8-KOther EventsExhibits & Filings

PROCTER & GAMBLE Co 8-K Report, Corporate Update (Oct 22, 2018)

Filed October 22, 2018For Securities:PG

Summary

The Procter & Gamble Company (PG) has filed an 8-K to report retrospective adoption of two new accounting standards, effective July 1, 2018. The first, ASU 2017-07, changes the presentation of net periodic pension and postretirement benefit costs. The current service cost component will now be presented within operating expenses, while other components will be moved to 'Other non-operating income/(expense), net'. This reclassification aims to provide a clearer distinction between operating performance and other financing costs. The second adopted standard, ASU 2016-18, impacts the Statement of Cash Flows by requiring the presentation of changes in total cash, cash equivalents, and restricted cash. While P&G states it currently has no significant restricted cash balances, this change ensures that any historical or future restricted cash movements, particularly those related to divestitures, are consistently included in the cash flow statement. The company has restated prior periods to reflect these changes, providing revised Selected Financial Data, MD&A, and Consolidated Financial Statements.

Key Highlights

  • 1Adoption of ASU 2017-07: Changes in presentation of pension and postretirement benefit costs, separating service costs from other components on the income statement.
  • 2Reclassification of Other Benefit Costs: Moving non-service components of net benefit costs from Cost of Goods Sold and SG&A to 'Other non-operating income/(expense), net'.
  • 3Adoption of ASU 2016-18: Modifies the Statement of Cash Flows to include changes in restricted cash alongside cash and cash equivalents.
  • 4Retrospective Application: Prior period financial statements (FY 2018, 2017, 2016) have been restated to reflect these accounting changes.
  • 5Revised Financial Disclosures: The filing includes revised Selected Financial Data, MD&A, and Consolidated Financial Statements to incorporate the retrospective application.
  • 6Minimal Impact on Current Restricted Cash: The company notes it currently has no significant restricted cash balances.

Frequently Asked Questions

The primary purpose is to improve the transparency and comparability of financial reporting. ASU 2017-07 clarifies operating expenses by separating pension service costs from other financing-related benefit costs. ASU 2016-18 provides a more complete picture of cash flow by including all cash and cash-like items.

The reclassification of pension and postretirement benefit costs is primarily a presentation change. While the current service cost component remains in operating expenses, other components are moved out of operating income. This should not fundamentally alter overall net income but will change the composition of operating income versus non-operating items.

According to the filing, P&G currently has no significant restricted cash balances. Therefore, the impact on the Statement of Cash Flows for recent periods is expected to be minimal. However, the change ensures that if restricted cash balances arise in the future, they will be consistently reflected.

These are accounting standard adoptions and retrospective adjustments, not a reflection of new business performance or strategy changes. For investors, the focus should remain on the underlying operational performance of P&G's core businesses. While the restated financials provide a clearer presentation, they don't introduce new fundamental business information. It's advisable to review the revised MD&A for context on operational trends.