
 
(269
)
 
(6,189
)
 
864

TOTAL COMPREHENSIVE INCOME/(LOSS)
(346
)
 
2,367

 
417

 
10,029

Less: Total comprehensive income attributable to noncontrolling interests
35

 
26

 
91

 
111

TOTAL COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO PROCTER & GAMBLE
$
(381
)
 
$
2,341

 
$
326

 
$
9,918


See accompanying Notes to Consolidated Financial Statements.





THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 
Amounts in millions
 
 
 
 
March 31, 2015
 
June 30, 2014
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$
8,374

 
$
8,558

Available-for-sale investment securities
 
 
 
 
4,786

 
2,128

Accounts receivable
 
 
 
 
4,990

 
6,386

Inventories
 
 
 
 
 
 
 
Materials and supplies
 
 
 
 
1,536

 
1,742

Work in process
 
 
 
 
585

 
684

Finished goods
 
 
 
 
3,772

 
4,333

Total inventories
 
 
 
 
5,893

 
6,759

Deferred income taxes
 
 
 
 
820

 
1,092

Prepaid expenses and other current assets
 
 
 
 
3,067

 
3,845

Assets held for sale
 
 
 
 
3,632

 
2,849

TOTAL CURRENT ASSETS
 
 
 
 
31,562

 
31,617

PROPERTY, PLANT AND EQUIPMENT, NET
 
 
 
 
20,043

 
22,304

GOODWILL
 
 
 
 
46,856

 
53,704

TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET
 
 
 
 
26,908

 
30,843

OTHER NONCURRENT ASSETS
 
 
 
 
5,568

 
5,798

TOTAL ASSETS
 
 
 
 
$
130,937

 
$
144,266

 
 
 
 
 
 

 
 

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
Accounts payable
 
 
 
 
$
7,285

 
$
8,461

Accrued and other liabilities
 
 
 
 
8,406

 
8,999

Liabilities held for sale
 
 
 
 
1,115

 
660

Debt due within one year
 
 
 
 
15,075

 
15,606

TOTAL CURRENT LIABILITIES
 
 
 
 
31,881

 
33,726

LONG-TERM DEBT
 
 
 
 
17,364

 
19,811

DEFERRED INCOME TAXES
 
 
 
 
9,808

 
10,218

OTHER NONCURRENT LIABILITIES
 
 
 
 
8,504

 
10,535

TOTAL LIABILITIES
 
 
 
 
67,557

 
74,290

SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
1,086

 
1,111

Common stock – shares issued –
March 2015
 
4,009.2

 
 
 
 
 
June 2014
 
4,009.2

 
4,009

 
4,009

Additional paid-in capital
 
 
 
 
63,841

 
63,911

Reserve for ESOP debt retirement
 
 
 
 
(1,319
)
 
(1,340
)
Accumulated other comprehensive income/(loss)
 
 
 
 
(13,851
)
 
(7,662
)
Treasury stock
 
 
 
 
(77,190
)
 
(75,805
)
Retained earnings
 
 
 
 
86,157

 
84,990

Noncontrolling interest
 
 
 
 
647

 
762

TOTAL SHAREHOLDERS’ EQUITY
 
 
 
 
63,380

 
69,976

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
$
130,937

 
$
144,266


See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Nine Months Ended March 31
Amounts in millions
 
2015
 
2014
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
$
8,558

 
$
5,947

OPERATING ACTIVITIES
 
 
 
 
Net earnings
 
6,606

 
9,165

Depreciation and amortization
 
2,326

 
2,317

Share-based compensation expense
 
231

 
247

Deferred income taxes
 
(135
)
 
(90
)
Gain on sale of businesses
 
(319
)
 
(17
)
Goodwill and indefinite-lived intangible asset impairment charges
 
2,021

 

Changes in:
 
 
 
 
Accounts receivable
 
308

 
150

Inventories
 
(190
)
 
(355
)
Accounts payable, accrued and other liabilities
 
146

 
(1,160
)
Other operating assets and liabilities
 
(823
)
 
(1,005
)
Other
 
449

 
200

TOTAL OPERATING ACTIVITIES
 
10,620

 
9,452

INVESTING ACTIVITIES
 
 
 
 
Capital expenditures
 
(2,462
)
 
(2,607
)
Proceeds from asset sales
 
3,715

 
67

Acquisitions, net of cash acquired
 
(119
)
 
3

Purchases of available-for-sale investment securities
 
(2,897
)
 

Proceeds from sales of available-for-sale investment securities
 
256

 

Change in other investments
 
(203
)
 
(161
)
TOTAL INVESTING ACTIVITIES
 
(1,710
)
 
(2,698
)
FINANCING ACTIVITIES
 
 
 
 
Dividends to shareholders
 
(5,416
)
 
(5,097
)
Change in short-term debt
 
(141
)
 
2,259

Additions to long-term debt
 
1,188

 
4,268

Reductions of long-term debt
 
(2,684
)
 
(1,992
)
Treasury stock purchases
 
(4,254
)
 
(5,505
)
Impact of stock options and other
 
2,664

 
1,544

TOTAL FINANCING ACTIVITIES
 
(8,643
)
 
(4,523
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(451
)
 
4

CHANGE IN CASH AND CASH EQUIVALENTS
 
(184
)
 
2,235

CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
8,374

 
$
8,182


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, 2014. 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 May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." This guidance outlines a single, comprehensive model for accounting for revenue from contracts with customers. We will adopt the standard on July 1, 2017. We are still evaluating the impact, if any, that the standard will have on our financial statements.

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

3. Segment Information

As discussed in Note 11, the Pet Care and Batteries businesses are presented as discontinued operations and are excluded from segment results for all periods presented.

Following is a summary of segment results:
 
 
 
Three Months Ended March 31
 
Nine Months Ended March 31
 
 
 
Net Sales
 
Earnings/(Loss) from Continuing Operations Before Income Taxes
 
Net Earnings/(Loss) from Continuing Operations
 
Net Sales
 
Earnings/(Loss) from Continuing Operations Before Income Taxes
 
Net Earnings/(Loss) from Continuing Operations
Beauty, Hair and Personal Care
2015
  
$
4,172

 
$
694

 
$
516

 
$
13,991

 
$
2,709

 
$
2,089

 
2014
  
4,691

 
800

 
624

 
14,878

 
2,869

 
2,241

Grooming
2015
  
1,801

 
603

 
456

 
5,749

 
1,937

 
1,466

 
2014
  
1,863

 
613

 
463

 
5,937

 
1,944

 
1,469

Health Care
2015
  
1,909

 
462

 
303

 
6,008

 
1,435

 
994

 
2014
  
1,938

 
398

 
270

 
5,985

 
1,307

 
909

Fabric Care and Home Care
2015
  
5,248

 
937

 
594

 
16,956

 
3,101

 
2,019

 
2014
  
5,775

 
964

 
619

 
17,807

 
3,295

 
2,153

Baby, Feminine and Family Care
2015
  
4,890

 
1,011

 
691

 
15,429

 
3,330

 
2,276

 
2014
  
5,177

 
1,065

 
725

 
15,747

 
3,246

 
2,215

Corporate
2015
  
122

 
(630
)
 
(85
)
 
356

 
(1,935
)
 
(554
)
 
2014
  
197

 
(665
)
 
(170
)
 
560

 
(1,473
)
 
(225
)
Total Company
2015
  
$
18,142

 
$
3,077

 
$
2,475

 
$
58,489

 
$
10,577

 
$
8,290

 
2014
  
19,641

 
3,175

 
2,531

 
60,914

 
11,188

 
8,762


 

Amounts in millions of dollars unless otherwise specified.


4. Goodwill and Other Intangible Assets

Goodwill is allocated by reportable segment as follows:
 
Beauty, Hair and Personal Care
 
Grooming
 
Health Care
 
Fabric Care and Home Care
 
Baby, Feminine and Family Care
 
Corporate
 
Total Company
GOODWILL at June 30, 2014
$
17,040

 
$
20,939

 
$
6,280

 
$
1,981

 
$
4,910

 
$
2,554

 
$
53,704

Acquisitions, divestitures and discontinued operations (1)

 

 
(6
)
 
(2
)
 

 
(2,505
)
 
(2,513
)
Translation and other
(1,744
)
 
(1,545
)
 
(464
)
 
(117
)
 
(416
)
 
(49
)
 
(4,335
)
GOODWILL at March 31, 2015
$
15,296

 
$
19,394

 
$
5,810

 
$
1,862

 
$
4,494

 
$

 
$
46,856

(1) 
Includes $1.9 billion of impairment charges related to the Batteries business which is included in discontinued operations (see Note 11).

During the quarter ended September 30, 2014, we determined that the estimated fair value of our Batteries reporting unit was less than its carrying amount. The underlying fair value assessment was triggered by an agreement that was reached in the quarter to sell the China-based battery joint venture and a related decision to pursue options to exit the remainder of the Batteries business. As previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2014, the results of our annual goodwill impairment testing during fiscal 2014 indicated a decline in the fair value of the Batteries reporting unit due to lower long-term market growth assumptions in certain key geographies. At that time, the estimated fair value of Batteries continued to exceed its underlying carrying value, but the fair value cushion had been reduced to about 5%. The agreement during the quarter ended September 30, 2014 to sell the China-based battery joint venture was at a transaction value that was below the earnings multiple implied from the prior valuation of our Batteries business, which effectively eliminated our fair value cushion. As a result, the remaining business unit cash flows no longer supported the remaining carrying amount of the Batteries business. Due largely to these factors, we recorded a non-cash, before and after-tax impairment charge of $863 in the quarter ended September 30, 2014 to reduce the carrying amount of goodwill for the Batteries business unit to its estimated fair value. These same factors resulted in a decline in the fair value of our Duracell trade name intangible asset below its carrying value. This resulted in a non-cash, before-tax impairment charge of $110 ($69 after tax) to reduce the carrying amount of this asset to its estimated fair value. Both of these charges were reclassified to discontinued operations during the quarter ended December 31, 2014.

In November 2014, the Company reached an agreement to divest the Batteries business via a split transaction in an exchange of a recapitalized Duracell Company for Berkshire Hathaway's (BH) shares of P&G stock (see Note 11). Based on the terms of the agreement and the value of BH's shares of P&G stock, the Company recorded a non-cash, before and after-tax impairment charge of $740 as part of discontinued operations during the quarter ended December 31, 2014 to adjust Duracell goodwill based on the expected transaction value at that time. As of March 31, 2015, the value of the shares to be received had declined versus the initially expected transaction value. The Company recorded an additional before and after-tax impairment charge of $308 as part of discontinued operations to reflect this decline. The remaining Batteries goodwill at March 31, 2015 is reported in Assets held for sale in the Consolidated Balance Sheets.

As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014, we recorded goodwill impairment charges during fiscal 2012 and 2013 in our Appliances business, which is included in the Grooming reportable segment. The most recent impairment charge in fiscal 2013, which also included an impairment of the Braun trade name intangible asset, was driven by the devaluation of the currency in Japan, a key country that generates a significant portion of the earnings of the Appliances business. While the recent underlying business results of the Appliances business have equaled or exceeded the projections used in the fiscal 2013 and 2014 impairment valuations, the currency in Japan has continued to devalue relative to the currencies in which the related assets are recorded. The estimated fair value of the Appliances business still exceeds the underlying carrying value, but as a result of the continued Japan currency devaluation, the fair value cushion has been reduced to approximately 5%.

The test to evaluate goodwill for impairment is a two-step process. In the first step, we compare the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit is less than its carrying value, we perform a second step to determine the implied fair value of the reporting unit's goodwill. The second step of the impairment analysis requires a valuation of a reporting unit's tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the resulting implied fair value of the reporting unit's goodwill is less than its carrying value, that difference represents an impairment. The impairment charges for the Batteries business are included in discontinued operations, along with the underlying Batteries business results.


Amounts in millions of dollars unless otherwise specified.


The business unit valuations used to test goodwill and intangible assets for impairment are dependent on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, competitive activities, cost containment and margin expansion and Company business plans.  We believe these estimates and assumptions are reasonable. The impairment analysis for the Batteries business and the related impairment charges in the quarters ended December 31, 2014 and March 31, 2015 also considered the structure and value of the divestiture agreement with BH. The final transaction value will depend on the value of BH's shares of the Company as of the closing date, which is expected to occur by the end of calendar 2015. Accordingly, if the value of such shares declines further before the closing date, we may need to record additional non-cash impairment charges as part of discontinued operations in the future.

In addition to the discontinued operations impacts, goodwill decreased from June 30, 2014 due to currency translation across all reportable segments.

Identifiable intangible assets at March 31, 2015 are comprised of:
 
Gross Carrying Amount
 
Accumulated Amortization
Intangible assets with determinable lives
$
8,393

  
$
(5,016
)
Intangible assets with indefinite lives
23,531

  

Total identifiable intangible assets
$
31,924

  
$
(5,016
)

Intangible assets with determinable lives consist of brands, patents, technology and customer relationships. The intangible assets with indefinite lives consist primarily of brands. The amortization of intangible assets for the three months ended March 31, 2015 and 2014 was $113 and $126, respectively. For the nine months ended March 31, 2015 and 2014, the amortization of intangibles was $348 and $389, respectively.

5. Share-Based Compensation and Postretirement Benefits

Total share-based compensation expense for the three months ended March 31, 2015 and 2014 was $72 and $94, respectively. Total share-based compensation expense for the nine months ended March 31, 2015 and 2014 was $222 and $247, respectively.

The Company offers various postretirement benefits to its employees. The total net periodic benefit cost for pension benefits for the three months ended March 31, 2015 and 2014 was $105 and $108, respectively. The total net periodic benefit cost for pension benefits for the nine months ended March 31, 2015 and 2014 was $333 and $319, respectively. The total net periodic benefit cost for other retiree benefits for the three months ended March 31, 2015 and 2014 was $4 and $13, respectively. The total net periodic benefit cost for other retiree benefits for the nine months ended March 31, 2015 and 2014 was $14 and $40, respectively. The components of the total net periodic benefit cost for both pension benefits and other retiree benefits for those interim periods, on an annualized basis, do not differ materially from the amounts disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

6. 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.

The Company has not changed its valuation techniques 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 charges related to our Batteries business (see Note 4), there were no assets or liabilities that were remeasured at fair value on a non-recurring basis for the period ended March 31, 2015.

The following table sets forth the Company’s financial assets as of March 31, 2015 and June 30, 2014 that are measured at fair value on a recurring basis during the period:
 

Amounts in millions of dollars unless otherwise specified.


 
 
Fair Value Asset
 
 
March 31, 2015
 
June 30, 2014
Investments
 
 
 
 
U.S. government securities
  
$
3,494

 
$
1,631

Corporate bond securities
 
1,292

 
497

Other investments
 
28

 
30

Total
 
$
4,814

 
$
2,158


Investment securities are presented in Available-for-sale investment securities and Other noncurrent assets. The amortized cost of U.S. government securities with maturities less than one year was $700 as of March 31, 2015 and $0 as of June 30, 2014. The amortized cost of U.S. government securities with maturities between one and five years was $2,788 as of March 31, 2015 and $1,649 as of June 30, 2014. The amortized cost of Corporate bond securities with maturities of less than a year was $202 as of March 31, 2015 and $39 as of June 30, 2014. The amortized cost of Corporate bond securities with maturities between one and five years was $1,088 as of March 31, 2015 and $458 as of June 30, 2014. The Company's investments measured at fair value are generally classified as Level 2 within the fair value hierarchy. There are no material investment balances classified as either Level 1 or Level 3 within the fair value hierarchy. Fair values are generally estimated based upon quoted market prices for similar instruments.

The fair value of long-term debt was $23,692 and $26,429 at March 31, 2015 and June 30, 2014, respectively. This includes the current portion ($3,616 and $4,400 as of March 31, 2015 and June 30, 2014, respectively) of debt instruments. Long-term debt is not recorded at fair value on a recurring basis but is measured at fair value for disclosure purposes. Long-term debt with fair value of $2,216 and $1,682 at March 31, 2015 and June 30, 2014, respectively, is classified as Level 2 within the fair value hierarchy. All remaining long-term debt is classified as Level 1 within the fair value hierarchy. Fair values are generally estimated based on quoted market prices for identical or similar instruments.

The following table sets forth the notional amounts and fair values of qualifying and non-qualifying financial instruments used in hedging transactions as of March 31, 2015 and June 30, 2014:
 
 Notional Amount
 
 Fair Value Asset/(Liability)
 
March 31, 2015
 
June 30, 2014
 
March 31, 2015
 
June 30, 2014
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
Foreign currency contracts
$
951

 
$
951

  
$
304

 
$
187

Derivatives in Fair Value Hedging Relationships
 
 
 
 
 
 
 
Interest rate contracts
$
7,139

 
$
9,738

 
$
276

 
$
168

Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
Net investment hedges
$
570

 
$
831

 
$
90

 
$
48

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
Foreign currency contracts
$
7,579

 
$
12,111

 
$
26

 
$
(42
)
  
All derivative assets are presented in Prepaid expenses and other current assets and Other noncurrent assets. All derivative liabilities are presented in Accrued and other liabilities and Other noncurrent liabilities. The total notional amount of contracts outstanding at the end of the period is indicative of the Company's derivative activity during the period. The change in the notional balance of foreign currency contracts not designated as hedging instruments during the period reflects changes in the level of intercompany financing activity. All of the Company's derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy.

Amounts in millions of dollars unless otherwise specified.


 
Amount of Gain/(Loss) Recognized in AOCI on Derivatives (Effective Portion)
 
March 31, 2015
 
June 30, 2014
Derivatives in Cash Flow Hedging Relationships
 
 
 
Interest rate contracts
$

 
$
3

Foreign currency contracts
8

 
14

Total
$
8

 
$
17

Derivatives in Net Investment Hedging Relationships
 
 
 
Net investment hedges
$
56

 
$
30


During the next 12 months, the amount of the March 31, 2015 accumulated OCI (AOCI) balance that will be reclassified to earnings is expected to be immaterial.

The amounts of gains and losses on qualifying and non-qualifying financial instruments used in hedging transactions for the three and nine months ended March 31, 2015 and 2014 are as follows:
 
 
Amount of Gain/(Loss) Reclassified from AOCI into Earnings
 
Three Months Ended March 31
 
Nine Months Ended March 31
 
2015
 
2014
 
2015
 
2014
Derivatives in Cash Flow Hedging Relationships (1)
 
 
 
 
 
 
 
Interest rate contracts
$
2

 
$
2

 
$
5

 
$
5

Foreign currency contracts
8

 
(11
)
 
136

 
45

Total
$
10

 
$
(9
)
 
$
141

 
$
50

 
 
 
 
 
 
 
 
 
Amount of Gain/(Loss) Recognized in Earnings
 
Three Months Ended March 31
 
Nine Months Ended March 31
 
2015
 
2014
 
2015
 
2014
Derivatives in Fair Value Hedging Relationships (2)
 
 
 
 
 
 
 
Interest rate contracts
$
25

 
$
80

 
108

 
(34
)
Debt
(25
)
 
(80
)
 
(108
)
 
33

Total
$

 
$

 
$

 
$
(1
)
Derivatives in Net Investment Hedging Relationships (2)
 
 
 
 
 
 
 
Net investment hedges
$

 
$

 
$
(1
)
 
$

Derivatives Not Designated as Hedging Instruments (3)
 
 
 
 
 
 
 
Foreign currency contracts
$
(343
)
 
$
5

 
$
(1,072
)
 
$
88


(1) 
The gain or loss on the effective portion of cash flow hedging relationships is reclassified from AOCI into net income in the same period during which the related item affects earnings. Such amounts are included in the Consolidated Statements of Earnings as follows: interest rate contracts in Interest expense and foreign currency contracts in Selling, general and administrative expense (SG&A) and Interest expense.
(2) 
The gain or loss on the ineffective portion of interest rate contracts and net investment hedges, if any, is included in the Consolidated Statements of Earnings in Interest expense.
(3) 
The gain or loss on foreign currency contracts not designated as hedging instruments is included in the Consolidated Statements of Earnings in SG&A. This gain or loss substantially offsets the foreign currency mark-to-market impact of the related exposure.


Amounts in millions of dollars unless otherwise specified.


7. Accumulated Other Comprehensive Income/(Loss)

The tables below present the changes in accumulated other comprehensive income/(loss) by component and the reclassifications out of accumulated other comprehensive income/(loss):
 
Changes in Accumulated Other Comprehensive Income/(Loss) by Component
 
Hedges
 
Investment Securities
 
Pension and Other Retiree Benefits
 
Financial Statement Translation
 
Total
Balance at June 30, 2014
$
(3,876
)
 
$
(18
)
 
$
(5,165
)
 
$
1,397

 
$
(7,662
)
OCI before reclassifications (1)
1,692

 
28

 
640

 
(8,623
)
 
(6,263
)
Amounts reclassified from AOCI
(139
)
 
(2
)
 
215

 

 
74

Net current period OCI
1,553

 
26

 
855

 
(8,623
)
 
(6,189
)
Balance at March 31, 2015
$
(2,323
)
 
$
8

 
$
(4,310
)
 
$
(7,226
)
 
$
(13,851
)

(1) 
Net of tax expense/(benefit) of $938, $1 and $231 for hedges, investment securities, and pension and other retiree benefits plans, respectively.

 
Reclassifications Out of Accumulated Other Comprehensive Income/(Loss)
 
Three Months Ended March 31
 
Nine Months Ended March 31
 
2015
 
2014
 
2015
 
2014
Hedges (1)
 
 
 
 
 
 
 
Interest rate contracts
$
2

 
$
2

 
$
5

 
$
5

Foreign currency contracts
8

 
(11
)
 
136

 
45

Total before-tax
10

 
(9
)
 
141

 
50

Tax (expense)/benefit

 
(1
)
 
(2
)
 
(2
)
Net of tax
10

 
(10
)
 
139

 
48

 
 
 
 
 
 
 
 
Gains/(losses) on Investment Securities (2)

 
2

 
3

 
18

Tax (expense)/benefit

 
(1
)
 
(1
)
 
(7
)
Net of tax

 
1

 
2

 
11

 
 
 
 
 
 
 
 
Pension and Other Retiree Benefits (3)
 
 
 
 
 
 
 
Amortization of deferred amounts
(1
)
 
(1
)
 
(6
)
 
(4
)
Recognized net actuarial gains/(losses)
(94
)
 
(83
)
 
(291
)
 
(248
)
Total before-tax
(95
)
 
(84
)
 
(297
)
 
(252
)
Tax (expense)/benefit
26

 
24

 
82

 
70

Net of tax
(69
)
 
(60
)
 
(215
)
 
(182
)
Total reclassifications, net of tax
$
(59
)
 
$
(69
)
 
$
(74
)
 
$
(123
)

(1) 
See Note 6 for classification of these items in the Consolidated Statement of Earnings.
(2) 
Reclassified from AOCI into Other non-operating income, net.
(3) 
Reclassified from AOCI into Cost of products sold and SG&A. These components are included in net periodic pension cost.


Amounts in millions of dollars unless otherwise specified.


8. Earnings Per Share

Net earnings attributable to Procter & Gamble less preferred dividends (net of related tax benefits) are divided by the weighted average number of common shares outstanding during the period to calculate basic net earnings per common share. Diluted net earnings per common share are calculated to give effect to stock options and other stock-based awards and assume conversion of preferred stock (see below). Net earnings attributable to Procter & Gamble and common shares used to calculate basic and diluted net earnings per share were as follows:
 
Three Months Ended March 31, 2015
 
Three Months Ended March 31, 2014
CONSOLIDATED AMOUNTS
Continuing Operations
Discontinued Operations
Total
 
Continuing Operations
Discontinued Operations
Total
Net earnings/(loss)
$
2,475

$
(287
)
$
2,188

 
$
2,531

$
105

$
2,636

Net earnings attributable to noncontrolling interests
(35
)

(35
)
 
(21
)
(6
)
(27
)
Net earnings attributable to P&G (Diluted)
2,440

(287
)
2,153

 
2,510

99

2,609

Preferred dividends, net of tax benefit
(59
)

(59
)
 
(57
)

(57
)
Net earnings/(loss) attributable to P&G available to Common Shareholders (Basic)
$
2,381

$
(287
)
$
2,094

 
$
2,453

$
99

$
2,552

 
 
 
 
 
 
 
 
SHARES IN MILLIONS
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
2,711.7

2,711.7

2,711.7

 
2,713.1

2,713.1

2,713.1

Effect of dilutive securities
 
 
 
 
 
 
 
Conversion of preferred shares (1)
108.1

108.1

108.1

 
111.9

111.9

111.9

Exercise of stock options and other unvested equity awards (2)
62.7

62.7

62.7

 
69.1

69.1

69.1

Diluted weighted average common shares outstanding
2,882.5

2,882.5

2,882.5

 
2,894.1

2,894.1

2,894.1

 
 
 
 
 
 
 
 
PER SHARE AMOUNTS (3)
 
 
 
 
 
 
 
Basic net earnings/(loss) per common share
$
0.88

$
(0.11
)
$
0.77

 
$
0.90

$
0.04

$
0.94

Diluted net earnings/(loss) per common share
$
0.85

$
(0.10
)
$
0.75

 
$
0.87

$
0.03

$
0.90

 
 
 
 
 
 
 
 
 
Nine Months Ended March 31, 2015
 
Nine Months Ended March 31, 2014
CONSOLIDATED AMOUNTS
Continuing Operations
Discontinued Operations
Total
 
Continuing Operations
Discontinued Operations
Total
Net earnings/(loss)
$
8,290

$
(1,684
)
$
6,606

 
$
8,762

$
403

$
9,165

Net earnings attributable to noncontrolling interests
(85
)
(6
)
(91
)
 
(85
)
(16
)
(101
)
Net earnings attributable to P&G (Diluted)
8,205

(1,690
)
6,515

 
8,677

387

9,064

Preferred dividends, net of tax benefit
(189
)

(189
)
 
(182
)

(182
)
Net earnings/(loss) attributable to P&G available to Common Shareholders (Basic)
$
8,016

$
(1,690
)
$
6,326

 
$
8,495

$
387

$
8,882

 
 
 
 
 
 
 
 
SHARES IN MILLIONS
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
2,709.4

2,709.4

2,709.4

 
2,722.5

2,722.5

2,722.5

Effect of dilutive securities
 
 
 
 
 
 
 
Conversion of preferred shares (1)
109.1

109.1

109.1

 
112.7

112.7

112.7

Exercise of stock options and other unvested equity awards (2)
66.8

66.8

66.8

 
73.7

73.7

73.7

Diluted weighted average common shares outstanding
2,885.3

2,885.3

2,885.3

 
2,908.9

2,908.9

2,908.9

 
 
 
 
 
 
 
 
PER SHARE AMOUNTS (3)
 
 
 
 
 
 
 
Basic net earnings/(loss) per common share
$
2.96

$
(0.63
)
$
2.33

 
$
3.12

$
0.14

$
3.26

Diluted net earnings/(loss) per common share
$
2.84

$
(0.58
)
$
2.26

 
$
2.99

$
0.13

$
3.12


Amounts in millions of dollars unless otherwise specified.


(1) 
Despite being included currently in diluted net earnings per common share, the actual conversion to common stock occurs when the preferred shares are sold. Shares may only be sold after being allocated to the ESOP participants pursuant to the repayment of the ESOP's obligations through 2035.
(2) 
For the three months ended March 31, 2015 and March 31, 2014 approximately 10 million and 15 million of the Company's outstanding stock options and for the nine months ended March 31, 2015 and March 31, 2014 approximately 4 million of the Company's outstanding stock options were not included in the diluted net earnings per share calculation because the options were out of the money or to do so would have been antidilutive (i.e., the total proceeds upon exercise would have exceeded the market value of the underlying common shares).
(3) 
Basic net earnings per common share and diluted net earnings per common share are calculated on net earnings attributable to Procter & Gamble.

9. 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. In fiscal 2012, the Company initiated an incremental restructuring program as part of a productivity and cost savings plan to reduce costs in the areas of supply chain, research and development, marketing and overheads. The productivity and cost savings plan was designed to accelerate cost reductions by streamlining management decision making, manufacturing and other work processes in order to help fund the Company's growth strategy.

The Company expects to incur approximately $5 billion in before-tax restructuring costs over a six year period (from fiscal 2012 through fiscal 2017), including costs incurred as part of the ongoing and incremental restructuring program. The program includes an overhead enrollment reduction target of 25% - 30% by end of fiscal 2017. This has been updated from the previous non-manufacturing overhead enrollment reduction target of approximately 16% - 22% through fiscal 2016, which we expect to exceed.

Through fiscal 2014, the Company reduced non-manufacturing enrollment by approximately 9,300, or approximately 15%. Through March 31, 2015, the Company reduced non-manufacturing enrollment by approximately 11,400, or approximately 19%. The reductions are enabled by the elimination of duplicate work, simplification through the use of technology, and optimization of various functional and business organizations and the Company's global footprint. In addition, the plan includes integration of newly acquired companies and the optimization of the supply chain and other manufacturing processes.

Restructuring costs incurred consist primarily of costs to separate employees, asset-related costs to exit facilities and other costs as outlined below. Through fiscal 2014, the Company incurred charges of approximately $2.8 billion. Approximately $1.5 billion of these charges were related to separations, $666 were asset-related and $680 were related to other restructuring-type costs.

For the three and nine month periods ended March 31, 2015, the Company incurred total restructuring charges of approximately $322 and $663, respectively. For the three and nine month periods ended March 31, 2015 approximately $138 and $264 of these charges were recorded in SG&A, respectively, and approximately $181 and $389 of these charges were recorded in cost of products sold, respectively. The remainder is included in discontinued operations. The following table presents restructuring activity for the nine months ended March 31, 2015:
 
 
 
 
 
 
 
Nine Months Ended March 31, 2015
 
 
 
Accrual Balance June 30, 2014
 
Charges Previously Reported (Six Months Ended December 31, 2014)
 
Charges for the Three Months Ended March 31, 2015
 
Cash Spent
 
Charges Against Assets
 
Accrual Balance March 31, 2015
Separations
$
353

 
$
179

 
$
157

 
$
(364
)
 
$

 
$
325

Asset-Related Costs

 
90

 
86

 

 
(176
)
 

Other Costs
28

 
72

 
79

 
(158
)
 

 
21

Total
$
381

 
$
341

 
$
322

 
$
(522
)
 
$
(176
)
 
$
346


Separation Costs
Employee separation charges for the three and nine month periods ended March 31, 2015 relate to severance packages for approximately 1,620 and 3,110 employees, respectively, including non-manufacturing employees of approximately 1,150 and 1,840 for the three and nine month periods ended March 31, 2015, respectively. These separations are primarily in North America and Western Europe. The packages are predominately voluntary and the amounts are calculated based on salary levels and past service periods. Severance costs related to voluntary separations are generally charged to earnings when the employee accepts the offer. Since its inception, the restructuring program has incurred separation charges related to approximately 12,590 employees, of which approximately 8,120 are non-manufacturing overhead personnel.
 
Asset-Related Costs
Asset-related costs consist of both asset write-downs and accelerated depreciation. Asset write-downs relate to the establishment of a new fair value basis for assets held-for-sale or disposal. These assets were written down to the lower of their current carrying basis or amounts expected to be realized upon disposal, less minor disposal costs. Charges for accelerated depreciation relate to long-lived assets that will be taken out of service prior to the end of their normal service period. These assets relate primarily to manufacturing consolidations and technology standardization. The asset-related charges will not have a significant impact on future depreciation charges.

Other Costs
Other restructuring-type charges are incurred as a direct result of the restructuring program. Such charges primarily include employee relocation related to separations and office consolidations, termination of contracts related to supply chain redesign and the cost to change internal systems and processes to support the underlying organizational changes.

Consistent with our historical policies for ongoing restructuring-type activities, the restructuring program charges are funded by and included within Corporate for both management and segment reporting. Accordingly, all of the charges under the program are included within the Corporate reportable segment. However, for informative purposes, the following table summarizes the total restructuring costs related to our reportable segments:
 
Three Months Ended March 31, 2015
 
Nine Months Ended March 31, 2015
Beauty, Hair and Personal Care
$
42

 
$
110

Grooming
13

 
34

Health Care
15

 
21

Fabric Care and Home Care
66

 
120

Baby, Feminine and Family Care
56

 
122

Corporate (1)
130

 
256

Total Company
$
322

 
$
663


(1) 
Corporate includes costs related to allocated overheads, including charges related to our Sales and Market Operations, Global Business Services and Corporate Functions activities, and costs related to discontinued operations.

10. Commitments and Contingencies

Litigation

The Company is subject to various legal proceedings and claims arising out of our business which cover a wide range of matters such as antitrust, trade and other governmental regulations, product liability, patent and trademark, advertising, contracts, environmental, labor and employment, and income taxes.

As previously disclosed, the Company has had a number of antitrust matters in Europe. These matters involve a number of other consumer products companies and/or retail customers. Several regulatory authorities in Europe have issued separate decisions pursuant to their investigations alleging that the Company, along with several other companies, engaged in violations of competition laws in those countries. Many of these matters have concluded and the fines have been paid. For ongoing matters, the Company has accrued liabilities for competition law violations from these European cases totaling $216 as of March 31, 2015. While the ultimate resolution of these matters for which we have accrued liabilities may result in fines or costs in excess of the amounts reserved, it is difficult to estimate such amounts at this time. Currently, however, we do not expect any such incremental losses to materially impact our financial statements in the periods in which they are accrued and paid, respectively.

With respect to other litigation and claims, while considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsuits and claims will not materially affect our financial position, results of operations or cash flows.

We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information, we do not believe the ultimate resolution of environmental remediation will have a material effect on our financial position, results of operations or cash flows.

Income Tax Uncertainties

The Company is present in approximately 140 taxable jurisdictions and, at any point in time, has 6070 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 2002 and forward. Based on information currently available, we anticipate that over the next 12 month period, audit activity could be completed related to uncertain tax positions in multiple jurisdictions for which we have accrued existing liabilities of approximately $500.

Additional information on the Commitments and Contingencies of the Company can be found in our Annual Report on Form 10-K for the year ended June 30, 2014.

11. Discontinued Operations

During the quarter ended September 30, 2014, the Company reached an agreement to sell its interest in a China-based battery joint venture. This transaction closed during the quarter ended December 31, 2014, resulting in proceeds of approximately $560. In November 2014, the Company reached an agreement to divest the remainder of its Batteries business to Berkshire Hathaway (BH) via a split transaction, in which the Company will exchange a recapitalized Duracell Company for BH's shares of P&G stock. As of the date the transaction was signed, BH's shares were valued at approximately $4.7 billion. As of March 31, 2015 this value has declined to approximately $4.3 billion. The Company expects to contribute approximately $1.8 billion in cash to the Duracell Company in the pre-transaction recapitalization, subject to final working capital adjustments. The Company recorded goodwill and indefinite-lived asset impairment charges during the nine months ended March 31, 2015 which reflected the total estimated proceeds from the divestiture transactions (see Note 4). Since the number of shares of P&G stock the Company will receive in the Duracell transaction is fixed, the total value to be received in the transaction will be based on the Company's share price as of the closing date, which is expected to occur by the end of calendar 2015. Accordingly, any further increase or decrease in the Company's share price between the transaction signing and closing dates will ultimately be reflected in earnings from discontinued operations as a gain or loss.

The Batteries business had historically been part of the Company's Fabric Care and Home Care reportable segment. In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Batteries business are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Additionally, the Batteries balance sheet positions as of March 31, 2015 are presented as Assets and Liabilities held for sale in the Consolidated Balance Sheets.

On July 31, 2014, the Company completed the divestiture of its Pet Care operations in North America, Latin America, and other selected countries to Mars, Incorporated (Mars) for $2.9 billion in an all-cash transaction. Under the terms of the agreement, Mars acquired our branded pet care products, our manufacturing facilities in the United States and the majority of the employees working in the Pet Care business. The agreement included the acquisition of the Pet Care business in several additional countries, which were substantially complete as of March 31, 2015. The European Union countries were not included in the agreement with Mars. In December 2014, the Company completed the divestiture of its Pet Care operations in Western Europe to Spectrum Brands in an all-cash transaction. Under the terms of the agreement, Spectrum Brands acquired our branded pet care products, our manufacturing facility in the Netherlands, and the majority of the employees working in the Western Europe Pet Care business. The one-time after-tax impact of these transactions is not material.

The Pet Care business had historically been part of the Company’s Health Care reportable segment. In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Pet Care business are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Additionally, the Pet Care balance sheet positions as of June 30, 2014 are presented as Assets and Liabilities held for sale in the Consolidated Balance Sheets.






Amounts in millions of dollars unless otherwise specified.


Following is selected financial information included in net earnings from discontinued operations for the Pet Care and Batteries businesses:
 
Three Months Ended March 31
 
2015
 
2014
 
Pet Care
 
Batteries
 
Total
 
Pet Care
 
Batteries
 
Total
Net sales
$
12

 
$
398

 
$
410

 
$
381

 
$
537

 
$
918

Earnings before impairment charges and income taxes
(7
)
 
43

 
36

 
52

 
101

 
153

Impairment charges

 
(308
)
 
(308
)
 

 

 

Income tax expense
1

 
(11
)
 
(10
)
 
(19
)
 
(29
)
 
(48
)
Gain on sale before income taxes
(3
)
 

 
(3
)
 

 

 

Income tax expense on sale
(2
)
 

 
(2
)
 

 

 

Net earnings from discontinued operations
$
(11
)
 
$
(276
)
 
$
(287
)
 
$
33

 
$
72

 
$
105

 
Nine Months Ended March 31
 
2015
 
2014
 
Pet Care
 
Batteries
 
Total
 
Pet Care
 
Batteries
 
Total
Net sales
$
247

 
$
1,786

 
$
2,033

 
$
1,139

 
$
1,991

 
$
3,130

Earnings before impairment charges and income taxes
7

 
436

 
443

 
112

 
471

 
583

Impairment charges

 
(2,021
)
 
(2,021
)
 

 

 

Income tax expense
(5
)
 
(114
)
 
(119
)
 
(43
)
 
(137
)
 
(180
)
Gain on sale before income taxes
202

 

 
202

 

 

 

Income tax expense on sale
(189
)
 

 
(189
)
 

 

 

Net earnings from discontinued operations
$
15

 
$
(1,699
)
 
$
(1,684
)
 
$
69

 
$
334

 
$
403


The major components of assets and liabilities of the Pet Care and Batteries businesses held for sale were as follows:
 
March 31, 2015
 
June 30, 2014
 
Batteries
 
Pet Care
Cash
$
26

 
$

Accounts receivable
224

 

Inventories
307

 
122

Prepaid expenses and other current assets
33

 
14

Property, plant and equipment, net
475

 
441

Goodwill and intangible assets, net
2,550

 
2,258

Other noncurrent assets
17

 
14

Total assets held for sale
$
3,632

 
$
2,849

 
 
 
 
Accounts payable
$
150

 
$
63

Accrued and other liabilities
154

 
13

Long-term debt
29

 

Noncurrent deferred tax liabilities
782

 
584

Total liabilities held for sale
$
1,115

 
$
660



Amounts in millions of dollars unless otherwise specified.


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including without limitation, the following sections: “Management's Discussion and Analysis,” “Risk Factors,” and Note 4 to the Consolidated Financial Statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from those expressed or implied in the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise.

Risks and uncertainties to which our forward-looking statements are subject include, without limitation: (1) the ability to successfully manage global financial, operational and manufacturing risks, including, among others, (a) an increasingly volatile economic environment, with potentially significant disruptions and reduced market growth rates, (b) foreign currency fluctuations, (c) significant credit or liquidity issues, (d) debt, currency exposure and repatriation issues in countries with currency exchange, import authorization or pricing controls (such as Venezuela, Argentina, China, India and Egypt), (e) maintaining key manufacturing and supply sources (including sole supplier and sole manufacturing plant arrangements), and (f) managing disruption of business due to factors outside of our control, such as natural disasters and acts of war or terrorism; (2) the ability to successfully manage cost fluctuations and pressures, including commodity prices, raw materials, labor costs, energy costs and pension and health care costs, and achieve cost savings described in our announced productivity plan;  (3) the ability to stay on the leading edge of innovation, obtain necessary intellectual property protections and successfully respond to technological advances attained by, and patents granted to, competitors; (4) the ability to compete with our local and global competitors by successfully responding to competitive factors, including prices, promotional incentives and trade terms for products; (5) the ability to manage and maintain key customer relationships; (6) the ability to protect our reputation and brand equity by successfully managing real or perceived issues, including concerns about safety, quality, efficacy or similar matters that may arise; (7) the ability to successfully manage the financial, legal, reputational and operational risk associated with third party relationships, such as our suppliers, contractors and external business partners; (8) the ability to rely on and maintain key information technology systems and networks (including Company and third-party systems and networks) and maintain the security and functionality of such systems and networks and the data contained therein; (9) the ability to successfully manage regulatory, tax and legal requirements and matters (including, without limitation, product liability, intellectual property, price controls, import restrictions, accounting standards and environmental and tax policy) and to resolve pending matters within current estimates; (10) the ability to successfully manage our portfolio optimization strategy, as well as ongoing acquisition, divestiture and joint venture activities, to achieve the Company’s overall business strategy, without impacting the delivery of base business objectives; and (11) the ability to successfully achieve productivity improvements and manage ongoing organizational changes, while successfully identifying, developing and retaining particularly key employees, especially in key growth markets where the availability of skilled or experienced employees may be limited. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from those projected herein is included in the section titled "Economic Conditions and Uncertainties" and the section titled “Risk Factors” (Part II, Item 1A of this Form 10-Q).

The purpose of the Management's Discussion and Analysis (MD&A) is to provide an understanding of Procter & Gamble's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying notes. MD&A is organized in the following sections:

Overview
Summary of Results - Nine Months Ended March 31, 2015
Economic Conditions, Challenges and Risks
Results of Operations – Three and Nine Months Ended March 31, 2015
Business Segment Discussion – Three and Nine Months Ended March 31, 2015
Financial Condition
Reconciliation of Non-GAAP Measures

Throughout MD&A, we refer to measures used by management to evaluate performance, including unit volume growth, net sales and net earnings. We also refer to a number of financial measures that are not defined under accounting principles generally accepted in the United States of America (U.S. GAAP), including organic sales growth, core net earnings per share (EPS), free cash flow, adjusted free cash flow and adjusted free cash flow productivity. Organic sales growth is net sales growth excluding the impacts of foreign exchange and acquisitions and divestitures. Core EPS is a measure of the Company's diluted net earnings per share from continuing operations excluding certain items that are not judged to be part of the Company's sustainable results or trends. Free cash flow is operating cash flow less capital spending. Adjusted free cash flow is free cash flow excluding tax payments for the Pet Care divestiture. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings excluding impairment charges on the Batteries business. We believe these measures provide investors with important information that is useful in understanding our business results and trends. The explanation at the end of MD&A provides more details on the use and the derivation of these measures.

Management also uses certain market share and market consumption estimates to evaluate performance relative to competition despite some limitations on the availability and comparability of share and consumption information. References to market share and market consumption in MD&A are based on a combination of vendor-reported consumption and market size data, as well as internal estimates. All market share references represent the percentage of sales in dollar terms on a constant currency basis of our products, relative to all product sales in the category.

OVERVIEW

We are a global leader in retail goods focused on providing branded consumer packaged goods of superior quality and value to our consumers around the world. Our products are sold in more than 180 countries and territories primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, high-frequency stores and distributors. We continue to expand our presence in other channels, such as perfumeries and e-commerce. We have on-the-ground operations in approximately 70 countries.

Our market environment is highly competitive with global, regional and local competitors. In many of the markets and industry segments in which we sell our products, we compete against other branded products as well as retailers' private-label brands. Additionally, many of the product segments in which we compete are differentiated by price tiers (referred to as super-premium, premium, mid-tier and value-tier products). We are well positioned in the industry segments and markets in which we operate, often holding a leadership or significant market share position.

On November 13, 2014, the Company announced that it plans to divest the Duracell business via a split transaction with Berkshire Hathaway, in which it will exchange a recapitalized Duracell Company for Berkshire Hathaway’s shares of Procter & Gamble stock. The Company had previously announced an agreement to divest its controlling interest in a Chinese batteries venture, which represents the balance of the Company’s Batteries business. That transaction was completed during the quarter ended December 31, 2014. The Company expects to complete the Duracell transaction by the end of calendar year 2015, pending necessary regulatory approvals. The Batteries business had historically been part of the Company’s Fabric Care and Home Care reportable segment. In accordance with applicable accounting guidance for the disposal of long-lived assets, the results of the Batteries business are now presented as discontinued operations and, as such, are excluded from both continuing operations and segment results. Additionally, the Batteries balance sheet positions as of March 31, 2015 are presented as held for sale in the Consolidated Balance Sheets.

The table below provides more information about the components of our reportable business segment structure.
Reportable Business Segment
GBUs (Categories)
Billion Dollar Brands
Beauty, Hair and Personal Care
Skin and Personal Care (Antiperspirant and Deodorant, Personal Cleansing, Skin Care); Cosmetics; Hair Care and Color; Prestige; Salon Professional
Head & Shoulders, Olay, Pantene, SK-II, Wella
Grooming
Shave Care (Female Blades & Razors, Male Blades & Razors, Pre- and Post-Shave Products, Other Shave Care); Electronic Hair Removal
Fusion, Gillette, Mach3, Prestobarba
Health Care
Personal Health Care (Gastrointestinal, Rapid Diagnostics, Respiratory, Vitamins/Minerals/Supplements, Other Personal Health Care); Oral Care (Toothbrush, Toothpaste, Other Oral Care)
Crest, Oral-B, Vicks
Fabric Care and Home Care
Fabric Care (Laundry Additives, Fabric Enhancers, Laundry Detergents); Home Care (Air Care, Dish Care, P&G Professional, Surface Care)
Ariel, Dawn, Downy, Febreze, Gain, Tide
Baby, Feminine and Family Care
Baby Care (Baby Wipes, Diapers and Pants); Feminine Care (Adult Incontinence, Feminine Care); Family Care (Paper Towels, Tissues, Toilet Paper)
Always, Bounty, Charmin, Pampers

The following table provides the percentage of net sales and net earnings by reportable business segment for the three months ended March 31, 2015 (excluding net sales and net earnings in Corporate):
 
Three Months Ended March 31, 2015
 
Net Sales
 
Net Earnings
Beauty, Hair and Personal Care
23%
 
20%
Grooming
10%
 
18%
Health Care
11%
 
12%
Fabric Care and Home Care
29%
 
23%
Baby, Feminine and Family Care
27%
 
27%
Total Company
100%
 
100%

The following table provides the percentage of net sales and net earnings by reportable business segment for the nine months ended March 31, 2015 (excluding net sales and net earnings in Corporate):
 
Nine Months Ended March 31, 2015
 
Net Sales
 
Net Earnings
Beauty, Hair and Personal Care
24%
 
24%
Grooming
10%
 
16%
Health Care
10%
 
11%
Fabric Care and Home Care
29%
 
23%
Baby, Feminine and Family Care
27%
 
26%
Total Company
100%
 
100%

SUMMARY OF RESULTS

Following are highlights of results for the nine months ended March 31, 2015 versus the nine months ended March 31, 2014:
Net sales decreased 4% versus the previous year to $58.5 billion. Organic sales, which exclude the impacts of acquisitions, divestitures and foreign exchange, were up 2%. Organic sales decreased 1% in Beauty, Hair, and Personal Care and increased 3% in Grooming, 4% in Health Care, 1% in Fabric Care and Home Care and 3% in Baby, Feminine and Family Care.
Unit volume decreased 1% and was unchanged on an organic basis. Volume grew low single digits in Fabric and Home Care. Volume decreased low single digits in Beauty, Hair and Personal Care and Grooming and was unchanged in Health Care and Baby, Feminine and Family Care.
Net earnings from continuing operations were $8.3 billion, a decrease of $472 million, or 5% versus the prior year period. This decrease was driven primarily by reduced net sales and foreign currency impacts.
Diluted net earnings per share from continuing operations decreased 5% to $2.84.
Net earnings attributable to Procter & Gamble were $6.5 billion, a decrease of $2.5 billion, or 28% versus the prior year period. This was primarily driven by non-cash, after-tax impairment charges totaling $2.0 billion related to the goodwill and indefinite-lived intangible assets in our Batteries business (reflected in Earnings from Discontinued Operations) and the reduction in net earnings from continuing operations.
Core net earnings per share, which excludes discontinued operations, incremental restructuring charges, balance sheet remeasurement and devaluation charges from Venezuela and charges for European legal matters decreased 4% to $3.02.
Operating cash flow was $10.6 billion. Adjusted free cash flow, which is operating cash flow less capital expenditures and excluding tax payments for the Pet divestiture, was $8.7 billion. Adjusted free cash flow productivity, which is the ratio of adjusted free cash flow to net earnings excluding impairment charges on the Batteries business and tax payments for the Pet Care divestiture, was 101%.

ECONOMIC CONDITIONS AND UNCERTAINTIES

Global Economic Conditions. Because our products are generally mid- and top-tier consumer goods products, demand for our products has a correlation to global macroeconomic factors. The current macroeconomic factors remain dynamic, and any causes of market size contraction, such as greater political unrest in the Middle East and Eastern Europe, further economic instability in the European Union, political instability in certain Latin American markets, and economic slow-downs in Japan and China, could reduce our sales or erode our operating margin, in either case reducing our earnings.

Changes in Costs. Our costs are subject to fluctuations, particularly due to changes in commodity prices and our own productivity efforts. We have significant exposures to certain commodities, in particular certain oil-derived materials like resins, and volatility in the market price of these commodity input materials has a direct impact on our costs. If we are unable to manage commodity fluctuations through pricing actions, cost savings projects, and sourcing decisions, as well as through consistent productivity improvements, it may adversely impact our gross margin, operating margin and net earnings. Sales could also be adversely impacted following pricing actions. We strive to implement, achieve and sustain cost improvement plans, including outsourcing projects, supply chain optimization and general overhead and workforce optimization. As discussed later in this MD&A, we initiated certain non-manufacturing overhead reduction projects along with manufacturing and other supply chain cost improvements projects in 2012. If we are not successful in executing these changes, there could be a negative impact on our operating margin and net earnings.

Foreign Exchange. Because we are a U.S.-based company doing business globally, we have both translational and transactional exposure to fluctuations in foreign currency exchange rates. Changes in the relative exchange rate between the U.S. dollar and the foreign currencies in which our subsidiaries operate directly impacts our sales, costs and earnings. Differences in relative exchange rates between where we sell our products and incur manufacturing and other operating costs also directly impacts our costs, and earnings. Certain countries experiencing significant currency exchange rate fluctuations like Russia, the Ukraine, Japan, and Switzerland have had and could have an additional significant impact on our sales, costs and earnings. Increased pricing in response to these fluctuations in foreign currency exchange rates may offset portions of the currency costs, but could also have a negative impact on consumption of our products, which would affect our sales.

Government Policies. Our net earnings could be affected by changes in U.S. or foreign government tax policies. For example the U.S. is considering corporate tax reform that may significantly impact the corporate tax rate and change the U.S. tax treatment of international earnings. Additionally, we attempt to carefully manage our debt and currency exposure in certain countries with currency exchange, import authorization and pricing controls, such as Venezuela, Argentina, China, India and Egypt. Changes in government policies in these areas might cause an increase or decrease in our sales, operating margin and net earnings.

For information on risk factors that could impact our results, refer to Part II, Item 1A "Risk Factors" in the Company's Form 10-Q for the quarter ended December 31, 2014.

RESULTS OF OPERATIONS – Three Months Ended March 31, 2015

The following discussion provides a review of results for the three months ended March 31, 2015 versus the three months ended March 31, 2014.
 
Three Months Ended March 31
Amounts in millions, except per share amounts
2015
 
2014
 
% Chg
Net sales
$
18,142

 
$
19,641

 
(8
)%
Operating income
3,135

 
3,306

 
(5
)%
Net earnings from continuing operations
2,475

 
2,531

 
(2
)%
Net earnings/(loss) from discontinued operations
(287
)
 
105

 
(373
)%
Net earnings attributable to Procter & Gamble
2,153

 
2,609

 
(17
)%
Diluted net earnings per common share
0.75

 
0.90

 
(17
)%
Diluted net earnings per share from continuing operations
0.85

 
0.87

 
(2
)%
Core earnings per common share
0.92

 
1.00

 
(8
)%
 
 
 
 
 
 
 
COMPARISONS AS A % OF NET SALES
2015
 
2014
 
Basis Pt Chg
Gross margin
48.6%
 
48.9%
 
(30)
Selling, general & administrative expense
31.3%
 
32.1%
 
(80)
Operating margin
17.3%
 
16.8%
 
50
Earnings before income taxes
17.0%
 
16.2%
 
80
Net earnings attributable to Procter & Gamble
11.9%
 
13.3%
 
(140)

Net Sales

Net sales decreased 8% to $18.1 billion for the third quarter on a 2% decrease in unit volume. Volume grew low single digits in Grooming. Volume decreased low single digits in Fabric Care and Home Care, Health Care, and Baby, Feminine and Family Care. Volume decreased mid-single digits in Beauty, Hair and Personal Care. Volume decreased low single digits in both developed and developing regions. Higher pricing, primarily to offset inflation and devaluation, increased net sales by 2%. The impact of favorable product mix increased net sales by 1% due to growth in higher priced product categories such as Personal Health Care and Shave Care. Unfavorable foreign exchange reduced net sales by 8% and the mix impact of minor brand divestitures reduced net sales by 1%. Organic sales grew 1% driven by pricing and mix.
 
Net Sales Change Drivers 2015 vs. 2014 (Three Months Ended March 31)
 
Volume with Acquisitions & Divestitures
 
Volume Excluding Acquisitions & Divestitures
 
Foreign Exchange
 
Price
 
Mix
 
Other*
 
Net Sales Growth
Beauty, Hair and Personal Care
-5%
 
-4%
 
-8%
 
2%
 
-1%
 
1%
 
-11%
Grooming
1%
 
1%
 
-12%
 
5%
 
3%
 
0%
 
-3%
Health Care
-2%
 
-1%
 
-7%
 
2%
 
5%
 
1%
 
-1%
Fabric Care and Home Care
-2%
 
-1%
 
-8%
 
0%
 
1%
 
0%
 
-9%
Baby, Feminine and Family Care
-2%
 
-2%
 
-8%
 
2%
 
2%
 
0%
 
-6%
Total Company
-2%
 
-2%
 
-8%
 
2%
 
1%
 
-1%
 
-8%

Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.

* Other includes the sales mix impact from acquisitions/divestitures and rounding impacts necessary to reconcile volume to net sales.

Operating Costs

Gross margin decreased 30 basis points to 48.6% of net sales for the quarter. Gross margin was negatively impacted by a 70 basis point impact from unfavorable foreign exchange, a 150 basis point mix impact, mainly product mix (mainly product mix within businesses and the overall decline in Beauty, Hair and Personal Care), 50 basis point impacts both from capacity investments and higher restructuring costs, and modestly higher commodity and other costs. These impacts were partially offset by a 250 basis point positive impact from manufacturing cost savings and a 90 basis point benefit of higher pricing.

Total SG&A decreased 10% to $5.7 billion. SG&A as a percentage of net sales decreased 80 basis points to 31.3%, due to decreased spending, driven by overhead reductions and marketing efficiencies, and lower foreign exchange charges, partially offset by the negative scale impacts from reduced sales. Marketing spending as a percentage of net sales decreased 70 basis points behind efficiency efforts. Overhead costs as a percentage of net sales increased 40 basis points, as 70 basis points of productivity savings in overhead spending were more than offset by wage inflation, investments in research and development and 30 basis points of incremental restructuring charges. Foreign exchange transactional charges reduced SG&A as a percentage of net sales by 50 basis points, as a 150 basis point impact from the impact from a Venezuelan balance sheet remeasurement charge in the base period (see Foreign Currency Translation - Venezuela Impacts, below) was partially offset by a current year increase in transactional charges due to negative currency impacts. These current year transactional charges primarily include the impacts of revaluing receivables and payables from transactions denominated in a currency other than a local entity’s functional currency.

Non-Operating Expenses and Income

Interest expense was $149 million for the quarter, a decrease of $31 million versus the prior year period due to lower total debt and a decrease in weighted average interest rates. Interest income was $38 million for the quarter, an increase of $9 million versus the prior year due to an increase in cash, cash equivalents and investment securities. Other non-operating income increased $33 million to $53 million due to minor brand divestiture gains.

Income Taxes

The effective tax rate on continuing operations decreased 70 basis points to 19.6%. The current year rate decreased 510 basis points due to favorable geographic mix of earnings, including the tax impact of the prior year Venezuela devaluation charge. This decrease was partially offset by 350 basis points increase due to the net impact of unfavorable discrete adjustments related to uncertain income tax positions (which netted to 180 basis points of unfavorable impacts in the current year versus 170 basis points of favorable impacts in the prior year) and an 80 basis point impact related to the taxability of current and prior year divestiture gains.

Net Earnings from Continuing Operations

Net earnings from continuing operations decreased $56 million or 2% for the quarter. This decline was caused by the reduction in net sales partially offset by a 50 basis point increase in operating income margin, driven by the decrease in SG&A as a percentage of net sales, partially offset by the gross margin decline (both discussed above). Foreign exchange impacts reduced net earnings by about $530 million for the quarter due to weakening of certain key currencies against the U.S. dollar, primarily in Russia, the Ukraine, Venezuela and United Kingdom. This impact includes both transactional charges as discussed above in Operating Costs and translational impacts from converting earnings from foreign subsidiaries to U.S. dollars. Diluted net earnings per share from continuing operations decreased 2% to $0.85 due to reduced net earnings.

Discontinued Operations

The company incurred a net loss from discontinued operations of $287 million in the current period, versus net earnings of $105 million in the prior year. The decline was driven primarily by current year after-tax impairment charge of $308 million in the Batteries business, which is currently held for sale, and reduced earnings from both the Batteries business and the divested Pet Care business (see Note 4 to the Consolidated Financial Statements).

Net Earnings

Net earnings attributable to Procter & Gamble decreased $0.5 billion or 17% to $2.2 billion for the quarter. The decline was due to the $308 million impairment charge in the Batteries business and the divestiture of our Pet Care business (both in discontinued operations discussed above) and the reduction in net earnings from continuing operations. Diluted net earnings per share declined 17% to $0.75. Core net earnings per share decreased 8% to $0.92. Core net earnings per share for the quarter represents diluted net earnings per share from continuing operations excluding incremental restructuring charges related to our productivity and cost savings plan and the base period charge from the Venezuelan balance sheet remeasurement.

Foreign Currency Translation – Venezuela Impacts

Venezuela is a highly inflationary economy under U.S. GAAP.  As a result, the U.S. dollar is the functional currency for our subsidiaries in Venezuela. Any currency remeasurement adjustments for non-dollar denominated monetary assets and liabilities held by these subsidiaries and other transactional foreign exchange gains and losses are reflected in earnings.

The Venezuelan government currently has three exchange rate mechanisms.  The preferential CENCOEX (National Center for External Commerce) exchange rate is 6.3 Venezuelan bolivares fuerte (VEF) per dollar and can be used for the importation of certain qualifying products.  SICAD (Complementary System for Foreign Exchange Administration) is an auction-based exchange program that the Company expects to be able to access for dividends and certain other qualifying imports of finished goods and materials.  The rate available through SICAD was 10.6 VEF per dollar at June 30, 2014 and 12.0 VEF per dollar at March 31, 2015.  The government introduced a third exchange mechanism, referred to as SIMADI (Sistema Marginal de Divisas), which is also an auction-based program recently trading at approximately 196 VEF per dollar. 

Through December 31, 2013, the Venezuelan government had only one officially established exchange rate for qualifying dividends and imported goods and services, the preferential CENCOEX rate, previously CADIVI (Foreign Exchange Administrative Commission).  Accordingly, through December 31, 2013, our results in Venezuela and all of our net monetary assets were measured at the preferential exchange rate, which we expected to be applicable to dividend repatriations.

On January 24, 2014, the government made a number of announcements affecting currency exchange rate and other controls, including the introduction of the SICAD and SICAD II exchange rate mechanisms.  In January 2015, the government made additional announcements affecting currency exchange rate and other controls, including the elimination of the SICAD II exchange rate and the introduction of the SIMADI rate.  A significant portion of our imports have historically qualified for the preferential CENCOEX rate. At this time, there is considerable uncertainty as to the nature of transactions that will continue to flow through CENCOEX and how CENCOEX will operate in the future, as well as the types of volume of transactions that will flow through the SICAD and SIMADI exchanges.  However, we believe a portion of our imports will continue to qualify for the preferential rate.  The Company expects the importation of certain finished goods and raw materials for some product categories, along with the payment of dividends and royalties, will be executed under the SICAD rate. We have not accessed the SIMADI market and it is unclear as to our ability or plans to access that market in the future.  Accordingly, the SIMADI exchange rate has not been utilized for purposes of remeasuring or translating our Venezuela results.

As a result of the January 2014 announcements, the Company incurred an after-tax charge of $275 million during the quarter ended March 31, 2014 to remeasure certain portions of our local Venezuela balance sheets not qualifying for the preferential CENCOEX rate to the initial SICAD exchange rate. The Company incurred an additional after-tax charge of $104 million ($0.04 per share) in the quarter ended September 30, 2014 to remeasure additional historic portions of our local Venezuela balance sheets that will not qualify for the preferential CENCOEX rate. Because the SICAD rate fluctuates based on auctions that occur periodically, the potential exists for additional impacts if the auction rate changes significantly.  There could also be additional financial impacts if the SICAD or SIMADI rates become applicable to additional categories of imports or other types of currency transactions, previously accounted for at the preferential rates.

As of March 31, 2015, the Company had net monetary assets denominated in local currency of approximately $1,230 million. Approximately $700 million of that amount is expected to be utilized to satisfy liabilities for past imports that were approved under CENCOEX and are measured at the preferential 6.3 rate.  The remaining balance has been measured at the SICAD rate.  Local currency net monetary balances increased approximately $200 million versus June 30, 2014, as the remeasurement of balances from the preferential CENCOEX rate to the SICAD rate and a devaluation of the SICAD rate during the fiscal year to date period was more than offset by earnings in Venezuela and delayed timing of CENCOEX payments.

Some of the many other controls imposed by the Venezuelan government include import authorization controls, currency exchange and payment controls, price controls and recently enacted profit margin controls.  While government restrictions and exchange rate mechanisms place some limits on our business decisions, the consolidated financial statements reflect our Venezuela operations as a controlled subsidiary.  We will continue to monitor developments in Venezuela to assess if government restrictions and exchange rate controls evolve such that we no longer have effective control of business operations.

The ongoing impact of the recent announcements and our ability to restore net sales and profit to levels achieved prior to the recent devaluations will be impacted by several factors.  These include our ability to mitigate the effect of the price and profit margin controls, any potential future devaluation of the preferential CENCOEX exchange rate, any significant change in the auction exchange rates, scope or liquidity in the SICAD and SIMADI programs, any further Venezuelan government price or exchange controls, economic conditions and the availability of raw materials and utilities.  In addition, depending on the future availability of U.S. dollars at the preferential rate, our local U.S. dollar needs, our overall repatriation plans, including our ability to obtain government approval for the payment of dividends, which has been limited in recent years, the creditworthiness of the local depository institutions and other creditors and our ability to collect amounts due from customers and the government, including VAT receivables, we may have exposure for our local monetary assets.

























RESULTS OF OPERATIONS – Nine Months Ended March 31

The following discussion provides a review of results for the nine months ended March 31, 2015 versus the nine months ended March 31, 2014.
 
Nine Months Ended March 31, 2015
Amounts in millions, except per share amounts
2015
 
2014
 
% Chg
Net sales
$
58,489

 
$
60,914

 
(4
)%
Operating income
10,860

 
11,578

 
(6
)%
Net earnings from continuing operations
8,290

 
8,762

 
(5
)%
Net earnings/(loss) from discontinued operations
(1,684
)
 
403

 
(518
)%
Net earnings attributable to Procter & Gamble
6,515

 
9,064

 
(28
)%
Diluted net earnings per common share
2.26

 
3.12

 
(28
)%
Diluted net earnings per share from continuing operations
2.84

 
2.99

 
(5
)%
Core earnings per common share
3.02

 
3.16

 
(4
)%
 
 
 
 
 
 
 
COMPARISONS AS A % OF NET SALES
2015
 
2014
 
Basis Pt Chg
Gross margin
49.4%
 
49.6%
 
(20)
Selling, general & administrative expense
30.8%
 
30.6%
 
20
Operating margin
18.6%
 
19.0%
 
(40)
Earnings before income taxes
18.1%
 
18.4%
 
(30)
Net earnings attributable to Procter & Gamble
11.1%
 
14.9%
 
(380)

Net Sales

Net sales decreased 4% to $58.5 billion fiscal year to date on a 1% decrease in unit volume. Volume grew low single digits in Fabric and Home Care. Volume decreased low single digits in Beauty, Hair and Personal Care, and Grooming. Volume was unchanged in Baby, Feminine and Family Care and Health Care. Volume decreased low single digits in developing regions and was unchanged in developed regions. Higher pricing increased net sales by 1%. The impact of favorable product and geographic mix also increased net sales by 1% due to a higher proportion of sales in developed regions and in higher priced product categories such as Baby Care and Oral Care. Unfavorable foreign exchange reduced net sales by 5%. Organic sales grew 2% on flat organic volume, driven by pricing and mix.

 
Net Sales Change Drivers 2015 vs. 2014 (Nine Months Ended March 31)
 
Volume with Acquisitions & Divestitures
 
Volume Excluding Acquisitions & Divestitures
 
Foreign Exchange
 
Price
 
Mix
 
Other*
 
Net Sales Growth
Beauty, Hair and Personal Care
-3%
 
-2%
 
-4%
 
1%
 
0%
 
0%
 
-6%
Grooming
-1%
 
-1%
 
-6%
 
4%
 
0%
 
0%
 
-3%
Health Care
0%
 
0%
 
-4%
 
1%
 
3%
 
0%
 
0%
Fabric Care and Home Care
1%
 
1%
 
-6%
 
0%
 
0%
 
0%
 
-5%
Baby, Feminine and Family Care
0%
 
0%
 
-5%
 
2%
 
1%
 
0%
 
-2%
Total Company
-1%
 
0%
 
-5%
 
1%
 
1%
 
0%
 
-4%

Net sales percentage changes are approximations based on quantitative formulas that are consistently applied.

* Other includes the sales mix impact from acquisitions/divestitures and rounding impacts necessary to reconcile volume to net sales.

Operating Costs

Gross margin decreased 20 basis points to 49.4% of net sales fiscal year to date. Gross margin was negatively impacted primarily by a 100 basis point impact from unfavorable geographic and product mix, primarily from a decline in the Prestige business and within the Fabric Care and Home Care segment, a 40 basis point impact from higher commodity costs, a 50 basis point impact from unfavorable foreign exchange, a 50 basis point impact from initiatives and capacity investments and a smaller impact from lower volume scale and higher restructuring costs. These impacts were partially offset by a 190 basis point positive impact from manufacturing cost savings and a 70 basis point benefit from higher pricing.

Total SG&A decreased 3% to $18.0 billion. Increased foreign exchange transactional charges were offset by reduced overhead and marketing spending. SG&A as a percentage of net sales increased 20 basis points to 30.8%, due to the negative scale impacts of lower net sales. Marketing spending as a percentage of net sales decreased 60 basis points behind lower spending due to efficiency efforts. Overhead spending as a percentage of net sales increased 30 basis points as productivity savings of 70 basis points from reduced overhead spending were more than offset by wage inflation, investments in research and development and the negative scale impacts of lower net sales. Foreign exchange transactional charges added approximately 50 basis points to SG&A as a percentage of net sales, as current year foreign currency transactional charges (from revaluing receivables and payables from transactions denominated in a currency other than a local entity’s functional currency) was partially offset by lower year-on-year charges for Venezuela remeasurement and devaluation.

Non-Operating Expenses and Income

Interest expense was $479 million fiscal year to date, a decrease of $52 million versus the prior year period due to lower total debt and a decrease in weighted average interest rates. Interest income was $103 million fiscal year to date, an increase of $30 million versus the prior year due to an increase in cash, cash equivalents and investment securities. Other non-operating income increased $25 million to $93 million.

Income Taxes

The effective tax rate on continuing operations decreased 10 basis points to 21.6%.  The current year rate decreased 140 basis points due to the favorable geographic mix of earnings, including the tax impact of the current and prior year Venezuela devaluation charges, offset by 110 basis points due to the net impact of favorable discrete adjustments related to uncertain income tax positions (which netted to 40 basis points in the current year versus 150 basis points in the prior year).

Net Earnings from Continuing Operations

Net earnings from continuing operations decreased $472 million, or 5% versus the prior year period. This decline was caused primarily by the reduction in net sales and a 40 basis point reduction in operating income margin, driven by the gross margin decline and the increase in SG&A as a percentage of net sales (both discussed above). Unfavorable foreign exchange impacts reduced net earnings by about $1.0 billion fiscal year to date due to weakening of certain key currencies against the U.S. dollar, primarily in Russia, the Ukraine, Venezuela and Argentina and the net year-on-year difference in after-tax charges related to balance sheet remeasurement in Venezuela. Diluted net earnings per share from continuing operations decreased 5% to $2.84 due to reduced net sales and operating income margin.

Discontinued Operations

The company incurred a net loss from discontinued operations of $1.7 billion fiscal year to date, versus net earnings of $403 million in the prior year. The current year loss was driven by the current year after-tax impairment charges of $2.0 billion in the batteries business, partially offset by earnings in the Batteries businesses. Prior year net earnings include earnings from both the Batteries business and the divested Pet Care business (see Note 11 to the Consolidated Financial Statements).

Net Earnings

Net earnings attributable to Procter & Gamble decreased $2.5 billion or 28% to $6.5 billion fiscal year to date. The decline was due in large part to the $2.0 billion impairment charge in the Batteries business (included in discontinued operations discussed above) and the reduction in net earnings from continuing operations. Diluted net earnings per share declined 28% to $2.26. Core net earnings per share decreased 4% to $3.02. Core net earnings per share represents diluted net earnings per share from continuing operations excluding charges in both periods for Venezuela balance sheet remeasurement and devaluation , incremental restructuring charges related to our productivity and cost savings plan and current year charges related to European legal matters.




BUSINESS SEGMENT DISCUSSION – Three and Nine Months Ended March 31, 2015

The following discussion provides a review of results by reportable business segment. Analyses of the results for the three and nine month periods ended March 31, 2015 are provided based on a comparison to the same three and nine month periods ended March 31, 2014. The primary financial measures used to evaluate segment performance are net sales and net earnings from continuing operations. The table below provides supplemental information on net sales and net earnings from continuing operations by reportable business segment for the three and nine months ended March 31, 2015 versus the comparable prior year period (amounts in millions):
 
Three Months Ended March 31, 2015
 
Net Sales
 
% Change Versus Year Ago
 
Earnings/(Loss) from Continuing Operations Before Income Taxes
 
% Change Versus Year Ago
 
Net Earnings/(Loss) from Continuing Operations
 
% Change Versus Year Ago
Beauty, Hair and Personal Care
$
4,172

 
(11
)%
 
$
694

 
(13
)%
 
$
516

 
(17
)%
Grooming
1,801

 
(3
)%
 
603

 
(2
)%
 
456

 
(2
)%
Health Care
1,909

 
(1
)%
 
462

 
16
 %
 
303

 
12
 %
Fabric Care and Home Care
5,248

 
(9
)%
 
937

 
(3
)%
 
594

 
(4
)%
Baby, Feminine and Family Care
4,890

 
(6
)%
 
1,011

 
(5
)%
 
691

 
(5
)%
Corporate
122

 
N/A

 
(630
)
 
N/A

 
(85
)
 
N/A

Total Company
$
18,142

 
(8
)%
 
$
3,077

 
(3
)%
 
$
2,475

 
(2
)%

 
Nine Months Ended March 31, 2015
 
Net Sales
 
% Change Versus Year Ago
 
Earnings/(Loss) from Continuing Operations Before Income Taxes
 
% Change Versus Year Ago
 
Net Earnings/(Loss) from Continuing Operations
 
% Change Versus Year Ago
Beauty, Hair and Personal Care
$
13,991

 
(6
)%
 
$
2,709

 
(6
)%
 
$
2,089

 
(7
)%
Grooming
5,749

 
(3
)%
 
1,937

 
 %
 
1,466

 
 %
Health Care
6,008

 
 %
 
1,435

 
10
 %
 
994

 
9
 %
Fabric Care and Home Care
16,956

 
(5
)%
 
3,101

 
(6
)%
 
2,019

 
(6
)%
Baby, Feminine and Family Care
15,429

 
(2
)%
 
3,330

 
3
 %
 
2,276

 
3
 %
Corporate
356

 
N/A

 
(1,935
)
 
N/A

 
(554
)
 
N/A

Total Company
$
58,489

 
(4
)%
 
$
10,577

 
(5
)%
 
$
8,290

 
(5
)%

Beauty, Hair and Personal Care

Three months ended March 31, 2015 compared with three months ended March 31, 2014

Beauty, Hair and Personal Care net sales decreased 11% to $4.2 billion during the third fiscal quarter on a 5% decrease in unit volume. Unfavorable foreign exchange reduced net sales by 8%. Organic sales decreased 3% on a 4% decrease in organic volume. Price increases had a 2% positive impact on net sales, partially offset by unfavorable mix of 1% from a disproportionate decline in Skin and Personal Care and Prestige, which have higher than the segment average selling prices. Global market share of the Beauty, Hair and Personal Care segment decreased 0.4 points. Volume decreased mid-single digits in both developed and developing markets.
Volume in Hair Care was down mid-single digits in developed markets due to competitive activity and in developing markets due to lower customer inventory following trade term changes. Global market share of the hair care category decreased half a point.
Volume in Skin and Personal Care decreased mid-single digits. Volume declined low single digits in developed regions and high single digits in developing regions due to ongoing competitive activity. Global market share of the skin and personal care category decreased nearly half a point.
Volume in Cosmetics increased low single digits. Volume was unchanged in developed markets and was up double-digits in developing markets primarily due to innovation, primarily in Asia. Global market share of the cosmetics category was flat.
Volume in Salon Professional was down low single digits in developing markets following increased pricing and was unchanged in developed markets.



Volume in Prestige decreased high single digits due to reduced distributor inventories and lower levels of product innovation versus the base period.
Net earnings decreased 17% to $516 million primarily due to the volume and currency-driven reduction in net sales. Net earnings margin also decreased. Gross margin declined from unfavorable product mix (from a disproportionate decline in Skin and Personal Care and Prestige) and geographic mix (primarily within Hair Care) partially offset by a reduction in SG&A as a percent of sales, primarily due to lower spending from the Company's focus on marketing efficiencies.

Nine months ended March 31, 2015 compared with nine months ended March 31, 2014

Beauty, Hair and Personal Care net sales decreased 6% to $14.0 billion fiscal year to date on a 3% decrease in unit volume. Organic sales decreased 1% on a 2% decrease in organic volume. Unfavorable foreign exchange reduced net sales by 4% and increased pricing was a benefit of 1%. Global market share of the Beauty, Hair and Personal Care segment decreased 0.5 points. Volume decreased low single digits in both developed and developing markets.
Volume in Hair Care decreased low single digits in both developed and developing markets following increased pricing, minor divestitures and competitive activity. Global market share of the hair care category was down half a point.
Volume in Skin and Personal Care decreased low single digits as decreases in skin care and personal cleansing were partially offset by growth in deodorants. Volume was flat in developed regions and declined mid-single digits in developing regions due to ongoing competitive activity. Global market share of the skin and personal care category was down nearly half a point.
Volume in Cosmetics increased low single digits due to a double-digit increase in developing markets primarily due to market growth and product innovation. Volume in developed markets increased low single digits. Global market share of the cosmetics category was down slightly.
Volume in Salon Professional decreased low single digits due to a mid-single-digit decrease in developing markets following increased pricing and due to market contraction. Volume in developed markets declined low single digits primarily due to market declines.
Volume in Prestige decreased high single digits due to market contraction and reduced levels of initiative activity.
Net earnings decreased 7% to $2.1 billion primarily due to the currency-driven reduction in net sales. Net earnings margin decreased nominally as lower gross margin from unfavorable product mix was largely offset by a reduction in SG&A as a percent of sales due to lower spending from the Company's focus on marketing efficiencies and reducing overheads.

Grooming

Three months ended March 31, 2015 compared with three months ended March 31, 2014

Grooming net sales decreased 3% to $1.8 billion during the third fiscal quarter on a 1% increase in unit volume. Organic sales increased 9%. Price increases in blades and razors and appliances contributed 5% to net sales. Favorable product and geographic mix increased net sales by 3% driven by disproportionate growth in developed regions and in electronic hair removal, which have higher than segment average selling prices. Unfavorable foreign exchange reduced net sales by 12%. Global market share of the Grooming segment decreased 0.3 points versus year ago. Volume increased low single digits in developed regions and was flat in developing regions.
Shave Care volume increased low single digits in both developed and developing regions behind market growth and product innovation. Global market share of the blades and razors category decreased nearly half a point.
Volume in Electronic Hair Removal was up low single digits as a high single-digit increase in developed regions behind product innovation was partially offset by a mid-single-digit decrease in developing regions following increased pricing. Global market share of the electronic hair removal category increased less than half a point.
Net earnings decreased 2% to $456 million as the currency-driven reduction in net sales was partially offset by a 50 basis-point increase in net earnings margin driven by decreased SG&A, primarily behind the focus on marketing efficiencies.

Nine months ended March 31, 2015 compared with nine months ended March 31, 2014

Grooming net sales decreased 3% to $5.7 billion fiscal year to date on a 1% decrease in unit volume. Organic sales increased 3%. Price increases in blades and razors and appliances contributed 4% to net sales while unfavorable foreign exchange reduced net sales by 6%. Global market share of the Grooming segment decreased 0.3 points versus year ago. Volume decreased low single digits in both developed and developing regions.
Shave Care volume decreased low single digits in both developed and developing regions caused by market contraction and following increased pricing. Global market share of the blades and razors category was flat.
Volume in Electronic Hair Removal increased low single digits in both developed and developing markets behind product innovation and market growth. Global market share of the electronic hair removal category was flat.



Net earnings were unchanged at $1.5 billion as the decline in net sales was offset by an 80 basis-point increase in net earnings margin. Net earnings margin increased due to gross margin expansion and a reduction in SG&A spending. Gross margin increased primarily due to higher pricing and manufacturing cost savings. SG&A decreased primarily due to reduced marketing spending.

Health Care

Three months ended March 31, 2015 compared with three months ended March 31, 2014

Health Care net sales were down 1% to $1.9 billion during the third fiscal quarter on a 2% decrease in unit volume. Organic sales increased 6% on a 1% decline in organic volume. Unfavorable foreign exchange reduced net sales by 7%. Favorable geographic and product mix increased net sales 5%, primarily driven by a disproportionate increase in Personal Health Care in developed regions, which has higher than segment average selling prices, while increased pricing contributed 2% to sales growth. Global market share of the Health Care segment decreased 0.2 points. Volume was flat in developed regions and was down low single digits in developing regions.
Oral Care volume declined mid-single digits due to a high single-digit decrease in developing regions driven by competitive activity and increased pricing. Volume in developed regions was flat. Global market share of the oral care category was flat.
Volume in Personal Health Care increased mid-single digits due to a double digit increase in developing regions driven by a more active cough/cold season. Volume in developed markets was flat. Global market share of the personal health care category decreased less than a point.
Net earnings increased 12% to $303 million as the reduction in net sales was more than offset by a 190-basis point increase in net earnings margin. Net earnings margin increased due to reduced SG&A spending as a percentage of net sales, an increase in gross margin and a gain from a minor brand divestiture during the quarter. SG&A declined as a percentage of net sales due to the focus on marketing spending efficiencies and reduced overhead spending. Gross margin increased primarily due to manufacturing cost savings.

Nine months ended March 31, 2015 compared with nine months ended March 31, 2014

Health Care net sales were unchanged at $6.0 billion fiscal year to date on unit volume that was unchanged. Organic sales increased 4%. Favorable geographic and product mix increased net sales 3%, primarily driven by Oral Care growth in developed markets, which has higher average sales prices. Unfavorable foreign exchange reduced net sales by 4%. Global market share of the Health Care segment decreased 0.2 points. Volume increased low single digits in developed regions but decreased low single digits in developing regions.
Oral Care volume was flat as a low single-digit increase in developed regions from product innovation was offset by a mid-single-digit decline in developing regions due to competitive activity and following increased pricing. Global market share of the oral care category was flat.
Volume in Personal Health Care decreased low single digits due to a low single-digit decrease in developed markets from competitive activity, partially offset by a low single-digit increase in developing markets from market growth, product innovation and a more active cough/cold season. Global market share of the personal health care category was down about a point.
Net earnings increased 9% to $994 million due to a 140-basis point increase in net earnings margin. Net earnings margin increased due to gross margin expansion and reduced SG&A spending as a percentage of net sales. Gross margin increased primarily due to the impact of higher pricing and manufacturing cost savings. SG&A declined as a percentage of net sales due to the focus on marketing spending efficiencies and overhead reductions.

Fabric Care and Home Care

Three months ended March 31, 2015 compared with three months ended March 31, 2014

Fabric Care and Home Care net sales for the third fiscal quarter were down 9% to $5.2 billion on a 2% decrease in unit volume. Organic sales were unchanged on a 1% decline in organic volume. Unfavorable foreign exchange reduced net sales by 8%. Favorable geographic and product mix added 1% to net sales. Global market share of the Fabric Care and Home Care segment decreased 0.1 points. Volume decreased low single digits in developed regions and was flat in developing regions.
Fabric Care volume declined low single digits driven by a mid-single-digit decrease in developed regions due to inventory shipments in the base-period to build inventory to support initiatives, current period competitive activity and lower customer inventory levels. Volume was unchanged in developing regions. Global market share of the fabric care category was flat.



Home Care volume was down low single digits as a low single-digit decrease in developed markets due to competitive activity was partially offset by a low single-digit increase in developing regions from expanded distribution. Global market share of the home care category was down half a point.
Net earnings decreased 4% to $594 million behind the currency-driven reduction in net sales partially offset by a 60-basis point increase in net earnings margin. Net earnings margin increased mainly due to gross margin expansion, which increased due to manufacturing cost savings, partially offset by unfavorable geographic mix caused by lower developed market volume. SG&A as a percentage of net sales decreased slightly due to a reduction in marketing spending.

Nine months ended March 31, 2015 compared with nine months ended March 31, 2014

Fabric Care and Home Care net sales decreased 5% to $17.0 billion fiscal year to date on a 1% increase in unit volume. Organic sales increased 1%. Unfavorable foreign exchange reduced net sales by 6%, while pricing and mix were neutral to net sales. Global market share of the Fabric Care and Home Care segment was unchanged. Volume was flat in developed regions and increased low single digits in developing regions.
Fabric Care volume increased low single digits driven by a low single-digit increase in developing regions behind market growth and product innovation. Volume in developed regions was unchanged. Global market share of the fabric care category was flat.
Home Care volume decreased low single digits as a low single-digit decrease in developed markets due to competitive activity was partially offset by a low single-digit increase in developing regions from expanded distribution. Global market share of the home care category was down nearly half a point.
Net earnings decreased 6% to $2.0 billion behind the net sales reduction and a 20-basis point decrease in net earnings margin. Net earnings margin decreased due to gross margin contraction, partially offset by reduced SG&A as a percentage of net sales. Gross margin decreased primarily due to unfavorable geographic mix impacts from higher growth in developing regions, partially offset by manufacturing cost savings. SG&A as a percentage of net sales decreased slightly as a reduction in marketing spending as a percentage of net sales was largely offset by increased overhead spending.

Baby, Feminine and Family Care

Three months ended March 31, 2015 compared with three months ended March 31, 2014

Baby, Feminine and Family Care net sales decreased 6% to $4.9 billion during the third fiscal quarter on a 2% decline in unit volume. Organic sales were up 2%. Unfavorable foreign exchange reduced net sales by 8%. Price increases, primarily in Baby Care, increased net sales by 2%. Favorable geographic and product mix, driven by disproportionate growth in developed markets in Feminine Care, increased net sales in the segment by 2%. Global market share of the Baby, Feminine and Family Care segment decreased 0.6 points. Volume increased low single digits in developed regions and decreased mid-single digits in developing regions.
Volume in Baby Care was down low single digits due to a mid-single-digit decrease in developing regions following increased pricing. Volume was unchanged in developed regions. Global market share of the baby care category decreased more than a point.
Volume in Feminine Care declined low single digits as a high single-digit decrease in developing regions due to lower customer inventory and following increased pricing was partially offset by a mid-single-digit increase in developed regions from product innovation, largely the entry into the adult incontinence category. Global market share of the feminine care category was flat.
Volume in Family Care was unchanged as a low single-digit increase in developed regions behind price reductions was offset by a double-digit decline in developing regions due to decreased distribution. In the U.S., all-outlet share of the family care category was flat.
Net earnings decreased 5% to $691 million due to the currency-driven reduction in net sales. Net earnings margin increased 10 basis points. A higher gross margin driven by manufacturing cost savings was largely offset by an increase in SG&A as a percent of sales primarily due to higher marketing spending, primarily in Feminine Care.

Nine months ended March 31, 2015 compared with nine months ended March 31, 2014

Baby, Feminine and Family Care net sales were down 2% at $15.4 billion fiscal year to date on unit volume that was unchanged. Organic sales were up 3%. Price increases, primarily in Baby Care, increased net sales by 2%. Favorable geographic mix from higher developed market volume in both Feminine Care and Baby Care and from product mix in Feminine Care increased net sales by 1%. Unfavorable foreign exchange reduced net sales by 5%. Global market share of the Baby, Feminine and Family Care segment decreased 0.6 points. Volume increased low single digits in developed regions and decreased mid-single digits in developing regions.



Volume in Baby Care decreased low single digits as a low single-digit decrease in developing regions following increased pricing was partially offset by a low single-digit increase in developed regions from product innovation. Global market share of the baby care category decreased more than half a point.
Volume in Feminine Care was unchanged as a mid-single-digit increase in developed regions from product innovation, primarily the introduction of female adult incontinence, was offset by a low single-digit decline in developing regions due to competition and increased pricing. Global market share of the feminine care category was flat.
Volume in Family Care decreased low single digits as low single-digit growth in developed regions was more than offset by a double-digit decline in developing regions due to competitive activity and decreased distribution. In the U.S., all-outlet share of the family care category decreased less than a point.
Net earnings increased 3% to $2.3 billion as the reduction in net sales was more than offset by a 70-basis point increase in net earnings margin. Net earnings margin increased due to higher gross margin, partially offset by an increase in SG&A as a percent of net sales. The increase in gross margin was driven by higher pricing and manufacturing cost savings, partially offset by foreign exchange. SG&A as a percent of net sales increased slightly driven by overhead costs, where lower spending did not keep pace with the reduction in net sales.

Corporate

Corporate includes certain operating and non-operating activities not allocated to specific business units. These include: the incidental businesses managed at the corporate level; financing and investing activities; other general corporate items; the historical gains and losses related to certain divested brands and categories; certain restructuring-type activities to maintain a competitive cost structure, including manufacturing and workforce optimization; certain significant asset impairment charges; and certain balance sheet impacts from significant foreign exchange devaluations. Corporate also includes reconciling items to adjust the accounting policies used in the segments to U.S. GAAP. The most significant reconciling item includes income taxes to adjust from blended statutory rates that are reflected in the segments to the overall Company effective tax rate.

Corporate net sales decreased by $75 million during the third fiscal quarter and $204 million fiscal year to date primarily due to the prior year divestiture of the MDVIP business. Corporate net expenses from continuing operations decreased $85 million in the third fiscal quarter due mainly to currency impacts (the Venezuelan balance sheet remeasurement charge in the base period, partially offset by increased foreign exchange transactional charges in the current period), partially offset by increased restructuring charges. Net expenses from continuing operations increased $329 million fiscal year to date primarily due to foreign exchange transactional charges and incremental restructuring charges. Additional discussion of these items impacting net earnings in Corporate are included in the Results of Operations section.

Productivity and Cost Savings Plan

In 2012, the Company initiated a productivity and cost savings plan to reduce costs and better leverage scale in the areas of supply chain, research and development, marketing and overheads. The plan was designed to accelerate cost reductions by streamlining management decision making, manufacturing and other work processes to fund the Company's growth strategy.

As part of this plan, which has been expanded since its inception, the Company expects to incur approximately $5 billion in before-tax restructuring costs over a six-year period (from fiscal 2012 through fiscal 2017). Approximately 70% of the estimated costs have been incurred through March 2015. Savings generated from the restructuring costs are difficult to estimate, given the nature of the activities, the corollary benefits achieved (e.g., enrollment reduction achieved via normal attrition), the timing of the execution and the degree of reinvestment.  Overall, the costs and other non-manufacturing enrollment reductions are expected to deliver approximately $3 billion in annual gross savings (before-tax).  The cumulative before-tax savings as of the current year are estimated at approximately $1.9 - $2.2 billion.  Consistent with our historical policies for ongoing restructuring-type activities, the resulting charges are funded by and included within Corporate for segment reporting. 

Refer to Note 9 in the Notes to the Consolidated Financial Statements for more details on the restructuring program.

LIQUIDITY & CAPITAL RESOURCES

Operating Activities

We generated $10.6 billion of cash from operating activities fiscal year to date, an increase of $1.2 billion versus the prior year. Net earnings, adjusted for non-cash items (depreciation and amortization, share-based compensation, deferred income taxes, gain on sale of businesses and goodwill and indefinite-lived intangible impairment charges), generated $10.7 billion of operating cash flow. Working capital and other impacts used $110 million of cash in the period. Accounts receivable generated $308 million of cash due to decreased net sales and improved collection results. Inventory consumed $190 million of cash mainly to support product initiatives. Accounts payable, accrued and other liabilities generated $146 million of cash primarily due to the timing of income tax payments, partially offset by the impact of decreased costs. All other operating assets and liabilities consumed $374 million of cash.

Investing Activities

Cash used by investing activities was $1.7 billion fiscal year to date. Proceeds from asset sales generated $3.7 billion of proceeds, primarily from the sale of our Pet Care business in North America, Latin America and other selected markets, the sale of our Chinese battery venture, and other minor brand divestitures. This was offset by capital expenditures and purchases of investment securities. Capital expenditures consumed $2.5 billion, or 4.2% of net sales, as compared to $2.6 billion in the prior year period. We used $2.9 billion of cash in the current period for purchases of available for sale securities.

Financing Activities

Our financing activities consumed net cash of $8.6 billion fiscal year to date. We used $4.3 billion for treasury stock purchases, $5.4 billion for dividends and repaid net debt of $1.6 billion. Cash from the exercise of stock options generated $2.7 billion of cash.

As of March 31, 2015, our current liabilities exceeded current assets by $319 million ($2.8 billion, excluding assets and liabilities of the Batteries business held for sale). We have short- and long-term debt to fund discretionary items such as acquisitions and share repurchase programs. We anticipate being able to support our short-term liquidity and operating needs largely through cash generated from operations. We have strong short- and long-term debt ratings that have enabled and should continue to enable us to refinance our debt as it becomes due at favorable rates in commercial paper and bond markets. In addition, we have agreements with a diverse group of financial institutions that, if needed, should provide sufficient credit funding to meet short-term financing requirements.

RECONCILIATION OF NON-GAAP MEASURES

Our discussion of financial results includes several measures not defined by U.S. GAAP. We believe these measures provide our investors with additional information about the underlying results and trends of the Company, as well as insight to some of the metrics used to evaluate management. When used in MD&A, we have provided the comparable GAAP measure in the discussion.

Organic Sales Growth: Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe this provides investors with a more complete understanding of underlying sales trends by providing sales growth on a consistent basis. Organic sales growth is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation.
 
The following table provides a numerical reconciliation of reported sales growth to organic sales growth for the three and nine months ended March 31, 2015:
Three Months Ended March 31, 2015
Net Sales Growth
 
Foreign Exchange Impact
 
Acquisition/Divestiture Impact*
 
Organic Sales Growth
Beauty, Hair and Personal Care
(11)%
 
8%
 
—%
 
(3)%
Grooming
(3)%
 
12%
 
—%
 
9%
Health Care
(1)%
 
7%
 
—%
 
6%
Fabric Care and Home Care
(9)%
 
8%
 
1%
 
—%
Baby, Feminine and Family Care
(6)%
 
8%
 
—%
 
2%
Total Company
(8)%
 
8%
 
1%
 
1%

* Acquisition/Divestiture Impacts includes the mix impacts of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.
Nine Months Ended March 31, 2015
Net Sales Growth
 
Foreign Exchange Impact
 
Acquisition/Divestiture Impact*
 
Organic Sales Growth
Beauty, Hair and Personal Care
(6)%
 
4%
 
1%
 
(1)%
Grooming
(3)%
 
6%
 
—%
 
3%
Health Care
—%
 
4%
 
—%
 
4%
Fabric Care and Home Care
(5)%
 
6%
 
—%
 
1%
Baby, Feminine and Family Care
(2)%
 
5%
 
—%
 
3%
Total Company
(4)%
 
5%
 
1%
 
2%

* Acquisition/Divestiture Impacts includes the mix impacts of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.

Core EPS or Core net earnings per share: This is a measure of the Company's diluted net earnings per share from continuing operations excluding certain items that are not judged to be part of the Company's sustainable results or trends. Such exclusions include current year and prior year charges related to incremental restructuring due to increased focus on productivity and cost savings and the balance sheet remeasurement and devaluation of the Venezuelan currency and current year charges for European legal matters.

We do not view these items to be part of our sustainable results. We believe the Core EPS measure provides an important perspective of underlying business trends and results and provides a more comparable measure of year-on-year earnings per share growth. Core EPS is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation. The table below provides a reconciliation of reported diluted net earnings per share from continuing operations to Core EPS:
 
Three Months Ended March 31
 
2015
 
2014
Diluted net earnings per share from continuing operations
$
0.85

 
$
0.87

Incremental restructuring charges
0.07

 
0.04

Venezuela balance sheet remeasurement and devaluation

 
0.10

Rounding

 
(0.01
)
CORE EPS
$
0.92

 
$
1.00

Core EPS Growth/(Decline)
(8
)%
 
 

 
Nine Months Ended March 31
 
2015
 
2014
Diluted net earnings per share from continuing operations
$
2.84

 
$
2.99

Incremental restructuring charges
0.12

 
0.08

Charges for European legal matters
0.02

 

Venezuela balance sheet remeasurement and devaluation
0.04

 
0.09

Rounding

 

CORE EPS
$
3.02

 
$
3.16

Core EPS Growth/(Decline)
(4
)%
 
 

Note - All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction.

Adjusted Free Cash Flow: Adjusted free cash flow is defined as operating cash flow less capital expenditures and excluding tax payments for the Pet Care divestiture. We view adjusted free cash flow as an important measure because it is one factor in determining the amount of cash available for dividends and discretionary investment.
 
Operating Cash Flow
 
Capital Spending
 
Free Cash Flow
 
Cash Tax Payment - Pet Care Sale
 
Adjusted Free Cash Flow
July 2014 - March 2015
$10,620
 
$(2,462)
 
$8,158
 
$546
 
$8,704

Adjusted Free Cash Flow Productivity: Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings excluding impairment charges on the Batteries business. The Company’s long-term target is to generate free cash flow at or above 90% of net earnings. Adjusted free cash flow productivity is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation. The reconciliation of free cash flow and adjusted free cash flow productivity is provided below (amounts in millions):
 
Net Earnings
 
Impairment Charges
 
Net Earnings Excluding Impairment Charges on Batteries
 
Adjusted Free Cash Flow Productivity
July 2014 - March 2015
$6,606
 
$1,980
 
$8,586
 
101%

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company’s exposure to market risk since June 30, 2014. Additional information can be found in Note 5 - Risk Management Activities and Fair Value Measurements of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

Item 4.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.
The Company’s Chairman of the Board, President and Chief Executive Officer, A.G. Lafley, and the Company’s Chief Financial Officer, Jon R. Moeller, performed an evaluation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (“Exchange Act”)) as of the end of the period covered by this report. Messrs. Lafley and Moeller have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) accumulated and communicated to our management, including Messrs. Lafley and Moeller, to allow their timely decisions regarding required disclosure.
 
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the Company’s fiscal quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II. OTHER INFORMATION
Item 1.
Legal Proceedings.

On February 10, 2015, the Sacramento County Environmental Management Department issued an Administrative Enforcement Order to The Procter & Gamble Manufacturing Company, a subsidiary of the Company, alleging violations of California’s hazardous waste management regulations at the subsidiary’s facility in Sacramento, California and seeking a financial penalty in excess of $100,000. The subsidiary denies the allegations and is currently in settlement negotiations with the Sacramento County Environmental Management Department.

On August 25, 2014, “Procuraduría Federal de Protección al Ambiente” (PROFEPA) issued a ruling to Procter & Gamble Manufactura, S. de R.L. de C.V. (Planta Vallejo), a subsidiary of the Company, citing violations of Mexico’s air emissions regulations at the subsidiary’s facility in Zona Industrial Vallejo, Mexico City, Mexico and requiring the subsidiary to perform certain corrective measures at the facility, most of which have been completed.  PROFEPA may seek monetary sanctions from the subsidiary for this matter but has not yet done so.

The Company is subject, from time to time, to certain other 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, labor and employment, and tax. See Note 10 to our Consolidated Financial Statements for information on certain legal proceedings for which there are contingent liabilities accrued.



Item 1A.
Risk Factors.

For information on Risk Factors, please refer to Part II, Item 1A in the Company’s Form 10-Q for the quarter ended December 31, 2014.





Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

ISSUER PURCHASES OF EQUITY SECURITIES
 
Period
Total Number of Shares Purchased (1)
  
Average Price Paid per Share
  
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
  
Approximate Dollar Value of Shares That May Yet Be Purchased Under our Share Repurchase Program ($ in billions)
01/01/2015 - 01/31/2015
0
 
n/a
 
0
 
(2) 
02/01/2015 - 02/28/2015
0
 
n/a
 
0
 
(2) 
03/01/2015 - 03/31/2015
0
 
n/a
 
0
 
(2) 
Total
0
 
n/a
 
0
 
 
 
(1)
This table excludes shares withheld from employees to satisfy minimum tax withholding requirements on option exercises and other equity-based transactions. The Company administers cashless exercises through an independent third party and does not repurchase stock in connection with cashless exercises.
(2)
On February 19, 2015, the Company stated that fiscal year 2015 share repurchases to reduce Company shares outstanding are estimated to be approximately $5 billion, notwithstanding any purchases under the Company's compensation and benefit plans. Purchases may be made in the open market and/or private transactions and purchases may be increased, decreased or discontinued at any time without prior notice. The share repurchases are authorized pursuant to a resolution issued by the Company's Board of Directors and are expected to be financed by a combination of operating cash flows and issuance of long-term and short-term debt.


Amounts in millions of dollars unless otherwise specified.


Item 6.
Exhibits.
 
3-1

 
Amended Articles of Incorporation (as amended by shareholders at the annual meeting on October 11, 2011) (Incorporated by reference to Exhibit (3-1) of the Company's Form 10-Q for the quarter ended September 30, 2011)
 
 
 
3-2

 
Regulations (as approved by the Board of Directors on October 14, 2014, pursuant to authority granted by shareholders at the annual meeting on October 13, 2009) (Incorporated by reference to Exhibit (3-2) of the Company's Form 10-Q for the quarter ended September 30, 2014)
 
 
 
10-1

 
Company's Form of Separation Agreement & Release*
 
 
 
10-2

 
Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2014 Stock and Incentive Compensation Plan*
 
 
 
12

 
Computation of Ratio of Earnings to Fixed Charges
 
 
 
31.1

 
Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer
 
 
 
31.2

 
Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer
 
 
 
32.1

 
Section 1350 Certifications – Chief Executive Officer
 
 
 
32.2

 
Section 1350 Certifications – Chief Financial Officer
 
 
 
101.INS  (1)

 
XBRL Instance Document
 
 
 
101.SCH (1)

 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL (1)

 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF (1)

 
XBRL Taxonomy Definition Linkbase Document
 
 
 
101.LAB (1)

 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE  (1)

 
XBRL Taxonomy Extension Presentation Linkbase Document
 
*
Compensatory plan or arrangement
 
 
(1)
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 




Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
THE PROCTER & GAMBLE COMPANY
 
 
 
April 23, 2015
 
 
 
/s/ VALARIE L. SHEPPARD
Date
 
 
 
(Valarie L. Sheppard)
 
 
 
 
Senior Vice President, Comptroller and Treasurer
 
 



EXHIBIT INDEX
 
 
 
 
Exhibit
 
 
 
 
3-1

 
Amended Articles of Incorporation (as amended by shareholders at the annual meeting on October 11, 2011) (Incorporated by reference to Exhibit (3-1) of the Company's Form 10-Q for the quarter ended September 30, 2011)
 
 
 
3-2

 
Regulations (as approved by the Board of Directors on October 14, 2014, pursuant to authority granted by shareholders at the annual meeting on October 13, 2009) (Incorporated by reference to Exhibit (3-2) of the Company's Form 10-Q for the quarter ended September 30, 2014)
 
 
 
10-1

 
Company's Form of Separation Agreement & Release
 
 
 
10-2

 
Regulations of the Compensation and Leadership Development Committee for The Procter & Gamble 2014 Stock and Incentive Compensation Plan
 
 
 
 12

 
Computation of Ratio of Earnings to Fixed Charges
 
 
31.1

 
Rule 13a-14(a)/15d-14(a) Certification – Chief Executive Officer
 
 
31.2

 
Rule 13a-14(a)/15d-14(a) Certification – Chief Financial Officer
 
 
32.1

 
Section 1350 Certifications – Chief Executive Officer
 
 
32.2

 
Section 1350 Certifications – Chief Financial Officer
 
 
101.INS  (1)

 
XBRL Instance Document
 
 
101.SCH (1)

 
XBRL Taxonomy Extension Schema Document
 
 
101.CAL (1)

 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF (1)

 
XBRL Taxonomy Definition Linkbase Document
 
 
101.LAB (1)

 
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE  (1)

 
XBRL Taxonomy Extension Presentation Linkbase Document
 
(1)
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.









EXHIBIT 10-1





Company's Form of Separation Agreement & Release














































SEPARATION AGREEMENT AND RELEASE


To:    «Employee_Name»
Date:    «Actual_Offer_Date»

«Company» (“P&G”) is willing to provide you with certain assistance in connection with your employment separation from the Company. The following describes the terms under which you are separating from employment. Your receipt of the benefits described below is conditioned upon your accepting and abiding by the terms of this Agreement.
Last Day of Employment:
Your last day of employment will be «Exit_Date», referred to as your “Last Day of Employment.” Unless otherwise noted below, your pay and benefits will cease as of your Last Day of Employment.

Separation Payment:
As soon as administratively practical after your Last Day of Employment, P&G will provide you with a Separation Payment of «Total_Amount», less legally required withholdings and deductions. In no event will payment be made before expiration of the seven-day revocation period discussed below or later than the March 15th of the year following the year which includes your last day of employment.

Amounts you owe to P&G as of your Last Day of Employment, including, but not limited to, wage and/or benefit overpayments and unpaid loans, will also be deducted from the Separation Payment.

STAR Awards:

As of your Last Day of Employment, if you worked at least 28 days (4 calendar weeks) during that fiscal year, you will receive a pro-rated STAR award for that fiscal year. Your STAR award will be pro-rated by dividing the number of calendar days during the fiscal year from July 1 through your Last Day of Employment by 365. Your STAR award will be paid in cash in the September (but no later than September 15th) immediately following the end of the fiscal year in which you terminate.

Equity Awards:

Your separation will be treated as a Special Separation for purposes of any outstanding equity awards granted under the Procter & Gamble 2009 Stock and Incentive Compensation Plan, the Procter & Gamble 2001 Stock and Incentive Compensation Plan, the Procter & Gamble 1992 Stock Plan, or the Gillette Company 2004 Long-Term Incentive Plan and as a result the awards will be retained subject to the original terms and conditions of the awards.

Awards granted under the Procter & Gamble 2014 Stock &







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Incentive Compensation Plan are retained subject to the terms and conditions of the Awards.

This agreement does not alter the rights and obligations that you may have under the Procter & Gamble 2014 Stock & Incentive compensation Plan, the Procter & Gamble 2009 Stock and Incentive Compensation Plan, the Procter & Gamble 2001 Stock and Incentive Plan, the Procter & Gamble 1992 Stock Plan, and the Gillette Company 2004 Long-Term Incentive Plan.

Current Medical, Dental, and Life Insurance Benefits:

Your Medical (including prescription drug and EAP programs), Dental, and Basic Group Life insurance coverage will continue under the same terms until «Benefits_End_Date».

When your extended coverage ends, you may be entitled to continue your Medical and Dental insurance coverage under COBRA. If you are entitled to COBRA continuation coverage, you will receive a notice of your right to elect COBRA.

Retiree Medical and Dental Benefits:

If you were eligible for P&G retiree healthcare coverage on your Last Day of Employment, you will be eligible to enroll in P&G’s retiree medical and dental insurance coverage. You are eligible for P&G retiree healthcare coverage if you satisfy the regular retiree eligibility rules (i.e., you are a Regular Retiree) as of your Last Day of Employment. Under the terms of this Agreement, you also are eligible for P&G retiree healthcare coverage as a Special Retiree by satisfying the Rule of 70 as of your Last Day of Employment. You satisfy the Rule of 70 when your full years of age plus your full years of service equal 70. Special rules apply to Gillette Heritage Employees with regard to retiree medical eligibility and the retiree medical cost sharing under the retiree medical plan. If you are a Gillette Heritage Employee, you will receive a separate handout on your retiree medical eligibility. If you are eligible for P&G’s retiree healthcare coverage as either a Regular Retiree or a Special Retiree as of your Last Day of Employment, you should contact the Employee Service Center before your extension of coverage ends to request retiree healthcare enrollment information. For details regarding the terms and conditions of your retiree health coverage, please refer to and review the summary plan descriptions, available at PGOne à Life and Career
Important Note: If you become employed by a direct competitor of P&G (as determined by P&G’s Chief Human Resources Officer) in any capacity, you will not be eligible for coverage under P&G’s retiree healthcare coverage as long as

 
 
 
 
1Special rules apply to Gillette Heritage Employees with regard to retiree medical eligibility and the retiree medical cost sharing under the retiree medical plan. If you are a Gillette Heritage Employee, you will receive a separate handout on your retiree medical eligibility.






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you remain employed by such competitor. If you have questions, please contact the Benefits Service Center at 1-888-627-7472.

Retiree Life Benefits:

If you are eligible for retiree life coverage on your Last Day of Employment, your Basic Group Life Insurance will convert to Retiree Group Life Insurance. For details regarding the terms and conditions of your Retiree Group Life Insurance coverage, please refer to and review the summary plan descriptions available at PGOneLife and Career.

Outplacement Services:

P&G’s outplacement supplier, Right Management Consultants, will provide services to assist you in managing your transition to a new future, based on your interest. Services include pre-decision counseling, career transition programs, and job development opportunities. Right Management Consultants will also assist you in preparing for your job search, including résumé preparation, cover letters, other written materials and interview and networking training.
After you accept this Agreement, you may begin utilizing outplacement services on a limited basis prior to your Last Day of Employment, consistent with the needs of the business and your responsibilities to complete and/or transition your work. Note that you must begin utilizing outplacement services within 45 days of your Last Day of Employment to be eligible for this benefit.

No Consideration Without Executing this Agreement:

You affirm that you understand and agree that you would not receive the separation payment and/or benefits specified in this Agreement without executing this Agreement and fulfilling the promises contained in it.  Except as provided in this Agreement or under the terms and conditions of an applicable benefit plan or policy sponsored by P&G, you shall not be due any payments or benefits from P&G in connection with the termination of your employment.

Continued Employment Through Your Last Day of Employment:

You agree to perform your work and responsibilities as an employee in a satisfactory manner up to and including your Last Day of Employment, including compliance with all provisions of this “Separation Agreement and Release.” If P&G determines that you have engaged in serious misconduct during your employment, you understand and agree that P&G may terminate your employment immediately and will not provide, nor will it be obligated to provide, you will the Separation Payment, medical benefits, outplacement and other






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benefits described above. If you have already received any such pay or benefits, you agree to repay them to P&G upon demand.

Nonadmission of Wrongdoing:

You affirm that you understand and agree that neither this Agreement nor the furnishing of the consideration for this Agreement, including the Separation Payment, shall be deemed or construed at any time for any purpose as an admission by P&G of wrongdoing or evidence of any liability or unlawful conduct of any kind.

Release of Claims - Including Age Discrimination and Employment Claims:

In consideration of the Separation Payment and other benefits provided above to which you would not have been entitled under any existing P&G Policy, you release P&G from any and all claims you have against P&G. The term “P&G” includes «Company» and any of its present, former and future owners, parents, affiliates and subsidiaries, and its and their directors, officers, shareholders, employees, agents, servants, representatives, predecessors, successors and assigns and their employee benefit plans and programs and their administrators and fiduciaries.

This release applies to claims about which you now know or may later discover, and includes but is not limited to: (1) claims arising under the Age Discrimination in Employment Act, 29 U.S.C. § 621, et seq.; (2) claims arising out of or relating in any way to your employment with P&G or the conclusion of that employment; (3) claims arising under any federal, state and local employment discrimination laws, regulations or ordinances or other orders that relate to the employment relationship and/or employee benefits; and (4) any other federal, state or local law, rule, regulation or ordinance, public policy, contract, tort or common law.
This release does not apply to claims that may arise after the date you accept this Agreement or that may not be released under applicable law.
You are not waiving any rights you may have to: (a) your own vested accrued employee benefits under the P&G health, welfare, or retirement benefit plans as of the Last Day of Employment; (b) benefits and/or the right to seek benefits under applicable workers’ compensation and/or unemployment compensation statutes; (c) pursue claims which by law cannot be waived by signing this Agreement; (d) enforce this Agreement; and/or (e) challenge the validity of this Agreement.






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You agree that the decision as to what would be your Last Day of Employment was made prior to your accepting and executing this Agreement, and you agree that you are releasing any claim in connection with the separation of your employment.
Nothing in this Agreement prohibits or prevents you from filing a charge with or participating, testifying, or assisting in any investigation, hearing, or other proceeding before any federal, state, or local government agency. However, to the maximum extent permitted by law, you agree that if such an administrative claim is made, you shall not be entitled to recover any individual monetary relief or other individual remedies.
If any claim is not subject to release, to the extent permitted by law, you agree that you waive any right or ability to be a class or collective action representative or to otherwise participate in any putative or certified class, collective or multi-party action or proceeding based on such a claim in which P&G is a party.

Confidential, Proprietary, Trade Secret Information & Period of Non-Competition:

You agree that you will not use or share any confidential, proprietary or trade secret information about any aspect of P&G’s business with any non-P&G employee or business entity at any time in the future. You further agree that you will not obtain or have in your possession any confidential, proprietary or trade secret information on or after your last day of employment. Confidential, proprietary or trade secret information includes, but is not limited to, marketing and advertising plans, pricing information, upstream plans, specific areas of research and development, project work, product formulation, processing methods, assignments of individual employees, testing and evaluation procedures, cost figures, construction plans, and special techniques or methods of any kind.
You understand and agree that, unless you have prior written consent from P&G, you will not engage in any activity or provide any services for a period of three (3) years following your Last Day of Employment in connection with the manufacture, development, advertising, promotion or sale of any product which is the same as, similar to, or competitive with any products of P&G or its subsidiaries (including both existing products as well as products in development which are known to you, as a consequence of your employment with P&G):






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1. With respect to which your work has been directly concerned at any time during the two (2) years preceding your Last Day of Employment; or

 
2. With respect to which during that period of time you, as a consequence of your job performance and duties, acquired knowledge of trade secrets or other confidential information of P&G.

 
For the purposes of this section, it shall be conclusively presumed that you have knowledge or information to which you were directly exposed through the actual receipt of memos or documents containing such information or through actual attendance at meetings at which such information was discussed or disclosed. The provisions of this section are not in lieu of, but are in addition to, your continuing obligation to not use or disclose P&G’s trade secrets and confidential information known to you until any particular trade secret or confidential information becomes generally known (through no fault of yours). Information regarding products in development, in test market or being marketed or promoted in a discrete geographic region, which information P&G is considering for a broader use, shall not be deemed generally known until such broader use is actually commercially implemented. Also, “generally known” means known throughout the domestic United States industry or, if you have job responsibilities outside of the United States, the appropriate foreign country or countries’ industry.
If any restriction in this section is found by any court of competent jurisdiction or arbitrator to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it will be modified and interpreted to extend only over the maximum period of time, range of activities or geographic area so that it may be enforceable.
As a participant in the 2009 Stock and Incentive Compensation Plan, the 2001 Stock and Incentive Compensation Plan, or the 1992 Stock Plan, you are also bound by the terms of Article F - Restrictions & Covenants of those plans, which are incorporated herein by reference.
If you are a participant in the 2014 Stock & Incentive Compensation Plan, you are also bound by the terms of Article 6 - Restrictions and Covenants of this plan which are incorporated herein by reference.






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Non-Solicitation:

You acknowledge, as a participant in the Procter & Gamble 2014 Stock & Incentive Compensation Plan, the Procter & Gamble 2009 Stock and Incentive Compensation Plan, the Procter & Gamble 2001 Stock and Incentive Plan, the Procter & Gamble 1992 Stock Plan, and/or the Gillette Company 2004 Long-Term Incentive Plan that you are bound to comply with the Plans’ non-solicitation obligations. Specifically, you agree that you will not, at any time following your Employment Separation Date, attempt to directly or indirectly induce any employee of P&G or its affiliates or subsidiaries to be employed or perform services elsewhere or attempt directly or indirectly to solicit the trade or business of any current or prospective customer, supplier or partner of P&G or its affiliates or subsidiaries.

Acknowledgements and Affirmations:

You affirm that you have not filed, caused to be filed, or presently are a party to any claim against P&G.
You affirm that you have been paid and/or have received all compensation, wages, bonuses, commissions, and/or benefits which are due and payable as of the date you sign this Agreement. To the extent that you are required to report hours worked, you affirm that you have reported all hours worked as of the date you sign this Agreement.
You affirm that you have been granted any leave to which you were entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws.
You further affirm that you have no known workplace injuries or occupational diseases that have not been reported.

Assignment of Intellectual Property:

You will promptly and fully disclose, transfer and assign to P&G all inventions and any other intellectual property (collectively “Intellectual Property”) made or conceived by you during your employment with P&G. You agree to fully cooperate in executing any papers required for establishing or protecting the Intellectual Property and for establishing P&G’s ownership, even if such cooperation is necessary after your Last Day of Employment.

Return of P&G Property:

You agree that on or before your Last Day of Employment, you will return to P&G in good condition all of its equipment, materials and information that were in your possession, custody or control (including, but not limited to, computers, files, documents, credit cards, keys and identification badges). You further agree that you will provide your manager with all






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passwords to P&G electronic communication and data systems before your Last Day of Employment. You further agree that on or before your Last Day of Employment, you will return or if directed to do so by your immediate manager, delete (i.e., destroy all copies of) any and all P&G confidential, proprietary or trade secret information you have maintained in your possession, custody, or control in paper, electronic and/or digital formats, including but not limited to, any such confidential, proprietary, or trade secret information (e.g., files, documents, etc.) that you may have electronically or digitally processed or stored on P&G-issued or on personally-owned or maintained digital devices and/or service accounts. Such digital devices and/or service accounts may include, but are not limited to desktop and laptop computers, notebooks, tablets, iPads, mobile phones, smartphones, personal digital assistants (PDAs), USB and flash drives, external hard drives, CDs, DVDs, and/or external file processing or storage provided by cloud service providers such as box.net, dropbox, Google docs, etc.

Ethics Compliance:

You agree that you provided P&G all information known to you regarding any violations of the Procter & Gamble Worldwide Business Conduct Manual and/or any other violations of P&G policy or the law.

Agreement to Arbitrate Disputes:

Resolving any future differences we may have in the courts can take a long time and be expensive. You and P&G therefore agree that the only remedy for all disputes that are not released by this Agreement or that arise out of your employment with or separation from P&G, or any aspect of this Agreement, will be to submit any such disputes (with the exception noted at the end of this section) to final and binding arbitration in accordance with the National Rules for Resolution of Employment Disputes of the American Arbitration Association then in effect.
You and P&G agree that the aggrieved party must send written notice of any claim to the other party by certified mail, return receipt requested. Written notice for P&G will be sent to: Secretary, One Procter & Gamble Plaza, Cincinnati, OH 45202, and to you at the most current address shown for you in P&G’s records. The arbitrator will apply Ohio law. At your written request, P&G will reimburse you for all fees and costs charged by the American Arbitration Association and its arbitrator to the extent they exceed the applicable fees and costs that would have been charged by a court of competent jurisdiction had your claim been filed court.






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There is one exception to this section. P&G may seek injunctive relief in any court of competent jurisdiction if it has reason to believe that you have violated or are about to violate (1) the terms of the “Confidential, Proprietary, Trade Secret Information & Period of Non-Competition” section above, or (2) if you are a participant in the 2009 Stock and Incentive Compensation Plan, the 2001 Stock and Incentive Compensation Plan, or the 1992 Stock Plan, the terms of Article F - Restrictions & Covenants of those plans or (3) if you are a participant in the 2014 Stock and Incentive Compensation Plan, the terms of Article 6 - Restrictions & Covenants of those plans.

Severability:

If any court of competent jurisdiction or arbitrator should later find that any portion of this Agreement is invalid, that invalidity will not affect the enforceability of any other portion of this Agreement.

Employment References:

You understand that P&G’s historical policy is to not provide employment references to prospective employers. However, P&G is willing to waive that policy in your case on the following basis: You authorize your manager or human resources representative to provide an employment reference upon written or verbal request. In return, you release any claim against P&G and will not bring a lawsuit in court against P&G based upon that employment reference (or lack thereof). You agree that you will refer all reference inquiries to your manager or human resources representative only. You further understand that all disputes regarding employment references or the lack thereof must be resolved through the arbitration process described above.

No Reliance:

This Agreement sets forth the entire agreement between you and P&G and fully supersedes any prior agreements or understanding between the parties except that if you are a participant in the 2009 Stock and Incentive Compensation Plan, the 2001 Stock and Incentive Compensation Plan, or the 1992 Stock Plan, the terms of Article F - Restrictions & Covenants of those plans remain in full force and effect and are incorporated herein by reference and if you are a participant in the 2014 Stock Plan, the terms of Article 6 - Restrictions & Covenants of the plan remain in full force and are in effect and are incorporated herein by reference. In deciding to accept this Agreement, you agree that you have not relied upon any statements or promises by P&G, its managers, agents or employees, other than those set forth in this Agreement. No other promises or agreements concerning the matters described






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in this Agreement shall be binding unless in a subsequent document signed by these parties.

Your Attorney:

You acknowledge that you have been and hereby are advised to consult with legal counsel before accepting this Agreement and have either done so or have voluntarily declined to do so.

Timing for Acceptance or Revocation:

You have forty-five (45) calendar days in which to consider this Agreement in which you waive important rights, including those under the Age Discrimination in Employment Act of 1967. If you choose to sign this Agreement, please do so by indicating your acceptance of this Agreement with your electronic signature in P&G’s electronic system. We advise you to consult with an attorney of your choosing prior to signing this Agreement. Further, you may within seven (7) calendar days following the date you sign this Agreement, cancel and terminate it by giving written notice of your intention to revoke the Agreement to your immediate manager, and by returning to P&G any remuneration or benefits that have been advanced to you in anticipation of your not revoking your agreement and to which you are not entitled. If notice of your revocation is mailed, it must be postmarked within seven (7) calendar days after you sign this Agreement.
You agree that any modifications, material or otherwise, made to this Agreement, do not restart or affect in any manner the original up to forty-five (45) calendar day consideration period.

Eligibility Information for Group Program Under The Older Workers Benefits Protection Act:

If your separation and the offer of separation pay and benefits set forth in this Agreement is part of a program offered to a group of employees, attached to this Agreement is information regarding the class, unit, or group of individuals covered by such program, any eligibility factors, any time limits associated with the program, and a list showing, on the one hand, the ages and job titles of P&G employees in the job classifications or organizational units who were eligible or selected to participate in the program, and also showing, on the other hand, the ages and job titles of those employees in the same job classifications or organizational units who were not eligible or selected for the program. You further acknowledge that you received the information described in this section.






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The benefits described in this Agreement and pursuant to the summary plan description for the Procter & Gamble Basic Separation Program for U.S. Employees, are the special benefits you will receive by signing this Agreement. To the extent this Agreement describes benefits under other benefit plans and policies sponsored by P&G, these special benefits are also described in the summary plan descriptions for those plans. As such, nothing in this Agreement amends or changes the terms of any P&G-sponsored employee benefit plan or policy.

 
After your Last Day of Employment, you will no longer be an active P&G employee, which may affect your coverage under those plans and policies.  For example, plans may require that you enroll in Medicare to be eligible for coverage.  For more information on how not being an active P&G employee may affect your coverage, please refer to and review the summary plan descriptions for each plan, available at PGOne à Life and Career.









EXHIBIT 10-2





Regulations of the Compensation and Leadership Development
Committee for
The Procter & Gamble 2014
Stock and Incentive Compensation Plan




February 10, 2015




REGULATIONS
OF THE
COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE
FOR
THE PROCTER & GAMBLE 2014 STOCK AND INCENTIVE COMPENSATION PLAN


I.
AUTHORITY FOR REGULATIONS

These regulations (the “Regulations”) are adopted pursuant to Article 3.1 of The Procter & Gamble 2014 Stock and Incentive Compensation Plan (the “2014 Plan”).


II.
ADMINISTRATION

1.
Any capitalized terms used in these Regulations that are not otherwise defined herein are defined in the2014 Plan.

2.
The Chief Executive Officer (“CEO”) is authorized to submit recommendations to the Committee for Awards, except for himself.

3.
The Chief Human Resources Officer (“CHRO”) and the Chief Legal Officer and Secretary (“CLO”)are each individually authorized to execute Award Agreements consistent with the 2014 Plan, these Regulations, approved executive compensation programs (e.g., the Performance Stock Program), and/or Committee action through resolution.

4.
The CHRO is authorized to specify an appropriate time and manner for acceptance of each Award. Any Award not accepted through the specified means within the period specified by the Committee or the CHRO at the time of the grant shall be considered to be canceled.

5.
The CLO shall maintain the books and records of Awards granted by the Committee. and shall report at each meeting of the Committee at which Awards are to be considered the total number of shares available for award under the 2014 Plan. The Secretary shall inform the Treasurer and the Plan Administrator of Awards granted on a regular basis.

6.
The Treasurer is authorized to delegate to an appropriate manager reporting to the Treasurer the authority to acquire, transfer and deliver shares for the purposes of the Plans.

7.
In the absence of the CLO, an Assistant Secretary is hereby authorized to perform the duties and have the powers of the CLO outlined in these Regulations. In the absence of the Treasurer of the Company or of a subsidiary, an Assistant Treasurer of the appropriate Company is hereby authorized to perform the duties and have the powers of the Treasurer outlined in these Regulations.

8.
The Company’s Stock Plan Administration group, shall be the Plan Administrator and is authorized to develop procedures necessary to administer Awards and to engage brokers or other consultants that may be advisable for the administration of the Plan.




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III.
SUSPENSION, TERMINATION, WITHHOLDING, AND REPAYMENT OF AWARDS

1.
The CHRO and the CLO are each hereby individually authorized to temporarily withhold payment of an unpaid Award or suspend on a conditional or temporary basis the outstanding Awards of any Participant if the CHRO or CLO believes that such Participant has engaged in action that violates the terms and conditions governing the Award, including but not limited to any violation of Article 6 of the 2014 Plan. If the Participant is a Principal Officer of the Company, the Chief Executive Officer (“CEO”) must concur with the decision to conditionally or temporarily suspend Awards. The CLO or the Assistant Secretary may authorize a temporary payroll hold up to fourteen days to enable the Company to investigate whether the Participant has violated the terms and conditions governing an Award.

2.
In order to permanently suspend, terminate, withhold payment, demand repayment of, or otherwise restrict or recoup an Award, within a reasonable time of any such conditional or temporary suspension, the CHRO and CLO must each concur that the Participant has engaged in action that violates the terms and conditions governing the Award. In a case involving a Principal Officer of the Company, the concurrence of the CEO is also required. If there is concurrence, the Awards shall be immediately terminated without any further action. If they do not concur, the suspension shall be lifted.

3.
All alleged violations of the terms and conditions governing an Award held by the CHRO, CLO and CEO shall be reviewed by the Committee. If the Committee determines a violation has occurred, the Committee may terminate the individual’s outstanding Awards, withhold payment of an Award, or require repayment of an Award.
    
4.
Actions that significantly contravene the Company’s “Statement of Purpose, Values and Principles” (“PVP”) will be considered to be actions “significantly contrary to the best interests of the Company” and a violation of Article 6.1(d) of the 2014 Plan. This standard also includes any action taken or threatened by the Participant that the Committee determines has, or is reasonably likely to have, a significant adverse impact on the reputation, goodwill, stability, operation, personnel retention and management, or business of the Company or any subsidiary.


IV.
TERMS AND CONDITIONS OF AWARDS

1.
Award Agreements will include the Grant Date, Vest Date, Expiration Date (for Stock Options and SARs), and Settlement Date (for RSUs) determined by the Committee.

2.
Impact of Termination of Employment (other than Termination for Cause) is determined by the Committee and will be included in the Award Agreement. Except for the reasons listed in Section IV 3 through 5 of these Regulations, or unless otherwise approved by the Committee, if a Participant terminates employment for any reason before the Settlement Date (for RSUs) or the Expiration Date and prior to exercising the Award (for Stock Options and SARs), the Award will be forfeited immediately upon termination of employment.

3.
Notwithstanding Section IV.2 of these Regulations, Awards become non-forfeitable upon death of a Participant.

4.
Notwithstanding Section IV.2 of these Regulations, Awards granted under the STAR program in lieu of cash are non-forfeitable.

5.
Notwithstanding Section IV.2 of these Regulations, Awards granted under the Key Manager program become non-forfeitable if the Participant terminates employment after the last business

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day of the fiscal year in which the Award was granted on account of Retirement, Disability or in conjunction with a written separation agreement that provides for retention of the Award.


V.
EXERCISE OR SETTLEMENT OF AWARDS

1.
Pursuant to Article 6.1 of the 2014 Plan, if upon the delivery of notice to exercise, the Participant refuses to certify intent to either remain in the employ of the Company or one of its Subsidiaries for at least one (1) year or otherwise comply with the non-compete provisions of Article 6, a Principal Officer or an employee of the Company or any of its Subsidiaries who has the title of Vice President shall be informed of the Participant’s refusal.

2.
Notice of exercise of a Stock Option or SAR shall be given prior to the expiration of the Award and shall be given in the form and manner established by the Plan Administrator.

3.
The Plan Administrator is authorized from time to time to suspend the exercise of any Stock Option or SAR, the delivery of any Shares or the settlement of any RSUs, where such suspension is deemed necessary or appropriate for corporate purposes.  No such suspension shall extend the life of the Stock Option or SAR right beyond its expiration date, and in no event will there be a suspension in the five (5) calendar days immediately preceding the expiration date.

4.
The Treasurer or CHRO with Treasurer concurrence, is hereby authorized to establish such terms and conditions regarding exercise or delivery of any Award as is required or advisable to accommodate for differences in local law, tax policy or custom, including but not limited to, requiring that Participants: (i) hold shares acquired upon exercise of any stock option for a specified period of time; (ii) hold shares acquired upon exercise of any stock option outside of the Participant’s jurisdiction of residence; or (iii) immediately repatriate proceeds from the sale of shares or dividends on shares to their local jurisdiction.

5.
In the event that the New York Stock Exchange is closed for business on the day upon which shares of the Company's Common Stock are to be valued, the Plan Administrator shall value such shares on the immediately following business day of such Exchange on which day such stock is traded.

6.
Awards may be surrendered for cancellation before exercise or settlement in the manner prescribed by the Plan Administrator. Acceptance of such surrender for cancellation before exercise or settlement shall not constitute waiver of the Participant’s obligations under Article 6 of the 2014 Plan.


VI.
AWARDS GRANTED TO PARTICIPANTS LOCATED OUTSIDE THE UNITED STATES

1.
Where local law would prohibit enforcement of provisions 6.1, 6.2 or 6.3 of the Plan, the Committee authorizes the CHRO to waive any or all of those provisions in the Award Agreement.

2.
Provided Participants located in Belgium pay tax on a Key Manager Stock Option Award at grant, the CHRO is authorized to treat up to thirty-four percent (34%) of Award as non-forfeitable on the Grant Date.

3.
The CHRO may adjust Award Agreements issued to Participants located in the UK to shift the employer tax obligations to Participants, if appropriate.

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4.
The CHRO may adjust other Award Agreements as necessary to comply with the terms set out in foreign sub-plans adopted by the Committee.


VIII.
MISCELLANEOUS

1.
Determination by the Committee as to the interpretation of the terms and provisions of the2014 Plan shall be conclusive on all interested parties.

2.
In case of a triggering event under Article 4 of the 2014 Plan the appropriate number of such new or additional or different shares or securities will be issued by the Treasurer with the applicable restrictive legend to recipients holding restricted shares, in accordance with each Award Agreement.

3.
These Regulations may be amended at any time by action of the Committee.


Originally adopted October 14, 2014
Australia Addendum updated February 10, 2015

February 10, 2015




2014 STOCK & INCENTIVE COMPENSATION PLAN

AUSTRALIA ADDENDUM

1.    Purpose

This Addendum (the "Australian Addendum") to The Procter & Gamble 2014 Omnibus Incentive Compensation Plan (the “U.S. Plan”) is hereby adopted to set forth certain rules which, together with the provisions of the U.S. Plan (which are modified by this addendum in certain respects to ensure compliance with the Class Order (see below)), shall govern the operation of the Plan with respect to Australian-resident employees of P&G and its Australian subsidiaries. The Plan is intended to comply with the provisions of the Corporations Act 2001 (Cth) ASIC Regulatory Guide 49 and Class Order 14/1000 (the “Class Order”).

2.    Definitions

Except as set out below, capitalized terms used herein shall have the meaning ascribed to them in the U.S. Plan. In the event of any conflict between these provisions and the U.S. Plan, these provisions shall prevail.

For the purposes of this Australian Addendum:

"ASIC" means the Australian Securities & Investments Commission;

“Associated Body Corporate” means (as determined in accordance with the Corporations Act 2001(Cth)):
(a)
a body corporate that is a related body corporate of the Company;
(b)
a body corporate that has voting power in the Company of not less than 20%; or
(c)
a body corporate in which the Company has voting power of not less than 20%;

"Australian Subsidiaries" means Procter & Gamble Australia Pte. Ltd. and Procter & Gamble Manufacturing Pte. Ltd.;

“Common Stock” means the common stock, without par value, of the Company;

"Company" means The Procter & Gamble Company;

“Option” means an option to acquire, by way of issue, a fully-paid share of Common Stock in the same class as shares which have been quoted on the New York Stock Exchange for at least 12 months (without suspension for more than a total of 2 trading days during that period) immediately prior to the date of grant, following the lapse of specific restrictions, as determined by the Committee;

“Plan” means the U.S. Plan as modified for implementation in Australia by the Australian
Addendum;

“Restricted Stock Units” means a promise by the Company, as of the date of the grant, to deliver fully-paid shares of Common Stock in the same class as shares which have been quoted on the New York Stock Exchange for at least 12 months (without suspension for more than a total of 2 trading days during that period), following the lapse of specific restrictions, as determined by the Committee;

    

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"U.S. Plan" means The Procter & Gamble 2014 Omnibus Incentive Compensation Plan; and
"P&G" means The Procter & Gamble Company.

3.    Forms of Awards

Only shares of Common Stock, Restricted Stock, Options, Stock Appreciation Rights, and Restricted Stock Units shall be awarded or offered under the Plan in Australia. Options must be granted at no monetary cost.

Performance awards and other incentive based awards may also be awarded under the Plan in Australia to the extent that these awards fall within the definition of Incentive Right contained in the Class order.

4.
Eligible Participants

In Australia, the Plan must be extended only to persons who at the time of the offer are full or part-time employees of the Company or an Australian Subsidiary.

5.    No Contribution Plan or Trust

An offer of shares of Common Stock, Restricted Stock, Options, Stock Appreciation Rights, and Restricted Stock Units under the Plan must not involve a contribution plan or any offer, issue or sale being made through a trust, unless to a corporate triustee of a self-managed superannuation fund (within the meaning of the Superannuation Industry (Supervision) Act 1993 (Cth)).

6.    Form of Offer

6.1    Any offer made in Australia to participate in the Plan must be included in a document (“Offer Document”) which sets out the terms of the offer and which must include or be accompanied by a copy of the Plan, or a summary of the Plan. Where a summary only is provided with the offer, the Offer Document must include an undertaking that during the period (the "offer period") during which a Participant may exercise Options acquired under the Plan, the Company or its Australian subsidiary will, within a reasonable period of the Participant so requesting, provide the Participant without charge with a copy of the Plan.

6.2    The Company must take reasonable steps to ensure that any Participant to whom an offer is made is given a copy of the Offer Document.

6.3    Further, the Offer Document must include a statement to the effect that any advice given by the person in connection with the offer is general advice only, and that Participants should consider obtaining their own financial product advice from an independent person who is licensed by ASIC to give such advice.

7.    Australian Dollar Equivalent of Option Price at Offer Date

The Offer Document must specify the Australian dollar equivalent of the exercise price of the Options the subject of the Offer Document ("Option Price") as at the date of the offer.

8.    Updated Pricing Information

The Offer Document must include an undertaking that, and an explanation of the way in which the Company will, during the offer period and within a reasonable period of a Participant so requesting, make available to the Participant the following information:

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(i)    the Australian dollar equivalent of the current market price of a share of Common Stock, as at the date of the Participant’s request; and

(ii)    the Australian dollar equivalent of the Option Price, as at the date of the Participant's request.

For the purposes of this clause, the current market price of a share of Common Stock shall be taken as the final price published by the New York Stock Exchange for the previous trading day.

9.    Exchange Rate for Australia Dollar Equivalent of a Price

For the purposes of clauses 7 and 8, the Australian dollar equivalent of the Option Price and current market price of shares of Common Stock shall be calculated by reference to the Australian/U.S. dollar exchange rate published by the Australian Financial Review no earlier than the business day before the day to which the price relates.

10.    Loan or Financial Assistance

If the Company or any Australian Subsidiary offers a Participant any loan or other financial assistance for the purpose of acquiring the Common Stock to which the offer relates, the Offer Document must disclose the conditions, obligations and risks associated with such loan or financial assistance.

11.    Restriction on Capital Raising: 5% limit

In the case of any offer that will involve the issue of shares of Common Stock including as a result of an exercise of an Option, the number of shares of Common Stock that are the subject of the offer under the Plan, or to be received on exercise of an Option when aggregated with:

(a)
the number of shares of Common Stock in the same class which would be issued were each outstanding offer of shares of Common Stock or Option to acquire unissued shares of Common Stock under the Plan or any other employee share scheme of the Company, accepted or exercised (as the case may be); and

(b)
the number of shares of Common Stock in the same class issued during the previous five years pursuant to the Plan or any other employee share scheme extended only to full or part-time employees or directors of the Company or of any Associated Body Corporate of the Company;

but disregarding any offer made, or option acquired or shares of Common Stock issued by way or as a result of:

(c)    an offer to a person situated at the time of receipt of the offer outside Australia;

(d)    an offer that was an excluded offer or invitation within the meaning of the Corporations Law as it stood prior to 13 March 2000;

(e)    an offer that did not require disclosure to investors because of section 708 of the Corporations Act 2001 (Cth);

(f)    an offer that did not require the giving of a Product Disclosure Statement because of section 1012D of the Corporations Act 2001 (Cth); or


February 10, 2015




(g)
an offer made under a disclosure document or a Product Disclosure Statement,

must not exceed 5% of the total number of issued shares in that class of shares of the Company as at the time of the offer or invitation.

12.    Lodgement of Notice of Intent to Rely on Class order Relief with ASIC
Within one month of the first offer being made to an Australian Participant under this addendum, the Company must notify ASIC of its intent to rely on Class order 14/1000 (in the prescribed form).

13.    Compliance with Undertakings
The Company or an Australian Subsidiary must comply with any undertaking required to be made in the Offer Document by reason of the Class Order, including the undertaking to provide pricing information upon request.



                

February 10, 2015




2014 STOCK AND INCENTIVE COMPENSATION PLAN

FRANCE ADDENDUM

Article A.    Introduction

The Board of Directors of The Procter & Gamble Company (the “Company”) has established a 2014 Stock and Incentive Compensation Plan (the “U.S. Plan”) for the benefit of certain employees of the Company and its subsidiary companies, including its French subsidiaries, (the “Subsidiary”) of which the Company holds directly or indirectly at least 10% of the share capital. Article 3 of the U.S. Plan specifically authorizes the Compensation Committee (or other committee) (the “Committee”) designated by the Board of Directors (the “ Board”) to adopt procedures and forms relating to the U.S. Plan as it deems advisable with respect to foreign participants. The Board, therefore, intends to establish a sub-plan for France of the U.S. Plan for the purpose of granting Options which may qualify for the favorable tax and social security treatment in France applicable to Options granted under Sections L. 225-177 to L. 225-186-1 of the French Commercial Code as amended to qualifying employees under the U.S. Plan who are resident in France for French tax purposes (the “Optionees”). The terms of the U.S. Plan, as subsequently amended and as set out in Appendix 1 hereto, shall, subject to the modifications in the following rules, constitute the Rules of the 2014 Omnibus Incentive Compensation Plan for Employees in France (the “French Plan”).

Under the French Plan, the Optionees will be granted only Options as defined under Article B hereunder. In no case will grants under the French Plan include any other substitute awards, e.g., stock appreciation rights and restricted stock.

Article B.    Definitions

Capitalized terms used but not defined in the French Plan shall have the same meanings as set forth in the U.S. Plan.

In addition, the term “Option” shall have the following meaning:

A.    Purchase Options, that are rights to acquire Common Stock repurchased by the Company prior to the vesting of said Options; or

B.    Subscription Options, that are rights to subscribe newly issued Common Stock.

The term “Closed Period” means specific periods as set forth by section L. 225-177 of the French Commercial Code as amended during which French qualifying Options cannot be granted.

Notwithstanding any provisions in the U.S. Plan, the term “Grant Date” shall be the date on which the Board or the Committee both (a) designates the Optionee and (b) specifies the terms and conditions of the Option including the number of shares and the method of determining the Option Price.

The term “Effective Grant Date” shall be the date on which the Option is effectively granted, i.e., the date on which the condition precedent of the expiration of a Closed Period applicable to the Option, if any, is satisfied. Such condition precedent shall be satisfied when the Board, Committee or other authorized body shall determine that the granting of Options is no longer prevented under a Closed Period. If the Grant Date does not occur within a Closed Period, the "Effective Grant Date" shall be the same day as the “Grant Date”.

The term “Vesting Date” shall mean the date on which an Optionee's right to all or a portion of an Option granted under the French Plan becomes non-forfeitable.

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The term “Disability” is defined in accordance with categories 2 and 3 under Section
L. 341-4 of the French Social Security Code, as amended, and subject to the fulfillment of related conditions.

The term “Forced Retirement” shall mean forced retirement as determined under Section L. 1237-5 of the French Labor Code, as amended, and subject to the fulfillment of related conditions.

Article C.    Entitlement to Participate

Any individual who at the Effective Grant Date of the Option under the French Plan is either employed under the terms and conditions of an employment contract (“contrat de travail”) with the Subsidiary or is a corporate officer of the Subsidiary, shall be eligible to receive Options under the French Plan provided that he or she also satisfies the eligibility conditions of the U.S. Plan. Options may not be issued under the French Plan to employees or officers owning more than ten percent (10%) of the Company's share capital or to individuals other than employees and corporate officers of the Subsidiary. Options may not be issued to directors of the Subsidiary, other than managing directors (Président du Conseil d’Administration, Directeur Général, Directeur Général Délégué, Membre du Directoire, Gérant de sociétés par actions), unless the director is an employee of the Subsidiary as defined by French law.

Article D.    Conditions of the Option

To ensure the qualified status of Options under the French Plan, the terms and conditions of any Options granted under the French Plan shall not be modified after the Effective Grant Date, unless otherwise authorized by French law.

Notwithstanding any provision in the U.S. Plan to the contrary and since Common Stock of the Company is traded on a regulated securities market, no Option may be granted to eligible Optionees in France during specific Closed Periods as set forth by section L. 225-177 of the French Commercial Code as amended to the extent such Closed Periods are applicable to the Options.

1.    Vesting and Exercisability of Options and Holding of Common Stock
The Options will vest and be exercisable pursuant to the terms and conditions set forth in the U.S Plan and the French Plan and any stock option agreement or notice. As such, no Option can be exercised before the Vesting Date. However, in the case of death of an Optionee, outstanding Options shall be immediately vested and exercisable under the conditions set forth in Article F of the French Plan.

The vesting of Options may be accelerated in accordance with the Change in Control provisions of the U.S. Plan as noted in Article H below.

Notwithstanding any provision in the U.S. Plan and to the extent required by French law, the Optionee will not be permitted to sell or transfer shares of Common Stock acquired upon exercise of an Option before the expiration of the applicable holding period for French qualifying Options set forth by Section 163 bis C of the French Tax Code, as amended, except as provided in this French Plan or as otherwise in keeping with French law. To prevent the Optionee from selling or transferring the shares of Common Stock subject to the Option before the expiration of the applicable holding period, the Committee may, in its discretion, restrict the vesting and/or exercisability of the Option and/or the sale of shares of Common Stock until the expiration of the applicable holding period, as set forth in the stock option agreement to be delivered to each Optionee. However, the Optionee may be permitted to vest in or exercise the Option or transfer the shares of Common Stock subject to the Option before the expiration of the applicable holding period in the cases of dismissal, Forced Retirement, Disability or death, as defined in Section 91 ter of Exhibit II to the French Tax Code, as amended, but only as set forth in the stock

February 10, 2015




option agreement to be delivered to the Optionee. In any case, the restriction of the sale of the shares of Common Stock cannot exceed three years as from the effective date of the exercise of the Options.

Specific provisions apply in the event of termination of employment/service and death as provided in Article F below.

2.    Option Price

The method of determining the option price payable pursuant to Options issued hereunder shall be fixed by the Committee on the date the Option is granted (“Option Price”). If Options are considered granted on the Effective Grant Date, the Option price will be determined in accordance with the method set forth by the Committee on the Grant Date. In no event shall the Option Price per share be less than the greater of:

a.
with respect to Purchase Options over Common Stock, the higher of either 80% of the average opening price of such Common Stock during the 20 days of quotation immediately preceding the Effective Grant Date or 80% of the average purchase price paid for such Common Stock by the Company;

b.
with respect to Subscription Options over the Common Stock, 80% of the average opening price of such Common Stock during the 20 days of quotation immediately preceding the Effective Grant Date; and

c.
the minimum Option Price permitted under the U.S. Plan.

3.
Payment of the Option Price

Notwithstanding any provisions in the U.S. Plan to the contrary, upon exercise of an Option, the full Option Price will be paid either in cash, by check or by credit transfer, exclusive of any other method of payment. Under a cashless exercise program, the Optionee may give irrevocable instructions to a stockbroker to properly deliver the Option Price to the Company. Notwithstanding any provisions in the U.S. Plan to the contrary, no delivery of previously owned shares having a fair market value on the date of delivery equal to the aggregate Option Price of the shares may be used as consideration for exercising the Options.

Furthermore, notwithstanding any provisions in the U.S. Plan to the contrary, shares owed to the Optionee upon exercise may not be withheld in order to meet the tax and/or social security contributions which might be due at the time of exercise or sale of the underlying shares. However, upon sale of the underlying shares, the Company and/or the Subsidiary shall have the right to withhold, or request any third party to withhold, from the proceeds to be paid to the Optionee the sums corresponding to any social security contributions due at exercise or sale by the Optionee. If such amounts are due and are not withheld, the Optionee agrees to submit the amount due to the Subsidiary by means of check, cash or credit transfer.

The shares acquired upon exercise of an Option will be recorded in an account in the name of the shareholder with a broker or in such other manner as the Company may otherwise determine in order to ensure compliance with applicable law.

4.    Mandatory Holding Period

To the extent applicable to French-qualified Options granted by the Company, a specific holding period for the Common Stock or a restriction on the exercise of Options may be specified for Optionees in France who serve as managing directors under French law (“mandataires sociaux”). French law defines

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the following positions as mandataires sociaux: Président du Conseil d'Administration, Directeur Général, Directeur Général Délégué, Membre du Directoire, Gérant de Sociétés par actions.

Article E.    Non-transferability of Options

Notwithstanding any provision in the U.S. Plan to the contrary and except in the case of death, Options cannot be transferred to any third party. In addition, the Options are only exercisable by the Optionee during the lifetime of the Optionee.

Article F.    Termination of Employment/Service

1.    Death

In the event of the death of an Optionee, any outstanding Options on date of death shall become immediately vested and exercisable. The Optionee’s heirs may exercise the Option within six months following the death, but any Option which remains unexercised shall expire six months following the date of the Optionee’s death.


2.    Disability

In the event of the Disability of a French Optionee, the French Optionee shall not be subject to a restriction on the sale of shares of Common Stock set forth in Article D.1 above (to the extent applicable and to the extent not required under French law to obtain favorable treatment).

3.    Forced Retirement or Dismissal

In the event of the Forced Retirement (as defined in Article B) or dismissal of a Optionee, as defined by Section 91-ter of Exhibit II to the French Tax Code as construed by the French tax and social security circulars and subject to the fulfillment of related conditions, his or her Option will benefit from the favorable treatment of French qualified Options upon sale of his or her shares of Common Stock , even if the compulsory holding period is not met (to the extent applicable and to the extent not required under French law to obtain favourable tax and social security treatment), but only if the Option was exercised at least three (3) months prior to the effective date of the retirement or the delivery of the relevant dismissal notice to the Optionee, as defined by French law and as construed by competent French courts.

4.    Other Reasons

In the event of a termination of employment for reasons other than death, the Option shall be exercisable as set forth in the stock option Award Agreement entered into with the Optionee.

Article G.    Changes In Capitalization

To ensure the qualified status of Options under the French Plan, adjustments to the Option Price and/or the number of shares subject to an Option issued hereunder shall be made to preclude the dilution or enlargement of benefits under the Option only in the event of a transaction involving the Company listed under Section L. 225-181 of the French Commercial Code, as amended, a repurchase of Common Stock by the Company at a price higher than the stock quotation price on the open market, and according to the provisions of Section L. 228-99 of the French Commercial Code, as amended, as well as according to specific decrees.. Furthermore, even upon occurrence of a transaction involving the Company listed under Section L. 225-181 of the French Commercial Code, as amended, a repurchase of Common Stock by the Company at a price higher than the stock quotation price on the open market, and

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according to the provisions of Section L. 228-99 of the French Commercial Code, as amended, as well as according to specific decrees, no adjustment to the kind of shares to be granted shall be made (i.e., only shares of Common Stock shall be granted to Optionees) to preserve the qualified status of the Option. In the event of an adjustment to the Option Price and/or the number of shares of Common Stock subject to an Option issued hereunder, other than as described in this Article G, the Options may not qualify for favorable income tax and social security treatment under French law.

Article H.        Change in Control

In the event that a significant decrease in the value of Options granted to the Optionee occurs or is likely to occur as a result of a Change of Control of the Company or a liquidation, reorganization, merger, consolidation or amalgamation with another company in which the Company is not the surviving company, the Committee may, accordingly to the provisions of the U.S. Plan, in its discretion, authorize immediate vesting and exercise of Options before the date on which any Change of Control, liquidation, reorganization, merger, consolidation or amalgamation becomes effective. If this occurs, the Options may not qualify for favorable income tax and social security treatment under French law.

Article I.    Disqualification of French-Qualified Options

If the Options are otherwise modified or adjusted in a manner in keeping with the terms of the U.S. Plan or as mandated as a matter of law and the modification or adjustment is contrary to the terms and conditions of this French Plan, the Options may no longer qualify as French-qualified options. The Company does not undertake nor is it required to maintain the French-qualified status of the Options, and the Optionees understand, acknowledge and agree that it will be their responsibility to bear any additional income taxes and/or social security contributions that may be payable as a result of the disqualification of the French-qualified Options.

If the Options no longer qualify as French-qualified options, the Committee may, provided it is authorized to do so under the U.S. Plan, lift, shorten or terminate certain restrictions applicable to the vesting of the Options, the exercisability of the Options, or the sale of the shares of Common Stock which may have been imposed under this French Plan or in the stock option agreement delivered to the Optionees.

Article J.    Term of the Option

The term of the Option will be no greater than ten years after the Grant Date. The specific term will be specified in the applicable stock option agreement. This term can be extended only in the event of the death of the Optionee.

Article K.    No Surrender of Options

Notwithstanding the provisions of the U.S. Plan, Optionees may not surrender Options in lieu of exercise for cash.

Article L.    No Conversion

Notwithstanding the provisions of the U.S. Plan, Optionees may not convert cash compensation into Options.

Article M.    Interpretation

In the event of any conflict between the provisions of the present French Plan and the U.S. Plan, the provisions of the French Plan shall control for any grants made thereunder to Optionees.

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It is intended that Options granted under the French Plan shall qualify for the favorable tax and social security treatment applicable to stock options granted under Sections L. 225-177 to L. 225-186-1 of the French Commercial Code, as amended, and in accordance with the relevant provisions set forth by French tax and social security laws and the French tax and social security administrations, but there are no undertakings to maintain this status. The terms of the French Plan shall be interpreted accordingly and in accordance with the relevant provisions set forth by French tax and social security laws, the French tax and social security administrations, any relevant Guidelines published by French tax and social security administrations and are subject to the fulfillment of legal, tax and reporting obligations, if any.

Article N.    Employment Rights

The adoption of this French Plan shall not confer upon the Optionees any employment rights and shall not be construed as a part of the Optionee’s employment contracts. Articles 6.1(a), 6.1(b) and 6.1(c) of the U.S. Plan do not apply to Optionees in France.

Article O.    Amendments

Subject to the terms of the U.S. Plan, the Committee reserves the right to amend or terminate the French Plan at any time. Such amendments would only apply to future grants and would not be retroactive.

Article P.    Adoption

The French Plan is effective as of October 14, 2014.

February 10, 2015





2014 STOCK AND INCENTIVE COMPENSATION PLAN

RULES OF THE PROCTER & GAMBLE 2014
SCHEDULE 4 CSOP SUB-PLAN FOR THE UNITED KINGDOM


1    General
This schedule to the Procter & Gamble 2014 Stock and Incentive Compensation Plan (“the Plan”) sets out the rules of the Procter & Gamble 2014 Schedule 4 CSOP Sub-Plan for the United Kingdom (“the Sub-Plan”).

2    Establishment of Sub-Plan

The Procter & Gamble Company (“the Company”) has established the Sub-Plan under Article 3.2(f) of the Plan, which authorises the Committee to establish sub-plans to the Plan.
3    Purpose of Sub-Plan

The purpose of the Sub-Plan is to enable the grant to, and subsequent exercise by, employees and directors in the United Kingdom, on a tax advantaged basis, of options to acquire Shares under the Plan within the provisions of Schedule 4.

4    Rules of Sub-Plan

The rules of the Plan, in their present form and as amended from time to time, shall, with the modifications set out in this schedule, form the rules of the Sub-Plan. In the event of any conflict between the rules of the Plan and this Sub-Plan, the Sub-Plan shall prevail.

5    Relationship of Sub-Plan to Plan
The Sub-Plan shall form part of the Plan and not a separate and independent plan.

6    Interpretation
In this Sub-Plan, unless the context otherwise requires, the following words and expressions have the following meanings:

Acquiring Company
a company which obtains Control of the Company in the circumstances referred to in rule 26;
Associated Company
the meaning given to that expression by paragraph 35(1) of Schedule 4;

Close Company
the meaning given to that expression by section 989 of the Income Tax Act 2007, and paragraph 9(4) of Schedule 4;

Committee
the Compensation & Leadership Development Committee of the Board or such other committee as may be designated by the Board to administer the Plan;


February 10, 2015




Consortium
the meaning given to that word by paragraph 36(2) of Schedule 4;

Constituent Company
means the Company or a company which is:

(a)    a Subsidiary or

(b)    a Jointly Owned Company where neither it nor any company Controlled by it is a constituent company under the provisions of paragraph 34(4) of Schedule 4 in any other CSOP scheme as that term is defined in paragraph 2 of Schedule 4;

Control
the meaning given to that word by section 719 of ITEPA 2003 and “Controlled” shall be construed accordingly;

Date of Grant
the date on which an Option is granted to an Eligible Employee in accordance with the Articles of the Plan;

Eligible Employee
an individual who falls within the provisions of Article 5 of the Plan and who is:

(a)    an employee (other than a director) of a Constituent Company; or

(b)    a director of a Constituent Company who is contracted to work at least 25 hours per week for the Company and its subsidiaries or any of them (exclusive of meal breaks)

and who, in either case,:
(i)    is not eligible solely by reason that he is a non-executive director of a Constituent Company;
(ii)    has earnings in respect of his office or employment which are (or would be if there were any) general earnings to which sections 15, 22 or 26 of ITEPA 2003 applies; and
(iii)    does not have at the Date of Grant, and has not had during the preceding twelve months, a Material Interest in a Close Company which is the Company or a company which has Control of the Company or a member of a Consortium which owns the Company;
 
 
ITEPA 2003
means the Income Tax (Earnings and
Pensions) Act 2003;


February 10, 2015




Market Value
notwithstanding Article 7.2 of the Plan,

(a) in the case of an Option granted under the Sub-Plan:

(i) if at the relevant time the Shares are listed on the New York Stock Exchange, the average of the highest and lowest sale prices of a Share on the Date of Grant (as quoted in the Wall Street Journal) or, if there were no trades on that day, on the dealing day immediately preceding the Date of Grant;

(ii) if paragraph (i) above does not apply, the market value of a Share as determined in accordance with Part VIII of the Taxation of Chargeable Gains Act 1992 and agreed in advance with HM Revenue & Customs Shares and Assets Valuation on the Date of Grant or such earlier date or dates (not being more than thirty days before the Date of Grant) as may be agreed with HM Revenue & Customs;

provided that the Market Value of Shares subject to a Relevant Restriction shall be determined as if they were not subject to a Relevant Restriction;

 (b) in the case of an option granted under any other share option scheme, the market value of a Share shall be determined under the rules of such scheme for the purpose of the grant of the option;

Material Interest
the meaning given to that expression by paragraphs 9 to 14 of Schedule 4;

New Option
an option granted by way of exchange under rule 26.1;

New Shares
the shares subject to a New Option as set out in rule 26;

Option
a right to acquire Shares granted under the Sub-Plan;

Option Holder
an individual who holds an Option or, where the context permits, his legal personal representatives;

Relevant Restriction
any provision in any contract, agreement, arrangement or condition to which any of sub-sections (2) to (4) of section 423 of ITEPA 2003 would apply if references in those sub-sections to employment-related securities were references to the Shares;

Schedule 4
means Schedule 4 to ITEPA 2003;

Schedule 4 CSOP
a share plan that meets the requirements of Schedule 4;


February 10, 2015




Shares
common stock of the Company as defined in Article 2.43 of the Plan; and

Subsidiary
means a company which is a subsidiary of the Company within the meaning of section 1159 of the Companies Act 2006 over which the Company has Control.

In this Sub-Plan, unless the context otherwise requires:

words and expressions not defined above have the same meanings as are given to them in the Plan;

the contents and rule headings are inserted for ease of reference only and do not affect their interpretation;

a reference to a rule is a reference to a rule in this Sub-Plan; and

a reference to a statutory provision is a reference to a United Kingdom statutory provision and includes any statutory modification, amendment or re-enactment thereof.

7    Companies participating in Sub-Plan

Notwithstanding Article 2.45 of the Plan, the companies participating in the Sub-Plan shall be the Company and any Constituent Company which has been nominated by the Company to participate in the Sub-Plan.

8    Shares used in Sub-Plan

The Shares shall form part of the ordinary share capital of the Company and shall at all times comply with the requirements of paragraphs 16 to 20 of Schedule 4.  

9    Grant of Options

An Option shall be granted under and subject to the rules of the Plan as modified by this Sub-Plan.

10        Identification of Options

An Award Agreement issued in respect of an Option shall expressly state that it is issued in respect of an Option. An option which is not so identified shall not constitute an Option.

11    Contents of Award Agreement

An Award Agreement issued in respect of an Option shall state:

that it is issued in respect of an Option;    

the date of grant of the Option;

the number of Shares subject to the Option (or how that number may be calculated);

February 10, 2015




the exercise price under the Option (or the method by which the exercise price will be determined);

any performance target or other condition imposed on the exercise of the Option;

the times at which the Option will ordinarily be exercisable;

the circumstances in which the Option will lapse;

details of any Relevant Restriction to which the Shares are subject; and

any conditions imposed by the Committee under Articles 3.2 or 16 in relation to the Option.

12        Persons to whom Options may be granted

An Option may not be granted to an individual who is not an Eligible Employee at the Date of Grant.

13    Options non transferable

Notwithstanding Article 14 of the Plan, an Option shall be personal to the Eligible Employee to whom it is granted and, subject to rule 24, shall not be capable of being transferred, charged or otherwise alienated and shall lapse immediately if the Option Holder purports to transfer, charge or otherwise alienate the Option.

14    Limit on number of Shares placed under Option under Sub-Plan

For the avoidance of doubt, Shares placed under Option under the Sub-Plan shall be taken into account for the purpose of Article 4.1 of the Plan.

15        HM Revenue & Customs limit (£30,000)

An Option may not be granted to an Eligible Employee if the result of granting the Option would be that the aggregate Market Value of the shares subject to all outstanding options granted to him under the Sub-Plan or any other share option scheme established by the Company or an Associated Company under Schedule 4) would exceed sterling £30,000 or such other limit as may from time to time be specified in paragraph 6 of Schedule 4.

16        Foreign Currency Options

For the purpose of the limit contained in rule 15, the United Kingdom sterling equivalent of the Market Value of a share on any day shall be determined by taking the spot sterling/US dollar exchange rate for that day as shown in the Financial Times.

17        Scaling Down

If the grant of an Option would otherwise cause the limit in rule 15 to be exceeded, it shall take effect as the grant of an Option under the Sub-Plan over the highest number of Shares which does not cause the limit to be exceeded. If more than one Option is granted on the same Date of Grant, the number of Shares which would otherwise be subject to each Option shall be reduced pro rata.





February 10, 2015




18        Exercise price under Options

Notwithstanding Article 7.2 of the Plan, the amount payable per Share on the exercise of an Option shall not be manifestly less than the Market Value of a Share on the Date of Grant.

19
Performance target or other condition imposed on exercise of Option    

Any performance target or other condition imposed on the exercise of an Option under Article 3 or Article 15 of the Plan shall be:

19.1
objective;

19.2
capable of being fulfilled within the period of ten years from the Date of Grant;

19.3
such that, once satisfied, the exercise of the Option is not subject to the discretion of any person; and

19.4
stated in the Option agreement.

If an event occurs as a result of which the Committee considers that a performance target or other condition imposed on the exercise of an Option is no longer appropriate and substitutes, varies or waives under Article 15 of the Plan the performance target or condition, such substitution, variation or waiver shall:

19.5
be reasonable in the circumstances; and
19.6
except in the case of waiver produces a fairer measure of performance and is not materially more or less difficult to satisfy.
20        Latest date for exercise of Options

An Option may not be exercised more than ten years after the Date of Grant and to the extent not so exercised by that time the Option shall lapse immediately. This term can be extended only in the event of the death of the Optionee as required by Rule 24.

21        Material Interest

An Option may not be exercised if the Option Holder then has, or has had within the preceding twelve months, a Material Interest in a Close Company which is the Company or which is a company which has Control of the Company or which is a member of a Consortium which owns the Company.

22        Payment for Shares on exercise of Options

The amount due on the exercise of an Option shall be paid in cash or by cheque or banker’s draft and may be paid out of funds provided to the Option Holder on loan by a bank, broker or other person. The payment may not be in the form of relinquishing a portion of the Option or paid by the transfer to the Company of Shares or any other shares or securities, and in any circumstance the Company must not charge an administrative fee for the exercise of an Option. The date of exercise of an Option shall be the date on which the Company receives the amount due on the exercise of the Option under this rule 22, together with any payment or documentation required under rule 30.




February 10, 2015




23        Issue or transfer of Shares on exercise of Options

The Company shall, as soon as reasonably practicable and in any event not later than thirty days after the date of exercise of an Option, issue or transfer to the Option Holder, or procure the issue or transfer to the Option Holder of, the number of Shares specified in the notice of exercise, subject only to compliance by the Option Holder with the rules of the Sub-Plan and to any delay necessary to complete or obtain:

23.1
the listing of the Shares on any stock exchange on which Shares are then listed; or
23.2
such registration or other qualification of the Shares under any applicable law, rule or regulation as the Company determines is necessary or desirable.

24        Death of Option Holder

If an Option Holder dies before the tenth anniversary of the Date of Grant, his personal representatives shall be entitled to exercise his Options at any time during the twelve-month period following his death. If not so exercised, the Options shall lapse immediately.

25    Retirement of Option Holder

For the purpose of this Sub-Plan, notwithstanding Article 2.42, Retirement shall mean an Option Holder leaving employment with the intention of retiring.

26    Change in Control of Company

26.1
Exchange of Options

Should a Change of Control occur within the terms of Article 17 of the Plan, then only if a company (“Acquiring Company”) obtains Control of the Company as a result of making:

26.1.1
a general offer to acquire the whole of the issued ordinary share capital of the Company which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company;

26.1.2
a general offer to acquire all the shares in the Company of the same class as the Shares:

26.1.3
a compromise or arrangement sanction by the court under section 899 of the Companies Act 2006; or

26.1.4
a “non-UK company reorganisation arrangement” (within the meaning of paragraph 35ZA of Schedule 4); or

should an Acquiring Company become bound or entitled to acquire Shares under sections 979 to 982 of the Companies Act 2006,

an Option Holder may, at any time during the period set out in rule 26.2, by agreement with the Acquiring Company, release his Option in consideration of the grant to him of a new option (“New Option”) which is equivalent to the Option but which relates to shares (“New Shares”) in:

26.1.5    the Acquiring Company;


February 10, 2015




26.1.6    a company which has Control of the Acquiring Company; or

26.1.7    a company which either is, or has Control of, a company which is a member of a Consortium which owns either the Acquiring Company or a company having Control of the Acquiring Company.

26.2
Period allowed for exchange of Options

The period referred to in rule 26.1 is the period of six months beginning with the time when the person making the offer has obtained Control of the Company and any condition subject to which the offer is made has been satisfied.

26.3
Meaning of “equivalent”

The New Option shall not be regarded for the purpose of this rule 26 as equivalent to the Option unless:

26.3.1
the New Shares satisfy the conditions in paragraphs 16 to 20 of Schedule 4; and    

26.3.2
save for any performance target or other condition imposed on the exercise of the Option, the New Option is exercisable in the same manner as the Option and subject to the provisions of the Sub-Plan as it had effect immediately before the release of the Option; and

26.3.3
the total market value, immediately before the release of the Option, of the Shares which were subject to the Option is substantially the same as the total market value, immediately after the grant of the New Option, of the New Shares subject to the New Option (market value being determined using a methodology agreed by HM Revenue & Customs);

26.3.4
the total amount payable by the Option Holder for the acquisition of the New Shares under the New Option is substantially the same as the total amount that would have been payable by the Option Holder for the acquisition of the Shares under the Option.

26.4
Date of grant of New Option

The date of grant of the New Option shall be deemed to be the same as the Date of Grant of the Option.

26.5
Application of Sub-Plan to New Option

In the application of the Sub-Plan to the New Option, where appropriate, references to “Company” and “Shares” shall be read as if they were references to the company to whose shares the New Option relates and the New Shares, respectively, (save that in the definition of “Committee”, the reference to “Company” shall be read as if it were a reference to The Procter & Gamble Company).

27        Rights attaching to Shares issued on exercise of Options

Notwithstanding the provisions of Article 3 of the Plan, which grant the Committee authority to determine the conditions and restrictions, if any, applying to shares of Common Stock acquired through the exercise of an option, all Shares issued in respect of the exercise of an Option shall, as to any voting, dividend, transfer and other rights, including those arising on a liquidation of the

February 10, 2015




Company, rank equally in all respects and as one class with the shares of the same class in issue at the date of such issue save as regards any rights attaching to such shares by reference to a record date prior to the date of such issue.

28    Amendment of Sub-Plan

Notwithstanding Article 19.1 of the Plan, no amendment may be made to a “key feature” of the Sub-Plan (within the meaning given to that expression in paragraph 30(4) of Schedule 4), whether taking the form of an amendment of the Plan or the Sub-Plan, that would result in the Sub-Plan no longer being a Schedule 4 CSOP.

29
Adjustment of Options

Notwithstanding Article 4.5 of the Plan, to the extent that any adjustment of an Option is permitted under these rules, it shall not be made unless the adjustment is permitted pursuant to, and in compliance with, paragraph 22 of Schedule 4.

30    Tax and social security withholding

An Option may not be exercised unless the Option Holder has beforehand made provision for the payment or withholding of any taxes and social security required to be withheld in accordance with the applicable law of any jurisdiction in respect of the exercise of the Option, or the receipt of the Shares. Notwithstanding the provisions of Article 20 of the Plan which permit different arrangements to be made to satisfy the payment in respect of any taxes and social security required to be withheld, the payment may not be in the form of relinquishing a portion of the Option or paid by the transfer to the Company of Shares or any other shares or securities, unless this is the Shares by virtue of the exercise of the Option. The Option Holder may, by agreement with the Company, enter into some other arrangement to ensure that such amount is available (whether by authorising the sale of some or all of the Shares subject to his Option and the payment to the Company, or where appropriate the Option Holder’s employing company of the requisite amount out of the proceeds of sale or otherwise). Where this is the case, the Option shall not be treated as exercised until the Company determines that such arrangements are satisfactory to it.

31
Transfer of Employer’s NIC

The Committee may, at its discretion, impose requirements for the payment by the Option Holder of all or any part of the employer’s national insurance contributions (“NIC“) which may arise as a result of the exercise of his Option. Such requirements shall be specified on the Date of Grant and shall be a condition of exercise of the Option, provided that the Committee (acting fairly and reasonably) may waive these requirements. They may include in particular, but not by way of limitation, a determination that the Option may not be exercised unless the Option Holder has beforehand paid to the Company (or the company which employs the Option Holder, if different) an amount sufficient to discharge all or any part of the employer’s NIC. Alternatively, the Option Holder may, by agreement with the Company or the employing company (as the case may be), enter into some other arrangement to ensure that such amount is available to them or it (whether by authorising the sale of some or all of the Shares subject to his Option and the payment to the Company or the employing company (as the case may be) of the requisite amount out of the proceeds of sale or otherwise). Where this is the case, the Option shall not be treated as exercised until the Company or the employing company (as the case may be) determine that such arrangements are satisfactory to it.




February 10, 2015




32    Disapplication of certain provisions of Plan

Articles 6.2 and 6.3 of the Plan shall not apply for the purpose of this Sub-Plan. In addition the provisions of the Plan dealing with:

incentive stock options qualifying under section 422 of the US Internal Revenue Code of 1986, as amended;

stock appreciation rights;

unrestricted or restricted stock awards;

performance awards which are not stock options;

the cash cancellation of share options including those contained in Article 17.3(a)(i) of the Plan; and

the granting of share options in tandem with stock appreciation rights and the subsequent cancellation of share options

shall not form part of, and no such rights may be granted under, this Sub-Plan.

February 10, 2015




EXHIBIT 12
THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
 
Years Ended June 30
 
Nine Months Ended March 31
 
2014
 
2013
 
2012
 
2011
 
2010
 
2015
 
2014
Amounts in millions, except ratio amounts
 
 
 
 
 
 
 
 
 
 
 
 
 
EARNINGS, AS DEFINED
 
 
 
 
 
 
 
 
 
 
 
 
 
Earnings from operations before income taxes after eliminating undistributed earnings of equity method investees
$
14,320

 
$
14,270

 
$
12,111

 
$
14,305

 
$
13,948

 
$
10,563

 
$
11,180

Fixed charges (excluding capitalized interest)
928

 
899

 
1,000

 
1,052

 
1,167

 
646

 
693

TOTAL EARNINGS, AS DEFINED
$
15,248

 
$
15,169

 
$
13,111

 
$
15,357

 
$
15,115

 
$
11,209

 
$
11,873

FIXED CHARGES, AS DEFINED
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense (including capitalized interest)
$
789

 
$
754

 
$
844

 
$
888

 
$
1,014

 
$
531

 
$
591

1/3 of rental expense
174

 
171

 
176

 
170

 
176

 
129

 
129

TOTAL FIXED CHARGES, AS DEFINED
$
963

 
$
925

 
$
1,020

 
$
1,058

 
$
1,190

 
$
660

 
$
720

RATIO OF EARNINGS TO FIXED CHARGES
15.8x

 
16.4x

 
12.9x

 
 14.5x

 
 12.7x

 
17.0x

 
16.5x








EXHIBIT 31.1
Rule 13a-14(a)/15d-14(a) Certifications
I, A.G. Lafley, certify that:
(1)
I have reviewed this quarterly report on Form 10-Q of The Procter & Gamble Company;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ A.G. LAFLEY
(A.G. Lafley)
Chairman of the Board, President and
Chief Executive Officer
 
April 23, 2015
Date








EXHIBIT 31.2
Rule 13a-14(a)/15d-14(a) Certifications
I, Jon R. Moeller, certify that:
(1)
I have reviewed this quarterly report on Form 10-Q of The Procter & Gamble Company;
(2)
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5)
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



/s/ JON R. MOELLER
(Jon R. Moeller)
Chief Financial Officer
 
April 23, 2015
Date







EXHIBIT 32.1
Section 1350 Certifications
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble Company (the “Company”) certifies to his knowledge that:
(1)
The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in that Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company.


/s/ A.G. LAFLEY
(A.G. Lafley)
Chairman of the Board, President and
Chief Executive Officer
 
April 23, 2015
Date
A signed original of this written statement required by Section 906 has been provided to The Procter & Gamble Company and will be retained by The Procter & Gamble Company and furnished to the Securities and Exchange Commission or its staff upon request.







EXHIBIT 32.2
Section 1350 Certifications
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of The Procter & Gamble Company (the “Company”) certifies to his knowledge that:
(1)
The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in that Form 10-Q fairly presents, in all material respects, the financial conditions and results of operations of the Company.


/s/ JON R. MOELLER
(Jon R. Moeller)
Chief Financial Officer
 
April 23, 2015
Date
A signed original of this written statement required by Section 906 has been provided to The Procter & Gamble Company and will be retained by The Procter & Gamble Company and furnished to the Securities and Exchange Commission or its staff upon request.



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