Derivative Financial Instruments

9 Months Ended

Jun. 30, 2023

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 June 30, 2023 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 June 30, 2023, the Company had outstanding foreign currency forward exchange contracts for the sale of $172 million and the purchase of $98 million of foreign currencies at fixed rates that will be settled by September 2023.

As of June 30, 2023, the Company had outstanding $500 million in a pay-fixed receive-variable interest rate swap with $5 million of unrealized deferred gains in comprehensive income related to the interest rate swap. 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 $6 million and unrealized pre-tax losses of $1 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other expense for the nine months ended June 30, 2023. The Company recorded realized pre-tax gains of $6 million and unrealized pre-tax gains of $3 million related to its foreign currency forward exchange contracts in the condensed consolidated statement of operations as other income for the nine months ended June 30, 2022.

The pre-tax losses of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the nine months ended June 30, 2023 were $11 million. The pre-tax gains of the Company’s derivative interest rate swaps designated as cash flow hedges recorded in other comprehensive income during the nine months ended June 30, 2022 were $34 million.

The following is a summary of amounts recorded in the consolidated balance sheets pertaining to the Company’s derivative instruments at June 30, 2023 and September 30, 2022:


	June 30, 2023		September 30, 2022
	(in millions)
Other Current Assets:
Foreign Currency Forward Exchange Contracts (a)	$	1	$	—
Interest Rate Swap	7		2
Other Current Liabilities:
Foreign Currency Forward Exchange Contracts (a)	(2)		—
Other Noncurrent Assets:
Interest Rate Swap	—		16

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(a)Includes $6 million and $7 million of foreign currency forward exchange contracts in asset and liability positions, respectively, which net to $1 million of current assets and $2 million of current liabilities