PG Procter and Gamble Co

NOTES TO FINANCIAL STATEMENTS

1.	DESCRIPTION OF THE PLAN

The following description of The Procter & Gamble Commercial Company Employees’ Savings Plan (the “Plan”) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.

General — The Plan is a defined contribution plan covering all eligible employees of Procter & Gamble Commercial, LLC (the “Plan Sponsor”) and Olay, LLC, (collectively, the “Companies”), subsidiaries of The Procter & Gamble Company (P&G). In order to be eligible to participate in the Plan, employees must be residents of Puerto Rico and have completed one year of service. The Procter & Gamble U.S. Business Services Company controls and manages the operation and administration of the Plan. Northern Trust Company serves as the custodian of the Plan. Banco Popular de Puerto Rico serves as the trustee of the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

Contributions — Each year, participants may contribute up to 10% of their pretax annual compensation, as defined in the Plan, not exceeding the maximum deferral amount specified by Puerto Rico law. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. The Companies contribute 40% of the first 5% of eligible compensation that a participant contributes to the Plan. Contributions are subject to certain limitations.

Participant Accounts — Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the participant’s contribution, Companies contribution, and allocations of Plan earnings, and charged with withdrawals and an allocation of Plan losses and administrative expenses. Allocations are based on account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.

Investments — Participants direct the investment of their contributions and account balances into various investment options offered by the Plan. The Companies’ contributions are automatically invested in The Procter & Gamble Company common stock (“P&G common stock”). The Plan currently offers seven mutual funds (including a money market mutual fund) as investment options for participants.

Vesting — Participants are vested immediately in their contributions, plus actual earnings thereon. The Companies’ contributions plus actual earnings thereon are 100% vested upon the occurrence of any of the following events: completion of three years of credited service; attaining age 65; total disability or death while employed by the Companies.

Payment of Benefits — On termination of service, death, or disability, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution or as P&G common stock, with any fractional share of stock paid in cash. Participants are also eligible to make hardship withdrawals in the event of certain financial hardships.

Notes Receivable from Participants — New loans to participants are not permitted under the Plan. Participant loans included in the accompanying statement of net assets available for benefits represented outstanding loans granted to participants of The Gillette Company Employees’ Savings Plan prior to its merger with the Plan on September 4, 2009.  During the year ended December 31, 2019, all participant loans were deemed as distributions to participants.

Forfeited Accounts — At December 31, 2019 and 2018, forfeited non-vested accounts totaled $695 and $678, respectively. These accounts can be used to reduce future Companies contributions. During the year ended December 31, 2019 and 2018, no forfeited non-vested account monies were used.

Subsequent Events — Subsequent to year end, there was an outbreak of the novel corona virus (COVID 19) which impacted the financial markets and the global economy. The outbreak of COVID 19 is still on-going and the magnitude of impact in the financial markets is highly uncertain and cannot be predicted. The effect of this impact has not been reflected in these financial statements and may adversely affect the Plan’s net assets available for benefits.  The related financial impact and duration cannot be reasonably estimated at this time.

On March 29, 2020, the Puerto Rico Department of the Treasury issued Circular Letter of Internal Revenue No. 20-23 (CL 20-23), which extends, to COVID 19-related distributions under qualified retirement plans, essentially the same eligibility requirements, due dates, and local tax treatment that was established in Circular Letter 20-09 (CL 20-09) for distributions under qualified retirement plans related to the earthquakes that hit Puerto Rico during the beginning of the year.

The Plan has implemented the following relief provisions, however its future effects on the Plan’s net assets available for benefits and changes in net assets available for benefits are uncertain.

Hardship withdrawal provisions — as provided in the Puerto Rico Internal Revenue Circular Letter (CC RI) Number 20-23, which maintains all CC RI 20-09 rules for eligible distributions, eligible individuals, Puerto Rico income tax treatment, responsibilities of the withholding agent, and relaxing of the restrictions on post-distribution contributions to the plans, eligible expenses is amended to include any expense incurred by Eligible Individuals (the participant, their spouse, descendants or ascendants) to compensate losses or damages suffered, and to cover basic needs as a result of the COVID 19 emergency, including loss of earnings as a result of the order to close and the curfew declared by the Governor.

Eligible Individuals may withdrawal up to $100,000 to cover eligible expenses.  The first $10,000 is exempt from the regular income tax and the alternative basic tax and will not be subject to any type of tax withholding at source.  Any distribution in excess of $10,000 will be subject to a preferential income tax rate and withholding at source of 10% provided that withholding at source is made. Otherwise it will be subject to the regular income tax and alternative basic tax, the applicable tax withholdings at source, and to the penalties for early withdrawal under the PRIRC.  An Eligible Individual may request various eligible distributions during the eligible period, from one or various retirement plans or individual retirement accounts or from a combination or both, but the total of the eligible distributions, in the aggregate, cannot exceed $100,000 and the total amount exempt from taxes would not exceed $10,000.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting — The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

Risks and Uncertainties — The Plan provides for various investment options in common stocks, a money market fund, a guaranteed interest account, and in registered investment companies which invest in combinations of stocks, bonds, fixed income securities, mutual funds, and other investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.

COVID 19 has adversely affected, and may continue to adversely affect economic activity globally, nationally and locally. Following the COVID 19 outbreak in January 2020, the values of investment securities have declined significantly. These economic and market conditions and other effects of the COVID 19 outbreak may continue to adversely affect the Plan.  The extent of the adverse impact of the COVID 19 outbreak on the Plan’s participants’ account balances and the amounts reported in the Statement of Net Assets Available for Benefits as of December 31, 2019 cannot be predicted at this time.

Investment Valuation and Income Recognition — The Plan’s investments are stated at fair value. Fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Quoted market prices are used to value investments.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation/(depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held throughout the year.

Management fees and operating expenses charged to the Plan for investments in mutual funds are deducted from income earned daily and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for such investments.

Notes Receivable from Participants — Notes receivable from participants were measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent terminated participant loans were recorded as distributions based on the terms of the Plan document.

Excess Contributions Payable — The Plan is required to return contributions received during the Plan year in excess of the Puerto Rican Internal Revenue Code (the “PRIRC”) limits. Excess contributions payable to the participants were $15,013 and $5,603 at December 31, 2019 and 2018, respectively.

Payment of Benefits — Benefit payments to participants are recorded upon distribution. There are no amounts allocated to accounts of persons who have elected to withdraw from the Plan but have not yet been paid at December 31, 2019 or 2018.

Administrative Expenses — Investment management expenses are paid by the Plan and are netted against investment income. Recordkeeping fees of the Plan are paid by participants through a reduction in their investment balances.

3.	FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements and Disclosures, provides a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, as follows: Level 1, which refers to securities valued using unadjusted quoted prices from active markets for identical assets; Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available; and Level 3, which refers to securities valued based on significant unobservable inputs.  There are no Level 2 or Level 3 investments in this plan. Assets are valued in their entirety based on the lowest level of input that is significant to the fair value measurement.

Asset Valuation Methodologies — Valuation methodologies maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2019 and 2018.

Cash — Held primarily in short-duration, highly liquid securities, which are valued at cost plus accrued interest.

Common Stocks — Valued at the closing price reported on the active market on which the individual securities are traded.

Mutual Funds — Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The mutual funds held by the Plan are actively traded.

Transfers between Levels — The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. The Plan’s policy is to recognize transfers between levels at the actual date of the event or change in circumstances that caused the transfer.  For the years ended, December 31, 2019 and 2018, there were no transfers between levels.

We evaluate the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to the total net assets available for benefits.

Common Collective Trust Fund - As permitted by accounting principles generally accepted in the United States of America, the Plan uses NAV as a practical expedient to determine the fair value of the common collective trust fund.  NAV is based on the fair value of the underlying investments held by the fund less its liabilities.  Participant transactions (purchases and sales) may occur daily.  Redemption for the common collective trust is permitted daily with no other restrictions or notice periods and there are no unfunded commitments.  In accordance with GAAP, the common collective trust fund measured at NAV has not been classified in the fair value hierarchy.  The fair value amounts presented in the table below are intended to permit reconciliation to the amounts presented in the Statements of Net Assets Available for Benefits.

The following tables set forth by level within the fair value hierarchy a summary of the Plan’s investments measured at fair value on a recurring basis at December 31, 2019 and 2018:

During the years ended December 31, 2019 and 2018, the Plan’s investment in Company common stock, including gains and losses on investments bought and sold as well as held during the year, appreciated in value by $5,194,488 and depreciated by $63,796, respectively.

6.

PLAN TERMINATION Although they have not expressed any intention to do so, the Companies have the right under the Plan to discontinue their contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA. In the event the Plan is terminated participants would become 100% vested in their accounts.

7.	TAX STATUS

The Plan is exempt from Puerto Rico income taxes under the provisions of the PRIRC enacted on January 31, 2011. The 2011 PRIRC replaced the 1994 PRIRC, as amended. The 2011 PRIRC modified rules concerning contribution limits, coverage requirements, non-discrimination testing, and other matters. The 2011 PRIRC also provided for certain changes applicable to plans sponsored by entities under common control. These changes were effective for periods commencing after December 31, 2010, with certain additional requirements beginning on January 1, 2012. The Plan is not qualified under Section 401(a) of the U.S. Internal Revenue Code, but it is exempt from U.S. taxation under Section 1022 of the Employee Retirement Income Security Act of 1974. The Plan is subject to routine audits by taxing jurisdictions at any time. The Companies and Plan management believe that the Plan is currently designed and operated in compliance with the applicable requirements of the 2011 PRIRC and the Plan and the related trust continue to be tax-exempt. Therefore, no provision for income taxes has been reflected in the Plan’s financial statements.

8.	RECONCILIATION OF FINANCIAL STATEMENTS TO THE FORM 5500

Reconciliation of net assets available for benefits as shown in the financial statements to those in the Form 5500 as filed by the Plan as of December 31, 2018, is as follows.

       

For the year ended December 31, 2019, the following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500:

                                        

                                  

THE PROCTER & GAMBLE COMMERCIAL COMPANY
EMPLOYEES’ SAVINGS PLAN
FORM 5500, SCHEDULE H, PART IV, LINE 4j — SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 2019
EIN: 66-0676831
PLAN: 002
SINGLE TRANSACTIONS — None.
SERIES OF TRANSACTIONS
						Current
						Value of
						Asset on	Net
	Purchase		Sales		Cost of	Transaction	Gain
Description of Asset	Amount		Amount		Asset	Date	on Sale
The Procter & Gamble Company common stock	$     953,333	(61)	-		$     953,333	$       953,333
The Procter & Gamble Company common stock	-		$    2,027,551	(52)	1,208,857	2,027,551	$         818,694
NOTES:
(A) All transactions are related to Parties in Interest.
(B) The number in parentheses represents the number of transactions in the series.