Proctor and Gamble 2005 Annual Report Download - page 50
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Please find page 50 of the 2005 Proctor and Gamble annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Management’sDiscussionandAnalysisTheProcter&GambleCompanyandSubsidiaries
46
NotestoConsolidatedFinancialStatements
Note1SummaryofSignificantAccountingPolicies
NatureofOperations
TheProcter&GambleCompany’s(the“Company,”“we”or“us”)
businessisfocusedonprovidingconsumerbrandedproductsof
superiorqualityandvalue.Wemarketover300brandedproducts
inmorethan160countriesaroundtheworld.Ourproductsaresold
primarilythroughretailoperationsincludingmassmerchandisers,
grocery stores, membership club stores, drug stores and
high-frequencystores.
BasisofPresentation
TheConsolidatedFinancialStatementsincludeTheProcter&Gamble
Companyanditscontrolledsubsidiaries.Intercompanytransactions
areeliminatedinconsolidation.Investmentsincertaincompaniesover
whichweexertsignificantinfluence,butdonotcontrolthefinancialand
operatingdecisions,areaccountedforasequitymethodinvestments.
UseofEstimates
Preparationoffinancialstatementsinconformitywithaccounting
principlesgenerallyacceptedintheUnitedStatesofAmerica(U.S.
GAAP)requiresmanagementtomakeestimatesandassumptions
thataffecttheamountsreportedintheConsolidatedFinancial
Statementsandaccompanyingdisclosures.Theseestimatesarebased
onmanagement’sbestknowledgeofcurrenteventsandactions
theCompanymayundertakeinthefuture.Estimatesareusedin
accountingfor,amongotheritems,consumerandtradepromotion
accruals,pensions,post-employmentbenefits,stockoptions,useful
livesfordepreciationandamortization,futurecashflowsassociated
withimpairmenttestingforgoodwillandlong-livedassets,deferred
taxassets,potentialincometaxassessmentsandcontingencies.Actual
resultsmayultimatelydifferfromestimates,althoughmanagement
doesnotbelievesuchdifferenceswouldmateriallyaffectthefinancial
statementsinanyindividualyear.
RevenueRecognition
Salesarerecognizedwhenrevenueisrealizedorrealizableandhas
beenearned.Mostrevenuetransactionsrepresentsalesofinventory.
Therevenuerecordedincludesshippingandhandlingcosts,which
generallyareincludedinthelistpricetothecustomer.Ourpolicyisto
recognizerevenuewhentitletotheproduct,ownershipandriskofloss
transfertothecustomer,whichgenerallyisonthedateofshipment.
Aprovisionforpaymentdiscountsandproductreturnallowancesis
recordedasareductionofsalesinthesameperiodthattherevenue
isrecognized.
Tradepromotions,consistingprimarilyofcustomerpricingallowances,
merchandisingfundsandconsumercoupons,areofferedthroughvarious
programstocustomersandconsumers.Salesarerecordednetoftrade
promotionspending,whichisrecognizedasincurred,generallyatthe
timeofthesale.Mostofthesearrangementshavetermsofapproximately
oneyear.Accrualsforexpectedpayoutsundertheseprogramsare
includedasaccruedmarketingandpromotionintheaccruedandother
liabilitieslineitemintheConsolidatedBalanceSheets.
CostofProductsSold
Costofproductssoldprimarilycomprisesdirectmaterialsandsupplies
consumedinthemanufactureofproduct,aswellasmanufacturing
labor,depreciationexpenseanddirectoverheadexpensenecessaryto
acquireandconvertthepurchasedmaterialsandsuppliesintofinished
product.Costofproductssoldalsoincludesthecosttodistribute
productstocustomers,inboundfreightcosts,internaltransfercosts,
warehousingcostsandothershippingandhandlingactivity.Shipping
andhandlingcostsinvoicedtocustomersareincludedinnetsales.
Selling,GeneralandAdministrativeExpense
Selling,generalandadministrativeexpenseisprimarilycomprised
ofmarketingexpenses,includingthecostofmedia,advertisingand
relatedcosts;sellingexpenses;researchanddevelopmentcosts;
administrativeand other indirectoverhead costs;depreciation
andamortizationexpenseonnon-manufacturingassets;andother
miscellaneousoperatingitems.Researchanddevelopmentcostsare
chargedtoexpenseasincurredandwere$1,940in2005,$1,802in
2004and$1,665in2003.Advertisingcostsarechargedtoexpense
asincurred.Worldwidetelevision,print,radioandinternetadvertising
expenseswere$5,917in2005,$5,504in2004and$4,373in2003.
RestructuringProgram
In1999,concurrentwithareorganizationofouroperationsinto
product-basedGlobalBusinessUnits,weinitiatedamulti-year
Organization2005RestructuringProgram.Costsincludedenrollment
reductions,manufacturingconsolidationsandportfoliochoicesto
scalebackordiscontinueunder-performingbusinessesandinitiatives.
Totalrestructuringprogramchargeswere$751in2003,including
$351inseparationsrelatedtoapproximately5,000people,$190in
assetwrite-downsand$87inaccelerateddepreciationrelatedto
long-livedassetsthatweretakenoutofservicepriortotheendoftheir
normalserviceperiod.
AtJune30,2003,theprogramwassubstantiallycompletewitha
remainingreserveof$335.Substantiallyallofthisliabilitywassettled
throughcashpaymentsbyJune30,2004.
Wecontinuetoundertakeprojectssubstantiallysmallerinscopeto
maintainacompetitivecoststructure,includingmanufacturingstreamlining
andworkforcerationalization,aspartofournormaloperations.
OtherNon-OperatingIncome,Net
Othernon-operatingincome,netprimarilyincludesdivestituregains
andlossesandinterestandinvestmentincome.
TheProcter&GambleCompanyandSubsidiaries
Millionsofdollarsexceptpershareamountsorotherwisespecified.