NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
News Corporation (together with its subsidiaries, News Corporation, News Corp, the Company,
we, or us) is a global diversified media and information services company comprised of businesses across a range of media, including: news and information services, book publishing, digital real estate services, cable network
programming in Australia and pay-TV distribution in Australia.
During the first quarter of fiscal 2016, management approved a plan to dispose
of the Companys digital education business. As a result of the plan and the discontinuation of further significant business activities in the Digital Education segment, the assets and liabilities of this segment were classified as held for
sale and the results of operations have been classified as discontinued operations for all periods presented. Unless indicated otherwise, the information in the notes to the unaudited Consolidated Financial Statements relates to the Companys
continuing operations. (See Note 3Discontinued Operations).
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company, which are referred to herein as the Financial Statements, have
been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of
management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these Financial Statements. Operating results for the interim period presented are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2016. The preparation of the Companys 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.
Intracompany
transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not exercise control and is not the primary beneficiary are accounted for using the equity method. Investments in which
the Company is not able to exercise significant influence over the investee are designated as available-for-sale if readily determinable fair values are available. If an investments fair value is not readily determinable, the Company accounts
for its investment under the cost method.
The consolidated statements of operations are referred to herein as the Statements of
Operations. The consolidated balance sheets are referred to herein as the Balance Sheets. The consolidated statements of cash flows are referred to herein as the Statements of Cash Flows.
The accompanying Financial Statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes
thereto included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2015 as filed with the Securities and Exchange Commission (SEC) on August 13, 2015 (the 2015 Form 10-K).
Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation. The financial
results of the Digital Education segment have been recorded as discontinued operations for all periods presented (See Note 3Discontinued Operations).
The Companys fiscal year ends on the Sunday closest to June 30. Fiscal 2016 and fiscal 2015 include 53 and 52 weeks, respectively. All references to the three months ended March 31, 2016
and 2015 relate to the three months ended March 27, 2016 and March 29, 2015, respectively. For convenience purposes, the Company continues to date its financial statements as of March 31.
5
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Recently issued accounting pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from
Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 removes inconsistencies and differences in existing revenue requirements between GAAP and International Financial Reporting Standards (IFRS) and requires a
company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 will require
companies to use more judgment and make more estimates, such as identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each
separate performance obligation, when determining the amount of revenue to recognize. On July 9, 2015, the FASB approved a one-year deferral of ASU 2014-09. ASU 2014-09 is effective for the Company for annual and interim periods beginning
July 1, 2018. Once effective, ASU 2014-09 can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initial adoption recognized at the date of initial application. The Company is
currently evaluating the method of adoption to be utilized as well as the impact ASU 2014-09 will have on its Financial Statements. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) (ASU 2016-08). The amendments in ASU 2016-08 clarify the implementation guidance on principal versus agent considerations. ASU 2016-08 is effective for the Company for
annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact ASU 2016-08 will have on its consolidated financial statements.
In June 2014, the FASB issued ASU 2014-12, CompensationStock Compensation (Topic 718) (ASU 2014-12). ASU 2014-12 clarifies guidance and eliminates diversity in practice on
how to account for share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. That is, the employee would be eligible to vest in the award
regardless of whether the employee is rendering service on the date the performance target is achieved. ASU 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a
performance condition. ASU 2014-12 is effective for the Company for annual and interim periods beginning July 1, 2016, however, early adoption is permitted. The Company does not expect the adoption of ASU 2014-12 to have a significant impact on
its Financial Statements.
In April 2015, the FASB issued ASU 2015-04, CompensationRetirement Benefits (Topic 715): Practical
Expedient for the Measurement Date of an Employers Defined Benefit Obligation and Plan Assets (ASU 2015-04). ASU 2015-04 allows reporting entities with fiscal year-ends that do not coincide with a month-end to measure defined
benefit plan assets and obligations using the month-end that is closest to the entitys fiscal year-end and apply this practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an
entity has more than one plan. ASU 2015-04 is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. ASU 2015-04 should be
applied prospectively. The Company does not expect the adoption of ASU 2015-04 to have a significant impact on its Financial Statements.
In
April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customers Accounting for Fees Paid in a Cloud Computing Arrangement (ASU 2015-05). ASU 2015-05 clarifies
guidance about whether a customers cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement
consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for
customers accounting for service contracts. In addition, the guidance in this update supersedes paragraph 350-40-25-16. Consequently, all software licenses
6
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
within the scope of Subtopic 350-40 will be accounted for consistent with other licenses of intangible assets. The amendment can either be adopted prospectively for all arrangements entered into
or materially modified after the effective date or retrospectively. ASU 2015-05 is effective for the Company for annual and interim periods beginning July 1, 2016, however, early adoption is permitted. The Company does not expect the adoption
of ASU 2015-05 to have a significant impact on its Financial Statements.
In September 2015, the FASB issued ASU 2015-16, Business
Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). ASU 2015-16 eliminates the requirement to retrospectively account for adjustments made to provisional amounts recognized in a
business combination. Under the amendment, adjustments that are identified during the measurement period are recorded in the reporting period in which the adjustment amounts are determined. ASU 2015-16 requires an entity to present separately on the
face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been
recognized as of the acquisition date. For public business entities, the amendments in ASU 2015-16 are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company does not
expect the adoption of ASU 2015-16 to have a significant impact on its Financial Statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 amends existing guidance to require that deferred income tax liabilities and assets be classified as noncurrent in the Consolidated Balance Sheet, and
eliminates the prior guidance which required an entity to separate deferred tax liabilities and assets into a current and non-current amount in the Consolidated Balance Sheet. As permitted by ASU 2015-17, the Company early-adopted this standard and
applied it prospectively. The prior periods have not been retroactively adjusted as a result of the adoption of ASU 2015-17.
In January 2016,
the FASB issued ASU 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). The amendments in ASU 2016-01 address certain aspects
of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 is effective for the Company for annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact ASU
2016-01 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842)
(ASU 2016-02). The amendments in ASU 2016-02 address certain aspects in lease accounting, with the most significant impact for lessees. The amendments in ASU 2016-02 require lessees to recognize all leases on the balance sheet by
recording a right-of-use asset and a lease liability, and lessor accounting has been updated to align with the new requirements for lessees. The new standard also provides changes to the existing sale-leaseback guidance. ASU 2016-02 is effective for
the Company for annual and interim reporting periods beginning July 1, 2019. The Company is currently evaluating the impact ASU 2016-02 will have on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-07, InvestmentsEquity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity
Method of Accounting (ASU 2016-07). The amendments in ASU 2016-07 address recognition and measurement of equity investments. The amendments in this update eliminate the requirement to retroactively adjust the investment, results of
operations and retained earnings when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. ASU 2016-07 is effective for the Company for annual and interim
reporting periods beginning July 1, 2018. As permitted by ASU 2016-07, the Company early-adopted this standard and does not expect it to have a significant impact on its financial statements.
7
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
Fiscal 2016
Checkout 51 Mobile Apps ULC
In July
2015, the Company acquired Checkout 51 Mobile Apps ULC (Checkout 51) for approximately $13 million in cash at closing and up to approximately $28 million in future cash consideration related to payments contingent upon the achievement of
certain performance objectives. Checkout 51 is a data-driven digital coupon company that provides News America Marketing with a leading receipt recognition mobile app which enables retailers to reach consumers with highly personalized marketing
campaigns. Checkout 51s results are included within the Companys News and Information Services segment.
Unruly Holdings
Limited
On September 30, 2015, the Company acquired Unruly Holdings Limited (Unruly) for approximately
£60 million (approximately $90 million) in cash and up to £56 million (approximately $86 million) in future cash consideration related to payments primarily contingent upon the achievement of certain performance objectives. As
a result of the acquisition, the Company recognized a liability of approximately $40 million related to the contingent consideration. The fair value of the contingent consideration was estimated by applying a probability-weighted income approach. In
accordance with Accounting Standards Codification (ASC) 350, IntangiblesGoodwill and Other (ASC 350), $42 million of the purchase price has been allocated to acquired technology with a weighted-average
useful life of 7 years, $25 million has been allocated to customer relationships and tradenames with a weighted-average useful life of 6 years and $67 million has been allocated to goodwill. The values assigned to the acquired assets and liabilities
are based on estimates of fair value available as of the date of this filing and will be adjusted upon completion of final valuations of certain assets and liabilities. Any changes in these fair values could potentially result in an adjustment to
the goodwill recorded for this transaction. Unruly is a leading global video distribution platform that is focused on delivering branded video advertising across websites and mobile devices. Unrulys results of operations are included within
the News and Information Services segment, and it is considered a separate reporting unit for purposes of the Companys annual goodwill impairment review.
DIAKRIT International Limited
In February 2016, the Company acquired a 92% interest in
DIAKRIT International Limited (DIAKRIT) for approximately $40 million in cash. The Company also has the option to purchase, and the minority shareholders have the option to sell to the Company, the remaining 8% in two tranches over the
next six years at fair value. DIAKRIT is a digital visualization solutions company that helps homeowners see the potential in their future living environment with digital visualization solutions that enable them to plan, furnish and decorate their
dream home, while also helping agents and developers generate more buyer inquiries and accelerate their property sale processes. DIAKRITs results are included within the Digital Real Estate Services segment, and it is considered a separate
reporting unit for purposes of the Companys annual goodwill impairment review.
iProperty Group Limited
In February 2016, REA Group Limited (REA Group), in which the Company holds a 61.6% interest, increased its investment in iProperty Group
Limited (ASX:IPP) (iProperty) from 22.7% to approximately 86.9% for A$482 million in cash (approximately $340 million). The remaining 13.1% not currently owned will become mandatorily redeemable during fiscal 2018. As a result, the
Company recognized a liability of approximately $80 million, which reflects the present value of the amount expected to be paid for the remaining interest based on the formula specified in the acquisition agreement. The acquisition was funded
primarily with the proceeds from
8
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
borrowings under an unsecured syndicated revolving loan facility. Refer to Note 6Borrowings for further details of the facility entered into in connection with the acquisition. The
acquisition of iProperty extends REA Groups market leading business in Australia to attractive markets throughout Southeast Asia. iProperty is a subsidiary of REA Group, and its results are included within the Digital Real Estate Services
segment.
In accordance with ASC 805 Business Combinations, REA Group recognized a gain of $29 million resulting from the
revaluation of its previously held equity interest in iProperty in Other, net in the Statements of Operations for the three and nine months ended March 31, 2016. In accordance with ASC 350, the excess purchase price, including the revalued
previously held investment, was allocated to intangibles assets of approximately $67 million and goodwill of approximately $505 million. The values assigned to the acquired assets and liabilities are based on estimates of fair value available as of
the date of this filing and will be adjusted upon completion of final valuations of certain assets and liabilities. Any changes in these fair values could potentially result in an adjustment to the goodwill recorded for this transaction.
Fiscal 2015
Harlequin
Enterprises Limited
In August 2014, the Company acquired Harlequin Enterprises Limited (Harlequin) from Torstar Corporation
for $414 million in cash, net of $19 million of cash acquired. Harlequin is a leading publisher of womens fiction and extends HarperCollins global platform, particularly in Europe and Asia Pacific. Harlequin is a subsidiary of
HarperCollins, and its results are included within the Book Publishing segment. As a result of the acquisition, the Company recorded net tangible assets of approximately $115 million, primarily consisting of accounts receivable, accounts payable,
author advances, property, plant and equipment and inventory, at their estimated fair values at the date of acquisition. In addition, the Company recorded approximately $165 million of intangible assets, comprised of approximately $105 million of
imprints which have an indefinite life and $60 million related to finite lived intangible assets with a weighted average life of approximately 5 years, and recorded an associated deferred tax liability of approximately $35 million. In accordance
with ASC 350, the excess of the purchase price over the fair values of the net tangible and intangible assets of approximately $185 million was recorded as goodwill on the transaction.
Move, Inc.
In November 2014, the Company acquired all of the
outstanding shares of Move, Inc. (Move), which was a publicly traded company, for $21.00 per share in cash. Move is a leading provider of online real estate services, and the acquisition expanded the Companys digital real estate
services business into the U.S., one of the largest real estate markets. Move primarily operates realtor.com
®
, a
premier real estate information and services marketplace. Move also offers a number of professional software and services products, including Top Producer
®
, TigerLead
®
and
ListHub
TM
. Moves results of operations are included
within the Digital Real Estate Services segment, and it is considered a separate reporting unit for purposes of the Companys annual goodwill impairment review.
The aggregate cash payment at closing to acquire the outstanding shares of Move was approximately $864 million, which was funded with cash on hand. The Company also assumed outstanding Move equity-based
compensation awards with a fair value of $67 million, consisting of vested and unvested stock options, restricted stock units (RSUs) and restricted stock awards. Of the total fair value of the assumed equity-based compensation awards,
$28 million was allocated to pre-combination services and included in total consideration transferred and $39 million was allocated to future services and is being expensed over the weighted average
9
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
remaining service period of 2.5 years. Refer to Note 8Equity Based Compensation for further details on the conversion of Moves equity-based compensation awards. In addition, following
the acquisition, the Company utilized approximately $129 million of cash to settle all of Moves outstanding indebtedness that was assumed as part of the transaction. The total transaction value for the Move acquisition is set forth below (in
millions):
|
|
|
|
|
Cash paid for Move equity
|
|
$
|
864
|
|
Assumed equity-based compensation awardspre-combination services
|
|
|
28
|
|
|
|
|
|
|
Total consideration transferred
|
|
$
|
892
|
|
|
|
Plus: Assumed debt
|
|
|
129
|
|
Plus: Assumed equity-based compensation awardspost-combination services
|
|
|
39
|
|
Less: Cash acquired
|
|
|
(108
|
)
|
|
|
|
|
|
Total transaction value
|
|
$
|
952
|
|
|
|
|
|
|
REA Group acquired a 20% interest in Move upon closing of the transaction. In connection with the acquisition, the
Company granted REA Group a put option to require the Company to purchase REA Groups interest in Move, which can be exercised at any time beginning two years from the date of acquisition at fair value.
Under the purchase method of accounting, the total consideration transferred is allocated to net tangible and intangible assets based upon the fair value
as of the date of completion of the acquisition. The excess of the total consideration transferred over the fair value of the net tangible and intangible assets acquired was recorded as goodwill. The allocation is as follows (in millions):
|
|
|
|
|
Assets acquired:
|
|
|
|
|
Cash
|
|
$
|
108
|
|
Other current assets
|
|
|
28
|
|
Intangible assets
|
|
|
216
|
|
Deferred income taxes
|
|
|
153
|
|
Goodwill
|
|
|
552
|
|
Other noncurrent assets
|
|
|
69
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
1,126
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Current liabilities
|
|
$
|
50
|
|
Deferred income taxes
|
|
|
52
|
|
Borrowings
|
|
|
129
|
|
Other noncurrent liabilities
|
|
|
3
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
234
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
892
|
|
|
|
|
|
|
The acquired intangible assets relate to the license of the realtor.com
®
trademark, which has a fair value of approximately $116 million and an indefinite life, and customer relationships,
other tradenames and certain multiple listing service agreements with an aggregate fair value of approximately $100 million, which are being amortized over a weighted-average useful life of approximately 15 years. The Company also acquired
technology, primarily associated with the realtor.com
®
website, that has a fair value of approximately $39
million, which is being amortized over 4 years. The acquired technology has been recorded in Property, Plant and Equipment, net in the Consolidated Balance Sheet at March 31, 2016.
10
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Move had U.S. federal net operating loss carryforwards (NOLs) of $947 million ($332 million
tax-effected) at the date of acquisition. These NOLs are subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the Code) and subject to review by the Internal Revenue Service (IRS).
The utilization of these NOLs is dependent on generating sufficient U.S. taxable income prior to expiration which begins in varying amounts starting in 2017. Valuation allowances and unrecognized tax benefits were recorded against these NOLs in the
amount of $484 million ($170 million tax-effected) as part of the purchase price allocation. The deferred tax assets established for these NOLs, net of valuation allowance and unrecognized benefits, are included in Deferred income tax assets on the
Consolidated Balance Sheets. Based on this, the Company expected approximately $463 million of the NOLs could be utilized, and accordingly, the Company had recorded a net deferred tax asset of $162 million as part of the purchase price allocation.
As a result of managements plan to dispose of the digital education business, the Company increased its estimated utilization of the Move NOLs by $167 million ($58 million tax-effected) and released the valuation allowance equal to that
amount. As of March 31, 2016, the expected utilization of the Move NOLs is $630 million ($220 million tax-effected).
NOTE 3. DISCONTINUED OPERATIONS
During the first quarter of fiscal 2016, management approved a plan to dispose of the Companys digital education business. As a
result of the plan and the discontinuation of further significant business activities in the Digital Education segment, the assets and liabilities of this segment were classified as held for sale and the results of operations have been classified as
discontinued operations for all periods presented in accordance with ASC 205-20, Discontinued Operations.
In the first quarter of
fiscal 2016, the Company recognized a pre-tax non-cash impairment charge of $76 million reflecting a write down of the digital education business to its fair value less costs to sell. In addition, the Company recognized a tax benefit of $144 million
upon reclassification of the Digital Education segment to discontinued operations. These amounts are included in Loss before income tax benefit and Income tax benefit, respectively, in the table below for the nine months ended March 31, 2016.
On September 30, 2015, the Company sold the Amplify Insight and Amplify Learning businesses. Included within Loss before income tax
benefit for the nine months ended March 31, 2016 was approximately $17 million in severance and lease termination costs which were incurred in conjunction with the sale.
The following table summarizes the results of operations from the discontinued segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended March 31,
|
|
|
For the nine months
ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Revenues
|
|
$
|
|
|
|
$
|
21
|
|
|
$
|
27
|
|
|
$
|
85
|
|
|
|
|
|
|
Loss before income tax benefit
|
|
|
(3
|
)
|
|
|
(29
|
)
|
|
|
(154
|
)
|
|
|
(92
|
)
|
Income tax benefit
|
|
|
1
|
|
|
|
7
|
|
|
|
174
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net of tax
|
|
$
|
(2
|
)
|
|
$
|
(22
|
)
|
|
$
|
20
|
|
|
$
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Net cash used in operating activities
|
|
$
|
(66
|
)
|
|
$
|
(124
|
)
|
Net cash provided by (used in) investing activities
|
|
|
15
|
|
|
|
(50
|
)
|
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(51
|
)
|
|
$
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
Assets and liabilities held for sale related to discontinued operations as of March 31, 2016 and June 30, 2015
are included in Other current liabilities and Other current assets, respectively, in the Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
As
of
March 31,
2016
|
|
|
As
of
June 30,
2015
|
|
|
|
|
|
|
(in millions)
|
|
Current assets
|
|
$
|
1
|
|
|
$
|
54
|
|
Non-current assets
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
11
|
|
|
|
46
|
|
Non-current liabilities
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
11
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
Net (liabilities) assets held for sale
|
|
$
|
(10
|
)
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
NOTE 4. RESTRUCTURING CHARGES
Fiscal 2016
During the three and nine months ended March 31, 2016, the Company recorded restructuring charges of $24 million and $63 million, respectively, of
which $24 million and $56 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in fiscal 2016 were primarily for employee termination benefits.
Fiscal 2015
During the three and
nine months ended March 31, 2015, the Company recorded restructuring charges of $10 million and $31 million, respectively, of which $8 million and $26 million, respectively, related to the News and Information Services segment. The
restructuring charges recorded in fiscal 2015 were primarily for employee termination benefits.
12
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes in restructuring program liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
One
time
employee
termination
benefits
|
|
|
Facility
related
costs
|
|
|
Other costs
|
|
|
Total
|
|
|
One
time
employee
termination
benefits
|
|
|
Facility
related
costs
|
|
|
Other costs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Balance, beginning of period
|
|
$
|
27
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
39
|
|
|
$
|
17
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
29
|
|
Additions
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Payments
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
34
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
46
|
|
|
$
|
16
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
One
time
employee
termination
benefits
|
|
|
Facility
related
costs
|
|
|
Other costs
|
|
|
Total
|
|
|
One
time
employee
termination
benefits
|
|
|
Facility
related
costs
|
|
|
Other costs
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Balance, beginning of period
|
|
$
|
47
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
58
|
|
|
$
|
21
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
28
|
|
Additions
|
|
|
62
|
|
|
|
1
|
|
|
|
|
|
|
|
63
|
|
|
|
24
|
|
|
|
|
|
|
|
7
|
|
|
|
31
|
|
Payments
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
(71
|
)
|
|
|
(27
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(28
|
)
|
Other
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
34
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
46
|
|
|
$
|
16
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016, restructuring liabilities of approximately $36 million were included in the Balance Sheet in
Other current liabilities and $10 million were included in Other non-current liabilities.
NOTE 5. INVESTMENTS
The Companys investments were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
Percentage
as of
March 31,
2016
|
|
|
As
of
March 31,
2016
|
|
|
As
of
June 30,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Equity method investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foxtel
(a)
|
|
|
50
|
%
|
|
$
|
1,427
|
|
|
$
|
1,476
|
|
Other equity method investments
(b)
|
|
|
various
|
|
|
|
107
|
|
|
|
168
|
|
Loan receivable from Foxtel
(c)
|
|
|
N/A
|
|
|
|
339
|
|
|
|
345
|
|
Available-for-sale securities
(d)
|
|
|
various
|
|
|
|
182
|
|
|
|
185
|
|
Cost method investments
(e)
|
|
|
various
|
|
|
|
209
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
|
|
|
|
$
|
2,264
|
|
|
$
|
2,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The change in the Foxtel investment for the nine months ended March 31, 2016 was primarily due to the impact of foreign currency fluctuations.
|
(b)
|
Other equity method investments as of June 30, 2015 primarily included REA Groups investment in iProperty. In July 2014, REA Group purchased
a 17.22% interest in iProperty for total cash consideration of
|
13
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
approximately $100 million. iProperty has online property advertising operations primarily in Malaysia, Indonesia, Hong Kong, Thailand and Singapore. In December 2014, REA Group sold Squarefoot,
its Hong Kong based business, to iProperty in exchange for an additional 2.2% interest in iProperty. As of June 30, 2015, REA Group owned an approximate 19.9% interest in iProperty. In February 2016, REA Group increased its ownership interest
in iProperty to approximately 86.9% for A$482 million (approximately $340 million) and its results are now consolidated within the Digital Real Estate Services Segment. Refer to Note 2Acquisitions, Disposals and Other Transactions for further
details regarding the iProperty acquisition.
|
(c)
|
In May 2012, Foxtel purchased Austar United Communications Ltd. The transaction was funded by Foxtel bank debt and pro rata capital contributions made
by Foxtel shareholders in the form of subordinated shareholder notes based on their respective ownership interests. The Companys share of the subordinated shareholder notes was approximately A$451 million ($339 million and $345 million as of
March 31, 2016 and June 30, 2015, respectively). The subordinated shareholder notes can be repaid beginning in July 2022 provided that Foxtels senior debt has been repaid. The subordinated shareholder notes have 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.
|
(d)
|
Available-for-sale securities primarily include the Companys investments in The Rubicon Project, Inc. and APN News and Media Limited
(APN). During fiscal 2015, the Company purchased a 14.99% interest in APN for approximately $112 million. APN operates a portfolio of Australian and New Zealand radio and outdoor media assets and small regional print interests.
|
(e)
|
Cost method investments primarily include the Companys investment in SEEKAsia Limited (SEEK Asia) and certain investments in China.
In November 2014, SEEK Asia, in which the Company owned a 12.1% interest, acquired the online employment businesses of JobStreet Corporation Berhad (JobStreet), which were combined with JobsDB, Inc., SEEK Asias existing online
employment business. The transaction was funded primarily through additional contributions by SEEK Asia shareholders which did not have an impact on the Companys ownership. The Companys share of the funding contribution was approximately
$60 million. In June 2015, the Company purchased an additional 0.8% interest in SEEK Asia for approximately $7 million, which increased the Companys investment to approximately 12.9%.
|
The Company measures the fair market values of available-for-sale investments as Level 1 financial instruments under ASC 820, Fair Value
Measurement, as such investments have quoted prices in active markets. The cost basis, unrealized gains, unrealized losses and fair market value of available-for-sale investments are set forth below:
|
|
|
|
|
|
|
|
|
|
|
As of
March 31,
2016
|
|
|
As of
June 30,
2015
|
|
|
|
(in millions)
|
|
Cost basis of available-for-sale investments
|
|
$
|
164
|
|
|
$
|
164
|
|
Accumulated gross unrealized gain
|
|
|
56
|
|
|
|
46
|
|
Accumulated gross unrealized loss
|
|
|
(38
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale investments
|
|
$
|
182
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(11
|
)
|
|
$
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
14
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Equity Earnings of Affiliates
The Companys share of the earnings of its equity affiliates was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31,
|
|
|
For the nine months ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Foxtel
(a)
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
26
|
|
|
$
|
48
|
|
Other equity affiliates, net
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity earnings of affiliates
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
25
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In accordance with ASC 350, the Company amortized $12 million and $37 million related to excess cost over the Companys proportionate share of its
investments underlying net assets allocated to finite-lived intangible assets during the three and nine months ended March 31, 2016, respectively, and $14 million and $44 million in the corresponding periods of fiscal 2015, respectively.
Such amortization is reflected in Equity earnings of affiliates in the Statements of Operations.
|
Summarized financial
information for Foxtel, presented in accordance with U.S. GAAP, was as follows:
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Revenues
|
|
$
|
1,763
|
|
|
$
|
2,028
|
|
Operating income
(a)
|
|
|
269
|
|
|
|
343
|
|
Net income
|
|
|
126
|
|
|
|
184
|
|
(a)
|
Includes Depreciation and amortization of $170 million and $243 million for the nine months ended March 31, 2016 and 2015, respectively. Operating
income before depreciation and amortization was $439 million and $586 million for the nine months ended March 31, 2016 and 2015, respectively.
|
For the nine months ended March 31, 2016, Foxtels revenues decreased $265 million, or 13%, as a result of the negative impact of foreign currency fluctuations, which more than offset higher
revenues in local currency. Operating income decreased primarily due to the negative impact of foreign currency fluctuations, a planned increase in programming costs to support subscriber growth, increased costs associated with higher sales volumes,
the public launch of Triple Play and continued investment in Presto, partially offset by lower depreciation expense resulting from Foxtels reassessment of the useful lives of cable and satellite installations. Net income decreased as a result
of the lower operating income noted above, partially offset by lower income tax expense.
15
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. BORROWINGS
The Companys total borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As
of
March 31,
2016
|
|
|
As
of
June 30,
2015
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Facility due December 2017
|
|
$
|
90
|
|
|
$
|
|
|
Facility due December 2018
|
|
|
90
|
|
|
|
|
|
Facility due December 2019
|
|
|
179
|
|
|
|
|
|
Other obligations
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
369
|
|
|
|
|
|
Less: Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
369
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
REA Group Unsecured Revolving Loan Facility
REA Group entered into a A$480 million unsecured syndicated revolving loan facility agreement in connection with the acquisition of iProperty (the REA Facility). The REA Facility consists of
three sub facilities of A$120 million, A$120 million and A$240 million which become due in December 2017, December 2018 and December 2019, respectively. In February 2016, REA Group drew down the full A$480 million (approximately $340 million as of
such date) available under the REA Facility, and the proceeds, less lenders fees of $1 million, were used to fund the iProperty acquisition. Borrowings under the REA Facility bear interest at a floating rate of the Australian BBSY plus a
margin in the range of 0.85% and 1.45% depending on REA Groups net leverage ratio. As of March 31, 2016, REA Group was paying a margin of between 1.00% and 1.20%. REA Group paid approximately $1 million in interest for the three and nine
months ended March 31, 2016 at a weighted average interest rate of 3.3%. The REA Facility requires REA Group to maintain a net leverage ratio of not more than 3.25 to 1.0 and an interest coverage ratio of not less than 3.0 to 1.0. As of March 31,
2016, REA Group was in compliance with all of the applicable debt covenants.
Revolving Credit Facility
The Companys Credit Agreement (as amended, the Credit Agreement) provides for an unsecured $650 million revolving credit facility (the
Facility) that can be used for general corporate purposes. The Facility has a sublimit of $100 million available for issuances of letters of credit. Under the Credit Agreement, the Company may request increases in the amount of the
Facility up to a maximum amount of $900 million. Subject to certain conditions stated in the Credit Agreement, the Company may borrow, prepay and reborrow amounts under the Facility during the term of the Credit Agreement.
In October 2015, the Company entered into an amendment to the Credit Agreement (the Amendment) which, among other things, extended the
original term of the Facility by two years and lowered the commitment fee payable by the Company. As a result of the Amendment, amounts under the Credit Agreement are now due on October 23, 2020, unless the commitments are terminated earlier
either at the request of the Company or, if an event of default occurs, by the designated agent at the request or with the consent of the lenders (or automatically in the case of certain bankruptcy-related events). The Company may request that the
commitments be extended under certain circumstances as set forth in the Credit Agreement for up to two additional one-year periods.
The
Credit Agreement contains certain customary affirmative and negative covenants and events of default, with customary exceptions, including limitations on the ability of the Company and the Companys subsidiaries to
16
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
engage in transactions with affiliates, incur liens, merge into or consolidate with any other entity, incur subsidiary debt or dispose of all or substantially all of its assets or all or
substantially all of the stock of its subsidiaries taken as a whole. In addition, the Credit Agreement requires the Company to maintain an adjusted operating income leverage ratio of not more than 3.0 to 1.0 and an interest coverage ratio of not
less than 3.0 to 1.0. If any of the events of default occur and are not cured within applicable grace periods or waived, any unpaid amounts under the Credit Agreement may be declared immediately due and payable. As of March 31, 2016, the
Company was in compliance with all of the applicable debt covenants.
Interest on borrowings under the Facility is based on either (a) a
Eurodollar Rate formula or (b) the Base Rate formula, each as set forth in the Credit Agreement. The applicable margin and the commitment fee are based on the pricing grid in the Credit Agreement, which varies based on the Companys
adjusted operating income leverage ratio. As of March 31, 2016, the Company was paying a commitment fee of 0.225% on any undrawn balance and an applicable margin of 0.50% for a Base Rate borrowing and 1.50% for a Eurodollar Rate borrowing.
As of the date of this filing, the Company has not borrowed any funds under the Facility.
Total borrowings, excluding other obligations and debt issuance costs, have the following scheduled maturities for each of the next five fiscal years (in
millions):
|
|
|
|
|
|
|
As of
March 31,
2016
|
|
Fiscal 2017
|
|
$
|
|
|
Fiscal 2018
|
|
|
90
|
|
Fiscal 2019
|
|
|
90
|
|
Fiscal 2020
|
|
|
180
|
|
Fiscal 2021
|
|
|
|
|
Thereafter
|
|
|
|
|
NOTE 7. EQUITY
The following table summarizes changes in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
News
Corporation
stockholders
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
|
News
Corporation
stockholders
|
|
|
Noncontrolling
Interests
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Balance, beginning of period
|
|
$
|
11,945
|
|
|
$
|
171
|
|
|
$
|
12,116
|
|
|
$
|
13,243
|
|
|
$
|
156
|
|
|
$
|
13,399
|
|
Net income
|
|
|
89
|
|
|
|
52
|
|
|
|
141
|
|
|
|
231
|
|
|
|
54
|
|
|
|
285
|
|
Other comprehensive loss
|
|
|
(263
|
)
|
|
|
(1
|
)
|
|
|
(264
|
)
|
|
|
(1,164
|
)
|
|
|
(23
|
)
|
|
|
(1,187
|
)
|
Dividends
|
|
|
(118
|
)
|
|
|
(28
|
)
|
|
|
(146
|
)
|
|
|
(1
|
)
|
|
|
(28
|
)
|
|
|
(29
|
)
|
Stock repurchases
|
|
|
(39
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
32
|
|
|
|
5
|
|
|
|
37
|
|
|
|
60
|
|
|
|
(2
|
)
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
11,646
|
|
|
$
|
199
|
|
|
$
|
11,845
|
|
|
$
|
12,369
|
|
|
$
|
157
|
|
|
$
|
12,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Repurchases
In May 2013, the Companys Board of Directors (the Board of Directors) authorized the Company to repurchase up to an aggregate of $500 million of its Class A Common Stock. On
May 10, 2015, the Company announced it had begun repurchasing shares of Class A Common Stock under the stock repurchase program.
17
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Through April 29, 2016, the Company repurchased approximately 5.2 million shares of Class A Common Stock for an aggregate cost of approximately $71 million. The remaining
authorized amount under the stock repurchase program as of April 29, 2016 was approximately $429 million. All decisions regarding any future stock repurchases are at the sole discretion of a duly appointed committee of the Board of Directors
and management. The committees decisions regarding future stock repurchases will be evaluated from time to time in light of many factors, including the Companys financial condition, earnings, capital requirements and debt facility
covenants, other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market volatility and other factors that the committee may deem relevant. The stock repurchase authorization may be modified,
extended, suspended or discontinued at any time by the Board of Directors and the Board of Directors cannot provide any assurances that any additional shares will be repurchased.
Dividends
In February 2016, the Board of Directors declared a semi-annual cash dividend of
$0.10 per share of Class A Common Stock and Class B Common Stock. This dividend was paid on April 13, 2016 to stockholders of record at the close of business on March 9, 2016. In August 2015, the Board of Directors declared a
semi-annual cash dividend of $0.10 per share of Class A Common Stock and Class B Common Stock. This dividend was paid on October 21, 2015 to stockholders of record at the close of business on September 16, 2015. The timing,
declaration, amount and payment of future dividends to stockholders, if any, is within the discretion of the Board of Directors. The Board of Directors decisions regarding the payment of future dividends will depend on many factors, including
the Companys financial condition, earnings, capital requirements and debt facility covenants, other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market volatility and other factors that
the Board of Directors deems relevant.
NOTE 8. EQUITY BASED COMPENSATION
Employees of the Company participate in the News Corporation 2013 Long-Term Incentive Plan (the 2013 LTIP) under which
equity-based compensation, including stock options, performance stock units (PSUs), restricted stock awards, RSUs and other types of awards can be granted. The Company has the ability to award up to 30 million shares of Class A
Common Stock under the terms of the 2013 LTIP.
In connection with the acquisition of Move, the Company assumed Moves equity incentive
plans and substantially all of the awards outstanding under such plans. The stock options, RSUs and restricted stock awards that were assumed continue to have the same terms and conditions that applied to those awards immediately prior to the
acquisition, except that such assumed awards were converted into awards with the right to be settled in, or by reference to, the Companys Class A Common Stock in accordance with the acquisition agreement, using a formula designed to
preserve the value of the awards based on the price per share paid in the acquisition. The Company assumed and converted approximately 4.3 million stock options and approximately 2.5 million RSUs and restricted stock awards in connection
with the transaction. During the nine months ended March 31, 2016, approximately 0.3 million of the assumed options were exercised. Approximately 0.3 million and 0.4 million of the assumed RSUs and restricted stock awards vested
during the three and nine months ended March 31, 2016, respectively.
The Company recognized $12 million and $43 million of equity-based
compensation expense for the three and nine months ended March 31, 2016, respectively, and $23 million and $44 million for the corresponding periods of fiscal 2015, respectively.
18
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Performance Stock Units
Fiscal 2016
During the three and nine months ended March 31, 2016, the Company
granted approximately 0.2 million and 4.2 million PSUs, respectively, at target, of which approximately 0.1 million and 3.0 million, respectively, will be settled in Class A Common Stock with the remaining, having been
granted to executive directors and to employees in certain foreign locations, being settled in cash. Cash settled awards are marked-to-market each reporting period.
During the nine months ended March 31, 2016, approximately 1.2 million PSUs vested, of which approximately 1.0 million were settled in shares of Class A Common Stock before statutory
tax withholdings. The remaining 0.2 million PSUs settled during the nine months ended March 31, 2016 were settled in cash for approximately $3.3 million before statutory tax withholdings.
Fiscal 2015
During the three and nine
months ended March 31, 2015, the Company granted approximately 0.2 million and 3.3 million PSUs, respectively, at target, of which 0.2 million and 2.2 million, respectively, will be settled in Class A Common Stock with
the remaining, having been granted to executive directors and to employees in certain foreign locations, being settled in cash. Cash settled awards are marked-to-market each reporting period.
During the nine months ended March 31, 2015, approximately 2.0 million PSUs vested, of which approximately 1.5 million were settled in shares of Class A Common Stock before statutory
tax withholdings. The remaining 0.5 million PSUs settled during the nine months ended March 31, 2015 were settled in cash for approximately $8.2 million before statutory tax withholdings.
Restricted Stock Units
Fiscal 2016
During the three and nine months ended March 31, 2016, the Company granted approximately 0.1 million and 0.3 million RSUs,
respectively, all of which will be settled in Class A Common Stock.
During the three and nine months ended March 31, 2016,
approximately 0.2 million and 0.3 million RSUs vested, respectively, all of which were settled in shares of Class A Common Stock.
Fiscal 2015
During the three and nine months ended March 31, 2015, the Company
granted 0.5 million RSUs, all of which will be settled in Class A Common Stock.
During the three and nine months ended
March 31, 2015, approximately 0.8 million and 1.2 million RSUs vested, respectively, of which approximately 0.8 million and 1.1 million, respectively, were settled in shares of Class A Common Stock before statutory tax
withholdings. The remaining 0.1 million RSUs settled during the nine months ended March 31, 2015 were settled in cash for approximately $0.9 million before statutory tax withholdings.
19
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. EARNINGS PER SHARE
The following tables set forth the computation of basic and diluted earnings per share under ASC 260, Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three
months
ended
March 31,
|
|
|
For the nine
months
ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions, except per share amounts)
|
|
(Loss) income from continuing operations
|
|
$
|
(128
|
)
|
|
$
|
56
|
|
|
$
|
121
|
|
|
$
|
347
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(19
|
)
|
|
|
(11
|
)
|
|
|
(52
|
)
|
|
|
(54
|
)
|
Less: Redeemable preferred stock dividends
(a)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations available to News Corporation stockholders
|
|
|
(147
|
)
|
|
|
45
|
|
|
|
68
|
|
|
|
292
|
|
(Loss) income from discontinued operations, net of tax, available to News Corporation stockholders
|
|
|
(2
|
)
|
|
|
(22
|
)
|
|
|
20
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to News Corporation stockholders
|
|
$
|
(149
|
)
|
|
$
|
23
|
|
|
$
|
88
|
|
|
$
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock
outstandingbasic
|
|
|
580.2
|
|
|
|
581.8
|
|
|
|
580.8
|
|
|
|
580.5
|
|
Dilutive effect of equity awards
(b)
|
|
|
|
|
|
|
1.4
|
|
|
|
1.7
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock
outstandingdiluted
|
|
|
580.2
|
|
|
|
583.2
|
|
|
|
582.5
|
|
|
|
581.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations available to News Corporation stockholders per sharebasic and
diluted
|
|
$
|
(0.26
|
)
|
|
$
|
0.08
|
|
|
$
|
0.12
|
|
|
$
|
0.51
|
|
(Loss) income from discontinued operations available to News Corporation stockholders per sharebasic and
diluted
|
|
$
|
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income available to News Corporation stockholders per sharebasic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
0.04
|
|
|
$
|
0.15
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In connection with the Separation, as defined in Note 10, Twenty-First Century Fox, Inc. (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. 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.
|
(b)
|
The dilutive impact of the Companys PSUs, RSUs and stock options have been excluded from the calculation of diluted (loss) earnings per share for
the three months ended March 31, 2016 because their inclusion would have an antidilutive effect on the net loss per share.
|
NOTE 10. 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. Except as noted below, the Companys commitments as of March 31, 2016 have not changed significantly from the disclosures included in
the 2015 Form 10-K.
In November 2015, the Company entered into a sports programming rights agreement with the National Rugby League to
license certain media rights for a five year period from 2018 to 2022 for approximately $775 million (A$1.1 billion).
20
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In August 2015, the Company entered into a sports programming rights agreement with the Australian
Football League to license certain media rights for a six year period from 2017 to 2022 for approximately $850 million (A$1.2 billion).
Contingencies
The Company
routinely is involved in various legal proceedings, claims and governmental inspections or investigations, including those discussed below. The outcome of these matters and claims is subject to significant uncertainty, and the Company often cannot
predict what the eventual outcome of pending matters will be or the timing of the ultimate resolution of these matters. Fees, expenses, fines, penalties, judgments or settlement costs which might be incurred by the Company in connection with the
various proceedings could adversely affect its results of operations and financial condition.
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 are expensed as incurred.
Except as otherwise provided below, for the contingencies disclosed 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.
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 Foxs common stock between March 3, 2011 and
July 11, 2011, in the U.S. District Court for the Southern District of New York (the Wilder Litigation). The plaintiff brought claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, as
amended, 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.
On June 5, 2012, the District Court issued an order appointing
the Avon Pension Fund (Avon) as lead plaintiff and Robbins Geller Rudman & Dowd as lead counsel. Avon filed an amended consolidated complaint on July 31, 2012, which among other things, added as defendants the
Companys subsidiary, NI Group Limited (now known as News Corp UK & Ireland Limited), and Les Hinton, and expanded the class period to comprise February 15, 2011 to July 18, 2011. Defendants filed motions to dismiss the
litigation, which were granted by the District Court on March 31, 2014. Plaintiffs were allowed to amend their complaint, and on April 30, 2014, plaintiffs filed a second amended consolidated complaint, which generally repeated the
allegations of the amended consolidated complaint and also expanded the class period to comprise July 8, 2009 to July 18, 2011. Defendants moved to dismiss the second amended consolidated complaint, and on September 30, 2015, the
District Court granted defendants motions in their entirety and dismissed all of plaintiffs claims. In its memorandum, opinion and order relating to the dismissal, the District Court gave plaintiffs until November 6, 2015 to file a
motion for leave to amend their complaint. On October 21, 2015, plaintiffs filed a motion for reconsideration of the District Courts memorandum, opinion and order, which defendants have opposed. The Companys management believes
these claims are entirely without merit and intends to vigorously defend this action. 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 (as defined below), including all payments in connection with the Wilder Litigation.
21
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In addition, civil claims have been brought against the Company with respect to, among other things,
voicemail interception and inappropriate payments to public officials at the Companys former publication,
The News of the World
, and at
The Sun
, and related matters (the U.K. Newspaper Matters). The Company has
admitted liability in many civil cases and has settled a number of cases. The Company has also settled a number of claims through a private compensation scheme established by the Company 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.
In
connection with the Companys separation of its businesses (the Separation) from 21st Century Fox on June 28, 2013 (the Distribution Date), 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 previously concluded 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. 21st Century Foxs indemnification obligations with respect to these matters will be settled on an after-tax basis.
The Company incurred gross legal and professional fees related to the U.K. Newspaper Matters and costs for civil settlements totaling approximately $9 million and $24 million for the three months ended
March 31, 2016 and 2015, respectively, and approximately $32 million and $75 million for the nine months ended March 31, 2016 and 2015, respectively. These costs are included in Selling, general and administrative expenses in the
Companys Statements of Operations. With respect to the fees and costs incurred during the three months ended March 31, 2016 and 2015, the Company has been or will be indemnified by 21st Century Fox for $6 million, net of tax, and $9
million, net of tax, respectively, pursuant to the indemnification arrangements described above. With respect to the fees and costs incurred during the nine months ended March 31, 2016 and 2015, the Company has been or will be indemnified by
21st Century Fox for $17 million, net of tax, and $33 million, net of tax, respectively, pursuant to the indemnification arrangements described above. Accordingly, the Company recorded a contra expense in Selling, general and administrative expenses
for the after-tax costs that were or will be indemnified of $6 million and $9 million for the three months ended March 31, 2016 and 2015, respectively, and $17 million and $33 million for the nine months ended March 31, 2016 and 2015,
respectively, and recorded a corresponding receivable from 21st Century Fox. Therefore, the net impact on Selling, general and administrative expenses was $3 million and $15 million for the three months ended March 31, 2016 and 2015,
respectively, and $15 million and $42 million for the nine months ended March 31, 2016 and 2015, respectively.
Refer to the table below
for the net impact of the U.K. Newspaper Matters on Selling, general and administrative expenses recorded in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended March 31,
|
|
|
For the nine months
ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Gross legal and professional fees related to the U.K. Newspaper Matters
|
|
$
|
9
|
|
|
$
|
24
|
|
|
$
|
32
|
|
|
$
|
75
|
|
Indemnification from 21st Century Fox
|
|
|
(6
|
)
|
|
|
(9
|
)
|
|
|
(17
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact on Selling, general and administrative expenses
|
|
$
|
3
|
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016, the Company has provided for its best estimate of the liability for the claims that have been
filed and costs incurred, including liabilities associated with employment taxes, and has accrued
22
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
approximately $108 million, of which approximately $59 million will be indemnified by 21st Century Fox, and a corresponding receivable was recorded in Other current assets on the Balance Sheet as
of March 31, 2016. It is not possible to estimate the liability or corresponding receivable 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 and corresponding receivable for such matters.
The Company is
not able to predict the ultimate outcome or cost of the civil claims. It is possible that these proceedings and any adverse resolution thereof could damage its reputation, impair its ability to conduct its business and adversely affect its results
of operations and financial condition.
HarperCollins
In 2011 and 2012, various civil lawsuits and governmental investigations were commenced against certain publishers, including the Companys subsidiary, HarperCollins Publishers L.L.C.
(HarperCollins), relating to alleged violations of antitrust and unfair competition laws arising out of the decisions by those publishers to sell their e-books pursuant to an agency relationship.
The publishers, including HarperCollins, entered into various settlement agreements to resolve these matters. These included a settlement with the DOJ,
which, among other things, required that HarperCollins terminate its agreements with certain e-book retailers and placed certain restrictions on any agreements subsequently entered into with such retailers. Additional information about this
settlement can be found on the DOJs website. The publishers, including HarperCollins, also entered into substantially similar settlements with the European Commission and the Canadian Competition Bureau (CCB). The settlements with
the DOJ and the European Commission received final approval in September and December 2012, respectively. The consent agreement with respect to the settlement with the CCB was registered with the Competition Tribunal on February 7, 2014.
However, on February 21, 2014, Kobo Inc. (Kobo) filed an application to rescind or vary the consent agreement with the Competition Tribunal, and, on March 18, 2014, the Competition Tribunal issued an order staying the
registration of the consent agreement. The stay will remain in effect pending further order of the Competition Tribunal or final disposition of Kobos application.
The Company is not able to predict the ultimate outcome or cost of the unresolved HarperCollins matter described above. The legal and professional fees and settlement costs incurred in connection with the
other settlements referred to above were not material.
News America Marketing
In-Store Marketing and FSI Purchasers
On April 8, 2014, in connection with a pending
action in the U.S. District Court for the Southern District of New York in which The Dial Corporation, Henkel Consumer Goods, Inc., H.J. Heinz Company, H.J. Heinz Company, L.P., Foster Poultry Farms, Smithfield Foods, Inc., HP Hood LLC and BEF
Foods, Inc. (collectively, the Named Plaintiffs) alleged various claims under federal and state antitrust law against News Corporation, News America Incorporated (NAI), News America Marketing FSI L.L.C. (NAM FSI)
and News America Marketing In-Store Services L.L.C. (NAM In-Store Services and, together with News Corporation, NAI and NAM FSI, the NAM Group), the Named Plaintiffs filed a fourth amended complaint on consent of the parties.
The fourth amended complaint asserted federal and state antitrust claims both individually and on behalf of two putative classes in connection with the purchase of in-store marketing services and free-standing insert coupons. The complaint sought
treble damages, injunctive relief and attorneys fees.
23
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
On August 11, 2014, the Named Plaintiffs filed a motion seeking certification of a class of all
persons residing in the United States who purchased in-store marketing services on or after April 5, 2008 and did not purchase those services pursuant to contracts with mandatory arbitration clauses. On June 18, 2015, the District Court
granted the Named Plaintiffs motion, although it subsequently amended the start date of the claim period to April 26, 2009.
On
September 10, 2015, the District Court granted a stipulation dismissing with prejudice the Named Plaintiffs claims relating to free-standing insert coupons. Trial began on February 29, 2016, and on such date, the parties agreed to
settle the litigation. Under the terms of the settlement, which remains subject to District Court approval, the NAM Group agreed, among other things, to pay the plaintiffs and their attorneys approximately $250 million, and the parties agreed to
dismiss the litigation with prejudice. The District Court has scheduled a preliminary settlement approval hearing for June 1, 2016. The NAM Group has also settled related claims for approximately $30 million. The Company recorded $280 million
for the three and nine months ended March 31, 2016 in NAM Group settlement charge in the Unaudited Consolidated Statements of Operations.
Valassis Communications, Inc.
On
November 8, 2013, Valassis Communications, Inc. (Valassis) initiated legal proceedings against certain of the Companys subsidiaries alleging violations of various antitrust laws. These proceedings are described in further
detail below.
|
|
|
Valassis previously initiated an action against NAI, NAM FSI and NAM In-Store Services (collectively, the NAM Parties), captioned Valassis
Communications, Inc. v. News America Incorporated, et al., No. 2:06-cv-10240 (E.D. Mich.) (Valassis I), alleging violations of federal antitrust laws, which was settled in February 2010. On November 8, 2013, Valassis filed a
motion for expedited discovery in the previously settled case based on its belief that defendants had engaged in activities prohibited under an order issued by the U.S. District Court for the Eastern District of Michigan in connection with the
parties settlement.
|
On February 4, 2014, the magistrate judge granted Valassiss motion for
expedited discovery. The NAM Parties objected to the magistrate judges ruling before the District Court and filed a motion to enforce the parties settlement agreement that sought an order that certain of Valassiss claims, if they
are allowed to proceed, must be considered by a panel of antitrust experts (the Antitrust Expert Panel). On May 20, 2014, the District Court overruled the NAM Parties objections to the magistrate judges ruling and
terminated the motion to enforce the parties settlement agreement as the issues raised in the motion would be addressed in connection with the NAM Groups motion to dismiss Valassiss newly filed complaint in Valassis II, described
below.
On October 7, 2014, the NAM Parties filed a motion for an order requiring Valassis to show cause why its
allegations that the NAM Parties engaged in unlawful bundling and tying of in-store marketing services and free-standing insert coupons should not be referred to the Antitrust Expert Panel for resolution pursuant to the parties settlement. On
November 19, 2014, the magistrate judge denied the NAM Parties motion for an order to show cause. The NAM Parties objected to the magistrate judges order, and Valassis opposed those objections. On January 20, 2015, the NAM
Parties filed a motion for expedited discovery in the previously settled case, which was granted by the magistrate judge on April 14, 2015.
On February 3, 2015, Valassis filed a Notice of Violation of an order issued by the District Court in the previously settled case. The Notice contains allegations that are substantially similar to
the allegations Valassis made in the new complaint, described below, and seeks treble damages, injunctive relief and
24
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
attorneys fees. The Notice also re-asserts claims of unlawful bundling and tying which the magistrate judge had previously recommended be dismissed from Valassis II on the grounds that such
claims could only be brought before the Antitrust Expert Panel. On March 2, 2015, the NAM Parties filed a motion to refer the Notice to the Antitrust Expert Panel or, in the alternative, strike the Notice. The District Court granted the NAM
Parties motion in part on March 30, 2016 and ordered that the Notice be referred to the Antitrust Expert Panel. The District Court further ordered that the case be administratively closed and that it may be re-opened following proceedings
before the Antitrust Expert Panel.
|
|
|
On November 8, 2013, Valassis also filed a new complaint in the U.S. District Court for the Eastern District of Michigan against the NAM Group
alleging violations of federal and state antitrust laws and common law business torts (Valassis II). The complaint seeks treble damages, injunctive relief and attorneys fees and costs. On December 19, 2013, the NAM Group filed
a motion to dismiss the newly filed complaint.
|
The District Court referred the NAM Groups motion to
dismiss to the magistrate judge for determination, and on July 16, 2014, the magistrate judge recommended that the District Court grant the NAM Groups motion in part with respect to certain claims regarding alleged bundling and tying
conduct and stay the remainder of the action. On March 30, 2016, the District Court adopted in part the magistrate judges recommendation. The District Court ordered that Valassiss bundling and tying claims be dismissed without
prejudice to Valassiss rights to pursue relief for those claims in Valassis I. The District Court sustained Valassiss objection to the stay of Valassis II, but further ordered that all remaining claims in the NAM Groups motion to
dismiss be referred to the Antitrust Expert Panel. The District Court further ordered that the case be administratively closed and that it may be re-opened following proceedings before the Antitrust Expert Panel.
The Court has scheduled a status conference for May 17, 2016 to discuss the referral to the Antitrust Expert Panel in both Valassis I and Valassis
II. 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 has been compliant with applicable laws and intends to defend itself vigorously in both actions.
Other
The Companys
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 Companys domestic subsidiaries 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. In conjunction with the Separation, the Company entered into the Tax Sharing and Indemnification Agreement with 21st Century Fox, which 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.
25
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company provides pension, postretirement health care, defined contribution and medical benefits primarily in the U.S., U.K. and
Australia to the Companys eligible employees and retirees. The Company funds amounts, at a minimum, in accordance with statutory requirements for all plans. Plan assets consist principally of common stocks, marketable bonds and government
securities.
The amortization of amounts related to unrecognized prior service (credits) and deferred losses were reclassified out of other
comprehensive income as a component of net periodic benefit costs. The components of net periodic benefits costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
Postretirement
benefits
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
|
For the three months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Service cost benefits earned during the period
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
Interest costs on projected benefit obligations
|
|
|
4
|
|
|
|
4
|
|
|
|
10
|
|
|
|
11
|
|
|
|
2
|
|
|
|
2
|
|
Expected return on plan assets
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(15
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
Amortization of deferred losses
|
|
|
1
|
|
|
|
|
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Amortization of prior service (credits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(4
|
)
|
Settlements, curtailments and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefits costs
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
Postretirement
benefits
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
|
For the nine months ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Service cost benefits earned during the period
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
|
|
Interest costs on projected benefit obligations
|
|
|
12
|
|
|
|
12
|
|
|
|
33
|
|
|
|
37
|
|
|
|
4
|
|
|
|
5
|
|
Expected return on plan assets
|
|
|
(14
|
)
|
|
|
(16
|
)
|
|
|
(47
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
Amortization of deferred losses
|
|
|
3
|
|
|
|
2
|
|
|
|
11
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
Amortization of prior service (credits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
(10
|
)
|
Settlements, curtailments and other
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefits costs
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended March 31, 2016 and 2015, the Company contributed approximately $27 million and $13
million, respectively, to its various pension and postretirement plans, of which $9 million and $4 million, were contributed in the three months ended March 31, 2016 and 2015, respectively.
NOTE 12. INCOME TAXES
At the end of each interim period, the Company estimates the annual effective income tax rate and applies that rate to its ordinary
quarterly earnings. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect and are individually computed are recognized in the interim period in
which those items occur. In addition, the effects of changes in enacted tax laws or rates or tax status are recognized in the interim period in which the change occurs.
26
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2016 the Company recorded a tax benefit of $98 million on a pre-tax
loss of $226 million resulting in an effective tax rate that was higher than the U.S. statutory tax rate. The higher tax rate was primarily due to the $29 million non-taxable gain resulting from the revaluation of REA Groups
previously held equity interest in iProperty (See Note 2Acquisitions, Disposals and Other Transactions), as well as a tax benefit of $107 million in connection with the settlement of certain litigation and related claims at the NAM Group (See
Note 10Commitments and Contingencies).
For the nine months ended March 31, 2016 the Company recorded a tax benefit of $140 million on a
pre-tax loss of $19 million resulting in an effective tax rate that was higher than the U.S. statutory tax. In addition to the third quarter impacts discussed above, the higher tax rate was primarily due to a tax benefit of approximately $106
million related to the release of previously established valuation allowances related to certain U.S. federal net operating losses and state deferred tax assets. This benefit was recognized in conjunction with
managements plan to dispose of the Companys digital education business in the first quarter of fiscal 2016, as the Company now expects to generate sufficient U.S. taxable income to utilize these deferred tax assets prior to
expiration.
In addition, the Company recognized a tax benefit of approximately $144 million upon reclassification of the Digital Education
segment to discontinued operations in (Loss) income from discontinued operations, net of tax, in the Statement of Operations for the nine months ended March 31, 2016. In addition, a tax benefit of $30 million related to the current year
operations of the Digital Education Segment was reclassified to discontinued operations in (Loss) income from discontinued operations, net of tax, in the Statement of Operations for the nine months ended March 31, 2016.
The Companys effective income tax rate for the three and nine months ended March 31, 2015 was lower than the U.S. statutory tax rate,
primarily due to the impact from foreign operations which are subject to lower tax rates, partially offset by the impact of nondeductible items and changes in our accrued liabilities for uncertain tax positions.
The Companys tax returns are subject to on-going review and examination by various tax authorities. Tax authorities may not agree with the
treatment of items reported in its tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company believes it has appropriately accrued for the expected outcome of uncertain tax matters and believes such
liabilities represent a reasonable provision for taxes ultimately expected to be paid, however, these liabilities may need to be adjusted as new information becomes known and as tax examinations continue to progress.
The Company paid gross income taxes of $78 million and $81 million during the nine months ended March 31, 2016 and 2015, respectively, and received
income tax refunds of $1 million and $5 million, respectively.
NOTE 13. SEGMENT INFORMATION
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 print and digital product offerings
of
The Wall Street Journal
and
Barrons
publications, MarketWatch, and the Companys suite of professional information products, including Factiva, Dow Jones Risk & Compliance, Dow Jones Newswires, Dow Jones Private
Markets and DJX.
|
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 both News America Marketing, a leading
provider of free-standing inserts, in-store marketing products and services and digital marketing solutions, including Checkout 51s mobile application, as well as Unruly, a leading global video advertising distribution platform.
27
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Book Publishing
The Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world, with
operations in 18 countries and particular strengths in general fiction, nonfiction, childrens and religious publishing. HarperCollins includes over 120 branded publishing imprints, including Avon, Harper, HarperCollins Childrens Books,
William Morrow, Harlequin and Christian publishers Zondervan and Thomas Nelson, and publishes works by well-known authors such as Harper Lee, Mitch Albom, Veronica Roth, Rick Warren and Agatha Christie and popular titles such as
The
Hobbit
,
Goodnight Moon
,
To Kill a Mockingbird
and the
Divergent
series.
|
|
|
|
Digital Real Estate Services
The Digital Real Estate Services segment consists primarily of the Companys interests in REA
Group and Move. REA Group is a publicly traded company listed on the Australian Securities Exchange (ASX) (ASX: REA) that is a leading multinational digital advertising business specializing in property. REA Group operates
Australias leading residential and commercial property websites, realestate.com.au and realcommercial.com.au, as well as property sites in Europe and Asia. The Company holds a 61.6% interest in REA Group.
|
Move, acquired in November 2014, is a leading provider of online real estate services in the U.S. and primarily
operates realtor.com
®
, a premier real estate information and services marketplace. Move also offers a number of
professional software and services products, including Top Producer
®
, TigerLead
®
and ListHub
TM
. The Company owns an 80% interest in Move, with the remaining 20% being held by REA Group.
|
|
|
Cable Network Programming
The Cable Network Programming segment consists of FOX SPORTS Australia, the leading sports programming
provider in Australia, with seven high definition television channels distributed via cable, satellite and IP, several interactive viewing applications and broadcast rights to live sporting events in Australia including: National Rugby League, the
domestic football league, English Premier League, international cricket and Australian Rugby Union.
|
|
|
|
Other
The Other segment consists primarily of general corporate overhead expenses, the corporate Strategy and Creative Group and
costs related to the U.K. Newspaper Matters. The Companys corporate Strategy and Creative Group was formed to identify new products and services across its businesses to increase revenues and profitability and to target and assess potential
acquisitions and investments.
|
The Company has determined its operating segments 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, selling, general and administrative expenses and the NAM Group settlement charge. 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 Companys portfolio of businesses separate from non-operational factors that affect net (loss) income, 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 (loss) income, 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 Companys financial performance.
28
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Management believes that Segment EBITDA is an appropriate measure for evaluating the operating
performance of the Companys business. Segment EBITDA provides management, investors and equity analysts with a measure to analyze operating performance of the Companys 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). The following table
reconciles Total Segment EBITDA to (Loss) income from continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
ended March 31,
|
|
|
For the nine months
ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
1,231
|
|
|
$
|
1,353
|
|
|
$
|
3,921
|
|
|
$
|
4,327
|
|
Book Publishing
|
|
|
358
|
|
|
|
402
|
|
|
|
1,213
|
|
|
|
1,277
|
|
Digital Real Estate Services
|
|
|
194
|
|
|
|
170
|
|
|
|
593
|
|
|
|
436
|
|
Cable Network Programming
|
|
|
107
|
|
|
|
116
|
|
|
|
337
|
|
|
|
367
|
|
Other
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,891
|
|
|
|
2,041
|
|
|
|
6,066
|
|
|
|
6,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
(187
|
)
|
|
$
|
113
|
|
|
$
|
54
|
|
|
$
|
434
|
|
Book Publishing
|
|
|
36
|
|
|
|
56
|
|
|
|
135
|
|
|
|
188
|
|
Digital Real Estate Services
|
|
|
39
|
|
|
|
42
|
|
|
|
169
|
|
|
|
156
|
|
Cable Network Programming
|
|
|
34
|
|
|
|
27
|
|
|
|
101
|
|
|
|
113
|
|
Other
|
|
|
(44
|
)
|
|
|
(54
|
)
|
|
|
(136
|
)
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment EBITDA
|
|
|
(122
|
)
|
|
|
184
|
|
|
|
323
|
|
|
|
730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(126
|
)
|
|
|
(124
|
)
|
|
|
(370
|
)
|
|
|
(375
|
)
|
Restructuring charges
|
|
|
(24
|
)
|
|
|
(10
|
)
|
|
|
(63
|
)
|
|
|
(31
|
)
|
Equity earnings of affiliates
|
|
|
2
|
|
|
|
7
|
|
|
|
25
|
|
|
|
48
|
|
Interest, net
|
|
|
11
|
|
|
|
12
|
|
|
|
34
|
|
|
|
42
|
|
Other, net
|
|
|
33
|
|
|
|
12
|
|
|
|
32
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax benefit (expense)
|
|
|
(226
|
)
|
|
|
81
|
|
|
|
(19
|
)
|
|
|
484
|
|
Income tax benefit (expense)
|
|
|
98
|
|
|
|
(25
|
)
|
|
|
140
|
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
$
|
(128
|
)
|
|
$
|
56
|
|
|
$
|
121
|
|
|
$
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
NEWS CORPORATION
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2016
|
|
|
As of June 30,
2015
|
|
|
|
(in millions)
|
|
Total assets:
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
6,682
|
|
|
$
|
6,749
|
|
Book Publishing
|
|
|
1,971
|
|
|
|
2,022
|
|
Digital Real Estate Services
|
|
|
1,965
|
|
|
|
1,278
|
|
Cable Network Programming
|
|
|
1,227
|
|
|
|
1,163
|
|
Other
(a)
|
|
|
1,607
|
|
|
|
1,352
|
|
Investments
|
|
|
2,264
|
|
|
|
2,379
|
|
Assets held for sale
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,716
|
|
|
$
|
15,035
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Other segment primarily includes Cash and cash equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
2016
|
|
|
As of June 30,
2015
|
|
|
|
(in millions)
|
|
Goodwill and intangible assets, net:
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
2,670
|
|
|
$
|
2,593
|
|
Book Publishing
|
|
|
849
|
|
|
|
896
|
|
Digital Real Estate Services
|
|
|
1,482
|
|
|
|
835
|
|
Cable Network Programming
|
|
|
905
|
|
|
|
938
|
|
Other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets, net
|
|
$
|
5,910
|
|
|
$
|
5,266
|
|
|
|
|
|
|
|
|
|
|