The financial statements of P&G are presented in Appendix B. The companys complete annual report, including the notes to the financial statements, is available online. Click here to view Appendix B Refer to these financial statements and the accompanying notes to answer the following questions.

What were P&G's research and development costs in 2016? In 2017? 2017 2016 Research and development costs $ million $ million e Textbook and Media 2017 $ 70,749 Appendix B Specimen Financial Statements: The Procter & Gamble Company Once each year, a corporation communicates to its stockholders and other interested parties by issuing a complete set of audited financial statements. The annual report, as this communication is called, summarizes the financial results of the company's operations for the year and its plans for the future. Many annual reports are attractive, multicolored, glossy public relations pieces, containing pictures of corporate officers and directors as well as photos and descriptions of new products and new buildings. Yet the basic function of every annual report is to report financial information, almost all of which is a product of the corporation's accounting system. The content and organization of corporate annual reports have become fairly standardized. Excluding the public relations part of the report (pictures, products, etc.), the following are the traditional financial portions of the annual report: Financial Highlights Letter to the Stockholders Management's Discussion and Analysis Financial Statements Notes to the Financial Statements Management's Responsibility for Financial Reporting Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Selected Financial Data The official SEC filing of the annual report is called a Form 10-K, which often omits the public relations pieces found in most standard annual reports. On the following pages, we present The Procter & Gamble Company (P&G)'s financial statements taken from the company's 2017 Form 10-K. Consolidated Statements of Earnings Amounts in millions except per share amounts; Years ended June 30 2016 2015 NET SALES $ 65,058 $ 65,299 Cost of products sold 32,535 32,909 37,056 Selling, general and administrative expense 18,568 18,949 20,616 Venezuela deconsolidation charge 2,028 OPERATING INCOME 13,955 13.441 11,049 Interest expense 465 579 626 Interest income 171 182 Other non-operating income/expense), net (404) 325 440 EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 13,257 13,369 11,012 Income taxes on continuing operations 3,063 3.342 2.725 NET EARNINGS FROM CONTINUING OPERATIONS 10,194 10,027 8.287 NET EARNINGS/(LOSS) FROM DISCONTINUED OPERATIONS 5,217 577 (1,143) NET EARNINGS 15,411 10,604 7,144 Less: Net earnings attributable to noncontrolling interests 85 96 108 NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE $ 15-326 $ 10,508 $ 7,036 BASIC NET EARNINGS PER COMMON SHARE:(1) Earnings from continuing operations 3.79 3-59 $ 2.92 Earnings/(loss) from discontinued operations 2.01 (0.42) BASIC NET EARNINGS PER COMMON SHARE $ 5.80 S 3.80 $ 2.50 DILUTED NET EARNINGS PER COMMON SHARE:(1) Earnings from continuing operations s 3.69 3.49 S 2.84 Earnings/(loss) from discontinued operations (0.40) DILUTED NET EARNINGS PER COMMON SHARE $ 5:59 S 3.69 S 2.44 DIVIDENDS PER COMMON SHARE $ S 2.66 $ 2.59 149 S S 0.21 S 1.90 0.20 2.70 (1) Basic net earnings per common share and Diluted net earnings per common share are calculated on Net earnings attributable to Procter & Gamble. 2016 2017 $ 15,411 $ 10,604 2015 $ 7,144 (1,679) 1 Consolidated Statements of Comprehensive Income Amounts in millions; Years ended June 30 NET EARNINGS OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX Financial statement translation Unrealized gains/(losses) on hedges (net of S(186), $5 and $739 tax, respectively) Unrealized gains/(losses) on investment securities (net of $(6), $7 and so tax, respectively) Unrealized gains/(losses) on defined benefit retirement plans (net of $551, $(621) and $328 tax, respectively) TOTAL OTHER COMPREHENSIVE INCOME/(LOSS), NET OF TAX TOTAL COMPREHENSIVE INCOME Less: Total comprehensive income attributable to noncontrolling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE 239 (306) (59) 1,401 1,275 16,686 85 $ 16,601 28 (1,477) (3,127) 7.477 96 $ 7381 (7,220) 1,234 24 844 (5,118) 2,026 108 $ 1,918 2017 2016 S 5,569 9,568 4,594 7,102 6,246 4:373 Consolidated Balance Sheets Amounts in millions; As of June 30 Assets CURRENT ASSETS Cash and cash equivalents Available-for-sale investment securities Accounts receivable INVENTORIES Materials and supplies Work in process Finished goods Total inventoreis Deferred income taxes Prepaid expenses and other current assets Current assets held for sale TOTAL CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT, NET GOODWILL TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET OTHER NONCURRENT ASSETS TOTAL ASSETS 1,308 529 2,787 4,624 1,188 563 2,965 4,716 1,507 2,653 7,185 2,139 33,782 26.494 19,893 44,699 24,187 5,133 $ 120.406 19,385 44,350 24,527 5.092 $ 127,136 S S 9,632 7,024 13:554 30,210 18,038 8,126 8,254 64.628 9,325 7,449 2,343 11,653 30,770 18,945 9,113 10.325 69,153 Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable Accrued and other liabilities Current liabilities held for sale Debt due within one year TOTAL CURRENT LIABILITIES LONG-TERM DEBT DEFERRED INCOME TAXES OTHER NONCURRENT LIABILITIES TOTAL LIABILITIES SHAREHOLDERS' EQUITY Convertible Class A preferred stock, stated value $1 per share 600 shares authorized) Non-Voting Class B preferred stock, stated value $1 per share (200 shares authorized) Common stock, stated value $1 per share (10,000 shares authorized; shares issued: 2017 - 4,009.2, 2016 - 4,009.2) Additional paid-in capital Reserve for ESOP debt retirement Accumulated other comprehensive income/(loss) Treasury stock, at cost (shares held: 2017 - 1,455-9, 2016 - 1,341.2) Retained earnings Noncontrolling interest TOTAL SHAREHOLDERS' EQUITY TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY See accompanying Notes to Consolidated Financial Statements. 1,006 1,038 4,009 63,641 (1,249) (14,632) (93,715) 96,124 594 55,778 $ 120,406 4,009 63,714 (1,290) (15,907) (82,176) 87,953 642 57,983 $ 127,136 Consolidated Statements of Shareholders' Equity Consolidated Statements of Shareholders' Equity 156 20 (219) Accumulated Other Total Common Additional Reserve for Comprehensive Non- Share- Dollars in millions; Shares Common Preferred Paid-In ESOP Debt Income Treasury Retained controlling holders' Shares in thousands Outstanding Stock Stock Capital Retirement (Loss) Stock Earnings Interest Equity BALANCE JUNE 30, 2014 2,710,806 $4,009 $1,111 $63,911 ($1,340) ($7,662) ($75,805) $84,990 $762 $69,976 Net earnings 7,036 108 7,144 Other comprehensive loss (5,118) (5,118) Dividends to shareholders: Common (7,028) (7,028) Preferred, net of tax benefits (259) (259) Treasury purchases (54,670) (4,604) (4,604) Employee plan issuances 54.100 3,153 3,309 Preferred stock conversions 4:335 (34) 4 30 ESOP debt impacts 68 88 Noncontrolling interest, net (239) (458) BALANCE JUNE 30, 2015 2,714:571 $4,009 $1,077 $63,852 ($1.320) ($12,780) ($77,226) $84,807 $631 $63,050 Net earnings 10,508 96 10,604 Other comprehensive loss (3,127) (3,127) Dividends to shareholders: Common (7,181) (7,181) Preferred, net of tax benefits (255) (255) Treasury purchases (1) (103,449) (8,217) (8,217) Employee plan issuances 52,089 (144) 3,234 3,090 Preferred stock conversions 4,863 (39) 6 33 ESOP debt impacts 30 74 104 Noncontrolling interest, net (85) (85) BALANCE JUNE 30, 2016 2,668,074 $4.009 $1,038 $63.714 (S1,290) ($15.907) (582,176) $87.953 $642 $57.983 Net earnings 15,326 85 15,411 Other comprehensive loss 1,275 1,275 Dividends to shareholders: Common (6,989) (6,989) Preferred, net of tax benefits (247) (247) Treasury purchases(2) (164,866) (14,625) (14,625) Employee plan issuances 45,848 (77) 3,058 2,981 Preferred stock conversions 4,241 (32) 4 28 ESOP debt impacts 41 81 122 Noncontrolling interest, net (133) (133) BALANCE JUNE 30, 2017 2,553,297 $4,009 $1,006 $63,641 ($1,249) (314,632) ($93,715) 596,124 $594 $55.778 Includes $4,213 of treasury shares acquired in the divestiture of the Batteries business (see Note 13). (2) Includes $9,421 of treasury shares received as part of the share exchange in the Beauty Brands transaction (see Note 13). See accompanying Notes to Consolidated Financial Statements. Consolidated Statements of Cash Flows 2017 $ 7,102 2016 2015 $ 6,836 $ 8,548 15,411 2,820 10,604 3,078 7,144 3,134 Amounts in millions; Years ended June 30 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR OPERATING ACTIVITIES Net earnings Depreciation and amortization Loss on early extinguishment of debt Share-based compensation expense Deferred income taxes Gain on sale of assets Venezuela deconsolidation charge Goodwill and intangible asset impairment charges Change in accounts receivable Change in inventories Change in accounts payable, accrued and other liabilities Change in other operating assets and liabilities 543 351 (601) (5,490) 335 (815) (41) (322) 71 (149) (43) 162 450 35 116 1,285 204 184 15,435 337 (803) (766) 2,028 2,174 349 313 928 (976) 746 14,608 Other 12,753 (3,384) 571 (3,314) 432 (3,736) 4,498 (908) (137) (3,647) 1,203 (16) (4,843) 1,488 (874) (475) 1,870 (186) (2,815) 1,354 (996) TOTAL OPERATING ACTIVITIES INVESTING ACTIVITIES Capital expenditures Proceeds from asset sales Cash related to deconsolidated Venezuela operations Acquisitions, net of cash acquired Purchases of short-term investments Proceeds from sales and maturities of short-term investments Pre-divestiture addition of restricted cash related to the Beauty Brands divestiture Cash transferred at closing related to the Beauty Brands divestiture Release of restricted cash upon closing of the Beauty Brands divestiture Cash transferred in Batteries divestiture Change in other investments TOTAL INVESTING ACTIVITIES FINANCING ACTIVITIES Dividends to shareholders Change in short-term debt Additions to long-term debt Reductions of long-term debt Treasury stock purchases Treasury stock from cash infused in Batteries divestiture Impact of stock options and other TOTAL FINANCING ACTIVITIES (26) (5,689) (143) 93 (5,575) (163) (2,890) (7,236) 2,727 3,603 (4,931)(1) (5,204) (7,436) (418) 3,916 (2,213) (4.004) (1,730) 2,672 (9,213) (7,287) (2,580) 2,138 (3,512) (4,604) 2.473 (8,568) 2,826 (13,019) 10,500) 19:2132 (381) (411) 266 (1,712) $ 7,102 $ 6,836 S EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (29) CHANGE IN CASH AND CASH EQUIVALENTS (1,533) CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,569 SUPPLEMENTAL DISCLOSURE Cash payments for interest $ 518 Cash payment for income taxes 3,714 Divestiture of Batteries business in exchange for shares of P&G stock(2) Divestiture of Beauty business in exchange for shares of P&G stock and assumption of debt 11,360 Assets acquired through non-cash capital leases are immaterial for all periods. (1) Includes $543 of costs related to early extinguishment of debt. (2) Includes $1,730 from cash infused into the Batteries business pursuant to the divestiture agreement (see Note 13). 569 $ 3,730 678 4,558 4,213 See accompanying Notes to Consolidated Financial Statements