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 Procter & Gamble's April 24, 2013 earnings call and associated slides with the reconciliation to the most closely related GAAP measure. The measures provided are as follows:
| 1. | Organic Sales Growth – page 1 |
| 2. | Core EPS – pages 2 through 4 |
| 3. | Core Operating Profit Margin – page 4 |
| 4. | Core Gross Margin – page 4 |
| 5. | Core Selling, General & Administrative Expenses (SG&A) as a % of Net Sales – page 5 |
| 6. | Core Operating Profit Growth – page 5 |
| 7. | Core Effective Tax Rate – page 5 |
| 8. | Free Cash Flow – page 6 |
| 9. | Adjusted Free Cash Flow Productivity – page 6 |
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 | ||||
| JFM 12 | 2% | 1% | 0% | 3% | ||||
| AMJ 12 | -1% | 4% | 0% | 3% | ||||
| JAS 12 | -4% | 6% | 0% | 2% | ||||
| OND 12 | 2% | 1% | 0% | 3% | ||||
| AMJ 2013 (Estimate) | 1% to 2% | 2% | 0% | 3% to 4% | ||||
| FY 2013 (Estimate) | 1% to 2% | 2% | 0% | 3% to 4% | ||||
| FY 2010 | 3% | 1% | -1% | 3% | ||||
| FY 2011 | 5% | 0% | -1% | 4% | ||||
| FY 2012 | 3% | 0% | 0% | 3% | ||||
| JFM 2013 | Net Sales Growth | Foreign Exchange Impact | Acquisition/ Divestiture Impact* | Organic Sales Growth | |||
| Beauty | -2% | 1% | 0% | -1% | |||
| Grooming | -2% | 1% | 3% | 2% | |||
| Health Care | 8% | 1% | -1% | 8% | |||
| Fabric Care and Home Care | 0% | 1% | 0% | 1% | |||
| Baby Care and Family Care | 3% | 1% | 0% | 4% | |||
| Total P&G | 2% | 1% | 0% | 3% |
*Acquisition/Divestiture Impact includes rounding impacts necessary to reconcile net sales to organic sales.
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 FY 2013 holding gain on the buyout of our Iberian joint venture partner, FY 2013 and 2012 charges related to incremental restructuring due to increased focus on productivity and cost savings, FY2013 charge from the balance sheet impact of the Venezuela devaluation, charges in FY’s 2012, 2011 and 2010 related to European legal matters, FY 2012 impairment charges for goodwill and indefinite lived intangible assets, a significant benefit in FY 2011 from the settlement of U.S. tax litigation primarily related to the valuation of technology donations, a FY 2010 charge related to a tax provision for retiree healthcare subsidy payments in the U.S. healthcare reform legislation, and incremental restructuring charges in FY 2009 to offset the dilutive impact of the Folgers divestiture. 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 2013 (est.) | FY 2012 | FY 2011 | FY 2010 | FY 2009 | |||||
| $3.90 to $3.98 | $3.12 | $3.85 | $3.47 | $3.35 | ||||||
| Impairment Charges | - | $0.51 | - | - | - | |||||
| Settlement from U.S. Tax Litigation | - | - | ($0.08) | - | - | |||||
| Charges for European legal matters | - | $0.03 | $0.10 | $0.09 | - | |||||
| Taxation of retiree healthcare subsidy | - | - | - | $0.05 | - | |||||
| Incremental restructuring charges | $0.19 | $0.20 | - | - | $0.09 | |||||
| Gain on buyout of Iberian JV | ($0.21) | - | - | - | - | |||||
| Venezuela balance sheet devaluation impacts | $0.08 | - | - | - | - | |||||
| Rounding/Other Impacts | - | ($0.01) | - | - | ($0.01) | |||||
| Core EPS | $3.96 to $4.04 | $3.85 | $3.87 | $3.61 | $3.43 | |||||
| Core EPS Growth | 3% to 5% | -1% | 7% | 5% | ||||||
Quarter / Period Data:
| AMJ 13 (est.) | AMJ 12 | ||
| Diluted Net Earnings Per Share | $0.67 to $0.75 | $1.24 | |
| Gain from snacks divestiture | ($0.48) | ||
| Snacks results of operations – Discontinued Operations | - | (0.02) | |
| Diluted Net Earnings Per Share-Continuing Operations | $0.67 to $0.75 | $0.74 | |
| Incremental restructuring | 0.02 | 0.08 | |
| Core EPS | $0.69 to $0.77 | $0.82 | |
| Core EPS Growth | -16% to -6% |
| JFM 13 | JFM 12 | ||
| Diluted Net Earnings Per Share | $0.88 | $0.82 | |
| Snacks results of operations – Discontinued Operations | - | ($0.01) | |
| Diluted Net Earnings Per Share-Continuing Operations | $0.88 | $0.81 | |
| Venezuela balance sheet devaluation impacts | $0.08 | - | |
| Impairment charges | - | $0.01 | |
| Incremental restructuring | $0.03 | $0.12 | |
| Core EPS | $0.99 | $0.94 | |
| Core EPS Growth | 5% |
| OND 12 | OND 11 | ||
| Diluted Net Earnings Per Share-Continuing Operations | $1.39 | $0.56 | |
| Impairment charges | - | $0.50 | |
| Charges for European legal matters | - | $0.02 | |
| Gain on buyout of Iberian JV | ($0.21) | - | |
| Incremental restructuring | $0.05 | $0.01 | |
| Rounding | ($0.01) | - | |
| Core EPS | $1.22 | $1.09 | |
| Core EPS Growth | 12% |
| JAS 12 | JAS 11 | ||
| Diluted Net Earnings Per Share-Continuing Operations | $0.96 | $1.01 | |
| Incremental restructuring | $0.09 | - | |
| Charges for European Legal Matters | $0.01 | - | |
| Core EPS | $1.06 | $1.01 | |
| Core EPS Growth | 5% |
| AMJ 12 | AMJ 11 | ||
| Diluted Net Earnings Per Share | $1.24 | $0.84 | |
| Gain from snacks divestiture | ($0.48) | - | |
| Snacks results of operations – Discontinued Operations | ($0.02) | ($0.02) | |
| Diluted Net EPS - Continuing Operations | $0.74 | $0.82 | |
| Incremental restructuring | $0.08 | - | |
| Core EPS | $0.82 | $0.82 | |
| Core EPS Growth | 0% |
| JFM 12 | JFM 11 | ||
| Diluted Net Earnings Per Share | $0.82 | $0.96 | |
| Snacks Results of Operations – Discontinued Operations | ($0.01) | ($0.02) | |
| Diluted Net Earnings Per Share-Continuing Operations | $0.81 | $0.94 | |
| Incremental restructuring | $0.12 | - | |
| Non-cash Impairment charges | $0.01 | - | |
| Core EPS | $0.94 | $0.94 | |
| Core EPS Growth | 0% |
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 Margin:
This is a measure of the Company’s operating margin adjusted for current and prior year charges related to incremental restructuring due to increased focus on productivity and cost savings and the current year charge from the balance sheet impact of the Venezuela devaluation:
| JFM 13 | JFM 12 | ||
| Operating Profit Margin | 16.5% | 16.3% | |
| Venezuela balance sheet devaluation impacts | 1.7% | 0% | |
| Incremental restructuring | 0.6% | 2.4% | |
| Core Operating Profit Margin | 18.8% | 18.7% | |
| Basis point change | 10 |
4. Core Gross Margin:
This is a measure of the Company’s Gross Margin adjusted for the current year charges related to incremental restructuring due to increased focus on productivity and cost savings:
| JFM 13 | JFM 12 | ||
| Gross Margin | 49.8% | 49.3% | |
| Incremental restructuring | 0.2% | 0.5% | |
| Core Gross Margin | 50.0% | 49.8% | |
| Basis point change | 20 |
5. Core SG&A as a % of Net Sales:
This is a measure of the Company’s SG&A as a % of Net Sales adjusted for the current and prior year charges related to incremental restructuring due to increased focus on productivity and cost savings, and current year charge from the balance sheet impact of the Venezuela devaluation:
| JFM 13 | JFM 12 | ||
| SG&A as a % NOS | 33.3% | 32.9% | |
| Incremental restructuring | -0.3% | -1.7% | |
| Venezuela balance sheet devaluation impacts | -1.7% | - | |
| Rounding | -0.1% | -0.1% | |
| Core SG&A as a % NOS | 31.2% | 31.1% | |
| Basis point change | 10 |
6. Core Operating Profit Growth:
This is a measure of the Company’s operating profit growth adjusted for the fiscal 2013 charge from the balance sheet impact of the Venezuela devaluation, the fiscal 2012 impairment charges for goodwill and indefinite lived intangible assets, fiscal year 2013 and 2012 charges related to incremental restructuring due to increased focus on productivity and cost savings, and charges in fiscal 2012 and 2011 related to the European legal matters:
| JFM 13 | OND 12 | JAS 12 | AMJ 12 | JFM 12 | |||||
| Operating Profit Growth | 3% | 68% | -7% | -4% | -11% | ||||
| Venezuela b/s devaluation impacts | 10% | - | - | - | - | ||||
| Impairment charges | -1% | -61% | 0% | 0% | 1% | ||||
| Charges for European legal matters | 0% | -4% | 1% | 0% | 0% | ||||
| Incremental restructuring | -10% | 4% | 7% | 8% | 12% | ||||
| Core Operating Profit Growth | 2% | 7% | 1% | 4% | 2% |
7. Core Effective Tax Rate:
This is a measure of the Company’s effective tax rate adjusted for the current year charge from the balance sheet impact of the Venezuela devaluation and the current year charges related to incremental restructuring due to increased focus on productivity and cost savings. The table below provides a reconciliation of the effective tax rate to the Core tax rate:
| JFM 2013 | ||
| Effective Tax Rate | 21.2% | |
| Tax impact of Venezuela Balance Sheet Devaluation Impacts | 1.1% | |
| Incremental restructuring | -0.1% | |
| Core Effective Tax Rate | 22.2% |
8. 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 | Free Cash Flow | |
| Jul ‘12-Mar ‘13 | $10,481 | ($2,426) | $8,055 |
| Jan ‘13-Mar ‘13 | $3,862 | ($897) | $2,965 |
9. Adjusted Free Cash Flow Productivity:
Adjusted free cash flow productivity is defined as the ratio of free cash flow to net earnings excluding the gains from major divestitures and impairment charges. Given the size of these gains and the impairment charges, as well as our view that they are not part of our sustainable results, we have excluded these from our calculation. We believe this provides a better perspective of our underlying liquidity trends. The Company’s long-term target is to generate free cash flow at or above 90 percent of net earnings. We view adjusted free cash flow and adjusted free cash flow productivity as important measures because they are factors in determining the amount of cash available for dividends and discretionary investment. Adjusted free cash flow and adjusted free cash flow productivity are also measures used to evaluate senior management and are factors in determining their at-risk compensation. The reconciliation of adjusted free cash flow productivity is provided below (amounts in millions):
| Free Cash Flow | Net Earnings | Divestiture Gain | Net Earnings excluding Gain | Adjusted Free Cash Flow Productivity | |
| Jul ‘12-Mar ‘13 | $8,055 | $9,520 | $623 | $8,897 | 91% |
| Jan ‘13-Mar ‘13 | $2,965 | $2,591 | $2,591 | 114% |