Procter & Gamble : Investor Day 2022 Reg G

The Procter & Gamble Company Regulation G Reconciliation of Non-GAAP Measures

In accordance with the SEC's Regulation G, the following provides definitions of the non-GAAP measures used in Procter & Gamble's November 17, 2022, Investor Day, associated slides, and other materials and the reconciliation to the most closely related GAAP measure. We believe that these measures provide useful perspective on underlying business trends (i.e., trends excluding non-recurring or unusual items) and results and provide a supplemental measure of year-on-year results. The non- GAAP measures described below are used by Management in making operating decisions, allocating financial resources and for business strategy purposes. These measures may be useful to investors as they provide supplemental information about business performance and provide investors a view of our business results through the eyes of Management. Certain of these measures are also used to evaluate senior management and are a factor in determining their at-risk compensation. These non-GAAP measures are not intended to be considered by the user in place of the related GAAP measure, but rather as supplemental information to our business results. These non-GAAP measures may not be the same as similar measures used by other companies due to possible differences in method and in the items or events being adjusted.

The following measures are provided:

1. Organic sales growth - page 3
2. Core EPS and currency-neutral Core EPS - page 5
3. Core operating margin - page 5
4. Adjusted free cash flow productivity - page 6

Organic sales growth: Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of acquisitions and divestitures, the impact from the July 1, 2018, adoption of the new accounting standard for "Revenue from Contracts with Customers" and foreign exchange from year-over-year comparisons. Management believes this measure provides investors with a supplemental understanding of underlying sales trends by providing sales growth on a consistent basis.

The Core earnings measures included in the following reconciliation tables refer to the equivalent GAAP measures adjusted as applicable for the following items:

• Incremental restructuring: The Company has historically had an ongoing level of restructuring activities. Such activities have resulted in ongoing annual restructuring related charges of approximately $250 - $500 million before tax. Since 2012, the Company had a strategic productivity and cost savings initiative that resulted in incremental restructuring charges through fiscal 2020. The adjustment to Core earnings includes only the restructuring costs above what we believe are the normal recurring level of restructuring costs. In fiscal year 2021 and onwards, the Company has incurred and expects to incur restructuring costs within our historical ongoing level.
• Transitional Impact of U.S. Tax Act: In December 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Act"). This resulted in a net charge of $602 million for fiscal year 2018. The adjustment to Core earnings includes only this transitional impact and does not include the ongoing impacts of the lower U.S. statutory rate on the respective years' earnings.
• Gain on Dissolution of the PGT Healthcare Partnership: The Company dissolved our PGT Healthcare partnership, a venture between the Company and Teva Pharmaceuticals Industries, Ltd (Teva) in the OTC consumer healthcare business, in fiscal 2019. The transaction was accounted for as a sale of the Teva portion of the PGT business and the Company recognized an after-tax gain on the dissolution of $353 million.
• Shave Care Impairment: In fiscal 2019, the Company recognized a one-time,non-cash,after-tax charge of $8.0 billion ($8.3 billion before tax) to adjust the carrying values of the Shave Care reporting unit. This was comprised of a before and after-tax impairment charge of $6.8 billion related to goodwill and an after-tax impairment charge of $1.2 billion ($1.6 billion before tax) to reduce the carrying value of the Gillette indefinite-lived intangible assets.
• Anti-dilutiveImpacts: The Shave Care impairment charges caused certain equity instruments that are normally dilutive (and hence normally assumed converted or exercised for the purposes of determining diluted net earnings per share) to be anti-dilutive. Accordingly, for U.S. GAAP diluted earnings per share, these instruments were not assumed to be concerted or exercised. Specifically, in the fourth quarter and total fiscal 2019, the weighted average outstanding preferred shares were not included in the diluted weighted average common shares outstanding. Additionally, in the fourth quarter of fiscal 2019, none of our outstanding share-based equity awards were included in the diluted weighted average common shares outstanding. As a result of the non-GAAP Shave Care impairment adjustment, these instruments are dilutive for non-GAAP earnings per share.
• Early debt extinguishment charges: In fiscal years 2021 and 2018, the Company recorded after tax charges of $427 million and $243 million, respectively, due to early extinguishment of certain long-term debt. These charges represent the difference between the reacquisition price and the par value of the debt extinguished.

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We do not view the above items to be part of our sustainable results, and their exclusion from core earnings measures provides a more comparable measure of year-on-year results. These items are also excluded when evaluating senior management in determining their at-risk compensation.

Management views the following non-GAAP measures as useful supplemental measures of Company performance and operating efficiency over time.

Core EPS and currency-neutralCore EPS: Core earnings per share, or Core EPS, is a measure of the Company's diluted net earnings per share from continuing operations adjusted as indicated. Currency-neutral Core EPS is a measure of the Company's Core EPS excluding the incremental current year impact of foreign exchange.

Core operating margin: Core operating margin is a measure of the Company's operating margin adjusted for items as indicated.

Adjusted free cash flow: Adjusted free cash flow is defined as operating cash flow less capital spending and adjusted for tax payments related to the Merck OTC Consumer Healthcare acquisition in 2020 and transitional tax payments resulting from the U.S. Tax Act beginning in 2019. Adjusted free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. Management views adjusted free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends, share repurchases, acquisitions and other discretionary investments.

Adjusted free cash flow productivity: Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to net earnings excluding certain adjustments as indicated. Management views adjusted free cash flow productivity as a useful measure to help investors understand P&G's ability to generate cash. This measure is used by management in making operating decisions, allocating financial resources and for budget planning purposes.

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1. Organic sales growth:

Organic Sales

Prior Fiscal Years

	Net Sales		Acquisition/		Organic Sales
	Foreign	Divestiture
Baby, Feminine and Family Care	Growth	Exchange Impact	Impact/Other*		Growth
FY 2018	(1)%	(1)%	-%		(2)%
FY 2019	(2)%	4%	-%	2%
FY 2020	3%	2%	(1)%	4%
FY 2021	3%	(1)%	-%	2%
FY 2022	5%	1%	-%	6%
Prior Four-Year Avg Growth Rate				4%
	Net Sales		Acquisition/		Organic Sales
	Foreign	Divestiture
Grooming	Growth	Exchange Impact	Impact/Other*		Growth
FY 2018	(1)%	(3)%	1%		(3)%
FY 2019	(5)%	5%	1%	1%
FY 2020	(2)%	3%	-%	1%
FY 2021	6%	-%	-%	6%
FY 2022	2%	3%	-%	5%
FY 2018 - FY2020 Avg Growth Rate				0%
FY 2021 - FY2022 Avg Growth Rate				6%
	Net Sales		Acquisition/		Organic Sales
	Foreign	Divestiture
Total Company	Growth	Exchange Impact	Impact/Other*		Growth
FY 2019	1%	4%	-%		5%
FY 2020	5%	2%	(1)%	6%
FY 2021	7%	(1)%	-%	6%
FY 2022	5%	2%	-%	7%
Four-Year Average				6%

• Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures for all periods, the impact from the July 1, 2018, adoption of new accounting standards for "Revenue from Contracts with Customers" and rounding impacts necessary to reconcile net sales to organic sales.

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Organic Sales

Prior Quarters

	Net Sales		Acquisition/		Organic Sales
	Foreign	Divestiture
Total Company	Growth	Exchange Impact	Impact/Other*		Growth
Q1 FY 2019	-%	3%	1%		4%
Q2 FY 2019	-%	4%	-%	4%
Q3 FY 2019	1%	5%	(1)%	5%
Q4 FY 2019	4%	4%	(1)%	7%
Q1 FY 2020	7%	2%	(2)%	7%
Q2 FY 2020	5%	1%	(1)%	5%
Q3 FY 2020	5%	2%	(1)%	6%
Q4 FY 2020	4%	3%	(1)%	6%
Q1 FY 2021	9%	1%	(1)%	9%
Q2 FY 2021	8%	-%	-%	8%
Q3 FY 2021	5%	(1)%	-%	4%
Q4 FY 2021	7%	(3)%	-%	4%
Q1 FY 2022	5%	(1)%	-%	4%
Q2 FY 2022	6%	-%	-%	6%
Q3 FY 2022	7%	3%	-%	10%
Q4 FY 2022	3%	4%	-%	7%
Q1 FY 2023	1%	6%	-%	7%
Average of Q1 FY 2019, Q1 FY
2020, Q1 FY 2021, Q1 FY 2022				6%
Average of Q2 FY 2019, Q2 FY
2020, Q2 FY 2021 and Q2 FY 2022				6%
Average of Q3 FY 2019, Q3 FY
2020, Q3 FY 2021 and Q3 FY 2022				6%
Average of Q4 FY 2019, Q4 FY
2020, Q4 FY 2021 and Q4 FY 2022				6%
Average of Q1, Q2, Q3 and Q4 of
FY 2019				5%
Average of Q1, Q2, Q3 and Q4 of
FY 2020				6%
Average of Q1, Q2, Q3 and Q4 of
FY 2021				6%
Average of Q1, Q2, Q3 and Q4 of
FY 2022				7%

• Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures the impact from the July 1, 2018, adoption of new accounting standards for "Revenue from Contracts with Customers" and rounding impacts necessary to reconcile net sales to organic sales.

Organic Sales

Guidance

		Combined Foreign Exchange &	Organic Sales
Total Company	Net Sales Growth	Acquisition/Divestiture Impact/Other*	Growth
FY 2023 (Estimate)	(3)% to (1)%	6%	3% to 5%

• Acquisition & Divestiture Impact/Other includes the volume and mix impact of acquisitions and divestitures and rounding impacts necessary to reconcile net sales to organic sales.

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2. Core EPS and currency-neutral Core EPS:

Diluted Net Earnings Per Common Share from Continuing Operations Attributable to P&G

Incremental Restructuring

Transitional Impacts of the U.S. Tax Act Early Debt Extinguishment

Gain on Dissolution of PGT Partnership Shave Care Impairment Anti-Dilutive Impacts

Core EPS

Percentage change vs. prior period

Currency Impact to Earnings

Currency-Neutral Core EPS

Percentage change vs. prior period Core EPS

4-Year		Twelve Months Ended June 30
Average	2022	2021	2020	2019	2018
	$5.81	$5.50	$4.96	$1.43	$3.67
			0.16	0.13	0.23
					0.23
		0.16		(0.13)	0.09
				3.03
				0.06
	$5.81	$5.66	$5.12	$4.52	$4.22
9%	3%	11%	13%	7%
	0.12*	.04	0.15	0.35
	$5.93*	$5.70	$5.27	$4.87
12%	5%	11%	17%	15%

• "Currency Impact to Earnings" and "Currency-Neutral Core EPS" for fiscal year 2022 have been updated from previously reported amounts of $0.11 and $5.92, respectively, to correct a calculation of the foreign exchange impact on certain tax items.

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

Core EPS and Currency-Neutral Core EPS

Guidance

Total Company	Diluted EPS	Impact of Incremental	Core EPS Growth	Impact of FX	Currency-neutral
Growth	Non-Core Items	Core EPS Growth
FY 2023 (Estimate)	0% to 4%	-	0% to 4%	9%	9% to 13%
3. Core operating margin:					Twelve Months Ended June 30
Operating Margin					2022		2021
				22.2%		23.6%
Basis point change vs. prior year operating margin	(140)
Adjustments*					-
Core Operating Margin					22.2%		23.6%
Basis point change vs. prior year Core operating margin	(140)
Currency Impact Margin				0.2%

• For the twelve months ended June 30, 2022, compared with the twelve months ended June 30, 2021, there are no adjustments to or reconciling items for operating margin.

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