Fair Value Measurements

9 Months Ended

Mar. 31, 2023

The fair values of the Company's financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price).

The Company's non-derivative financial instruments primarily include cash and cash equivalents, trade receivables, trade payables, short-term debt, and long-term debt. As of March 31, 2023 and June 30, 2022, the carrying value of these financial instruments, excluding long-term debt, approximated fair value because of the short-term nature of these instruments.

The carrying value of long-term debt with variable interest rates approximates its fair value. The fair value of the Company's long-term debt with fixed interest rates is based on market prices, if available, or expected future cash flows discounted at the current interest rate for financial liabilities with similar risk profiles.

The carrying value and estimated fair value of long-term debt with fixed interest rates (including the effect of receive-fixed/pay-variable interest rate swaps) were as follows:


	March 31, 2023				June 30, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
($ in millions)			(Level 2)				(Level 2)
Total long-term debt with fixed interest rates (excluding commercial paper and finance leases)	$	3,645	$	3,342	$	3,952	$	3,694

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Additionally, the Company measures and records certain assets and liabilities, including derivative instruments and contingent purchase consideration liabilities, at fair value. The following table summarizes the fair value of these instruments, which are measured at fair value on a recurring basis, by level, within the fair value hierarchy:


	March 31, 2023
($ in millions)	Level 1		Level 2		Level 3		Total
Assets

Forward exchange contracts	—		8		—		8
Interest rate swaps	—		7		—		7

Total assets measured at fair value	$	—	$	15	$	—	$	15

Liabilities
Contingent purchase consideration liabilities	$	—	$	—	$	36	$	36
Commodity contracts	—		1		—		1
Forward exchange contracts	—		3		—		3

Interest rate swaps	—		83		—		83
Total liabilities measured at fair value	$	—	$	87	$	36	$	123


	June 30, 2022
($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Commodity contracts	$	—	$	6	$	—	$	6
Forward exchange contracts	—		7		—		7

Total assets measured at fair value	$	—	$	13	$	—	$	13

Liabilities
Contingent purchase consideration liabilities	$	—	$	—	$	16	$	16
Commodity contracts	—		3		—		3
Forward exchange contracts	—		17		—		17
Interest rate swaps	—		69		—		69

Total liabilities measured at fair value	$	—	$	89	$	16	$	105

The fair value of the commodity contracts was determined using a discounted cash flow analysis based on the terms of the contracts and observed market forward prices discounted at a currency specific rate. Forward exchange contract fair values were determined based on quoted prices for similar assets and liabilities in active markets using inputs such as currency rates and forward points. The fair value of the interest rate swaps was determined using a discounted cash flow method based on market based swap yield curves, taking into account current interest rates.

Contingent purchase consideration liabilities arise from business acquisitions. As of March 31, 2023, the Company's contingent purchase consideration liabilities of $36 million consisted of $26 million relating to consideration for business acquisitions where payments are contingent on the Company vacating a certain property or meeting certain performance targets. Included in the previously mentioned $26 million are $20 million of contingent consideration relating to a current period acquisition (refer to Note 5, "Acquisitions and Disposals"). The remaining $10 million liability is contingent on future royalty income generated by Discma AG, a subsidiary acquired in March 2017. The fair value of the contingent purchase consideration liabilities was determined for each arrangement individually. The fair value was determined using the income approach with significant inputs that are not observable in the market. Key assumptions include the discount rates consistent with the level of risk of achievement and probability adjusted financial projections. The expected outcomes are recorded at net present value, which require adjustment over the life for changes in risks and probabilities. Changes arising from modifications in forecasts related to contingent consideration are expected to be immaterial.

The fair value of contingent purchase consideration liabilities is included in other current liabilities and other non-current liabilities in the unaudited condensed consolidated balance sheets.

Assets and Liabilities Measured and Recorded at Fair Value on a Nonrecurring Basis

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a nonrecurring basis. These nonrecurring fair value measurements are considered to be Level 3 in the fair value hierarchy.

As further discussed in Note 4, "Held for Sale" during the fourth quarter of fiscal year 2022, the Company met the criteria to recognize the Russian business as held for sale which resulted in the Company remeasuring the disposal group at its fair value, less cost to sell, which is considered a Level 3 fair value measurement and recognized an impairment charge of $90 million in the quarter ended June 30, 2022. In establishing the fair value, less cost to sell, as of June 30, 2022, management evaluated pre-diligence offers received and discounted them after considering various uncertainties present at the time, including evolving customer decisions on remaining in the region and decisions to move business out of the region. In addition, management consulted with an external advisor to assess the discount that the Russian government was likely to apply to the transaction value given the newly introduced requirement to obtain approval of the transaction and agreed purchase consideration from a Russian government commission prior to the sale. The Company completed the disposal of its Russian business in the second quarter of fiscal year 2023 and as of March 31, 2023, the Company's other assets and liabilities held for sale are immaterial. Refer to Note 4, "Held for Sale" for further information.

Resulting from the disposal of non-core assets during the nine months ended March 31, 2022, the Company has recorded an expense of $9 million, predominantly to adjust the long-lived assets to their fair value less cost to sell as determined in reference to the selling price in the signed sale and purchase agreement. During the nine months ended March 31, 2022, long-

lived assets with a carrying value of $12 million were written down to a fair value of zero as the Company's Durban, South Africa, manufacturing facility was destroyed in a fire as the result of general civil unrest. In addition, other long-lived assets in South Africa, with a carrying amount of $8 million, were written down to their estimated fair value of $4 million using Level 3 inputs. These expenses are included within other income/(expenses), net in the accompanying unaudited condensed consolidated statements of income.

The Company tests indefinite-lived intangibles, including goodwill, for impairment when facts and circumstances indicate the carrying value may not be recoverable. These nonrecurring fair value measurements are considered to be Level 3 in the fair value hierarchy. During the nine months ended March 31, 2023, and 2022, there were no impairment charges recorded on indefinite-lived intangibles, including goodwill.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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