Proctor and Gamble 2016 Annual Report Download - page 73

The Procter & Gamble Company 59
Amounts in millions of dollars except per share amounts or as otherwise specified.
NOTE 12
COMMITMENTS AND CONTINGENCIES
Guarantees
In conjunction with certain transactions, primarily divestitures,
we may provide routine indemnifications (e.g.,
indemnification for representations and warranties and
retention of previously existing environmental, tax and
employee liabilities) for which terms range in duration and, in
some circumstances, are not explicitly defined. The maximum
obligation under some indemnifications is also not explicitly
stated and, as a result, the overall amount of these obligations
cannot be reasonably estimated. Other than obligations
recorded as liabilities at the time of divestiture, we have not
made significant payments for these indemnifications. We
believe that if we were to incur a loss on any of these matters,
the loss would not have a material effect on our financial
position, results of operations or cash flows.
In certain situations, we guarantee loans for suppliers and
customers. The total amount of guarantees issued under such
arrangements is not material.
Off-Balance Sheet Arrangements
We do not have off-balance sheet financing arrangements,
including variable interest entities, that have a material impact
on our financial statements.
Purchase Commitments and Operating Leases
We have purchase commitments for materials, supplies,
services and property, plant and equipment as part of the normal
course of business. Commitments made under take-or-pay
obligations are as follows:
Years ending
June 30 2017 2018 2019 2020 2021
There
after
Purchase
obligations $ 881 $ 221 $ 170 $ 129 $ 105 $ 288
Such amounts represent future purchases in line with expected
usage to obtain favorable pricing. This includes purchase
commitments related to service contracts for information
technology, human resources management and facilities
management activities that have been outsourced to third-party
suppliers. Due to the proprietary nature of many of our
materials and processes, certain supply contracts contain
penalty provisions for early termination. We do not expect to
incur penalty payments under these provisions that would
materially affect our financial position, results of operations
or cash flows.
We also lease certain property and equipment for varying
periods. Future minimum rental commitments under non-
cancelable operating leases, net of guaranteed sublease
income, are as follows:
Years ending
June 30 2017 2018 2019 2020 2021
There
after
Operating
leases $ 237 $ 240 $ 224 $ 206 $ 154 $ 502
Litigation
We are subject to various legal proceedings and claims arising
out of our business which cover a wide range of matters such
as antitrust, trade and other governmental regulations, product
liability, patent and trademark, advertising, contracts,
environmental, labor and employment and tax.
While considerable uncertainty exists, in the opinion of
management and our counsel, the ultimate resolution of the
various lawsuits and claims will not materially affect our
financial position, results of operations or cash flows.
We are also subject to contingencies pursuant to environmental
laws and regulations that in the future may require us to take
action to correct the effects on the environment of prior
manufacturing and waste disposal practices. Based on
currently available information, we do not believe the ultimate
resolution of environmental remediation will materially affect
our financial position, results of operations or cash flows.
NOTE 13
DISCONTINUED OPERATIONS
On July 9, 2015, the Company announced the signing of a
definitive agreement to divest four product categories which
will be merged with Coty. The divestiture was initially
comprised of 43 of the Company's beauty brands (“Beauty
Brands”), including the global salon professional hair care and
color, retail hair color, cosmetics and fine fragrance businesses,
along with select hair styling brands. Subsequent to signing,
the fine fragrance brands of Dolce & Gabbana and Christina
Aguilera were excluded from the divestiture. In connection
with the decision to exclude these brands, the Company
recorded a non-cash, before-tax impairment charge in
discontinued operations of approximately $48 ($42 after tax)
in fiscal 2016 in order to record the Dolce & Gabbana license
intangible asset at its revised estimated net realizable value.
On May 11, 2016, the Company entered into a separate
transaction to sell the Christina Aguilera brand prior to or
concurrent with the expected close date of the Coty transaction.
On June 30, 2016, Dolce & Gabbana and the Shiseido Group
announced the signing of the worldwide license agreement for
the Dolce & Gabbana beauty business. The Company will
transition out of the Dolce & Gabbana license upon the
effectiveness of the new license, which is expected to occur
prior to or concurrent with the expected close of the Coty
transaction. In connection with this transition, the Company
agreed to pay a termination payment of $83 ($76 after tax).
This termination payment charge is included in discontinued
operations for the year ended June 30, 2016.
While the ultimate form of the Beauty Brands transaction has
not yet been decided, the Company’s current preference is for
a Reverse Morris Trust split-off transaction in which P&G
shareholders could elect to participate in an exchange offer to
exchange their P&G shares for shares of a new corporation that
would hold the Beauty Brands (excluding Dolce & Gabbana
and Christina Aguilera) and then immediately exchange those
shares for Coty shares. The Company expects to close the
transaction in October 2016.