Financial Instruments and Fair Value Measurements

3 Months Ended

Sep. 30, 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 September 30, 2024								As of June 30, 2024
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Interest rate derivatives - cash flow hedges	$	—	$	14	$	—	$	14	$	—	$	29	$	—	$	29
Equity and other securities	65		46		124		235		53		39		122		214
Total assets	$	65	$	60	$	124	$	249	$	53	$	68	$	122	$	243
Liabilities:
Interest rate derivatives - cash flow hedges	$	—	$	(5)	$	—	$	(5)	$	—	$	—	$	—	$	—
Foreign currency derivatives - cash flow hedges	—		(2)		—		(2)		—		—		—		—
Cross-currency interest rate derivatives - cash flow hedges	—		(4)		—		(4)		—		(2)		—		(2)
Total liabilities	$	—	$	(11)	$	—	$	(11)	$	—	$	(2)	$	—	$	(2)

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 three months ended September 30,
	2024		2023
	(in millions)
Balance - beginning of period	$	122	$	130
Foreign exchange and other	2		(2)
Balance - end of period	$	124	$	128

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.

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 September 30, 2024		As of June 30, 2024
		(in millions)
Interest rate derivatives - cash flow hedges	Other current assets	$	7	$	15
Interest rate derivatives - cash flow hedges	Other non-current assets	7		14
Interest rate derivatives - cash flow hedges	Other current liabilities	(1)		—
Foreign currency derivatives - cash flow hedges	Other current liabilities	(2)		—
Cross-currency interest rate derivatives - cash flow hedges	Other current liabilities	(1)		—
Interest rate derivatives - cash flow hedges	Other non-current liabilities	(4)		—
Cross-currency interest rate derivatives - cash flow hedges	Other non-current liabilities	(3)		(2)

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 $484 million and A$610 million as of September 30, 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 September 30, 2024, the Company estimates that approximately $7 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 $77 million as of September 30, 2024. The maximum hedged term over which the Company is hedging exposure to foreign currency fluctuations is less than one year. As of September 30, 2024, the Company estimates that approximately $2 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 $44 million as of September 30, 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 September 30, 2024, the Company estimates that approximately $1 million of net derivative losses 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 months ended September 30, 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 months ended September 30, 2024 and 2023, by derivative instrument:

	For the three months ended September 30,
	2024		2023
	(in millions)
Interest rate derivatives - cash flow hedges	$	(16)	$	7
Foreign currency derivatives - cash flow hedges	(2)		2
Cross-currency interest rate derivatives - cash flow hedges	(2)		—
Total	$	(20)	$	9

(Gains) losses reclassified from Accumulated other comprehensive loss into the Statements of Operations for the three months ended September 30, 2024 and 2023, by derivative instrument:

	Income Statement Classification	For the three months ended September 30,
		2024		2023
		(in millions)
Interest rate derivatives - cash flow hedges	Interest expense, net	$	(4)	$	(10)
Cross-currency interest rate derivatives - cash flow hedges	Interest expense, net	(2)		—
Cross-currency interest rate derivatives(a)	Interest expense, net	—		(1)
Total		$	(6)	$	(11)

(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.

Other Fair Value Measurements

As of September 30, 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.