Proctor and Gamble 2012 Annual Report Download - page 56
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Please find page 56 of the 2012 Proctor and Gamble annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.54 The Procter & Gamble Company
Amounts in millions of dollars except per share amounts or as otherwise specified.
statements into U.S. dollars are recorded in other
comprehensive income (OCI). Currency translation
adjustments in accumulated OCI were a loss of $357 at
June 30, 2012 and a gain of $5,633 at June 30, 2011. For
subsidiaries operating in highly inflationary economies, the
U.S. dollar is the functional currency. Remeasurement
adjustments for financial statements in highly inflationary
economies and other transactional exchange gains and losses
are reflected in earnings.
Cash Flow Presentation
The Consolidated Statements of Cash Flows are prepared
using the indirect method, which reconciles net earnings to
cash flow 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 flows arising from investing and financing
activities, which are presented separately from operating
activities. Cash flows from foreign currency transactions and
operations are translated at an average exchange rate for the
period. Cash flows from hedging activities are included in
the same category as the items being hedged. Cash flows
from derivative instruments designated as net investment
hedges are classified as financing activities. Realized gains
and losses from non-qualifying derivative instruments used
to hedge currency exposures resulting from intercompany
financing transactions are also classified as financing
activities. Cash flows from other derivative instruments used
to manage interest, commodity or other currency exposures
are classified as operating activities. Cash payments related
to income taxes are classified as operating activities. Cash
flows from the Company's discontinued operations are
included in the Consolidated Statements of Cash Flows.
Cash Equivalents
Highly liquid investments with remaining stated maturities
of three months or less when purchased are considered cash
equivalents and recorded at cost.
Investments
Investment securities consist of readily marketable debt and
equity securities. Unrealized gains or losses are charged to
earnings for investments classified as trading. Unrealized
gains or losses on securities classified as available-for-sale
are generally recorded in shareholders' equity. If an
available-for-sale security is other than temporarily
impaired, the loss is charged to either earnings or
shareholders' equity depending on our intent and ability to
retain the security until we recover the full cost basis and the
extent of the loss attributable to the creditworthiness of the
issuer. Investments in certain companies over which we
exert significant influence, but do not control the financial
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 significant
influence, are accounted for under the cost method. Both
equity and cost method investments are included as other
noncurrent assets in the Consolidated Balance Sheets.
Inventory Valuation
Inventories are valued at the lower of cost or market value.
Product-related inventories are primarily maintained on the
first-in, first-out method. Minor amounts of product
inventories, including certain cosmetics and commodities,
are maintained on the last-in, first-out method. The cost of
spare part inventories is maintained using the average-cost
method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost reduced by
accumulated depreciation. Depreciation expense is
recognized over the assets' estimated useful lives using the
straight-line method. Machinery and equipment includes
office furniture and fixtures (15-year life), computer
equipment and capitalized software (3- to 5-year lives) and
manufacturing equipment (3- to 20-year lives). Buildings are
depreciated 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.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived brands are not amortized, but
are evaluated for impairment annually or more often if
indicators of a potential impairment are present. Our
impairment testing of goodwill is performed separately from
our impairment testing of indefinite-lived intangibles. The
annual evaluation for impairment of goodwill and indefinite-
lived intangibles is based on valuation models that
incorporate assumptions and internal projections of expected
future cash flows and operating plans. We believe such
assumptions are also comparable to those that would be used
by other marketplace participants.
We have acquired brands that have been determined to have
indefinite lives due to the nature of our business. We
evaluate a number of factors to determine whether an
indefinite life is appropriate, 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 indefinite-lived
brands may be adjusted to a determinable life.
The cost of intangible assets with determinable useful lives
is amortized to reflect the pattern of economic benefits
consumed, either on a straight-line or accelerated basis over
the estimated periods benefited. Patents, technology and
other intangibles with contractual terms are generally
amortized over their respective legal or contractual lives.
Customer relationships, brands and other non-contractual