Proctor and Gamble 2005 Annual Report Download - page 51
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Please find page 51 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’sDiscussionandAnalysis TheProcter&GambleCompanyandSubsidiaries 47
CurrencyTranslation
FinancialstatementsofoperatingsubsidiariesoutsidetheUnitedStates
ofAmerica(U.S.)generallyaremeasuredusingthelocalcurrencyasthe
functionalcurrency.AdjustmentstotranslatethosestatementsintoU.S.
dollarsarerecordedinothercomprehensiveincome.Forsubsidiaries
operatinginhighlyinflationaryeconomies,theU.S.dollaristhefunctional
currency.Remeasurementadjustmentsforfinancialstatementsinhighly
inflationaryeconomiesandothertransactionalexchangegainsand
lossesarereflectedinearnings.
CashFlowPresentation
TheStatementofCashFlowsispreparedusingtheindirectmethod,
whichreconcilesnetearningstocashflowfromoperatingactivities.
Theseadjustmentsincludetheremovaloftimingdifferencesbetween
theoccurrenceofoperatingreceiptsandpaymentsandtheirrecognition
innetearnings.Theadjustmentsalsoremovefromoperatingactivities
cashflowsarisingfrominvestingandfinancingactivities,whichare
presentedseparatelyfromoperatingactivities.Cashflowsfromforeign
currencytransactionsandoperationsaretranslatedatanaverage
exchangeratefortheperiod.Cashflowsfromhedgingactivitiesare
includedinthesamecategoryastheitemsbeinghedged.Cashflows
fromderivativeinstrumentsdesignatedasnetinvestmenthedges
areclassifiedasfinancingactivities.Cashflowsfromotherderivative
instrumentsusedtomanageinterest,commodityorcurrencyexposures
areclassifiedasoperatingactivities.Cashpaidforacquisitionsis
classifiedasinvestingactivities.
CashEquivalents
Highlyliquidinvestmentswithremainingstatedmaturitiesofthree
monthsorlesswhenpurchasedareconsideredcashequivalentsand
recordedatcost.
Investments
Investmentsecuritiesconsistofauctionratesecuritiesthatapproximate
fairvalueandreadily-marketabledebtandequitysecuritiesthatare
classifiedastradingwithunrealizedgainsorlosseschargedtoearnings.
Otherinvestmentsthatarenotcontrolledandoverwhichwedonot
havetheabilitytoexercisesignificantinfluenceareaccountedforunder
thecostmethod.
InventoryValuation
Inventoriesarevaluedatcost,whichisnotinexcessofcurrentmarket
prices.Product-relatedinventoriesareprimarilymaintainedonthe
first-in,first-outmethod.Minoramountsofproductinventories,
includingcertaincosmeticsandcommodities,aremaintainedonthe
last-in,first-outmethod.Thecostofsparepartinventoriesismaintained
usingtheaveragecostmethod.
GoodwillandOtherIntangibleAssets
Thecostofintangibleassetswithdeterminableusefullivesisamortized
toreflectthepatternofeconomicbenefitsconsumed,principallyona
straight-linebasisovertheestimatedperiodsbenefited.Goodwilland
indefinite-livedintangibles,primarilybrandnamesandtrademarks,
arenotamortized,butareevaluatedannuallyforimpairment.Our
impairmenttestingforgoodwillisperformedseparatelyfromour
impairmenttestingofindividualindefinite-livedintangibles.Theannual
evaluationforimpairmentofgoodwillandindefinite-livedintangibles
isbasedonvaluationmodelsthatincorporateinternalprojectionsof
expectedfuturecashflowsandoperatingplans.Weevaluateanumber
offactorstodeterminewhetheranindefinitelifeisappropriate,
includingthecompetitiveenvironment,marketshare,brandhistory,
operatingplanandthemacroeconomicenvironmentofthecountriesin
whichthebrandsaresold.Wherecertaineventsorchangesinoperating
conditionsoccur,indefinite-livedintangiblesmaybeadjustedtoa
determinablelifeandanimpairmentassessmentmaybeperformed.
Duetothenatureofourbusiness,thereareanumberofbrand
intangiblesthathavebeendeterminedtohaveindefinitelives.Ifit
isdeterminedthatabrandintangibledoesnothaveanindefinite
life,ourpolicyistoamortizetheintangibleassetovertheexpected
usefullife.Patents,technologyandotherintangibleswithcontractual
termsareamortizedovertheirrespectivecontractuallives.Othernon-
contractualintangibleassetswithdeterminablelivesareamortizedover
periodsgenerallyrangingfrom5to20years.Wherecertaineventsor
changesinoperatingconditionsoccur,livesonintangibleassetswith
determinablelivesmaybeadjustedandanimpairmentassessmentmay
beperformedontherecoverabilityofthecarryingamounts.
Property,PlantandEquipment
Property,plantandequipmentarerecordedatcostreducedby
accumulateddepreciation.Depreciationexpenseisrecognizedoverthe
assets’estimatedusefullivesusingthestraight-linemethod.Machinery
andequipmentincludesofficefurnitureandequipment(15-yearlife),
computerequipmentandcapitalizedsoftware(3to5-yearlives)and
manufacturingequipment(3to20-yearlives).Buildingsaredepreciated
overanestimatedusefullifeof40years.Estimatedusefullivesare
periodicallyreviewedand,whereappropriate,changesaremade
prospectively.Wherecertaineventsorchangesinoperatingconditions
occur,assetlivesmaybeadjustedandanimpairmentassessmentmay
beperformedontherecoverabilityofthecarryingamounts.
FairValuesofFinancialInstruments
Certainfinancialinstrumentsarerequiredtoberecordedatfairvalue.
Theestimatedfairvaluesofsuchfinancialinstruments,includingcertain
debtinstruments,investmentsecuritiesandderivatives,havebeen
determinedusingmarketinformationandvaluationmethodologies,
primarilydiscountedcashflowanalysis.Theseestimatesrequire
NotestoConsolidatedFinancialStatements TheProcter&GambleCompanyandSubsidiaries
Millionsofdollarsexceptpershareamountsorotherwisespecified.