Proctor and Gamble 2014 Annual Report Download - page 44

42 The Procter & Gamble Company
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, 2014, 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, 2014,
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. We may use
futures, options and swap contracts to manage the volatility
related to the above exposures.
As of and during the years ended June 30, 2014 and June 30,
2013, we did not have any 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, 2014
Net Sales
Growth
Foreign
Exchange
Impact
Acquisition/
Divestiture
Impact*
Organic
Sales
Growth
Beauty -2% 2% 0% 0%
Grooming 0% 3% 0% 3%
Health Care 1% 1% 0% 2%
Fabric Care
and Home
Care 1% 3% 0% 4%
Baby,
Feminine and
Family Care 2% 3% -1% 4%
TOTAL
COMPANY 1% 2% 0% 3%
Year ended
June 30, 2013
Net Sales
Growth
Foreign
Exchange
Impact
Acquisition/
Divestiture
Impact*
Organic
Sales
Growth
Beauty -2% 2% 1% 1%
Grooming -4% 4% 2% 2%
Health Care 6% 3% -2% 7%
Fabric Care
and Home
Care 1% 3% 0% 4%
Baby,
Feminine and
Family Care 4% 2% 0% 6%
TOTAL
COMPANY 1% 2% 0% 3%
* 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 charges in 2014,
2013 and 2012 for incremental restructuring due to increased
focus on productivity and cost savings, charges in 2014 and
2013 for the balance sheet impacts from foreign exchange
policy changes and the devaluations of the official foreign
currency exchange rate in Venezuela, charges in 2014, 2013
and 2012 related to pending European legal matters, a
holding gain in 2013 on the purchase of the balance of our
Iberian joint venture (JV), and impairment charges in 2013
and 2012 for goodwill and indefinite-lived intangible assets.
We do not view these items to be part of our sustainable
results. We believe the Core EPS measure provides an
important perspective of underlying business trends and
results and provides a more comparable measure of year-on-
year earnings per share growth. Core EPS is also one of the
measures used to evaluate senior management and is a factor
in determining their at-risk compensation.