国外某公司财务分析手册(全英文版-图文并茂)

KaterInc.

TransparentFinancialReportingAnalysisManual

SEC/LegalEntity

SEC/LegalEntity/GAAP

Business

Units

Accountable

Enterprise

Product

Profitability

Focus

Contents

Chapter1Introduction

1.KaterMethodologies

2.AggregationMethodologies

3.Rate/VolumeConcept

4.Commentary

5.Roles&ResponsibilitiesChapter2FormMSummaryChapter3ForeignCurrencyReconciliation

Chapter4SalesReconciliation

1.Overview

2.PriceRealizationa.ForeignCurrency

b.PublishedPricec.SalesDiscountd.Warranty

e.TransferYieldf. PhysicalSalesVolume

3.BasePeriodVariableMarginPercentage

4.VolumeImpactonMargin

Chapter5Mix

1.Overview

2.GeographicMix

3.Country/RegionMix

4.GeographicMixonTransfers

5.ProductMixImpactonSales

6.ProductMixbetweenProductLines

7.ProductMixwithinProductLinesa.RevenueSales

b.Non-revenueSalesandTransfers

Chapter6VariableCost

1.Overview

2.CostofSales

3.TransferIn/Inter-companyPurchases

4.InventoryAdjustments/RSSM’s

5.OtherVariableCost

Chapter7PeriodCostofSales

1.Overview

2.PeriodCostsIncurred

3.PeriodCostsInventoryEffect

4.VariableMarginPercentage

Chapter8Parts Chapter9 PeriodSG&A/R&DChapter10 OtherIncomeandExpenseChapter11 TheChunkChartChapter12 ContactDetailsChapter13 Glossary(Analysis)

Chapter14 Glossary(TFR)

2

InordertofullyleveragethebenefitsofTransparentFinancialReporting,acomprehensiveprocessforfinancialanalysiswasdeveloped.Theprinciplesofthisnewprocessare:

Onetoolforallanalysisneeds–Allbusinessunit,productlineandconsolidatedanalysiswillbeperformedusingthisprocess

Highlymechanical–Utilizingpre-populatedtemplatesandpre-definedcalculations,manualinputintothemodelhasbeenminimized

Mandatoryandconsistentmethodologies–Theprescribedmethodologiesforcalculationsandaggregationmustbefollowedorthemechanicalprocesswillnotprovideaccurateandconsistentfinancialanalysis

KaterutilizestheFormMasthemodeltoexplainchangesinresultsbetweencomparisonperiods.TheFormMexplainschangesinsalesandchangesinprofit.MajordriversofbothofthesechangesareillustratedintheoverallstructureoftheFormMdepictedbelow.

FormMStructure

ChangeinCorporateProfit

Saleschanges

Costchanges

Dueto

Currencyimpacts

Pricerealization:

1)Publishedprice

2)Salesdiscount

3)Warranty

4)Transferyield

Physicalsalesvolume

Dueto

Currencyimpacts

Variablecosts

Mix

Physicalsalesvolume

Periodcosts

Otherincome/expense

TheprimaryfocusoffinancialanalysisatKateristoexplainactualresultsbothyearoveryearandvs.plan,aswellasRBM(RollingBusinessManagement)forecasts.Belowisasummaryofrelevantcomparisonperiods.

YTDvs.YTD

YTDvs.Plan

Monthvs.Plan

Qtrvs.Qtr

RBMAnalysis(currentvs.prioryear,currentvs.futureyear,currentvs.plan)

Thisisnotanall-inclusivelistofanalysisrequirements.Forinstancetoprovethatcurrentmonthresultsdonotcontainsignificanterrorsitisnecessarytocomparecurrentmonthtopreviousmonthactualresults.

TransparentFinancialReportingAnalysisManualA.doc,9/8/2006,11:23AM3

ThefinaloutputoftheFormMisagraphicaldepictionofchangesinresultsforbothsalesandcorporateprofit.Thesecharts,commonlyreferredtoaschunkcharts,areautomaticallycreatedandaregraphicalmodelsinherentintheFormM.

Sales&

Revenues

Operating

Profit

Accountable

Profit

Corporate

Profit

CurrentPeriod1,130,675198,714196,017169,842

BasePeriod1,006,675174,962172,512146,337

Change124,00023,75223,50523,505

300

250

86.6

0.1

(4.3)

3.0

(11.3)

(49.9)

200

150

146.3

18.7

(5.0)

(12.4)

(3.8)

2.0

(0.0)

(0.2)

169.8

-

100

50

-

BasePeriodVol/MixPriceRealTransYldWarrCCYMat'lCostVarCostPCOSSG&AR&DParts(McFee)OtherOperAllOtherCorpBurdenCurrentPeriod

ProfitChunk

Sales&

Revenues

Operating

Profit

Accountable

Profit

Corporate

Profit

CurrentPeriod 1,130,675 198,714 196,017 169,842

BasePeriod1,006,675174,962172,512146,337Change 124,00023,75223,50523,505

1,200

1,000

1,007 32

87 (4) 5 0 - 5 1,131

800

600

400

200

-

BasePeriodNS&TVolumePriceRealizationWarrantyCurrencyTransferYieldGeographicMix-Transfers

Parts(McFeeRelated)CurrentPeriodNS&T

SalesChunk

TheKaterfinancialanalysisprocessflowissummarizedinthefollowingparagraphsandtheattachedflowchart.

Essbase:ThebackboneoftheanalysistoolisEssbase.Essbaseisaseriesofdatacubesthatallowformanipulationofsignificantamountsofdata.Essbasecollectsdatafrommultiplesourcesandpre-populatestheanalysistemplateswithdatanecessarytocompletetheFormM.Afterthemonthlyclosingprocessiscomplete,actualdataisloadedfromtheAccountableDataCubeswithintheGeneralLedgerSystem(GLS).Prioryearactualdata,businessplanandRBMforecastdataareloadedviaRBMtemplates.Thefrontenduser-interfacetoEssbaseisreferredtoas“Catalyst〞.CatalystisanExceladd-inthatallowsuserstosendandretrievedatatotheEssbasedatacubes.

BusinessUnitAnalysis:ThisanalysisiscompletedbytherelevantBusinessManager,utilizingthepre-populatedtemplatesandsupplementalcalculationsasrequired.BusinessUnitFormM’sarealwayssubdividedbyProductLine(effectivelyallBusinessUnitswillhaveaFormMforeachProductLinetheysupportaswellasaConsolidatedBusinessUnitFormM).CommentarytosupporttheBusinessUnitanalysisisrequiredaswell.OncecompletedBusinessUnitanalysisissubmittedintoEssbasetofacilitatethecreationofProductLineFormM’s.

ProductLineAnalysis:AfterallBusinessUnit(aswellasbyProductLinewithinBusinessUnit)analysisiscomplete,EssbasecreatestheProductLineFormM’s.TheBusinessUnitthathousestheGlobalProductManagerwillprovidecommentarytosupporttheProductLineanalysis.OncecompletedthisanalysisissubmittedintoEssbasetofacilitatethecreationoftheremainingstepsoftheProductLineCascade.

ProductCategoryandSub-LineofBusinessAnalysis:AftertheProductLineanalysisisfinalizedtheProductCategoryandSub-LineofBusinessanalysiswillbemechanicallygenerated.

PrincipalLineofBusiness:AtthePrincipalLineofBusinesslevelseveralCorporatevariancesthatarenotassignedatalowerlevelareaddedtotheanalysis;actualforeignexchangegains/losses,actuarialgains/lossesonpensionassetsandLIFOvariances,etc.ThesevariancesflowthroughtoConsolidatedanalysisaswell.OnaforecastbasistheseitemswillbeassignedbyCAS.

OverviewoftheTransparentFinancialReportingAnalysisprocess

Accountable

GLSDataCubes

BusinessUnitComparisonPeriodData

ActualDataReplicatedtoEssbase

EssbaseData

Cube

Comparisonperioddatapre-populated(ABP,PrioryearactualorRBM)

LoadedviaRBM

template

BusinessUnit(ByProductLine)FormM’swithCommentary

EssbaseData

Cube

ProductLineFormM’swithCommentary

Product

Category

FormM’s

Sub-Lineof

Business

FormM’s

PrincipalLineof

Business

FormM’s

Consolidated

FormM

AGGREGATION–BusinessUnitFormM

ThecalculationsfortheBusinessUnitFormMcanbedividedintothreecategories:

1.AdditiveItems;

2.BusinessUnitCalculations;and

3.RecalculatedItems.

GroupingcalculationsintothesethreecategoriesfacilitatesachievingtransparencybetweenBusinessUnitanalysisandProductLineanalysis.Theseaggregationmethodologiesarepredefinedandcannotbedeviatedfrom.

AdditiveItems:Theseitems(seefigurebelow)fortheBusinessUnitFormMareadd-upsofProductLinecalculations.CalculationswillbecompletedattheProductLinewithinBusinessUnitlevelandaddedtogethertoarriveattheBusinessUnittotal.

BusinessUnitCalculations:Theseitems(seefigurebelow)fortheBusinessUnitFormMaretobecalculatedatanoverallBusinessUnitLevel.ThetotalBusinessUnitFormMvariancewillthenbesplitbytheBusinessUnitbetweentheProductLineswithintheBusinessUnit.

RecalculatedItems:ThesumoftotalmarginimpactofphysicalsalesvolumeandmixfortotalBusinessUnitandtotalProductLineswithinaBusinessUnitareequal.However,asyouaggregatefromProductLineswithinaBusinessUnittototalBusinessUnit,volumeandmixmustberecalculated.TheformMcalculatesvolumeandmixbyProductLinewithinBusinessUnit.ItthenrecalculatesvolumeataBusinessUnitlevel.ThedifferencebetweentheadditivevolumesoftheProductLinecalculationsandtheBusinessUnitcalculationisdefinedasmixbetweenProductLines

BusinessUnitFormM(e.g.TTT)

BusinessUnitFormM(e.g.TTT)

BusinessUnitFormM(e.g.TTT)

PriceRealization

PublishedPriceChange

SalesVarianceRateChange

ProductMixImpactonSalesMixbyModelWarranty

InventoryAdjustments/RSSM’s

PeriodCosts

PartsProfit(McFee)OtherOperatingInc/ExpOtherIncome&ExpenseCorporateBurdenItems

TransferYieldCurrencyMaterial

TransfersIn

VariableLabor/Burden

Recalculation

Recalculation

OtherVariableCosts

Volume

MixbetweenProductLines

Additive

Items

BUCalcs.

Recalculation

ProductLineFormMw/inBusinessUnit(e.g.Pipelayerw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.Pipelayerw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.Pipelayerw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.MTTw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.MTTw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.MTTw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.MTTw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inTTT)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inTTT)

PriceRealization

PublishedPriceChangeSalesVarianceRateChangeProductMixImpactonSales

GeographicMix

Country/RegionMix

OtherSalesVar.RateChange

MixbyModel

Warranty

InventoryAdjustments/RSSM’s

PeriodCostsPartsProfit(McFee)OtherOperatingInc/Exp

OtherIncome&Expense

CorporateBurdenItems

TransferYieldCurrencyMaterial

TransfersIn

VariableLabor/Burden

OtherVariableCosts

Volume

AGGREGATION–ProductLineFormM

ThecalculationsfortheProductLineFormMarefullymechanical,basedonBusinessUnitinputs,andtheycanbedividedintotwocategories:AdditiveItemsandProductLineCalculations.GroupingcalculationsintothesetwocategoriesfacilitatesachievingtransparencybetweenBusinessUnitanalysisandProductLineanalysis.

AdditiveItems:Theseitems(seeFigurebelow)fortheProductLineFormMareconsideredtobeadd-upsoftheProductLinepiecescalculatedintheBusinessUnitFormMprocess.EachProductLineisfedFormMdataviaEssbasefromoneormoreBusinessUnits.ThevariancesinthelistbelowfortheProductLineFormMareasummationofthevariancesfedfromtheBusinessUnitFormMs.

ProductLineCalculations:Volume,GeographicMix,andMixwillbecompletedatanoverallProductLinelevel.AllProductLinecalculationsareperformedmechanicallywithintheFormM.

ProductLineFormM(e.g.LTT)

ProductLineFormM(e.g.LTT)

ProductLineFormM(e.g.LTT)

ProductLineFormM(e.g.LTT)

ProductLineFormM(e.g.LTT)

ProductLineFormM(e.g.LTT)

PriceRealizationPublishedPriceChangeSalesVarianceRateChange

ProductMixImpactonSalesGeographicMixCountry/RegionMix

OtherSalesVar.RateChange

TransferYield

CurrencyMixbyModelWarrantyPeriodCostsMaterialTransfersIn

VariableLabor/Burden

OtherVariableCostsInventoryAdjustments/RSSM’sPartsProfit(McFee)

OtherOperatingInc/Exp

OtherIncome&Expense

CorporateBurdenItems

Volume

Mix

GeographicMix

Additive

Items

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inLACD)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inLACD)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inLACD)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inLACD)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inLACD)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inLACD)

PriceRealization

PublishedPriceChange

PPrriicceeRReeaalliizzaattiioonn

PPPruuobbdlliissuhheecddtPPLrriiccieenCCehhaaFnnggoeermMw/inBusinessUnit(e.g.LTTw/inNACD)

PriceRealization

PPruobdlisuhecdtPLricienCehaFngoermMw/inBusinessUnit(e.g.LTTw/inNACD)

PPrriicceeRReeaalliizzaattiioonn

PPPruuobbdlliissuhheecddtPPLrriiccieenCCehhaaFnnggoeermMw/inBusinessUnit(e.g.LTTw/inNACD)

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inNACD)

TransferYield

ProdCuurcretncLyineFormMw/inBusinessUnit(e.g.LTTw/inTTT)

TTrraannssffeerrYYiieelldd

PPrrooddCCuuuucrrcrreettnnLccLyyiinneeFFoorrmmMMww//iinnBBuussiinneessssUUnniitt((ee..gg..LLTTTTww//iinnTTTTTT))

TransferYield

PPrrooddCuuucrcrettnLcLyiinneeFFoorrmmMMww//iinnBBuussiinneessssUUnniitt((ee..gg..LLTTTTww//iinnTTTTTT))

TTrraannssffeerrYYiieelldd

PPrrooddCCuuuucrrcrreettnnLccLyyiinneeFFoorrmmMMww//iinnBBuussiinneessssUUnniitt((ee..gg..LLTTTTww//iinnTTTTTT))

SalesVarianceRateChange

ProductLineFormMw/inBusinessUnit(e.g.LTTw/inTTT)

GeographicMixonTransfers

ProductMPirxicIemRpaecatliozantiSoanles

PuMbliixshbPeydrMicPeordiRceeelaClihzantigone

SalesPVWuabrailarisrnahcneetdyRParticeeCChhaannggee

ProTransferYieldctonSales

SPaelersioVdaCrioasntcseRateChange

MduaCctetuMrriraiexlnIcmypaGeogTraraphnisGcfeMrosixgIrnoanphTicraMnsixfersPVVPVPVaroridaubcletCMLoaixubInomtrr/ypB/auRcredtgeoinonSMaleixsOtOhtehreVrMaSirxaialbebysleMVCaoord.seRtlsateChange

InventoryAdjuWsTtmararernansntfstey/rRYSiSelMd’s

PartsPPreorfiot(dCMCucroFresetnesc)yOtherOperaMMtianitxgebrIinayclM/EoxdpelOtherIncoTmraen&sWfeEarrxsrpaIennntyseCorpVoarraitaebBleuPLrdearebionodrI/tBCeumorssdtesn

OtherVariMabalteerCiaolsts

InventoryAdjTusratmnsefnetrss/RInSSM’s

PaVrtasriParbolefitL(MabcoFre/Beu)rden

OtherOOthpeerraVtainrgiaIbnlec/CExopsts

OInthverntInocryomAdeju&stEmxepnetnss/ReSSM’s

CorpoPratretsBPurrodfeitn(MItecFmese)

OtherOperatingInc/Exp

OtherIncome&Expense

CorporateBurdenItems

Volume

Mix

GeographicMix

Volume

Volume

Mix

GeographicMix

Mix

eographicMix

Volume

Mix

GeographicMix

Mix

eographicMix

Volume

Mix

GeographicMix

Mix

eographicMix

Volume

Mix

GeographicMix

Mix

GeographicMix

ForpurposesofvariablemarginanalysistheFormMseparatestotalsalesandmarginbetweenrateandphysicalsalesvolume.

Theillustrationbelowusingsampledatahighlightstherate/volumeconcept.

Illustration:Rate/VolumeConcept

Netsales&transfers-base 1,000

Netsales&transfers-current1,200Totalnetsales&transferschange 200

less:

Currencymovements(20)Publishedpricechanges50

Salesdiscountchanges 10 PriceRealization

Warranty 30

Physicalsalesvolumechange 130

Rateofgrowthofphysicalsalesvolume 13%?(Physicalsalesvolumechange/(base)Netsales

&transfersx100)

Marginchange

BasePeriod CurrentPeriod

P&L P&L Change

Netsales&transfers 1,000 1,200 200

Actualvariablecosts(700)(850)(150)

300 350 50

Basemargin 30%

Therefore,changeincostduetochangeinphysicalsalesvolumemustbe?

Physicalsalesvolumechange

130

Costsas%ofnetsales&transfers(base)Changeinvariablecostsdueto

physicalsalesvolumechange

70%

(91)

(100%-basemargin,30%)

Grossvariablecosts-baseperiod 700

Grossvariablecosts-currentperiod 850

Totalvariablecostsvariance (150)>Volumechange(91)Remainingcost(59)(150)

CostAssumption:

BaseCurrent

Variablecosts 700 850

Variablecosts-flexed 700791?basedon+13%changeinphysicalsalesvolume

Changeinvariablecostsduetoratechanges(59)[791-850]

Thisisasimplifiedexampletoillustratetherate/volumeconceptonly.Forexample,mixisassumedtobeneutralforeaseofillustration.

Theexampleaboveshowshowachangeinmargincanbeseparatedbetweenrateandphysicalsalesvolume.Thetotalchangeinmarginis$50(favorable)resultingfroma$200favorablechangeinsalesanda$150increaseinassociatedcosts.

Atthesaleslevel,thechangeinphysicalsalesvolumeis$130(favorable).Theremainderisduetocurrency,publishedprice,salesdiscountsandwarranty.TheSalesReconchaptercontainsfurtherdetailsonthisarea.

Oncosts,thevarianceresultingfromtheincreaseinphysicalsalesvolumeisa$91increaseincostsandtheratevarianceis$59(unfavorable).SeetheVariableCostchapterformoredetails.

TheFormMprovidessignificantinformationonperiod-to-periodchangebutdoesnotprovidethecompletestory.CriticaltosupportingtheFormMisthebusinesscommentaryprovidedbyBusinessUnitsforbothBusinessUnitandProductLineresults.ThiscommentaryprovidestherootcausesorbusinessreasonswhichdrivetheFormMvariances.Thecommentaryshouldprovideinsightthatisnotevidentthroughthenumbers.BusinessUnitcommentarywillbeutilizedbyCorporateAccounting(CAS)asthebasisforresultsexplanationsthatwillbeprovidedtotheAdministrativeCouncil,ExecutiveOfficeandtheBoardofDirectorsaswellasforourexternalresultscommunications.

Example1:Insufficient:

"SG&Adecreasedby$1million"Sufficient:

"SG&Alaborcostdecreased$4milliondueto6Sigma-drivenheadcountreductionof40headsinprocessX.ThiswaspartiallyoffsetbyincreasedlocalPINSICPmetricof$2,000(baseperiodfactorof0.9v.currentperiodfactorof1.0)andincreasedspendingof$1,000onconsultingrelatedtoProjectY."

Example2:Insufficient:

"Salesdiscountsincreasedby2%"Sufficient:

"MarketpriceactionsfromcompetitorXwereresultinginsignificantPINSlosses.SalesprogramAwaslaunchedonApril1,200XtoregainlostPINS;thisprogramwillexpireonJune30,200Xandwewillreassessthesituationatthattime."

TheFormMisthemechanismforBusinessUnitstoprovidecommentaryforbothBusiness

UnitandProductLineresults.

Inordertoenablethishighlymechanized,disciplinedapproachtofinancialanalysis,thereareclearlydefinedrolesandresponsibilities.

BusinessUnitAnalysis:BusinessManagersareaccountableforperformingBusinessUnitanalysisandprovidingcommentaryusingthemethodologydescribedinthismanual.Astheentireprocess(BusinessUnitthroughConsolidatedResultsAnalysis)ishighlydependentonmanydifferentactions,BusinessManagersarealsoresponsibletoensureallduedatesaremet.

ProductLineAnalysis: AlthoughProductLineFormMsarecompletedmechanically,commentarytosupporttheanalysiswillberequired.BusinessManagersthatsupportaGlobalProductManagerareresponsibleforcompletingthiscommentaryandmeetingallnecessaryduedates.

Inter-companytransactions:Anecessarystepinconsistent,mechanicalanalysisistoensurealltransferyieldandtransfercostvariancesbalance.Inorderforthistooccur,itisnecessaryforonesideofeachtransactiontohaveaccountabilityforinputintotheFormM.ComponentProductLinesareresponsibleforpopulatingtheTransferPriceIndicesforalloftheirrespectivetransfers.MarketingBusinessUnitsareresponsibleforpopulatingtheTransferPriceIndicesforalloftheirrespectiveinter-companypurchases.

ThenextthreepagescontainamoredetailedviewoftheFormMwithsummaryleveldefinitionsofeachmajorlineitem.

Thesectiononthispageexplainsthesales&transfersimpact.

NOTES

SALES&TRANSFERSIMPACT Sales&Transfers

NetSales&TransfersChange:thetotalchangeinsales,representedbythe

differencebetweencurrentperiodsalesand

CurrentPeriodSales

$ 1,130,675

baseperiodsales.SeeCh4.

BasePeriodSales 1,006,675

Change

$ 124,000

PriceRealization:includestheimpactof

changesinpublishedprice,salesdiscounts,

PriceRealization

20,865

TransferYield

130

Warranty

(4,325)

Currency

4,950

PartsTransfers(McFee)

5,000

PhysicalSalesVolumeChange

$ 97,380

country/region,geographicandproductmix

(currencyneutral).SeeCh4,Section2.

TransferYield:theimpactfromchangestotheinternaltransferprices(currency

neutral).SeeCh4,Section2.e.

Warranty:theimpactfromchangesinwarrantycosts(currencyneutral).SeeCh4,Section2.d.

Currency:thenetimpactonthecurrentsalesvaluefromcurrencymovements.SeeCh4,Section2.a.

PartsTransfer(McFee):thedifferentialbetweenbaseandcurrentP&Lvalues.SeeCh9.

PhysicalSalesVolumeChange:representsthecurrencyneutralizedchangeinsaleswiththeimpactfrompublishedprice,salesdiscountrate,transferyield,warrantyandpartstransferstoMPCsremoved.SeeCh4,Section2.f.

ThesectiononthispageexplainstheBusinessUnitviewofcorporateprofitimpact.

CORPORATEPROFITIMPACT

CurrentPeriodCorporateProfit/(Loss)

TotalCorporateProfit/(Loss)

$170,308

NOTES

CorporateProfitChange:thedifferenceincorporateprofitbetweenthecurrentandbaseP&Lvalues(currencyneutral).

BasePeriodCorporateProfit/(Loss)146,372

SeeCh4.

Change

Volume/Price/Mix:

$23,936

Sales&TransfersVolume:thevariablemarginimpactexplainedbythechangeinphysicalsalesvolume(currencyneutral).SeeCh4,Section4.

Sales&TransfersVolume41,759

PriceRealization20,865

PriceRealization:includestheimpactofchangesinpublishedprice,salesdiscounts,

TransferYield

130

country/region,geographicandproductmix

Warranty-Policy

(575)

(currencyneutral).SeeCh4,Section2.

Warranty-Standard(3,750)Mix-BetweenProductLines5,244

Mix-WithinProductLines(bymodel)(6,200)

ManufacturingCost:VariableCost

Material(ExternalSuppliersOnly)(4,074)Transfersin/IntercompanyPurchasesCostVariance(2,992)VariableLabor/Burden(2,689)Inv.Adj.'s/RSSMs -OtherVariableCost 127

ManufacturingPeriodCostofSales

PeriodCostIncurred(13,629)PeriodCostinventoryeffect 730

TransferYield:theimpactfromchangestotheinternaltransferprices(currency

neutral).SeeCh4,Section2.e.

Warranty:theimpactfromchangesinwarrantycosts(currencyneutral).SeeCh4,Section2.d.

Mix–BetweenProductLines:representstheimpactonvariablemargin(basevs.currentperiod)drivenbyProductLineweightingofsalesandtransfersasapercentageoftotalBusinessUnitsalesandtransfers.SeeCh5,Section7.

Mix–WithinProductLines:representstheimpactonvariablemargin(basevs.currentperiod)drivenbymodelweightingofsalesandtransfersasapercentageoftotalProductLinesalesandtransfers.SeeCh5,Section6.

TotalManufacturingCost

TotalGrossMarginChange(ExclFx&Parts)

Non-ManufacturingPeriodCosts

$(22,527)

$34,946

VariableCosts:representstheimpactofchangesfromperiodtoperiodincostratesappliedtocurrentperiodvolumes(currencyneutral).SeeCh6.

PeriodCostofSales:representschange

inoverheadcostsfromboththeactualcosts

SG&A(11,900)

R&D(2,720)TotalPeriodCostChange(14,620)

PartsProfit(McFee) 2,000

OtherOperating(Income)/Expense:-

incurredandtheimpactofchangesinproductionvolumeonperiodcostsabsorbedintoinventory(currencyneutral).SeeCh7.

SG&AandR&D:representsthedifferentialbetweenbaseandcurrentP&Lvalues(currencyneutral).SeeCh10.

PartsProfit(McFee):representsthedifferentialbetweenbaseandcurrentP&Lvalues(currencyneutral).SeeCh9.

OtherOperating(Income)/Expense:representsthedifferentialbetweenbaseandcurrentP&Lvalues(currencyneutral).SeeCh11.

ThissectiononthispagecompletestheFormMbyexplainingchangesinnon-operatingandcorporateburdenitems.

Other(Income)/Expense:

InterestExpense (210)NetCurrencyImpact 1,400

AffilitateIncome -OtherIncome/Expense -

NOTES

InterestExpense:representsthedifferentialbetweenbaseandcurrentP&Lvalues(currencyneutral).SeeCh11.

NetCurrencyImpact:representstheimpactofforeigncurrencyonP&Lchange

Change

CorporateBurden:

$ 23,516

andBusinessUnithedging.SeeCh11.

AffiliateIncome:representsthedifferentialbetweenbaseandcurrentP&L.SeeCh11.

ReversalofBUHedging 50

ReversalofPartsBusinessPlanProfitEqualization -Admin&Exempt 500

OtherAllocatedOperatingCosts (150)OtherAllocatedIncome/ExpenseCosts 20

TotalCorporateBurden 420

Other(Income)/Expense:representsthedifferentialbetweenbaseandcurrentP&Lvalues(currencyneutral).SeeCh11.

CorporateBurden:representsthedifferentialbetweenbaseandcurrentP&Lvalues.

ChangeinCorporateProfit/(Loss):

$ 23,936

Overview

ForeigncurrencyimpactsallP&Llineitemsformanybusinessunits.ForinternalreportingtotheExecutiveOfficeandBoardofDirectorsaswellasourexternalreleaseweremovetheforeigncurrencyimpactsbylineitemtoachievecurrencyneutralizedchanges.Thismethodologyenablesfocusonthedriversbehindpriceandcostchangesexcludingforeigncurrencyimpacts.Foreigncurrencyimpactsarethenaggregatedandexplainedasasinglenetimpact.

CalculationTheory

TheFormMcalculatestheforeigncurrencyimpactbytakingthechangeintheexchangeratebetweenthecurrentperiodandthebaseperiodfortheBusinessUnitandapplyingthatpercentagechangetocurrentsalesandcosts.Currentsalesandcostsmustbeused,asthecurrencyneutralizedcurrentvaluesareusedasthestartingpointintheSalesReconciliation(reconcilescurrencyneutralizedcurrentsaleswithbasesales).

ThesimpleexampleshownbelowillustratestwomethodsofcalculatingtheimpactofcurrencymovementsontheBusinessUnit’sprofitability.Thesecurrencyimpactsaremanuallyinputtedintothe‘FX’sheetandcalculatedoutsideoftheFormM.

Illustration:ForeignCurrencyImpact

GBP

Jan'X3

Feb'X3

Mar'X3

Currentexchangerate

1.610

1.590

1.612

Baseexchangerate

1.540

1.540

1.540

*GBPhasappreciatedagainstUSD

[1-(Baseexchg.Rate/Current

exchg.rate)]0.04348 0.031450.04451

USDTotal

Sales $40,000 $40,000$45,000 $125,000

[(Currentsales/Currentexchg.

Sales@baserate

rate)xBaseexchg.rate]$38,261 $38,742$42,997

Currencyimpactonsales $1,739 $1,258 $2,003 $5,000

Materialpurchases ($17,900)($18,000)($14,731) ($50,631)[(Currentmaterial

purchases/Currentexchg.rate)x

Purchases@baserate

Baseexchg.rate]($17,122)($17,434)($14,075)

Currencyimpactonpurchase ($778) ($566) ($656) ($2,000)

Alternatively

Currencyimpactonsales

[Sales@currentratex%chg.in

exchg.rate]$1,739$1,258$2,003$5,000

Currencyimpactonpurchases

[Purchases@currentratex%

chg.inexchg.rate]($778) ($566) ($656) ($2,000)

Thisexampleshowshowtheforeigncurrencyimpactonsalesandpurchasesarecalculated.GivenastrengtheningtrendinBritishPounds(theforeigncurrency),weexpectafavorableimpactonsalesassalesdenominatedinPoundsaretranslatedintomoreUSdollars(value=

$5,000)andanunfavorableimpactonmaterialpurchases(value=$2,000).

Tocalculatethechange,convertcurrentperiodsalesatthebaseperiodexchangerate.InJan’X3,currentsalesare$40,000.WhenconvertedatUSD1.54to1GBP(i.e.thebaseperiodexchangerate),currentsalesinbasecurrencyterms,becomes$38,261.Thedifferenceof$1,739[$40,000-$38,261]representsforeigncurrencyimpactoncurrentperiodsalesinJan’X3.

Alternatively,youmaymultiplycurrentsalesinbasecurrencyterms,bytherateofchangefromthebaseperiodexchangerate.InJan’X3,theexchangerateconversionfactoris

0.04348.Theimpactofexchangeratemovementonsalesis,therefore,$1,739[0.04348x

$40,000].Notetheresultsfrombothmethodsarethesame.

Whenenteringthecurrencyimpactintothe‘FX’sheet,BusinessUnitsneedtothinkoftheimpactaseitherfavorableorunfavorableto“profits〞,andnothowtheimpactisaffectingtheparticularFormMlineitem.Taketheaboveillustration,forexample,theupwardmovementinBritishPoundsincreasesbothsalesandmaterialpurchases.Whenenteringtheimpactsintothe‘FX’sheet,however,theimpactonsalesshouldbeenteredasafavorable(i.e.positive)impactwhiletheimpactonmaterialpurchaseshouldbeanunfavorable(i.e.negative)impact.

Application

Allforeigncurrencymovementsmustbemanuallyenteredinthe‘FX’sheet,usingtheyellowshadedinputcellsinthesheet.ImpactsmustbeenteredfortheBusinessUnitintotal,andthensplitbetweentheProductLineswithintheBusinessUnit.

P&LChange

Currency

Adj

NetChange-CurrencyNeutralized

Product

LineA

Product

LineB

Product

LineC

GrossRevenueSalesExcludingParts125,000 -125,000 GrossRevenueSales-Parts - - -

SalesDiscounts-RevenueSales-ExcludingParts(1,625)5,000(6,625)3,0002,000 -SalesDiscounts-RevenueSales-Parts

Non-RevenueSales&Transfers(BeforeWarranty)5,000 -5,000

TotalSales&Transfers

$128,375$

5,000

$123,375$

3,000$

2,000$-

PolicyWarranty(625)(50)(575)(40)(10)-StandardWarranty(3,750) -(3,750)

TotalWarranty

$(4,375)$

(50)$

(4,325)$

(40)$

(10)$-

Material(ExternalSuppliersOnly)(2,000)(1,500)(500)-TransfersIn/IntercompanyPurchases-

VariableLabor

VariableBurden

Business

Unitlevelinput

-Product

-Linelevelinput

- --

- --

InventoryAdj/RSSM's - - --

Other - - --

TotalVariableCost

$(2,000)

$(1,500)$

(500)$-

PeriodCostofSales(13,629)-(13,629)- --

GrossMarginImpact

$2