Proctor and Gamble 2008 Annual Report Download - page 68

Amountsinmillionsofdollarsexceptpershareamountsorasotherwisespecied.
66 TheProcter&GambleCompany NotestoConsolidatedFinancialStatements
presented,isimmediatelyrecognizedinearnings.Thefairvalueof
thesecashowhedginginstrumentswasaliabilityof$17andan
assetof$53atJune30,2008and2007,respectively.Duringthenext
12months,$4oftheJune30,2008OCIbalancewillbereclassied
toearningsconsistentwiththetimingoftheunderlyinghedged
transactions.

Wemanufactureandsellourproductsinanumberofcountries
throughouttheworldand,asaresult,areexposedtomovementsin
foreigncurrencyexchangerates.Thepurposeofourforeigncurrency
hedgingprogramistoreducetheriskcausedbyshort-termchanges
inexchangerates.
Tomanagethisexchangeraterisk,weprimarilyutilizeforwardcontracts
andoptionswithmaturitiesoflessthan18monthsandcurrencyswaps
withmaturitiesuptoveyears.Theseinstrumentsareintendedto
offsettheeffectofexchangerateuctuationsonforecastedsales,
inventorypurchases,intercompanyroyaltiesandintercompanyloans
denominatedinforeigncurrenciesandarethereforeaccountedforas
cashowhedges.ThefairvalueoftheseinstrumentsatJune30,2008
and2007,was$4and$34inassetsand$37and$2inliabilities,
respectively.Theeffectiveportionofthechangesinfairvalueofthese
instrumentsisreportedinOCIandreclassiedintoearningsinthe
samenancialstatementlineitemandinthesameperiodorperiods
duringwhichtherelatedhedgedtransactionsaffectearnings.
Theineffectiveportion,whichisnotmaterialforanyyearpresented,
isimmediatelyrecognizedinearnings.
Certaininstrumentsusedtomanageforeignexchangeexposureof
intercompanynancingtransactions,incomefrominternational
operationsandotherbalancesheetitemssubjecttorevaluationdo
notmeettherequirementsforhedgeaccountingtreatment.Inthese
cases,thechangeinvalueoftheinstrumentsisdesignedtooffsetthe
foreigncurrencyimpactoftherelatedexposure.Thefairvalueof
theseinstrumentsatJune30,2008and2007,was$190and$110in
assetsand$33and$78inliabilities,respectively.Thechangeinvalue
oftheseinstrumentsisimmediatelyrecognizedinearnings.Thenet
impactofsuchinstruments,includedinselling,generalandadminis-
trativeexpense,was$1,397,$56and$87ofgainsin2008,2007
and2006,respectively,whichsubstantiallyoffsetforeigncurrency
transactionandtranslationlossesoftheexposuresbeinghedged.

Wehedgecertainnetinvestmentpositionsinmajorforeignsubsidiaries.
Toaccomplishthis,weeitherborrowdirectlyinforeigncurrencyand
designatealloraportionofforeigncurrencydebtasahedgeofthe
applicablenetinvestmentpositionorenterintoforeigncurrencyswaps
thataredesignatedashedgesofourrelatedforeignnetinvestments.
UnderSFAS133,changesinthefairvalueoftheseinstrumentsare
immediatelyrecognizedinOCItooffsetthechangeinthevalueof
thenetinvestmentbeinghedged.Currencyeffectsofthesehedges
reectedinOCIwereafter-taxlossesof$2,951and$835in2008
and2007,respectively.Accumulatednetbalanceswere$5,023and
$2,072after-taxlossesasofJune30,2008and2007,respectively.

Certainrawmaterialsutilizedinourproductsorproductionprocesses
aresubjecttopricevolatilitycausedbyweather,supplyconditions,
politicalandeconomicvariablesandotherunpredictablefactors.
Tomanagethevolatilityrelatedtoanticipatedpurchasesofcertainof
thesematerials,weusefuturesandoptionswithmaturitiesgenerally
lessthanoneyearandswapcontractswithmaturitiesuptoveyears.
Thesemarketinstrumentsgenerallyaredesignatedascashowhedges
underSFAS133.Theeffectiveportionofthechangesinfairvalue
fortheseinstrumentsisreportedinOCIandreclassiedintoearnings
inthesamenancialstatementlineitemandinthesameperiodor
periodsduringwhichthehedgedtransactionsaffectearnings.The
ineffectiveandnon-qualifyingportions,whicharenotmaterialfor
anyyearpresented,areimmediatelyrecognizedinearnings.Thefair
valueofthesecashowhedginginstrumentswasanassetof$229
and$70atJune30,2008and2007,respectively.Duringthenext
12months,$126oftheJune30,2008OCIbalancewillbereclassied
toearningsconsistentwiththetimingoftheunderlyinghedged
transactions.

TheCompanypurchaseslimiteddiscretionaryinsurancetocover
catastrophicpropertydamage,businessinterruptionandliabilityrisk
oflossexposures.Deductiblesandlosssharingwilllikelyincreaseover
time,recognizingtheCompany’sabilitytocost-effectivelyfundlosses
frominternalcashowgenerationandaccesstocapitalmarkets.
NOT E 7

Netearningslesspreferreddividends(netofrelatedtaxbenets)are
dividedbytheweightedaveragenumberofcommonsharesoutstand-
ingduringtheyeartocalculatebasicnetearningspercommonshare.
Dilutednetearningspercommonsharearecalculatedtogiveeffect
tostockoptionsandotherstock-basedawards(seeNote8)and
assumeconversionofpreferredstock(seeNote9).
Netearningsandcommonsharesusedtocalculatebasicanddiluted
netearningspersharewereasfollows:
YearsendedJune30   2007 2006
 $10,340 $8,684
Preferreddividends,
netoftaxbenet   (161) (148)

  10,179 8,536
Preferreddividends,
netoftaxbenet   161 148
 10,340 8,684