Proctor and Gamble 2008 Annual Report Download - page 63

NotestoConsolidatedFinancialStatements TheProcter&GambleCompany 61
Amountsinmillionsofdollarsexceptpershareamountsorasotherwisespecied.

TheStatementofCashFlowsispreparedusingtheindirectmethod,
whichreconcilesnetearningstocashowfromoperatingactivities.
Thereconciliationadjustmentsincludetheremovaloftimingdifferences
betweentheoccurrenceofoperatingreceiptsandpaymentsand
theirrecognitioninnetearnings.Theadjustmentsalsoremovecash
owsfromoperatingactivitiesarisingfrominvestingandnancing
activities,whicharepresentedseparatelyfromoperatingactivities.
Cashowsfromforeigncurrencytransactionsandoperationsare
translatedatanaverageexchangeratefortheperiod.Cashowsfrom
hedgingactivitiesareincludedinthesamecategoryastheitems
beinghedged.Cashowsfromderivativeinstrumentsdesignatedas
netinvestmenthedgesareclassiedasnancingactivities.Cashows
fromotherderivativeinstrumentsusedtomanageinterest,commodity
orcurrencyexposuresareclassiedasoperatingactivities.Cashpay-
mentsrelatedtoincometaxesareclassiedasoperatingactivities.

Highlyliquidinvestmentswithremainingstatedmaturitiesofthree
monthsorlesswhenpurchasedareconsideredcashequivalentsand
recordedatcost.

Investmentsecuritiesconsistofreadilymarketabledebtandequity
securities.Unrealizedgainsorlossesarechargedtoearningsforinvest-
mentsclassiedastradingandtoshareholders’equityforinvestments
classiedasavailable-for-sale.Auctionratesecuritiesareclassiedas
othernoncurrentassetswithunrealizedlosseschargedtoshareholders’
equityunlessanimpairmentisjudgedtobeotherthantemporary,in
whichcaseitischargedtoearnings.
Investmentsincertaincompaniesoverwhichweexertsignicant
inuence,butdonotcontrolthenancialandoperatingdecisions,are
accountedforasequitymethodinvestments.Otherinvestmentsthat
arenotcontrolled,andoverwhichwedonothavetheabilityto
exercisesignicantinuence,areaccountedforunderthecostmethod.

Inventoriesarevaluedatthelowerofcostormarketvalue.Product-
relatedinventoriesareprimarilymaintainedontherst-in,rst-out
method.Minoramountsofproductinventories,includingcertain
cosmeticsandcommodities,aremaintainedonthelast-in,rst-out
method.Thecostofsparepartinventoriesismaintainedusingthe
averagecostmethod.

Property,plantandequipmentisrecordedatcostreducedbyaccu-
mulateddepreciation.Depreciationexpenseisrecognizedoverthe
assets’estimatedusefullivesusingthestraight-linemethod.Machinery
andequipmentincludesofcefurnitureandxtures(15-yearlife),
computerequipmentandcapitalizedsoftware(3-to5-yearlives)and
manufacturingequipment(3-to20-yearlives).Buildingsaredepreci-
atedoveranestimatedusefullifeof40years.Estimatedusefullives
areperiodicallyreviewedand,whenappropriate,changesaremade
prospectively.Whencertaineventsorchangesinoperatingconditions
occur,assetlivesmaybeadjustedandanimpairmentassessmentmay
beperformedontherecoverabilityofthecarryingamounts.

Wehaveanumberofacquiredbrandsthathavebeendeterminedto
haveindenitelivesduetothenatureofourbusiness.Weevaluate
anumberoffactorstodeterminewhetheranindenitelifeisappro-
priate,includingthecompetitiveenvironment,marketshare,brand
history,productlifecycles,operatingplansandthemacroeconomic
environmentofthecountriesinwhichthebrandsaresold.When
certaineventsorchangesinoperatingconditionsoccur,animpairment
assessmentisperformedandindenite-livedbrandsmaybeadjusted
toadeterminablelife.
Goodwillandindenite-livedbrandsarenotamortized,butare
evaluatedannuallyforimpairmentorwhenindicatorsofapotential
impairmentarepresent.Ourimpairmenttestingofgoodwillisperformed
separatelyfromourimpairmenttestingofindividualindenite-lived
intangibles.Theannualevaluationforimpairmentofgoodwilland
indenite-livedintangiblesisbasedonvaluationmodelsthatincorporate
assumptionsandinternalprojectionsofexpectedfuturecashows
andoperatingplans.Webelievesuchassumptionsarealsocomparable
tothosethatwouldbeusedbyothermarketplaceparticipants.
Thecostofintangibleassetswithdeterminableusefullivesisamortized
toreectthepatternofeconomicbenetsconsumed,eitherona
straight-lineoracceleratedbasisovertheestimatedperiodsbeneted.
Patents,technologyandotherintangibleswithcontractualtermsare
generallyamortizedovertheirrespectivelegalorcontractuallives.
Customerrelationshipsandothernoncontractualintangibleassets
withdeterminablelivesareamortizedoverperiodsgenerallyranging
from5to40years.Whencertaineventsorchangesinoperating
conditionsoccur,animpairmentassessmentisperformedandlivesof
intangibleassetswithdeterminablelivesmaybeadjusted.

Certainnancialinstrumentsarerequiredtoberecordedatfairvalue.
Theestimatedfairvaluesofsuchnancialinstruments(includingcertain
debtinstruments,investmentsecuritiesandderivatives)havebeen
determinedusingmarketinformationandvaluationmethodologies,
primarilydiscountedcashowanalysis.Changesinassumptionsor
estimationmethodscouldaffectthefairvalueestimates.However,we
donotbelieveanysuchchangeswouldhaveamaterialimpactonour
nancialcondition,resultsofoperationsorcashows.Othernancial
instruments,includingcashequivalents,otherinvestmentsandshort-
termdebt,arerecordedatcost,whichapproximatesfairvalue.The
fairvaluesoflong-termdebtandderivativeinstrumentsaredisclosed
inNote5andNote6,respectively.