Jan Mar 2013 (Q3 FY 13)Jan – Mar 2013 (Q3 FY 13)Business Results
Jan – Mar 13 (Q3 FY 13) ResultsOrganic Sales GrowthOrganic Sales Growth6%O i l th t k ith l5%Organic sales growth on-track with plan3%4%3% 3% 3%3%2%3%2%1%0%JFM 12 AMJ 12 JAS 12 OND 12 JFM 13
Jan – Mar 13 (Q3 FY 13) Results% of Sales In-Line or Growing Value Share% of Sales In Line or Growing Value Share70%Global market share trends50%60%continue to improve.40%50%20%30%10%20%0%JFM 12 AMJ 12 JAS 12 OND 12 JFM 13Market share data is value basis, constant currency.
Jan – Mar 13 (Q3 FY 13) ResultsCore EPS GrowthCore EPS Growth15.0%12%Results driven by strong cost10.0%12%savings progress.5%5%5.0%0% 0%0.0%JFM 12 AMJ 12 JAS 12 OND 12 JFM 130% 0%-5.0%* History adjusted for Snacks moving to Discontinued Operations.
Jan – Mar 13 (Q3 FY 13) ResultsCore Operating Profit GrowthCore Operating Profit Growth15%Core operating margin improved by 10 basispoints including 260 basis points of productivity10%15% points, including 260 basis points of productivityimprovements and cost savings.5%10%2%4%7%0%JFM 12 AMJ 12 JAS 12 OND 12 JFM 132%1%2%-5%JFM 12 AMJ 12 JAS 12 OND 12 JFM 13-10%* History adjusted for Snacks moving to Discontinued Operations.
Fiscal Year 13 ResultsN M f i E llNon-Manufacturing EnrollmentNon-MfgOverheadOverheadNet Role Changes as of June 30, 2012 (2,000)Net Role Changes July-September, 2012 (1,300)Net Role Changes October – December, 2012 (2,200)Net Role Changes January – March, 2013 (750)Net Role Changes as of March 31 2013 (6 250)Net Role Changes as of March 31, 2013 (6,250)June 30, 2013 Target (5,700)550 reductions ahead of FY 2013 goal as ofMarch 31st
Results-To-DateN C R i S diNon-Core Restructuring SpendingFY ‘12 FY ‘13 FY ‘13 FY ‘13($MM Before Tax) Total Year JAS OND JFMCost of Goods Sold $211 $100 $54 $50SG&A $510 $192 $101 $64Total Non-Core Restructuring $721 $292 $155 $114
Jan – Mar 13 (Q3 FY 13) ResultsBeauty & GroomingBeauty & GroomingBeauty Segment Grooming Segment3% 1% 0%2%-1%Organic Sales OrganicVolumeOrganic Sales OrganicVolume3% -1% 0%-1%• +1% Pricing, -1% Mix • +3% Pricing, -1% Mix• Volume: Low-singles Developed, Low-singles Developing• Organic Volume: Low-singlesDeveloped, Low-singlesDeveloping• P&G global value sharedeclined 0.6 pointsp g• P&G global value shareincreased 0.2 points
Jan – Mar 13 (Q3 FY 13) ResultsB & G iB C tOrganic Volume Growth IYABeauty & GroomingBy CategoryGlobal Developed DevelopingHair Care ~= - ~=Skin Care - - -Cosmetics - - ++Personal Cleansing ~= - ++Deodorants ++ ++ ++Salon Professional ~= - ++Prestige ~= ~= +Prestige +Blades & Razors ~= + ~=Braun - - -• ++ represents growth above 2%, + represents growth of 2%, ~= represents growth of 1% to decline of 1%;- represents decline greater than 1%. Company average = 2%.
Jan – Mar 13 (Q3 FY 13) ResultsB t Hi hli ht• U.S. Hair Care value share grew nearly one-point in March. New innovation is performing wellacross the portfolio despite high levels of competitive activity Vidal Sassoon Pro Series hair careBeauty Highlightsacross the portfolio despite high levels of competitive activity. Vidal Sassoon Pro Series hair careshipments exceeded expectation, and value share was over 1.5%. Pantene Expert Collectionwas also ahead of forecast with value share over 0.5%.• China Hair Care value share grew behind strong fundamentals and new innovation on theg gPantene and Head & Shoulders businesses.• Western Europe Hair Care volume declined. Value interventions have been made in several keymarkets in the region to close price and promotion gaps vs. competition.• Salon Professional organic sales and value share grew in a contracting market. The Nioxinexpansion and Illumina color by Wella innovation delivered ahead of expectation and were off-set primarily by market softness in Europe.
Jan – Mar 13 (Q3 FY 13) ResultsB t Hi hli ht• The Prestige business grew organic volume led by the launches of Hugo Red, Eau de LacosteBeauty Highlights (continued)Femme and James Bond 007.• Greater China Skin Care shipments grew mid-single digits. The growth is driven by in-storeinterventions made at the beauty counters and with beauty consultants as well as recentinnovation launches including the introductions of a Pro-X Whitening line in Q1 a YuLan Youinnovation launches including the introductions of a Pro-X Whitening line in Q1, a YuLan YouNaturals line in Q2 and a restage on the Olay Brand in Q3.• North America Skin Care volume declined. Strong growth of the new Olay Fresh Effects mid-tier line and Olay Regenerist Eye+Lash Duo was more than off-set by supply interruptions, asy g y y pp y pwe work to optimize our manufacturing operations.• U.S. Cosmetics value share trend has improved sequentially, increasing from P6M at -1.3 toP1M at -0.2, largely due to the Q2 launch of Outlast Nails, Clump Crusher mascara, andOutlast 3 in 1 foundationOutlast 3-in-1 foundation.
Jan – Mar 13 (Q3 FY 13) ResultsGrooming Highlights• U.S. Blades & Razors value share increased by 1 point versus year ago in a growing market.All th j l t f l bl d & F i M h 3 d di bl llGrooming HighlightsAll three major elements of male blades & razors – Fusion, Mach 3 and disposables, as wellas Venus blades & razors, held or grew value share.W t E Bl d & R l h h ti d t i f 70 7%• Western Europe Blades & Razors value share has continued momentum, growing from 70.7%for the past 12 months to 71.7% for the past 3 months largely due to growth in Fusion andVenus.Latin America Blades & Ra or shipments declined Strong gro th from the F sion ProGlide• Latin America Blades & Razor shipments declined. Strong growth from the Fusion ProGlideand Venus expansions in the region were more than off-set by customer inventoryadjustments in Brazil, as customers bought ahead of consumption in Q2 before the recentprice increase.• Appliances organic shipments declined driven by market contraction in Europe and customerinventory adjustments from the holiday period.
Jan – Mar 13 (Q3 FY 13) ResultsH l h C SHealth Care Segment8%5%OrganicSalesOrganicVolume• +1% Pricing, +2% MixSales Volume• Volume: Low-singles Developed, High-singles Developing• P&G global value market share declined 0 4 pointsP&G global value market share declined 0.4 points
Jan – Mar 13 (Q3 FY 13) ResultsH l h CHealth CareBy CategoryOrganic Volume Growth IYAGlobal Developed Developingy g yGlobal Developed DevelopingOral Care ++ + ++Feminine Care + ++Feminine Care + - ++Personal Health Care ++ ++ ++• ++ represents growth above 2%, + represents growth of 2%, ~= represents growth of 1% to decline of 1%;- represents decline greater than 1%. Company average = 2%.
Jan – Mar 13 (Q3 FY 13) ResultsH l h C Hi hli h• Global Oral Care shipments increased mid-single digits with growth in 4 out of 5 regions.Health Care Highlights• U.S. toothpaste value share was up over 1 point versus year ago behind Top 40intervention plans.L ti A i O l C l h 3 i t d hi t• Latin America Oral Care value share grew over 3 points versus year ago and shipmentsincreased over 20%. The Oral B toothpaste expansion markets continued to over-deliverversus expectation, and Mexico toothpaste value share was up nearly 3 points driven bythe 3D White launch.• Western Europe Oral Care volume and value share increased largely due to the continuedsuccess of the Oral B toothpaste expansion in the U.K. and Benelux and the recentlaunches into France, Spain, Portugal & Greece.• Greater China Oral Care shipments were up double digits behind more effectivemerchandising, the launch of a Crest Complete Naturals regimen and 3D White growth.
Jan – Mar 13 (Q3 FY 13) ResultsH l h C Hi hli h• Developed market Feminine Care shipments declined due to high levels of competitiveHealth Care Highlights (continued)promotional activity in the U.S. and market softness in Western Europe.• Latin America Feminine Care volume increased high single digits behind strength in Brazilwhere value share is up nearly 2 points from new initiatives on Always and the introductionof Tampax Pearl.• Central & Eastern Europe, Middle East & Africa Feminine Care shipments and value shareincreased with Russia reaching record share levels behind strengthened in-storefundamentals and new innovation.• North America Personal Health Care volume grew over 20% driven by a strong cough &cold season indexing against a weak season last year and the launch of ZzzQuil Sleep Aid.• Latin America Personal Health Care volume was up over 20% behind Vicks growth inMexico due to improved sales in the Pharmacy channel and a stronger cough & coldseason across the region.• Western Europe Personal Health Care volume increased largely due to growth in the Tevajoint venture products.
Jan – Mar 13 (Q3 FY 13) ResultsH h ld CHousehold CareFabric & Home Care Segment Baby & Family Segmentg4%1%3%4%2%Organic OrganicOrganicSalesOrganicVolumegSalesgVolume• Flat Pricing, -2% Mix • +2% Pricing, Flat MixSales Volume• Volume: Flat Developed, High-singles Developing• Volume: Low-singles Developed, Mid-singles Developing• P&G global value sharedeclined 0.4 points• P&G global value sharedeclined 0.4 points
Jan – Mar 13 (Q3 FY 13) ResultsH h ld COrganic Volume Growth IYAHousehold CareBy CategorygGlobal Developed DevelopingFabric Care ++ ~= ++Home Care ++ + ++Batteries ~= - ++P&G Professional ++ ++ ++Baby Care ++ ~= ++Family Care + + ++Pet Care - - -• ++ represents growth above 2%, + represents growth of 2%, ~= represents growth of 1% to decline of 1%;- represents decline greater than 1%. Company average = 2%.
Jan – Mar 13 (Q3 FY 13) ResultsH h ld C Hi hli ht• U.S. Fabric Care value share grew led by Tide increasing share nearly one point behindcontinued Tide PODS success and Gain growing share 0.5 points to over a 15 share behind theHousehold Care Highlightsg g ppricing interventions on powders.• Asia Fabric Care shipments were up double digits, and value share was up half-a-point.Greater China volume increased double-digits from the launch of Tide with Safeguard andinvestments from the Top 40 plansinvestments from the Top 40 plans.• Western Europe Fabric Care volume increased mid-single digits largely due to promotional andprice investments in the U.K., Germany and Italy.• U.S. Home Care shipments and value share were up. Dish Care growth was strong driven bycontinued momentum from the pricing adjustments made last February and a solid start to theCascade Platinum launch.• P&G is the number one car freshener company worldwide with Febreze car vent clips nowP&G is the number one car freshener company worldwide with Febreze car vent clips nowselling in countries in North America, Latin America, Western Europe and Asia.• Central & Eastern Europe, Middle East & Africa Home Care value share grew over 0.5 pointswith strong growth in Dish Care in Turkey and Saudi Arabia.• Western Europe Home Care value share was about flat after recent interventions including thelaunch of Febreze car vent clips, increased distribution in Germany hand dish care andimproved competitiveness in the U.K. and Italy.
Jan – Mar 13 (Q3 FY 13) ResultsH h ld C Hi hli hHousehold Care Highlights (continued)• North America Batteries value share grew over 1 point in a contracting market as consumerscontinue to work through pantry inventory from Hurricane Sandy.• North America Pet Care shipments were down largely due to high levels of competitivepressure in the Pet Specialty channelpressure in the Pet Specialty channel.• U.S. Diapers volume and value share increased behind continued growth in the premium tierfrom the three-way fit innovation and “Beautiful Mornings” advertising and by Luvs.• Greater China Baby Care value share was up nearly 0.5 points in a fast growing market. Thegrowth was driven by product innovation and focused sales efforts in expanding channels,such as Baby Stores and e-commerce.• North America Family Care volume was up and value share was flat behind strength from the• North America Family Care volume was up and value share was flat behind strength from theCharmin DuraClean, Bounty Trap & Lock, and Bounty DuraTowel innovations.
FY 2013 GuidanceO i S l G hFY 2013 GuidanceO i S l G th6%Organic Sales GrowthOrganic Sales GrowthM i t i d l id5%3% to 4%4%Maintained sales guidance3%4%3%3% to 4%3%4%2%3%1%0%FY 10 FY 11 FY 12 FY 13E
FY 2013 GuidanceC EPS G th10%Core EPS GrowthFY ‘13 outlook tightened8% 7%6% 5% 3% to 5%2%4%0%2%-1%-1%-2%FY 10 FY 11 FY 12 FY 13E* History adjusted for Snacks moving to Discontinued Operations.
FY 2013 GuidanceGMacro Assumptions Included in GuidanceGlobal Market Growth ~4%Commodity Prices* Slight EPS HeadwindForeign Exchange* -1% to -2% Top-lineForeign Exchange -1% to -2% Top-line* Based on mid-April spot rates
FY 2013 GuidanceQ4 fQ4 Profit HeadwindsWeak market growthgMarket dynamics in countries such as Venezuela,A ti E t S i & S th KArgentina, Egypt, Syria, & South KoreaForeign exchange moves in markets like Japan, Brazil,o e g e c a ge o es a e s e Japa , a ,Argentina & VenezuelaHi h d tiHigh pre-production expensesMarketing investmentsMarketing investmentsFor additional information regarding potential risks, please refer to the 10-K for the year ending June 30, 2012
FY 2013 GuidanceSReturning Value to ShareholdersFY ‘12 FY ‘13 EDividends $6B $6B+Share Repurchase $4B ~$6BValue to Shareholders $10B ~$12B+Value to Shareholders $10B $12B+Shareholder Yield,% of market cap5.5% ~5.5%Dividend increased by 7% and share repurchaseincreased to ~$6 billion in FY 2013increased to $6 billion in FY 2013Shareholder Yield is calculated based on market cap of the last day of each Fiscal Year. FY 13 Estimate is based on Market Cap of $220B
Forward Looking StatementsCertain statements in this release or presentation, other than purely historical information, including estimates, projections, statements relating to ourbusiness plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E ofthe Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “anticipate,”“estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue”, “will likely results,” and similari F d l ki t t t b d t t ti d ti th t bj t t i k d t i ti hi hexpressions. Forward-looking statements are based on current expectation and assumptions that are subject to risks and uncertainties which maycause results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-lookingstatements, whether because of new information, future events or otherwise.Risks and uncertainties to which our forward-looking statements are subject include: (1) the ability to achieve business plans, including growingexisting sales and volume profitably and maintaining and improving margins and market share, despite high levels of competitive activity, anincreasingly volatile economic environment, lower than expected market growth rates, especially with respect to the product categories andgeographical markets (including developing markets) in which the Company has chosen to focus and/or increasing competition from mid- and lowergeographical markets (including developing markets) in which the Company has chosen to focus, and/or increasing competition from mid and lowertier value products in both developed and developing markets; (2) the ability to successfully manage ongoing acquisition, divestiture and joint ventureactivities to achieve the cost and growth synergies in accordance with the stated goals of these transactions without impacting the delivery of basebusiness objectives; (3) the ability to successfully manage ongoing organizational changes and achieve productivity improvements designed tosupport our growth strategies, while successfully identifying, developing and retaining particularly key employees, especially in key growth marketswhere the availability of skilled or experienced employees may be limited; (4) the ability to manage and maintain key customer relationships; (5) theability to maintain key manufacturing and supply sources (including sole supplier and plant manufacturing sources); (6) the ability to successfullymanage regulatory, tax and legal requirements and matters (including, but not limited to, product liability, patent, intellectual property, price controls,import restrictions, environmental and tax policy), and to resolve pending matters within current estimates; (7) the ability to resolve the pendingcompetition law inquiries in Europe within current estimates; (8) the ability to successfully implement, achieve and sustain cost improvement plans andefficiencies in manufacturing and overhead areas, including the Companys outsourcing projects; (9) the ability to successfully manage volatility inforeign exchange rates, as well as our debt and currency exposure (especially in certain countries with currency exchange, import authorization orpricing controls, such as Venezuela, China, India and Argentina); (10) the ability to maintain our current credit rating and to manage fluctuations ininterest rate increases in pension and healthcare expense and any significant credit or liquidity issues; (11) the ability to manage continued globalinterest rate, increases in pension and healthcare expense, and any significant credit or liquidity issues; (11) the ability to manage continued globalpolitical and/or economic uncertainty and disruptions, especially in the Companys significant geographical markets, due to a wide variety of factors,including but not limited to, terrorist and other hostile activities, natural disasters and/or disruptions to credit markets, resulting from a global, regionalor national credit crisis; (12) the ability to successfully manage competitive factors, including prices, promotional incentives and trade terms forproducts; (13) the ability to obtain patents and respond to technological advances attained by competitors and patents granted to competitors; (14) theability to successfully manage increases in the prices of commodities, raw materials and energy, including the ability to offset these increases throughpricing actions; (15) the ability to develop effective sales, advertising and marketing programs; (16) the ability to stay on the leading edge ofp g ( ) y p g g p g ( ) y y g ginnovation, maintain the positive reputation of our brands and ensure trademark protection; and (17) the ability to rely on and maintain key informationtechnology systems and networks (including Company and third-party systems and networks), the security over such systems and networks, and thedata contained therein. For additional information concerning factors that could cause actual results to materially differ from those projected herein,please refer to our most recent 10-K, 10-Q and 8-K reports.
1The Procter & Gamble Company: Reg G Reconciliation of Non-GAAP measuresIn accordance with the SEC’s Regulation G, the following provides definitions of the non-GAAP measuresused in Procter & Gambles April 24, 2013 earnings call and associated slides with the reconciliation to themost closely related GAAP measure. The measures provided are as follows:1. Organic Sales Growth – page 12. Core EPS – pages 2 through 43. Core Operating Profit Margin – page 44. Core Gross Margin – page 45. Core Selling, General & Administrative Expenses (SG&A) as a % of Net Sales – page 56. Core Operating Profit Growth – page 57. Core Effective Tax Rate – page 58. Free Cash Flow – page 69. Adjusted Free Cash Flow Productivity – page 61. 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 witha 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 determiningtheir at-risk compensation. The reconciliation of reported sales growth to organic sales is as follows:Total P&GNet SalesGrowthForeignExchangeImpactAcquisition/DivestitureImpact*OrganicSalesGrowthJFM 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 2013NetSalesGrowthForeignExchangeImpactAcquisition/DivestitureImpact*OrganicSalesGrowthBeauty -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.
22. Core EPS: This is a measure of the Company’s diluted net earnings per share from continuing operationsexcluding certain items that are not judged to be part of the Company’s sustainable results or trends. Thisincludes FY 2013 holding gain on the buyout of our Iberian joint venture partner, FY 2013 and 2012 chargesrelated to incremental restructuring due to increased focus on productivity and cost savings, FY 2013 chargefrom the balance sheet impact of the Venezuela devaluation, charges in FY’s 2012, 2011 and 2010 related toEuropean legal matters, FY 2012 impairment charges for goodwill and indefinite lived intangible assets, asignificant benefit in FY 2011 from the settlement of U.S. tax litigation primarily related to the valuation oftechnology donations, a FY 2010 charge related to a tax provision for retiree healthcare subsidy payments inthe U.S. healthcare reform legislation, and incremental restructuring charges in FY 2009 to offset the dilutiveimpact of the Folgers divestiture. We believe the Core EPS measure provides an important perspective ofunderlying business trends and results and provides a more comparable measure of year-on-year earnings pershare growth. Core EPS is also one of the measures used to evaluate senior management and is a factor indetermining their at-risk compensation. The tables below provide a reconciliation of diluted net earnings pershare to Core EPS:Fiscal Year Data:FY 2013 (est.)FY2012FY2011FY2010FY2009Diluted Net Earnings Per Share -Continuing Operations $3.90 to $3.98 $3.12 $3.85 $3.47 $3.35Impairment 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 - - $0.09Gain 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 $3.43Core EPS Growth 3% to 5% -1% 7% 5%Quarter / Period Data: AMJ 13 (est.) AMJ12Diluted Net Earnings Per Share $0.67 to $0.75 $1.24Gain from snacks divestiture ($0.48)Snacks results of operations – Discontinued Operations - (0.02)Diluted Net Earnings Per Share-ContinuingOperations $0.67 to $0.75 $0.74Incremental restructuring 0.02 0.08Core EPS $0.69 to $0.77 $0.82Core EPS Growth -16% to -6%
3 JFM 13 JFM 12Diluted Net Earnings Per Share $0.88 $0.82Snacks results of operations – Discontinued Operations - $(0.01)Diluted Net Earnings Per Share-ContinuingOperations $0.88 $0.81Venezuela balance sheet devaluation impacts $0.08 -Impairment charges - $0.01Incremental restructuring $0.03 $0.12Core EPS $0.99 $0.94Core EPS Growth 5% OND 12 OND 11Diluted Net Earnings Per Share-Continuing Operations $1.39 $0.56Impairment charges - $0.50Charges for European legal matters - $0.02Gain on buyout of Iberian JV ($0.21) -Incremental restructuring $0.05 $0.01Rounding ($0.01) -Core EPS $1.22 $1.09Core EPS Growth 12% JAS 12 JAS 11Diluted Net Earnings Per Share-Continuing Operations $0.96 $1.01Incremental restructuring $0.09 -Charges for European Legal Matters $0.01 -Core EPS $1.06 $1.01Core EPS Growth 5% AMJ 12 AMJ 11Diluted Net Earnings Per Share $1.24 $0.84Gain from snacks divestiture ($0.48) -Snacks results of operations – Discontinued Operations ($0.02) ($0.02)Diluted Net EPS - Continuing Operations $0.74 $0.82Incremental restructuring $0.08 -Core EPS $0.82 $0.82Core EPS Growth 0%
4 JFM 12 JFM 11Diluted Net Earnings Per Share $0.82 $0.96Snacks Results of Operations – Discontinued ($0.01) ($0.02)Diluted Net Earnings Per Share-Continuing $0.81 $0.94Incremental restructuring $0.12 -Non-cash Impairment charges $0.01 -Core EPS $0.94 $0.94Core EPS Growth 0%Note – All reconciling items are presented net of tax. Tax effects are calculated consistent with the nature ofthe 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 toincremental restructuring due to increased focus on productivity and cost savings and the current year chargefrom the balance sheet impact of the Venezuela devaluation:JFM 13 JFM 12Operating 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 104. Core Gross Margin:This is a measure of the Company’s Gross Margin adjusted for the current year charges related toincremental restructuring due to increased focus on productivity and cost savings:JFM 13 JFM 12Gross Margin 49.8% 49.3%Incremental restructuring 0.2% 0.5%Core Gross Margin 50.0% 49.8%Basis point change 20
55. 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 yearcharges related to incremental restructuring due to increased focus on productivity and cost savings, andcurrent year charge from the balance sheet impact of the Venezuela devaluation:JFM 13 JFM 12SG&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 106. Core Operating Profit Growth:This is a measure of the Company’s operating profit growth adjusted for the fiscal 2013 charge from thebalance sheet impact of the Venezuela devaluation, the fiscal 2012 impairment charges for goodwill andindefinite lived intangible assets, fiscal year 2013 and 2012 charges related to incremental restructuring dueto increased focus on productivity and cost savings, and charges in fiscal 2012 and 2011 related to theEuropean legal matters: JFM 13 OND 12 JAS 12 AMJ 12 JFM 12Operating 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 balancesheet impact of the Venezuela devaluation and the current year charges related to incremental restructuringdue to increased focus on productivity and cost savings. The table below provides a reconciliation of theeffective tax rate to the Core tax rate:JFM2013Effective Tax Rate 21.2%Tax impact of Venezuela Balance Sheet Devaluation Impacts 1.1%Incremental restructuring -0.1%Core Effective Tax Rate 22.2%
68. Free Cash Flow:Free cash flow is defined as operating cash flow less capital spending. We view free cash flow as animportant measure because it is one factor in determining the amount of cash available for dividends anddiscretionary investment. Free cash flow is also one of the measures used to evaluate senior managementand is a factor in determining their at-risk compensation. The reconciliation of free cash flow is providedbelow (amounts in millions):OperatingCash Flow Capital Spending Free Cash FlowJul ‘12-Mar ‘13 $10,481 ($2,426) $8,055Jan ‘13-Mar ‘13 $3,862 ($897) $2,9659. Adjusted Free Cash Flow Productivity:Adjusted free cash flow productivity is defined as the ratio of free cash flow to net earnings excluding thegains from major divestitures and impairment charges. Given the size of these gains and the impairmentcharges, as well as our view that they are not part of our sustainable results, we have excluded these from ourcalculation. We believe this provides a better perspective of our underlying liquidity trends. TheCompany’s long-term target is to generate free cash flow at or above 90 percent of net earnings. We viewadjusted free cash flow and adjusted free cash flow productivity as important measures because they arefactors in determining the amount of cash available for dividends and discretionary investment. Adjustedfree cash flow and adjusted free cash flow productivity are also measures used to evaluate seniormanagement and are factors in determining their at-risk compensation. The reconciliation of adjusted freecash flow productivity is provided below (amounts in millions):FreeCashFlow Net EarningsDivestitureGainNet Earningsexcluding GainAdjusted FreeCash FlowProductivityJul ‘12-Mar ‘13 $8,055 $9,520 $623 $8,897 91%Jan ‘13-Mar ‘13 $2,965 $2,591 $2,591 114%