Proctor and Gamble 2005 Annual Report Download - page 55

Management’s฀Discussion฀and฀Analysis The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries 51
Note฀5฀Short-Term฀and฀Long-Term฀Debt฀
The฀weighted฀average฀short-term฀interest฀rates฀were฀3.5%฀and฀1.5%฀as฀
of฀June฀30,฀2005฀and฀2004,฀respectively,฀including฀the฀effects฀of฀related฀
interest฀rate฀swaps฀discussed฀in฀Note฀6.฀
Long-term฀weighted฀average฀interest฀rates฀were฀3.2%฀and฀4.0%฀as฀of฀
June฀30,฀2005฀and฀2004,฀respectively,฀including฀the฀effects฀of฀related฀
interest฀rate฀swaps฀and฀net฀investment฀hedges฀discussed฀in฀Note฀6.
The฀fair฀value฀of฀the฀long-term฀debt฀was฀$13,904฀and฀$13,168฀at฀June฀30,฀฀
2005฀and฀2004,฀respectively.฀Long-term฀debt฀maturities฀during฀the฀฀
next฀five฀years฀are฀as฀follows:฀2006-$2,606;฀2007-$1,440;฀2008-$816;฀
2009-$1,154฀and฀2010-$1,734.฀
Note฀6฀Risk฀Management฀Activities฀
As฀a฀multinational฀company฀with฀diverse฀product฀offerings,฀we฀are฀฀
exposed฀to฀market฀risks,฀such฀as฀changes฀in฀interest฀rates,฀currency฀฀
exchange฀rates฀and฀commodity฀pricing.฀To฀manage฀the฀volatility฀related฀
to฀these฀exposures,฀we฀evaluate฀exposures฀on฀a฀consolidated฀basis฀to฀
take฀advantage฀of฀logical฀exposure฀netting฀and฀correlation.฀For฀the฀฀
remaining฀exposures,฀we฀enter฀into฀various฀derivative฀transactions.฀
Such฀derivative฀transactions,฀which฀are฀executed฀in฀accordance฀with฀our฀฀
policies฀in฀areas฀such฀as฀counterparty฀exposure฀and฀hedging฀practices,฀
are฀accounted฀for฀under฀SFAS฀No.฀133,฀“Accounting฀for฀Derivative฀฀
Instruments฀and฀Hedging฀Activities,”฀as฀amended฀and฀interpreted.฀We฀do฀฀
not฀hold฀or฀issue฀derivative฀financial฀instruments฀for฀speculative฀฀
trading฀purposes.฀
At฀inception,฀we฀formally฀designate฀and฀document฀the฀qualifying฀฀
financial฀instrument฀as฀a฀hedge฀of฀an฀underlying฀exposure.฀We฀formally฀
assess,฀both฀at฀inception฀and฀at฀least฀quarterly฀on฀an฀ongoing฀basis,฀
whether฀the฀financial฀instruments฀used฀in฀hedging฀transactions฀are฀฀
effective฀at฀offsetting฀changes฀in฀either฀the฀fair฀value฀or฀cash฀flows฀of฀
the฀related฀underlying฀exposure.฀Fluctuations฀in฀the฀derivative฀value฀
generally฀are฀offset฀by฀changes฀in฀the฀fair฀value฀or฀cash฀flows฀of฀the฀
exposures฀being฀hedged.฀This฀offset฀is฀driven฀by฀the฀high฀degree฀of฀฀
effectiveness฀between฀the฀exposure฀being฀hedged฀and฀the฀hedging฀฀
instrument.฀Any฀ineffective฀portion฀of฀an฀instrument’s฀change฀in฀fair฀
value฀is฀immediately฀recognized฀in฀earnings.฀
Credit฀Risk
We฀have฀established฀strict฀counterparty฀credit฀guidelines฀and฀normally฀
enter฀into฀transactions฀with฀investment฀grade฀financial฀institutions.฀
Counterparty฀exposures฀are฀monitored฀daily฀and฀downgrades฀in฀
credit฀rating฀are฀reviewed฀on฀a฀timely฀basis.฀Credit฀risk฀arising฀from฀
the฀inability฀of฀a฀counterparty฀to฀meet฀the฀terms฀of฀our฀financial฀
instrument฀contracts฀generally฀is฀limited฀to฀the฀amounts,฀if฀any,฀by฀
which฀the฀counterparty’s฀obligations฀exceed฀our฀obligations฀to฀the฀
counterparty.฀We฀do฀not฀expect฀to฀incur฀material฀credit฀losses฀on฀our฀
risk฀management฀or฀other฀financial฀instruments.
Notes฀to฀Consolidated฀Financial฀Statements The฀Procter฀&฀Gamble฀Company฀and฀Subsidiaries
฀ Millions฀of฀dollars฀except฀per฀share฀amounts฀or฀otherwise฀specified.
฀ ฀ ฀ ฀ June฀30฀
     2004
Short-Term฀Debt฀ ฀
USD฀commercial฀paper฀ ฀ $6,059
Non-USD฀commercial฀paper฀ ฀ 149
Current฀portion฀of฀long-term฀debt฀ ฀ 1,518
Bridge฀credit฀facility฀ ฀ –
Other฀ ฀ ฀ 561
฀ ฀ ฀ ฀ ฀ 8,287฀
฀ ฀ ฀ ฀ June฀30
฀ ฀ ฀ ฀  2004
Long-Term฀Debt฀฀฀ ฀
5.75%฀EUR฀note฀due฀September,฀2005฀ ฀ ฀1,827฀
1.50%฀JPY฀note฀due฀December,฀2005฀ ฀ ฀503
3.50%฀CHF฀note฀due฀February,฀2006฀ ฀฀ 240฀
5.40%฀EUR฀note฀due฀August,฀2006฀ ฀฀ 365฀
4.75%฀USD฀note฀due฀June,฀2007฀ ฀฀ ฀1,000
6.13%฀USD฀note฀due฀May,฀2008฀ ฀฀ ฀500฀
4.30%฀USD฀note฀due฀August,฀2008฀ ฀฀ ฀500฀
3.50%฀USD฀note฀due฀December,฀2008฀ ฀฀ 650฀
6.88%฀USD฀note฀due฀September,฀2009฀ ฀ ฀1,000฀
2.00%฀JPY฀note฀due฀June,฀2010฀ ฀฀ ฀458
Floating฀rate฀USD฀note฀due฀October฀2010฀ ฀ –
4.95%฀USD฀note฀due฀August฀2014฀  –฀
4.85%฀USD฀note฀due฀December,฀2015฀ ฀ 700฀
9.36%฀ESOP฀debentures฀due฀2007-20211฀ ฀฀ ฀1,000฀฀
8.00%฀USD฀note฀due฀September,฀2024฀ ฀฀ ฀200฀
6.45%฀USD฀note฀due฀January,฀2026฀ ฀ ฀300฀
6.25%฀GBP฀note฀due฀January,฀2030฀ ฀฀ ฀906฀
5.25%฀GBP฀note฀due฀January,฀2033฀ ฀ ฀363฀
5.50%฀USD฀note฀due฀February,฀2034฀ ฀ ฀500
5.80%฀USD฀note฀due฀August,฀2034฀฀฀  –
Debt฀assumed฀under฀capital฀leases฀ ฀฀ 252฀
All฀other฀long-term฀debt฀ ฀ 2,808฀
Current฀portion฀of฀long-term฀debt฀ ฀ ฀(1,518)
฀ ฀ ฀ ฀ ฀฀ ฀12,554฀
1฀Debt฀issued฀by฀the฀ESOP฀is฀guaranteed฀by฀the฀Company฀and฀must฀be฀recorded฀as฀debt฀of฀
the฀Company฀as฀discussed฀in฀Note฀8.฀