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Organization, Consolidation and Presentation of Financial Statements Disclosure
6 Months Ended
Dec. 31, 2011
Notes to Financial Statements [Abstract]
Organization, Consolidation and Presentation of Financial Statements Disclosure
These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011. The results of operations for the three-month and six-month periods ended December 31, 2011 are not necessarily indicative of annual results.
Comprehensive Income - Total comprehensive income is comprised primarily of net earnings, net currency translation gains and losses, impacts of net investment and cash flow hedges, net unrealized gains and losses on investment securities and defined benefit and other retiree benefit plan activities. Total comprehensive income for the three months ended December 31, 2011 and 2010 was $334 million and $3,013 million, respectively. For the six months ended December 31, 2011 and 2010, total comprehensive income was $450 million and $8,948 million, respectively.
Segment Information - Effective during the quarter ended December 31, 2011, we implemented a number of changes to the organization structure of the Beauty and Grooming GBU, which resulted in changes to the components of our reportable segment structure. Female blades and razors were formerly included in the Beauty reportable segment and are now included in the Grooming reportable segment. Certain male-focused brands and businesses, such as Old Spice and Gillette personal care, moved from the Grooming reportable segment to the Beauty reportable segment. These changes have been reflected in our segment reporting for all periods presented. Following is a summary of segment results.
Goodwill and Other Intangible Assets - Goodwill as of December 31, 2011, is allocated by reportable segment as follows (amounts in millions):
Beauty
Grooming
Health Care
Snacks and Pet Care
Fabric Care and Home Care
Baby Care and Family Care
Corporate
Total Company
GOODWILL at JUNE 30, 2011
$
18,039
$
22,650
$
8,179
$
2,243
$
4,589
$
1,553
$
309
$
57,562
Acquisitions and divestitures
(1
)
(4
)
417
—
(1
)
—
—
411
Goodwill Impairment charges
(433
)
(875
)
—
—
—
—
—
(1,308
)
Translation and other
(959
)
(877
)
(257
)
(14
)
(169
)
(82
)
—
(2,358
)
GOODWILL at DECEMBER 31, 2011
$
16,646
$
20,894
$
8,339
$
2,229
$
4,419
$
1,471
$
309
$
54,307
During the second quarter of fiscal 2012, we changed our annual goodwill impairment testing date from July 1 to October 1 of each year. This change was made to better align the timing of our annual impairment testing with the timing of the Company's annual strategic planning process. We believe this change is preferable because it allows us to more efficiently utilize the reporting units' long-term financial projections, which are generated from the annual strategic planning process, as the basis for performing our annual impairment testing. This change does not result in any delay, acceleration or avoidance of impairment, nor does this change result in adjustments to previously issued financial statements. This change was applied prospectively beginning on October 1, 2011; retrospective application to prior periods is impracticable as the Company is unable to objectively determine, without the use of hindsight, the assumptions that would have been used in those earlier periods. We also test our indefinite lived intangibles for impairment during the second fiscal quarter of each year, and accordingly performed this testing during the quarter ended December 31, 2011.
We tested goodwill for impairment as of July 1, 2011 (the testing date under our previous policy) and no impairments were indicated. Our goodwill impairment testing as of October 1, 2011 (the testing date under our new policy) determined that certain goodwill amounts were impaired. Specifically, the results of our annual impairment testing during the quarter ended December 31, 2011, indicated that the estimated fair values of our Appliances and Salon Professional reporting units were less than their respective carrying amounts. The test to evaluate goodwill for impairment is a two step process. In the first step, we compare the fair value of each reporting unit to its carrying value. If the fair value of any reporting unit is less than its carrying value, we perform a second step to determine the implied fair value of the reporting unit's goodwill. The second step of the impairment analysis requires a valuation of a reporting unit's tangible and intangible assets and liabilities in a manner similar to the allocation of purchase price in a business combination. If the resulting implied fair value of the reporting unit's goodwill is less than its carrying value, that difference represents an impairment. As a result of our impairment testing, we recorded an estimated noncash before and after tax impairment charge of $1,308 million to reduce the carrying amount of goodwill for these units to estimated fair value- $875 million related to Appliances and $433 million related to Salon Professional. Following the impairment charges, the carrying values of the goodwill of Appliances and Salon Professional were $638 million and $420 million, respectively.
Our impairment testing for indefinite lived intangible assets during the quarter ended December 31, 2011, also indicated a decline in the fair value of our Koleston Perfect and Wella trade name intangible assets below their respective carrying values. This resulted in a noncash before tax impairment charge of $246 million ($173 million after tax) to reduce the carrying amounts of these assets to their respective fair values. Following the impairment charges, the carrying values of the Koleston Perfect and Wella trade names were $308 million and $605 million, respectively.
To determine the fair value of our reporting units and indefinite lived intangibles, we use a discounted cash flow (DCF) approach, which we believe is the most reliable indicator of fair value of the business, and is most consistent with the approach a market-place participant would use. Under this approach, we estimate the future cash flows of the respective reporting units and indefinite lived intangible assets and discount those cash flows at a rate of return that reflects the relative risk of each business.
The declines in the fair value of the Appliances and Salon Professional reporting units and the underlying Koleston Perfect and Wella trade name intangibles were driven by a combination of similar competitive and economic factors, which are resulting in a reduction in the forecasted growth rates and cash flows used to estimate fair value. These factors include; (1) A more prolonged and deeper deterioration of the macroeconomic environment than was previously expected which, due to the more discretionary nature of the Appliances and Salon Professional businesses, is leading to a reduction in the overall market size in the short term and a more significant and prolonged reduction in the expected underlying market growth rates and resulting sales levels in the longer term. This is particularly evident in Europe, which is where we have historically generated a majority of the Appliances and Salon Professional sales. (2) Increasing competitive levels of innovation in Salon Professional is negatively impacting our current and nearer-term projected market share progress. (3) An increasing level of competitive pricing activities is negatively impacting pricing levels and lowering overall category profitability. As a result of these factors, we have recently reduced our current and longer-term sales and earnings forecasts for these businesses.
All of the impairment charges are included in Corporate for segment reporting. The second step of the goodwill impairment evaluations have not yet been finalized. Accordingly, the impairments recorded during the quarter ended December 31, 2011, are based on preliminary estimates. We expect to finalize these impairment evaluations during the quarter ended March 31, 2012. Any potential adjustments to the Company's preliminary estimates as a result of completing these evaluations, which could be significant, will be recorded in our consolidated financial statements when finalized.
The goodwill and intangible asset valuations are dependent on a number of significant estimates and assumptions, including macroeconomic conditions, overall category growth rates, competitive activities, cost containment and margin expansion, and Company business plans. We believe these estimates and assumptions are reasonable. However, actual events and results could differ substantially from those used in our valuation. To the extent such factors result in a failure to achieve the level of projected cash flows used in our valuations, we may need to record additional non cash impairment charges in the future.
In addition to the impairment charges, goodwill also decreased from June 30, 2011, due to currency translation across reportable segments and the divestiture of PUR, the water filtration brand, in our Health Care reportable segment. These decreases were partially offset by the establishment of goodwill related to the previously disclosed business combination with Teva Pharmaceuticals Industries in our Health Care reportable segment.
Identifiable intangible assets as of December 31, 2011, are comprised of (amounts in millions):
Gross Carrying Amount
Accumulated Amortization
Amortizable intangible assets with determinable lives
$
8,836
$
4,351
Intangible assets with indefinite lives
26,840
—
Total identifiable intangible assets
$
35,676
$
4,351
Amortizable intangible assets consist principally of brands, patents, technology and customer relationships. The intangible assets with indefinite lives consist primarily of brands.
The amortization of intangible assets for the three months ended December 31, 2011 and 2010 was $123 million and $132 million, respectively. For the six months ended December 31, 2011 and 2010, the amortization of intangible assets was $251 million and $272 million, respectively.
Share-Based Compensation - Pursuant to applicable accounting guidance for share-based payments, companies must recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards.
Total share-based compensation for the three months and six months ended December 31, 2011 and 2010 are summarized in the following table (amounts in millions):
Three Months Ended December 31
Six Months Ended December 31
2011
2010
2011
2010
Share-Based Compensation
Stock options
$
76
$
85
$
138
$
153
Other share-based awards
12
8
30
27
Total share-based compensation
$
88
$
93
$
168
$
180
Assumptions utilized in the model are evaluated and revised, as necessary, to reflect market conditions and experience.
Postretirement Benefits - The Company offers various postretirement benefits to its employees.
The components of net periodic benefit cost for defined benefit plans are as follows:
Pension Benefits
Other Retiree Benefits
Three Months Ended December 31
Three Months Ended December 31
Amounts in millions
2011
2010
2011
2010
Service cost
$
63
$
64
$
35
$
35
Interest cost
152
144
69
66
Expected return on plan assets
(142
)
(122
)
(108
)
(107
)
Amortization of deferred amounts
5
5
(5
)
(5
)
Recognized net actuarial loss
26
38
24
23
Gross benefit cost (credit)
104
129
15
12
Dividends on ESOP preferred stock
—
—
(18
)
(19
)
Net periodic benefit cost (credit)
$
104
$
129
$
(3
)
$
(7
)
Pension Benefits
Other Retiree Benefits
Six Months Ended December 31
Six Months Ended December 31
Amounts in millions
2011
2010
2011
2010
Service cost
$
130
$
126
$
71
$
70
Interest cost
309
284
138
131
Expected return on plan assets
(288
)
(241
)
(216
)
(215
)
Amortization of deferred amounts
11
9
(10
)
(10
)
Recognized net actuarial loss
52
75
49
47
Gross benefit cost (credit)
214
253
32
23
Dividends on ESOP preferred stock
—
—
(37
)
(39
)
Net periodic benefit cost (credit)
$
214
$
253
$
(5
)
$
(16
)
For the year ending June 30, 2012, the expected return on plan assets is 7.4% and 9.2% for defined benefit and other retiree benefit plans, respectively.
Risk Management Activities and Fair Value Measurements
6 Months Ended
Dec. 31, 2011
Notes to Financial Statements [Abstract]
Risk Management And Fair Value Measurements
Risk Management Activities and Fair Value Measurements
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.
For details on the Company’s risk management activities and fair value measurement policies under the fair value hierarchy, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
Fair Value Hierarchy
The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the period.
The following table sets forth the Company’s financial assets and liabilities as of December 31 and June 30, 2011 that are measured at fair value on a recurring basis during the period, segregated by level within the fair value hierarchy:
Level 1
Level 2
Level 3
Total
Amounts in millions
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
Assets at fair value:
Investment securities
$
7
$
16
$
—
$
—
$
22
$
23
$
29
$
39
Derivatives relating to:
Foreign currency hedges
—
—
—
1
—
—
—
1
Other foreign currency instruments (1)
—
—
30
182
—
—
30
182
Interest rates
—
—
275
163
—
—
275
163
Net investment hedges
—
—
6
—
—
—
6
—
Commodities
—
—
1
4
—
—
1
4
Total assets at fair value (2)
7
16
312
350
22
23
341
389
Liabilities at fair value:
Derivatives relating to:
Foreign currency hedges
—
—
169
119
—
—
169
119
Other foreign currency instruments (1)
—
—
272
43
—
—
272
43
Net investment hedges
—
—
70
138
—
—
70
138
Commodities
—
—
—
1
—
—
—
1
Total liabilities at fair value (3)
—
—
511
301
—
—
511
301
(1)
Other foreign currency instruments are comprised of foreign currency financial instruments that do not qualify as hedges.
(2)
Investment securities are presented in other noncurrent assets and all derivative assets are presented in prepaid expenses and other current assets or other noncurrent assets.
(3)
All liabilities are presented in accrued and other liabilities or other noncurrent liabilities.
The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There was no significant activity within the Level 3 assets and liabilities during the periods presented. Except for the goodwill and intangible assets discussed in Note 4, there were no assets or liabilities that were re-measured at fair value on a non-recurring basis during the periods presented.
Certain of the Company’s financial instruments used in hedging transactions are governed by industry standard netting agreements with counterparties. If the Company’s credit rating were to fall below the levels stipulated in the agreements, the counterparties could demand either collateralization or termination of the arrangement. The aggregate fair value of the instruments covered by these contractual features that are in a net liability position as of December 31, 2011 was $377 million. The Company has never been required to post any collateral as a result of these contractual features.
Fair Values of Other Financial Instruments
Other financial instruments, including cash equivalents, other investments and short-term debt, are recorded at cost, which approximates fair value. The fair value of the long-term debt was $21,950 million and $23,418 million at December 31 and June 30, 2011, respectively.
Disclosures about Derivative Instruments
The notional amounts and fair values of qualifying and non-qualifying financial instruments used in hedging transactions as of December 31 and June 30, 2011 are as follows:
Notional Amount
Fair Value Asset (Liability)
Amounts in Millions
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts
$
—
$
—
$
—
$
—
Foreign currency contracts
831
831
(169
)
(118
)
Commodity contracts
27
16
1
4
Total
858
847
(168
)
(114
)
Derivatives in Fair Value Hedging Relationships
Interest rate contracts
8,852
10,308
275
163
Derivatives in Net Investment Hedging Relationships
Net investment hedges
1,809
1,540
(64
)
(138
)
Derivatives Not Designated as Hedging Instruments
Foreign currency contracts
13,811
14,957
(242
)
139
Commodity contracts
16
39
—
(1
)
Total
13,827
14,996
(242
)
138
The total notional amount of contracts outstanding at the end of the period is indicative of the level of the Company’s derivative activity during the period.
Amount of Gain (Loss) Recognized in Accumulated OCI on Derivatives (Effective Portion)
Amounts in Millions
December 31, 2011
June 30, 2011
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts
$
13
$
15
Foreign currency contracts
17
32
Commodity contracts
1
3
Total
31
50
Derivatives in Net Investment Hedging Relationships
Net investment hedges
(37
)
(88
)
The effective portion of gains and losses on derivative instruments that was recognized in other comprehensive income (OCI) during the three and six months ended December 31, 2011 and 2010 was not material. During the next 12 months, the amount of the December 31, 2011 accumulated OCI balance that will be reclassified to earnings is expected to be immaterial.
The amounts of gains and losses on qualifying and non-qualifying financial instruments used in hedging transactions for the three and six months ended December 31, 2011 and 2010 are as follows:
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (1)
Three Months Ended December 31
Six Months Ended December 31
Amounts in Millions
2011
2010
2011
2010
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts
$
1
$
2
$
3
$
4
Foreign currency contracts
18
(19
)
(27
)
(68
)
Commodity contracts
—
4
1
18
Total
19
(13
)
(23
)
(46
)
Amount of Gain (Loss) Recognized in Income
Three Months Ended December 31
Six Months Ended December 31
Amounts in Millions
2011
2010
2011
2010
Derivatives in Fair Value Hedging Relationships (2)
Interest rate contracts
(19
)
(87
)
112
(25
)
Debt
19
89
(114
)
26
Total
—
2
(2
)
1
Derivatives in Net Investment Hedging Relationships (2)
Net investment hedges
(5
)
(1
)
(8
)
(1
)
Derivatives Not Designated as Hedging Instruments (3)
Foreign currency contracts (4)
(410
)
(110
)
(991
)
626
Commodity contracts
—
2
(1
)
4
Total
(410
)
(108
)
(992
)
630
(1)
The gain or loss on the effective portion of cash flow hedging relationships is reclassified from accumulated OCI into net income in the same period during which the related item affects earnings. Such amounts are included in the Consolidated Statements of Earnings as follows: interest rate contracts in interest expense, foreign currency contracts in selling, general and administrative expense and interest expense and commodity contracts in cost of products sold.
(2)
The gain or loss on the ineffective portion of interest rate contracts and net investment hedges, if any, is included in the Consolidated Statements of Earnings in interest expense.
(3)
The gain or loss on contracts not designated as hedging instruments is included in the Consolidated Statements of Earnings as follows: foreign currency contracts in selling, general and administrative expense and commodity contracts in cost of products sold.
(4)
The gain or loss on non-qualifying foreign currency contracts substantially offsets the foreign currency mark-to-market impact of the related exposure.
Beginning with the quarter ended December 31, 2011, we elected to revise our Consolidated Statements of Earnings to present separately the net expense for earnings attributable to noncontrolling interests. As previously disclosed, this net expense has not historically been presented separately in the Consolidated Statements of Earnings due to immateriality, but has been reflected within other non-operating income/(expense). The historical Consolidated Statements of Earnings has been revised to conform to the new presentation, with a corresponding change to the "net earnings" line item in the Consolidated Statements of Cash Flows. This change did not impact our historically reported net earnings attributable to Procter & Gamble or the historical basic or diluted net earnings per share balances, nor did it impact total operating cash flows. However, it did impact certain amounts within those statements. The amount reclassified to net earnings attributable to noncontrolling interests for the six months ended December 31, 2010, totaling $68 million, had an offsetting impact on other non-operating income/(expense) within the Consolidated Statement of Earnings and on "changes in other operating assets and liabilitites" within Operating Activities of the Consolidated Statement of Cash Flows. In connection with this change, we also made a change to prior year Consolidated Statement of Cash Flow amounts to appropriately classify dividends paid to noncontrolling interests. Such dividends had historically been included in "changes in other operating assets and liabilities" within Operating Activities of the Consolidated Statement of Cash Flows. These dividend payments ($47 million for the six months ended December 31, 2010) were reclassified to "impact of stock options and other" within Financing Activities of the Consolidated Statement of Cash Flows. The above changes were made in order to provide additional transparency related to noncontrolling interests by segregating them from the ongoing operating activities attributable to shareholders of the company.
No new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on the Consolidated Financial Statements.
We are subject to various legal proceedings and claims arising out of our business which cover a wide range of matters such as antitrust, trade and other governmental regulations, product liability, patent and trademark matters, income taxes and other actions.
As previously disclosed, the Company is and has been subject to a variety of investigations into potential competition law violations in Europe. These matters involve a number of other consumer products companies and/or retail customers. The Company’s policy is to comply with all laws and regulations, including all antitrust and competition laws, and to cooperate with investigations by relevant regulatory authorities, which the Company is doing. Competition and antitrust law inquiries often continue for several years and, if violations are found, can result in substantial fines.
In response to the actions of the regulatory authorities, the Company launched its own internal investigations into potential violations of competition laws. The Company has identified violations in certain European countries and appropriate actions were taken.
Several regulatory authorities in Europe have issued separate complaints pursuant to their investigations alleging that the Company, along with several other companies, engaged in violations of competition laws in those countries. The remaining authorities' investigations are in various stages of the regulatory process. As a result of our initial and on-going analyses of the complaints, as well as a final decision issued during the quarter by authorities in France for a laundry detergent investigation, the Company has accrued liabilities for competition law violations totaling $335 million as of December 31, 2011. While the ultimate resolution of the matters for which we have accrued liabilities may result in fines or costs in excess of the amounts reserved, we do not expect any such incremental losses to materially impact our financial statements in the period in which they are accrued and paid, respectively. For our other remaining competition law matters, we cannot reasonably estimate any additional fines to which the Company may be subject as a result of the investigations. We will continue to monitor developments for all of these investigations and will record additional charges as appropriate.
With respect to other litigation and claims, while considerable uncertainty exists, in the opinion of management and our counsel, the ultimate resolution of the various lawsuits and claims will not materially affect our financial position, results of operations or cash flows.
We are also subject to contingencies pursuant to environmental laws and regulations that in the future may require us to take action to correct the effects on the environment of prior manufacturing and waste disposal practices. Based on currently available information, we do not believe the ultimate resolution of environmental remediation will have a material adverse effect on our financial position, results of operations or cash flows.
Income Tax Uncertainties
The Company is present in over 150 taxable jurisdictions and, at any point in time, has 50 – 60 audits underway at various stages of completion. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite our belief that the underlying tax positions are fully supportable. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law and closing of statute of limitations. Such adjustments are reflected in the tax provision as appropriate. We have tax years open ranging from 2002 and forward. We are generally not able to reliably estimate the ultimate settlement amounts or timing until the close of the audit. While we do not expect material changes, it is possible that the amount of unrecognized benefit with respect to our uncertain tax positions will significantly increase or decrease within the next 12 months related to audits described above. At this time, we are not able to make a reasonable estimate of the range of impact on the balance of uncertain tax positions or the impact on the effective tax rate related to these items.
Additional information on the Commitments and Contingencies of the Company can be found in Note 10, Commitments and Contingencies, which appears in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011.
New Accounting Pronouncements and Policies New Accounting Policy (Policies)
6 Months Ended
Dec. 31, 2011
New Accounting Pronouncements and Policies [Abstract]
Noncontrolling Interest Policy
Beginning with the quarter ended December 31, 2011, we elected to revise our Consolidated Statements of Earnings to present separately the net expense for earnings attributable to noncontrolling interests. As previously disclosed, this net expense has not historically been presented separately in the Consolidated Statements of Earnings due to immateriality, but has been reflected within other non-operating income/(expense). The historical Consolidated Statements of Earnings has been revised to conform to the new presentation, with a corresponding change to the "net earnings" line item in the Consolidated Statements of Cash Flows. This change did not impact our historically reported net earnings attributable to Procter & Gamble or the historical basic or diluted net earnings per share balances, nor did it impact total operating cash flows. However, it did impact certain amounts within those statements. The amount reclassified to net earnings attributable to noncontrolling interests for the six months ended December 31, 2010, totaling $68 million, had an offsetting impact on other non-operating income/(expense) within the Consolidated Statement of Earnings and on "changes in other operating assets and liabilitites" within Operating Activities of the Consolidated Statement of Cash Flows. In connection with this change, we also made a change to prior year Consolidated Statement of Cash Flow amounts to appropriately classify dividends paid to noncontrolling interests. Such dividends had historically been included in "changes in other operating assets and liabilities" within Operating Activities of the Consolidated Statement of Cash Flows. These dividend payments ($47 million for the six months ended December 31, 2010) were reclassified to "impact of stock options and other" within Financing Activities of the Consolidated Statement of Cash Flows. The above changes were made in order to provide additional transparency related to noncontrolling interests by segregating them from the ongoing operating activities attributable to shareholders of the company.
Total share-based compensation for the three months and six months ended December 31, 2011 and 2010 are summarized in the following table (amounts in millions):
Three Months Ended December 31
Six Months Ended December 31
2011
2010
2011
2010
Share-Based Compensation
Stock options
$
76
$
85
$
138
$
153
Other share-based awards
12
8
30
27
Total share-based compensation
$
88
$
93
$
168
$
180
Assumptions utilized in the model are evaluated and revised, as necessary, to reflect market conditions and experience.
Risk Management Activities and Fair Value Measurements (Tables)
6 Months Ended
Dec. 31, 2011
Notes to Financial Statements [Abstract]
Schedule Of Fair Value Assets And Liabilities Measured On Recurring Basis Table
The following table sets forth the Company’s financial assets and liabilities as of December 31 and June 30, 2011 that are measured at fair value on a recurring basis during the period, segregated by level within the fair value hierarchy:
Level 1
Level 2
Level 3
Total
Amounts in millions
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
Assets at fair value:
Investment securities
$
7
$
16
$
—
$
—
$
22
$
23
$
29
$
39
Derivatives relating to:
Foreign currency hedges
—
—
—
1
—
—
—
1
Other foreign currency instruments (1)
—
—
30
182
—
—
30
182
Interest rates
—
—
275
163
—
—
275
163
Net investment hedges
—
—
6
—
—
—
6
—
Commodities
—
—
1
4
—
—
1
4
Total assets at fair value (2)
7
16
312
350
22
23
341
389
Liabilities at fair value:
Derivatives relating to:
Foreign currency hedges
—
—
169
119
—
—
169
119
Other foreign currency instruments (1)
—
—
272
43
—
—
272
43
Net investment hedges
—
—
70
138
—
—
70
138
Commodities
—
—
—
1
—
—
—
1
Total liabilities at fair value (3)
—
—
511
301
—
—
511
301
(1)
Other foreign currency instruments are comprised of foreign currency financial instruments that do not qualify as hedges.
(2)
Investment securities are presented in other noncurrent assets and all derivative assets are presented in prepaid expenses and other current assets or other noncurrent assets.
(3)
All liabilities are presented in accrued and other liabilities or other noncurrent liabilities.
Schedule of Derivative Instruments
The notional amounts and fair values of qualifying and non-qualifying financial instruments used in hedging transactions as of December 31 and June 30, 2011 are as follows:
Notional Amount
Fair Value Asset (Liability)
Amounts in Millions
December 31, 2011
June 30, 2011
December 31, 2011
June 30, 2011
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts
$
—
$
—
$
—
$
—
Foreign currency contracts
831
831
(169
)
(118
)
Commodity contracts
27
16
1
4
Total
858
847
(168
)
(114
)
Derivatives in Fair Value Hedging Relationships
Interest rate contracts
8,852
10,308
275
163
Derivatives in Net Investment Hedging Relationships
Net investment hedges
1,809
1,540
(64
)
(138
)
Derivatives Not Designated as Hedging Instruments
Foreign currency contracts
13,811
14,957
(242
)
139
Commodity contracts
16
39
—
(1
)
Total
13,827
14,996
(242
)
138
Derivative Instruments and Hedging Activities Disclosure
The total notional amount of contracts outstanding at the end of the period is indicative of the level of the Company’s derivative activity during the period.
Amount of Gain (Loss) Recognized in Accumulated OCI on Derivatives (Effective Portion)
Amounts in Millions
December 31, 2011
June 30, 2011
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts
$
13
$
15
Foreign currency contracts
17
32
Commodity contracts
1
3
Total
31
50
Derivatives in Net Investment Hedging Relationships
Net investment hedges
(37
)
(88
)
The effective portion of gains and losses on derivative instruments that was recognized in other comprehensive income (OCI) during the three and six months ended December 31, 2011 and 2010 was not material. During the next 12 months, the amount of the December 31, 2011 accumulated OCI balance that will be reclassified to earnings is expected to be immaterial.
The amounts of gains and losses on qualifying and non-qualifying financial instruments used in hedging transactions for the three and six months ended December 31, 2011 and 2010 are as follows:
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (1)
Three Months Ended December 31
Six Months Ended December 31
Amounts in Millions
2011
2010
2011
2010
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts
$
1
$
2
$
3
$
4
Foreign currency contracts
18
(19
)
(27
)
(68
)
Commodity contracts
—
4
1
18
Total
19
(13
)
(23
)
(46
)
Amount of Gain (Loss) Recognized in Income
Three Months Ended December 31
Six Months Ended December 31
Amounts in Millions
2011
2010
2011
2010
Derivatives in Fair Value Hedging Relationships (2)
Interest rate contracts
(19
)
(87
)
112
(25
)
Debt
19
89
(114
)
26
Total
—
2
(2
)
1
Derivatives in Net Investment Hedging Relationships (2)
Net investment hedges
(5
)
(1
)
(8
)
(1
)
Derivatives Not Designated as Hedging Instruments (3)
Foreign currency contracts (4)
(410
)
(110
)
(991
)
626
Commodity contracts
—
2
(1
)
4
Total
(410
)
(108
)
(992
)
630
(1)
The gain or loss on the effective portion of cash flow hedging relationships is reclassified from accumulated OCI into net income in the same period during which the related item affects earnings. Such amounts are included in the Consolidated Statements of Earnings as follows: interest rate contracts in interest expense, foreign currency contracts in selling, general and administrative expense and interest expense and commodity contracts in cost of products sold.
(2)
The gain or loss on the ineffective portion of interest rate contracts and net investment hedges, if any, is included in the Consolidated Statements of Earnings in interest expense.
(3)
The gain or loss on contracts not designated as hedging instruments is included in the Consolidated Statements of Earnings as follows: foreign currency contracts in selling, general and administrative expense and commodity contracts in cost of products sold.
(4)
The gain or loss on non-qualifying foreign currency contracts substantially offsets the foreign currency mark-to-market impact of the related exposure.
Goodwill and Other Intangible Assets - Change in the Net Carrying Amount of Goodwill by Global Business Unit (Detail) (USD $) In Millions, unless otherwise specified
Risk Management Activities and Fair Value Measurements - Financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis (Detail) (USD $) In Millions, unless otherwise specified
Dec. 31, 2011
Jun. 30, 2011
Assets at fair value:
Investment securities
$ 29
$ 39
Total assets at fair value
341
[1]
389
[1]
Liabilities at fair value:
Total liabilities at fair value
511
[2]
301
[2]
Foreign currency hedges
Assets at fair value:
Derivative assets
0
1
Liabilities at fair value:
Derivative liabilities
169
119
Other Foreign Currency Instruments
Assets at fair value:
Derivative assets
30
[3]
182
[3]
Liabilities at fair value:
Derivative liabilities
272
[3]
43
[3]
Interest Rate
Assets at fair value:
Derivative assets
275
163
Derivatives in Net Investment Hedging Relationships
Fair Value, Inputs, Level 3 | Other Foreign Currency Instruments
Assets at fair value:
Derivative assets
0
[3]
0
[3]
Liabilities at fair value:
Derivative liabilities
0
[3]
0
[3]
Fair Value, Inputs, Level 3 | Interest Rate
Assets at fair value:
Derivative assets
0
0
Fair Value, Inputs, Level 3 | Derivatives in Net Investment Hedging Relationships
Assets at fair value:
Derivative assets
0
0
Liabilities at fair value:
Derivative liabilities
0
0
Fair Value, Inputs, Level 3 | Commodities
Assets at fair value:
Derivative assets
0
0
Liabilities at fair value:
Derivative liabilities
$ 0
$ 0
[1]
Investment securities are presented in other noncurrent assets and all derivative assets are presented in prepaid expenses and other current assets or other noncurrent assets.
[2]
All liabilities are presented in accrued and other liabilities or other noncurrent liabilities.
[3]
Other foreign currency instruments are comprised of foreign currency financial instruments that do not qualify as hedges.
Risk Management Activities and Fair Value Measurements - Notional Amounts and Fair Values of Qualifying and Non-Qualifying Financial Instruments used in Hedging Transactions (Detail) (USD $) In Millions, unless otherwise specified
Dec. 31, 2011
Jun. 30, 2011
Derivatives in Cash Flow Hedging Relationships
Notional amount
$ 858
$ 847
Fair Value Asset (Liability)
(168)
(114)
Derivatives in Cash Flow Hedging Relationships | Interest Rate
Notional amount
0
0
Fair Value Asset (Liability)
0
0
Derivatives in Cash Flow Hedging Relationships | Foreign currency hedges
Notional amount
831
831
Fair Value Asset (Liability)
(169)
(118)
Derivatives in Cash Flow Hedging Relationships | Commodities
Notional amount
27
16
Fair Value Asset (Liability)
1
4
Derivatives in Fair Value Hedging Relationships | Interest Rate
Notional amount
8,852
10,308
Fair Value Asset (Liability)
275
163
Derivatives in Net Investment Hedging Relationships
Notional amount
1,809
1,540
Fair Value Asset (Liability)
(64)
(138)
Derivatives Not Designated as Hedging Instruments
Notional amount
13,827
14,996
Fair Value Asset (Liability)
(242)
138
Derivatives Not Designated as Hedging Instruments | Foreign currency hedges
Notional amount
13,811
14,957
Fair Value Asset (Liability)
(242)
139
Derivatives Not Designated as Hedging Instruments | Commodities
Risk Management Activities and Fair Value Measurements - Gains and Losses on Qualifying and Non-Qualifying Financial Instruments used in Hedging Transactions (Detail) (USD $) In Millions, unless otherwise specified
3 Months Ended
6 Months Ended
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2010
Jun. 30, 2011
Derivatives in Cash Flow Hedging Relationships
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
$ 31
$ 50
Amount of Gain (Loss) Reclassified from AOCI into Income
19
[1]
(13)
[1]
(23)
[1]
(46)
[1]
Derivatives in Cash Flow Hedging Relationships | Interest Rate
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
13
15
Amount of Gain (Loss) Reclassified from AOCI into Income
1
[1]
2
[1]
3
[1]
4
[1]
Derivatives in Cash Flow Hedging Relationships | Foreign currency hedges
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
17
32
Amount of Gain (Loss) Reclassified from AOCI into Income
18
[1]
(19)
[1]
(27)
[1]
(68)
[1]
Derivatives in Cash Flow Hedging Relationships | Commodities
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
1
3
Amount of Gain (Loss) Reclassified from AOCI into Income
0
[1]
4
[1]
1
[1]
18
[1]
Derivatives in Net Investment Hedging Relationships
Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective Portion)
(37)
(88)
Amount of Gain (Loss) Recognized in Income
(5)
[2]
(1)
[2]
(8)
[2]
(1)
[2]
Derivatives in Fair Value Hedging Relationships
Amount of Gain (Loss) Recognized in Income
0
[2]
2
[2]
(2)
[2]
1
[2]
Derivatives in Fair Value Hedging Relationships | Interest Rate
Amount of Gain (Loss) Recognized in Income
(19)
[2]
(87)
[2]
112
[2]
(25)
[2]
Derivatives in Fair Value Hedging Relationships | Debt
Amount of Gain (Loss) Recognized in Income
19
[2]
89
[2]
(114)
[2]
26
[2]
Derivatives Not Designated as Hedging Instruments
Amount of Gain (Loss) Recognized in Income
(410)
[3]
(108)
[3]
(992)
[3]
630
[3]
Derivatives Not Designated as Hedging Instruments | Foreign currency hedges
Amount of Gain (Loss) Recognized in Income
(410)
[3],[4]
(110)
[3],[4]
(991)
[3],[4]
626
[3],[4]
Derivatives Not Designated as Hedging Instruments | Commodities
Amount of Gain (Loss) Recognized in Income
$ 0
[3]
$ 2
[3]
$ (1)
[3]
$ 4
[3]
[1]
The gain or loss on the effective portion of cash flow hedging relationships is reclassified from accumulated OCI into net income in the same period during which the related item affects earnings. Such amounts are included in the Consolidated Statements of Earnings as follows: interest rate contracts in interest expense, foreign currency contracts in selling, general and administrative expense and interest expense and commodity contracts in cost of products sold.
[2]
The gain or loss on the ineffective portion of interest rate contracts and net investment hedges, if any, is included in the Consolidated Statements of Earnings in interest expense.
[3]
The gain or loss on contracts not designated as hedging instruments is included in the Consolidated Statements of Earnings as follows: foreign currency contracts in selling, general and administrative expense and commodity contracts in cost of products sold.
[4]
The gain or loss on non-qualifying foreign currency contracts substantially offsets the foreign currency mark-to-market impact of the related exposure.
