Operating Costs Comparisons as a percentage of net sales; Years ended June 30 2022 2021 Basis Point Change Gross margin 47.4 % 51.2 % (380) Selling, general and administrative expense 25.2 % 27.6 % (240) Operating margin 22.2 % 23.6 % (140) Earnings before income taxes 22.4 % 23.1 % (70) Net earnings 18.4 % 18.9 % (50) Net earnings attributable to Procter & Gamble 18.4 % 18.8 % (40) Gross margin decreased 380 basis points to 47.4% of net sales in fiscal 2022. The decrease in gross margin was due to: • 390 basis points of increased commodity costs, • a 130 basis - point decline from unfavorable mix, due primarily to negative product mix resulting from the launch and growth of premium - priced products that are profit - accretive but have lower than Company - average gross margin, and • 40 basis points of net manufactu ring cost increases, as 60 basis points of increased transportation costs and 20 basis points of product and packaging investments were partially offset by 40 basis points of productivity savings net of inflation and other cost increases. These impacts wer e partially offset by a 180 basis - point increase due to higher pricing. Total SG&A decreased 4% to $20.2 billion, due to decreased overhead costs, marketing spending and other operating costs. SG&A as a percentage of net sales decreased 240 basis points t o 25.2% primarily due to the positive scale impacts of the net sales increase and, to a lesser extent, a decrease in overhead costs and marketing spending. • Marketing spending as a percentage of net sales decreased 120 basis points due primarily to the pos itive scale impacts of the net sales increase and, to a lesser extent, due to increased media and production cost savings and decreased media spending. • Overhead costs as a percentage of net sales decreased 110 basis points due to the positive scale impacts of the net sales increase and productivity savings. • Other net operating expenses as a percentage of net sales decreased approximately 10 basis points due primarily to gains from the divestiture of a minor business and sale of real estate, partially offset by increased foreign exchange transactional charges. Productivity - driven cost savings delivered 70 basis points of benefit to SG&A as a percentage of net sales. Operating margin decreased 140 basis points to 22.2% due to the decrease in gross margin parti ally offset by the decrease in SG&A as a percentage of net sales as discussed above. Non - Operating Items • Interest expense was $439 million in fiscal 2022, a decrease of $63 million versus the prior year driven primarily by lower average interest rates on fixed rate debt. • Interest income was $51 million in fiscal 2022, an increase of $6 million versus the prior year. • Other non - operating income increased $484 million to $570 million, due primarily to a prior year loss on early - debt extinguishment an d a current year increase in net non - operating benefits on post - retirement benefit plans, partially offset by unrealized gains on equity investments in the prior year and unrealized losses on equity investments in the current year. Income Taxes The effect ive tax rate decreased 70 basis points to 17.8% in 2022 due to: • a 45 basis - point decrease from higher excess tax benefits of share - based compensation (a 200 basis - point benefit in the current year versus a 155 basis - point benefit in the prior year), • a 30 b asis - point decrease from discrete impacts related to uncertain tax positions (35 basis - point favorable impact in the current year versus a 5 basis - point favorable impact in the prior year), and • a 15 basis - point decrease from higher current year deductions for foreign - derived intangible income versus prior year. These decreases were partially offset by a 20 basis - point increase due to unfavorable geographic mix impacts of current year earnings. Net Earnings Operating income decreased 1% or $0.2 billion, to $ 17.8 billion as the increase in net sales was more than fully offset by the decrease in operating margin, both of which are discussed above. Earnings before income taxes increased 2%, or $0.4 billion, to $18.0 billion, as the decrease in operating income was more than fully offset by a prior year loss on early - debt extinguishment and lower interest expense. Net earnings increased 3%, or $0.4 billion, to $14.8 billion due to the increase in earnings before income taxes and the decrease in the effective inc ome tax rate discussed above. Foreign 20 The Procter & Gamble Company