Proctor and Gamble 2012 Annual Report Download - page 55
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Amounts in millions of dollars except per share amounts or as otherwise specified.
Notes to Consolidated Financial Statements
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
The Procter & Gamble Company's (the "Company," "we" or
"us") business is focused on providing branded consumer
packaged goods 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 75 countries.
Basis of Presentation
The Consolidated Financial Statements include the
Company and its controlled subsidiaries. Intercompany
transactions are eliminated.
Use of Estimates
Preparation of financial 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,
restructuring reserves, pensions, post-employment benefits,
stock options, valuation of acquired intangible assets, useful
lives for depreciation and amortization of long-lived assets,
future cash flows associated with impairment testing for
goodwill, indefinite-lived intangible assets and other long-
lived assets, deferred tax assets, uncertain income tax
positions and contingencies. Actual results may ultimately
differ from estimates, although management does not
generally believe such differences would materially affect
the financial statements in any individual year. However, in
regard to ongoing impairment testing of goodwill and
indefinite-lived intangible assets, significant deterioration in
future cash flow projections or other assumptions used in
estimating fair values, versus those anticipated at the time of
the initial valuations, could result in impairment charges that
may materially affect the financial statements in a given
year.
Revenue Recognition
Sales are recognized when revenue is realized or realizable
and has been earned. Revenue transactions represent sales of
inventory. The revenue recorded is presented net of sales and
other taxes we collect on behalf of governmental authorities.
The revenue 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
Cost of products sold is primarily comprised of direct
materials and supplies consumed in the manufacture of
product, as well as manufacturing labor, depreciation
expense and direct overhead expense necessary to acquire
and convert the purchased materials and supplies into
finished 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 Expense
Selling, general and administrative expense (SG&A) 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 $2,029 in
2012, $1,982 in 2011 and $1,931 in 2010. Advertising costs,
charged to expense as incurred, include worldwide
television, print, radio, internet and in-store advertising
expenses and were $9,345 in 2012, $9,210 in 2011 and
$8,475 in 2010. 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, as well as coupons and
customer trade funds, which are recorded as reductions to
net sales.
Other Non-Operating Income, Net
Other non-operating income, net, primarily includes net
divestiture gains, interest and investment income.
Currency Translation
Financial statements of operating subsidiaries outside the
U.S. generally are measured using the local currency as the
functional currency. Adjustments to translate those