Financial Instruments and Risk Management

9 Months Ended

Sep. 30, 2023

Financial Instruments and Risk Management

Financial Instruments and Risk Management

20.    Financial Instruments and Risk Management

Policies and Procedures

The company employs established risk management policies and procedures, which seek to reduce the company’s commercial risk exposure to fluctuations in commodity prices, interest rates, currency exchange rates and prices of the company’s common stock with regard to common share repurchases and the company’s deferred compensation stock plan. However, there can be no assurance these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The company monitors counterparty credit risk, including lenders, on a regular basis, but Ball cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, in the event of default under the company’s master derivative agreements, the non-defaulting party has the option to offset any amounts owed with regard to open derivative positions.

Commodity Price Risk - The company manages commodity price risk in connection with market price fluctuations of aluminum through two different methods. First, the company enters into container sales contracts that include aluminum-based pricing terms which generally reflect the same price fluctuations under commercial purchase contracts for aluminum sheet. The terms include fixed, floating or pass through aluminum component pricing. Second, the company uses certain derivative instruments, including option and forward contracts, as economic and cash flow hedges of commodity price risk where there are material differences between sales and purchase contracted pricing and volume.

Interest Rate Risk - The company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage its mix of floating and fixed-rate debt.

Currency Exchange Rate Risk - The company’s objective in managing exposure to currency fluctuations is to limit the exposure of cash flows and earnings from changes associated with currency exchange rate changes through the use of various derivative contracts. In addition, at times the company manages earnings translation volatility through the use of currency option strategies, and the change in the fair value of those options is recorded in the company’s net earnings.

The following table provides additional information related to the commercial risk management derivative instruments described above:

($ in millions)	September 30, 2023
Commercial risk area	Commodity		Currency		Interest Rate
Notional amount of contracts	$	1,181	$	2,960	$	811
Net gain (loss) included in AOCI, after-tax		(23)		—		18
Net gain (loss) included in AOCI, after-tax, expected to be recognized in net earnings within the next 12 months		(23)		—		18
Longest duration of forecasted cash flow hedge transactions in years		1		1		4

Common Stock Price Risk

The company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is marked to fair value using the company’s closing stock price at the end of the related reporting period. The company entered into total return swaps to reduce the company’s earnings exposure to these fair value fluctuations that will be outstanding through June 2024, and which have a combined notional value of 2.3 million shares. Based on the current number of shares in the program, each $1 change in the company’s stock price would have an insignificant impact on pretax earnings, net of the impact of related derivatives.

Fair Value Measurements

Ball has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy as of September 30, 2023, and December 31, 2022, and presented those values in the tables below. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

		September 30, 2023
($ in millions)	Balance Sheet Location	Derivatives Designated as Hedging Instruments		Derivatives not Designated as Hedging Instruments		Total
Assets:
Commodity contracts		$	13	$	—	$	13
Currency contracts			93		44		137
Interest rate and other contracts			23		—		23
Total current derivative contracts	Other current assets	$	129	$	44	$	173
Commodity contracts		$	1	$	—	$	1
Total noncurrent derivative contracts	Other noncurrent assets	$	1	$	—	$	1
Liabilities:
Commodity contracts		$	34	$	1	$	35
Currency contracts			—		12		12
Interest rate and other contracts			—		9		9
Total current derivative contracts	Other current liabilities	$	34	$	22	$	56
Commodity contracts		$	1	$	—	$	1
Total noncurrent derivative contracts	Other noncurrent liabilities	$	1	$	—	$	1

		December 31, 2022
($ in millions)	Balance Sheet Location	Derivatives Designated as Hedging Instruments		Derivatives not Designated as Hedging Instruments		Total
Assets:
Commodity contracts		$	11	$	—	$	11
Currency contracts			—		28		28
Total current derivative contracts	Other current assets	$	11	$	28	$	39
Currency contracts		$	84	$	—	$	84
Total noncurrent derivative contracts	Other noncurrent assets	$	84	$	—	$	84
Liabilities:
Commodity contracts		$	48	$	—	$	48
Currency contracts			1		35		36
Other contracts			—		12		12
Total current derivative contracts	Other current liabilities	$	49	$	47	$	96
Currency contracts		$	—	$	1	$	1
Total noncurrent derivative contracts	Other noncurrent liabilities	$	—	$	1	$	1

The company uses closing spot and forward market prices as published by the London Metal Exchange, the Chicago Mercantile Exchange, Reuters and Bloomberg to determine the fair value of any outstanding aluminum, currency, energy and interest rate spot and forward contracts. Option contracts are valued using a Black-Scholes model with observable market inputs for aluminum, currency and interest rates. The company values each of its financial instruments either internally using a single valuation technique, from a reliable observable market source or from third-party software. The present value discounting factor is based on the comparable time period Secured Overnight Financing Rate (SOFR), London Inter-Bank Offered Rate (LIBOR) or 12-month LIBOR. Ball performs validations of the company’s internally derived fair values reported for the company’s financial instruments on a quarterly basis utilizing counterparty valuation statements. The company additionally evaluates counterparty creditworthiness and, as of September 30, 2023, has not identified any circumstances requiring the reported values of the company’s financial instruments be adjusted.

The following tables provide the effects of derivative instruments in the unaudited condensed consolidated statements of earnings and on accumulated other comprehensive earnings (loss):

		Three Months Ended September 30,
		2023				2022
($ in millions)	Location of Gain (Loss) Recognized in Earnings on Derivatives	Cash Flow Hedge - Reclassified Amount from Accumulated Other Comprehensive Earnings (Loss)		Gain (Loss) on Derivatives not Designated as Hedge Instruments		Cash Flow Hedge - Reclassified Amount from Accumulated Other Comprehensive Earnings (Loss)		Gain (Loss) on Derivatives not Designated as Hedge Instruments
Commodity contracts - manage exposure to customer pricing	Net sales	$	29	$	—	$	105	$	—
Commodity contracts - manage exposure to supplier pricing	Cost of sales		(31)		13		(5)		37
Interest rate contracts - manage exposure for outstanding debt	Interest expense		3		(2)		2		5
Currency contracts - manage currency exposure	Selling, general and administrative		31		51		59		28
Equity contracts	Selling, general and administrative		—		(20)		—		(51)
Total		$	32	$	42	$	161	$	19

		Nine Months Ended September 30,
		2023				2022
($ in millions)	Location of Gain (Loss) Recognized in Earnings on Derivatives	Cash Flow Hedge - Reclassified Amount from Accumulated Other Comprehensive Earnings (Loss)		Gain (Loss) on Derivatives not Designated as Hedge Instruments		Cash Flow Hedge - Reclassified Amount from Accumulated Other Comprehensive Earnings (Loss)		Gain (Loss) on Derivatives not Designated as Hedge Instruments
Commodity contracts - manage exposure to customer pricing	Net sales	$	40	$	—	$	23	$	—
Commodity contracts - manage exposure to supplier pricing	Cost of sales		(47)		12		141		17
Interest rate contracts - manage exposure for outstanding debt	Interest expense		5		(7)		2		9
Currency contracts - manage currency exposure	Selling, general and administrative		34		49		136		88
Equity contracts	Selling, general and administrative		—		(5)		—		(120)
Total		$	32	$	49	$	302	$	(6)

The changes in accumulated other comprehensive earnings (loss) for derivatives designated as hedges were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2023		2022		2023		2022
Amounts reclassified into earnings:
Commodity contracts	$	2	$	(100)	$	7	$	(164)
Interest rate contracts		(3)		(2)		(5)		(2)
Currency exchange contracts		(31)		(59)		(34)		(136)
Change in fair value of cash flow hedges:
Commodity contracts		(35)		(32)		(11)		30
Interest rate contracts		6		—		28		1
Currency exchange contracts		31		62		29		123
Currency and tax impacts		11		34		(1)		32
	$	(19)	$	(97)	$	13	$	(116)