NOTE 5. FAIR VALUE

In accordance with ASC 820, “Fair Value Measurement,” fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes market participant assumptions into the following categories: (i) inputs that are quoted prices in active markets (“Level 1”); (ii) inputs other than quoted prices included within Level 1 that are observable, including quoted prices for similar assets or liabilities (“Level 2”); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions (“Level 3”).

The following tables present information about financial assets and liabilities carried at fair value on a recurring basis:

	Fair value measurements
	As of December 31, 2017
	Total			Level 1		Level 2		Level 3
	(in millions)
Assets
Investments^(a)	$	312		$	312	$	-	$	-
Derivatives^(b)		50			-		50		-
Other^(c)		91			-		-		91
Redeemable noncontrolling interests		(712	)		-		-		(712	)

Total	$	(259	)	$	312	$	50	$	(621	)

	As of June 30, 2017
	Total			Level 1		Level 2			Level 3
	(in millions)
Assets
Derivatives^(b)	$	48		$	-	$	48		$	-
Other^(c)		43			-		-			43
Liabilities
Derivatives^(b)		(9	)		-		(9	)		-
Redeemable noncontrolling interests		(694	)		-		-			(694	)

Total	$	(612	)	$	-	$	39		$	(651	)

^(a)	Represents an investment in available-for-sale securities.

^(b)	Represents derivatives associated with the Company’s foreign currency forward and option contracts and interest rate swap contracts.

^(c)	Primarily relates to past acquisitions, including contingent consideration arrangements.

Redeemable Noncontrolling Interests

The Company accounts for redeemable noncontrolling interests in accordance with ASC 480-10-S99-3A, “Distinguishing Liabilities from Equity” (“ASC 480-10-S99-3A”), because their exercise is outside the control of the Company. The redeemable noncontrolling interests recorded at fair value are put arrangements held by the noncontrolling interests in certain of the Company’s majority-owned sports networks. The Company utilizes the market, income or cost approaches or a combination of these valuation techniques for its Level 3 fair value measures, using observable inputs such as market data obtained from independent sources. To the extent observable inputs are not available, the Company utilizes unobservable inputs based upon the assumptions market participants would use in valuing the asset (liability). Two minority shareholders’ put rights will become exercisable in March 2018 and one minority shareholder’s put right will become exercisable in July 2018. The remaining redeemable noncontrolling interests are currently not exercisable.

Financial Instruments

The carrying value of the Company’s financial instruments, such as cash and cash equivalents, receivables, payables and cost method investments, approximates fair value.

	As of December 31, 2017		As of June 30, 2017
	(in millions)
Borrowings

Fair value	$	24,573	$	23,853

Carrying value	$	19,794	$	19,913

Fair value is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market (a Level 1 measurement).

Foreign Currency Contracts

The Company uses foreign currency forward contracts primarily to hedge certain exposures to foreign currency exchange rate risks associated with revenues and the cost of producing or acquiring films and television programming. The Company also entered into a foreign currency option contract to limit its foreign currency exchange rate risk in connection with the Sky Acquisition. For accounting purposes, the option contract does not qualify for hedge accounting and therefore has been treated as an economic hedge (See Note 2 – Acquisitions, Disposals and Other Transactions under the heading “Sky Acquisition”).

	As of December 31, 2017		As of June 30, 2017
	(in millions)
Cash Flow Hedges

Notional amount	$	116	$	209

Fair value	$	1	$	-

For foreign currency forward contracts designated as cash flow hedges, the Company expects to reclassify the cumulative changes in fair values, included in Accumulated other comprehensive loss, within the next two years.

	As of December 31, 2017		As of June 30, 2017
	(in millions)
Economic Hedges

Notional amount^(a)	$	12,552	$	12,371

Fair value^(a)	$	44	$	38

^(a)

Includes the foreign currency option contract to limit the foreign currency exchange rate risk in connection with the Sky Acquisition. The foreign currency option contract has a notional amount of $12.5 billion and consists of the foreign currency option and a premium payable of approximately $310 million due on the option expiration date. As of December 31, 2017, the foreign currency option had a fair value of $44 million.

Interest Rate Swap Contracts

The Company uses interest rate swap contracts to hedge certain exposures to interest rate risks associated with certain borrowings.

	As of December 31, 2017		As of June 30, 2017
	(in millions)
Cash Flow Hedges

Notional amount	$	635	$	663

Fair value	$	5	$	1

For interest rate swap contracts designated as cash flow hedges, the Company expects to reclassify the cumulative changes in fair values, included in Accumulated other comprehensive loss, within the next two years.

Concentrations of Credit Risk

Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.

The Company’s receivables did not represent significant concentrations of credit risk as of December 31, 2017 or June 30, 2017 due to the wide variety of customers, markets and geographic areas to which the Company’s products and services are sold.

The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. As of December 31, 2017, the Company did not anticipate nonperformance by any of the counterparties.