Procter & Gamble : Regulation G Reconciliation of Non-GAAP Measures

The Procter & Gamble Company Regulation G Reconciliation of Non-GAAPMeasures

In accordance with the SEC's Regulation G, the following provides definitions of the non -GAAPmeasures used in Procter & Gamble's October 12, 2021 annual shareholders meeting, 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 measures provided are as follows:

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

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 new accounting standardsfor "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 has had a strategic productivity and cost savings initiative that resulted in incremental restructuring charges. The adjustment to Core earnings includes only the restructuring costs above what we believe are the normal recurring level of restructuring costs. In fiscal 2021 and onwards, the Company 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 the fiscal year 2018. The adjustment to Core earnings only includes this transitional impact. It 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 finalized the dissolution of our PGT Healthcare partnership, a venture between the Company and Teva Pharmaceuticals Industries, Ltd (Teva) in the OTC consumer healthcare business, in the quarter ended September 30, 2018. The transaction wasaccounted for as a sale of the Teva portion of the PGT business; the Company recognized an after-tax gain on the dissolution of $353 million.
• Shave Care Impairment: In the fourth quarter of 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 a re dilutive for non-GAAP earnings per share.

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• Early debt extinguishment charges:In the three months ended December 31, 2020, the company recorded after tax charges of $427 million ($512 million before tax), 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.

We do not view the above items to be part of our sustainable results, and their exclusion from core earnings measures provides

1. 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.

Free cash flow:Free cash flow is defined as operating cash flow less capital spending. Free cash flow represents the cash that the Company is able to generate after taking into account planned maintenance and asset expansion. Management views 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 investment.

Adjusted free cash flow:Adjusted free cash flow is defined as operating cash flow less capital spending and adjustments for items as indicated. 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 investment.

Free cash flow productivity and Adjusted free cash flow productivity*:Free cashflow productivity is defined as the ratio of free cash flow to net earnings. Adjusted free cash flow productivity is defined as the ratio of adjusted free cash flow to

net earnings excluding the charges for early debt extinguishment (which are not considered part of our ongoing operations). Management views free cash flow productivity and adjusted free cash flow productivity as useful measures to help investors understand P&G's ability to generate cash. These measures are used by management in making operating decisions, allocating financial resources and for budget planning purposes. The Company's long-term target is to generate annual free cash flow productivity at or above 90 percent.

* Measure is used to evaluate senior management and is a factor in determining their at -risk compensation.

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1. Organic sales growth:
					Acquisition &
	Net Sales		Foreign Exchange		Divestiture		Organic Sales
Total Company	Growth		Impact		Impact/Other*		Growth
FY 2021	7%	(1)%	-%	6%
FY 2020	5%	2%	(1)%	6%
FY 2019	1%	4%	-%	5%

• 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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2. Core EPS and currency-neutral Core EPS:
	2021	2020	2019	2018
Diluted Net Earnings Per Share from Continuing Operations, attributable to P&G	$5.50	$4.96	$1.43	$3.67
Incremental Restructuring		0.16	0.13	0.23
Early Debt Extinguishment Charges	0.16			0.09
Transitional Impact of U.S. Tax Act				0.23
Gain on PGT Dissolution			(0.13)
Shave Care Impairment			3.03
Anti-dilutive Impacts			0.06
Core EPS	$5.66	$5.12	$4.52	$ 4.22
Percentage change vs. prior period	11%	13%	7%
Currency Impact to Earnings	0.04	0.15	0.35
Currency-Neutral Core EPS	$5.70	$5.27	$4.87
Percentage change vs. prior period Core EPS	11%	17%	15%

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

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3. Adjusted free cash flow productivity and Adjusted free cash flow productivity (dollar amounts in millions):

				Adjusted		Adjustments	Adjusted	Adjusted
	Operating	Capital		Net	Free Cash
	Adjustments*	Free Cash	to Net	Net
	Cash Flow	Spending	Earnings	Flow
		Flow	Earnings**	Earnings
					Productivity
FY 2021	$18,371	$(2,787)	$225	$15,809	$14,352	$427	$14,779	107%
FY 2020	$17,403	$(3,073)	$543	$14,873	$13,103	-	$13,103	114%
FY 2019	$15,242	$(3,347)	$235	$12,130	$3,966	$7,625	$11,591	105%

*Adjustments to free cash flow include tax payments for the transitional tax resulting from the U.S. Tax Act in JAS 2018, JAS 2019 and JAS 2020, and tax payments related to the Merck OTC Consumer Healthcare acquisition in AMJ 2020.

**Adjustments to Net Earnings relate to the Shave Care Impairment charge in AMJ 2019 and early debt extinguishment charges in OND 2020.

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