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Financial Instruments and Commodity Contracts
 12 Months Ended
Mar. 31, 2017
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 March 31, 2017 and 2016 (in millions): 
 
 
March 31, 2017
 
 
Assets
 
Liabilities
 
Net Fair Value
 
 
Current
 
Noncurrent(A)
 
Current
 
Noncurrent(A)
 
Assets/(Liabilities)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
Aluminum contracts
 
$
—

 
$
—

 
$
(69
)
 
$
—

 
$
(69
)
Currency exchange contracts
 
26

 
1

 
(1
)
 
(3
)
 
23

Energy contracts
 
1

 
—

 
—

 
(9
)
 
(8
)
Total derivatives designated as hedging instruments
 
27

 
1

 
(70
)
 
(12
)
 
(54
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Aluminum contracts
 
57

 
1

 
(68
)
 
(1
)
 
(11
)
Currency exchange contracts
 
29

 
—

 
(13
)
 
—

 
16

Total derivatives not designated as hedging instruments
 
86

 
1

 
(81
)
 
(1
)
 
5

Total derivative fair value
 
$
113

 
$
2

 
$
(151
)
 
$
(13
)
 
$
(49
)
 
 
 
March 31, 2016
 
 
Assets
 
Liabilities
 
Net Fair Value
 
 
Current
 
Noncurrent(A)
 
Current
 
Noncurrent(A)
 
Assets/(Liabilities)
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
 
 
 
Aluminum contracts
 
$
10

 
$
—

 
$
(2
)
 
$
—

 
$
8

Currency exchange contracts
 
15

 
5

 
(3
)
 
(5
)
 
12

Energy contracts
 
—

 
—

 
(4
)
 
—

 
(4
)
Interest rate swaps
 
—

 
—

 
—

 
(1
)
 
(1
)
Net Investment hedges
 
 
 
 
 
 
 
 
 
 
Currency exchange contracts
 
—

 
—

 
(1
)
 
—

 
(1
)
Total derivatives designated as hedging instruments
 
25

 
5

 
(10
)
 
(6
)
 
14

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Aluminum contracts
 
24

 
—

 
(26
)
 
—

 
(2
)
Currency exchange contracts
 
39

 
—

 
(39
)
 
(1
)
 
(1
)
Energy contracts
 
—

 
1

 
(10
)
 
—

 
(9
)
Total derivatives not designated as hedging instruments
 
63

 
1

 
(75
)
 
(1
)
 
(12
)
Total derivative fair value
 
$
88

 
$
6

 
$
(85
)
 
$
(7
)
 
$
2

 
(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 consolidated balance sheets.
 
Aluminum
We use derivative instruments to preserve our conversion margins and manage the timing differences associated with metal price lag. We use over-the-counter derivatives indexed to the London Metals Exchange (LME) (referred to as our "aluminum derivative 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, which is known as "metal price lag." 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. The volatility in local market premiums also results in metal price lag.
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. We did not have any outstanding aluminum forward purchase contracts designated as fair value hedges as of March 31, 2017. We had less than 1 kt of outstanding aluminum forward purchase contracts designated as fair value hedges as of March 31, 2016. One kilotonne (kt) is 1,000 metric tonnes.
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
 
 
Year Ended March 31,
 
 
2017
 
2016
Fair value hedges of metal price risk
 
 
 
 
Derivative contracts
 
$
—

 
$
(2
)
Designated hedged items
 
—

 
2

Net ineffectiveness (A)
 
$
—

 
$
—


(A)
Effective portion is recorded in "Net sales" and net ineffectiveness in "Other expense (income), net". There was no amount excluded from the assessment of hedge effectiveness related to Fair Value Hedges.
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. We did not have any outstanding aluminum forward purchase contracts designated as cash flow hedges as of March 31, 2017. We had 1 kt of outstanding aluminum forward purchase contracts designated as cash flow hedges as of March 31, 2016.
Price risk exposure arises due to the timing lag between the LME based pricing of raw material aluminum purchases and the LME based pricing of finished product sales. 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. Generally, such exposures do not extend beyond two years in length. We had 391 kt and 301 kt of outstanding aluminum forward sales contracts designated as cash flow hedges as of March 31, 2017 and 2016, respectively.
The remaining aluminum derivative contracts are not designated as accounting hedges. As of March 31, 2017 and 2016, we had 89 kt and 76 kt, respectively, of outstanding aluminum sales contracts not designated as hedges. The average duration of undesignated contracts is less than one year.
The following table summarizes our notional amount (in kt).
 
 
 
March 31,
 
 
2017
 
2016
Hedge type
 
 
 
 
Purchase (sale)
 
 
 
 
Cash flow purchases
 
—

 
1

Cash flow sales
 
(391
)
 
(301
)
Not designated
 
(89
)
 
(76
)
Total, net
 
(480
)
 
(376
)


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 $465 million and $601 million in outstanding foreign currency forwards designated as cash flow hedges as of March 31, 2017 and 2016, respectively.
We use foreign currency contracts to hedge our foreign currency exposure to our net investment in foreign subsidiaries. We did not have any outstanding foreign currency forwards designated as net investment hedges as of March 31, 2017. We had $36 million of outstanding foreign currency forwards designated as net investment hedges as of March 31, 2016.
As of March 31, 2017 and 2016, we had outstanding foreign currency exchange contracts with a total notional amount of $683 million and $636 million, respectively, to primarily hedge balance sheet remeasurement risk, which were not designated as hedges. Contracts representing the majority of this notional amount will mature during the first quarter of fiscal 2018 and offset the remeasurement impact.
 Energy
We owned an interest in an electricity swap that matured January 5, 2017 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. We did not have any outstanding notional megawatt hours remaining as of March 31, 2017. As of March 31, 2016, the fair value of this electricity swap was a liability of $9 million.
On December 31, 2015, we entered into an agreement to extend the electricity swap contract for an additional five years, effective January 6, 2017 and maturing on January 5, 2022. As of March 31, 2017 and 2016, 1 million of notional megawatt hours was outstanding and the fair value of this swap was a liability of $9 million and an asset of $1 million, respectively. The electricity swap was designated as a cash flow hedge in the first quarter of fiscal year 2017.
We use natural gas forward purchase contracts to manage our exposure to fluctuating energy prices in North America. We had 6 million MMBTUs designated as cash flow hedges as of March 31, 2017, and the fair value was an asset of $1 million. There were 5 million MMBTUs of natural gas forward purchase contracts designated as cash flow hedges as of March 31, 2016 and the fair value was a liability of $4 million. As of March 31, 2017 and 2016, we had less than 1 million of MMBTUs of natural gas forward purchase contracts that were not designated as hedges. The fair value as of March 31, 2017 and 2016 was a liability of less than $1 million and a liability of $1 million, respectively, for the forward purchase contracts 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.
We use diesel fuel forward purchase contracts to manage our exposure to fluctuating fuel prices in North America, which are not designated as hedges as of March 31, 2017. As of March 31, 2017 and 2016, we had 8 million gallons and 4 million gallons, respectively, of diesel fuel forward purchase contracts outstanding, and the fair value was a liability of less than $1 million. The average duration of undesignated contracts is approximately one year in length.
Interest Rate
As of March 31, 2017, we swapped $119 million (KRW 133 billion) floating rate loans to a weighted average fixed rate of 2.92%. All swaps expire concurrent with the maturity of the related loans. As of March 31, 2017 and 2016, $119 million (KRW 133 billion) and $115 million (KRW 133 billion), respectively, were designated as cash flow hedges.
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 consolidated statement of operations are separately disclosed within this footnote.

 
 
 
Year Ended March 31,
 
 
2017
 
2016
 
2015
Derivative instruments not designated as hedges
 
 
 
 
 
 
Aluminum contracts
 
$
(44
)
 
$
47

 
$
(31
)
Currency exchange contracts
 
40

 
(60
)
 
(5
)
Energy contracts (A)
 
8

 
3

 
2

Gain (loss) recognized in "Other expense (income), net"
 
4

 
(10
)
 
(34
)
Derivative instruments designated as hedges
 
 
 
 
 
 
(Loss) gain recognized in "Other expense (income), net" (B)
 
(25
)
 
17

 
19

Total (loss) gain recognized in "Other expense (income), net"
 
$
(21
)
 
$
7

 
$
(15
)
Balance sheet remeasurement currency exchange contract gains (losses)
 
$
35

 
$
(53
)
 
$
(13
)
Realized (losses) gains, net (C)
 
(61
)
 
64

 
(2
)
Unrealized gains (losses) on other derivative instruments, net
 
5

 
(4
)
 
—

Total (loss) gain recognized in "Other expense (income), net"
 
$
(21
)
 
$
7

 
$
(15
)
 
(A)
Includes amounts related to de-designated electricity swap, diesel fuel forward contracts and natural gas swaps not designated as hedges.
(B)
Amount includes: forward market premium/discount excluded from hedging relationship and ineffectiveness on designated aluminum and foreign currency capital expenditure contracts; releases to income from AOCI on balance sheet remeasurement contracts; and ineffectiveness of fair value hedges involving aluminum derivatives.
(C)
During the year ended March 31, 2017, the level of undesignated aluminum derivatives was higher due to the volatility in LME pricing. During the year ended March 31, 2016, the level of undesignated aluminum derivatives was higher due to the volatility in the local market premium component of our net selling prices, forward market premium/discount excluded from hedging relationship and ineffectiveness on designated aluminum and foreign currency capital expenditure contracts.

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 $43 million of losses from AOCI to earnings, before taxes.
 
 
 
Amount of Gain (Loss)
Recognized in OCI
(Effective Portion)
 
Amount of Gain (Loss)
Recognized in “Other (Income) Expense,  net” (Ineffective and
Excluded Portion)
 
 
Year Ended March 31,
 
Year Ended March 31,
 
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Cash flow hedging derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Aluminum contracts
 
$
(137
)
 
$
84

 
$
(26
)
 
$
(27
)
 
$
17

 
$
24

Currency exchange contracts
 
48

 
(7
)
 
(44
)
 
2

 
1

 
(2
)
Energy contracts
 
(7
)
 
(5
)
 
(12
)
 
(1
)
 
(1
)
 
—

Interest rate swaps
 
—

 
(1
)
 
(1
)
 
—

 
—

 
—

Total cash flow hedging derivatives
 
(96
)
 
71

 
(83
)
 
(26
)
 
17

 
22

Net investment derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Currency exchange contracts
 
—

 
(2
)
 
11

 
—

 
—

 
—

Total
 
$
(96
)
 
$
69

 
$
(72
)
 
$
(26
)
 
$
17

 
$
22



Gain (Loss) Reclassification
 
 
Amount of Gain (Loss)
Reclassified from AOCI into Income/(Expense)
(Effective Portion)
Year Ended March 31,
 
Location of Gain (Loss)
Reclassified from AOCI into
Earnings
Cash flow hedging derivatives
 
2017
 
2016
 
2015
 
 
Energy contracts (A)
 
$
(4
)
 
$
(5
)
 
$
(5
)
 
Other expense (income), net
Energy contracts (C)
 
(4
)
 
(10
)
 
—

 
Cost of goods sold (B)
Aluminum contracts
 
(55
)
 
83

 
(40
)
 
Cost of goods sold (B)
Aluminum contracts
 
(3
)
 
—

 
—

 
Net sales
Currency exchange contracts
 
18

 
(44
)
 
(14
)
 
Cost of goods sold (B)
Currency exchange contracts
 
2

 
(4
)
 
(1
)
 
Selling, general and administrative expenses
Currency exchange contracts
 
7

 
(9
)
 
18

 
Net sales
Currency exchange contracts
 
—

 
(1
)
 
(3
)
 
Other expense (income), net
Currency exchange contracts
 
—

 
—

 
7

 
Gain on assets held for sale, net
Currency exchange contracts
 
(1
)
 
(1
)
 
(1
)
 
Depreciation and amortization
Interest rate swaps
 
—

 
(1
)
 
—

 
Interest expense
Total
 
(40
)
 
8

 
(39
)
 
(Loss) income before income taxes
 
 
12

 
(19
)
 
8

 
Income tax benefit (provision)
 
 
$
(28
)
 
$
(11
)
 
$
(31
)
 
Net loss
 
(A)
Includes amounts related to de-designated electricity swap. AOCI related to this swap was 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.