Proctor and Gamble 2006 Annual Report Download - page 54

Millions of dollars except per share amounts or otherwise specified.
Notes to Consolidated Financial Statements
The Procter &Gamble Company and Subsidiaries
52
NOTE 5
SHORT-TERM AND LONG-TERM DEBT
June 30 2006 2005
SHORT-TERM DEBT
Current portion of long-term debt $1,930 $2,606
USD commercial paper —5,513
Non-USD commercial paper —18
Bridge credit facility —3,010
Other 198 294
2,128 11,441
The weighted average short-term interest rates were 5.3% and 3.5%
as of June 30, 2006 and 2005, respectively, including the effects of
interest rate swaps discussed in Note 6.
June 30 2006 2005
LONG-TERM DEBT
4.75% USD note due June 2007 $ 1,000 $1,000
3.50% USD note due October 2007 500 —
6.13% USD note due May 2008 500 500
Bank credit facility expires July 2008 19,555 —
4.30% USD note due August 2008 500 500
3.50% USD note due December 2008 650 650
6.88% USD note due September 2009 1,000 1,000
Bank credit facility expires August 2010 1,857 —
3.38% EUR note due December 2012 1,779 —
4.95% USD note due August 2014 900 900
4.85% USD note due December 2015 700 700
4.13% EUR note due December 2020 763 —
9.36% ESOP debentures due 2007 – 2021 (1) 1,000 1,000
6.25% GBP note due January 2030 917 904
5.50% USD note due February 2034 500 500
5.80% USD note due August 2034 600 600
Capital lease obligations 632 273
All other long-term debt 4,553 6,966
Current portion of long-term debt (1,930) (2,606)
35,976 12,887
(1) Debt issued by the ESOP is guaranteed by the Company and must be recorded as debt of the
Company as discussed in Note 9.
Long-term weighted average interest rates were 3.6% and 3.2% as
of June 30, 2006 and 2005, respectively, including the effects of
interest rate swaps and net investment hedges discussed in Note 6.
The fair value of the long-term debt was $36,027 and $13,904 at
June 30, 2006 and 2005, respectively. Long-term debt maturities
during the next five years are as follows: 2007– $1,930; 2008– $2,210;
2009 – $20,739; 2010 – $2,013 and 2011 – $1,896.
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 prices. 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 financial transactions,
which we account for under SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities,” as amended and interpreted.
The utilization of these financial transactions is governed by our
policies covering acceptable counterparty exposure, instrument types
and other hedging practices. We do not hold or issue derivative
financial instruments for speculative trading purposes.
At inception, we formally designate and document qualifying
instruments as hedges of underlying exposures. 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 value of these instruments
generally are offset by changes in the fair value or cash flows of the
underlying 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 a change in the fair
value of a qualifying instrument 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.
Interest Rate Management
Our policy is to manage interest cost using a mixture of fixed-rate and
variable-rate debt. To manage this risk in a cost-efficient manner, we
enter into interest rate swaps in which we agree to exchange with
the counterparty, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to an agreed-
upon notional principal amount.