NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
News Corporation
and its subsidiaries (together, “News Corporation,” “News Corp,” the “Company,” “we,” or “us”), formerly known as New Newscorp Inc, is a global diversified media and information services company
comprised of businesses across a range of media, including: news and information services, cable network programming in Australia, digital real estate services, book publishing, digital education and pay-TV distribution in Australia.
The Separation and Distribution
On June 28, 2013 (the “Distribution Date”), the Company completed the separation of its businesses (the “Separation”) from Twenty-First Century Fox, Inc. (“21st Century
Fox”). As of the effective time of the Separation, all of the outstanding shares of the Company were distributed to 21st Century Fox stockholders based on a distribution ratio of one share of Company Class A or Class B Common Stock for
every four shares of 21st Century Fox Class A or Class B Common Stock, respectively, held of record as of June 21, 2013 (the “Record Date”). Following the Separation, the Company’s Class A and Class B Common Stock began
trading independently on The NASDAQ Global Select Market (“NASDAQ”), and CHESS Depository Interests representing the Company’s Class A and Class B Common Stock began trading on the Australian Securities Exchange
(“ASX”). In connection with the Separation, the Company entered into the separation and distribution agreement (the “Separation and Distribution Agreement”) and certain other related agreements which govern the Company’s
relationship with 21st Century Fox following the Separation. (See Note 11 – Related Party Transactions and 21st Century Fox Investment for further information).
Basis of presentation
Prior to the Separation, the Company’s
combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of 21st Century Fox. The Company’s financial statements as of June 30, 2012 and for the fiscal
years ended June 30, 2012 and 2011 are on a combined basis and presented as carve-out financial statements as the Company was not a separate consolidated group prior to the Distribution Date. These statements reflect the combined historical
results of operations, financial position and cash flows of 21st Century Fox’s publishing businesses, its education division and other Australian assets. Subsequent to the Distribution Date, the Company’s financial statements as of and for
the year ended June 30, 2013 are presented on a consolidated basis as the Company became a separate consolidated group.
The Company’s consolidated and combined statements of operations (the “Statements of Operations”) for the fiscal years
ended June 30, 2013, 2012 and 2011 include allocations of general corporate expenses for certain support functions that were provided on a centralized basis by 21st Century Fox and not recorded at the business unit level, such as expenses
related to finance, human resources, information technology, facilities, and legal, among others. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of
combined or consolidated revenues, operating income, headcount or other measures of the Company. Management believes the assumptions underlying the combined and consolidated financial statements (the “Financial Statements”), including the
assumptions regarding allocating general corporate expenses from 21st Century Fox are reasonable. Nevertheless, the Financial Statements may not include all of the actual expenses that would have been incurred by the Company and may not reflect the
Company’s consolidated and combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone
company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
The Company’s consolidated balance sheet as of June 30, 2013 consists of the Company’s consolidated balances, subsequent
to the Separation. The balances reflect the assets and liabilities that were historically
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NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
included in 21st Century Fox’s publishing business, its education division and other Australian assets, as well as assets and liabilities transferred to the Company as part of the internal
reorganization. All assets and liabilities included in the Company’s consolidated balance sheet are recorded on a historical cost basis. The Company’s combined balance sheet as of June 30, 2012 consists of the combined balances of
21st Century Fox’s publishing businesses, its education division and other Australian assets. The consolidated and combined balance sheets will be referred to as the “Balance Sheets” herein.
The Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“GAAP”).
For purposes of the Company’s Financial Statements for periods prior to the Separation, income tax
expense has been recorded as if the Company filed tax returns on a stand-alone basis separate from 21st Century Fox. This separate return methodology applies the accounting guidance for income taxes to the stand-alone financial statements as if the
Company was a stand-alone enterprise for the periods prior to the Distribution Date. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the Company’s actual tax balances prior to or subsequent to the
Separation. Prior to the Separation, the Company’s operating results were included in 21st Century Fox’s consolidated U.S. federal and state income tax returns. Pursuant to rules promulgated by the Internal Revenue Service and various
state taxing authorities, the Company will file its initial U.S. income tax returns for the period June 29, 2013, through June 30, 2013.
The income tax accounts reflected in the Balance Sheets as of June 30, 2013 include income taxes payable and deferred taxes allocated to the Company at the time of the Separation. The calculation of
the Company’s income taxes involves considerable judgment and the use of both estimates and allocations.
NOTE 2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and combination
The Financial Statements include certain assets and liabilities that have historically been held at 21st Century Fox’s corporate
level but are specifically identifiable or otherwise attributable to the Company. All significant intracompany transactions and accounts within the Company’s consolidated and combined businesses have been eliminated. All significant
intercompany transactions between 21st Century Fox and the Company before the Separation have been included within the 21st Century Fox investment in these Financial Statements.
Changes in the Company’s ownership interest in a consolidated subsidiary where a controlling financial interest is retained are
accounted for as capital transactions. When the Company ceases to have a controlling interest in a consolidated subsidiary the Company will recognize a gain or loss in the Statements of Operations upon deconsolidation.
The Company’s fiscal year ends on the Sunday closest to June 30. Fiscal 2013 and fiscal 2012 included 52
weeks, while fiscal 2011 included 53 weeks with the 53
rd
week falling in the fourth fiscal quarter. All references to June 30, 2013, June 30, 2012 and June 30, 2011 relate to the twelve month periods ended June 30, 2013, July 1, 2012 and July 3, 2011,
respectively. For convenience purposes, the Company continues to date its financial statements as of June 30.
Reclassifications
Certain reclassifications have been made to the prior period financial statements to conform to the current year
presentation.
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NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Use of estimates
The preparation of the Company’s Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the Financial
Statements and accompanying disclosures. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. Also
included in the cash and cash equivalents balance is cash held at the Digital Real Estate Services segment of $235 million and $186 million as of June 30, 2013 and 2012, respectively, which is not readily accessible by the Company as it is held
by REA Group Limited (“REA Group”), a majority owned but separately listed public company. REA Group must declare a dividend in order for the Company to have access to its share of REA Group’s cash balance.
Concentration 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.
Receivables, net
Receivables are presented net of an allowance for returns
and doubtful accounts, which is an estimate of amounts that may not be collectible. In determining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and acceptance of the
Company’s products. Based on this information, management reserves a percentage of each dollar of product sales that provide the customer with the right of return. The allowance for doubtful accounts is estimated based on historical experience,
receivable aging, current economic trends and specific identification of certain receivables that are at risk of not being collected.
Receivables, net consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Receivables
|
|
$
|
1,510
|
|
|
$
|
1,555
|
|
|
Allowances for returns and doubtful accounts
|
|
|
(175
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
$
|
1,335
|
|
|
$
|
1,369
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s receivables did not represent significant concentrations of credit risk as of
June 30, 2013 or June 30, 2012 due to the wide variety of customers, markets and geographic areas to which the Company’s products and services are sold.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined by the weighted average cost method. The Company records a reserve for excess and obsolete inventory based upon a calculation using the historical usage rates, sales patterns of its products and specifically identified obsolete inventory.
Inventory is included within Other current assets on the Balance Sheets.
78
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Prepublication costs
The Company capitalizes the art, prepress, outside editorial, digital conversion and other costs incurred in the creation of the master copy of a book or other media (the “prepublication
costs”). Prepublication costs are amortized from the year of publication over their estimated useful lives, using the straight-line method. The Company regularly reviews the recoverability of the capitalized costs based on expected future
revenues. Prepublications costs are included in Other current assets on the Balance Sheets and were $32 million as of both June 30, 2013 and 2012. Amortization of prepublication costs for the fiscal years ended June 30, 2013, 2012 and
2011 was $38 million, $37 million and $36 million, respectively.
Investments
Investments in and advances to equity or joint ventures in which the Company has significant influence, but less than a controlling voting
interest, are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns an interest between 20% and 50% and exercises significant influence.
Under the equity method of accounting the Company includes its investment and amounts due to and from its equity method investments in
its Balance Sheets. The Company’s Statements of Operations include the Company’s share of the investees’ earnings (losses) and the Company’s consolidated and combined statements of cash flows (the “Statements of Cash
Flows”) include all cash received from or paid to the investee.
The difference between the Company’s investment and
its share of the fair value of the underlying net assets of the investee upon acquisition is first allocated to either finite-lived intangibles or indefinite-lived intangibles and the balance is attributed to goodwill. The Company follows Accounting
Standards Codification (“ASC”) 350, “Intangibles—Goodwill and Other” (“ASC 350”), which requires that equity method finite-lived intangibles be amortized over their estimated useful life. Such amortization is
reflected in Equity earnings of affiliates in the Statements of Operations. Indefinite-lived intangibles and goodwill are not amortized.
Investments in which the Company has no significant influence (generally less than a 20% ownership interest) or does not exert significant influence are designated as available-for-sale investments if
readily determinable market values are available. The Company reports available-for-sale investments at fair value based on quoted market prices. Unrealized gains and losses on available-for-sale investments are included in accumulated other
comprehensive income (loss), net of applicable taxes and other adjustments until the investment is sold or considered impaired. If an investment’s fair value is not readily determinable, the Company accounts for its investment at cost.
Dividends and other distributions of earnings from available-for-sale investments and cost investments are included in Interest, net in the Statements of Operations when declared.
Property, plant and equipment
Property, plant and equipment are stated at
cost less accumulated depreciation. Depreciation is provided using the straight-line method over an estimated useful life of 3 to 50 years. Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or
the life of the lease. Costs associated with the repair and maintenance of property are expensed as incurred. Changes in circumstances, such as technological advances or changes to the Company’s business model or capital strategy could result
in the actual useful lives differing from the Company’s estimates. In those cases where the Company determines that the useful life of buildings and equipment should be shortened, the Company would depreciate the asset over its revised
remaining useful life, thereby increasing depreciation expense.
79
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Operating Leases
For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as rent expense on a straight-line basis over the applicable lease terms. The term used for
straight-line rent expense is calculated initially from the date the Company obtains possession of the leased premises through the expected lease termination date.
Capitalized software
In accordance with ASC 350-40 “Internal-use
Software”, the Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. Costs incurred in the preliminary project stage are expensed. All direct costs incurred to develop internal use software
during the development stage are capitalized and amortized using the straight-line method over the remaining useful lives. Costs such as maintenance and training are expensed as incurred.
The Company also capitalizes certain costs in accordance with ASC 985-20 “Costs of Software to Be Sold, Leased, or Marketed.”
Certain costs incurred for the development of computer software are capitalized when technological feasibility has been established. These capitalized costs are subject to an ongoing assessment of recoverability based on anticipated future revenues
and changes in hardware and software technologies. Amortization of capitalized software development costs begins when the product is available for general release to customers and is computed on a product-by-product basis at a rate not less than the
straight-line method over the remaining estimated useful life of the product, generally five years. Research and development costs are expensed as incurred.
Royalty advances to authors
Royalty advances are initially capitalized and
subsequently expensed as related revenues are earned or when the Company determines future recovery is not probable. The Company has a long history of providing authors with royalty advances, and it tracks each advance earned with respect to the
sale of the related publication. Historically, the longer the unearned portion of the advance remains outstanding, the less likely it is that the Company will recover the advance through the sale of the publication. The Company applies this
historical experience to its existing outstanding royalty advances to estimate the likelihood of recovery and a provision is established to write-off the unearned advance usually between 6 and 12 months after publication. Additionally, the Company
reviews its portfolio of unpublished royalty advances to determine if individual royalty advances are not recoverable for discrete reasons, such as the death of an author prior to completion of a title or titles, a Company decision to not publish a
title, poor market demand or other relevant factors that could impact recoverability. Based on this information, the portion of any advance that the Company believes is not recoverable is expensed.
Goodwill and intangible assets
The Company has a significant amount of intangible assets, including goodwill, newspaper mastheads, distribution networks, publishing rights and other copyrighted products and trademarks. Goodwill is
recorded as the difference between the cost of acquiring entities and amounts assigned to their tangible and identifiable intangible net assets. In accordance with ASC 350, the Company’s goodwill and indefinite-lived intangible assets are
tested annually during the fourth quarter for impairment or earlier if events occur or circumstances change that would more likely than not reduce the fair value below their carrying amounts. Intangible assets with finite lives are generally
amortized over their estimated useful lives. The impairment assessment of indefinite-lived intangibles compares the fair value of these intangible assets to their carrying value.
80
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Goodwill is reviewed for impairment at a reporting unit level. Reporting units are
determined based on an evaluation of the Company’s operating segments and the components making up those operating segments. For purposes of goodwill impairment review, the Company has identified Dow Jones, Australian newspapers, U.K.
Newspapers, News America Marketing Group, FOX SPORTS Australia, HarperCollins, REA Group and the Digital Education business, as its reporting units. In assessing goodwill for impairment, the Company has the option to first perform a qualitative
assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not more
likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is not required to perform any additional tests in assessing goodwill for impairment. However, if the Company concludes otherwise or elects not to
perform the qualitative assessment, then it is required to perform the first step of a two-step impairment review process. The first step of the process is to compare the fair value of a reporting unit with its carrying amount, including goodwill.
In performing the first step, the Company determines the fair value of a reporting unit primarily by using a discounted cash flow analysis and market-based valuation approach methodologies. Determining fair value requires the exercise of significant
judgments, including judgments about appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows employed in the analyses are based on the
Company’s estimated outlook and various growth rates have been assumed for years beyond the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective
reporting units. In assessing the reasonableness of its determined fair values, the Company evaluates its results against other value indicators, such as comparable public company trading values. If the fair value of a reporting unit exceeds its
carrying amount, the goodwill of the reporting unit is not impaired and the second step of the impairment review is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment review
is required to be performed to estimate the implied fair value of the reporting unit’s goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the
estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the estimated fair
value of the reporting unit was the purchase price paid. The implied fair value of the reporting unit’s goodwill is compared with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The Company also
performs impairment reviews on its indefinite-lived intangibles assets, including newspaper mastheads, distribution networks and imprints. Newspaper mastheads and book publishing imprints are reviewed on an aggregated basis in accordance with
ASC 350. Distribution networks are reviewed individually.
The methods used to estimate the fair value measurements of
impaired goodwill and indefinite-lived intangible assets included those based on the income approach (including the discounted cash flow and relief-from-royalty methods) and those based on the market approach (primarily the guideline public company
method). The resulting fair value measurements of the assets are considered to be Level 3 measurements. Significant unobservable inputs utilized in the income approach valuation methods are discount rates, long-term growth rates and royalty
rates. Significant unobservable inputs utilized in the market approach valuation methods were EBITDA multiples from guideline public companies operating in similar industries and a control premium.
When a business within a reporting unit is disposed of, goodwill is allocated to the disposed business using the relative fair value
method.
81
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Asset impairments
Investments
Equity method investments are regularly reviewed for
impairment by initially comparing their fair value to their respective carrying amounts each quarter. The Company determines the fair value of its public company investments by reference to their publicly traded stock price. With respect to private
company investments, the Company makes its estimate of fair value by considering other available information, including recent investee equity transactions, discounted cash flow analyses, estimates based on comparable public company operating
multiples and, in certain situations, balance sheet liquidation values. If the fair value of the investment has dropped below the carrying amount, management considers several factors when determining whether an other-than-temporary decline in
market value has occurred, including the length of time and extent to which the market value has been below cost, the financial condition and near-term prospects of the issuer, the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in market value and other factors influencing the fair market value, such as general market conditions.
The Company regularly reviews available-for-sale investment securities for other-than-temporary impairment based on criteria that include
the extent to which the investment’s carrying value exceeds its related market value, the duration of the market decline, the Company’s ability to hold until recovery and the financial strength and specific prospects of the issuer of the
security.
The Company regularly reviews investments accounted for at cost for other-than-temporary impairment based on
criteria that include the extent to which the investment’s carrying value exceeds its related estimated fair value, the duration of the estimated fair value decline, the Company’s ability to hold until recovery and the financial strength
and specific prospects of the issuer of the security.
Long-lived assets
ASC 360, “Property, Plant, and Equipment,” (“ASC 360”) and ASC 350 require that the Company periodically reviews the
carrying amounts of its long-lived assets, including property, plant and equipment and finite-lived intangible assets, to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. If the carrying
amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment adjustment is recognized if the carrying value of such asset exceeds its fair value. The Company generally measures fair value by
considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate. Considerable management judgment is necessary to estimate the fair value of assets, accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less their costs to sell.
Revenue recognition
Revenue is recognized when persuasive evidence of an
arrangement exists, the fees are fixed or determinable, the product or service has been delivered and collectability is reasonably assured. The Company considers the terms of each arrangement to determine the appropriate accounting treatment.
News and Information Services
Advertising revenues are recognized in the period when advertising is printed or placed on digital platforms, net of commissions and provisions for estimated sales incentives including rebates, rate
adjustments and discounts. Advertising revenues from integrated marketing services are recognized when free standing inserts are
82
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
published or over the time period in which in-store marketing services are performed. Billings to clients and payments received in advance of the performance of services or delivery of products,
are recorded as deferred revenue until the services are performed or the product is delivered.
Circulation and information
services revenues include single-copy and subscription revenues. Circulation revenues are based on the number of copies of the printed newspaper (through home-delivery subscriptions and single-copy sales) and digital subscriptions sold and the rates
charged to the respective customers. Single-copy revenue is recognized based on date of publication, net of provisions for related returns. Proceeds from print, digital and electronic information services subscription revenues are deferred at the
time of sale and are recognized in earnings on a pro rata basis over the terms of the subscriptions.
Other revenues are
recognized when the related services are performed or the product has been delivered.
Book Publishing
Revenue from the sale of books for distribution in the retail channel is primarily recognized upon passing of control to the buyer.
Revenue for electronic books (“e-books”), which is the net amount received from the retailer, is generally recognized upon electronic delivery to the customer by the retailer. Revenue is also reported net of any amounts billed to customers
for taxes which are remitted to government authorities.
Digital Real Estate Services
Advertising revenues from providing real estate online advertising services are recognized on the fulfillment of customer service
obligations which may include product performance and or product service periods.
Cable Network Programming
Affiliate fees received from cable television systems, direct broadcast satellite operators and other distribution systems are recognized
as revenue in the period that services are provided.
Multiple element arrangements
Revenues derived from a single sales contract that contains multiple products and services are allocated based on the relative selling
price of each delivered item and recognized in accordance with the applicable revenue recognition criteria for the specific unit of accounting.
Gross versus net revenue recognition
In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. In connection with these arrangements, the Company must determine
whether to report revenue based on the gross amount billed to the ultimate customer or on the net amount received from the customer after commissions and other payments to third parties.
The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is
acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a transaction, the Company reports revenue on a
net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of an arrangement. The Company serves as the principal in transactions in which it
has substantial risks and rewards of ownership.
83
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Barter transactions
The Company enters into transactions that involve the exchange of advertising, in part, for other products and services, which are recorded at the lesser of estimated fair value of the advertising given
or product or service received in accordance with the provisions of ASC 605-20-25, “Advertising Barter Transactions.” Revenue from barter transactions is recognized when advertising is provided, and expenses are recognized when services
are received. Revenue from barter transactions included in the Statements of Operations was $48 million in fiscal 2013, $36 million in fiscal 2012 and $33 million in fiscal 2011. Expense from barter transactions included in the Statements of
Operations was $48 million in fiscal 2013 and $36 million in each of fiscal 2012 and fiscal 2011.
Sales returns
Consistent with industry practice, certain of the Company’s products, such as books and newspapers, are sold with the right of
return. The Company records, as a reduction of revenue, the estimated impact of such returns. In determining the estimate of product sales that will be returned, management analyzes historical returns, current economic trends and changes in customer
demand and acceptance of the Company’s products. Based on this information, management reserves a percentage of each dollar of product sales that provide the customer with the right of return.
Advertising expenses
The Company expenses advertising costs as incurred in accordance with ASC 720-35, “Other Expenses—Advertising Cost.”
Advertising and promotional expenses recognized totaled $442 million, $466 million and $469 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
Shipping and handling
Costs incurred for shipping and handling are
reflected in Operating expenses in the Statements of Operations.
Translation of foreign currencies
The financial results and position of foreign subsidiaries and affiliates are translated into U.S. dollars using the current rate method,
whereby trading results are converted at the average rate of exchange for the period and assets and liabilities are converted at the closing rates on the period end date. The resulting translation adjustments are accumulated as a component of
accumulated other comprehensive income. Gains and losses from foreign currency transactions are included in income for the period.
Income
taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”).
ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are established where management determines that it is more likely than not that some portion or all of a deferred
tax asset will not be realized. Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries to the extent amounts are expected to be reinvested indefinitely.
84
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Earnings (loss) per share
Basic earnings (loss) per share for the Class A Common Stock and Class B Common Stock is calculated by dividing Net income (loss)
attributable to News Corporation stockholders by the weighted average number of shares of Class A Common Stock and Class B Common Stock outstanding. Diluted earnings (loss) per share for Class A Common Stock and Class B Common Stock is
calculated similarly, except that the calculation includes the dilutive effect of the assumed issuance of shares issuable under the Company’s equity-based compensation plans.
On the Distribution Date, approximately 579 million shares of News Corporation common stock were distributed to 21st Century Fox
shareholders as of the Record Date and were outstanding as of June 30, 2013. This share amount is being utilized for the calculation of both basic and diluted earnings per share for all years presented prior to the Distribution Date as no News
Corporation common stock or equity-based awards were outstanding prior to June 28, 2013. The dilutive effect of the Company’s equity-based awards issued in connection with the Separation of approximately 0.6 million shares is
included in the computation of diluted earnings per share in the period subsequent to the Separation.
Equity-based compensation
The Company’s employees have historically participated in 21st Century Fox’s equity-based compensation plans.
Equity-based compensation expense related to those plans has been allocated to and recorded by the Company based on the awards and terms previously granted to the Company’s employees. Effective as of the Distribution Date, outstanding RSU and
PSU awards that vest on or after January 1, 2014 and stock options that expire on or after January 1, 2014 that were held by the Company’s employees were converted to awards with respect to Company stock. Outstanding RSU and PSU awards that
vest and stock options that expire on or before December 31, 2013 that were held by the Company’s employees continued as awards with respect to 21st Century Fox stock.
Equity-based awards are accounted for in accordance with ASC 718, “Compensation—Stock Compensation” (“ASC 718”). ASC 718 requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements. ASC 718 establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement
method in accounting for generally all share-based payment transactions with employees. (See Note 10—Equity-Based Compensation).
Retirement benefit obligations
The Company provides defined benefit pension, postretirement health care, defined contribution and medical benefits to the Company’s eligible employees and retirees. Certain of the Company’s
employees participate in defined benefit pension plans sponsored by 21st Century Fox. Prior to the Separation, the Statements of Operations included expenses related to these shared plans including direct expenses related to the Company’s
employees as well as allocations of expenses related to corporate employees through the corporate expense allocations.
The
Company accounts for its defined benefit pension, postretirement health care and defined contribution plans in accordance with ASC 715, “Compensation-Retirement Benefits” (“ASC 715”). The expense recognized by the Company is
determined using certain assumptions, including the expected long-term rate of return, discount rate and rate of compensation increases, among others. The Company recognizes the funded status of its defined benefit plans (other than multiemployer
plans) as an asset or liability in the Balance Sheets and recognizes changes in the funded status in the year in which the changes occur through Accumulated other comprehensive income (loss) in the Balance Sheets. (See Note
13—Retirement Benefit Obligations).
85
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Fair value measurements
The Company has various financial instruments that are measured at fair value on a recurring basis, including certain marketable securities and derivatives. The Company also applies the provisions of fair
value measurement to various non-recurring measurements for the Company’s non-financial assets and liabilities. In accordance with ASC 820 “Fair Value Measurements,” the Company measures assets and liabilities using inputs from the
following three levels of the fair value hierarchy: (i) inputs that are quoted prices in active markets for identical assets or liabilities (“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) unobservable inputs that require the entity to use its own best estimates about market participant assumptions (“Level 3”).
The Company’s assets measured at fair value on a nonrecurring basis include investments, long-lived assets,
indefinite-lived intangible assets and goodwill. The Company reviews the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually as of June 30
for indefinite-lived intangible assets and goodwill. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to be Level 3 measurements.
Financial instruments and derivatives
The carrying value of the Company’s financial instruments, including cash and cash equivalents and cost investments, approximate fair value. The fair value of financial instruments is generally
determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market which are considered to be Level 2 measurements. 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 June 30, 2013, the Company did not anticipate
nonperformance by any of the counterparties.
ASC 815, “Derivatives and Hedging” (“ASC 815”), requires
every derivative instrument (including certain derivative instruments embedded in other contracts) to be recorded on the balance sheet at fair value as either an asset or a liability. ASC 815 also requires that changes in the fair value of recorded
derivatives be recognized currently in earnings unless specific hedge accounting criteria are met. The Company uses financial instruments to hedge its limited exposures to foreign currency exchange risks primarily associated with payments made to
manufacturers and author royalty payments. These derivative contracts are economic hedges and are not designated as cash flow hedges. The Company records the changes in the fair value of these items in current earnings. The notional amount of
foreign exchange forward contracts with foreign currency risk outstanding as of June 30, 2013 and June 30, 2012 was not material. Foreign exchange forward contracts recorded in the underlying hedged balances as of June 30, 2013 and
June 30, 2012 were not material.
Recent accounting guidance
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”), which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting
unit’s fair value is less than its carrying value before applying the two-step goodwill impairment model that is currently in place. If it is determined through the qualitative assessment that a reporting unit’s fair value is more likely
than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. ASU 2011-08 was effective for the Company for
annual and interim goodwill impairment tests performed beginning July 1, 2012. The adoption of ASU 2011-08 did not have a significant impact on the Company’s Financial Statements.
86
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
In July 2012, the FASB issued ASU 2012-02, “Intangibles—Goodwill and Other
(Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”), which permits an entity to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit’s
indefinite-lived intangible asset is less than the asset’s carrying value before applying a quantitative impairment assessment. If it is determined through the qualitative assessment that the fair value of a reporting unit’s
indefinite-lived intangible asset is more likely than not greater than the asset’s carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the
quantitative assessment. ASU 2012-02 is effective for the Company for annual and interim indefinite-lived intangible asset impairment tests performed beginning July 1, 2013. The Company does not expect the adoption of ASU 2012-02 will have a
significant impact on its Financial Statements.
In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income
(Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which requires the Company to provide information about the amounts reclassified out of accumulated other comprehensive
income by component. In addition, it requires the Company to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective
line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their
entirety to net income, the Company is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for the Company for interim reporting periods beginning
July 1, 2013. The Company does not expect the adoption of ASU 2012-02 will have a significant impact on its Financial Statements as it relates to disclosures only.
In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at
the Reporting Date” (“ASU 2013-04”). The objective of ASU 2013-04 is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total
amount of the obligation (within the scope of this guidance) is fixed at the reporting date. Examples of obligations within the scope of ASU 2013-04 include debt arrangements, other contractual obligations, and settled litigation and judicial
rulings. ASU 2013-04 is effective for the Company for interim reporting periods beginning July 1, 2014, however, early adoption is permitted. The Company is currently evaluating the impact ASU 2013-04 will have on its Financial Statements, but
does not expect the adoption will have a significant impact on the Company’s Financial Statements.
In March 2013, the
FASB issued ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity,” (“ASU
2013-05”). The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no
longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. ASU 2013-05 is effective for the Company for interim reporting periods beginning July 1, 2014, however, early adoption is permitted. The
Company is currently evaluating the impact ASU 2013-05 will have on its Financial Statements, but does not expect the adoption will have a significant impact on the Company’s Financial Statements.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a
Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”). ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward exists at the reporting date.
87
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
This new guidance is effective for annual reporting periods beginning on or after December 15, 2013 and subsequent interim periods. Based on its review, the Company has determined that ASU
2013-11 does not have a significant impact on its Financial Statements.
NOTE 3. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
Fiscal 2013
In July 2012, the Company acquired Australian Independent Business Media Pty Limited (“AIBM”) for approximately $30 million in cash. AIBM publishes a subscription-based online newsletter for
investors and a business news and commentary website.
In July 2012, the Company acquired Thomas Nelson, Inc. (“Thomas
Nelson”), one of the leading Christian book publishers in the U.S., for approximately $200 million in cash. The acquisition of Thomas Nelson increased the Company’s presence and reach in the Christian publishing market. In accordance with
ASC 350, the excess purchase price of approximately $160 million has been allocated as follows: $65 million to publishing rights with a useful life of 20 years, $25 million to imprints which have an indefinite life and approximately $70 million
representing the goodwill on the transaction.
In November 2012, the Company acquired Consolidated Media Holdings Ltd.
(“CMH”), a media investment company that operates in Australia, for approximately $2 billion in cash and assumed debt of approximately $235 million. This acquisition supports the Company’s strategic priority of acquiring greater
control of investments that complement its portfolio of businesses. CMH owned a 25% interest in Foxtel through its 50% interest in FOX SPORTS Australia. FOX SPORTS Australia is the leading sports programming provider in Australia with seven standard
definition television channels, high definition versions of five of these channels, an interactive viewing application and one IPTV channel. FOX SPORTS Australia holds the programming rights to broadcast live Australian sporting events within
Australia including: National Rugby League, the domestic football league, English Premier League, international cricket as well as the NFL. Foxtel is the largest pay-TV provider in Australia, serving approximately 2.4 million subscribing
households in Australia, or over 30% of the country’s population. Foxtel’s 200-plus channel selection (which includes standard definition channels, high definition versions of some of those channels, and audio and interactive channels)
provides premium and exclusive content and a wide array of digital and mobile features. The remaining 50% of Foxtel is owned by Telstra Corporation Limited, one of Australia’s leading telecommunications companies. The acquisition doubled the
Company’s stakes in FOX SPORTS Australia and Foxtel to 100% and 50%, respectively. Accordingly, the results of FOX SPORTS Australia have been included within a new Cable Network Programming segment in the Company’s consolidated results of
operations since November 2012. Prior to November 2012, the Company accounted for its investment in FOX SPORTS Australia under the equity method of accounting. The Company’s investment in Foxtel continues to be accounted for under the equity
method of accounting.
The CMH acquisition was accounted for in accordance with ASC 805 “Business Combinations”
which requires an acquirer to remeasure its previously held equity interest in an acquiree at its acquisition date fair value and recognize the resulting gain or loss in earnings. The carrying amount of the Company’s previously held equity
interest in FOX SPORTS Australia, through which the Company held its indirect 25% interest in Foxtel, was revalued to fair value as of the acquisition date, resulting in a non-taxable gain of approximately $1.3 billion which was included in Other,
net in the Statements of Operations for the fiscal year ended June 30, 2013. The fair value of the Company’s previously held equity interest of $1.6 billion was determined using an income approach (discounted cash flow analysis) adjusted
to remove an assumed control premium. Significant unobservable inputs utilized in the income approach valuation method were discount rates ranging from 9.5% to 10.5%, based on the weighted average
88
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
cost of capital for FOX SPORTS Australia and Foxtel using the capital asset pricing model, and long-term growth rates of approximately 2.5%, reflecting the Company’s assessment of the
long-term inflation rate for Australia.
In accordance with ASC 350 the excess purchase price, including the revalued
previously held investment, of approximately $3.2 billion has been allocated as follows: $1.9 billion to equity method investments, approximately $684 million to amortizable intangible assets, primarily customer relationships, with useful lives
ranging from 15 to 25 years and approximately $657 million representing the goodwill on the transaction.
The following pro
forma supplemental information gives effect to the Company’s acquisition of CMH, as if the acquisition had occurred on July 1, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Revenues
|
|
$
|
9,088
|
|
|
$
|
9,140
|
|
|
Net loss
|
|
|
(798
|
)
|
|
|
(776
|
)
|
The supplemental pro forma data above includes transaction expenses related to the acquisition of CMH of
$21 million and a $1.3 billion non-taxable gain relating to the revaluation of existing holdings in FOX SPORTS Australia for the fiscal year ended June 30, 2012 to give effect to the acquisition as if it occurred on July 1, 2011.
The pro forma data is provided for informational purposes only. The pro forma information is not necessarily indicative of
the results that would have been obtained had the acquisition been completed at the date indicated. In addition, the pro forma data does not purport to project the future financial position or operating results of the Company and CMH.
Under the purchase method of accounting, the total purchase price is allocated to net tangible and intangible assets based upon
CMH’s estimated fair value as of the date of completion of the acquisition. Based upon the purchase price and the valuation performed, the purchase price allocation is as follows (in millions):
|
|
|
|
|
|
|
Assets acquired:
|
|
|
|
|
|
Current assets
|
|
$
|
220
|
|
|
Property, plant and equipment
|
|
|
35
|
|
|
Investments (Foxtel)
|
|
|
2,227
|
|
|
Deferred tax assets
|
|
|
136
|
|
|
Other assets
|
|
|
413
|
|
|
Intangibles
|
|
|
684
|
|
|
Goodwill
|
|
|
657
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
4,372
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
Current liabilities
|
|
$
|
100
|
|
|
Deferred income taxes
|
|
|
402
|
|
|
Borrowings
|
|
|
234
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
736
|
|
|
Less investments held before acquisition
|
|
|
374
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
3,262
|
|
|
|
|
|
|
|
89
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
For the fiscal year ended June 30, 2013, the acquisitions of Thomas Nelson and FOX
SPORTS Australia contributed $496 million in revenues and $90 million of Segment EBITDA to the Company’s consolidated results of operations.
Fiscal 2012
Acquisitions
In July 2011, the Company acquired Kidspot.com.au Limited, a pregnancy and parenting website, for approximately $50 million in cash.
Dispositions
In May 2012, the Company sold its former U.K. newspaper division headquarters located in East London, which it relocated from in August
2010, for consideration of approximately £150 million (approximately $235 million). £25 million (approximately $39 million) was received upon the closing of the sale and an additional £25 million (approximately $39
million) was received in May 2013. The remaining £100 million (approximately $156 million) is in the form of a secured note and the Company will receive £25 million (approximately $39 million) on May 31, 2014, and annually
thereafter until May 31, 2017. The Company recorded a loss of approximately $22 million, net of tax, on this transaction in the Statements of Operations for the fiscal year ended June 30, 2012.
Other
In July 2011,
21st Century Fox announced that it would close its publication,
The News of the World
, after allegations of voicemail interception and payments to public officials. As a result of 21st Century Fox’s approval of the shutdown
of
The News of the World
, 21st Century Fox reorganized portions of the U.K. newspaper business and recorded restructuring charges in fiscal 2013 and 2012 primarily for termination benefits and certain organizational restructuring at the
U.K. newspapers. (See Note 4—Restructuring Programs). 21st Century Fox and the Company are subject to several ongoing investigations by U.K. and U.S. regulators and governmental authorities relating to voicemail interception, illegal data
access, inappropriate payments to public officials and obstruction of justice at
The News of the World
and
The Sun
and related matters (the “U.K. Newspaper Matters”). The Company, together with 21st Century Fox, is
cooperating with these investigations. In addition, the Company has admitted liability in many civil cases related to the voicemail interception allegations and has settled many cases. The Company has established a Management & Standards
Committee (the “MSC”) to continue and complete the responsibilities of the Management & Standards Committee that had been created by 21st Century Fox (the “Fox MSC”). The MSC is authorized to, among other things, respond
to civil claims and lawsuits, ensure cooperation with all relevant investigations and inquiries into the U.K. Newspaper Matters, while ensuring that the rights of all parties are protected, and address all other related issues. The MSC has one
independent member, Lord Grabiner QC, who served as independent Chairman of the Fox MSC. Gerson Zweifach, the Company’s General Counsel, serves as Lead Member of the MSC with respect to civil and parliamentary matters, and David Pitofsky, the
Company’s Deputy General Counsel, serves as Lead Member with respect to criminal and regulatory matters. Messrs. Zweifach and Pitofsky report to the independent members of the Board of Directors through their representative Peter Barnes,
the Company’s Lead Director and Chairman of the Company’s Audit Committee.
Fiscal 2011
In fiscal 2011, the Company acquired Wireless Generation Inc. (“Wireless Generation”) (now Amplify Insight), a digital education
company, for cash. Total consideration was approximately $390 million, which included the equity purchase and the repayment of Wireless Generation’s outstanding debt.
90
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 4. RESTRUCTURING PROGRAMS
Fiscal 2013
In fiscal 2013, the Company recorded restructuring
charges of $293 million, of which $276 million related to the newspaper businesses. The restructuring charges primarily related to the reorganization of the Australian newspaper businesses which was announced at the end of fiscal 2012 and the
continued reorganization of the U.K. newspaper businesses. The restructuring charges recorded are primarily for termination benefits in Australia and contract termination payments in the U.K.
Fiscal 2012
In fiscal 2012, the Company recorded restructuring
charges of $156 million, of which $151 million related to the newspaper businesses. The Company commenced the reorganization of portions of the newspaper businesses and recorded restructuring charges primarily for termination benefits as a
result of the shutdown of
The News of the World
,
certain organizational restructurings at other newspapers and the shutdown of a regional newspaper.
Fiscal 2011
In fiscal 2011, the Company recorded restructuring
charges of approximately $25 million related to termination benefits recorded at the newspaper businesses.
Changes in the
program liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One time
employee
termination
benefits
|
|
|
Facility
related costs
|
|
|
Other costs
|
|
|
Total
|
|
|
|
|
(in millions)
|
|
|
Balance, June 30, 2010
|
|
$
|
20
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
Additions
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
|
Payments
|
|
|
(23
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(25
|
)
|
|
Other
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011
|
|
$
|
23
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
Additions
|
|
|
126
|
|
|
|
2
|
|
|
|
28
|
|
|
|
156
|
|
|
Payments
|
|
|
(98
|
)
|
|
|
(4
|
)
|
|
|
(15
|
)
|
|
|
(117
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
$
|
51
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
Additions
|
|
|
208
|
|
|
|
4
|
|
|
|
81
|
|
|
|
293
|
|
|
Payments
|
|
|
(207
|
)
|
|
|
(5
|
)
|
|
|
(69
|
)
|
|
|
(281
|
)
|
|
Other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
$
|
51
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to record an additional $33 million of restructuring charges, principally related to
additional employee termination benefits at the newspaper businesses, in fiscal 2014. As of June 30, 2013, restructuring liabilities of approximately $52 million were included in the Balance Sheets in Other current liabilities and the remaining
balance was included in Other non-current liabilities.
91
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Dow Jones
As a result of the Dow Jones acquisition, in fiscal 2008, the Company established and approved plans to integrate the acquired operations into the Company’s News and Information Services segment. The
cost to implement these plans consisted of separation payments for certain Dow Jones executives under the change in control plan Dow Jones had established prior to the acquisition, non-cancelable lease commitments and lease termination charges for
leased facilities and other contract termination costs associated with the restructuring activities. As of June 30, 2013, all of the material aspects of the plans have been completed and the remaining obligation primarily pertains to the lease
termination charges for leased facilities of approximately $27 million.
NOTE 5. INVESTMENTS
The Company’s investments were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
Percentage
as of
June 30, 2013
|
|
|
As of June 30,
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Equity method investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foxtel
(a) (b)
|
|
Australia pay television
|
|
|
50%
|
|
|
$
|
1,875
|
|
|
$
|
198
|
|
|
SKY Network Television Ltd.
(b) (c)
|
|
New Zealand media company
|
|
|
— %
|
|
|
|
—
|
|
|
|
390
|
|
|
FOX SPORTS Australia
(d)
|
|
Sports cable network programming
|
|
|
100%
|
|
|
|
—
|
|
|
|
171
|
|
|
Other equity method investments
|
|
|
|
|
various
|
|
|
|
35
|
|
|
|
35
|
|
|
Loan receivable from Foxtel
(a)
|
|
|
|
|
N/A
|
|
|
|
412
|
|
|
|
227
|
|
|
Other investments
(e)
|
|
|
|
|
various
|
|
|
|
177
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
|
|
|
|
|
|
$
|
2,499
|
|
|
$
|
1,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In May 2012, Foxtel, a cable and satellite television service in Australia, in which the Company at the time indirectly owned a 25% interest, purchased
Austar United Communications Pty Limited to create a national subscription television service in Australia. The transaction was funded by Foxtel bank debt and Foxtel’s shareholders made pro-rata capital contributions in the form of subordinated
shareholder notes based on their respective ownership interests. The Company’s share of the funding contribution was approximately $230 million (A$222 million). The subordinated shareholder note can be repaid beginning in July 2022 provided
that Foxtel’s senior debt has been repaid. The subordinated shareholder note has a maturity date of July 15, 2027, with interest of 12% payable on June 30 each year and at maturity. Upon maturity, the principal advanced will be
repayable. In November 2012, the Company increased its investment in Foxtel to 50% from 25% through the acquisition of CMH which also held the same subordinated shareholder note. Accordingly, the carrying value of the shareholder note receivable
from Foxtel doubled to approximately $460 million (A$444 million) at the time of acquisition. (See Note 3— Acquisitions, Disposals and Other Transactions).
|
|
(b)
|
For the fiscal
years ended June 30, 2013 and 2012, the Company received dividends from SKY Network Television Ltd. of $60 million and $64 million, respectively. For the fiscal years ended June 30, 2013 and 2012, the Company received dividends from Foxtel
of $159 million and nil (as this was received through FOX SPORTS Australia in fiscal 2012), respectively.
|
|
(c)
|
In March 2013, the
Company sold its 44% equity interest in SKY Network Television Ltd. for approximately $675 million and recorded a gain of approximately $321 million which was included in Other, net in the Statements of Operations for the fiscal year ended June 30,
2013.
|
|
(d)
|
In November 2012,
the Company acquired the remaining 50% interest in FOX SPORTS Australia through the CMH transaction. (See Note 3—Acquisitions, Disposals and Other Transactions).
|
92
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
(e)
|
In April 2013, the Company sold its 10% investment in its venture with CME Group, Inc (“CME”). The Company recorded a gain of $12 million on
this transaction which was recorded in Other, net for the fiscal year ended June 30, 2013. In addition, as a result of the transaction, the Company was released from its agreement to indemnify CME with respect to any payment of principal, premium
and interest made by CME under its guarantee of the third-party debt issued by the joint venture.
|
Also
included in Other Investments at June 30, 2013 are the Company’s investments in certain China venture funds and an approximate 19% stake in The Rubicon Project Inc., which were transferred to the Company from 21st Century Fox as part of
the Separation and Distribution Agreement, as well as the Company’s existing approximate 12% investment in SEEK Asia.
Equity Earnings
of Affiliates
The Company’s share of the earnings of its equity affiliates was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended
June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Foxtel
(a)
|
|
$
|
66
|
|
|
$
|
31
|
|
|
$
|
32
|
|
|
Pay television and cable network programming equity affiliates
(b)
|
|
|
51
|
|
|
|
83
|
|
|
|
82
|
|
|
Other equity affiliates
|
|
|
(17
|
)
|
|
|
(24
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity earnings of affiliates
|
|
$
|
100
|
|
|
$
|
90
|
|
|
$
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company owned 25% of Foxtel through November 2012. The Company increased its ownership in Foxtel to 50% in November 2012. The Company’s
investment in Foxtel exceeded its equity in the underlying net assets by approximately $2.1 billion as of June 30, 2013. This amount represented the excess cost over the Company’s proportionate share of its investment’s underlying net
assets. This has been allocated between finite-lived intangible assets, indefinite-lived intangible assets and goodwill. The finite-lived intangible assets primarily represent subscriber relationships of approximately $0.9 billion with a
weighted average useful life of 10 years. In accordance with ASC 350, the Company amortized $43 million in fiscal 2013 related to amounts allocated to finite-lived intangible assets for Foxtel. Such amortization is reflected in Equity earnings of
affiliates in the Statements of Operations.
|
|
(b)
|
The Company’s investment in SKY Network Television Ltd. exceeded its equity in the underlying net assets by approximately $203 million as of
June 30, 2012. This amount represented the excess cost over the Company’s proportionate share of its investment’s underlying net assets. This has been allocated between finite-lived intangible assets, indefinite-lived intangible
assets and goodwill. The finite-lived intangible assets represent tradenames and subscriber relationships with a weighted average useful life of 17 years. In accordance with ASC 350, the Company amortized $1 million and $2 million in fiscal 2013 and
2012, respectively, related to amounts allocated to finite-lived intangible assets for SKY Network Television Ltd. Such amortization is reflected in Equity earnings of affiliates in the Statements of Operations. The Company sold its investment in
SKY Network Television Ltd. in March 2013.
|
Impairments of investments
The Company regularly reviews its investments for impairments based on criteria that include the extent to which the investment’s
carrying value exceeds its related market value, the duration of the market decline, the Company’s ability to hold its investment until recovery and the investment’s financial strength and specific prospects. The Company recorded
impairment charges of $15 million and $14 million related to the Company’s
93
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
investment in an Australian newspaper business included in other equity method investments during the fiscal years ended June 30, 2013 and 2012, respectively, which were reflected in Equity
earnings of affiliates in the Statements of Operations. The Company recorded write-offs of certain investments in the fiscal year ended June 30, 2012 of $30 million. These write-offs were reflected in Other, net in the Statements of Operations.
These impairments and write-offs were taken as a result of either the deteriorating financial position of the investee or due to other-than-temporary impairment resulting from sustained losses and limited prospects for recovery.
Summarized Financial Information
Summarized financial information for the significant equity affiliates, including Foxtel, FOX SPORTS Australia for periods through November 2012 and SKY Network Television Ltd. for periods through March
2013, accounted for under the equity method was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Revenues
|
|
$
|
3,872
|
|
|
$
|
3,610
|
|
|
$
|
3,226
|
|
|
Operating income
|
|
|
451
|
|
|
|
470
|
|
|
|
468
|
|
|
Net income
|
|
|
357
|
|
|
|
352
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Current assets
|
|
|
|
|
|
$
|
466
|
|
|
$
|
789
|
|
|
Non-current assets
|
|
|
|
|
|
|
2,752
|
|
|
|
5,064
|
|
|
Current liabilities
|
|
|
|
|
|
|
1,005
|
|
|
|
958
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
2,583
|
|
|
|
4,153
|
|
Summarized financial information for FOX SPORTS Australia was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Revenues
|
|
$
|
523
|
|
|
$
|
484
|
|
|
$
|
444
|
|
|
Operating income
(a)
|
|
|
115
|
|
|
|
137
|
|
|
|
135
|
|
|
Net income
|
|
|
99
|
|
|
|
79
|
|
|
|
82
|
|
|
(a)
|
Includes Depreciation and amortization of $12 million, $9 million and $9 million for the fiscal years ended June 30, 2013, 2012 and 2011,
respectively. Operating income before depreciation and amortization was $127 million, $146 million and $144 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
|
94
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
Lives
|
|
|
As of June 30,
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Land
|
|
|
|
|
|
$
|
185
|
|
|
$
|
190
|
|
|
Buildings and leaseholds
|
|
|
3 to 50 years
|
|
|
|
1,923
|
|
|
|
2,029
|
|
|
Machinery and equipment
(a)
|
|
|
3 to 30 years
|
|
|
|
3,019
|
|
|
|
3,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,127
|
|
|
|
5,405
|
|
|
Less: accumulated depreciation and amortization
(b)
|
|
|
|
|
|
|
(2,284
|
)
|
|
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,843
|
|
|
|
3,095
|
|
|
Construction in progress
|
|
|
|
|
|
|
149
|
|
|
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property, plant and equipment, net
(c)
|
|
|
|
|
|
$
|
2,992
|
|
|
$
|
3,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes capitalized software of approximately $568 million and $521 million as of June 30, 2013 and 2012, respectively.
|
|
(b)
|
Includes accumulated amortization of capitalized software of approximately $244 million and $176 million as of June 30, 2013 and 2012,
respectively.
|
|
(c)
|
As a result of the Company’s impairment review, the Company recorded a $46 million write-down of News and Information Services fixed assets in
Australia during the fiscal year ended June 30, 2013 in accordance with ASC 360. (See Note 7—Goodwill and Other Intangible Assets for further discussion of the write-down).
|
Depreciation and amortization related to property, plant and equipment was $454 million, $406 million and $356 million for the fiscal
years ended June 30, 2013, 2012 and 2011, respectively. This includes amortization of capitalized software of $122 million, $122 million and $84 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
Total operating lease expense was approximately $146 million, $147 million and $155 million for the fiscal years ended June 30,
2013, 2012 and 2011, respectively.
95
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying values of News Corporation’s intangible assets and related accumulated amortization for the fiscal years ended
June 30, 2013 and 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Intangible Assets Not Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
Newspaper Mastheads
|
|
$
|
317
|
|
|
$
|
1,170
|
|
|
Distribution Networks
|
|
|
397
|
|
|
|
398
|
|
|
Imprints
|
|
|
194
|
|
|
|
163
|
|
|
Other
|
|
|
16
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets Not Subject to Amortization
|
|
$
|
924
|
|
|
$
|
1,746
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
Channel Distribution Agreements
(a)
|
|
|
476
|
|
|
|
—
|
|
|
Publishing Rights
(b)
|
|
|
338
|
|
|
|
289
|
|
|
Customer Relationships
(c)
|
|
|
387
|
|
|
|
342
|
|
|
Other
(d)
|
|
|
61
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets Subject to Amortization, Net
|
|
$
|
1,262
|
|
|
$
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets, Net
|
|
$
|
2,186
|
|
|
$
|
2,461
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Net of accumulated amortization of $12 million and nil as of June 30, 2013 and 2012, respectively. The average useful life of the channel
distribution agreements is 25 years primarily based on the period that a majority of the future cash flows from these intangibles will be generated.
|
|
(b)
|
Net of accumulated amortization of $78 million and $62 million as of June 30, 2013 and 2012, respectively. The average useful life of publishing
rights is 20 to 30 years primarily based on the weighted-average remaining contractual terms of the underlying publishing contracts and the Company’s estimates of the period within those terms that the asset is expected to generate a majority
of its future cash flows.
|
|
(c)
|
Net of accumulated amortization of $282 million and $246 million as of June 30, 2013 and 2012, respectively. The average useful life of customer
relationships ranges from 3 to 25 years. The useful lives of these assets are estimated by applying historical attrition rates and determining the resulting period over which a majority of the accumulated undiscounted cash flows related to the
customer relationships are expected to be generated. The useful lives represent the periods over which these intangible assets are expected to contribute directly or indirectly to the Company’s future cash flows.
|
|
(d)
|
Net of accumulated amortization of $70 million and $57 million as of June 30, 2013 and 2012, respectively. The average useful life of other
intangible assets ranges from 2 to 15 years. The useful lives represent the periods over which these intangible assets are expected to contribute directly or indirectly to the Company’s future cash flows.
|
Amortization related to amortizable intangible assets, net was $94 million, $77 million and $74 million for the fiscal years ended
June 30, 2013, 2012 and 2011, respectively.
Based on the current amount of amortizable intangible assets, net, the
estimated amortization expense for each of the succeeding five fiscal years is as follows: 2014—$100 million; 2015—$94 million; 2016—$85 million; 2017—$79 million; and 2018—$72 million. These amounts may vary as acquisitions
and disposals occur in the future and as purchase price allocations are finalized.
96
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The changes in the carrying value of goodwill, by segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and
Information
Services
|
|
|
Cable
Network
Programming
|
|
|
Digital Real
Estate
Services
|
|
|
Book
Publishing
|
|
|
Other
|
|
|
Total
Goodwill
|
|
|
|
|
(in millions)
|
|
|
Balance, June 30, 2011
|
|
$
|
3,490
|
|
|
$
|
—
|
|
|
$
|
82
|
|
|
$
|
3
|
|
|
$
|
391
|
|
|
$
|
3,966
|
|
|
Acquisitions
|
|
|
41
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
48
|
|
|
Foreign exchange movements
|
|
|
(100
|
)
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(110
|
)
|
|
Impairments
|
|
|
(1,282
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
|
|
(1,307
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
$
|
2,149
|
|
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
3
|
|
|
$
|
360
|
|
|
$
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
30
|
|
|
|
657
|
|
|
|
—
|
|
|
|
67
|
|
|
|
—
|
|
|
|
754
|
|
|
Foreign exchange movements
|
|
|
(18
|
)
|
|
|
(76
|
)
|
|
|
(6
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
(99
|
)
|
|
Impairments
|
|
|
(489
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
(494
|
)
|
|
Dispositions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24
|
)
|
|
|
(24
|
)
|
|
Other
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
$
|
1,679
|
|
|
$
|
581
|
|
|
$
|
70
|
|
|
$
|
70
|
|
|
$
|
325
|
|
|
$
|
2,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amount of goodwill as of June 30, 2013 and 2012 reflected accumulated impairments,
principally relating to the News and Information Services segment, of $3.4 billion and $3.1 billion, respectively.
The
Company has a significant amount of intangible assets, including goodwill, newspaper mastheads, distribution networks, publishing rights and other copyrighted products and trademarks. Goodwill is recorded as the difference between the cost of
acquiring entities and amounts assigned to their tangible and identifiable intangible net assets. In accordance with ASC 350, the Company’s goodwill and indefinite-lived intangible assets are tested annually during the fourth quarter for
impairment or earlier if events occur or circumstances change that would more likely than not reduce the fair value below its carrying amount. Intangible assets with finite lives are generally amortized over their estimated useful lives. The
impairment assessment of indefinite-lived intangibles compares the fair value of these intangible assets to their carrying value. (See Note 2 – Summary of Significant Accounting Policies for additional information).
Annual Impairment Assessments
Fiscal 2013
During the fourth quarter of fiscal 2013, as part of the Company’s long-range planning process in preparation for the Separation, the
Company adjusted its future outlook and related strategy principally with respect to the News and Information Services business in Australia and secondarily with respect to the News and Information Services businesses in the U.S. which resulted in a
reduction in expected future cash flows. As a result, the Company determined that the fair value of these reporting units declined below their respective carrying values and recorded non-cash impairment charges of approximately $1.4 billion ($1.1
billion, net of tax) in the fiscal year ended June 30, 2013. The charges primarily consisted of a write-down of the Company’s goodwill of $494 million, a write-down of intangible assets (primarily newspaper mastheads) of $862 million, and
a write-down of fixed assets of $46 million. The impairment charges also include $42 million reflecting the expected sale of assets at values below their carrying value. As of June 30, 2013, these net assets of approximately $89 million were
classified as held for sale and included in other current assets in the Balance Sheets.
97
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Significant unobservable inputs utilized in the income approach valuation methods were
discount rates (ranging from 11.0%-14.5%), long-term growth rates (ranging from (0.5)%-1.5%) and royalty rates (ranging from 0.5%-1.5%). Significant unobservable inputs utilized in the market approach valuation methods were EBITDA multiples
from guideline public companies operating in similar industries and a control premium of 5%. Significant increases (decreases) in royalty rates, growth rates, control premium and multiples, assuming no change in discount rates, would result in a
significantly higher (lower) fair value measurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premium and multiples, would result in a significantly higher (lower) fair value
measurement.
Other than the impairments noted above, the Company determined that the goodwill and indefinite-lived intangible
assets included in the Balance Sheets were not impaired.
Fiscal 2012
During the fourth quarter of fiscal 2012, the Company completed its annual impairment review of goodwill and indefinite-lived intangible
assets. As a result of the impairment review performed, the Company recorded non-cash impairment charges of approximately $2.6 billion ($2.2 billion, net of tax) for the fiscal year ended June 30, 2012. The charges consisted of a
write-down of goodwill of approximately $1.3 billion and a write-down of indefinite-lived intangible assets (primarily newspaper mastheads and distribution networks) of approximately $1.3 billion. These impairment charges were primarily the
result of adverse trends affecting several businesses in the News and Information Services segment, including secular declines in the economic environment in Australia, a decline in in-store advertising spend by consumer packaged goods manufacturers
in the U.S. and lower forecasted revenues from certain businesses utilizing various trade names owned by the Company’s newspaper operations. The Company’s newspaper business in Australia, in particular, experienced weakness in newspaper
advertising reflecting a combination of a softening economy and declines in paid circulation. During the fourth quarter, the business announced a number of major new initiatives to extend the business into multiple platforms and to address these
challenges. As part of the annual review process, the Company determined that it was more likely than not that certain assets would be sold. The impairment charges also reflected the potential sale of these assets at a value below their carrying
value. As of June 30, 2012, these net assets of approximately $126 million were classified as held for sale and included in other current assets in the Balance Sheets. Significant unobservable inputs utilized in the income approach valuation
methods were discount rates (ranging from 9.5%-12.5%),
long-term
growth rates (ranging from 0.5%-3.0%) and royalty rates (ranging from 2.0%-3.5%). Significant unobservable inputs utilized in the market
approach valuation methods were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%.
Other than the impairments noted above, the Company determined that the goodwill and indefinite-lived intangible assets included in the Balance Sheets were not impaired.
NOTE 8. REDEEMABLE PREFERRED STOCK
In connection with the Separation, 21st Century Fox sold 4,000 shares of cumulative redeemable preferred stock with a par value of $5,000 per share of a newly formed U.S. subsidiary of the Company. (See
Note 15 – Income Taxes). The preferred stock pays dividends at a rate of 9.5% per annum, payable quarterly. The preferred stock is callable by the Company at any time after the fifth year and is puttable at the option of the holder after
10 years. As of June 30, 2013, $20 million is included in Redeemable Preferred Stock on the Balance Sheet.
NOTE 9. STOCKHOLDERS’
EQUITY
The following relates to Stockholders’ equity post-Separation. For a discussion of 21st Century Fox’s
investment prior to the Separation see Note 11 – Related Party Transactions and 21st Century Fox Investment.
98
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Authorized Capital Stock
Immediately following the Separation, the Company’s authorized capital stock consisted of 1,500,000,000 shares of Class A Common
Stock, par value $0.01 per share, 750,000,000 shares of Class B Common Stock, par value of $0.01 per share, 25,000,000 shares of Series Common Stock, par value $0.01 per share, and 25,000,000 shares of Preferred Stock, par value of $0.01 per share.
Common Stock
Shares Outstanding
—On June 28, 2013, the distribution of one share of Class A Common Stock of the Company for every four shares of 21st Century Fox Class A Common Stock and one
share of Class B Common Stock of the Company for every four shares of 21st Century Fox Class B Common Stock was completed. Following the Separation, the Company had 379 million shares of Class A Common Stock outstanding at a par value of
$0.01 per share and 200 million shares of Class B Common Stock outstanding at a par value of $0.01 per share.
Dividends
—Holders of shares of the Company’s Class A Common Stock and Class B Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally available for that purpose. Future dividends are dependent on the Company’s financial condition and results of operations, the capital requirements of its business,
covenants associated with debt obligations, if any, legal requirements, regulatory constraints, industry practice and other factors deemed relevant by its Board of Directors.
Voting Rights
— The holders of the Company’s Class A Common Stock are entitled to vote only in the limited circumstances set forth in the Company’s Restated Certificate of
Incorporation. The holders of the Company’s Class B Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders.
Liquidation Rights
—In the event of a liquidation or dissolution of the Company, or a portion thereof, holders of Class A
Common Stock and Class B Common Stock shall be entitled to receive all of the remaining assets of the Company available for distribution to its stockholders, ratably in proportion to the number of shares held by Class A Common Stock holders and
Class B Common Stock holders, respectively. In the event of any merger or consolidation with or into another entity, the holders of Class A Common Stock and the holders of Class B Common Stock shall be entitled to receive substantially
identical per share consideration.
Stock Repurchases
The Company’s Board of Directors has authorized stock repurchases in which the Company may purchase up to an aggregate of $500 million of Class A Common Stock. All decisions regarding any stock
repurchases will be at the sole discretion of a duly appointed committee of the Board of Directors and management. The committee’s decisions regarding any stock repurchases will be evaluated from time to time in light of many factors, including
the Company’s financial condition, earnings, capital requirements and debt facility covenants, if any, other contractual restrictions, as well as legal requirements (including compliance with the IRS private letter ruling), regulatory
constraints, industry practice and other factors that the committee may deem relevant. This stock repurchase authorization may be modified, extended, suspended or discontinued at any time by the Board of Directors. The Company cannot provide any
assurances that any shares will be repurchased.
Stockholder Rights Agreement
During fiscal 2013, the Company’s Board of Directors adopted a stockholder rights agreement.
99
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Under the rights agreement, each outstanding share of common stock of the Company has
attached to it one right. Initially, the rights will be represented by the common stock of the Company, will not be traded separately from the common stock and will not be exercisable. The rights, unless redeemed or exchanged, will become
exercisable for common stock of the Company 10 business days after public announcement that a person or group has obtained beneficial ownership (defined to include stock which a person has the right to acquire, regardless of whether such right is
subject to the passage of time or the satisfaction of conditions), including by means of a tender offer, of 15% or more of the outstanding shares of the Company’s Class B Common Stock. Following such acquisition of beneficial ownership, each
right will entitle its holder (other than the acquiring person or group) to purchase, at the exercise price (subject to adjustments provided in the rights agreement), a number of shares of the Company’s Class A or Class B Common Stock, as
applicable, having a then-current market value of twice the exercise price, and in the event of a subsequent merger or other acquisition of the Company or transfer of 50% or more of the Company, to purchase, at the exercise price, a number of shares
of common stock of the acquiring entity having a then-current market value of twice the exercise price. The exercise price for the Company rights will be $90.00.
The rights will not become exercisable by virtue of (i) any person’s or group’s beneficial ownership, as of May 24, 2013, of 15% or more of the Class B Common Stock of the Company,
unless such person or group acquires beneficial ownership of additional shares of the Company’s Class B Common Stock after May 24, 2013; (ii) the repurchase of the Company’s shares that causes a holder to become the beneficial
owner of 15% or more of the Company’s Class B Common Stock, unless such holder acquires beneficial ownership of additional shares representing one percent or more of the Company’s Class B Common Stock; (iii) acquisitions by way of a
pro rata stock dividend or a stock split; (iv) acquisitions solely as a result of any unilateral grant of any security by the Company or through the exercise of any options, warrants, rights or similar interests (including restricted stock)
granted by the Company to its directors, officers and employees pursuant to any equity incentive or award plan; or (v) certain acquisitions determined by the Company’s Board of Directors to be inadvertent, provided, that following such
acquisition, the acquirer promptly, but in any case within 10 business days, divests a sufficient number of shares so that such person would no longer otherwise qualify as an acquiring person.
The rights will expire on June 28, 2014, unless the rights agreement is earlier terminated or such date is advanced or extended by
the Company, or the rights are earlier redeemed or exchanged by the Company.
NOTE 10. EQUITY-BASED COMPENSATION
Prior to the Separation from 21st Century Fox, the Company’s employees participated in 21st Century Fox’s equity-based
compensation plans pursuant to which they were granted equity awards of 21st Century Fox stock. The equity-based payment expense recorded by the Company prior to the Separation includes the expense associated with the employees historically
attributable to the Company’s operations, as well as an allocation of equity-based compensation expense for 21st Century Fox corporate employees who provided certain centralized support functions.
100
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table summarizes the Company’s equity-based compensation expense
reported in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
News Corporation’s employees
|
|
$
|
41
|
|
|
$
|
30
|
|
|
$
|
28
|
|
|
Allocated
(a)
|
|
|
8
|
|
|
|
14
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49
|
|
|
$
|
44
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic value of stock options exercised
|
|
$
|
23
|
|
|
$
|
12
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The allocated expense includes executive directors and corporate executives of 21st Century Fox, allocated using a proportional allocation methodology,
which management has deemed to be reasonable.
|
As of June 30, 2013, total compensation cost not yet
recognized for all plans presented related to unvested awards held by the Company’s employees was approximately $31 million and is expected to be recognized over a weighted average period of between one and two years.
The tax benefit recognized on vested restricted stock units (“RSUs”) for the Company’s employees and stock options
exercised by the Company’s employees was $10 million, $3 million and $8 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
21st Century Fox Incentive Plans
Prior to the Separation, the
Company’s employees participated in 21st Century Fox’s equity compensation plans (the “Plans”) under which equity-based compensation, including stock options, performance stock units (“PSUs”), restricted stock, RSUs and
other types of awards, were granted. The Compensation Committee of 21st Century Fox’s Board of Directors (“21st Century Fox’s Compensation Committee”) determined the recipients, type of award to be granted and amounts of awards
granted under the Plans. Stock options awarded under the Plans were granted at exercise prices which are equal to or exceed the market price at the date of grant.
In connection with the Separation, RSUs and PSUs that vest on or after January 1, 2014 and stock option awards that expire on or after January 1, 2014 were converted into new equity awards of the Company,
in accordance with the Employee Matters Agreement, using a formula designed to preserve the value of the awards immediately prior to the Separation. Converted awards have the same terms and features as the original awards, except with respect to PSU
performance metrics which will be adjusted to account for the impact of the Separation. These awards will be settled under the terms of the Company’s 2013 LTIP Plan which was approved by 21st Century Fox Compensation Committee prior to the
Separation. In addition to the awards converted, the Company has the ability to award up to 30 million shares under the terms of the 2013 LTIP Plan. As of June 30, 2013, no additional awards have been granted under the Company’s 2013 LTIP plan.
The majority of equity-based compensation awards which vest on or prior to December 31, 2013 continued as awards of 21st Century Fox stock.
The fair value of equity-based compensation under the Plans is calculated according to the type of award issued. Cash settled awards are marked-to-market at each reporting period.
101
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Performance Stock Units
PSUs are fair valued on the date of grant and expensed using a straight-line method as the awards cliff vest at the end of the three year
performance period. The number of shares expected to vest is based on management’s determination of the probable outcome of the performance condition, which requires considerable judgment. The Company records a cumulative adjustment in periods
in which its estimate of the number of shares expected to vest changes. Additionally, the expense recognized is ultimately adjusted to reflect the actual vested shares following the achievement, if any, of the performance conditions. The number of
shares that will be issued upon vesting of PSUs can range from 0% to 200% of the target award, based on the three-year total shareholder return (“TSR”) as measured against the three-year TSR of the companies that comprise the Standard and
Poor’s 500 Index (excluding financial and energy sector companies) and other company specific performance measures. The fair value of the TSR condition is determined using a Monte Carlo simulation model. Any person who holds PSUs shall have no
ownership interest in the shares to which such PSUs relate until and unless the shares are delivered to the holder.
In the
first quarter of fiscal 2013 and 2012, respectively, certain executives of the Company responsible for various business units each received a grant of PSUs that has a three year performance measurement period beginning in July 2012 and 2011. The
awards are subject to the achievement of pre-defined goals for operating profit, cash flow and key divisional performance indicators for the applicable performance period. The majority of these awards were converted to and will be settled in shares
of the Company’s Class A Common Stock subject to the achievement of the relevant performance metrics and participants’ continued employment with the Company.
In fiscal 2013 and 2012, a total of 1.7 million and 1.8 million target PSUs were granted to the Company’s employees,
respectively, of which 1.2 million and 1.2 million, respectively, will be settled in shares of the Company’s Class A Common Stock.
Restricted Stock Units
RSU awards are grants that entitle the
holder to shares of 21st Century Fox or Company Class A Common Stock or the cash equivalent value of such shares based on the expected vesting date and the terms of the Employee Matters Agreement. Fair value of RSUs issued under the Plans is
based upon the fair market value of the shares underlying the awards on the grant date. Any person who holds RSUs shall have no ownership interest in the shares to which such RSUs relate until and unless shares are delivered to the holder. Certain
RSU awards are settled in cash and are subject to terms and conditions of the Plans and such other terms and conditions as were previously established by the 21st Century Fox Compensation Committee.
Certain executives responsible for various business units within the Company had the opportunity to earn a grant of RSUs under the Plans
in fiscal 2013, 2012 and 2011. These awards (the “Performance Awards”) were conditioned upon the achievement of pre-determined operating profit goals for fiscal 2013, 2012 and 2011 by the executive’s respective business
unit. If the actual fiscal 2013, 2012 and 2011 operating profit of the executive’s business unit as compared to its pre-determined target operating profit for the fiscal year was within a certain performance goal range, the executive was
entitled to receive a grant of RSUs pursuant to a Performance Award. To the extent that it was determined that the business unit’s actual fiscal 2013, 2012 and 2011 operating profit fell within the performance goal range for that fiscal
year, the executive received a percentage of his or her annualized base salary, ranging from 0% to 100%, in time-vested RSUs representing Class A shares of either 21st Century Fox or the Company depending on the vesting date of such awards.
During the fiscal years ended June 30, 2013, 2012 and 2011, 0.2 million, 1.0 million and 3.1 million RSUs
were granted to the Company’s employees, respectively, which primarily vest over four years. Outstanding RSUs
102
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
held by the Company’s employees as of the Distribution Date are payable in shares of 21st Century Fox’s Class A Common Stock if such awards vest on or prior to December 31,
2013. The remaining awards are payable in shares of the Company’s stock under the 2013 LTIP plan upon vesting. During the fiscal years ended June 30, 2013, 2012 and 2011, approximately 266,000, 395,000 and 449,000 of cash-settled RSUs held
by the Company’s employees vested, respectively. Cash paid to the Company’s employees for vested cash-settled RSUs was approximately $6 million in each of the fiscal years ended June 30, 2013, 2012 and 2011.
The following table summarizes the activity related to the RSUs and target PSUs granted to the Company’s employees which will be
settled in shares of the Company (RSU and PSU units in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2013
|
|
|
Fiscal 2012
|
|
|
Fiscal 2011
|
|
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant-
date fair
value
(d)
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant-
date fair
value
(d)
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant-
date fair
value
(d)
|
|
|
Unvested units at beginning of the year
|
|
|
3,076
|
|
|
$
|
14.81
|
|
|
|
2,204
|
|
|
$
|
13.52
|
|
|
|
1,645
|
|
|
$
|
16.73
|
|
|
Granted
|
|
|
1,414
|
|
|
|
24.83
|
|
|
|
2,189
|
|
|
|
15.14
|
|
|
|
2,344
|
|
|
|
13.85
|
|
|
Vested
(a)
|
|
|
(869
|
)
|
|
|
14.46
|
|
|
|
(991
|
)
|
|
|
13.14
|
|
|
|
(1,656
|
)
|
|
|
16.68
|
|
|
Cancelled
|
|
|
(426
|
)
|
|
|
15.52
|
|
|
|
(326
|
)
|
|
|
14.61
|
|
|
|
(129
|
)
|
|
|
16.89
|
|
|
Units impacted by the Separation
(b)
|
|
|
(609
|
)
|
|
|
17.02
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Units granted in conversion, as a result of the Separation
|
|
|
2,971
|
|
|
|
9.46
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested units at the end of the year
(c)
|
|
|
5,557
|
|
|
$
|
9.46
|
|
|
|
3,076
|
|
|
$
|
14.81
|
|
|
|
2,204
|
|
|
$
|
13.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The fair value of RSUs held by the Company’s employees that vested during the fiscal years ended June 30, 2013, 2012 and 2011 was
approximately $20 million, $16 million and $24 million, respectively.
|
|
(b)
|
Represents 0.9 million of unvested PSUs and RSUs outstanding as of the Distribution Date, which will continue to be settled in shares of 21st
Century Fox Class A Common Stock as such awards will vest on or prior to December 31, 2013, offset by 0.3 million awards which represent PSUs and RSUs held by 21st Century Fox Corporate employees who became employed by the Company
during the previous 12 months. Awards held by these former 21st Century Fox corporate employees that vest on or after January 1, 2014 have been assumed by the Company and will be settled in the shares of the Company.
|
|
(c)
|
The intrinsic value of these unvested RSUs and target PSUs was approximately $84 million as of June 30, 2013.
|
|
(d)
|
The weighted average grant date fair value for periods ending prior to June 30, 2013 represents the fair value of awards granted with respect to
21st Century Fox Class A Common Stock, prior to conversion to awards with respect to Company Class A Common Stock. The weighted average grant date fair value of awards at June 30, 2013 represents the fair value of awards using the
conversion ratio set forth by the 21st Century Fox Compensation Committee.
|
Stock Options
As of June 28, 2013, the Company’s employees participated in certain stock option plans which were assumed by the Company.
Outstanding awards under these plans converted to and will be settled in Class A Common Stock of the Company as the expiration of such awards is subsequent to December 31, 2013.
103
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table summarizes information about stock option transactions for the
employee stock option plans (options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2013
|
|
|
Fiscal 2012
|
|
|
Fiscal 2011
|
|
|
|
|
Options
|
|
|
Weighted
average
exercise
price
(c)
|
|
|
Options
|
|
|
Weighted
average
exercise
price
(c)
|
|
|
Options
|
|
|
Weighted
average
exercise
price
(c)
|
|
|
|
|
|
|
|
(in US$)
|
|
|
(in A$)
|
|
|
|
|
|
(in US$)
|
|
|
(in A$)
|
|
|
|
|
|
(in US$)
|
|
|
(in A$)
|
|
|
Outstanding at the beginning of the year
|
|
|
4,086
|
|
|
$
|
12.40
|
|
|
$
|
18.27
|
|
|
|
9,094
|
|
|
$
|
12.36
|
|
|
$
|
18.98
|
|
|
|
13,145
|
|
|
$
|
14.34
|
|
|
$
|
21.58
|
|
|
Exercised
|
|
|
(2,924
|
)
|
|
|
12.57
|
|
|
|
18.53
|
|
|
|
(2,303
|
)
|
|
|
9.28
|
|
|
|
15.40
|
|
|
|
(357
|
)
|
|
|
12.29
|
|
|
|
15.90
|
|
|
Cancelled
|
|
|
(191
|
)
|
|
|
12.39
|
|
|
|
18.86
|
|
|
|
(2,705
|
)
|
|
|
14.92
|
|
|
|
23.09
|
|
|
|
(3,694
|
)
|
|
|
19.39
|
|
|
|
28.51
|
|
|
Options impacted by the Separation
(a)
|
|
|
(786
|
)
|
|
|
11.27
|
|
|
|
17.08
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Shares granted in conversion, as a result of the Separation
|
|
|
278
|
|
|
|
5.88
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
(b)
|
|
|
463
|
|
|
|
5.88
|
|
|
|
—
|
|
|
|
4,086
|
|
|
$
|
12.40
|
|
|
$
|
18.27
|
|
|
|
9,094
|
|
|
$
|
12.36
|
|
|
$
|
18.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
463
|
|
|
|
|
|
|
|
|
|
|
|
3,722
|
|
|
|
|
|
|
|
|
|
|
|
8,094
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents 0.8 million of outstanding options as of the Distribution Date, which were converted into and will be settled in Class A shares of 21st
Century Fox.
|
|
(b)
|
Represents the total number of outstanding options as of the Distribution Date which were converted into options over Class A Common Stock of the
Company as the options are set to expire subsequent to December 31, 2013. The intrinsic value of options outstanding held by the Company’s employees as of June 30, 2013, 2012 and 2011 was $4.3 million, $18.4 million, and $13.4
million, respectively. There were no unvested stock options at June 30, 2013.
|
|
(c)
|
The weighted average exercise price for periods prior to June 30, 2013 represents the exercise price of awards prior to conversion to awards of
the Company. The weighted average exercise price of awards at June 30, 2013 represents the exercise price of the awards using the conversion ratio set forth by the 21st Century Fox Compensation Committee.
|
The exercise prices for the stock options issued prior to 21st Century Fox’s reorganization in November 2004 are in Australian
dollars. The U.S. dollar equivalents presented above have been converted at historical exchange rates; therefore, the proceeds from the exercise of these stock options may differ due to fluctuations in exchange rates in periods subsequent to the
date of the grant.
NOTE 11. RELATED PARTY TRANSACTIONS AND 21ST CENTURY FOX INVESTMENT
Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, such as equity affiliates, to purchase
and/or sell advertising and administrative services. The following table sets forth the net revenue from related parties included in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Related party revenue, net of expense
|
|
$
|
242
|
|
|
$
|
61
|
|
|
$
|
72
|
|
104
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table sets forth the amount of accounts receivable due from and payable to
related parties outstanding on the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Accounts receivable from related parties
|
|
$
|
2
|
|
|
$
|
13
|
|
|
Amounts due from 21st Century Fox
|
|
|
247
|
|
|
|
—
|
|
|
Accounts payable to related parties
|
|
|
—
|
|
|
|
165
|
|
Corporate Allocations and 21st Century Fox Investment
Historically, 21st Century Fox has provided services to and funded certain expenses for the Company that have been included as a component
of 21st Century Fox Investment within Stockholders Equity such as: global real estate and occupancy; and employee benefits. In addition, as discussed in Note 1 – Description of Business and Basis of Presentation, the Company’s Financial
Statements include general corporate expenses of 21st Century Fox which were not historically allocated to the Company for certain support functions that are provided on a centralized basis within 21st Century Fox and not recorded at the business
unit level, such as expenses related to finance, human resources, information technology, facilities, and legal, among others (“General Corporate Expenses”). For purposes of these stand-alone financial statements, the General Corporate
Expenses incurred prior to the Separation have been allocated to the Company. The General Corporate Expenses incurred prior to the Separation are included in the Statements of Operations in Selling, general and administrative expenses and
accordingly as a component of 21st Century Fox investment. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of consolidated or combined revenues,
operating income, headcount or other measures of the Company. Management believes the assumptions underlying the Financial Statements, including the assumptions regarding allocating General Corporate Expenses from 21st Century Fox are
reasonable. Nevertheless, the Financial Statements may not include all of the actual expenses that would have been incurred and may not reflect the Company’s consolidated and combined results of operations, financial position and cash flows had
it been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in
various areas, including information technology and infrastructure. The corporate allocations made during the fiscal years ended June 30, 2013, 2012 and 2011 of $240 million, $212 million and $191 million, respectively, included both general
corporate expenses of 21st Century Fox which were not historically allocated to the Company of $112 million, $102 million and $97 million, respectively, and historical direct allocations primarily consisting of rent, insurance and stock compensation
expense of approximately $128 million, $110 million and $94 million, respectively.
All significant intercompany transactions
that occurred prior to the Distribution Date, between the Company and 21st Century Fox have been included in these Financial Statements and are considered to be effectively settled for cash at the time the transaction is recorded. The total net
effect of the settlement of these intercompany transactions is reflected in the Statements of Cash Flows as a financing activity and in the Balance Sheets as 21st Century Fox investment.
105
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table summarizes the components of the net (decrease) increase in 21st
Century Fox investment for the fiscal years ended June 30, 2013, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Cash pooling and general financing activities
(a)
|
|
$
|
(176
|
)
|
|
$
|
(1,178
|
)
|
|
$
|
(293
|
)
|
|
Corporate allocations
|
|
|
240
|
|
|
|
212
|
|
|
|
191
|
|
|
Cash transfer from 21st Century Fox for acquisitions and dispositions
|
|
|
1,933
|
|
|
|
—
|
|
|
|
391
|
|
|
Contribution of assets and liabilities assumed upon Separation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
786
|
|
|
|
—
|
|
|
|
—
|
|
|
Amounts due from 21st Century Fox
(b)
|
|
|
247
|
|
|
|
—
|
|
|
|
—
|
|
|
Taxes payable
(c)
|
|
|
571
|
|
|
|
—
|
|
|
|
—
|
|
|
Deferred taxes, net of valuation allowances
(d)
|
|
|
416
|
|
|
|
—
|
|
|
|
—
|
|
|
Cost and equity-based investments
|
|
|
127
|
|
|
|
—
|
|
|
|
—
|
|
|
Employee benefits and compensation liabilities
|
|
|
(94
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Redeemable preferred stock
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Other liabilities, net
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Conversion of 21st Century Fox investment to Additional paid-in capital
|
|
|
(12,287
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in 21st Century Fox investment
|
|
$
|
(8,268
|
)
|
|
$
|
(966
|
)
|
|
$
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The nature of activities included in the line item “Cash pooling and general financing activities” includes financing activities for capital
transfers, cash sweeps, and other treasury services prior to the Separation. Such pooling activities no longer exist between the Company and 21st Century Fox post-separation.
|
|
(b)
|
The amounts due from 21st Century Fox consist of a receivable of $207 million related to the final cash distribution which will be received from 21st
Century Fox during the first quarter of fiscal 2014 and $40 million related to the indemnification of certain costs related to the U.K. Newspaper Matters as discussed below.
|
|
(c)
|
For purposes of the Company’s Financial Statements for periods prior to the Separation, income tax expense has been recorded as if the Company
filed tax returns on a stand-alone basis separate from 21st Century Fox by applying the separate tax returns methods. This amount represents the difference between the separate return method and the actual income tax liabilities allocated to the
Company, pursuant to the applicable tax law, as of the Distribution Date.
|
|
(d)
|
The deferred taxes primarily relate to a U.S. deferred tax asset of $429 million ($378 million, net of valuation allowance) as a result of the
increased tax basis recognized for goodwill and intangible assets pursuant to the internal reorganization, that transferred to the Company upon Separation. (See Note 15 – Income Taxes).
|
Relationship Between News Corp and 21st Century Fox After the Separation
In conjunction with the Separation, the Company entered into the Separation and Distribution Agreement, Transition Services Agreement
(“TSA”), Tax Sharing and Indemnification Agreement and Employee Matters Agreement with 21st Century Fox to effect the Separation and to provide a framework for the Company’s relationship with 21st Century Fox subsequent to the
Separation.
The Separation and Distribution Agreement between the Company and 21st Century Fox contains the key provisions
relating to the separation of the Company’s business from 21st Century Fox and the distribution of the Company’s common stock to 21st Century Fox stockholders. The Separation and Distribution Agreement
106
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
identifies the assets that were transferred and liabilities that were assumed by the Company from 21st Century Fox in the Separation and describes how these transfers and assumptions occurred. In
accordance with the Separation and Distribution Agreement, the Company’s aggregate cash and cash equivalents balance at the Distribution Date should be approximately $2.6 billion. As of June 30, 2013, the Company had cash and cash
equivalents of $2.4 billion. The remaining $207 million will be received from 21st Century Fox during the first quarter of fiscal 2014 and is recorded in Amounts due from 21st Century Fox on the Balance Sheets as of June 30, 2013.
Also, as part of the Separation and Distribution Agreement, 21st Century Fox will indemnify the Company for payments, on an after-tax
basis, made after the Distribution Date arising out of civil claims and investigations relating to the U.K. Newspaper Matters as well as legal and professional fees and expenses paid in connection with the criminal matters, other than fees, expenses
and costs relating to employees (i) who are not directors, officers or certain designated employees or (ii) with respect to civil matters, who are not co-defendants with the Company or 21st Century Fox. (See Note 12 – Commitments and
Contingencies).
Under the TSA, the Company and 21st Century Fox will provide to each other certain specified services on a
transitional basis, including, among others, payroll, employee benefits and pension administration, information systems, insurance, legal and other corporate services, as well as procurement and sourcing support. The charges for the transition
services are generally intended to allow the providing company to fully recover the allocated direct costs of providing the services, plus all out-of-pocket costs and expenses, generally without profit. The Company anticipates that it will generally
be in a position to complete the transition of most services (excluding certain insurance, sourcing and other services) on or before 24 months following the Distribution Date. Services under the TSA began on July 1, 2013. As a result, there was
no financial impact resulting from the TSA in fiscal 2013.
The Company entered into a Tax Sharing and Indemnification
Agreement with 21st Century Fox that governs its and 21st Century Fox’s respective rights, responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes,
non-income taxes and related tax returns. Under the Tax Sharing and Indemnification Agreement, the Company will generally indemnify 21st Century Fox against taxes attributable to the Company’s assets or operations for all tax periods or
portions thereof after the Separation. For taxable periods or portions thereof prior to the Separation, 21st Century Fox will generally indemnify the Company against U.S. consolidated and combined taxes attributable to such periods, and the Company
will indemnify 21st Century Fox against the Company’s separately filed U.S. state and foreign taxes and foreign consolidated and combined taxes for such periods. The Tax Sharing and Indemnification Agreement also provides that the proceeds, if
any, from the refund of certain foreign income taxes (plus interest) of a subsidiary of the Company that were claimed prior to the Separation are to be paid to 21st Century Fox, net of certain taxes. (See Note 15 – Income Taxes).
The Company entered into an Employee Matters Agreement that governs the Company’s and 21st Century Fox’s obligations with
respect to employment, compensation, benefits and other related matters for employees of certain of the Company’s U.S.-based businesses (the “Employee Matters Agreement”). In general, the Employee Matters Agreement addresses matters
relating to employees transferring to the Company’s U.S. businesses and former employees of those businesses that participated in benefit plans (including postretirement benefits) and programs that were retained by 21st Century Fox following
the Separation. The Employee Matters Agreement also addresses equity compensation matters relating to employees of all of the Company’s businesses, both U.S. and non-U.S. (See Note 10 – Equity-Based Compensation and Note 13 –
Retirement Benefit Obligations).
107
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has commitments under certain firm
contractual arrangements (“firm commitments”) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The following table summarizes the
Company’s material firm commitments as of June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
Total
|
|
|
1 year
|
|
|
2-3
years
|
|
|
4-5
years
|
|
|
After 5
years
|
|
|
|
|
(in millions)
|
|
|
Purchase obligations
(a)
|
|
$
|
2,105
|
|
|
$
|
587
|
|
|
$
|
649
|
|
|
$
|
297
|
|
|
$
|
572
|
|
|
Sports programming rights
(b)
|
|
|
655
|
|
|
|
127
|
|
|
|
343
|
|
|
|
175
|
|
|
|
10
|
|
|
Operating leases
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
1,059
|
|
|
|
154
|
|
|
|
255
|
|
|
|
211
|
|
|
|
439
|
|
|
Plant and machinery
|
|
|
15
|
|
|
|
9
|
|
|
|
6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments and contractual obligations
|
|
$
|
3,834
|
|
|
$
|
877
|
|
|
$
|
1,253
|
|
|
$
|
683
|
|
|
$
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company has commitments under purchase obligations related to printing contracts, capital projects, marketing agreements and other legally binding
commitments.
|
|
(b)
|
The Company has sports programming rights commitments with National Rugby League, Football Federation Australia, English Premier League as well as
certain other broadcast rights which are payable through fiscal 2018.
|
|
(c)
|
The Company leases office facilities, warehouse facilities, printing plants and equipment. These leases, which are classified as operating leases, are
expected to be paid at certain dates through fiscal 2062. This amount includes approximately $225 million of office facilities that have been subleased from 21st Century Fox.
|
In accordance with ASC 715 “Compensation—Retirement Benefits” (“ASC 715”), the total accrued benefit liability
for pension and other postretirement benefit plans recognized as of June 30, 2013 was approximately $353 million. (See Note 13 – Retirement Benefit Obligations). This amount is affected by, among other items, statutory funding levels,
changes in plan demographics and assumptions and investment returns on plan assets. Because of the current overall funded status of the Company’s material plans, the accrued liability does not represent expected near-term liquidity needs and,
accordingly, this amount is not included in the contractual obligations table.
Contingencies
U.K. Newspaper Matters and Related Investigations and Litigation
On July 19, 2011, a purported class action lawsuit captioned Wilder v. News Corp., et al. was filed on behalf of all purchasers of 21st Century Fox’s common stock between March 3, 2011 and
July 11, 2011, in the U.S. District Court for the Southern District of New York. The plaintiff brought claims under Section 10(b) and Section 20(a) of the Securities Exchange Act, alleging that false and misleading statements were
issued regarding alleged acts of voicemail interception at
The News of the World
. The suit named as defendants 21st Century Fox, Rupert Murdoch, James Murdoch and Rebekah Brooks, and sought compensatory damages, rescission for damages
sustained and costs.
108
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
On June 5, 2012, the court issued an order appointing the Avon Pension Fund
(“Avon”) as lead plaintiff in the litigation and Robbins Geller Rudman & Dowd as lead counsel. Thereafter, on July 3, 2012, the court issued an order providing that an amended consolidated complaint was to be filed by
July 31, 2012. Avon filed an amended consolidated complaint on July 31, 2012, which among other things, added as defendants the Company’s subsidiary, NI Group Limited (now known as News Corp UK & Ireland Limited), and Les
Hinton, and expanded the class period to include February 15, 2011 to July 18, 2011. Defendants have filed their motions to dismiss, which are pending. The Company’s management believes these claims are entirely without merit and
intends to vigorously defend this action.
In addition, U.K. and U.S. regulators and governmental authorities continue to
conduct investigations initiated in 2011 with respect to the U.K. Newspaper Matters. The investigation by the U.S. Department of Justice (the “DOJ”) is directed at conduct that occurred within 21st Century Fox prior to the creation of the
Company. Accordingly, 21st Century Fox has been and continues to be responsible for responding to the DOJ investigation. The Company, together with 21st Century Fox, is cooperating with these investigations.
The Company has admitted liability in many civil cases related to the voicemail interception allegations and has settled many cases. The
Company also announced a private compensation scheme under which parties could pursue claims against it. While additional civil lawsuits may be filed, no additional civil claims may be brought under the compensation scheme after April 8, 2013.
The Company is not able to predict the ultimate outcome or cost of the civil claims or criminal matters. The Company has
incurred legal and professional fees related to the U.K. Newspaper Matters and costs for civil settlements totaling approximately $183 million and $199 million during the fiscal years ended June 30, 2013 and 2012, respectively. These costs are
included in Selling, general and administrative expenses in the Company’s Statements of Operations. As of June 30, 2013, the Company has provided for its best estimate of the liability for the claims that have been filed and costs incurred
and has accrued approximately $66 million. It is not possible to estimate the liability for any additional claims that may be filed given the information that is currently available to the Company. If more claims are filed and additional information
becomes available, the Company will update the liability provision for such matters. As described below, the Company will be indemnified by 21st Century Fox for certain payments made by the Company that relate to, or arise from, the U.K. Newspaper
Matters. Accordingly, the Company recorded an indemnification asset of approximately $40 million as of June 30, 2013. As the liabilities were incurred while the Company was a wholly-owned subsidiary of 21st Century Fox, the indemnification
asset was established as part of the Separation through 21st Century Fox’s investment in equity.
In connection with the
Separation, the Company and 21st Century Fox agreed in the Separation and Distribution Agreement that 21st Century Fox will indemnify the Company for payments made after the Distribution Date arising out of civil claims and investigations relating
to the U.K. Newspaper Matters as well as legal and professional fees and expenses paid in connection with the criminal matters, other than fees, expenses and costs relating to employees (i) who are not directors, officers or certain designated
employees or (ii) with respect to civil matters, who are not co-defendants with the Company or 21st Century Fox. In addition, violations of law may result in criminal fines or penalties for which the Company will not be indemnified by 21st
Century Fox. 21st Century Fox’s indemnification obligations with respect to these matters will be settled on an after-tax basis. It is possible that these proceedings and any adverse resolution thereof, including any fines or other penalties
associated with any plea, judgment or similar result for which the Company will not be indemnified, could damage its reputation, impair its ability to conduct its business and adversely affect its results of operations and financial condition.
109
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
HarperCollins
Commencing on August 9, 2011, twenty-nine purported consumer class actions were filed in the U.S. District Courts for the Southern District of New York and for the Northern District of California,
which relate to the decisions by certain publishers, including HarperCollins Publishers L.L.C. (“HarperCollins”), to begin selling their e-books pursuant to an agency relationship. The Judicial Panel on Multidistrict Litigation transferred
the various class actions to the Honorable Denise L. Cote in the Southern District of New York. On January 20, 2012, plaintiffs filed a consolidated amended complaint, again alleging that certain named defendants, including HarperCollins,
violated the antitrust and unfair competition laws by virtue of the switch to the agency model for e-books. The actions sought as relief treble damages, injunctive relief and attorneys’ fees. On June 21, 2013, plaintiffs filed a motion for
preliminary approval of a settlement with HarperCollins, among others, for a class of consumers residing in Minnesota, which is the only state that did not sign onto the settlement agreement with the Attorneys General discussed below, approval of
which bars consumers in the other states and territories from participating in these class actions. On August 5, 2013, Judge Cote granted preliminary approval of the Minnesota consumer settlement. While the settlement agreement is still subject
to final approval by the court, the Company believes that the proposed settlement will not have a material impact on the results of operations or the financial position of the Company. However, the Company can make no assurances that the proposed
settlement will receive final approval. Additional information about In re MDL Electronic Books Antitrust Litigation, Civil Action No. 11-md-02293 (DLC), can be found on Public Access to Court Electronic Records (PACER).
Following an investigation, on April 11, 2012, the DOJ filed an action in the U.S. District Court for the Southern District of New
York against certain publishers, including HarperCollins, and Apple, Inc. The DOJ’s complaint alleged antitrust violations relating to defendants’ decisions to begin selling e-books pursuant to an agency relationship. The case was assigned
to Judge Cote. Simultaneously, the DOJ announced that it had reached a proposed settlement with three publishers, including HarperCollins, and filed a Proposed Final Judgment and related materials detailing that agreement. Among other things, the
Proposed Final Judgment required that HarperCollins terminate its agreements with certain eBook retailers and placed certain restrictions on any agreements subsequently entered into with such retailers. On September 5, 2012, Judge Cote entered
the Final Judgment. Additional information about the Final Judgment can be found on the DOJ’s website.
Following an
investigation, on April 11, 2012, 16 state Attorneys General led by Texas and Connecticut (the “AGs”) filed a similar action against certain publishers and Apple, Inc. in the Western District of Texas. On April 26, 2012, the
AGs’ action was transferred to Judge Cote. On May 17, 2012, 33 AGs filed a second amended complaint. As a result of a memorandum of understanding agreed upon with the AGs for Texas and Connecticut, HarperCollins was not named as a
defendant in this action. Pursuant to the terms of the memorandum of understanding, HarperCollins entered into a settlement agreement with the AGs for Texas, Connecticut and Ohio on June 11, 2012. By August 28, 2012, 49 states (all but
Minnesota) and five U.S. territories had signed on to that settlement agreement. On August 29, 2012, the AGs simultaneously filed a complaint against HarperCollins and two other publishers, a motion for preliminary approval of that settlement
agreement and a proposed distribution plan. On September 14, 2012, Judge Cote granted the AGs’ motion for preliminary approval of the settlement agreement and approved the AGs’ proposed distribution plan. Notice was subsequently sent
to potential class members, and a fairness hearing took place on February 8, 2013 at which Judge Cote gave final approval to the settlement. The settlement is now effective, and the final judgment bars consumers from states and territories
covered by the settlement from participating in the class actions.
On October 12, 2012, HarperCollins received a Civil
Investigative Demand from the Attorney General from the State of Minnesota (the “Minnesota AG”). HarperCollins complied with the Demand on November 16, 2012. On June 26, 2013, the Minnesota AG filed a petition for an order
approving an assurance of discontinuance in the Second Judicial District Court for the State of Minnesota, wherein Minnesota agreed to cease its investigation
110
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
and not seek further legal remedies relating to or arising from the alleged conduct. On June 28, 2013, Judge Gary Bastion signed an order approving the discontinuance.
The European Commission conducted an investigation into whether certain companies in the book publishing and distribution industry,
including HarperCollins, violated the antitrust laws by virtue of the switch to the agency model for e-books. HarperCollins settled the matter with the European Commission on terms substantially similar to the settlement with the DOJ. On
December 13, 2012, the European Commission formally adopted the settlement.
Commencing on February 24, 2012, five
purported consumer class actions were filed in the Canadian provinces of British Columbia, Quebec and Ontario, which relate to the decisions by certain publishers, including HarperCollins, to begin selling their e-books in Canada pursuant to an
agency relationship. The actions seek as relief special, general and punitive damages, injunctive relief and the costs of the litigations. While it is not possible to predict with any degree of certainty the ultimate outcome of these class actions,
HarperCollins believes it was compliant with applicable antitrust and competition laws and intends to defend itself vigorously.
In July 2012, HarperCollins Canada, a wholly-owned subsidiary of HarperCollins, learned that the Canadian Competition Bureau
(“CCB”) had commenced an inquiry regarding the sale of e-books in Canada. HarperCollins currently is cooperating with the CCB with respect to its inquiry. While it is not possible to predict with any degree of certainty the ultimate
outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust and competition laws.
On
February 15, 2013, a purported class of independent bricks-and-mortar bookstores filed an action in the U.S. District Court for the Southern District of New York entitled The Book House of Stuyvesant Plaza, Inc, et. al. v. Amazon.com, Inc., et.
al, which relates to the digital rights management protection (“DRM”) of certain publishers’, including HarperCollins’, e-books being sold by Amazon.com, Inc. Plaintiffs filed an Amended Complaint on March 21, 2013. The case
involves allegations that certain named defendants in the book publishing and distribution industry, including HarperCollins, violated the antitrust laws by virtue of requiring DRM protection. The action seeks declaratory and injunctive relief,
reasonable costs and attorneys’ fees. On April 1, 2013, Defendants moved to dismiss the Amended Complaint. The court heard oral argument on Defendants’ motion to dismiss on April 25, 2013. Additional information about The Book
House Of Stuyvesant Plaza, Inc. et al v. Amazon.Com, Inc. et al., Civil Action No. 1:13-cv-01111-JSR, can be found on PACER. While it is not possible to predict with any degree of certainty the ultimate outcome of this class action,
HarperCollins believes it was compliant with applicable antitrust laws and intends to defend itself vigorously.
The Company
is not able to predict the ultimate outcome or cost of the unresolved HarperCollins matters described above. During the fiscal years ended June 30, 2013 and 2012, the legal and professional fees and settlement costs incurred in connection with
these matters were not material, and as of June 30, 2013, the Company did not have a material accrual related to these matters.
News
America Marketing
On August 16, 2013, in connection with a pending action in the United States District Court for the
Eastern District of Michigan in which The Dial Corporation, H.J. Heinz Company and Foster Poultry Farms (with Foster Poultry Farms as proposed class representative on behalf of putative classes of purchasers) have alleged various claims under
federal and state antitrust law against News Corporation, News America Incorporated, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (together, the “NAM Group”), plaintiffs filed a motion for leave to
file a third amended complaint, with plaintiffs The Dial Corporation, Henkel Consumer Goods, Inc., H.J. Heinz Company, H.J. Heinz Company, L.P., Foster Poultry
111
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Farms, Smithfield Foods, Inc., HP Hood LLC, BEF Foods, Inc., and Spectrum Brands, Inc. now asserting the same federal and state antitrust claims both individually and on behalf of the two
putative classes in connection with plaintiffs’ purchase of in-store marketing services and free-standing insert (“FSI”) coupons. The complaint seeks treble damages, injunctive relief and attorneys’ fees. The NAM Group’s
motion to transfer the action to the Southern District of New York, which the magistrate judge recommended be granted, is still pending before the district court judge.
In a parallel action, News America Marketing FSI L.L.C. and News America Marketing In-Store Services L.L.C. have filed a complaint in the United States District Court for the Southern District of New York
against The Dial Corporation H.J. Heinz Company, H.J. Heinz Company L.P. and Foster Poultry Farms, seeking a declaratory judgment that plaintiffs did not violate federal or state antitrust laws and for damages for breach of contract. On August 28,
2013, the defendants filed a motion to dismiss.
While it is not possible at this time to predict with any degree of certainty
the ultimate outcome of these actions, the NAM Group believes it was compliant with applicable antitrust laws and intends to defend itself vigorously.
On September 23, 2004, Insignia Systems, Inc. (“Insignia”) filed an action against News America Marketing In-Store Inc. (“News America”) in the U.S. District Court for the
District of Minnesota. The operative complaint alleged, among other things, disparagement of Insignia by News America in violation of the Lanham Act and Minnesota state law and various federal and state antitrust violations arising out of
Insignia’s and News America’s competition in the domestic in-store advertising market. The trial began on February 8, 2011. On February 9, 2011, the parties settled the lawsuit. Under the terms of the settlement, which included
no admission of liability, News America paid Insignia $125 million, which was recorded in Selling, general and administrative expenses in the Company’s Statement of Operations during the fiscal year ended June 30, 2011. In addition,
Insignia paid News America $4 million in relation to a 10-year exclusive business arrangement between the companies.
Other
The Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, it is
regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax
matters will have a material adverse effect on its financial condition, future results of operations or liquidity. As subsidiaries of 21st Century Fox prior to the Separation, the Company and each of its domestic subsidiaries have joint and several
liability with 21st Century Fox for the consolidated U.S. federal income taxes of the 21st Century Fox consolidated group relating to any taxable periods during which the Company or any of the Company’s domestic subsidiaries are or were a
member of the 21st Century Fox consolidated group. Consequently, the Company could be liable in the event any such liability is incurred, and not discharged, by any other member of the 21st Century Fox consolidated group. The Tax Sharing and
Indemnification Agreement requires 21st Century Fox to indemnify the Company for any such liability. Disputes or assessments could arise during future audits by the IRS or other taxing authorities in amounts that the Company cannot quantify.
The Company establishes an accrued liability for legal claims when it determines that a loss is both probable and the amount
of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been
established may be higher or lower than the amounts accrued for such matters. Legal fees associated with litigation and similar proceedings that are not expected to provide a benefit in
112
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
future periods are expensed as incurred. Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by the Company in connection with the various proceedings could
affect its results of operations and financial condition. For the contingencies disclosed above for which there is at least a reasonable possibility that a loss may be incurred, the Company was unable to estimate the amount of loss or range of loss.
NOTE 13. RETIREMENT BENEFIT OBLIGATIONS
The Company’s employees participated in various direct and shared defined benefit pension and postretirement plans. Direct plans are those which are sponsored by the Company and its subsidiaries
(“Direct Plans”) and shared plans are those which are sponsored by 21st Century Fox and include participants of the Company’s subsidiaries and other 21st Century Fox subsidiaries (“Shared Plans”).
Direct Plans in the U.S., U.K. and Australia are accounted for as defined benefit pension plans. Accordingly, the funded and unfunded
position of each plan is recorded in the Balance Sheets. Actuarial gains and losses that have not yet been recognized through income are recorded in accumulated other comprehensive income net of taxes, until they are amortized as a component of net
periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, long-term expected rates of return
on plan assets, and future compensation increases. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist. The funded status of the plans
can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal 2013, 2012 and 2011.
Prior to the Separation, Shared Plans were accounted for as multiemployer benefit plans. Therefore, no asset or liability was recorded to recognize the funded status. The related pension expenses
allocated to the Company were based primarily on benefits earned by active employees and accounted for in a manner similar to a defined contribution plan. During the fourth quarter of fiscal 2013, pursuant to the Employee Matters Agreement, the
assets and liabilities of the Shared Plans allocable to the Company’s employees were transferred to the Company. Assets of $58 million, projected benefit obligations of $106 million and $36 million of other comprehensive income ($22 million,
net of tax) were recorded for pension benefits in the U.S. transferred from 21st Century Fox, in addition to a $20 million pension contribution made by the Company. A projected benefit obligation of $11 million and $3 million of other comprehensive
income ($2 million, net of tax) were recorded for an unfunded retirement plan in the U.S. transferred from 21st Century Fox. Such plans are accounted for as defined benefit pension and postretirement plans subsequent to the Separation.
The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The combined domestic and foreign
pension and postretirement plans resulted in a net pension liability of $353 million and $497 million at June 30, 2013 and 2012, respectively. The Company recognized these amounts in the Balance Sheets at June 30, 2013 and
June 30, 2012 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Other non-current assets
|
|
$
|
6
|
|
|
$
|
—
|
|
|
Other current liabilities
|
|
|
(14
|
)
|
|
|
(7
|
)
|
|
Retirement benefit obligations
|
|
|
(345
|
)
|
|
|
(490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(353
|
)
|
|
$
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
|
113
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table sets forth the change in the projected benefit obligation, change in
the fair value of the Company’s plan assets and funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement Benefits
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Projected benefit obligation, beginning of the year
|
|
$
|
257
|
|
|
$
|
225
|
|
|
$
|
1,159
|
|
|
$
|
1,141
|
|
|
$
|
230
|
|
|
$
|
190
|
|
|
Service cost
|
|
|
1
|
|
|
|
—
|
|
|
|
18
|
|
|
|
19
|
|
|
|
1
|
|
|
|
2
|
|
|
Interest cost
|
|
|
11
|
|
|
|
13
|
|
|
|
51
|
|
|
|
60
|
|
|
|
8
|
|
|
|
10
|
|
|
Benefits paid
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
(47
|
)
|
|
|
(54
|
)
|
|
|
(11
|
)
|
|
|
(13
|
)
|
|
Settlements
(a)
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
(103
|
)
|
|
|
(63
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Actuarial (gain)/loss
(b)
|
|
|
(20
|
)
|
|
|
42
|
|
|
|
81
|
|
|
|
87
|
|
|
|
(44
|
)
|
|
|
41
|
|
|
Foreign exchange rate changes
|
|
|
—
|
|
|
|
—
|
|
|
|
(53
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
Liabilities assumed upon Separation
|
|
|
117
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amendments, transfers and other
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of the year
|
|
|
342
|
|
|
|
257
|
|
|
|
1,114
|
|
|
|
1,159
|
|
|
|
183
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in the fair value of plan assets for the Company’s benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of the year
|
|
|
189
|
|
|
|
198
|
|
|
|
960
|
|
|
|
1,031
|
|
|
|
—
|
|
|
|
—
|
|
|
Actual return on plan assets
|
|
|
11
|
|
|
|
3
|
|
|
|
110
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
Employer contributions
(c)
|
|
|
21
|
|
|
|
11
|
|
|
|
159
|
|
|
|
37
|
|
|
|
—
|
|
|
|
—
|
|
|
Benefits paid
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
(47
|
)
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Settlements
(a)
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
(103
|
)
|
|
|
(63
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Foreign exchange rate changes
|
|
|
—
|
|
|
|
—
|
|
|
|
(51
|
)
|
|
|
(32
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Assets received upon Separation
(d)
|
|
|
58
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amendments, transfers and other
|
|
|
—
|
|
|
|
|
|
|
|
3
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of the year
|
|
|
255
|
|
|
|
189
|
|
|
|
1,031
|
|
|
|
960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(87
|
)
|
|
$
|
(68
|
)
|
|
$
|
(83
|
)
|
|
$
|
(199
|
)
|
|
$
|
(183
|
)
|
|
$
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts related to payments made to former employees of the Company in full settlement of their deferred pension benefits.
|
|
(b)
|
Actuarial gains for domestic pension benefits primarily related to changes in the discount rate and for postretirement benefits primarily related to
changes in the discount rate and improvements in claims experience in measuring plan obligations as of June 30, 2013. Actuarial losses for foreign pension benefits primarily related to inflation rate changes and strengthening of the mortality
tables utilized in measuring plan obligations as of June 30, 2013. Actuarial losses for pension and postretirement benefits primarily related to changes in the discount rate and the strengthening of the mortality tables utilized in measuring
plan obligations as of June 30, 2012.
|
|
(c)
|
The Company made approximately $115 million in contributions in connection with the Separation in fiscal 2013.
|
|
(d)
|
Included in the $58 million above is $20 million related to a receivable from 21st Century Fox. Such amount will be received during the first quarter
of fiscal 2014.
|
114
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement Benefits
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Actuarial losses (gains)
|
|
$
|
121
|
|
|
$
|
102
|
|
|
$
|
351
|
|
|
$
|
353
|
|
|
$
|
9
|
|
|
$
|
56
|
|
|
Prior service (benefit) cost
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(27
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
121
|
|
|
$
|
102
|
|
|
$
|
351
|
|
|
$
|
353
|
|
|
$
|
(18
|
)
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive income expected to be recognized as a component of net
periodic pension cost in fiscal 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
|
|
As of June 30, 2013
|
|
|
|
|
(in millions)
|
|
|
Actuarial losses (gains)
|
|
$
|
6
|
|
|
$
|
11
|
|
|
$
|
(1
|
)
|
|
Prior service (benefit) cost
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
6
|
|
|
$
|
11
|
|
|
$
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated pension benefit obligations as of June 30, 2013 and 2012 were $1,424 million and $1,406
million, respectively. Below is information about funded and unfunded pension plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Pension Benefits
|
|
|
|
|
Funded Plans
|
|
|
Unfunded Plans
|
|
|
Total
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Projected benefit obligation
|
|
$
|
324
|
|
|
$
|
249
|
|
|
$
|
18
|
|
|
$
|
8
|
|
|
$
|
342
|
|
|
$
|
257
|
|
|
Accumulated benefit obligation
|
|
|
302
|
|
|
|
249
|
|
|
|
17
|
|
|
|
8
|
|
|
|
319
|
|
|
|
257
|
|
|
Fair value of plan assets
|
|
|
255
|
|
|
|
189
|
|
|
|
—
|
|
|
|
—
|
|
|
|
255
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Pension Benefits
|
|
|
|
|
Funded Plans
|
|
|
Unfunded Plans
|
|
|
Total
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Projected benefit obligation
|
|
$
|
1,057
|
|
|
$
|
1,103
|
|
|
$
|
57
|
|
|
$
|
56
|
|
|
$
|
1,114
|
|
|
$
|
1,159
|
|
|
Accumulated benefit obligation
|
|
|
1,048
|
|
|
|
1,094
|
|
|
|
57
|
|
|
|
55
|
|
|
|
1,105
|
|
|
|
1,149
|
|
|
Fair value of plan assets
|
|
|
1,031
|
|
|
|
960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,031
|
|
|
|
960
|
|
115
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The accumulated benefit obligation exceeds the fair value of plan assets for all
domestic pension plans. Below is information about foreign pension plans in which the accumulated benefit obligation exceeds the fair value of the plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Plans
|
|
|
Unfunded Plans
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Projected benefit obligation
|
|
$
|
691
|
|
|
$
|
1,103
|
|
|
$
|
57
|
|
|
$
|
56
|
|
|
Accumulated benefit obligation
|
|
|
691
|
|
|
|
1,094
|
|
|
|
57
|
|
|
|
55
|
|
|
Fair value of plan assets
|
|
|
660
|
|
|
|
960
|
|
|
|
—
|
|
|
|
—
|
|
The Company recorded $56 million, $45 million and $55 million in net periodic benefit costs in the
Statements of Operations for the fiscal years ended June 30, 2013, 2012 and 2011, respectively. The components of net periodic benefits costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement Benefits
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Service cost benefits earned during the period
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
19
|
|
|
$
|
21
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Interest costs on projected benefit obligations
|
|
|
11
|
|
|
|
13
|
|
|
|
13
|
|
|
|
51
|
|
|
|
60
|
|
|
|
57
|
|
|
|
8
|
|
|
|
10
|
|
|
|
10
|
|
|
Expected return on plan assets
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
(65
|
)
|
|
|
(69
|
)
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of deferred losses
|
|
|
3
|
|
|
|
2
|
|
|
|
4
|
|
|
|
19
|
|
|
|
14
|
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
8
|
|
|
|
4
|
|
|
|
(10
|
)
|
|
|
(15
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefits costs- Direct
|
|
|
2
|
|
|
|
2
|
|
|
|
4
|
|
|
|
34
|
|
|
|
32
|
|
|
|
37
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
Employees participation in 21st Century Fox plans
|
|
|
16
|
|
|
|
10
|
|
|
|
12
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Corporate allocations
(a)
|
|
|
5
|
|
|
|
4
|
|
|
|
5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefits costs- Total
|
|
$
|
23
|
|
|
$
|
16
|
|
|
$
|
21
|
|
|
$
|
34
|
|
|
$
|
32
|
|
|
$
|
37
|
|
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The allocated expense includes corporate executives of 21st Century Fox, allocated using a proportional allocation methodology, which management has
deemed as reasonable.
|
116
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement Benefits
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.0
|
%
|
|
|
4.3
|
%
|
|
|
5.8
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
|
5.7
|
%
|
|
|
4.7
|
%
|
|
|
3.8
|
%
|
|
|
5.3
|
%
|
|
Rate of increase in future compensation
|
|
|
5.3
|
%
|
|
|
3.3
|
%
|
|
|
3.3
|
%
|
|
|
3.7
|
%
|
|
|
3.3
|
%
|
|
|
3.8
|
%
|
|
|
5.0
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.3
|
%
|
|
|
5.8
|
%
|
|
|
5.8
|
%
|
|
|
4.5
|
%
|
|
|
5.7
|
%
|
|
|
5.8
|
%
|
|
|
3.8
|
%
|
|
|
5.3
|
%
|
|
|
5.5
|
%
|
|
Expected return on plan assets
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
6.7
|
%
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
|
Rate of increase in future compensation
|
|
|
5.3
|
%
|
|
|
3.3
|
%
|
|
|
3.3
|
%
|
|
|
3.3
|
%
|
|
|
3.8
|
%
|
|
|
3.9
|
%
|
|
|
5.0
|
%
|
|
|
—
|
%
|
|
|
—
|
%
|
N/A—not applicable
The following assumed health care cost trend rates as of
June 30 were also used in accounting for postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
|
|
Fiscal 2013
|
|
|
Fiscal 2012
|
|
|
Health care cost trend rate
|
|
|
6.7%
|
|
|
|
7.0%
|
|
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
|
|
5.1%
|
|
|
|
5.0%
|
|
|
Year that the rate reaches the ultimate trend rate
|
|
|
2019
|
|
|
|
2019
|
|
Assumed health care cost trend rates could have a significant effect on the amounts reported for the
postretirement health care plan. The effect of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate would have the following effects on the results for fiscal 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and
Interest Costs
|
|
|
Benefit
Obligation
|
|
|
|
|
(in millions)
|
|
|
One percentage point increase
|
|
$
|
1
|
|
|
$
|
21
|
|
|
One percentage point decrease
|
|
$
|
(1
|
)
|
|
$
|
(17
|
)
|
117
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table sets forth the estimated benefit payments for the next five fiscal
years, and in aggregate for the five fiscal years thereafter. The expected benefits are estimated based on the same assumptions used to measure the Company’s benefit obligation at the end of the fiscal year and include benefits attributable to
estimated future employee service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Benefit Payments
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
|
|
(in millions)
|
|
|
Fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
15
|
|
|
$
|
58
|
|
|
$
|
10
|
|
|
2015
|
|
|
16
|
|
|
|
59
|
|
|
|
11
|
|
|
2016
|
|
|
16
|
|
|
|
58
|
|
|
|
11
|
|
|
2017
|
|
|
17
|
|
|
|
60
|
|
|
|
11
|
|
|
2018
|
|
|
18
|
|
|
|
61
|
|
|
|
11
|
|
|
2019-2023
|
|
|
100
|
|
|
|
340
|
|
|
|
54
|
|
The above table shows expected benefits payments for the postretirement benefits after adjusting for U.S.
Medicare subsidy receipts. The annual receipts are expected to range from $1 million to $2 million.
Plan Assets
The Company applies the provisions of ASC 715, which requires disclosures including (i) investment policies and strategies;
(ii) the major categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the
period; and (v) significant concentrations of risk within plan assets.
118
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The table below presents the Company’s plan assets by level within the fair value
hierarchy, as described in Note 2—Summary of Accounting Policies, as of June 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
|
As of June 30, 2012
|
|
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
Description
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
(in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Pooled funds:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
49
|
|
|
|
—
|
|
|
|
49
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
Domestic equity funds
|
|
|
65
|
|
|
|
—
|
|
|
|
65
|
|
|
|
—
|
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
International equity funds
|
|
|
373
|
|
|
|
126
|
|
|
|
247
|
|
|
|
—
|
|
|
|
318
|
|
|
|
118
|
|
|
|
200
|
|
|
|
—
|
|
|
Domestic fixed income funds
|
|
|
108
|
|
|
|
—
|
|
|
|
108
|
|
|
|
—
|
|
|
|
34
|
|
|
|
34
|
|
|
|
—
|
|
|
|
—
|
|
|
International fixed income funds
|
|
|
304
|
|
|
|
—
|
|
|
|
304
|
|
|
|
—
|
|
|
|
302
|
|
|
|
—
|
|
|
|
302
|
|
|
|
—
|
|
|
Balanced funds
|
|
|
350
|
|
|
|
—
|
|
|
|
350
|
|
|
|
—
|
|
|
|
379
|
|
|
|
16
|
|
|
|
363
|
|
|
|
—
|
|
|
Common stocks
(b)
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. common stocks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
28
|
|
|
|
—
|
|
|
|
—
|
|
|
Government and agency obligations
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic government obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
Domestic agency obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
|
12
|
|
|
|
—
|
|
|
International government obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
Corporate obligations
(c)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
Partnership interests
(d)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
Other
|
|
|
37
|
|
|
|
26
|
|
|
|
—
|
|
|
|
11
|
|
|
|
21
|
|
|
|
6
|
|
|
|
3
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,286
|
|
|
$
|
152
|
|
|
$
|
1,123
|
|
|
$
|
11
|
|
|
$
|
1,149
|
|
|
$
|
215
|
|
|
$
|
918
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Open-ended pooled funds that are registered and/or available to the general public are valued at the daily published net asset value
(“NAV”). Other pooled funds are valued at the NAV provided by the fund issuer.
|
|
(b)
|
Common stocks that are publicly traded are valued at the closing price reported on active markets in which the individual securities are traded.
|
|
(c)
|
The fair value of corporate, government and agency obligations are valued based on a compilation of primary observable market information or a broker
quote in a non-active market.
|
|
(d)
|
The fair values of partnerships that are not publicly traded are based on fair value obtained from the general partner.
|
119
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The table below sets forth a summary of changes in the fair value of investments
reflected as Level 3 assets as of June 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
Interests
|
|
|
Other
|
|
|
Total
|
|
|
|
|
(in millions)
|
|
|
Balance, June 30, 2011
|
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
13
|
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at end of period
|
|
|
—
|
|
|
|
3
|
|
|
|
3
|
|
|
Relating to assets sold during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchases, sales, settlements and issuances
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
Transfers in and out of Level 3
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2012
|
|
$
|
4
|
|
|
$
|
12
|
|
|
$
|
16
|
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to assets still held at end of period
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Relating to assets sold during the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Purchases, sales, settlements and issuances
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
Transfers in and out of Level 3
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s investment strategy for its pension plans is to maximize the long-term rate of return
on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The Company’s practice is to conduct a periodic strategic review of its asset allocation.
The Company’s current broad strategic targets are to have a pension asset portfolio comprised of 38% equity securities, 48% fixed income securities and 14% in cash and other investments. In developing the expected long-term rate of return, the
Company considered the pension asset portfolio’s past average rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in short-term cash to provide for expected benefits to be
paid in the short term. The Company’s equity portfolios are managed in such a way as to achieve optimal diversity. The Company’s fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets
internally.
The Company’s benefit plan weighted-average asset allocations, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
37
|
%
|
|
|
37
|
%
|
|
Debt securities
|
|
|
39
|
%
|
|
|
44
|
%
|
|
Real estate
|
|
|
—
|
%
|
|
|
1
|
%
|
|
Cash and other
|
|
|
24
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
Required pension plan contributions for the next fiscal year are expected to be approximately $21
million; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status. During the first quarter of
fiscal 2014, approximately $37 million of contributions were made by a third party to one of the Company’s plans in connection with the sale of a business in a prior period on behalf of former employees who
120
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
retain certain pension benefits. This contribution was finalized and made to the plan in the first quarter of fiscal 2014 and will result in a gain being recognized in the Statements of
Operations during the first quarter.
NOTE 14. OTHER POSTRETIREMENT BENEFITS
Multiemployer Pension and Postretirement Plans
The Company contributes to
various multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented employees, primarily at the Newspaper businesses. The risks of participating in these multiemployer
pension plans are different from single-employer pension plans such that (i) contributions made by the Company to the multiemployer pension plans may be used to provide benefits to employees of other participating employers; (ii) if the
Company chooses to stop participating in certain of these multiemployer pension plans, it may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability; and
(iii) actions taken by a participating employer that lead to a deterioration of the financial health of a multiemployer pension plan may result in the unfunded obligations of the multiemployer pension plan being borne by its remaining
participating employers. While no multiemployer pension plan that the Company contributed to is individually significant to the Company, the Company was listed on certain Form 5500s as providing more than 5% of total contributions based on the
current information available. The financial health of a multiemployer plan is indicated by the zone status, as defined by the Pension Protection Act of 2006, which represents the funded status of the plan as certified by the plan’s actuary.
Plans in the red zone are less than 65% funded, the yellow zone are between 65% and 80% funded, and green zone are at least 80% funded. The funded status of one of the plans which the Company was listed as providing more than 5% of total
contributions reported yellow zone status for the plan year beginning June 1, 2012 to the Department of Labor and is implementing a funding improvement plan. Total contributions made by the Company to multiemployer pension plans for each
of the fiscal years ended June 30, 2013, 2012 and 2011 was approximately $5 million, respectively.
Defined Contribution Plans
The Company has defined contribution plans for the benefit of substantially all employees meeting certain eligibility
requirements. Employer contributions to such plans were $134 million, $141 million and $148 million for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.
Deferred Compensation Plan
The Company has non-qualified deferred
compensation plans for the benefit of certain management employees and the account balances are credited with a stable value return which minimizes the fluctuations in investment returns. The unfunded obligation of the plan, included in Other
liabilities, as of June 30, 2013 and 2012 was $30 million and $31 million, respectively and the majority of these plans are closed to new employees.
NOTE 15. INCOME TAXES
The income tax accounts reflected in the Balance
Sheets as of June 30, 2013 include income taxes payable and deferred taxes allocated to the Company at the time of the Separation. Under the Company’s Tax Sharing and Indemnification Agreement with 21st Century Fox, income taxes payable
related to the Company’s U.S. federal and state consolidated tax filings for periods prior to the Separation are the responsibility of 21st Century Fox. The calculation of the Company’s income taxes involves considerable judgment and
requires the use of both estimates and allocations.
121
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Income (loss) before income tax (benefit) expense was attributable to the following
jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
U.S.
|
|
$
|
(432
|
)
|
|
$
|
(829
|
)
|
|
$
|
41
|
|
|
Foreign
|
|
|
605
|
|
|
|
(1,548
|
)
|
|
|
920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (benefit) expense
|
|
$
|
173
|
|
|
$
|
(2,377
|
)
|
|
$
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of the Company’s income tax (benefit) expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
183
|
|
|
$
|
29
|
|
|
$
|
10
|
|
|
State & local
|
|
|
21
|
|
|
|
11
|
|
|
|
5
|
|
|
Foreign
|
|
|
99
|
|
|
|
104
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax
|
|
|
303
|
|
|
|
144
|
|
|
|
206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(317
|
)
|
|
|
(254
|
)
|
|
|
48
|
|
|
State & local
|
|
|
(33
|
)
|
|
|
(31
|
)
|
|
|
(10
|
)
|
|
Foreign
|
|
|
(327
|
)
|
|
|
(196
|
)
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax
|
|
|
(677
|
)
|
|
|
(481
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
$
|
(374
|
)
|
|
$
|
(337
|
)
|
|
$
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation between the Company’s actual effective tax rate and the statutory U.S. Federal
income tax rate of 35% was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
U.S. federal income tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
|
Impact of CMH transaction
(a)
|
|
|
(247
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Non-taxable gain on SKY Network Television Ltd.
(b)
|
|
|
(56
|
)
|
|
|
—
|
|
|
|
—
|
|
|
State and local taxes
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
Effect of foreign operations
(c)
|
|
|
(35
|
)
|
|
|
(4
|
)
|
|
|
(9
|
)
|
|
Non-deductible goodwill on asset impairment
(d)
|
|
|
87
|
|
|
|
(16
|
)
|
|
|
—
|
|
|
Other
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
(e)
|
|
|
(216
|
)%
|
|
|
14
|
%
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 3—Acquisitions, Disposals and Other Transactions
|
|
(b)
|
See Note 5—Investments
|
|
(c)
|
The effect of foreign operations on the Company’s effective tax rate is dependent on the mix of pre-tax book income or loss between jurisdictions
and the overall level of pre-tax book income, including the impact of non-recurring items.
|
|
(d)
|
See Note 7—Goodwill and Other Intangible Assets
|
122
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
(e)
|
The negative effective tax rate for the fiscal year ended June 30, 2013 results from the Company’s total tax benefit when compared to pre-tax
book income. As a result, certain reconciling items between the U.S. federal income tax rate and the Company’s effective tax rate may have the opposite impact as in prior years. Further, reconciling items for the fiscal year ended June 30,
2013 have a greater percentage impact on the Company’s effective tax rate due to the comparatively lower amount of pre-tax book income and related tax at the U.S. statutory tax rate of 35%.
|
The significant components of the Company’s deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
61
|
|
|
$
|
140
|
|
|
Capital loss carryforwards
|
|
|
1,124
|
|
|
|
1,170
|
|
|
Retirement benefit obligations
|
|
|
105
|
|
|
|
93
|
|
|
Net operating loss carryforwards
|
|
|
275
|
|
|
|
61
|
|
|
Business credits
|
|
|
20
|
|
|
|
24
|
|
|
Other
|
|
|
155
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,740
|
|
|
|
1,582
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Asset basis difference and amortization
|
|
|
(366
|
)
|
|
|
(1,170
|
)
|
|
Other
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(368
|
)
|
|
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance
|
|
|
1,372
|
|
|
|
407
|
|
|
Less: valuation allowance (See Note 18—Valuation and Qualifying Accounts)
|
|
|
(1,391
|
)
|
|
|
(1,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(19
|
)
|
|
$
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
|
The Company had net current deferred tax assets of $55 million and $86 million as of June 30,
2013 and 2012, respectively, and net non-current deferred tax assets of $139 million and $56 million as of June 30, 2013 and 2012, respectively. The Company also had net current deferred tax liabilities of $61 million and $70 million as of
June 30, 2013 and 2012, respectively, and net non-current deferred tax liabilities of $152 million and $926 million as of June 30, 2013 and 2012, respectively.
Prior to the Separation, 21st Century Fox executed an internal restructuring transaction to facilitate the separation of the companies. The internal transaction was structured in a manner that resulted in
an increase of approximately $1.1 billion in the U.S. tax basis to fair market value of certain intangible assets, including goodwill, owned by the Company, and which will be amortizable in future years for tax purposes. As part of this internal
restructuring, News America Incorporated (“NAI”), a subsidiary of 21st Century Fox, transferred certain assets to, and received common stock and cumulative redeemable preferred stock of a new U.S. subsidiary that is now a subsidiary of the
Company. NAI sold the preferred stock to an unrelated third party prior to the Separation and retained the proceeds from this sale. (See Note 8 – Redeemable Preferred Stock). Prior to the Separation, the increased tax basis and related
amortization deductions were deferred because the Company was a part of the same consolidated tax group. However, upon the Separation, the Company separated from 21st Century Fox’s consolidated tax group and, at that point, the Company obtained
a fair market value tax basis in the transferred intangible assets including goodwill. Accordingly, the Company recognized a U.S. deferred tax asset of $429
123
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
million which was recorded to equity. A valuation allowance of $51 million was also recorded to equity to reduce the state tax portion of this deferred tax asset to an amount that will
more likely than not be realized as of June 30, 2013.
As of June 30, 2013, the Company had approximately $1.0
billion of net operating loss carryforwards available to offset future taxable income in various jurisdictions. This includes $407 million in Australia (which is only available to offset taxable income of certain acquired subsidiaries) and $217
million in the U.K. both of which can be carried forward indefinitely, $281 million in various other foreign jurisdictions (which are only available to offset taxable income of certain businesses) of which $16 million are subject to various
expiration periods and $265 million of which can be carried forward indefinitely, and $101 million in various U.S. state and local jurisdictions which are subject to varying expiration periods. The Company has recorded a deferred tax asset of $275
million and $61 million (net of approximately $10 million and $5 million, respectively, of unrecognized tax benefits) associated with its net operating loss carryforwards as of June 30, 2013 and 2012, respectively. Valuation allowances of $100
million and $47 million have been established to reduce the deferred tax asset associated with the Company’s net operating losses to an amount that will more likely than not be realized as of June 30, 2013 and 2012, respectively.
As of June 30, 2013, the Company had approximately $2.2 billion and $2.0 billion of capital loss carryforwards in
Australia and the U.K., respectively, which may be carried forward indefinitely. Realization of such capital losses is dependent on the generation of capital gain taxable income and in certain cases, meeting continuity of business requirements in
order to utilize such losses. The Company has recorded a deferred tax asset of $1.1 billion and $1.2 billion (net of approximately $101 million and $113 million, respectively, of unrecognized tax benefits) as of June 30, 2013 and 2012,
respectively. In accordance with the Company’s accounting policy, valuation allowances of $1.1 billion and $1.2 billion have been established to reduce the deferred tax asset associated with the Company’s capital losses to an amount that
will more likely than not be realized as of June 30, 2013 and 2012, respectively.
Tax Sharing and Indemnification Agreement
The Company entered into a Tax Sharing and Indemnification Agreement with 21st Century Fox that governs the
Company’s and 21st Century Fox’s respective rights, responsibilities, and obligations with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxes and related tax
returns. Among other matters, as subsidiaries of 21st Century Fox prior to the Separation, the Company and each of its domestic subsidiaries have joint and several liability with 21st Century Fox for the consolidated U.S. federal income taxes of the
21st Century Fox consolidated group relating to any taxable periods during which the Company or any of such subsidiaries are or were a member of the 21st Century Fox consolidated group. Under the Tax Sharing and Indemnification Agreement, 21st
Century Fox will indemnify the Company for any such liability.
The Tax Sharing and Indemnification Agreement provides that
the Company will generally indemnify 21st Century Fox against taxes attributable to the Company’s assets or operations for all tax periods or portions thereof after the Separation. For taxable periods or portions thereof prior to the
Separation, 21st Century Fox will generally indemnify the Company against U.S. consolidated and combined taxes attributable to such periods, and the Company will indemnify 21st Century Fox against the Company’s separately filed U.S., state, and
foreign taxes and foreign consolidated and combined taxes for such periods.
The Tax Sharing and Indemnification Agreement
also contains restrictions on the Company’s ability to take actions that could cause the Separation or certain internal transactions undertaken in anticipation of the Separation to fail to qualify for tax free treatment for U.S. federal income
tax purposes. These restrictions will
124
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
apply for the two year period after the Separation, unless the Company obtains the consent of 21st Century Fox to take such an action. Moreover, the Tax Sharing and Indemnification Agreement
generally provides that if the Separation or the internal transactions that were intended not to be subject to U.S. federal income tax are determined to be subject to U.S. federal income tax and such determination was the result of certain actions
taken, or omitted to be taken, after the Separation by the Company or any of its subsidiaries that (i) were inconsistent with any representation or covenant made in connection with the private letter ruling or opinion of 21st Century Fox’s
tax counsel, (ii) violated any representation or covenant in the Tax Sharing and Indemnification Agreement, or (iii) the Company or any of its subsidiaries know or reasonably should expect may result in any such determination, the Company
will be responsible for any taxes imposed on 21st Century Fox as a result of such determination.
Uncertain Tax Positions
The following table sets forth the change in the Company’s unrecognized tax benefits, excluding interest and penalties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Balance, beginning of period
|
|
$
|
132
|
|
|
$
|
132
|
|
|
$
|
109
|
|
|
Additions for prior year tax positions
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
Additions for current year tax positions
|
|
|
6
|
|
|
|
5
|
|
|
|
—
|
|
|
Reduction for prior year tax positions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Impact of currency translations
|
|
|
(12
|
)
|
|
|
(5
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
127
|
|
|
$
|
132
|
|
|
$
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes interest and penalty charges related to unrecognized tax benefits as income
tax expense, which is consistent with the recognition in prior reporting periods. The Company recognized interest charges of $1 million, $1 million and nil during the fiscal years ended June 30, 2013, 2012 and 2011, respectively. The
Company recorded liabilities for accrued interest of approximately $6 million and $5 million as of June 30, 2013 and 2012, respectively.
The Company is subject to tax in various domestic and international jurisdictions and, as a matter of ordinary course, the Company is regularly audited by federal, state and foreign tax authorities.
The Company believes it has appropriately accrued for the expected outcome of all other pending tax matters and does not currently anticipate that the ultimate resolution of other pending tax matters will have a material adverse effect on its
financial condition, future results of operations or liquidity. The U.S. Internal Revenue Service has concluded its examination of 21st Century Fox’s returns through fiscal 2009. Additionally, the Company’s income tax returns for the
fiscal 2007 through 2012 and fiscal 2009 through 2012 are subject to examination in the U.K. and Australia, respectively. Consequently, it is reasonably possible that uncertain tax positions may decrease in the next twelve months, however, actual
developments in this area could differ from those currently expected. As of June 30, 2013 and 2012, approximately $26 million would affect the Company’s effective income tax rate, if and when recognized in future fiscal years. It is reasonably
possible that $16 million of the uncertain tax liability will be resolved within the next twelve months.
The Company has
filed refund claims pertaining to certain losses in a foreign jurisdiction that have been subject to litigation. At June 30, 2013, the Company has not recognized an asset for these claims since such amounts were being disputed by the foreign tax
authority and the resolution was not determinable at that date
125
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
because the foreign tax authority had further legal recourse including the ability to appeal a favorable ruling for the Company. In the first quarter of fiscal 2014, the foreign tax authority
determined that it would not appeal a favorable ruling received by the Company in July 2013 and therefore a portion of the uncertain matter has been resolved. As a result, the Company expects to receive a refund of taxes of approximately $400
million plus interest of approximately $150 million during fiscal 2014. In addition, the Company may receive a refund of taxes of nil to $200 million plus interest for periods still subject to the foreign tax authority’s review. It is possible
that this uncertainty will be resolved during fiscal 2014. Pursuant to the Tax Sharing and Indemnification Agreement, refunds received related to these matters, net of applicable taxes incurred by the Company, are to be remitted to 21st Century Fox.
The Company has not provided for U.S. taxes on the undistributed earnings of foreign subsidiaries as they are considered to
be reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not practicable. Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested
amounted to approximately $8.6 billion as of June 30, 2013.
The Company paid $85 million, $88 million and $169 million for
income taxes in fiscal 2013, 2012 and 2011, respectively.
NOTE 16. SEGMENT INFORMATION
Reportable Segments
The Company manages and reports its businesses in the following five segments:
|
|
•
|
|
News and Information Services
— The News and Information Services segment includes the global product offerings of
The Wall Street
Journal
and
Barron’s
publications, The Wall Street Journal Digital Network (“WSJDN”) and the Company’s suite of information services including DJX, Dow Jones Newswires and Factiva. In addition to WSJ.com and
Barrons.com, WSJDN includes MarketWatch, AllThingsD and related services. The Company launched DJX in April 2013 as a bundle of underlying products, including Factiva, Dow Jones Newswires (including the new DJ Dominant wire), certain Private Markets
products (e.g., Venturesource, LP Source), certain Risk & Compliance products, WSJ.com and Barrons.com.
|
The Company also owns, among other publications,
The Australian
,
The Daily Telegraph
,
Herald Sun
and
The Courier Mail
in Australia,
The Times
,
The Sunday
Times
,
The Sun
and
The Sun on Sunday
in the U.K. and The
New York Post
in the U.S. This segment also includes the integrated marketing services business, (“NAM”), a leading provider of free-standing coupon inserts,
in-store marketing products and digital-savings marketing solutions. NAM’s customers include many of the largest consumer packaged goods advertisers in the U.S. and Canada.
|
|
•
|
|
Cable Network Programming
—The Cable Network Programming segment consists of FOX SPORTS Australia, the leading sports programming
provider in Australia with seven standard definition television channels, high definition versions of five of these channels, an interactive viewing application and one IPTV channel and broadcast rights to live sporting events in Australia
including: National Rugby League, the domestic football league, English Premier League, Australian and international cricket as well as the National Football League (“NFL”). Prior to the November 2012 acquisition of the portion of FOX
SPORTS Australia that it did not own, the Company accounted for its investment in FOX SPORTS Australia under the equity method of accounting. The Company now owns 100% of FOX SPORTS Australia and its results are included within this new segment.
|
|
|
•
|
|
Digital Real Estate Services
—The Company owns 61.6% of REA Group, a publicly traded company listed on the ASX (ASX: REA) that is a
leading digital advertising business specializing in real estate
|
126
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
services. REA Group operates Australia’s largest residential property website, realestate.com.au, as well as Australia’s leading commercial property website, realcommercial.com.au. REA
Group also operates a market-leading Italian property site, casa.it, and other property sites and apps across Europe and Hong Kong.
|
|
|
•
|
|
Book Publishing
—The Book Publishing segment consists of HarperCollins which is one of the largest English-language consumer
publishers in the world, with particular strengths in general fiction, nonfiction, children’s and religious publishing, and an industry leader in digital publishing. HarperCollins includes over 60 branded publishing imprints including Avon,
Harper, HarperCollins Children’s Publishers, William Morrow and Christian publishers Zondervan and Thomas Nelson, and publishes works by well-known authors such as J.R.R. Tolkien, Paulo Coelho, Rick Warren and Agatha Christie and popular titles
such as
The Hobbit
,
Goodnight Moon
and
To Kill a Mockingbird
.
|
|
|
•
|
|
Other
—The Other segment primarily consists of Amplify, the corporate Strategy and Creative Group, general corporate overhead
expenses and costs related to the U.K. Newspaper Matters. Amplify, the Company’s digital education business concentrating on the K-12 learning market, operates with three distinct divisions each focusing on a separate area of business.
|
|
|
•
|
|
Amplify Insight, Amplify’s data and analytics division, which formerly operated as Wireless Generation, Inc., commenced operations in 2000 and was
acquired in fiscal 2011. Amplify Insight provides premium data and analytics services to enable real-time individualized instruction.
|
|
|
•
|
|
Amplify Learning, which is creating innovative digital curricula for K-12 education designed to enhance teaching and learning in English Language Arts,
Science and Math.
|
|
|
•
|
|
Amplify Access, which is developing an open, tablet-based education platform that integrates its existing assessment and analytics tools and services
with its digital curricula as well as third-party content and interactive applications.
|
The Company’s
corporate Strategy and Creative group was formed to identify new products and services across businesses to increase revenues and profitability and to target and assess potential acquisitions and investments.
The Company’s operating segments have been determined in accordance with its internal management structure, which is organized based
on operating activities and has aggregated its newspaper and information services business with its integrated marketing services business into one reportable segment due to their similarities. The Company evaluates performance based upon several
factors, of which the primary financial measure is Segment EBITDA.
Segment EBITDA is defined as revenues less operating
expenses and selling, general and administrative expenses. Segment EBITDA does not include: Depreciation and amortization; impairment and restructuring charges; equity earnings of affiliates; interest, net; other, net; income tax benefit (expense)
and net income attributable to noncontrolling interests. The Company believes that information about Segment EBITDA assists all users of its Financial Statements by allowing them to evaluate changes in the operating results of the Company’s
portfolio of businesses separate from non-operational factors that affect net income (loss), thus providing insight into both operations and the other factors that affect reported results.
Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow
and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment and restructuring
charges, which are significant components in assessing the Company’s financial performance.
127
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Management believes that Segment EBITDA is an appropriate measure for evaluating the
operating performance of the Company’s business. Segment EBITDA provides management, investors and equity analysts measures to analyze operating performance of the Company’s business and its enterprise value against historical data and
competitors’ data, although historical results, including Segment EBITDA, may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
6,731
|
|
|
$
|
7,058
|
|
|
$
|
7,576
|
|
|
Cable Network Programming
|
|
|
324
|
|
|
|
—
|
|
|
|
—
|
|
|
Digital Real Estate Services
|
|
|
345
|
|
|
|
286
|
|
|
|
235
|
|
|
Book Publishing
|
|
|
1,369
|
|
|
|
1,189
|
|
|
|
1,195
|
|
|
Other
|
|
|
122
|
|
|
|
121
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
8,891
|
|
|
|
8,654
|
|
|
|
9,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
795
|
|
|
$
|
939
|
|
|
$
|
1,153
|
|
|
Cable Network Programming
|
|
|
63
|
|
|
|
—
|
|
|
|
—
|
|
|
Digital Real Estate Services
|
|
|
168
|
|
|
|
129
|
|
|
|
102
|
|
|
Book Publishing
|
|
|
142
|
|
|
|
86
|
|
|
|
93
|
|
|
Other
|
|
|
(480
|
)
|
|
|
(372
|
)
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment EBITDA
|
|
|
688
|
|
|
|
782
|
|
|
|
1,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(548
|
)
|
|
|
(483
|
)
|
|
|
(430
|
)
|
|
Impairment and restructuring charges
|
|
|
(1,737
|
)
|
|
|
(2,763
|
)
|
|
|
(25
|
)
|
|
Equity earnings of affiliates
|
|
|
100
|
|
|
|
90
|
|
|
|
109
|
|
|
Interest, net
|
|
|
77
|
|
|
|
56
|
|
|
|
47
|
|
|
Other, net
|
|
|
1,593
|
|
|
|
(59
|
)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit (expense)
|
|
|
173
|
|
|
|
(2,377
|
)
|
|
|
961
|
|
|
Income tax benefit (expense)
|
|
|
374
|
|
|
|
337
|
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
547
|
|
|
|
(2,040
|
)
|
|
|
704
|
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(41
|
)
|
|
|
(35
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to News Corporation
|
|
$
|
506
|
|
|
$
|
(2,075
|
)
|
|
$
|
678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
441
|
|
|
$
|
416
|
|
|
$
|
379
|
|
|
Cable Network Programming
|
|
|
25
|
|
|
|
—
|
|
|
|
—
|
|
|
Digital Real Estate Services
|
|
|
20
|
|
|
|
16
|
|
|
|
11
|
|
|
Book Publishing
|
|
|
34
|
|
|
|
27
|
|
|
|
29
|
|
|
Other
|
|
|
28
|
|
|
|
24
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation and amortization
|
|
$
|
548
|
|
|
$
|
483
|
|
|
$
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
250
|
|
|
$
|
301
|
|
|
$
|
501
|
|
|
Cable Network Programming
|
|
|
14
|
|
|
|
—
|
|
|
|
—
|
|
|
Digital Real Estate Services
|
|
|
22
|
|
|
|
21
|
|
|
|
21
|
|
|
Book Publishing
|
|
|
10
|
|
|
|
13
|
|
|
|
7
|
|
|
Other
|
|
|
36
|
|
|
|
40
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital expenditures
|
|
$
|
332
|
|
|
$
|
375
|
|
|
$
|
549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
7,552
|
|
|
$
|
9,662
|
|
|
Cable Network Programming
|
|
|
1,414
|
|
|
|
—
|
|
|
Digital Real Estate Services
|
|
|
393
|
|
|
|
346
|
|
|
Book Publishing
|
|
|
1,355
|
|
|
|
1,290
|
|
|
Other
|
|
|
2,430
|
|
|
|
666
|
|
|
Investments
|
|
|
2,499
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,643
|
|
|
$
|
13,090
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets, net:
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
2,657
|
|
|
$
|
4,060
|
|
|
Cable Network Programming
|
|
|
1,170
|
|
|
|
—
|
|
|
Digital Real Estate Services
|
|
|
77
|
|
|
|
85
|
|
|
Book Publishing
|
|
|
605
|
|
|
|
454
|
|
|
Other
|
|
|
402
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets, net
|
|
$
|
4,911
|
|
|
$
|
5,049
|
|
|
|
|
|
|
|
|
|
|
|
129
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Geographic Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Revenues:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
(b)
|
|
$
|
3,862
|
|
|
$
|
3,727
|
|
|
$
|
3,805
|
|
|
Europe
(c)
|
|
|
2,048
|
|
|
|
1,960
|
|
|
|
2,243
|
|
|
Australasia and Other
(d)
|
|
|
2,981
|
|
|
|
2,967
|
|
|
|
3,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
8,891
|
|
|
$
|
8,654
|
|
|
$
|
9,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Revenues are attributed to region based on location of customer.
|
|
(b)
|
Revenues include approximately $3.7 billion for fiscal 2013, $3.6 billion for both fiscal 2012 and fiscal 2011 from customers in the U.S.
|
|
(c)
|
Revenues include approximately $1.8 billion for fiscal 2013, $1.7 billion for fiscal 2012 and $2.0 billion for fiscal 2011 from customers in the U.K.
|
|
(d)
|
Revenues include approximately $2.8 billion in both fiscal 2013 and 2012 and $2.9 billion for fiscal 2011 from customers in Australia.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Long-lived assets:
(a)
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
1,156
|
|
|
$
|
1,176
|
|
|
Europe
|
|
|
1,163
|
|
|
|
1,292
|
|
|
Australasia and Other
|
|
|
1,132
|
|
|
|
1,276
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
3,451
|
|
|
$
|
3,744
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reflects total assets less current assets, goodwill, intangible assets, investments and non-current deferred tax assets.
|
There is no material reliance on any single customer. Revenues are attributed to countries based on location of customers.
Australasia comprises Australia, Asia, Papua New Guinea and New Zealand.
130
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 17. ADDITIONAL FINANCIAL INFORMATION
Other Current Assets
The following table sets forth the components of Other current assets included in the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Inventory
(a)
|
|
$
|
301
|
|
|
$
|
246
|
|
|
Assets held for sale
(b)
|
|
|
89
|
|
|
|
126
|
|
|
Deferred tax assets
|
|
|
55
|
|
|
|
86
|
|
|
Prepayments and other current assets
|
|
|
235
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other current assets
|
|
$
|
680
|
|
|
$
|
613
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Inventory as of June 30, 2013 and 2012 was primarily comprised of books, newsprint, printing ink and plate material for the Company’s
publishing operations. Inventory as of June 30, 2013 also included programming rights.
|
|
(b)
|
The decrease in Assets held for sale was primarily due to impairment charges of $42 million recorded during the fiscal year ended June 30, 2013
reflecting the potential sale of these assets at values below their carrying values.
|
Other Non-Current Assets
The following table sets forth the components of Other non-current assets included in the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Royalty advances to authors
|
|
$
|
248
|
|
|
$
|
218
|
|
|
Notes receivable
(a)
|
|
|
108
|
|
|
|
146
|
|
|
Deferred tax assets
|
|
|
139
|
|
|
|
56
|
|
|
Other
|
|
|
103
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other non-current assets
|
|
$
|
598
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Notes receivable relates to the Company’s sale of its former U.K. newspaper division headquarters. (See Note—3 Acquisitions, Disposals and
Other Transactions).
|
131
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Other Current Liabilities
The following table sets forth the components of Other current liabilities included in the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
(in millions)
|
|
|
Current tax payable
(a)
|
|
$
|
28
|
|
|
$
|
316
|
|
|
Associated creditors
|
|
|
—
|
|
|
|
165
|
|
|
Current deferred income tax
|
|
|
61
|
|
|
|
70
|
|
|
Royalties and commissions payable
|
|
|
154
|
|
|
|
135
|
|
|
Other
|
|
|
189
|
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other current liabilities
|
|
$
|
432
|
|
|
$
|
801
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
As discussed in Note 1—Description of Business and Basis of Presentation, income tax items prior to the Separation were calculated as if the
Company filed a separate return and was operating as a stand-alone business. Therefore, tax balances reflected in the Financial Statements may not be reflective of the Company’s actual tax balances prior to the Separation.
|
Other, net
The following table sets forth the components of Other, net included in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Gain on CMH transaction
(a)
|
|
$
|
1,263
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Gain on sale of investment in SKY Network Television Ltd.
(b)
|
|
|
321
|
|
|
|
—
|
|
|
|
—
|
|
|
Gain on the financial indexes business transactions
(c)(d)
|
|
|
12
|
|
|
|
—
|
|
|
|
43
|
|
|
Loss on sale of U.K. newspaper division headquarters
(a)
|
|
|
—
|
|
|
|
(22
|
)
|
|
|
—
|
|
|
Investment write-offs
(b)
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
Other
|
|
|
(3
|
)
|
|
|
(7
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other, net
|
|
$
|
1,593
|
|
|
$
|
(59
|
)
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note 3—Acquisitions, Disposals and Other Transactions
|
|
(b)
|
See Note 5—Investments
|
|
(c)
|
In April 2013, the Company sold its 10% investment in its venture with CME. (See Note 5—Investments).
|
|
(d)
|
During fiscal 2010, the Company sold its 33% interest in STOXX AG (“STOXX”), a European market index provider, to its partners, Deutsche
Börse AG and SIX Group AG, for $295.8 million in cash. The Company was entitled to receive additional consideration if STOXX achieved certain revenue targets in calendar year 2010. These revenue targets were met and in June 2011, the
Company received additional consideration of approximately $43 million.
|
132
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
(in millions)
|
|
|
Accumulated other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
Fiscal year activity, net of income tax expense of $0.3 million, $0.8 million and $0.2 million
|
|
|
1
|
|
|
|
—
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
(358
|
)
|
|
|
(214
|
)
|
|
|
(204
|
)
|
|
Fiscal year activity, net of income tax (expense) benefit of $(4.8) million, $50.3 million and $(5.1) million
|
|
|
10
|
|
|
|
(144
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
(348
|
)
|
|
|
(358
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
1,404
|
|
|
|
1,744
|
|
|
|
402
|
|
|
Fiscal year activity
(a)
|
|
|
(787
|
)
|
|
|
(340
|
)
|
|
|
1,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
617
|
|
|
|
1,404
|
|
|
|
1,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
1,047
|
|
|
|
1,531
|
|
|
|
197
|
|
|
Fiscal year activity, net of income taxes
|
|
|
(776
|
)
|
|
|
(484
|
)
|
|
|
1,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
271
|
|
|
$
|
1,047
|
|
|
$
|
1,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Excludes $(10) million, $(5) million and $14 million relating to noncontrolling interests for the fiscal years ended June 30, 2013, 2012 and 2011,
respectively.
|
NOTE 18. VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning of
year
|
|
|
Additions
|
|
|
Acquisitions
and disposals
|
|
|
Utilization
|
|
|
Foreign
exchange
|
|
|
Balance at
end of year
|
|
|
|
|
(in millions)
|
|
|
Fiscal 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for returns and doubtful accounts
|
|
$
|
(186
|
)
|
|
$
|
(125
|
)
|
|
$
|
(4
|
)
|
|
$
|
133
|
|
|
$
|
7
|
|
|
$
|
(175
|
)
|
|
Deferred tax valuation allowance
|
|
|
(1,261
|
)
|
|
|
(84
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(46
|
)
|
|
|
(1,391
|
)
|
|
Fiscal 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for returns and doubtful accounts
|
|
|
(227
|
)
|
|
|
(159
|
)
|
|
|
—
|
|
|
|
196
|
|
|
|
4
|
|
|
|
(186
|
)
|
|
Deferred tax valuation allowance
|
|
|
(1,312
|
)
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
35
|
|
|
|
50
|
|
|
|
(1,261
|
)
|
|
Fiscal 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for returns and doubtful accounts
|
|
|
(223
|
)
|
|
|
(202
|
)
|
|
|
—
|
|
|
|
214
|
|
|
|
(16
|
)
|
|
|
(227
|
)
|
|
Deferred tax valuation allowance
|
|
|
(1,102
|
)
|
|
|
(71
|
)
|
|
|
—
|
|
|
|
41
|
|
|
|
(180
|
)
|
|
|
(1,312
|
)
|
133
NEWS CORPORATION
NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 19. QUARTERLY DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
|
(in millions, except per share amounts)
|
|
|
Fiscal 2013
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,133
|
|
|
$
|
2,321
|
|
|
$
|
2,180
|
|
|
$
|
2,257
|
|
|
Net (loss) income
|
|
|
(83
|
)
|
|
|
1,411
|
|
|
|
332
|
|
|
|
(1,113
|
)
|
|
Net (loss) income attributable to News Corporation stockholders
|
|
|
(92
|
)
|
|
|
1,399
|
|
|
|
323
|
|
|
|
(1,124
|
)
|
|
(Loss) income attributable to News Corporation stockholders per share—basic
(b)
|
|
$
|
(0.16
|
)
|
|
$
|
2.42
|
|
|
$
|
0.56
|
|
|
$
|
(1.94
|
)
|
|
(Loss) income attributable to News Corporation stockholders per share—diluted
(b)
|
|
|
(0.16
|
)
|
|
|
2.42
|
|
|
|
0.56
|
|
|
|
(1.94
|
)
|
|
Fiscal 2012
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,165
|
|
|
$
|
2,225
|
|
|
$
|
2,130
|
|
|
$
|
2,134
|
|
|
Net income (loss)
|
|
|
45
|
|
|
|
83
|
|
|
|
39
|
|
|
|
(2,207
|
)
|
|
Net income (loss) attributable to News Corporation stockholders
|
|
|
38
|
|
|
|
73
|
|
|
|
32
|
|
|
|
(2,218
|
)
|
|
Income (loss) attributable to News Corporation stockholders per share—basic
(b)
|
|
$
|
0.07
|
|
|
$
|
0.13
|
|
|
$
|
0.06
|
|
|
$
|
(3.83
|
)
|
|
Income (loss) attributable to News Corporation stockholders per share—diluted
(b)
|
|
|
0.07
|
|
|
|
0.13
|
|
|
|
0.06
|
|
|
|
(3.83
|
)
|
|
(a)
|
In the quarter ended December 31, 2012, the Company recorded a gain on the CMH transaction of approximately $1.3 billion (See Note 3—Acquisitions,
Disposals and Other Transactions). In the quarter ended March 31, 2013, the Company recorded a gain on the sale of its investment in SKY Network Television Ltd. of $321 million. (See Note 5 – Investments). In the quarter ended June 30, 2013,
the Company recorded impairment charges of approximately $1.4 billion. (See Note 7—Goodwill and Other Intangible Assets).
|
|
(b)
|
The Separation was completed on June 28, 2013, and the Company issued 579 million shares of common stock. This initial share amount is being
utilized for the calculation of both basic and diluted earnings per share for all years presented prior to the Distribution Date as no News Corporation common stock or equity-based awards were outstanding prior to June 28, 2013. The
dilutive effect of the Company’s equity-based awards issued in connection with the Separation is included in the computation of diluted earnings per share in the period subsequent to the Separation.
|
|
(c)
|
In the quarter ended June 30, 2012, the Company recorded impairment charges of approximately $2.6 billion. (See Note 7—Goodwill and Other
Intangible Assets).
|
NOTE 20. SUBSEQUENT EVENTS
In September 2013, the Company sold the Dow Jones Local Media Group, which operates eight daily and 15 weekly newspapers in seven states.
134