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Derivative Instruments | 3 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | Derivative Instruments The Company periodically uses derivatives and other financial instruments to hedge exposures to interest rates, commodity prices, and currency risks. The Company does not hold or issue derivative instruments for speculative or trading purposes. For hedges that meet hedge accounting criteria, the Company, at inception, formally designates and documents the instruments 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 designated 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, the gains and losses related to the changes in the fair value of the interest rate swaps are included in interest expense and offset changes in the fair value of the hedged portion of the underlying debt that are attributable to the changes in market interest rates. 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 statements of income in other income/(expenses), net. In March 2023, the Company entered into interest rate swap contracts for a total notional amount of $1.2 billion. Under the terms of the contracts, the Company pays a weighted-average fixed interest rate of 3.88% and receives a variable rate of interest, based on 1-month Term SOFR, from July 2023 through June 2024, settled monthly. As of September 30, 2023 and June 30, 2023, the Company had no other receive-variable/pay-fixed interest rate swaps. Although the Company is not applying hedge accounting, the Company believes that these economic hedging instruments are effective in protecting the Company against the risks of changes in the variable interest rate on a portion of its forecasted commercial paper issuances. As of September 30, 2023, and June 30, 2023, the total notional amount of the Company’s receive-fixed/pay-variable interest rate swaps was $650 million. 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 accumulated other comprehensive loss ("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 recognized in earnings over the life of the hedging relationship in the same consolidated statements of income line item as the underlying hedged item. Changes in the fair value of forward contracts that have not been designated as hedging instruments are reported in the accompanying unaudited condensed consolidated statements of income. As of September 30, 2023, and June 30, 2023, the notional amount of the outstanding forward contracts was $441 million and $462 million, respectively. Commodity Risk Certain raw materials used in the Company's production processes are subject to price volatility caused by weather, supply conditions, political and economic variables, and other unpredictable factors. The Company's policy is to minimize exposure to price volatility by passing through the commodity price risk to customers, including through the use of fixed price swaps. In some cases, the Company purchases, on behalf of customers, fixed price commodity swaps to offset the exposure of price volatility on the underlying sales contracts. These instruments are cash closed out on maturity and the related cost or benefit is passed through to customers. Information about commodity price exposure is derived from supply forecasts submitted by customers and these exposures are hedged by central treasury units. Changes in the fair value of commodity hedges are recognized in AOCI. The cumulative amount of the hedge is recognized in the unaudited condensed consolidated statements of income when the forecasted transaction is realized. The Company had the following outstanding commodity contracts to hedge forecasted purchases:
|  | September 30, 2023 |  | June 30, 2023
Commodity |  | Volume |  | Volume
Aluminum |  | 15,735 tons |  | 14,325 tons
The following table provides the location of derivative instruments in the unaudited condensed consolidated balance sheets:
($ in millions) |  | Balance Sheet Location |  | September 30, 2023 |  | June 30, 2023
Assets |  |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |
Commodity contracts |  | Other current assets |  | $ | 1 |  |  | $ | — |
Forward exchange contracts |  | Other current assets |  | 1 |  |  | 2 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Forward exchange contracts |  | Other current assets |  | 1 |  |  | 1 |
Interest rate swaps |  | Other current assets |  | 13 |  |  | 16 |
Total current derivative contracts |  |  |  | 16 |  |  | 19 |
Total non-current derivative contracts |  |  |  | — |  |  | — |
Total derivative asset contracts |  |  |  | $ | 16 |  |  | $ | 19 |
Liabilities |  |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |
Commodity contracts |  | Other current liabilities |  | $ | 1 |  |  | $ | 2 |
Forward exchange contracts |  | Other current liabilities |  | 3 |  |  | 3 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |
Forward exchange contracts |  | Other current liabilities |  | 2 |  |  | 1 |
Total current derivative contracts |  |  |  | 6 |  |  | 6 |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |
Forward exchange contracts |  | Other non-current liabilities |  | — |  |  | 1 |
Derivatives in fair value hedging relationships: |  |  |  |  |  |
Interest rate swaps |  | Other non-current liabilities |  | 107 |  |  | 96 |
Total non-current derivative contracts |  |  |  | 107 |  |  | 97 |
Total derivative liability contracts |  |  |  | $ | 113 |  |  | $ | 103 |
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 sheets. The following tables provide the effects of derivative instruments on AOCI and in the unaudited condensed consolidated statements of income:
|  | Location of Gain / (Loss) Reclassified from AOCI into Income |  | Gain / (Loss) Reclassified from AOCI into Income (Effective Portion)
|  |  | Three Months Ended September 30, |  |
($ in millions) |  |  | 2023 |  | 2022 |  |  |  |
Derivatives in cash flow hedging relationships |  |  |  |  |  |  |  |  |  |
Commodity contracts |  | Cost of sales |  | $ | (1) |  |  | $ | 2 |  |  |  |  |
Forward exchange contracts |  | Net sales |  | 1 |  |  | — |  |  |  |  |
Treasury locks |  | Interest expense |  | (1) |  |  | (1) |  |  |  |  |
Total |  |  |  | $ | (1) |  |  | $ | 1 |  |  |  |  |
|  | Location of Gain / (Loss) Recognized in the Unaudited Condensed Consolidated Statements of Income |  | Gain / (Loss) Recognized in Income for Derivatives Not Designated as Hedging Instruments
|  |  | Three Months Ended September 30, |  |
($ in millions) |  |  | 2023 |  | 2022 |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |
Forward exchange contracts |  | Other income/(expenses), net |  | $ | 2 |  |  | $ | (15) |  |  |  |  |
Interest rate swaps |  | Other income/(expenses), net |  | (3) |  |  | — |  |  |  |  |
Total |  |  |  | $ | (1) |  |  | $ | (15) |  |  |  |  |
|  | Location of Loss Recognized in the Unaudited Condensed Consolidated Statements of Income |  | Loss Recognized in Income for Derivatives in Fair Value Hedging Relationships
|  |  | Three Months Ended September 30, |  |
($ in millions) |  |  | 2023 |  | 2022 |  |  |  |
Derivatives in fair value hedging relationships |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Interest expense |  | $ | (11) |  |  | $ | (33) |  |  |  |  |
Total |  |  |  | $ | (11) |  |  | $ | (33) |  |  |  |  |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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