PG Procter and Gamble Co

NOTES TO FINANCIAL STATEMENTS

1.	DESCRIPTION OF THE PLAN

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).

In May 2015, P&G announced the closure of the Cayey manufacturing facility, affecting 200-250 employees.  This action has significantly reduced the participation in this Plan.

Effective August 28, 2015, a new custodian and recordkeeper were appointed. Plan assets transferred to the new custodian, Northern Trust, were transferred into funds comparable to those offered by the previous custodian, J.P. Morgan Chase Bank. At the same time, the recordkeeper transferred from Empower to AON. The conversion initiated a blackout period beginning August 28, 2015, and continuing through September 9, 2015. During the blackout period, funds could not be applied to participant-selected funds with the new custodian or withdrawn from the Plan until the custodian had time to accurately complete the conversion. During the period, employee contributions continue to be made through payroll deductions, and the contributions were deposited and held in the income fund until the completion of the blackout period. At the end of the blackout period, these funds were transferred to the investment options requested by each participant.

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, 2016 and 2015, forfeited non-vested accounts totaled $5,770 and $4,285, respectively. These accounts can be used to reduce future employer contributions.  There were no employer contributions reduced for the years ended December 31, 2016 and 2015.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. As of December 31, 2016 the plan had excess contributions payable to participants of $15,064. As of December 31, 2015, the Plan had no excess contributions payable to participants.

Payment of Benefits  — Benefit payments to participants are recorded upon distribution. Amounts allocated to accounts of persons who have elected to withdraw from the Plan, but have not yet been paid, were $0 at December 31, 2016 and 2015, respectively.

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.

3.	FAIR VALUE MEASUREMENTS

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, 2016 and 2015.

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 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, 2016 and 2015, 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 values 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 Statement 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, 2016 and 2015.

		Fair Value Measurements
		2016			2015
Cash - Level 1		$	25		$	33,330
Mutual funds - Level 1		16,899,168			17,033,186
Common Stock - Level 1		15,857,155			$	16,484,102
Sub-Total - Level 1		32,756,348			33,550,618
Investments Measured at NAV - Common Collective Trust fund		118,115			-
Total		$	32,874,463		$	33,550,618

 

 

 

 

5.	EXEMPT PARTY-IN-INTEREST TRANSACTIONS

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.

At December 31, 2016 and 2015, the Plan held 187,770 and 206,687 shares, respectively, of P&G common stock, with a cost basis of $10,576,709 and $11,279,628, respectively. Related dividend income for the years ended December 31, 2016 and 2015, amounted to $521,049 and $552,889, respectively.

During the years ended December 31, 2016 and 2015, the Plan's investment in Company common stock, including gains and losses on investments bought and sold as well as held during the year, appreciated in value by $937,137 and depreciated in value by ($2,500,565), respectively.

6.	PLAN TERMINATION

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.

8.	RECONCILIATION OF FINANCIAL STATEMENTS TO THE FORM 5500

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, 2016 and December 31, 2015, is as follows:

For the year ended December 31, 2016, the following is a reconciliation of distributions to participants per the financial statements to the Form 5500:

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SUPPLEMENTAL SCHEDULES