Proctor and Gamble 2010 Annual Report Download - page 72

70 The Procter & Gamble Company Notes to Consolidated Financial Statements
Amounts in millions of dollars except per share amounts or as otherwise specified.
NOTE 10
COMMITMENTS AND CONTINGENCIES
Guarantees
In conjunction with certain transactions, primarily divestitures, we may
provide routine indemnifications (e.g., indemnification for representa-
tions and warranties and retention of previously existing environmental,
tax and employee liabilities) for which terms range in duration and,
in some circumstances, are not explicitly defined. The maximum obliga-
tion under some indemnifications is also not explicitly stated and, as a
result, the overall amount of these obligations cannot be reasonably
estimated. Other than obligations recorded as liabilities at the time of
divestiture, we have not made significant payments for these indem-
nifications. We believe that if we were to incur a loss on any of these
matters, the loss would not have a material effect on our financial
position, results of operations or cash flows.
In certain situations, we guarantee loans for suppliers and customers.
The total amount of guarantees issued under such arrangements is
not material.
Off-Balance Sheet Arrangements
We do not have off-balance sheet financing arrangements, including
variable interest entities, that have a material impact on our financial
statements.
Purchase Commitments and Operating Leases
We have purchase commitments for materials, supplies, services and
property, plant and equipment as part of the normal course of business.
Commitments made under take-or-pay obligations are as follows:
June 30 2011 2012 2013 2014 2015 Thereafter
Purchase obligations $896 $568 $528 $281 $120 $301
Such amounts represent future purchases in line with expected usage
to obtain favorable pricing. Approximately 45% of our purchase
commitments relate to service contracts for information technology,
human resources management and facilities management activities that
have been outsourced to third-party suppliers. Due to the proprietary
nature of many of our materials and processes, certain supply contracts
contain penalty provisions for early termination. We do not expect to
incur penalty payments under these provisions that would materially
affect our financial position, results of operations or cash flows.
We also lease certain property and equipment for varying periods.
Future minimum rental commitments under non-cancelable operating
leases, net of guaranteed sublease income, are as follows:
June 30 2011 2012 2013 2014 2015 Thereafter
Operating leases $282 $229 $204 $164 $149 $486
Litigation
We are subject to various legal proceedings and claims arising out
of our business which cover a wide range of matters such as govern-
mental regulations, antitrust and trade regulations, product liability,
patent and trademark matters, income taxes and other actions.
As previously disclosed, the Company is subject to a variety of inves-
tigations into potential competition law violations in Europe by the
European Commission and national authorities from a number of
countries. These matters involve a number of other consumer products
companies and/or retail customers. The Company’s policy is to comply
with all laws and regulations, including all antitrust and competition
laws, and to cooperate with investigations by relevant regulatory
authorities, which the Company is doing. Competition and antitrust
law inquiries often continue for several years and, if violations are
found, can result in substantial fines.
In response to the actions of the European Commission and national
authorities, the Company launched its own internal investigations
into potential violations of competition laws. The Company has
identified violations in certain European countries and appropriate
actions were taken.
Several countries in Europe issued separate complaints pursuant to
their investigations alleging that the Company, along with several
other companies, engaged in violations of competition laws in those
countries. The Company will have the opportunity to respond to these
complaints. As a result of our initial and on-going analyses of these
complaints, the Company has reserves totaling $245 as of June30,
2010 for potential fines for competition law violations. The ultimate
resolution of these matters could result in fines or costs significantly in
excess of the amounts reserved.
The remaining matters involving the European Commission and various
other countries are in various stages of the investigatory process. It is
still too early for us to reasonably estimate the fines to which the
Company will be subject as a result of these competition law issues.
The ultimate resolution of these matters will likely result in fines or
other costs that could materially impact our income statement and
cash flows in the period in which they are accrued and paid, respec-
tively. In other industries, these fines have amounted to hundreds of
millions of dollars. We will continue to monitor developments for all of
these investigations and will record additional charges as appropriate.
With respect to other litigation and claims, while considerable uncer-
tainty exists, in the opinion of management and our counsel, the
ultimate resolution of the various lawsuits and claims will not materially
affect our financial position, results of operations or cash flows.
We are also subject to contingencies pursuant to environmental laws
and regulations that in the future may require us to take action to
correct the effects on the environment of prior manufacturing and
waste disposal practices. Based on currently available information, we
do not believe the ultimate resolution of environmental remediation
will have a material adverse effect on our financial position, results of
operations or cash flows.