Proctor and Gamble 2008 Annual Report Download - page 62

Amountsinmillionsofdollarsexceptpershareamountsorasotherwisespecied.
60 TheProcter&GambleCompany
NOT E 1


TheProcter&GambleCompany’s(the“Company,”“we”or“us”)
businessisfocusedonprovidingbrandedconsumergoodsproducts
ofsuperiorqualityandvalue.Ourproductsaresoldinmorethan
180countriesprimarilythroughretailoperationsincludingmass
merchandisers,grocerystores,membershipclubstores,drugstores,
departmentstores,salonsandhigh-frequencystores.Wehaveon-the-
groundoperationsinapproximately80countries.

TheConsolidatedFinancialStatementsincludeTheProcter&Gamble
Companyanditscontrolledsubsidiaries.Intercompanytransactions
areeliminated.

Preparationofnancialstatementsinconformitywithaccounting
principlesgenerallyacceptedintheUnitedStatesofAmerica(U.S.GAAP)
requiresmanagementtomakeestimatesandassumptionsthataffect
theamountsreportedintheConsolidatedFinancialStatementsand
accompanyingdisclosures.Theseestimatesarebasedonmanagement’s
bestknowledgeofcurrenteventsandactionstheCompanymay
undertakeinthefuture.Estimatesareusedinaccountingfor,among
otheritems,consumerandtradepromotionaccruals,pensions,post-
employmentbenets,stockoptions,valuationofacquiredintangible
assets,usefullivesfordepreciationandamortization,futurecash
owsassociatedwithimpairmenttestingforgoodwill,indenite-lived
intangibleassetsandlong-livedassets,deferredtaxassets,uncertain
incometaxpositionsandcontingencies.Actualresultsmayultimately
differfromestimates,althoughmanagementdoesnotbelievesuch
differenceswouldmateriallyaffectthenancialstatementsinany
individualyear.

Salesarerecognizedwhenrevenueisrealizedorrealizableandhas
beenearned.Mostrevenuetransactionsrepresentsalesofinventory.
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.Ourpolicyistorecognizerevenuewhentitletothe
product,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.
Aprovisionforpaymentdiscountsandproductreturnallowancesis
recordedasareductionofsalesinthesameperiodthattherevenue
isrecognized.
Tradepromotions,consistingprimarilyofcustomerpricingallowances,
merchandisingfundsandconsumercoupons,areofferedthrough
variousprogramstocustomersandconsumers.Salesarerecorded
netoftradepromotionspending,whichisrecognizedasincurred,
generallyatthetimeofthesale.Mostofthesearrangementshave
termsofapproximatelyoneyear.Accrualsforexpectedpayoutsunder
theseprogramsareincludedasaccruedmarketingandpromotionin
theaccruedandotherliabilitieslineitemintheConsolidatedBalance
Sheets.

Costofproductssoldisprimarilycomprisedofdirectmaterialsand
suppliesconsumedinthemanufactureofproduct,aswellasmanu-
facturinglabor,depreciationexpenseanddirectoverheadexpense
necessarytoacquireandconvertthepurchasedmaterialsandsup-
pliesintonishedproduct.Costofproductssoldalsoincludesthe
costtodistributeproductstocustomers,inboundfreightcosts,
internaltransfercosts,warehousingcostsandothershippingand
handlingactivity.

Selling,generalandadministrative(SG&A)expenseisprimarily
comprisedofmarketingexpenses,sellingexpenses,researchand
developmentcosts,administrativeandotherindirectoverheadcosts,
depreciationandamortizationexpenseonnon-manufacturingassets
andothermiscellaneousoperatingitems.Researchanddevelopment
costsarechargedtoexpenseasincurredandwere$2,226in2008,
$2,112in2007and$2,075in2006.Advertisingcosts,chargedto
expenseasincurred,includeworldwidetelevision,print,radio,internet
andin-storeadvertisingexpensesandwere$8,667in2008,$7,937
in2007and$7,122in2006.Non-advertisingrelatedcomponentsof
theCompany’stotalmarketingspendingincludecostsassociated
withconsumerpromotions,productsamplingandsalesaids,allof
whichareincludedinSG&Aexpense,aswellascouponsandcustomer
tradefunds,whicharerecordedasreductionstonetsales.

Othernon-operatingincome,net,primarilyincludesdivestituregains
andinterestandinvestmentincome.

FinancialstatementsofoperatingsubsidiariesoutsidetheUnited
StatesofAmerica(U.S.)generallyaremeasuredusingthelocal
currencyasthefunctionalcurrency.Adjustmentstotranslatethose
statementsintoU.S.dollarsarerecordedinothercomprehensive
income.Currencytranslationadjustmentsinaccumulatedother
comprehensiveincomeweregainsof$9,484and$2,941atJune30,
2008and2007,respectively.Forsubsidiariesoperatinginhighly
inationaryeconomies,theU.S.dollaristhefunctionalcurrency.
Remeasurementadjustmentsfornancialstatementsinhighly
inationaryeconomiesandothertransactionalexchangegainsand
lossesarereectedinearnings.
