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Procter & Gamble Company 10-Q 2014
OND 13 Quarterly Report


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark one)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2013
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to

Commission file number 1-434
 
THE PROCTER & GAMBLE COMPANY
(Exact name of registrant as specified in its charter)
 
 
 
Ohio
 
31-0411980
(State of Incorporation)
 
(I.R.S. Employer Identification Number)
 
One Procter & Gamble Plaza, Cincinnati, Ohio
 
45202
(Address of principal executive offices)
 
(Zip Code)
(513) 983-1100
(Registrant’s telephone number, including area code)
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer þ                    Accelerated filer  o                   Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes o     No þ

There were 2,711,408,161 shares of Common Stock outstanding as of December 31, 2013.



PART I. FINANCIAL INFORMATION 

Item I.     Financial Statements.

THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
 
Three Months Ended December 31
 
Six Months Ended December 31
Amounts in millions except per share amounts
2013
 
2012
 
2013
 
2012
NET SALES
$
22,280

 
$
22,175

 
$
43,485

 
$
42,914

Cost of products sold
11,130

 
10,880

 
21,940

 
21,230

Selling, general and administrative expense
6,598

 
6,803

 
12,842

 
13,241

OPERATING INCOME
4,552

 
4,492

 
8,703

 
8,443

Interest expense
187

 
169

 
352

 
341

Interest income
23

 
19

 
44

 
38

Other non-operating income
43

 
876

 
48

 
904

EARNINGS BEFORE INCOME TAXES
4,431

 
5,218

 
8,443

 
9,044

Income taxes
959

 
1,142

 
1,914

 
2,115

NET EARNINGS
3,472

 
4,076

 
6,529

 
6,929

Less: Net earnings attributable to noncontrolling interests
44

 
19

 
74

 
58

NET EARNINGS ATTRIBUTABLE TO PROCTER & GAMBLE
$
3,428

 
$
4,057

 
$
6,455

 
$
6,871

 
 
 
 
 
 
 
 
NET EARNINGS PER COMMON SHARE (1)
 
 
 
 
 
 
 
Basic net earnings per common share
$
1.24

 
$
1.46

 
$
2.32

 
$
2.46

Diluted net earnings per common share
1.18

 
1.39

 
2.21

 
2.35

 
 
 
 
 
 
 
 
Dividends per common share
$
0.602

 
$
0.562

 
$
1.203

 
$
1.124

Diluted Weighted Average Common Shares Outstanding
2,908.5

 
2,919.1

 
2,916.4

 
2,926.1

(1)Basic net earnings per share and diluted net earnings per share are calculated on net earnings attributable to Procter & Gamble.

See accompanying Notes to Consolidated Financial Statements.



THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Three Months Ended December 31
 
Six Months Ended December 31
Amounts in millions
2013
 
2012
 
2013
 
2012
NET EARNINGS
$
3,472

 
$
4,076

 
$
6,529

 
$
6,929

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
 

 
 
Financial statement translation
431

 
336

 
1,480

 
1,747

Cash flow hedges
(71
)
 
84

 
(310
)
 
(146
)
Investment securities
(15
)
 
1

 
(1
)
 
1

Defined benefit retirement plans
20

 
64

 
(36
)
 
37

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX
365

 
485

 
1,133

 
1,639

TOTAL COMPREHENSIVE INCOME
3,837

 
4,561

 
7,662

 
8,568

Less: Total comprehensive income attributable to noncontrolling interests
50

 
21

 
85

 
69

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO PROCTER & GAMBLE
$
3,787

 
$
4,540

 
$
7,577

 
$
8,499


See accompanying Notes to Consolidated Financial Statements.






THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
Amounts in millions
 
 
 
 
December 31, 2013
 
June 30, 2013
ASSETS
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$6,929
 
$5,947
Available-for-sale investment securities
 
 
 
 
1,574

 

Accounts receivable
 
 
 
 
6,911

 
6,508

Inventories
 
 
 
 
 
 
 
Materials and supplies
 
 
 
 
1,974

 
1,704

Work in process
 
 
 
 
686

 
722

Finished goods
 
 
 
 
4,719

 
4,483

Total inventories
 
 
 
 
7,379

 
6,909

Deferred income taxes
 
 
 
 
1,173

 
948

Prepaid expenses and other current assets
 
 
 
 
3,501

 
3,678

TOTAL CURRENT ASSETS
 
 
 
 
27,467

 
23,990

PROPERTY, PLANT AND EQUIPMENT, NET
 
 
 
 
22,152

 
21,666

GOODWILL
 
 
 
 
56,293

 
55,188

TRADEMARKS AND OTHER INTANGIBLE ASSETS, NET
 
 
 
 
31,595

 
31,572

OTHER NONCURRENT ASSETS
 
 
 
 
5,420

 
6,847

TOTAL ASSETS
 
 
 
 
$
142,927

 
$
139,263

 
 
 
 
 
 

 
 

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
Accounts payable
 
 
 
 
$7,156
 
$8,777
Accrued and other liabilities
 
 
 
 
9,480

 
8,828

Debt due within one year
 
 
 
 
14,091

 
12,432

TOTAL CURRENT LIABILITIES
 
 
 
 
30,727

 
30,037

LONG-TERM DEBT
 
 
 
 
21,517

 
19,111

DEFERRED INCOME TAXES
 
 
 
 
10,809

 
10,827

OTHER NONCURRENT LIABILITIES
 
 
 
 
9,736

 
10,579

TOTAL LIABILITIES
 
 
 
 
72,789

 
70,554

SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
1,125

 
1,137

Common stock – shares issued –
December 2013
 
4,009.2

 
 
 
 
 
June 2013
 
4,009.2
 
4,009

 
4,009

Additional paid-in capital
 
 
 
 
63,726

 
63,538

Reserve for ESOP debt retirement
 
 
 
 
(1,348
)
 
(1,352
)
Accumulated other comprehensive income/(loss)
 
 
 
 
(6,366
)
 
(7,499
)
Treasury stock
 
 
 
 
(75,048
)
 
(71,966
)
Retained earnings
 
 
 
 
83,280

 
80,197

Noncontrolling interest
 
 
 
 
760

 
645

TOTAL SHAREHOLDERS’ EQUITY
 
 
 
 
70,138

 
68,709

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
$
142,927

 
$
139,263

See accompanying Notes to Consolidated Financial Statements.




THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Six Months Ended December 31
Amounts in millions
2013
 
2012
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
5,947

 
$
4,436

OPERATING ACTIVITIES
 
 
 
Net earnings
6,529

 
6,929

Depreciation and amortization
1,526

 
1,448

Share-based compensation expense
153

 
154

Deferred income taxes
(126
)
 
18

Gain on purchase/sale of businesses
(5
)
 
(902
)
Changes in:
 
 
 
Accounts receivable
(376
)
 
(914
)
Inventories
(446
)
 
(324
)
Accounts payable, accrued and other liabilities
(1,191
)
 
(288
)
Other operating assets and liabilities
(859
)
 
556

Other
138

 
(58
)
TOTAL OPERATING ACTIVITIES
5,343

 
6,619

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(1,663
)
 
(1,529
)
Proceeds from asset sales
15

 
474

Acquisitions, net of cash acquired
1

 
(1,123
)
Change in other investments
(149
)
 
(179
)
TOTAL INVESTING ACTIVITIES
(1,796
)
 
(2,357
)
FINANCING ACTIVITIES
 
 
 
Dividends to shareholders
(3,409
)
 
(3,206
)
Change in short-term debt
(429
)
 
4,972

Additions to long-term debt
4,271

 
2,239

Reductions of long-term debt
(3
)
 
(3,749
)
Treasury stock purchases
(4,004
)
 
(3,984
)
Impact of stock options and other
937

 
1,662

TOTAL FINANCING ACTIVITIES
(2,637
)
 
(2,066
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
72

 
11

CHANGE IN CASH AND CASH EQUIVALENTS
982

 
2,207

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
6,929

 
$
6,643

See accompanying Notes to Consolidated Financial Statements.
 





THE PROCTER & GAMBLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013 and the Form 8-K filed October 28, 2013 to update the Form 10-K for a change to our reportable segments that was effective July 1, 2013. In the opinion of management, the accompanying unaudited Consolidated Financial Statements of The Procter & Gamble Company and subsidiaries (the "Company," "Procter & Gamble," "we" or "our") contain all adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. However, the results of operations included in such financial statements may not necessarily be indicative of annual results.

2. New Accounting Pronouncements and Policies

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.

3. Segment Information

Effective July 1, 2013, the Company implemented a number of changes to our GBU structure, which resulted in changes to our reportable segments.  We organized our Global Business Units (GBUs) into four industry-based sectors comprised of 1) Global Beauty, 2) Global Health and Grooming, 3) Global Fabric and Home Care, and 4) Global Baby, Feminine and Family Care. Under U.S. GAAP, the GBUs underlying these sectors will be aggregated into five reportable segments: 1) Beauty, 2) Grooming, 3) Health Care, 4) Fabric Care and Home Care, and 5) Baby, Feminine and Family Care. As a result of the organizational changes, Feminine Care transitioned from Health Care to Baby, Feminine and Family Care, and Pet Care transitioned from Fabric Care and Home Care to Health Care. Prior periods have been recast to reflect the change.

Following is a summary of segment results.
 
 
 
Three Months Ended December 31
 
Six Months Ended December 31
 
 
 
Net Sales
 
Earnings Before Income Taxes
 
Net Earnings
 
Net Sales
 
Earnings Before Income Taxes
 
Net Earnings
Beauty
2013
  
$
5,284

 
$
1,160

 
$
927

 
$
10,187

 
$
2,069

 
$
1,617

 
2012
  
5,403

 
1,138

 
877

 
10,343

 
1,990

 
1,535

Grooming
2013
  
2,118

 
730

 
553

 
4,074

 
1,331

 
1,006

 
2012
  
2,119

 
695

 
518

 
4,126

 
1,329

 
984

Health Care
2013
  
2,574

 
536

 
377

 
4,880

 
934

 
644

 
2012
  
2,470

 
501

 
350

 
4,792

 
987

 
671

Fabric Care and Home Care
2013
  
6,851

 
1,344

 
877

 
13,551

 
2,642

 
1,734

 
2012
  
6,785

 
1,338

 
879

 
13,288

 
2,665

 
1,756

Baby, Feminine and Family Care
2013
  
5,603

 
1,142

 
765

 
11,106

 
2,263

 
1,490

 
2012
  
5,557

 
1,219

 
800

 
10,805

 
2,342

 
1,524

Corporate
2013
  
(150
)
 
(481
)
 
(27
)
 
(313
)
 
(796
)
 
38

 
2012
  
(159
)
 
327

 
652

 
(440
)
 
(269
)
 
459

Total
2013
  
$
22,280

 
$
4,431

 
$
3,472

 
$
43,485

 
$
8,443

 
$
6,529

 
2012
  
22,175

 
5,218

 
4,076

 
42,914

 
9,044

 
6,929


 
4. Goodwill and Other Intangible Assets

Goodwill is allocated by reportable segment as follows.

Amounts in millions of dollars unless otherwise specified.


 
Beauty
 
Grooming
 
Health Care
 
Fabric Care and Home Care
 
Baby, Feminine and Family Care
 
Corporate
 
Total Company
GOODWILL at June 30, 2013
$
16,663

 
$
20,617

 
$
8,318

 
$
4,453

 
$
4,828

 
$
309

 
$
55,188

Translation and Other
425

 
392

 
121

 
67

 
100

 

 
1,105

GOODWILL at December 31, 2013
$
17,088

 
$
21,009

 
$
8,439

 
$
4,520

 
$
4,928

 
$
309

 
$
56,293


Goodwill increased from June 30, 2013, due to currency translation across all reportable segments.

Identifiable intangible assets at December 31, 2013 are comprised of:
 
Gross Carrying Amount
 
Accumulated Amortization
Intangible assets with determinable lives
$
9,853

  
$
5,244

Intangible assets with indefinite lives
26,986

  

Total identifiable intangible assets
$
36,839

  
$
5,244


Intangible assets with determinable lives consist 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, 2013 and 2012 was $129 million and $125 million, respectively. For the six months ended December 31, 2013 and 2012, the amortization of intangibles was $263 million and $253 million, respectively.

The results of our annual goodwill impairment testing, which took place during the quarter ended December 31, 2013, indicated a decline in the fair value of the Batteries reporting unit due to lower long-term market growth assumptions in certain key geographies.  The estimated fair value of Batteries continues to exceed its underlying carrying value, but the excess has been reduced to approximately 6%.  The business unit valuations used to test goodwill for impairment 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 of the Batteries reporting unit could differ substantially from those used in our valuations.  To the extent such factors result in a further reduction of the level of projected cash flows used to estimate the Batteries reporting unit fair value, we may need to record non-cash impairment charges in the future.
5. Share-Based Compensation

Total share-based compensation expense was as follows:
 
Three Months Ended December 31
 
Six Months Ended December 31
 
2013
 
2012
 
2013
 
2012
Stock options
$
47

  
$
62

 
$
106

 
$
116

Other share-based awards
22

  
13

 
47

 
38

Total share-based compensation
$
69

  
$
75

 
$
153

 
$
154


Assumptions utilized in the model that estimates the fair value of share-based awards for purposes of calculating compensation expense are evaluated and revised, as necessary, to reflect market conditions and experience.


6. 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:
 

Amounts in millions of dollars unless otherwise specified.


 
Pension Benefits
 
Other Retiree Benefits
 
Three Months Ended December 31
 
Three Months Ended December 31
 
2013
 
2012
 
2013
 
2012
Service cost
$
74

 
$
76

 
$
38

 
$
48

Interest cost
148

 
141

 
64

 
66

Expected return on plan assets
(176
)
 
(148
)
 
(97
)
 
(96
)
Prior service cost / (credit) amortization
7

 
6

 
(5
)
 
(5
)
Net actuarial loss amortization
54

 
53

 
30

 
50

Curtailment loss

 
2

 

 

Gross benefit cost
107

 
130

 
30

 
63

Dividends on ESOP preferred stock

 

 
(16
)
 
(18
)
Net periodic benefit cost
$
107

 
$
130

 
$
14

 
$
45

  
 
Pension Benefits
 
Other Retiree Benefits
 
Six Months Ended December 31
 
Six Months Ended December 31
 
2013
 
2012
 
2013
 
2012
Service cost
$
147

 
$
150

 
$
75

 
$
95

Interest cost
291

 
281

 
128

 
130

Expected return on plan assets
(346
)
 
(296
)
 
(193
)
(191
)
Prior service cost / (credit) amortization
13

 
9

 
(10
)
 
(10
)
Net actuarial loss amortization
106

 
106

 
59

100

Curtailment loss

 
2

 

 

Gross benefit cost
211

 
252

 
59

 
124

Dividends on ESOP preferred stock

 

 
(32
)
 
(35
)
Net periodic benefit cost
$
211

 
$
252

 
$
27

 
$
89


For the year ending June 30, 2014, the expected return on plan assets is 7.2% and 8.3% for pensions and other retiree benefit plans, respectively.

7. 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.

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, 2013 and June 30, 2013 that are measured at fair value on a recurring basis during the period, segregated by level within the fair value hierarchy:
 

Amounts in millions of dollars unless otherwise specified.


 
Level 1
 
Level 2
 
Level 3
 
Total
 
December 31, 2013
 
June 30, 2013
 
December 31, 2013
 
June 30, 2013
 
December 31, 2013
 
June 30, 2013
 
December 31, 2013
 
June 30, 2013
Assets recorded at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government securities
$

 
$

 
$
1,574

 
$
1,571

 
$

 
$

 
$
1,574

 
$
1,571

Other investments
8

  
23

  

  

 
25

  
24

  
33

  
47

Derivatives relating to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency hedges

 

 
219

 
168

 

 

 
219

 
168

Other foreign currency instruments (1)

  

  
31

  
19

  

  

  
31

  
19

Interest rates

  

  
136

  
191

  

  

  
136

  
191

Net investment hedges

  

  
133

  
233

  

  

  
133

  
233

Total assets recorded at fair value (2)
8

  
23

  
2,093

  
2,182

  
25

  
24

  
2,126

  
2,229

Liabilities recorded at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives relating to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency hedges

  

  

  

  

  

  

  

Other foreign currency instruments (1)

  

  
76

  
90

  

  

  
76

  
90

Interest rates

 

 
117

 
59

 

 

 
117

 
59

Net investment hedges

  

  

  

  

  

  

  

Liabilities recorded at fair value (3)

  

  
193

  
149

  

  

  
193

  
149

Liabilities not recorded at fair value:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt (4)
26,275

 
22,671

 
3,626

 
3,022

 

 

 
29,901

 
25,693

Total liabilities recorded and not recorded at fair value
$
26,275

 
$
22,671

 
$
3,819

 
$
3,171

 
$

 
$

 
$
30,094

 
$
25,842


(1) 
Other foreign currency instruments are comprised of foreign currency financial instruments that do not qualify as hedges.
(2) 
All derivative assets are presented in prepaid expenses and other current assets and other noncurrent assets. Investment securities are presented in available-for-sale investment securities and other noncurrent assets. The U.S government securities are included in other noncurrent assets in our Consolidated Balance Sheet at June 30, 2013. The amortized cost of the U.S. government securities was $1,604 as of December 31, 2013 and June 30, 2013. All U.S. government securities have contractual maturities between one and five years. Fair values are generally estimated based upon quoted market prices for similar instruments.
(3) 
All liabilities are presented in accrued and other liabilities or other noncurrent liabilities.
(4) 
Long-term debt includes the current portion ($6,521 and $4,540 as of December 31, 2013 and June 30, 2013, respectively) of debt instruments. Long-term debt is not recorded at fair value on a recurring basis, but is measured at fair value for disclosure purposes. Fair values are generally estimated based on quoted market prices for identical or similar instruments.

The Company recognizes transfers between levels within the fair value hierarchy, if any, at the end of each quarter. There were no transfers between levels during the periods presented. Also, there was no significant activity within the Level 3 assets and liabilities during the periods presented and there were no assets or liabilities that were remeasured at fair value on a non-recurring basis for the period ended December 31, 2013.
 
Substantially all 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, 2013, was not material. The Company has not been required to post any collateral as a result of these contractual features.

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, 2013 and June 30, 2013 are as follows:
 

Amounts in millions of dollars unless otherwise specified.


 
Notional Amount
 
Fair Value Asset/(Liability)
 
December 31, 2013
 
June 30, 2013
 
December 31, 2013
 
June 30, 2013
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
Foreign currency contracts
$
951

 
$
951

  
$
219

 
$
168

Derivatives in Fair Value Hedging Relationships
 
 
 
 
 
 
 
Interest rate contracts
$
11,833

 
$
9,117

 
$
19

 
$
132

Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
Net investment hedges
$
1,125

 
$
1,303

 
$
133

 
$
233

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
Foreign currency contracts
$
6,824

 
$
7,080

 
$
(45
)
 
$
(71
)
  
 
Amount of Gain (Loss) Recognized in Accumulated OCI on Derivatives (Effective Portion)
 
December 31, 2013
 
June 30, 2013
Derivatives in Cash Flow Hedging Relationships
 
 
 
Interest rate contracts
$
5

 
$
7

Foreign currency contracts
18

 
14

Total
$
23

 
$
21

Derivatives in Net Investment Hedging Relationships
 
 
 
Net investment hedges
$
82

 
$
145


The effective portion of gains and losses on derivative instruments that was recognized in other comprehensive income (OCI) during the six months ended December 31, 2013 and 2012, was not material. During the next 12 months, the amount of the December 31, 2013 accumulated OCI (AOCI) 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, 2013 and 2012 are as follows:
 

Amounts in millions of dollars unless otherwise specified.


 
Amount of Gain/(Loss) Reclassified from Accumulated OCI into  Income (1)
 
Three Months Ended December 31
 
Six Months Ended December 31
 
2013
 
2012
 
2013
 
2012
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
Interest rate contracts
$
1

 
$
1

 
$
3

 
$
3

Foreign currency contracts
58

 
106

 
56

 
88

Total
$
59

 
$
107

 
$
59

 
$
91

 
 
 
 
 
 
 
 
 
Amount of Gain/(Loss) Recognized in Income
 
Three Months Ended December 31
 
Six Months Ended December 31
 
2013
 
2012
 
2013
 
2012
Derivatives in Fair Value Hedging Relationships (2)

 
 
 
 
 
 
 
Interest rate contracts
$
(84
)
 
$
(15
)
 
(113
)
 
25

Debt
84

 
17

 
113

 
(21
)
Total

 
2

 

 
4

Derivatives in Net Investment Hedging Relationships (2)
 
 
 
 
 
 
 
Net investment hedges
$

 
$
(1
)
 
$

 
$
(1
)
Derivatives Not Designated as Hedging Instruments (3)
 
 
 
 
 
 
 
Foreign currency contracts (4)
$
(26
)
 
$
(53
)
 
$
83

 
$
226

Commodity contracts

 
(2
)
 

 

Total
$
(26
)
 
$
(55
)
 
$
83

 
$
226

(1) 
The gain or loss on the effective portion of cash flow hedging relationships is reclassified from AOCI 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 (SG&A) 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 SG&A 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.


8. Accumulated Other Comprehensive Income / (Loss)

The tables below present the changes in accumulated other comprehensive income / (loss) by component and the reclassifications out of accumulated other comprehensive income / (loss).
 
Changes in Accumulated Other Comprehensive Income / (Loss) by Component
 
 
 
Hedges
 
Investment Securities
 
Pension and Other Retiree Benefits
 
Financial Statement Translation
 
Total
 
Balance at June 30, 2013
$
(3,529
)
 
$
(27
)
 
$
(4,296
)
 
$