NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 2021 AND 2020, AND FOR THE YEARS ENDED JUNE 30, 2021, 2020 AND 2019
1.
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DESCRIPTION OF THE PLAN
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The following brief description of the Employee Stock Purchase Plan (Japan) (the “Plan”) is provided for general information purposes only. Participants
should refer to the Plan agreement for more information.
General
The Plan includes the Employees’ Shareholding Association of P&G Group for employees and executives of all P&G affiliates in
Japan. The Plan covers the employees of P&G Japan G.K., P&G K.K., P&G Prestige Godo Kaisha, and P&G Innovation Godo Kaisha (collectively the “Companies”).
The purpose of the Plan is to contribute to the formation of assets by its participants by facilitating their acquisition of
ordinary shares of The Procter & Gamble Company (the “Stock”), the Companies’ parent company. The Plan is administered by My P&G Services (MyPGS). Daiwa Securities Co. Ltd., on the other hand, is in charge of purchasing, selling and
safekeeping of the stocks.
Eligibility
Regular employees hired by the Companies may, at any time, apply for the membership in the plan.
Contributions
Participants may contribute a portion of their base pay in units of 1,000 yen, up to 150 units monthly, and three times the monthly
base pay contributions limit from bonus pay.
The Companies match 20% of participants’ contributions up to 30 units monthly (90 units of bonus pay contributions). All contributions are invested in the Stock.
Members’ monthly contributions derived from salary deductions shall be in units of 1,000 yen, and the maximum monthly contribution from a Member’s salary
shall be 100,000 yen per Member who gets paid semi-annual bonuses, and 150,000 yen per Member who does not get paid semi-annual bonuses. Member Contributions derived from semi-annual bonuses shall be 3 times the monthly Member Contributions: in
units of 3,000 yen, and the maximum contribution from a Member’s bonus shall be 300,000 yen per Member. Subject to the monthly and annual limits, there is no limit on the total amount of Member Contributions that a Member can make during his or
her participation in the Plan.
Participant accounts
Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the participant’s
contribution and allocations of: (a) the Companies’ contributions, and (b) realized earnings or losses of the Plan. Participant accounts are also charged with withdrawals and an allocation of administrative expenses that are paid by the Plan.
Allocations are based on participant earnings or account balances, as defined by the Plan. The benefit to which a participant is entitled to is the benefit that can be provided from the participant’s vested account.
Investments
Participants are only permitted to invest in Stock. Any dividends on shares of Stock are invested in additional shares of Stock.
Vesting
Participants are immediately vested in their contributions, the Companies’ matching contributions and earnings.
Withdrawal
Participants may withdraw the allotted shares of Stock in multiples of 100 shares at any time. In the event that participants withdraw from the Plan
either on termination of service or by their request, the allotted shares of Stock in multiples of one share plus cash at the amount of the residual share at fair value shall be returned to them.
Plan termination
Although it has not expressed any intent to do so, the Companies have the right under the Plan to discontinue their contributions to the Plan at any time
and to terminate the Plan subject to the provisions set forth in the Plan agreement.
2.
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FINANCIAL REPORTING FRAMEWORK
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Statement of Compliance
The accompanying financial statements of the Plan have been prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP).
Basis of Preparation and Presentation
The financial statements have been prepared on the historical cost basis, except for the Plan’s investment in stock which is measured at
fair value.
These financial statements are presented in Japanese Yen, the currency of the primary
economic environment in which the Plan operates. The U.S. Dollar amounts presented in these financial statements are included solely for the convenience of the reader and should not be construed as the
Plan’s presentation currency.
Impact of Recently Issued Accounting Pronouncements
There are no new accounting pronouncements that have a significant impact on the Plan’s financial statements.
3.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Cash in bank
Amounts shown as cash in bank are uninvested funds held by the Plan that are to be invested in Stock the following month.
Investment in stock
Investment is recognized and derecognized on trade date accounting when the purchase or sale of an investment is under a contract whose
terms require delivery of the investment within the timeframe established by the market concerned.
At the end of each reporting period, investment in stock is stated at fair value, with any resultant gain or loss
recognized in the statements of changes in net assets available for plan benefits. Fair value is determined using quoted market prices.
The Plan derecognizes its investment is stock when the contractual rights to the cash flows from that investment
expire; or when the Plan transfers all the risks and rewards of ownership of the asset to another entity. The difference between the carrying amount of the financial asset derecognized and the consideration received, or receivable is recognized in
the statements of changes in net assets available for plan benefits.
Dividend income
Dividend income from investments is recognized when the shareholders’ rights to receive payment have been
established. Dividends are recorded on the ex-dividend date; net of any U.S. withholding taxes.
Expenses of the plan
Investment administrative expenses and all other fees and expenses are recognized in the statements of changes in net assets available for plan benefits
when incurred.
Withdrawal
Withdrawal of participants are recorded when participants elect to withdraw.
Foreign currency transactions and translation
Transactions in currencies other than Japanese Yen are recorded at the rates of exchange prevailing on the dates of the transactions.
At the end of each reporting period, monetary assets that are denominated in foreign currencies are retranslated at the rates prevailing at the end of the reporting period. Non-monetary assets carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date the fair value was determined.
4.
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CRITICAL ACCOUNTING JUDGMENTS
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In the application of the Plan’s accounting policies, management is required to make judgments and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Critical Judgments in Applying Accounting Policies
Below is a critical judgment that management have made in the process of applying the Plan’s accounting policies and that have the most significant
effect on the amounts recognized in financial statements.
Functional currency
Based on the economic substance of the underlying circumstances relevant to the Plan, the functional currency of Plan has been
determined to be the Japanese Yen. The Japanese Yen is the currency of the primary economic environment in which the Plan operates.
The Japanese Yen is the currency of the contributions received from the Plan participants and the Companies.
5.
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RISKS AND UNCERTAINTIES
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The Plan invests in The Procter and Gamble Company common stock which represents a concentration in investments. Investment
securities are exposed to market volatility. Due to the level of risk associated with the Stock, it is reasonably possible that changes in the value of the Stock will occur in the near term and those changes could materially affect the amounts
reported in the financial statements.
6.
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FAIR VALUE MEASUREMENTS
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Fair value is defined as 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. Fair value measurements assume that the transaction occurs in the principal market for the asset or liability (the market with the most volume and activity for the asset or liability from the
perspective of the reporting entity), or in the absence of a principal market, the most advantageous market for the asset or liability (the market in which the reporting entity would be able to maximize the amount received or minimize the amount
paid). The Plan applies fair value measurements to the Plan’s investments in accordance with the requirements described above.
The fair value of Plan’s investment in stocks of The Procter and Gamble Company as disclosed in the statements of net assets
available for plan benefits are determined based on the quoted market price in an active market, which is Level 1 under fair value hierarchy.
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. In such instances, the transfer is reported at the beginning of the reporting
period.
We evaluate the significance of transfers between levels based on the nature of the financial instrument and size of the transfer
relative to total net assets available for benefits. For the years ended June 30, 2021 and 2020, there were no transfers between different levels of fair value hierarchy.
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2021
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2020
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Asset Category
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Level 1
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Level 1
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Investment in stocks
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¥ 17,888,509,025
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¥ 16,678,896,593
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The investments held by the Plan as of June 30, 2021, 2020 and 2019, and the related unrealized fair value gain and unrealized foreign
exchange gain (loss) for the years ended June 30, 2021, 2020 and 2019, were as follows:
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2021
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2020
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2019
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Number of shares
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1,198,909
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1,294,674
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1,336,034
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Cost
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¥ 15,634,863,503
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¥15,449,777,015
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¥11,825,150,742
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Unrealized fair value gain
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1,832,033,465
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1,257,653,017
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4,271,566,285
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Unrealized foreign exchange gain (loss)
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421,612,057
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(28,533,439)
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(305,841,567)
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Market value
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¥17,888,509,025
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¥16,678,896,593
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¥15,790,875,460
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The realized gain on sale of stock for the years ended June 30, 2021, 2020 and 2019, was determined as follows:
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2021
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2020
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2019
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Proceeds on sale of shares
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¥2,937,853,875
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¥2,220,575,308
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¥1,989,714,335
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Cost
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2,702,296,730
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2,024,850,255
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1,651,937,156
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Realized fair value gain
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¥235,557,145
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¥195,725,053
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¥337,777,179
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There are no distributions payable to participants who have elected to withdraw from the Plan as of June 30, 2021 and 2020.
9.
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FOREIGN EXCHANGE TRANSACTIONS AND TRANSLATIONS
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Contributions to the Plan are denominated in Japanese Yen; however, purchases and sales of Stock are measured in U.S. Dollars resulting
in net unrealized foreign exchange gain (loss) of ¥421.61 million in 2021, (¥28.53 million) in 2020 and (¥305.84 million) in 2019. Net realized foreign exchange gain (loss) of (¥28.36 million) in 2021, ¥17.93 million in 2020 and ¥9.80 million in
2019, as disclosed in the statements of changes in net assets available for plan benefits.
10.
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RELATED PARTY TRANSACTIONS
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The Plan held 1,198,909 and 1,294,674 ordinary shares of The Procter & Gamble Company with a cost of ¥15.63 billion ($141.38
million) and ¥15.45 billion ($143.10 million), as of June 30, 2021 and 2020, respectively. For the years ended June 30, 2021, 2020 and 2019, the Plan recorded dividend income of ¥293.67 million, ¥308.45 million and ¥313.99 million, respectively.
During the years ended June 30, 2021, 2020 and 2019, the Plan received contributions amounting to ¥221.73 million, ¥219.98 million
and ¥208.51 million, respectively from P&G Japan G.K., P&G K.K., P&G Prestige Godo Kaisha, and P&G Innovation Godo Kaisha.
The Plan is not subject to taxation in the United States, nor the provisions of the Employee Retirement Income
Security Act of 1974 (“ERISA”). All investment gains and losses, dividends received, contributions and administrative charges paid by the Companies on behalf of participants in the Plan are taxable to the participants.
U.S. Dollar amounts presented in these financial statements are included solely for the convenience of the reader. These
translations should not be construed as representations that the Japanese Yen amounts have been, could have been or could in the future be, converted into U.S. Dollars. As the amounts shown in U.S. Dollars are for convenience only, the rate of
¥110.74 = US$1, the approximate current rate at June 30, 2021 has been used for the purpose of presentation of the U.S. Dollar amounts in the accompanying statements of net assets available for plan benefits and changes in net assets available for
plan benefits.
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