Proctor and Gamble 2008 Annual Report Download - page 53

Management’sDiscussionandAnalysis TheProcter&GambleCompany 51
        LessThan   After
(inmillionsofdollars)      Total 1Year 1–3Years 3–5Years 5Years

Totaldebt      $36,321 $13,063 $ 5,426 $3,807 $14,025
Capitalleases      407 55 90 76 186
Unrecognizedtaxbenet
(1)      318 318 — — —

Interestpaymentsrelatingtolong-termdebt    13,084 1,230 1,921 1,746 8,187
Operatingleases
(2)      1,656 299 528 381 448
Minimumpensionfunding
(3)      1,401 575 826 — —
Purchaseobligations
(4)      4,326 1,205 1,662 1,096 363
     57,513 16,745 10,453 7,106 23,209
(1)AsofJune30,2008,theCompany’sConsolidatedBalanceSheetreectsaliabilityforunrecognizedtaxbenetsof$3.4billion,including$811ofinterestandpenalties.Duetothehighdegreeof
uncertaintyregardingthetimingoffuturecashoutowsofliabilitiesforunrecognizedtaxbenetsbeyondoneyear,areasonableestimateoftheperiodofcashsettlementforthenexttwelve
monthsbeyondthebalancesheetdateofJune30,2008,cannotbemade.
(2)Operatingleaseobligationsareshownnetofguaranteedsubleaseincome.
(3)Representsfuturepensionpaymentstocomplywithlocalfundingrequirements.Theprojectedpaymentsbeyondscalyear2011arenotcurrentlydeterminable.
(4)Primarilyreectsfuturecontractualpaymentsundervarioustake-or-payarrangementsenteredintoaspartofthenormalcourseofbusiness.Commitmentsmadeundertake-or-payobligations
representfuturepurchasesinlinewithexpectedusagetoobtainfavorablepricing.Approximately36%relatestoservicecontractsforinformationtechnology,humanresourcesmanagementand
facilitiesmanagementactivitiesthatwereoutsourcedinrecentyears.Whiletheamountslistedrepresentcontractualobligations,wedonotbelieveitislikelythatthefullcontractualamountwould
bepaidiftheunderlyingcontractswerecanceledpriortomaturity.Insuchcases,wegenerallyareabletonegotiatenewcontractsorcancellationpenalties,resultinginareducedpayment.The
amountsdonotincludeobligationsrelatedtoothercontractualpurchaseobligationsthatarenottake-or-payarrangements.Suchcontractualpurchaseobligationsareprimarilypurchaseordersat
fairvaluethatarepartofnormaloperationsandarereectedinhistoricaloperatingcashowtrends.Wedonotbelievesuchpurchaseobligationswilladverselyaffectourliquidityposition.
productreturnallowancesisrecordedasareductionofsaleswithinthe
sameperiodthattherevenueisrecognized.Weoffersalesincentives
tocustomersandconsumersthroughvariousprograms,consisting
primarilyofcustomerpricingallowances,merchandisingfundsand
consumercoupons.Thecostoftheseprogramsisrecognizedas
incurredandrecordedasareductionofsales.Giventhenatureofour
business,revenuerecognitionpracticesdonotcontainestimatesthat
materiallyaffectresultsofoperations.

Ourannualtaxrateisdeterminedbasedonourincome,statutorytax
ratesandthetaximpactsofitemstreateddifferentlyfortaxpurposes
thanfornancialreportingpurposes.Taxlawrequirescertainitems
tobeincludedinthetaxreturnatdifferenttimesthantheitemsare
reectedinthenancialstatements.Someofthesedifferencesare
permanent,suchasexpensesthatarenotdeductibleinourtaxreturn,
andsomedifferencesaretemporary,reversingovertime,suchas
depreciationexpense.Thesetemporarydifferencescreatedeferred
taxassetsandliabilities.
Deferredtaxassetsgenerallyrepresentitemsthatcanbeusedasa
taxdeductionorcreditinfutureyearsforwhichwehavealready
recordedthetaxbenetinourincomestatement.Deferredtax
liabilitiesgenerallyrepresenttaxexpenserecognizedinournancial
statementsforwhichpaymenthasbeendeferred,orexpendituresfor
whichwehavealreadytakenadeductioninourtaxreturnbuthave
notyetbeenrecognizedinournancialstatementsorassetsrecorded
atfairvalueinbusinesscombinationsforwhichtherewasnocorre-
spondingtaxbasisadjustment.

InpreparingournancialstatementsinaccordancewithU.S.GAAP,
therearecertainaccountingpoliciesthatareparticularlyimportant.
Theseincluderevenuerecognition,incometaxes,certainemployee
benets,acquisitions,andgoodwillandintangibleassets.Webelieve
theseaccountingpolicies,andotherssetforthinNote1tothe
ConsolidatedFinancialStatements,shouldbereviewedastheyare
integraltounderstandingtheresultsofoperationsandnancial
conditionoftheCompany.Inthecaseofrevenuerecognition,these
policiessimplyrepresentrequiredaccountingandthereisminimal
judgmentorestimationinvolved.Inotherareas,theymayrepresent
achoicebetweenacceptableaccountingmethodsormayrequire
substantialjudgmentorestimationintheirapplication.
Duetothenatureofourbusiness,theseestimatesgenerallyarenot
consideredhighlyuncertainatthetimeofestimation,meaningthey
arenotexpectedtoresultinchangesthatwouldmateriallyaffectour
nancialcondition,resultsofoperationsorcashowsinanygivenyear.
TheCompanyhasdiscussedtheselectionofsignicantaccounting
policiesandtheeffectofestimateswiththeAuditCommitteeofthe
Company’sBoardofDirectors.

Mostofourrevenuetransactionsrepresentsalesofinventory,andwe
recognizerevenuewhentitle,ownershipandriskoflosstransferto
thecustomer,whichcanbeonthedateofshipmentorthedateof
receiptbythecustomer.Therevenuerecordedispresentednetofsales
andothertaxeswecollectonbehalfofgovernmentalauthoritiesand
includesshippingandhandlingcosts,whichgenerallyareincludedin
thelistpricetothecustomer.Aprovisionforpaymentdiscountsand