Financial Instruments and Fair Value Measurements

9 Months Ended

Mar. 31, 2024

Fair Value Disclosures [Abstract]

Financial Instruments and Fair Value Measurements

NOTE 7. 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 March 31, 2024								As of June 30, 2023
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Interest rate derivatives - cash flow hedges	$	—	$	29	$	—	$	29	$	—	$	41	$	—	$	41
Foreign currency derivatives - cash flow hedges	—		1		—		1		—		2		—		2
Cross-currency interest rate derivatives - fair value hedges	—		—		—		—		—		9		—		9
Cross-currency interest rate derivatives(a)	—		—		—		—		—		37		—		37
Equity and other securities	93		—		132		225		105		—		130		235
Total assets	$	93	$	30	$	132	$	255	$	105	$	89	$	130	$	324
Liabilities:
Interest rate derivatives - cash flow hedges	$	—	$	(4)	$	—	$	(4)	$	—	$	—	$	—	$	—
Cross-currency interest rate derivatives - fair value hedges	—		—		—		—		—		(1)		—		(1)
Cross-currency interest rate derivatives - cash flow hedges	—		(1)		—		(1)		—		—		—		—
Cross-currency interest rate derivatives(a)	—		—		—		—		—		(2)		—		(2)
Total liabilities	$	—	$	(5)	$	—	$	(5)	$	—	$	(3)	$	—	$	(3)

(a)    These cross-currency interest rate derivatives were initially designated as cash flow hedges. Hedge accounting for these derivatives was discontinued as of December 31, 2020.

Equity and other securities

The fair values of equity and other 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 and other 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 and other securities classified as Level 3 is as follows:

	For the nine months ended March 31,
	2024		2023
	(in millions)
Balance - beginning of period	$	130	$	103
Additions(a)	4		31
Sales	—		(2)
Returns of capital	(4)		(5)
Measurement adjustments	—		1
Foreign exchange and other	2		2
Balance - end of period	$	132	$	130

(a)    The additions for the nine months ended March 31, 2023 primarily relate to Dow Jones’ investment in an artificial intelligence-focused data analytics company.

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, certain programming rights, product development costs and inventory purchases; and

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

During the nine months ended March 31, 2024, in connection with the 2024 Foxtel Credit Facility, the Company entered into (i) a cross-currency interest rate swap derivative with a notional amount of $49 million to exchange the U.S. dollar-denominated floating rate interest component of its 2024 Foxtel Credit Facility — Tranche 2 for an Australian dollar-denominated fixed rate of 4.375% and (ii) interest rate swap derivatives with notional amounts totaling A$610 million to exchange the floating rate interest component of the remaining tranches to fixed rates ranging from 4.248% to 4.338%. These cross-currency interest rate swap and interest rate swap derivatives are accounted for as cash flow hedges under ASC 815, Derivatives and Hedging.

During the nine months ended March 31, 2024, the Company settled its hedges and derivatives related to the 2019 Credit facility and the 2012 U.S. private placement - USD portion - tranche 3. A gain of $5 million was recognized in Other, net related to the settlement of cross-currency interest rate swap derivatives for which hedge accounting was previously discontinued, and a gain of $7 million was recognized within Interest expense, net related to the remaining net derivative gains in Accumulated other comprehensive loss.

The Company formally designates qualifying derivatives as hedge relationships 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 Classification	As of March 31, 2024		As of June 30, 2023
		(in millions)
Interest rate derivatives - cash flow hedges	Other current assets	$	14	$	21
Foreign currency derivatives - cash flow hedges	Other current assets	1		2
Cross currency interest rate derivatives(a)	Other current assets	—		1
Interest rate derivatives - cash flow hedges	Other non-current assets	15		20
Cross-currency interest rate derivatives - fair value hedges	Other non-current assets	—		9
Cross-currency interest rate derivatives(a)	Other non-current assets	—		36
Cross-currency interest rate derivatives - fair value hedges	Other current liabilities	—		(1)
Cross-currency interest rate derivatives(a)	Other current liabilities	—		(2)
Interest rate derivatives - cash flow hedges	Other non-current liabilities	(4)		—
Cross-currency interest rate derivatives - cash flow hedges	Other non-current liabilities	(1)		—

(a)    These cross-currency interest rate derivatives were initially designated as cash flow hedges. Hedge accounting for these derivatives was discontinued as of December 31, 2020.

Cash flow hedges

The Company utilizes a combination of interest rate derivatives, foreign currency derivatives and cross-currency 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, certain programming rights, product development costs and inventory purchases.

The total notional value of interest rate swap derivatives designated for hedging was approximately $488 million and A$610 million as of March 31, 2024 for News Corporation and Foxtel Debt Group borrowings, respectively. The maximum hedged term over which the Company is hedging exposure to variability in interest payments is to July 2027. As of March 31, 2024, the Company estimates that approximately $14 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 twelve months.

The total notional value of foreign currency contract derivatives designated for hedging was $40 million as of March 31, 2024. The maximum hedged term over which the Company is hedging exposure to foreign currency fluctuations is less than one year. As of March 31, 2024, the Company estimates that approximately $1 million 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 twelve months.

The total notional value of cross-currency interest rate swap derivatives designated for hedging was approximately $49 million as of March 31, 2024. The maximum hedged term over which the Company is hedging exposure to variability in interest and principal payments is to July 2027. As of March 31, 2024, the Company estimates that approximately nil 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 twelve 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 nine months ended March 31, 2024 and 2023 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:

Gains (losses) recognized in Accumulated other comprehensive loss for the three and nine months ended March 31, 2024 and 2023, by derivative instrument:

	For the three months ended March 31,				For the nine months ended March 31,
	2024		2023		2024		2023
	(in millions)
Interest rate derivatives - cash flow hedges	$	10	$	(6)	$	3	$	15
Foreign currency derivatives - cash flow hedges	2		—		2		(1)
Cross-currency interest rate derivatives - cash flow hedges	2		—		(1)		—
Total	$	14	$	(6)	$	4	$	14

(Gains) losses reclassified from Accumulated other comprehensive loss into the Statements of Operations for the three and nine months ended March 31, 2024 and 2023, by derivative instrument:

	Income Statement Classification	For the three months ended March 31,				For the nine months ended March 31,
		2024		2023		2024		2023
		(in millions)
Interest rate derivatives - cash flow hedges	Interest expense, net	$	(5)	$	(5)	$	(19)	$	(8)
Foreign currency derivatives - cash flow hedges	Operating expenses	—		1		(2)		1
Cross-currency interest rate derivatives - cash flow hedges	Interest expense, net	(3)		—		—		—
Cross-currency interest rate derivatives(a)	Interest expense, net	—		—		(1)		(1)
Total		$	(8)	$	(4)	$	(22)	$	(8)

(a)    These cross-currency interest rate derivatives were initially designated as cash flow hedges. Hedge accounting for these derivatives was discontinued as of December 31, 2020.

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 gain of approximately $3 million for the nine months ended March 31, 2024 and a gain of approximately $1 million and $3 million for the three and nine months ended March 31, 2023, respectively.

Other Fair Value Measurements

As of March 31, 2024, the carrying value of the Company’s outstanding borrowings approximates the fair value. The 2022 Senior Notes and the 2021 Senior Notes are classified as Level 2 and the remaining borrowings are classified as Level 3 in the fair value hierarchy.