XML 25 R15.htm IDEA: XBRL DOCUMENT

Financial Instruments and Fair Value Measurements

6 Months Ended

Dec. 31, 2022

Financial Instruments and Fair Value Measurements

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

In accordance with ASC 820, “Fair Value Measurements” (“ASC 820”) fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes market participant assumptions into the following categories:

•Level 1 — Quoted prices in active markets for identical assets or liabilities.

•Level 2 — Observable inputs other than quoted prices included in Level 1. The Company could value assets and liabilities included in this level using dealer and broker quotations, certain pricing models, bid prices, quoted prices for similar assets and liabilities in active markets or other inputs that are observable or can be corroborated by observable market data.

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. For the Company, this primarily includes the use of forecasted financial information and other valuation related assumptions such as discount rates and long term growth rates in the income approach as well as the market approach which utilizes certain market and transaction multiples.

Under ASC 820, certain assets and liabilities are required to be remeasured to fair value at the end of each reporting period.

The following table summarizes those assets and liabilities measured at fair value on a recurring basis:


	As of December 31, 2022								As of June 30, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Interest rate derivatives - cash flow hedges	$	—	$	43	$	—	$	43	$	—	$	24	$	—	$	24
Foreign currency derivatives - cash flow hedges	—		1		—		1		—		1		—		1
Cross-currency interest rate derivatives - fair value hedges	—		8		—		8		—		19		—		19


Cross-currency interest rate derivatives	—		34		—		34		—		79		—		79
Equity securities(a)	98		—		132		230		109		—		103		212
Total assets	$	98	$	86	$	132	$	316	$	109	$	123	$	103	$	335







Total liabilities	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(a)See Note 5—Investments.

Equity securities

The fair values of equity securities with quoted prices in active markets are determined based on the closing price at the end of each reporting period. These securities are classified as Level 1 in the fair value hierarchy outlined above. The fair values of equity securities without readily determinable fair market values are determined based on cost, less any impairment, plus or minus changes in fair value resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. These securities are classified as Level 3 in the fair value hierarchy outlined above.

A rollforward of the Company’s equity securities classified as Level 3 is as follows:


	For the six months ended December 31,
	2022		2021
	(in millions)
Balance - beginning of period	$	103	$	116
Additions(a)	30		15
Sales	(2)		—
Returns of capital	(1)		(33)
Measurement adjustments	1		28
Foreign exchange and other(b)	1		(23)
Balance - end of period	$	132	$	103

(a) Primarily relates to Dow Jones’ investment in an artificial intelligence-focused data analytics company during the three months ended December 31, 2022.

(b) During the six months ended December 31, 2021, the Company reclassified its investment in an equity security from Level 3 to Level 1 within the fair value hierarchy as the investment became publicly traded in the first quarter of fiscal 2022.

Derivative Instruments

The Company is directly and indirectly affected by risks associated with changes in certain market conditions. When deemed appropriate, the Company uses derivative instruments to mitigate the potential impact of these market risks. The primary market risks managed by the Company through the use of derivative instruments include:

•foreign currency exchange rate risk: arising primarily through Foxtel Debt Group borrowings denominated in United States (“U.S.”) dollars, payments for customer premise equipment and certain programming rights; and

•interest rate risk: arising from fixed and floating rate Foxtel Debt Group and News Corporation borrowings.

The Company formally designates qualifying derivatives as hedge relationships (“hedges”) and applies hedge accounting when considered appropriate. The Company does not use derivative financial instruments for trading or speculative purposes.

Derivatives are classified as current or non-current in the Balance Sheets based on their maturity dates. Refer to the table below for further details:


	Balance Sheet Location	As of December 31, 2022		As of June 30, 2022
		(in millions)
Foreign currency derivatives - cash flow hedges	Other current assets	$	1	$	1
Cross currency interest rate derivatives - fair value hedges	Other current assets	—		11

Interest rate derivatives - cash flow hedges	Other current assets	14		4
Cross currency interest rate derivatives	Other current assets	—		46
Interest rate derivatives - cash flow hedges	Other non-current assets	29		20
Cross-currency interest rate derivatives - fair value hedges	Other non-current assets	8		8

Cross-currency interest rate derivatives	Other non-current assets	34		33

Cash flow hedges

The Company utilizes a combination of foreign currency derivatives and interest rate derivatives to mitigate currency exchange rate risk and interest rate risk in relation to future interest and principal payments and payments for customer premise equipment and certain programming rights.

The total notional value of foreign currency contract derivatives designated for hedging was $41 million as of December 31, 2022. The maximum hedged term over which the Company is hedging exposure to foreign currency fluctuations is less than

one year. As of December 31, 2022, the Company estimates that approximately nil of net derivative losses related to its foreign currency contract derivative cash flow hedges included in Accumulated other comprehensive loss will be reclassified into the Statements of Operations within the next 12 months.

The total notional value of interest rate swap derivatives designated for hedging was approximately A$250 million and $500 million as of December 31, 2022 for Foxtel Debt Group and News Corporation borrowings, respectively. The maximum hedged term over which the Company is hedging exposure to variability in interest payments is to March 2027. As of December 31, 2022, the Company estimates that approximately $19 million of net derivative gains related to its interest rate swap derivative cash flow hedges included in Accumulated other comprehensive loss will be reclassified into the Statements of Operations within the next 12 months.

Cash flow derivatives

The Company utilizes cross-currency interest rate derivatives to mitigate currency exchange and interest rate risk in relation to future interest and principal payments. The Company determined that these cash flow hedges no longer qualified as highly effective as of December 31, 2020 primarily due to changes in foreign exchange and interest rates. Amounts recognized in Accumulated other comprehensive loss during the periods the hedges were considered highly effective will continue to be reclassified out of Accumulated other comprehensive loss over the remaining term of the derivatives. Changes in the fair values of these derivatives will be recognized within Other, net in the Statements of Operations on a prospective basis.

The total notional value of cross-currency interest rate swaps for which the Company discontinued hedge accounting was approximately $120 million as of December 31, 2022. The maximum hedged term over which the Company is hedging exposure to variability in interest and principal payments is to July 2024. As of December 31, 2022, the Company estimates that approximately $1 million of net derivative gains related to its cross-currency interest rate swap derivative cash flow hedges included in Accumulated other comprehensive loss will be reclassified into the Statements of Operations within the next 12 months.

The following tables present the impact that changes in the fair values had on Accumulated other comprehensive loss and the Statements of Operations during the three and six months ended December 31, 2022 and 2021 for both derivatives designated as cash flow hedges that continue to be highly effective and derivatives initially designated as cash flow hedges but for which hedge accounting was discontinued as of December 31, 2020:


	Gain (loss) recognized in Accumulated Other Comprehensive Loss for the three months ended December 31,				(Gain) loss reclassified from Accumulated Other Comprehensive Loss for the three months ended December 31,				Income statement location
	2022		2021		2022		2021
	(in millions)
Foreign currency derivatives - cash flow hedges	$	(2)	$	—	$	1	$	—	Operating expenses
Cross-currency interest rate derivatives	—		—		(1)		(1)		Interest expense, net
Interest rate derivatives - cash flow hedges	(1)		4		(3)		(1)		Interest expense, net
Total	$	(3)	$	4	$	(3)	$	(2)


	Gain (loss) recognized in Accumulated Other Comprehensive Loss for the six months ended December 31,				(Gain) loss reclassified from Accumulated Other Comprehensive Loss for the six months ended December 31,				Income statement location
	2022		2021		2022		2021
	(in millions)
Foreign currency derivatives - cash flow hedges	$	(1)	$	1	$	—	$	—	Operating expenses
Cross-currency interest rate derivatives	—		—		(1)		(2)		Interest expense, net
Interest rate derivatives - cash flow hedges	21		6		(3)		(2)		Interest expense, net
Total	$	20	$	7	$	(4)	$	(4)

The amounts recognized in Other, net in the Statements of Operations resulting from the changes in fair value of cross-currency interest rate derivatives that were discontinued as cash flow hedges due to hedge ineffectiveness as of December 31, 2020 was a loss of approximately $1 million and a gain of approximately $2 million for the three and six months ended December 31, 2022, respectively, and gains of approximately $8 million and $17 million for the three and six months ended December 31, 2021, respectively.

Fair value hedges

Borrowings in Australia issued at fixed rates and in U.S. dollars expose the Company to fair value interest rate risk and currency exchange rate risk. The Company manages fair value interest rate risk and currency exchange rate risk through the use of cross-currency interest rate swaps under which the Company exchanges fixed interest payments equivalent to the interest payments on the U.S. dollar denominated debt for floating rate Australian dollar denominated interest payments. The changes in fair value of derivatives designated as fair value hedges and the offsetting changes in fair value of the hedged items are recognized in Other, net. For the six months ended December 31, 2022, such adjustments decreased the carrying value of borrowings by nil.

The total notional value of the fair value hedges was approximately $30 million as of December 31, 2022. The maximum hedged term over which the Company is hedging exposure to variability in interest payments is to July 2024.

During the three and six months ended December 31, 2022 and 2021, the amount recognized in the Statements of Operations on derivative instruments designated as fair value hedges related to the ineffective portion was nil and the Company excluded the currency basis from the changes in fair value of the derivative instruments from the assessment of hedge effectiveness.

The following sets forth the effect of fair value hedging relationships on hedged items in the Balance Sheets as of December 31, 2022 and June 30, 2022:


	As of December 31, 2022		As of June 30, 2022
	(in millions)
Borrowings:
Carrying amount of hedged item	$	28	$	68
Cumulative hedging adjustments included in the carrying amount	—		2

Other Fair Value Measurements

As of December 31, 2022, the carrying value of the Company’s outstanding borrowings approximates the fair value. The 2022 Senior Notes, 2021 Senior Notes and U.S. private placement borrowings are classified as Level 2 and the remaining borrowings are classified as Level 3 in the fair value hierarchy.

- 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.

+ References + Details