Question

long-term debt and stockholders’ equity by examining the financial statements of Procter & Gamble Company for the fiscal year ended June 30, 2015. The goal is to contribute to your financial literacy and enable you to engage in just-in-time learning. Should a situation present itself sometime in the future when you need to acquire additional depth of knowledge, you will have an initial familiarity that will enable you to seek out the additional knowledge you require. These are complex topics; to complicate matters further, the nature of some securities is such that it is hard to make the distinction between what is debt and what is equity.

You can access the financial statements for Procter & Gamble Company for the year ended June 30, 2015, in many ways, including by visiting the company website. To access the 10-K, go to the website for the Securities and Exchange Commission (sec.gov). Then select “Filings” and “Company Filings Search.” Enter "Procter & Gamble" in the search box that appears. You will arrive on a page detailing all the filings; type "10-K" in the “Filing Type” box at the top of the page, and the filings will be re-sorted so that the 10-K filings are at the head of the listing

Debt:

1. As of June 30, 2015, what is the dollar amount of the current portion of the long-term debt that is due within a year following the June 30, 2015, issue date of the financial statement?
2. What is a debenture?
3. Has the company issued any debentures? If so, what is the dollar amount of debentures owed on the issue date of the financial statement?
4. The disclosures indicate that some of the long-term debt is denominated in the euro rather than the U.S. dollar. Explain how the practice of issuing debt in a currency other than your domestic currency (assume the U.S. dollar is the domestic currency for Procter & Gamble) creates an exposure to gains and losses related to exchange fluctuations?

Answer 1

a) The Dollar amount of the urrent portion of long term debt this is due within a year following the June 30, 2015 is $12,021million

b) A debenture is a unsecured debt instrument. It has no collateral backing. Debentures are issued for specific purpose to raise capital to meet the expenses of an upcoming project or to pay for a planned expansion in business.

c) Yes, the company has issued a debenture. named "9.36% ESOP debentures due 2015-2021". The dollar value of the debenture issued as on June 30, 2015 is $572million.

d) Yes we can see that some of debts are payable in Euro's. For example:

"5.13% EUR note due October 2017", "4.13% EUR note due December 2020", etc you can check in the images attached.

If a company issue debt in a foreign currency it gets itself expose to exchange rate risk. If their local currency drops in value, paying down international debt becomes costlier and vice versa. A company may borrow in foreign currency when it finds that it can borrow funds from other country with low interest cost or positive currency fluctuation expectations. Many a times to cover these foreign exchange risks the company hedge the securities to reduce the foreign exchange fluctuations risk in cash flows. we can see that how the company is managing its foreign exchange risk below image.