THE PROCTER & GAMBLE COMMERCIAL COMPANY
EMPLOYEES’ SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
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1.
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DESCRIPTION OF THE PLAN
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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. 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, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution.
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 represent outstanding loans
granted to participants of The Gillette Company Employees’ Savings Plan prior to its merger with the Plan on September 4, 2009.
Forfeited Accounts
— At December 31, 2018 and 2017, forfeited non-vested accounts totaled $678 and $664, respectively. These accounts can be used to reduce future employer contributions. During the year ended December
31, 2018, no forfeited non-vested account monies were used. During the year ended December 31, 2017, forfeited non-vested accounts totaling $9,509 were used to offset employer contributions.
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2.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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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 utilizes various investment instruments, including common stock, a common collective trust fund, and mutual funds. Investment securities, in general, are exposed to various risks, such
as interest rate risk, credit risk, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities could occur in the
near term and that such changes could materially affect the amounts reported in the financial statements.
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 are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent terminated participant loans are 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 $5,603 and $8,834 at December 31, 2018 and 2017, 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, 2018 and 2017.
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.
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3.
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FAIR VALUE MEASUREMENTS
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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, 2018 and 2017.
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, 2018 and 2017, 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 net asset value as a practical expedient to determine the fair value of the common
collective trust fund. Net asset value 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 net asset value 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, 2018 and 2017:
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Fair
Value Measurements
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2018
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2017
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Cash - Level 1
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$ 500
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$ 283
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Common stock - Level 1
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14,885,258
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15,790,203
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Mutual funds - Level 1
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19,080,885
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19,821,788
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Sub-Total - Level 1
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33,966,643
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35,612,274
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Investments measured at NAV - Common collective trust fund
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34,334
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33,526
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Total
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$ 34,000,977
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$ 35,645,800
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4.
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NONPARTICIPANT-DIRECTED INVESTMENT
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Information about the net assets and the significant components of the changes in net assets relating
to the nonparticipant-directed investment (P&G common stock) as of December 31, 2018 and 2017, and for the years then ended, is as follows:
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2018
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2017
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Changes in net assets:
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Contributions
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$ 94,949
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$ 94,544
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Net (depreciation)/appreciation in fair value of investments
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(63,796)
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1,414,961
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Dividends
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479,630
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489,191
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Benefits paid to participants
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(716,385)
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(1,062,159)
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Net transfers to participant-directed investments
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(669,500)
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(985,187)
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Management fees
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(11,789)
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(11,133)
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Net change
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(886,891)
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(59,783)
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The
Procter & Gamble Company common stock —
beginning of year
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15,727,835
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15,787,618
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The Procter & Gamble Comapny common stock - end of year
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$ 14,840,944
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$ 15,727,835
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5.
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EXEMPT PARTY-IN-INTEREST TRANSACTIONS
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Certain Plan investments are funds managed by Banco Popular and Northern Trust,
including an interest bearing deposit account. Transactions with the recordkeeper, trustee, and custodian qualify as party-in-interest transactions. Fees paid for the investment management services were included as a reduction of the
return earned on each fund.
The Plan held shares of the P&G common stock and recorded dividend income on
the shares for the years ended December 31, 2018 and 2017, as follows:
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2018
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2017
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Common stock:
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Shares
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161,455
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171,178
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Cost
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$ 9,482,468
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$ 9,856,694
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Dividend income
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$ 479,630
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$ 489,191
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During the years ended December 31, 2018 and 2017, the Plan’s investment in
Company common stock, including gains and losses on investments bought and sold as well as held during the year, depreciated in value by $63,796 and appreciated by $1,414,961, respectively.
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.
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.
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8.
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RECONCILIATION OF FINANCIAL STATEMENTS TO THE FORM 5500
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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 and December 31, 2017, is as follows:
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2018
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2017
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Net assets available for benefits per the financial statements
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$ 34,012,467
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$ 35,650,812
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Certain deemed distributions of participant loans
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(9,301)
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(9,301)
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Net assets available for benefits per Form 5500
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$ 34,003,166
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$ 35,641,511
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