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Financial Instruments and Commodity Contracts
 6 Months Ended
Sep. 30, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
FINANCIAL INSTRUMENTS AND COMMODITY CONTRACTS
The following tables summarize the gross fair values of our financial instruments and commodity contracts as of September 30, 2014 and March 31, 2014 (in millions).
 
September 30, 2014
 
Assets
 
Liabilities
 
Net Fair Value
Assets/(Liabilities)
 
Current
 
Noncurrent (A)
 
Current
 
Noncurrent (A)
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
Aluminum contracts
$
12

 
$
—

 
$
(10
)
 
$
—

 
$
2

Currency exchange contracts
12

 
2

 
(14
)
 
(5
)
 
(5
)
Energy contracts
1

 
—

 
(1
)
 
—

 
—

Interest rate swaps
—

 
—

 
(1
)
 
—

 
(1
)
Net investment hedges
 
 
 
 
 
 
 
 
 
Currency exchange contracts
3

 
—

 
—

 
—

 
3

Total derivatives designated as hedging instruments
$
28

 
$
2

 
$
(26
)
 
$
(5
)
 
$
(1
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
Aluminum contracts
28

 
—

 
(34
)
 
—

 
(6
)
Currency exchange contracts
23

 
—

 
(30
)
 
—

 
(7
)
Energy contracts
—

 
—

 
(6
)
 
(9
)
 
(15
)
Total derivatives not designated as hedging instruments
51

 
—

 
(70
)
 
(9
)
 
(28
)
Total derivative fair value
$
79

 
$
2

 
$
(96
)
 
$
(14
)
 
$
(29
)
 
(A)
The noncurrent portions of derivative assets and liabilities are included in “Other long-term assets-third parties” and in “Other long-term liabilities” respectively, in the accompanying condensed consolidated balance sheets.

 
March 31, 2014
 
Assets
 
Liabilities
 
Net Fair Value
Assets/(Liabilities)
 
Current
 
Noncurrent (A)
 
Current
 
Noncurrent(A)
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
Aluminum contracts
$
4

 
$
—

 
$
(7
)
 
$
—

 
$
(3
)
Currency exchange contracts
15

 
4

 
(13
)
 
(6
)
 
—

Energy contracts
3

 
—

 
—

 
—

 
3

Net investment hedges
 
 
 
 
 
 
 
 
 
Currency exchange contracts
—

 
—

 
(1
)
 
—

 
(1
)
Fair value hedges
 
 
 
 
 
 
 
 
 
Aluminum contracts
—

 
—

 
(1
)
 
—

 
(1
)
Total derivatives designated as hedging instruments
$
22

 
$
4

 
$
(22
)
 
$
(6
)
 
$
(2
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Aluminum contracts
19

 
—

 
(28
)
 
—

 
(9
)
Currency exchange contracts
9

 
—

 
(3
)
 
—

 
6

Energy contracts
1

 
—

 
(7
)
 
(13
)
 
(19
)
Total derivatives not designated as hedging instruments
29

 
—

 
(38
)
 
(13
)
 
(22
)
Total derivative fair value
$
51

 
$
4

 
$
(60
)
 
$
(19
)
 
$
(24
)
 

(A)
The noncurrent portions of derivative assets and liabilities are included in “Other long-term assets-third parties” and in “Other long-term liabilities” respectively, in the accompanying condensed consolidated balance sheets.
 
Aluminum
We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag. We sell short-term London Metals Exchange (LME) and Midwest transaction premium aluminum forward contracts to reduce our exposure to fluctuating metal prices associated with the period of time between the pricing of our purchases of inventory and the pricing of the sale of that inventory to our customers. We also purchase forward LME aluminum contracts simultaneously with our sales contracts with customers that contain fixed metal prices. These LME aluminum forward contracts directly hedge the economic risk of future metal price fluctuations to better match the selling price of the metal with the purchase price of the metal.
Price risk exposure arises from commitments to sell aluminum in future periods at fixed prices. We identify and designate certain LME aluminum forward contracts as fair value hedges of the metal price risk associated with fixed price sales commitments that qualify as firm commitments. Such exposures do not extend beyond two years in length. We had 6 kt and 9 kt of outstanding aluminum forward purchase contracts designated as fair value hedges as of September 30, 2014 and March 31, 2014, respectively.
The following table summarizes the amount of gain (loss) recognized on fair value hedges of metal price risk (in millions).
 
Amount of Gain (Loss)
Recognized on Changes in Fair Value
 
Amount of Gain (Loss)
Recognized on Changes in Fair Value
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Fair Value Hedges of Metal Price Risk
 
 
 
 
 
 
 
Derivative Contracts
$
—

 
$
2

 
$
1

 
$
(1
)
Designated Hedged Items
—

 
(2
)
 
(1
)
 
1

Net Ineffectiveness (A)
$
—

 
$
—

 
$
—

 
$
—


(A)Effective portion is recorded in "Net sales" and net ineffectiveness in "Other expense (income), net"
Price risk arises due to fluctuating aluminum prices between the time the sales order is committed and the time the order is shipped. We identify and designate certain LME aluminum forward purchase contracts as cash flow hedges of the metal price risk associated with our future metal purchases that vary based on changes in the price of aluminum. Such exposures do not extend beyond three years in length. We had 2 kt and 16 kt of outstanding aluminum forward purchase contracts designated as cash flow hedges as of September 30, 2014 and March 31, 2014, respectively.
Price risk exposure arises due to the timing lag between the LME based pricing of raw material metal purchases and the LME based pricing of finished product sales. Price risk exposure also arises due to costs associated with our smelter operations in South America. We identify and designate certain LME aluminum forward sales contracts as cash flow hedges of the metal price risk associated with our future metal sales that vary based on changes in the price of aluminum. Such exposures do not extend beyond two years in length. We had 307 kt and 222 kt of outstanding aluminum forward sales contracts designated as cash flow hedges as of September 30, 2014 and March 31, 2014, respectively.
The remaining balance of our LME and Midwest transaction premium aluminum derivative contracts are not designated as accounting hedges. As of September 30, 2014 and March 31, 2014, we had 120 kt and 105 kt, respectively, of outstanding aluminum sales contracts not designated as hedges. The average duration of undesignated contracts is less than five months. The following table summarizes our notional amount (in kt).
 
 
September 30,
2014
 
March 31,
2014
Hedge Type
 
 
 
Purchase (Sale)
 
 
 
Cash flow purchases
2

 
16

Cash flow sales
(307
)
 
(222
)
Fair value
6

 
9

Not designated
(120
)
 
(105
)
Total, net
(419
)
 
(302
)

Foreign Currency
We use foreign exchange forward contracts, cross-currency swaps and options to manage our exposure to changes in exchange rates. These exposures arise from recorded assets and liabilities, firm commitments and forecasted cash flows denominated in currencies other than the functional currency of certain operations.
We use foreign currency contracts to hedge expected future foreign currency transactions, which include capital expenditures. These contracts cover the same periods as known or expected exposures. We had total notional amounts of $477 million and $724 million in outstanding foreign currency forwards designated as cash flow hedges as of September 30, 2014 and March 31, 2014, respectively.
We use foreign currency contracts to hedge our foreign currency exposure to our net investment in foreign subsidiaries. We had $38 million and $61 million outstanding foreign currency forwards designated as net investment hedges as of September 30, 2014 and as of March 31, 2014, respectively.
As of September 30, 2014 and March 31, 2014, we had outstanding currency exchange contracts with a total notional amount of $763 million and $649 million, respectively, which were not designated as hedges. Contracts representing the majority of notional amounts will mature during the third and fourth quarters of fiscal 2015.
Energy
We own an interest in an electricity swap which we formerly designated as a cash flow hedge of our exposure to fluctuating electricity prices. As of March 31, 2011, due to significant credit deterioration of our counterparty, we discontinued hedge accounting for this electricity swap. Less than 1 million of notional megawatt hours remained outstanding as of September 30, 2014, and the fair value of this swap was a liability of $15 million as of September 30, 2014. As of March 31, 2014, the fair value of this electricity swap was a liability of $19 million.
We use natural gas swaps to manage our exposure to fluctuating energy prices in North America. We had 9.6 million MMBTUs designated as cash flow hedges as of September 30, 2014, and the fair value of these swaps was a liability of less than $1 million. There were 9.5 million MMBTUs of natural gas swaps designated as cash flow hedges as of March 31, 2014 and the fair value of these swaps was an asset of $3 million. As of September 30, 2014 and March 31, 2014, we had less than 1 million MMBTUs and 1.5 million MMBTUs, respectively, of natural gas swaps that were not designated as hedges. The fair value as of September 30, 2014 and March 31, 2014, was a liability of less than $1 million and an asset of less than $1 million, respectively, for the swaps not designated as hedges. The average duration of undesignated contracts is less than one year in length. One MMBTU is the equivalent of one decatherm, or one million British Thermal Units.
Interest Rate
As of September 30, 2014, we swapped $129 million (KRW 136 billion) floating rate loans to a weighted average fixed rate of 4.03%. All swaps expire concurrent with the maturity of the related loans. As of September 30, 2014 and March 31, 2014, $129 million (KRW 136 billion) and $127 million (KRW 136 billion) were designated as cash flow hedges, respectively.
Gain (Loss) Recognition

The following table summarizes the gains (losses) associated with the change in fair value of derivative instruments not designated as hedges and the ineffectiveness of designated derivatives recognized in “Other expense (income) , net” (in millions). Gains (losses) recognized in other line items in the condensed consolidated statement of operations are separately disclosed within this footnote.
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Derivative Instruments Not Designated as Hedges
 
 
 
 
 
 
 
Aluminum contracts
$
(20
)
 
$
—

 
$
(27
)
 
$
(2
)
Currency exchange contracts
(14
)
 
(3
)
 
(2
)
 
(15
)
Energy contracts (A)
$
2

 
$
1

 
$
4

 
$
1

Loss recognized in "Other expense (income), net"
$
(32
)
 
$
(2
)
 
(25
)
 
(16
)
Derivative Instruments Designated as Hedges
 
 
 
 
 
 
 
Gain recognized in "Other expense (income), net" (B)
6

 
7

 
8

 
17

Total (loss) gain recognized in "Other expense (income), net"
$
(26
)
 
$
5

 
$
(17
)
 
$
1

Balance sheet remeasurement currency exchange contracts
$
(14
)
 
$
(4
)
 
$
(3
)
 
$
(17
)
Realized (losses) gains, net
(11
)
 
5

 
(14
)
 
26

Unrealized (losses) gains on other derivative instruments, net
(1
)
 
4

 
—

 
(8
)
Total (loss) gain recognized in "Other expense (income), net"
$
(26
)
 
$
5

 
$
(17
)
 
$
1

 
(A)
Includes amounts related to de-designated electricity swap.
(B)
Amount includes: forward market premium/discount excluded from hedging relationship ineffectiveness on designated aluminum and foreign currency capex contracts; releases to income from AOCI on balance sheet remeasurement contracts; and ineffectiveness of fair value hedges involving aluminum derivatives.

 













The following table summarizes the impact on AOCI and earnings of derivative instruments designated as cash flow and net investment hedges (in millions). Within the next twelve months, we expect to reclassify $5 million of gains from AOCI to earnings, before taxes.
 
 
Amount of Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Amount of Gain  (Loss)
Recognized in OCI
(Effective Portion)
 
Amount of Gain  (Loss)
Recognized in “Other  Expense
(Income), net” (Ineffective  and
Excluded Portion)
 
Amount of Gain  (Loss)
Recognized in “Other  Expense
(Income), net” (Ineffective  and
Excluded Portion)
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
Three Months Ended September 30,
 
Six Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
Cash flow hedging derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Aluminum contracts
$
(27
)
 
$
(10
)
 
(48
)
 
19

 
$
7

 
$
7

 
10

 
18

Currency exchange contracts
(19
)
 
26

 
13

 
(25
)
 
—

 
1

 
(1
)
 
1

Energy contracts
(3
)
 
—

 
(3
)
 
(2
)
 
—

 
—

 
—

 
—

Total cash flow hedging derivatives
$
(49
)
 
$
16

 
$
(38
)
 
$
(8
)
 
$
7

 
$
8

 
$
9

 
$
19

Net Investment derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Currency exchange contracts
4

 
(2
)
 
4

 
(2
)
 
—

 
—

 
—

 
—

Total
$
(45
)
 
$
14

 
$
(34
)
 
$
(10
)
 
$
7

 
$
8

 
$
9

 
$
19

Gain (Loss) Reclassification

 
Amount of Gain (Loss) Reclassified from AOCI into Income/(Expense) Three Months Ended September 30,
 
Amount of Gain (Loss) Reclassified from AOCI into Income/(Expense) Six Months Ended September 30,
 
Location of Gain (Loss)
Reclassified from AOCI into
Earnings
Cash flow hedging derivatives
2014
 
2013
 
2014
 
2013
 
 
Energy contracts (A)
$
(2
)
 
$
(2
)
 
$
(3
)
 
$
(3
)
 
Other expense (income), net
Energy contracts (C)
—

 
—

 
1

 
—

 
Cost of goods sold (B)
Aluminum contracts
(45
)
 
18

 
(51
)
 
39

 
Cost of goods sold (B)
Aluminum contracts
—

 
2

 
—

 
4

 
Net sales
Currency exchange contracts
1

 
(5
)
 
2

 
(4
)
 
Cost of goods sold (B)
Currency exchange contracts
5

 
—

 
9

 
—

 
Net sales
Currency exchange contracts
(2
)
 
—

 
(1
)
 
(1
)
 
Other expense (income), net 
Total
$
(43
)
 
$
13

 
$
(43
)
 
$
35

 
Income before taxes
 
16

 
(5
)
 
16

 
(12
)
 
Income tax provision
 
$
(27
)
 
$
8

 
$
(27
)
 
$
23

 
Net income
 
(A)
Includes amounts related to de-designated electricity swap. AOCI related to this swap is amortized to income over the remaining term of the hedged item.
(B)
"Cost of goods sold" is exclusive of depreciation and amortization.
(C)
Includes amounts related to natural gas swaps.