Derivative Financial Instruments

3 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company uses derivative financial instruments, primarily foreign currency forward exchange contracts and interest rate swaps, for the purposes of managing foreign currency exchange rate risk and interest rate risk on expected future cash flows.

The Company’s hedged interest rate transactions as of December 31, 2022 are expected to be recognized within one year. The fair value of interest rate swaps is based on dealer quotes of market rates (i.e., Level 2 inputs) which is discussed further in Note 19, “Fair Value Measurements,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022. Interest income or expense related to interest rate swaps is recognized in interest income (expense), net in the same period as the related expense is recognized. The ineffective portions of interest rate swaps are recognized in other income (expense) in the period measured.

As of December 31, 2022, the Company had outstanding foreign currency forward exchange contracts for the sale of $337 million and the purchase of $197 million of foreign currencies at fixed rates that will be settled by September 2023.

As of December 31, 2022, the Company had outstanding $820 million in pay-fixed receive-variable interest rate swaps with $12 million of unrealized deferred gains in comprehensive income related to the interest rate swaps. As of September 30, 2022, the Company had outstanding $820 million in pay-fixed receive-variable interest rate swaps with $13 million of unrealized deferred gains in comprehensive income related to the interest rate swaps.

The Company recorded realized pre-tax losses of $1 million and unrealized pre-tax losses of $7 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the three months ended December 31, 2022. The Company recorded realized pre-tax gains of $1 million and unrealized pre-tax gains of $2 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other income for the three months ended December 31, 2021.

The unrealized pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the three months ended December 31, 2022 were $2 million. The unrealized pre-tax gains of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the three months ended December 31, 2021 were $9 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at December 31, 2022 and September 30, 2022:


	December 31, 2022 (a)		September 30, 2022 (b)
	(in millions)
Other current assets	$	17	$	2
Other current liabilities	(8)		—
Other noncurrent assets	—		16
Other noncurrent liabilities	—		—

______________________________________

(a)Includes $13 million and $20 million of foreign exchange derivative contracts which net to $1 million of current assets and $8 million of current liabilities, respectively, and $16 million of interest rate swaps in current asset positions.

(b)Includes $2 million and $16 million of interest rate swaps in current and noncurrent asset positions, respectively.