Proctor and Gamble 2012 Annual Report Download - page 46
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would significantly impact such exposures in the near term.
Interest Rate Exposure on Financial Instruments. Interest
rate swaps are used to hedge exposures to interest rate
movement on underlying debt obligations. Certain interest
rate swaps denominated in foreign currencies are designated
to hedge exposures to currency exchange rate movements on
our investments in foreign operations. These currency
interest rate swaps are designated as hedges of the
Company's foreign net investments.
Based on our interest rate exposure as of and during the year
ended June 30, 2012, including derivative and other
instruments sensitive to interest rates, we believe a near-term
change in interest rates, at a 95% confidence level based on
historical interest rate movements, would not materially
affect our financial statements.
Currency Rate Exposure on Financial Instruments.
Because we manufacture and sell products and finance
operations in a number of countries throughout the world,
we are exposed to the impact on revenue and expenses of
movements in currency exchange rates. Corporate policy
prescribes the range of allowable hedging activity. To
manage the exchange rate risk associated with our financing
operations, we primarily use forward contracts with
maturities of less than 18 months. In addition, we enter into
certain currency swaps with maturities of up to five years to
hedge our exposure to exchange rate movements on
intercompany financing transactions.
Based on our currency rate exposure on derivative and other
instruments as of and during the year ended June 30, 2012,
we believe, at a 95% confidence level based on historical
currency rate movements, the impact of a near-term change
in currency rates would not materially affect our financial
statements.
Commodity Price Exposure on Financial Instruments. We
use raw materials that are subject to price volatility caused
by weather, supply conditions, political and economic
variables and other unpredictable factors. In addition to fixed
price contracts, we may use futures, options and swap
contracts to manage the volatility related to the above
exposures.
As of and during the year ended June 30, 2012, we did not
have material commodity hedging activity.
Measures Not Defined By U.S. GAAP
Our discussion of financial results includes several "non-
GAAP" financial measures. We believe these measures
provide our investors with additional information about our
underlying results and trends, as well as insight to some of
the metrics used to evaluate management. When used in
MD&A, we have provided the comparable GAAP measure
in the discussion. These measures include:
Organic Sales Growth. Organic sales growth is a non-
GAAP measure of sales growth excluding the impacts of
acquisitions, divestitures and foreign exchange from year-
over-year comparisons. We believe this provides investors
with a more complete understanding of underlying sales
trends by providing sales growth on a consistent basis.
Organic sales is also one of the measures used to evaluate
senior management and is a factor in determining their at-
risk compensation.
The following tables provide a numerical reconciliation of
organic sales growth to reported net sales growth:
Year ended
June 30, 2012
Net Sales
Growth
Foreign
Exchange
Impact
Acquisition/
Divestiture
Impact*
Organic
Sales
Growth
Beauty 2% 0% 0% 2%
Grooming 1% 1% 0% 2%
Health Care 3% 0% -1% 2%
Fabric Care
and Home
Care 3% 0% 0% 3%
Baby Care
and Family
Care 6% 0% 0% 6%
TOTAL
P&G 3% 0% 0% 3%
Year ended
June 30, 2011
Net Sales
Growth
Foreign
Exchange
Impact
Acquisition/
Divestiture
Impact*
Organic
Sales
Growth
Beauty 4 % -1 % 0 % 3 %
Grooming 5% 0% 0% 5%
HealthCare 5% 0% 0% 5%
Fabric Care
and Home
Care 4 % 0 % -2 % 2 %
Baby Care
and Family
Care 6% 1% 0% 7%
TOTAL
P&G 5% 0% -1% 4%
* Acquisition/Divestiture Impact includes rounding impacts
necessary to reconcile net sales to organic sales.
Core EPS. This is a measure of the Company's diluted net
earnings per share from continuing operations excluding
certain items that are not judged to be part of the Company's
sustainable results or trends. This includes current year
impairment charges for goodwill and indefinite lived
intangible assets, current year charges related to incremental
restructuring charges due to increased focus on productivity
and cost savings, a significant benefit in 2011 from the
settlement of U.S. tax litigation primarily related to the
valuation of technology donations, charges in 2012, 2011
and 2010 related to pending European legal matters, and a
2010 charge related to a tax provision for retiree healthcare
subsidy payments in the U.S. healthcare reform legislation.