Derivative Instruments

9 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Amcor periodically uses derivatives and other financial instruments to hedge exposures to interest rate, commodity and currency risks. The Company does not hold or issue financial instruments for speculative or trading purposes. For hedges that meet the hedge accounting criteria, the Company, at inception, formally designates and documents the instrument as a fair value hedge or a cash flow hedge of a specific underlying exposure. On an ongoing basis, the Company assesses and documents that its hedges have been and are expected to continue to be highly effective.

Interest Rate Risk

The Company’s policy is to manage exposure to interest rate risk by maintaining a mixture of fixed-rate and variable-rate debt, monitoring global interest rates and, where appropriate, hedging floating interest rate exposure or debt at fixed interest rates through various interest rate derivative instruments, including, but not limited to, interest rate swaps, cross-currency interest rate swaps, and interest rate locks. For interest rate swaps that are accounted for as fair value hedges, changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in interest expense. Changes in the fair value of interest rate swaps that have not been designated as hedging instruments are reported in the accompanying unaudited condensed consolidated statement of income under other non-operating income (loss), net.

At March 31, 2020, the Company had a notional amount of $100.0 million cross-currency interest rate swaps outstanding. The Company did not designate it as a hedging instrument and thus changes in fair value were immediately recognized in earnings.

As of March 31, 2020, and June 30, 2019, the total notional amount of the Company’s receive-fixed/pay-variable interest rate swaps accounted for as fair value hedges was $831.3 million and $841.1 million, respectively.

During the third quarter of fiscal 2020, the Company entered into six Treasury lock agreements to protect against unfavorable interest rate changes relating to the highly probable issuance of long-term debt. The total notional amount of the Treasury lock was $250.0 million as of March 31, 2020. The Company designated these Treasury lock agreements as cash flow hedges of an anticipated transaction and deemed these agreements to be highly effective.

Foreign Currency Risk

The Company manufactures and sells its products and finances operations in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The purpose of the Company’s foreign currency hedging program is to manage the volatility associated with the changes in exchange rates.

To manage this exchange rate risk, the Company utilizes forward contracts. Contracts that qualify for hedge accounting are designated as cash flow hedges of certain forecasted transactions denominated in foreign currencies. The effective portion of the changes in fair value of these instruments is reported in AOCI and reclassified into earnings in the same financial statement line item and in the same period or periods during which the related hedged transactions affect earnings. The ineffective portion is immediately recognized in the unaudited condensed consolidated statement of income. Changes in the fair value of forward contracts that have not been designated as hedging instruments are reported in the accompanying unaudited condensed consolidated statement of income.

As of March 31, 2020, and June 30, 2019, the notional amount of the outstanding forward contracts was $1.2 billion and $1.0 billion, respectively.

The Company manages its currency exposure related to the net assets of its foreign operations primarily through borrowings denominated in the relevant currency. Foreign currency gains and losses from the remeasurement of external borrowings designated as net investment hedges of a foreign operation are recognized in AOCI, to the extent that the hedge is effective. The ineffective portion is immediately recognized in other non-operating income (loss), net in the unaudited condensed consolidated statement of income. When a hedged net investment is disposed of, a percentage of the cumulative amount recognized in AOCI in relation to the hedged net investment is recognized in the unaudited condensed consolidated statement of income as part of the profit or loss on disposal.

Commodity Risk

Certain raw materials used in the Company's production processes are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. The Company's policy is to minimize exposure to price volatility by passing through the commodity price risk to customers, including the use of fixed price swaps. The Company purchases on behalf of customers fixed price commodity swaps to offset the exposure of price volatility on the underlying sales contracts, these instruments are cash closed out on maturity and the related cost or benefit is passed through to customers. Information about commodity price exposure is derived from supply forecasts submitted by customers and these exposures are hedged by a central treasury unit. Changes in the fair value of commodity hedges are recognized in AOCI. The cumulative amount of the hedge is recognized in the unaudited condensed consolidated statement of income when the forecast transaction is realized.

At March 31, 2020 and June 30, 2019, the Company had the following outstanding commodity contracts that were entered into to hedge forecasted purchases:

March 31, 2020

June 30, 2019

Commodity

Volume

Aluminum

39,489 tons

29,342 tons

PET resin

9,166,667 lbs.

— lbs.

The following tables provide the location of derivative instruments in the unaudited condensed consolidated balance sheet:


($ in millions)	Balance Sheet Location	March 31, 2020		June 30, 2019
Assets
Derivatives in cash flow hedging relationships:

Forward exchange contracts	Other current assets	$	3.3	$	2.4
Derivatives not designated as hedging instruments:
Forward exchange contracts	Other current assets	8.9		2.7
Cross currency interest rate swaps	Other current assets	1.5		—
Total current derivative contracts		13.7		5.1
Derivatives in fair value hedging relationships:
Interest rate swaps	Other non-current assets	35.0		32.8
Derivatives not designated as hedging instruments:
Forward exchange contracts	Other non-current assets	—		0.4
Total non-current derivative contracts		35.0		33.2
Total derivative asset contracts		$	48.7	$	38.3

Liabilities
Derivatives in cash flow hedging relationships:
Commodity contracts	Other current liabilities	$	9.4	$	4.6
Forward exchange contracts	Other current liabilities	5.5		1.5
Treasury locks	Other current liabilities	19.0		—
Derivatives not designated as hedging instruments:
Forward exchange contracts	Other current liabilities	16.8		7.1
Total current derivative contracts		50.7		13.2
Derivatives in cash flow hedging relationships:
Forward exchange contracts	Other non-current liabilities	0.3		0.3


Derivatives not designated as hedging instruments:
Forward exchange contracts	Other non-current liabilities	—		0.4
Total non-current derivative contracts		0.3		0.7
Total derivative liability contracts		$	51.0	$	13.9

In addition to the fair value associated with derivative instruments noted in the table above, the Company had a carrying value of $67.0 million associated with non-derivative instruments designated as foreign currency net investment hedges as of June 30, 2019 and no foreign currency net investment hedges as of March 31, 2020.

Certain derivative financial instruments are subject to master netting arrangements and are eligible for offset. The Company has made an accounting policy election not to offset the fair values of these instruments within the unaudited condensed consolidated balance sheet.

The following tables provide the effects of derivative instruments on AOCI and in the unaudited condensed consolidated statement of income:


	Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
				Three Months Ended March 31,									Nine Months Ended March 31,
($ in millions)				2020			2019			2020			2019
Derivatives in cash flow hedging relationships
Commodity contracts	Cost of sales	$	(0.8)		$	(0.7)		$	(3.9)		$	(0.5)
Forward exchange contracts	Net sales	(0.1)			(0.8)			(0.9)			(1.1)
Forward exchange contracts	Cost of sales	0.3			0.3			0.3			—
Total		$	(0.6)		$	(1.2)		$	(4.5)		$	(1.6)


	Location of Gain (Loss) Recognized in the Unaudited Condensed Consolidated Statement of Income	Gain (Loss) Recognized in Income for Derivatives Not Designated as Hedging Instruments
				Three Months Ended March 31,									Nine Months Ended March 31,
($ in millions)				2020			2019			2020			2019
Derivatives not designated as hedging instruments
Forward exchange contracts	Other income, net	$	(3.2)		$	(0.8)		$	(3.5)		$	(0.3)
Cross currency interest rate swaps	Other income, net	1.4			1.1			1.5			1.0
Total		$	(1.8)		$	0.3		(2.0)			0.7


	Location of Gain (Loss) Recognized in the Unaudited Condensed Consolidated Statement of Income	Gain (Loss) Recognized in Income for Derivatives in Fair Value Hedging Relationships
				Three Months Ended March 31,									Nine Months Ended March 31,
($ in millions)				2020			2019			2020			2019
Derivatives in fair value hedging relationships
Interest rate swaps	Interest expense	$	8.0		$	2.4		$	2.2		$	2.6
Total		$	8.0		$	2.4		$	2.2		$	2.6