Proctor and Gamble 2013 Annual Report Download - page 31

The Procter & Gamble Company 29
offset by reduced overhead costs as a result of the
productivity and cost savings plan. SG&A as a percentage
of net sales increased 50 basis points to 32.0% largely due to
a 40 basis point impact from the Venezuela devaluation
charge and a 10 basis point increase in marketing spending
as a percentage of net sales. Overhead costs as a percentage
of net sales declined 20 basis points, as a 70-basis point
benefit from our productivity and cost savings plan and 20
basis points of lower restructuring costs were largely offset
by the impact of foreign exchange. This was due to a higher
portion of SG&A spending in strengthening currencies as
compared to net sales, higher employee wages and benefit
costs and increased merchandising investments.
In fiscal 2013 we incurred impairment charges of $308
million ($290 million after-tax) related to the carrying value
of goodwill in our Appliances business and the related Braun
trade name intangible asset. In fiscal 2012 we incurred
impairment charges of $1.6 billion ($1.5 billion after-tax)
related to the carrying values of goodwill in our Appliances
and Salon Professional businesses and our Koleston Perfect
and Wella indefinite-lived intangible assets, which are part
of our Salon Professional business. See Note 2 to our
Consolidated Financial Statements for more details,
including factors leading to the impairment charges. Since
goodwill is included in Corporate for internal management
and segment reporting, the goodwill impairment charges are
included in the Corporate segment. The indefinite-lived
intangible asset impairments are also included in the
Corporate segment for management and segment reporting.
Fiscal year 2012 compared with fiscal year 2011
Gross margin contracted 160 basis points in 2012 to 49.3%
of net sales. The reduction in gross margin was driven
mainly by a 230-basis point impact from higher commodity
and energy costs. Gross margin was also negatively
impacted by 200 basis points from negative geographic and
product mix and by 30 basis points from the impact of
increased restructuring spending due to the productivity and
cost savings plan. The negative mix resulted from
disproportionate growth in developing regions, as
developing regions have lower relative gross margins than
developed regions. These impacts were partially offset by a
200-basis point impact from increased pricing and a 140-
basis point impact from manufacturing cost savings.
Total SG&A increased 3% to $26.4 billion in 2012, driven
by higher marketing spending to support initiative activity
and a $510 million increase in restructuring spending from
our productivity and cost savings plan, partially offset by a
reduction in competition law fines (see Item 3 of this Form
10-K and Note 11 to our Consolidated Financial
Statements), which were $303 million in 2011 compared to
$75 million in 2012. SG&A as a percentage of net sales
decreased 30 basis points to 31.5%, as reduced competition
law fines and the impact of increased scale leverage on
marketing and overhead costs from higher sales were
partially offset by 60 basis points of incremental
restructuring costs.
Non-Operating Items
Fiscal year 2013 compared with fiscal year 2012
Interest expense decreased 13% in 2013 to $667 million, due
to lower interest rates on floating-rate debt. Interest income
increased 13% in 2013 to $87 million, due to an increase in
cash, cash equivalents and debt securities. Other non-
operating income, net primarily includes divestiture gains
and investment income. Other non-operating income
increased $757 million to $942 million in 2013 mainly due
to net acquisition and divestiture activities. A holding gain
of $631 million resulting from the purchase of the balance of
P&G's Baby Care and Feminine Care joint venture in Iberia
and a gain of approximately $250 million from the sale of
our Italian bleach business, both in the current year, were
partially offset by a $130 million divestiture gain from the
PUR water filtration business in the prior year period.
Fiscal year 2012 compared with fiscal year 2011
In 2012, interest expense decreased 7% to $769 million, due
to lower interest rates on floating-rate debt and a decrease in
average debt outstanding. Interest income increased 24% in
2012 to $77 million, due to an increase in cash, cash
equivalents and debt securities. Other non-operating
income, net decreased $86 million to $185 million in 2012
mainly behind the impact of minor brand divestitures. A
divestiture gain from the sale of the PUR water filtration
brand in fiscal 2012 was less than the Zest and Infasil
divestiture gains in fiscal 2011.
Income Taxes
Fiscal year 2013 compared with fiscal year 2012
The effective tax rate on continuing operations decreased
390 basis points to 23.2% in 2013. The primary drivers of
this rate decline were as follows:
• Approximately 210 basis points due to the non-
deductibility of impairment charges related to our
Appliances and Salon Professional businesses,
which were higher in the base period versus the
current year.
• Approximately 100 basis points due to the tax
impacts from acquisition and divestiture activity
(primarily the non-taxable gain on the purchase of
the balance of the Baby Care and Feminine Care
joint venture in Iberia).
• Approximately 50 basis points due to the net
impact of favorable discrete adjustments related to
uncertain income tax positions. The current year
net benefit was $275, or 180 basis points, versus a
net benefit of 130 basis points in the prior year.
• Approximately 20 basis points from the impact of
the Venezuela currency devaluation.