The Procter & Gamble Company: Reg G Reconciliation of Non-GAAP measures
In accordance with the SEC’s Regulation G, the following provides definitions of the non-GAAP measures used in the earnings call and slides with the reconciliation to the most closely related GAAP measure. The measures provided are as follows:
| 1. | Organic Sales Growth – pages 1 and 2 |
| 2. | Core EPS – pages 2 and 3 |
| 3. | Core Operating Profit Growth – page 3 |
| 4. | Core Selling, general and administrative expense (SG&A) – page 4 |
| 5. | Free Cash Flow – page 4 |
Note—where indicated, 1H means “first half” and 2H means “second half”.
1. 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 reconciliation of reported sales growth to organic sales is as follows:
| Total P&G | Net Sales Growth | Foreign Exchange Impact | Acquisition/ Divestiture Impact* | Organic Sales Growth | ||||
| JAS 06 | 27% | -1% | -20% | 6% | ||||
| OND 06 | 8% | -3% | 0% | 5% | ||||
| JFM 07 | 8% | -2% | 0% | 6% | ||||
| AMJ 07 | 8% | -3% | 0% | 5% | ||||
| JAS 07 | 8% | -3% | 0% | 5% | ||||
| OND 07 | 9% | -5% | 1% | 5% | ||||
| JFM 08 | 9% | -5% | 1% | 5% | ||||
| AMJ 08 | 10% | -6% | 1% | 5% | ||||
| JAS 08 | 9% | -5% | 1% | 5% | ||||
| Average–JAS 06-JAS 08 | 11% | -4% | -2% | 5% | ||||
| OND 08 | -3% | 5% | 0% | 2% | ||||
| JFM 09 | -8% | 9% | 0% | 1% | ||||
| AMJ 09 | -11% | 9% | 1% | -1% | ||||
| JAS 09 | -6% | 7% | 1% | 2% | ||||
| Average–OND 08-JAS 09 | -7% | 8% | 0% | 1% | ||||
| OND 09 | 6% | -2% | 1% | 5% | ||||
| JFM 10 | 7% | -3% | 0% | 4% | ||||
| AMJ 10 | 5% | -1% | 0% | 4% | ||||
| JAS 10 | 2% | 3% | -1% | 4% | ||||
| OND 10 | 2% | 2% | -1% | 3% | ||||
| JFM 11 | 5% | -1% | 0% | 4% | ||||
| AMJ 11 | 10% | -5% | 0% | 5% | ||||
JAS 11 | 9% | -5% | 0% | 4% | ||||
| OND 11 | 4% | 0% | 0% | 4% | ||||
| Average–OND 09-OND 11 | 5% | -1% | 0% | 4% | ||||
| JFM 12 (Estimate) | 0% to 2% | 3% | 0% | 3% to 5% | ||||
| AMJ 12 (Estimate) | -1% to 2% | 5% to 4% | 0% | 4% to 6% | ||||
2. 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 FY 2011 from the settlement of U.S. tax litigation primarily related to the valuation of technology donations, charges in FY’s 2012, 2011 and 2010 related to European legal matters, a FY 2010 charge related to a tax provision for retiree healthcare subsidy payments in the U.S. healthcare reform legislation, incremental restructuring charges in FY 2009 to offset the dilutive impact of the Folgers divestiture, and significant adjustments to tax reserves in FY 2008. 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. The tables below provide a reconciliation of diluted net earnings per share to Core EPS:
| Fiscal Year Data: | FY 2011 | FY 2010 | FY 2009 | FY 2008 | |||||||
| Diluted Net Earnings Per Share - Continuing Operations | $3.93 | $3.53 | $3.39 | $3.40 | |||||||
| Settlement from U.S. Tax Litigation | ($0.08) | - | - | - | |||||||
| Charges for European Legal Matters | $0.10 | $0.09 | - | - | |||||||
| Charge for Taxation of Retiree Healthcare Subsidy | - | $0.05 | - | - | |||||||
| Incremental Folgers-related Restructuring Charges | - | - | $0.09 | - | |||||||
| Significant Adjustments to Tax Reserves | - | - | - | ($0.14) | |||||||
| Rounding Impacts | ($0.01) | - | |||||||||
Core EPS | $3.95 | $3.67 | $3.47 | $3.26 | |||||||
| Core EPS Growth | 8% | 6% | 6% | ||||||||
| JFM 12 (Est.) | JFM 11 | ||
| Diluted Net Earnings Per Share | $0.81 to $0.87 | $0.96 | |
| Snacks Dilution | ($0.02) | ($0.02) | |
| Incremental Restructuring | $0.10 | - | |
| Core EPS | $0.89 to $0.95 | $0.94 | |
| Core EPS Growth | -5% to 1% |
| FY 2012 (Est.) | FY 2011 | ||
| Diluted Net Earnings Per Share | $3.77 to $3.93 | $3.93 | |
| One-time gain from snacks divestiture | ($0.47) to ($0.50) | ||
| Impairment charges | $0.50 | - | |
| Charges for European legal matters | $0.02 | $0.10 | |
| Settlement from U.S. tax litigation | - | ($0.08) | |
| Snacks Dilution | ($0.07) | ($0.07) | |
| Incremental restructuring | $0.18 to $0.15 | - | |
| Core EPS | $3.93 to $4.03 | $3.88 | |
| Core EPS Growth | 1% to 4% |
Note – All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature of the underlying transaction. The charge for the significant settlement from U.S. tax litigation is tax expense.
3. Core Operating Profit Growth:
This is a measure of the Company’s operating profit growth adjusted for the 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, and charges in current and prior year related to the European legal matters:
| 2H FY 2012 (Est.) | 1H FY 2012 | 2H FY 2011 | 1H FY 2011 | ||||
| Operating Profit Growth | 0% to 7% | -19% | 2% | -4% | |||
| Impairment charges | - | 18% | - | - | |||
| Charges for European legal matters | - | -3% | - | - | |||
| Incremental restructuring | 10% to 8% | - | - | - | |||
| Rounding | - | - | - | 1% | |||
| Core Operating Profit Growth | 10% to 15% | -4% | 2% | -3% |
4. Core Selling, general and administrative expense (SG&A):
This is a measure of the Company’s SG&A expenses adjusted for charges related to European legal matters (amounts in millions):
| FY 2011 | |||
| Selling, general and administrative expense | $25,973 | ||
| Charges for European legal matters | ($303) | ||
| Core SG&A | $25,670 |
5. Free Cash Flow:
Free cash flow is defined as operating cash flow less capital spending. We view free cash flow as an important measure because it is one factor in determining the amount of cash available for dividends and discretionary investment. Free cash flow is also one of the measures used to evaluate senior management and is a factor in determining their at-risk compensation. The reconciliation of free cash flow is provided below (amounts in millions):
Operating Cash Flow | Capital Spending | Tax Payment on Divestitures | Adjusted Free Cash Flow | Net Earnings | Divestiture Gain | Net Earnings excluding Divestiture Gain | Free Cash Flow Productivity | |
| FY ‘06 | $11,372 | ($2,667) | $8,705 | $8,684 | $8,684 | 100% | ||
| FY ‘07 | $13,410 | ($2,945) | $10,465 | $10,340 | $10,340 | 101% | ||
| FY ‘08 | $15,008 | ($3,046) | $11,962 | $12,075 | $12,075 | 99% | ||
| FY ‘09 | $14,983 | ($3,238) | $11,745 | $13,522 | $2,011 | $11,511 | 102% | |
| FY ‘10 | $16,131 | ($3,067) | $980 | $14,044 | $12,846 | $1,585 | $11,261 | 125% |
| FY ‘11 | $13,330 | ($3,306) | $10,024 | $11,927 | $11,927 | 84% | ||