NOTES TO THE 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 Consolidated Financial Statements relates to the Companys continuing operations. (See Note 4Discontinued Operations).
Basis of presentation
The consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). The Companys financial statements as of and for the fiscal years ended June 30, 2016, 2015 and 2014 are
presented on a consolidated basis.
The consolidated financial statements are referred to herein as the Consolidated
Financial Statements. 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 Companys fiscal year
ends on the Sunday closest to June 30. Fiscal 2016, fiscal 2015 and fiscal 2014 included 53, 52 and 52 weeks, respectively. All references to the fiscal years ended June 30, 2016, 2015 and 2014 relate to the fiscal years ended July 3, 2016, June 28,
2015 and June 29, 2014, respectively. For convenience purposes, the Company continues to date its consolidated financial statements as of June 30.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The Consolidated Financial Statements include the accounts of all majority-owned and controlled subsidiaries. In addition,
the Company evaluates its relationships with other entities to identify whether they are variable interest entities (VIEs) as defined by Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC) 810-10, Consolidation (ASC 810-10) and whether the Company is the primary beneficiary. Consolidation is required if both of these criteria are met. All significant intercompany accounts and transactions have
been eliminated in consolidation, including the intercompany portion of transactions with equity method investees.
Changes in
the Companys ownership interest in a consolidated subsidiary where a controlling financial interest is retained are accounted for as capital transactions. When the Company ceases to have a controlling interest in a consolidated subsidiary the
Company will recognize a gain or loss in the Statements of Operations upon deconsolidation.
Reclassifications
Certain reclassifications have been made to the prior period consolidated 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 4Discontinued Operations).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Use of estimates
The preparation of the Companys Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the
Consolidated Financial Statements and accompanying disclosures. Actual results could differ from those estimates.
Cash and cash
equivalents
Cash and cash equivalents consist of cash on hand and other investments that are readily convertible into cash
with original maturities of three months or less. The Companys cash and cash equivalents balance as of June 30, 2016 and 2015 also includes $95 million and $60 million, respectively, which is not readily accessible by the Company as it is held
by REA Group Limited (REA Group), a majority owned but separately listed public company. REA Group must declare a dividend in order for the Company to have access to its share of REA Groups cash balance.
The Company classifies cash as restricted when the cash is unavailable for use in general operations. The restricted cash balance of
$315 million as of June 30, 2016 relates to cash set aside for the Wireless Group Offer (as defined in Note 3) in order to comply with U.K. takeover regulations. (See Note 3Acquisitions, Disposals and Other Transactions).
Concentration of credit risk
Cash and cash equivalents are maintained with multiple financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these
deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.
Receivables, net
Receivables are presented net of an allowance for returns
and doubtful accounts, which is an estimate of amounts that may not be collectible. In determining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and acceptance of the
Companys products. Based on this information, management reserves a percentage of each dollar of product sales that provide the customer with the right of return. The allowance for doubtful accounts is estimated based on historical experience,
receivable aging, current economic trends and specific identification of certain receivables that are at risk of not being collected.
Receivables, net consist of:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Receivables
|
|
$
|
1,442
|
|
|
$
|
1,503
|
|
Allowances for returns and doubtful accounts
|
|
|
(213
|
)
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
$
|
1,229
|
|
|
$
|
1,283
|
|
|
|
|
|
|
|
|
|
|
The Companys receivables did not represent significant concentrations of credit risk as of June 30,
2016 or June 30, 2015 due to the wide variety of customers, markets and geographic areas to which the Companys products and services are sold.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the weighted average cost method. The Company records a reserve for excess and obsolete inventory based upon a calculation
using the historical usage rates, sales patterns of its products and specifically identified obsolete inventory. Inventory is included within Other current assets on the Balance Sheets.
Prepublication costs
The Company capitalizes the art, prepress, outside
editorial, digital conversion and other costs incurred in the creation of the master copy of a book or other media (the prepublication costs). Prepublication costs are amortized from the year of publication over their estimated useful
lives, using the straight-line method for capitalized costs with an estimated useful life of one year or less and sum of the years digits for capitalized costs exceeding one year. The Company regularly reviews the recoverability of the
capitalized costs based on expected future revenues. Prepublications costs are included in Other current assets on the Balance Sheets and were $33 million and $34 million as of June 30, 2016 and 2015, respectively. Amortization of
prepublication costs for the fiscal years ended June 30, 2016, 2015 and 2014 was $43 million, $43 million and $37 million, respectively.
Investments
The Company
makes investments in various businesses in the normal course of business. The Company evaluates its relationships with other entities to identify whether they are VIEs in accordance with ASC 810-10. In determining whether the Company is the
primary beneficiary of a VIE, it assesses whether it has the power to direct matters that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could
potentially be significant to the VIE. The Company would consolidate any investments in which it was determined to be the primary beneficiary of a VIE.
Investments in and advances to equity investments or joint ventures in which the Company has significant influence, but is not the primary beneficiary, and has less than a controlling voting interest, are
accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns an interest between 20% and 50% or when the Company has the ability to exercise significant influence. Under the equity method of
accounting, the Company includes its investment and amounts due to and from its equity method investments in its Balance Sheets. The Companys Statements of Operations include the Companys share of the investees earnings (losses)
and the Companys Statements of Cash Flows include all cash received from or paid to the investee.
The difference
between the Companys investment and its share of the fair value of the underlying net assets of the investee upon acquisition is first allocated to either finite-lived intangibles or indefinite-lived intangibles and the balance is attributed
to goodwill. The Company follows ASC 350, IntangiblesGoodwill and Other (ASC 350), which requires that equity method finite-lived intangibles be amortized over their estimated useful life. Such amortization is reflected
in Equity earnings of affiliates in the Statements of Operations. Indefinite-lived intangibles and goodwill are not amortized.
Investments in which the Company has no significant influence (generally less than a 20% ownership interest) or does not have the ability
to exercise significant influence are designated as available-for-sale investments if readily determinable market values are available. The Company reports available-for-sale investments at fair value based on quoted market prices. Unrealized
gains and losses on available-for-sale investments are included in Accumulated other comprehensive (loss) income, net of applicable taxes and other adjustments, until the investment is sold or considered impaired. If an investments fair value
is not readily determinable, the Company accounts for its investment at cost.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method
over an estimated useful life of 3 to 50 years. Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or the life of the lease. Costs associated with the repair and maintenance of property, plant
and equipment are expensed as incurred. Changes in circumstances, such as technological advances or changes to the Companys business model or capital strategy, could result in the actual useful lives differing from the Companys
estimates. In those cases where the Company determines that the useful life of buildings and equipment should be shortened, the Company would depreciate the asset over its revised remaining useful life, thereby increasing depreciation expense.
Operating Leases
For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as rent expense on a straight-line basis over the applicable lease terms. The term used for
straight-line rent expense is calculated initially from the date that the Company obtains possession of the leased premises through the expected lease termination date.
Capitalized software
In accordance with ASC 35040 Internal-use
Software, the Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. Costs incurred in the preliminary project stage are expensed. All direct costs incurred to develop internal use software
during the development stage are capitalized and amortized using the straight-line method over the estimated useful life, generally 2 to 10 years. Costs such as maintenance and training are expensed as incurred. Research and development costs are
expensed as incurred.
Royalty advances to authors
Royalty advances are initially capitalized and subsequently expensed as related revenues are earned or when the Company determines future recovery is not probable. The Company has a long history of
providing authors with royalty advances, and it tracks each advance earned with respect to the sale of the related publication. Historically, the longer the unearned portion of the advance remains outstanding, the less likely it is that the Company
will recover the advance through the sale of the publication. The Company applies this historical experience to its existing outstanding royalty advances to estimate the likelihood of recovery and a provision is established to write-off the unearned
advance, usually between 6 and 12 months after publication. Additionally, the Company reviews its portfolio of unpublished royalty advances to determine if individual royalty advances are not recoverable for discrete reasons, such as the death
of an author prior to completion of a title or titles, a Company decision to not publish a title, poor market demand or other relevant factors that could impact recoverability. Based on this information, the portion of any advance that the Company
believes is not recoverable is expensed.
Goodwill and intangible assets
The Company has intangible assets, including goodwill, newspaper mastheads, trademarks, distribution networks, publishing rights and
copyrighted products. Goodwill is recorded as the difference between the cost of acquiring entities and amounts assigned to their tangible and identifiable intangible net assets. In accordance with ASC 350, the Companys goodwill and
indefinite-lived intangible assets are tested annually during the fourth quarter for impairment or earlier if events occur or circumstances change that would more likely than not reduce the fair values below their carrying amounts. Intangible assets
with finite lives are amortized over their estimated useful lives. The impairment assessment of indefinite-lived intangibles compares the fair value of these intangible assets to their carrying value.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Goodwill is reviewed for impairment at a reporting unit level. Reporting units are
determined based on an evaluation of the Companys operating segments and the components making up those operating segments. For purposes of goodwill impairment review, the Company has identified Dow Jones, the Australian newspapers, the
U.K. newspapers, News America Marketing, Storyful Limited (Storyful), FOX SPORTS Australia, HarperCollins, REA Group, Move, Inc. (Move), Unruly Holdings Limited (Unruly) and DIAKRIT International Limited
(DIAKRIT), as its reporting units. In assessing goodwill for impairment, the Company has the option to first perform a qualitative assessment to determine whether events or circumstances exist that lead to a determination that it is
more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is not
required to perform any additional tests in assessing goodwill for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required to perform the first step of a two-step impairment
review process. The first step of the two-step impairment process is to compare the fair value of a reporting unit with its carrying amount, including goodwill. In performing the first step, the Company determines the fair value of a reporting unit
primarily by using a discounted cash flow analysis and market-based valuation approach methodologies. Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, long-term growth
rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows employed in the analyses are based on the Companys estimated outlook and various growth rates are assumed for years
beyond the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units. In assessing the reasonableness of its determined fair values, the
Company evaluates its results against other value indicators, such as comparable public company trading values. If the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not impaired and the second step
of the impairment review is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment review is required to be performed to estimate the implied fair value of the reporting
units goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the estimated fair value of the reporting unit is allocated to all of the assets and
liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the estimated fair value of the reporting unit was the purchase price paid. The implied fair value of
the reporting units goodwill is compared with the carrying amount of that goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount
equal to that excess.
The Company also performs impairment reviews on its indefinite-lived intangible assets, including
distribution networks, newspaper mastheads, trademarks, and imprints. Newspaper mastheads and book publishing imprints are reviewed on an aggregated basis in accordance with ASC 350. Distribution networks and trademarks are reviewed
individually. In assessing its indefinite-lived intangible assets for impairment, the Company has the option to first perform a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that
it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If the Company determines that it is not more likely than not that the fair value of an indefinite-lived intangible asset is
less than its carrying amount, the Company is not required to perform any additional tests in assessing the assets for impairment. However, if the Company concludes otherwise or elects not to perform the qualitative assessment, then it is required
to perform a quantitative analysis to determine if the fair value of the indefinite-lived intangible asset is less than its carrying value.
The methods used to estimate the fair value measurements of impaired goodwill and indefinite-lived intangible assets include those based on the income approach (including the discounted cash flow and
relief-from-royalty methods) and those based on the market approach (primarily the guideline public company
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
method). The resulting fair value measurements of the assets are considered to be Level 3 measurements. Significant unobservable inputs utilized in the income approach valuation methods are
discount rates, long-term growth rates and royalty rates. Significant unobservable inputs utilized in the market approach valuation methods are EBITDA multiples from guideline public companies operating in similar industries and a control
premium.
When a business within a reporting unit is disposed of, goodwill is allocated to the disposed business using the
relative fair value method.
Asset impairments
Investments
Equity method investments are regularly reviewed to determine
whether a significant event or change in circumstances has occurred that may impact the fair value of each investment. If the fair value of the investment has dropped below the carrying amount, management considers several factors when determining
whether an other-than-temporary decline in market value has occurred, including the length of time and extent to which the market value has been below cost, the financial condition and near-term prospects of the issuer, the intent and ability of the
Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value and other factors influencing the fair market value, such as general market conditions.
The Company regularly reviews available-for-sale investment securities for other-than-temporary impairment based on criteria that include
the extent to which the investments carrying value exceeds its related market value, the duration of the market decline, the Companys ability to hold until recovery and the financial strength and specific prospects of the issuer of the
security.
The Company regularly reviews investments accounted for at cost for other-than-temporary impairment based on
criteria that include the extent to which the investments carrying value exceeds its related estimated fair value, the duration of the estimated fair value decline, the Companys ability to hold until recovery and the financial strength
and specific prospects of the issuer of the security.
Long-lived assets
ASC 360, Property, Plant, and Equipment, (ASC 360) and ASC 350 require that the Company periodically review the
carrying amounts of its long-lived assets, including property, plant and equipment and finite-lived intangible assets, to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. If the carrying
amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment adjustment is recognized if the carrying value of such asset exceeds its fair value. The Company generally measures fair value by
considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate. Considerable management judgment is necessary to estimate the fair value of assets, accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value, less their costs to sell.
Revenue recognition
Revenue is recognized when persuasive evidence of an
arrangement exists, the fees are fixed or determinable, the product or service has been delivered and collectability is reasonably assured. The Company considers the terms of each arrangement to determine the appropriate accounting treatment.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
News and Information Services
Advertising revenues are recognized in the period when advertising is printed or placed on digital platforms, net of commissions and
provisions for estimated sales incentives including rebates, rate adjustments and discounts. Advertising revenues from integrated marketing services are recognized when free-standing inserts are published or over the time period in which
in-store marketing services are performed. Billings to clients and payments received in advance of the performance of services or delivery of products are recorded as deferred revenue until the services are performed or the product is
delivered.
Circulation and information services revenues include single-copy and subscription revenues. Circulation revenues
are based on the number of copies of the printed newspaper (through home-delivery subscriptions and single-copy sales) and digital subscriptions sold and the rates charged to the respective customers. Single-copy revenue is recognized based on date
of publication, net of provisions for related returns. Proceeds from print, digital and electronic information services subscription revenues are deferred at the time of sale and are recognized in earnings on a pro rata basis over the terms of the
subscriptions.
Other revenues are recognized when the related services are performed or the product has been delivered.
Book Publishing
Revenue from the sale of books for distribution in the retail channel is primarily recognized upon passing of control to the buyer. Revenue for electronic books (e-books), which is the net
amount received from the retailer, is generally recognized upon electronic delivery to the customer by the retailer. Revenue is reported net of any amounts billed to customers for taxes which are remitted to government authorities.
Digital Real Estate Services
Advertising revenues from providing online real estate advertising services are recognized on the fulfillment of customer service obligations, which may include product performance and/or product service
periods.
Subscription revenues from licensing and advanced reporting products are typically recognized ratably over the
service period of the related subscription.
Cable Network Programming
Affiliate fees received from cable television systems, direct broadcast satellite operators and other distribution systems are recognized
as revenue in the period that services are provided. Advertising revenues are recognized, net of agency commissions, in the period that the advertisements are aired.
Multiple element arrangements
Revenues derived from a single sales
contract that contains multiple products and services are allocated based on the relative fair value of each item to be delivered and recognized in accordance with the applicable revenue recognition criteria for the specific unit of accounting.
Gross versus net revenue recognition
In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. In connection with these arrangements, the Company must determine
whether to report revenue based on the gross amount billed to the ultimate customer or on the net amount received from the customer after commissions and other payments to third parties.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The determination of whether revenue should be reported on a gross or net basis is based
on an assessment of whether the Company is acting as the principal or an agent in the transaction. If the Company is acting as a principal in a transaction, the Company reports revenue on a gross basis. If the Company is acting as an agent in a
transaction, the Company reports revenue on a net basis. The determination of whether the Company is acting as a principal or an agent in a transaction involves judgment and is based on an evaluation of the terms of the arrangement. The Company
serves as the principal in transactions in which it has substantial risks and rewards of ownership.
Barter transactions
The Company enters into transactions that involve the exchange of advertising, in part, for other products and services, which are
recorded at the lesser of estimated fair value of the advertising given or product or service received in accordance with the provisions of ASC 605-20-25, Advertising Barter Transactions. Revenue from barter transactions is recognized
when advertising is provided, and expenses are recognized when products are received or services are incurred. Revenue from barter transactions included in the Statements of Operations was $58 million, $56 million and $47 million for the fiscal
years ended June 30, 2016, 2015 and 2014, respectively. Expense from barter transactions included in the Statements of Operations was $58 million, $56 million and $41 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
Sales returns
Consistent with industry practice, certain of the Companys products, such as books and newspapers, are sold with the right of
return. The Company records, as a reduction of revenue, the estimated impact of such returns. In determining the estimate of product sales that will be returned, management analyzes historical returns, current economic trends, changes in customer
demand and acceptance of the Companys products. Based on this information, management reserves a percentage of each dollar of product sales that provide the customer with the right of return.
Advertising expenses
The Company expenses advertising costs as incurred in accordance with ASC 720-35, Other ExpensesAdvertising Cost.
Advertising and promotional expenses recognized totaled $607 million, $530 million and $442 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
Shipping and handling
Costs incurred for shipping and handling are
reflected in Operating expenses in the Statements of Operations.
Translation of foreign currencies
The financial results and position of foreign subsidiaries and affiliates are translated into U.S. dollars using the current rate method,
whereby operating results are converted at the average rate of exchange for the period and assets and liabilities are converted at the closing rates on the period end date. The resulting translation adjustments are accumulated as a component of
Accumulated other comprehensive income. Gains and losses from foreign currency transactions are generally included in income for the period.
Income taxes
The
Company accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740). ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes. Under the
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Valuation allowances are established where management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Deferred taxes have not been
provided on the cumulative undistributed earnings of foreign subsidiaries to the extent amounts are expected to be reinvested indefinitely. The Company recognizes interest and penalty charges related to unrecognized tax benefits as income tax
expense.
Earnings (loss) per share
Basic earnings (loss) per share for Class A Common Stock and Class B Common Stock is calculated by dividing Net income (loss) available to News Corporation stockholders by the weighted average number
of shares of Class A Common Stock and Class B Common Stock outstanding. Diluted earnings (loss) per share for Class A Common Stock and Class B Common Stock is calculated similarly, except that the calculation includes the dilutive effect
of the assumed issuance of shares issuable under the Companys equity-based compensation plans. (See Note 13Earnings (Loss) per Share).
Equity-based compensation
Equity-based awards are accounted for in
accordance with ASC 718, CompensationStock Compensation (ASC 718). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in the Consolidated Financial Statements. ASC 718
establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with
employees.
Retirement Benefit Obligations
The Company provides defined benefit pension, postretirement healthcare, defined contribution and medical benefits to the Companys eligible employees and retirees. The Company accounts for its
defined benefit pension, postretirement healthcare and defined contribution plans in accordance with ASC 715, CompensationRetirement Benefits (ASC 715). The expense recognized by the Company is determined using certain
assumptions, including the discount rate, expected long-term rate of return and mortality rates, among others. The Company recognizes the funded status of its defined benefit plans (other than multiemployer plans) as an asset or liability in the
Balance Sheets and recognizes changes in the funded status in the year in which the changes occur through Accumulated other comprehensive (loss) income in the Balance Sheets.
Fair Value Measurements
The Company has various financial instruments that
are measured at fair value on a recurring basis, including certain marketable securities and derivatives. The Company also applies the provisions of fair value measurement to various non-recurring measurements for the Companys non-financial
assets and liabilities. With the exception of investments measured using the net asset value per share practical expedient prescribed in ASU 2015-07, the Company measures assets and liabilities in accordance with ASC 820, Fair Value
Measurements (ASC 820), using inputs from the following three levels of the fair value hierarchy: (i) inputs that are quoted prices in active markets for identical assets or liabilities (Level 1); (ii) inputs other than
quoted prices included within Level 1 that are observable, including quoted prices for similar assets or liabilities (Level 2); and (iii) unobservable inputs that require the entity to use its own best estimates about market participant
assumptions (Level 3).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Companys assets measured at fair value on a nonrecurring basis include
investments, long-lived assets, indefinite-lived intangible assets and goodwill. The Company reviews the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at
least annually as of June 30 for indefinite-lived intangible assets and goodwill. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to
be Level 3 measurements.
Financial instruments and derivatives
The carrying value of the Companys financial instruments, including cash and cash equivalents, approximate fair value. The Company
did not estimate the fair value of certain cost method investments because it was not practicable to do so. The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities
exchange or in an over-the-counter market which are considered to be Level 2 measurements. The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments. The
Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. As of June 30, 2016, the Company did not anticipate nonperformance by any of the counterparties.
ASC 815, Derivatives and Hedging (ASC 815), requires every derivative instrument (including certain derivative
instruments embedded in other contracts) to be recorded on the balance sheet at fair value as either an asset or a liability. ASC 815 also requires that changes in the fair value of recorded derivatives be recognized currently in earnings unless
specific hedge accounting criteria are met. The Company uses financial instruments to hedge its limited exposures to foreign currency exchange risks primarily associated with payments made to manufacturers and service providers. These
derivative contracts are primarily economic hedges. The Company records the changes in the fair value of these items in current earnings. The fair market value of foreign exchange forward contracts with foreign currency risk outstanding as
of June 30, 2016 and June 30, 2015 was not material.
Recent Accounting Guidance
In May 2014, 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. 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. 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. In April 2016, the FASB
issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (ASU 2016-10). The amendments in ASU 2016-10 clarify aspects relating to the identification of
performance obligations and improve the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, Update 2016-12Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients (ASU 2016-12). The amendments in ASU 2016-12 address certain issues identified on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and
contract modifications at transition. The effective date for all ASUs noted above is annual and interim reporting periods beginning July 1, 2018. The Company is currently evaluating the impact these ASUs will have on its consolidated financial
statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810):
Amendments to the Consolidation Analysis (ASU 2015-02). ASU 2015-02 is intended to address stakeholder concerns regarding the usefulness of financial statements where a reporting entity is required to consolidate a legal entity
where the reporting entitys contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entitys voting rights, or the reporting entity is not exposed to a
majority of the legal entitys economic benefits or obligations. The update amends the accounting guidance around the consolidation of limited partnerships, the considerations surrounding the primary beneficiary determination and the
consolidation of certain investment funds. ASU 2015-02 is effective for the Company for annual and interim periods beginning after December 16, 2015, however, early adoption is permitted. The Company does not expect the adoption of ASU 2015-02 to
have a significant impact on its consolidated 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 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 consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent) (ASU 2015-07). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share expedient. ASU 2015-07 is effective for
annual and interim periods beginning July 1, 2016 with retrospective application to all periods presented. As permitted by ASU 2015-07, the Company early-adopted this standard in the fourth quarter of fiscal 2016. The retrospective adoption resulted
in a reduction in Level 1 pension assets of nil and $104 million at June 30, 2016 and June 30, 2015, respectively and a reduction in Level 2 pension assets of $1,297 million and $1,307 million at June 30, 2016 and June 30, 2015, respectively. (See
Note 16Retirement Benefit Obligations). The adoption of ASU 2015-07 did not have a significant impact on the classification of the Companys other assets which are measured at fair value on a recurring and nonrecurring basis.
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 non-current in the Consolidated Balance Sheets, 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 Sheets. 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
95
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The amendments in ASU 2016-09 address several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for the Company for annual and interim reporting periods
beginning July 1, 2017. The Company is currently evaluating the impact ASU 2016-09 will have on its consolidated financial statements.
NOTE 3. 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 approximately $10 million in deferred cash consideration which was paid during fiscal 2016. Checkout 51 is a data-driven digital coupon company that provides News America Marketing with a leading receipt recognition mobile app which enables
packaged goods companies and brands 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 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
96
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
consideration. The fair value of the contingent consideration was estimated by applying a probability-weighted income approach. In accordance with ASC 350, $43 million of the purchase price has
been allocated to acquired technology with a weighted-average useful life of 7 years, $21 million has been allocated to customer relationships and tradenames with a weighted-average useful life of 6 years and $68 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 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, in which the Company
holds a 61.6% interest, increased its investment in iProperty Group Limited (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 $76 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 borrowings under an unsecured syndicated revolving loan facility (the REA Facility). (See Note 9Borrowings). 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.
97
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Statement of Operations for the fiscal year ended June 30, 2016. The total fair value of iProperty at the acquisition date is
set forth below (in millions):
|
|
|
|
|
Cash paid for iProperty equity
|
|
$
|
340
|
|
Deferred consideration
|
|
|
76
|
|
|
|
|
|
|
Total consideration
|
|
|
416
|
|
|
|
|
|
|
Fair value of previously held iProperty investment
|
|
|
120
|
|
|
|
|
|
|
Total fair value
|
|
$
|
536
|
|
|
|
|
|
|
Under the purchase method of accounting, the total consideration 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 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:
|
|
|
|
|
Goodwill
|
|
$
|
498
|
|
Intangible assets
|
|
|
72
|
|
Net Liabilities
|
|
|
(34
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
536
|
|
|
|
|
|
|
The acquired intangible assets primarily relate to tradenames which have an indefinite life. 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.
Flatmates.com.au Pty Ltd
In May 2016, REA Group acquired Flatmates.com.au Pty Ltd
(Flatmates) for $19 million in cash at closing and up to $15
million in future cash consideration related to payments contingent upon the achievement of certain performance objectives. Flatmates operates the Flatmates.com.au website, which is a market leading share accommodation site in Australia. The
acquisition enhances REA Groups Australian product offering by extending its reach into the quickly growing share accommodation business. Flatmates is a subsidiary of REA Group, and its results since acquisition are included within the Digital
Real Estate Services segment.
Australian Regional Media
In June 2016, the Company entered into an agreement to purchase Australian Regional Media (ARM) from APN News and Media Limited (APN) for approximately $30 million. ARM operates a
portfolio of regional print assets and websites and extends the reach of the Australian newspaper business to new customers in new geographic regions. The acquisition is subject to regulatory and APN shareholder approval.
Wireless Group plc
On
June 30, 2016, the Company announced that it had reached an agreement on the terms of a recommended cash offer (the Offer) to acquire Wireless Group plc (Wireless Group) for a purchase price of 315 pence per share
in cash, or approximately £220 million (approximately $300 million) in the aggregate, plus
98
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
any assumed debt at closing. Wireless Group, a publicly-traded company listed on the London and Irish Stock Exchanges, operates TalkSPORT, the leading sports radio network in the U.K., and a
portfolio of radio stations in the U.K. and Ireland. The proposed acquisition is expected to broaden the Companys range of services in the U.K., Ireland and internationally. The Offer is subject to customary closing conditions, including
shareholder acceptances and regulatory approval, as well as the other terms set forth in the Companys Offer Document. As a result of U.K. takeover regulations requiring the Company to demonstrate that necessary financial resources are
available to enable full satisfaction of the consideration payable in the Offer, the Company has specifically set aside $315 million of cash for the Offer and has classified it as restricted cash in the Balance Sheet as of June 30, 2016.
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, 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.
99
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 remaining service period of 2.5 years. (See Note 12 Equity Based Compensation). 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 non-current assets
|
|
|
69
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
1,126
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
Current liabilities
|
|
$
|
50
|
|
Deferred income taxes
|
|
|
52
|
|
Borrowings
|
|
|
129
|
|
Other non-current liabilities
|
|
|
3
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
234
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
892
|
|
|
|
|
|
|
100
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 Sheets as of the date of acquisition.
Move had U.S. federal net operating loss carryforwards (NOLs) of $947 million ($332 million tax-effected) at the date of
acquisition. The NOLs are subject to limitations as promulgated under Section 382 of the Internal Revenue Code of 1986, as amended (the Code). Section 382 of the Code limits the amount of acquired NOLs that we can use on an annual
basis to offset future U.S. consolidated taxable income. 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.
Accordingly, the Company expected approximately $463 million of NOLs could be utilized, and 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 its
digital education business, the Company increased its estimated utilization of Moves NOLs by $167 million ($58 million tax-effected) and released valuation allowances equal to that amount. Upon filing its fiscal 2015 federal income tax return,
the Company reduced Moves NOLs by $298 million which represents the amount expected to expire unutilized due to the Section 382 limitation discussed above. As of June 30, 2016, the remaining Move NOLs expected to be utilized are $573 million
($201 million tax-effected). The utilization of these NOLs is dependent on generating sufficient U.S. taxable income prior to expiration which begins in varying amounts starting in 2021. The deferred tax assets established for Moves NOLs,
net of valuation allowance and unrecognized tax benefits, are included in Non-current deferred tax assets on the Balance Sheets.
Fiscal
2014
In September 2013, the Company sold the Dow Jones Local Media Group (LMG), which operated eight daily
and fifteen weekly newspapers in seven states. The gain recognized on the sale of LMG was not significant as the carrying value of the assets held for sale on the date of sale approximated the proceeds received. The net income, assets, liabilities
and cash flows attributable to the LMG operations were not material to the Company in any of the periods presented and, accordingly, have not been presented separately.
In December 2013, the Company acquired Storyful, a social media content agency, for approximately $25 million, of which $19 million was paid in cash, with the remainder primarily related to an earn-out
that was contingent upon the achievement of certain performance objectives. The Storyful acquisition complements the Companys existing video capabilities, including the creation and distribution of original and on-demand programming such as
WSJ Live and BallBall. Storyfuls results are included within the News and Information Services segment.
NOTE 4. 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. The Company
101
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
completed the sale of the Amplify Insight and Amplify Learning businesses on September 30, 2015 and incurred approximately $17 million in severance and lease termination costs in conjunction with
the sale. These amounts are included in Loss before income tax benefit in the table below for the fiscal year ended June 30, 2016. Additionally, during the first quarter of fiscal 2016, the Company recognized a tax benefit of $144 million
upon reclassification of the Digital Education segment to discontinued operations. This amount is included in Income tax benefit in the table below for the fiscal year ended June 30, 2016.
During the fourth quarter of fiscal 2015, as part of the Companys long-range planning process, the Company changed its strategy and
related outlook with respect to the Amplify reporting unit which resulted in a reduction in expected future cash flows for the business. As a result, the Company determined that the fair value of this reporting unit declined below its carrying value
and recorded a non-cash impairment charge of $371 million, with no associated tax impact, in the fiscal year ended June 30, 2015. The charge primarily consisted of a write-down of the Companys goodwill of $325 million and a write-down of
capitalized software development costs of $45 million. Significant unobservable inputs utilized in the income approach valuation method were discount rates (ranging from 12%-45%) and long-term growth rates (ranging from 0%-4%). The impairment
charges are included in Loss before income tax benefit in the table below for the fiscal year ended June 30, 2015.
The
following table summarizes the results of operations from the discontinued segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Revenues
|
|
$
|
27
|
|
|
$
|
109
|
|
|
$
|
88
|
|
Loss before income tax benefit
|
|
|
(159
|
)
|
|
|
(496
|
)
|
|
|
(219
|
)
|
Income tax benefit
|
|
|
174
|
|
|
|
51
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations, net of tax
|
|
$
|
15
|
|
|
$
|
(445
|
)
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Net cash used in operating activities
|
|
$
|
(74
|
)
|
|
$
|
(157
|
)
|
|
$
|
(175
|
)
|
Net cash provided by (used in) investing activities
|
|
|
13
|
|
|
|
(70
|
)
|
|
|
(21
|
)
|
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(61
|
)
|
|
$
|
(227
|
)
|
|
$
|
(196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities held for sale related to discontinued operations as of June 30,
2016 and June 30, 2015 are included in Other current liabilities and Other current assets, respectively, in the Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2016
|
|
|
As of
June 30, 2015
|
|
|
|
(in millions)
|
|
Current assets
|
|
$
|
1
|
|
|
$
|
54
|
|
Non-current assets
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
7
|
|
|
|
46
|
|
Non-current liabilities
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
7
|
|
|
$
|
62
|
|
|
|
|
|
|
|
|
|
|
Net (liabilities) assets held for sale
|
|
$
|
(6
|
)
|
|
$
|
92
|
|
|
|
|
|
|
|
|
|
|
102
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. RESTRUCTURING PROGRAMS
The Company recorded restructuring charges of $89 million, $84 million and $79 million for the fiscal years ended June 30, 2016, 2015 and
2014, respectively, of which $79 million, $75 million and $67 million related to the News and Information Services segment, respectively. The restructuring charges recorded in fiscal 2016, 2015 and 2014 were primarily for employee termination
benefits.
Changes in the restructuring program liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One time
employee
termination
benefits
|
|
|
Facility
related costs
|
|
|
Other costs
|
|
|
Total
|
|
|
|
(in millions)
|
|
Balance, June 30, 2013
|
|
$
|
51
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
59
|
|
Additions
|
|
|
69
|
|
|
|
8
|
|
|
|
2
|
|
|
|
79
|
|
Payments
|
|
|
(101
|
)
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(107
|
)
|
Other
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2014
|
|
$
|
21
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
28
|
|
Additions
|
|
|
74
|
|
|
|
1
|
|
|
|
9
|
|
|
|
84
|
|
Payments
|
|
|
(46
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
(52
|
)
|
Other
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2015
|
|
$
|
47
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
58
|
|
Additions
|
|
|
86
|
|
|
|
1
|
|
|
|
2
|
|
|
|
89
|
|
Payments
|
|
|
(95
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(96
|
)
|
Other
|
|
|
(5
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
$
|
33
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016, restructuring liabilities of approximately $34 million were included in the Balance
Sheet in Other current liabilities and $10 million were included in Other non-current liabilities.
NOTE 6. INVESTMENTS
The Companys investments were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
Percentage as of
June 30, 2016
|
|
|
As of June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(in millions)
|
|
Equity method investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foxtel
(a)
|
|
|
50
|
%
|
|
$
|
1,437
|
|
|
$
|
1,476
|
|
Other equity method investments
(b)
|
|
|
various
|
|
|
|
101
|
|
|
|
168
|
|
Loan receivable from Foxtel
(c)
|
|
|
N/A
|
|
|
|
338
|
|
|
|
345
|
|
Available-for-sale securities
(d)
|
|
|
various
|
|
|
|
189
|
|
|
|
185
|
|
Cost method investments
(e)
|
|
|
various
|
|
|
|
205
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
|
|
|
|
$
|
2,270
|
|
|
$
|
2,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The change in the
Foxtel investment for the fiscal year ended June 30, 2016 was primarily due to the impact of foreign currency fluctuations. For the fiscal years ended June 30, 2016 and 2015, the Company received dividends from Foxtel of $26 million and $107
million, respectively.
|
103
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Companys investment in Foxtel exceeded its equity in the underlying net assets
by approximately $1.5 billion as of June 30, 2016. This amount represented the excess cost over the Companys proportionate share of its investments underlying net assets. This has been allocated between finite-lived intangible
assets, indefinite-lived intangible assets and goodwill. The finite-lived intangible assets of approximately $0.5 billion primarily represent subscriber relationships with a weighted average remaining useful life of 7 years.
(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 approximately $100 million. 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 and increased its ownership percentage to an
approximate 22.7% interest in the first quarter of fiscal 2016. In February 2016, REA Group increased its ownership interest in iProperty to approximately 86.9% for A$482 million (approximately $340 million) and from then its results are
consolidated within the Digital Real Estate Services segment. (See Note 3Acquisitions, Disposals and Other Transactions).
|
(c)
|
In May 2012,
Foxtel purchased Austar United Communications Ltd. The transaction was funded by Foxtel bank debt and Foxtels shareholders made pro rata capital contributions 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 ($338 million and $345 million as of June 30, 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 payable on June 30 each year and at maturity. On June 22, 2016, Foxtel and
Foxtels shareholders agreed to modify the terms of the loan receivable to reduce the interest rate from 12% to 10.5%, to more closely align with current market rates. Foxtel paid interest at a rate of 10.5% for fiscal 2016. 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. During fiscal 2015, the Company purchased a 14.99% interest in APN for approximately $112 million. During fiscal 2016, the Company participated in an
entitlement offer to maintain its 14.99% interest for $20 million. APN operates a portfolio of Australian radio and outdoor media assets.
|
(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%. In June 2016, the Companys interest in SEEK Asia increased to approximately 13.75% as a result of the repurchase and cancellation of shares owned
by certain other shareholders.
|
104
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company measures the fair market values of available-for-sale investments as Level 1
financial instruments under ASC 820 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 June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Cost basis of available-for-sale investments
|
|
$
|
155
|
|
|
$
|
164
|
|
Accumulated gross unrealized gain
|
|
|
34
|
|
|
|
46
|
|
Accumulated gross unrealized loss
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale investments
|
|
$
|
189
|
|
|
$
|
185
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
13
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
Equity Earnings of Affiliates
The Companys share of the earnings of its equity affiliates was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Foxtel
(a)
|
|
$
|
38
|
|
|
$
|
59
|
|
|
$
|
90
|
|
Other equity affiliates, net
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity earnings of affiliates
|
|
$
|
30
|
|
|
$
|
58
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In accordance with
ASC 350, the Company amortized $52 million, $57 million and $62 million related to excess cost over the Companys proportionate share of its investments underlying net assets allocated to finite-lived intangible assets during the fiscal
years ended June 30, 2016, 2015 and 2014, respectively. Such amortization is reflected in Equity earnings of affiliates in the Statements of Operations.
|
Impairments of investments
The Company regularly reviews its investments
for impairments based on criteria that include the extent to which the investments carrying value exceeds its related market value, the duration of the market decline, the Companys ability to hold its investment until recovery and the
investments financial strength and specific prospects. The Company recorded write-offs and impairments of certain investments in the fiscal years ended June 30, 2016, 2015 and 2014 of $21 million, $5 million and $10 million, respectively.
These write-offs and impairments were reflected in Other, net in the Statements of Operations and were taken either as a result of the deteriorating financial position of the investee or due to an other-than-temporary impairment resulting from
sustained losses and limited prospects for recovery. Of the $21 million in write-offs and impairments recognized in the fiscal year ended June 30, 2016 , approximately $17 million was reclassified out of accumulated other comprehensive income and
included in Other, net in the Statement of Operations.
105
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Summarized Financial Information
Summarized financial information for Foxtel, presented in accordance with U.S. GAAP, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Revenues
|
|
$
|
2,379
|
|
|
$
|
2,658
|
|
|
$
|
2,897
|
|
Operating income
(a)
|
|
|
373
|
|
|
|
441
|
|
|
|
554
|
|
Net income
|
|
|
180
|
|
|
|
232
|
|
|
|
304
|
|
(a)
|
Includes
Depreciation and amortization of $231 million, $319 million and $349 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively. Operating income before depreciation and amortization was $604 million, $760 million and $903 million
for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Current assets
|
|
$
|
605
|
|
|
$
|
458
|
|
Non-current assets
|
|
|
2,470
|
|
|
|
2,506
|
|
Current liabilities
|
|
|
764
|
|
|
|
731
|
|
Non-current liabilities
|
|
|
2,534
|
|
|
|
2,544
|
|
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful
Lives
|
|
|
As of June 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(in millions)
|
|
Land
|
|
|
|
|
|
$
|
153
|
|
|
$
|
161
|
|
Buildings and leaseholds
|
|
|
3 to 50 years
|
|
|
|
1,793
|
|
|
|
1,925
|
|
Machinery and equipment
(a)
|
|
|
3 to 40 years
|
|
|
|
2,872
|
|
|
|
2,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,818
|
|
|
|
5,058
|
|
Less: accumulated depreciation and amortization
(b)
|
|
|
|
|
|
|
(2,524
|
)
|
|
|
(2,493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,294
|
|
|
|
2,565
|
|
Construction in progress
(a)
|
|
|
|
|
|
|
111
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property, plant and equipment, net
|
|
|
|
|
|
$
|
2,405
|
|
|
$
|
2,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes
capitalized software of approximately $950 million and $898 million as of June 30, 2016 and 2015, respectively.
|
(b)
|
Includes
accumulated amortization of capitalized software of approximately $498 million and $447 million as of June 30, 2016 and 2015, respectively.
|
Depreciation and amortization related to property, plant and equipment was $415 million, $407 million and $470 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively. This
includes amortization of capitalized software of $194 million, $169 million and $136 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
Total operating lease expense was approximately $164 million, $195 million and $187 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
106
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
The carrying values of the Companys intangible assets and related accumulated amortization for the fiscal years ended June 30, 2016
and June 30, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Intangible Assets Not Subject to Amortization
|
|
|
|
|
|
|
|
|
Newspaper Mastheads
|
|
$
|
307
|
|
|
$
|
308
|
|
Distribution Networks
|
|
|
391
|
|
|
|
392
|
|
Imprints
|
|
|
245
|
|
|
|
266
|
|
Trademarks and tradenames
|
|
|
191
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets not subject to amortization
|
|
|
1,134
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets Subject to Amortization
|
|
|
|
|
|
|
|
|
Channel Distribution Agreements
(a)
|
|
|
342
|
|
|
|
366
|
|
Publishing Rights
(b)
|
|
|
365
|
|
|
|
389
|
|
Customer Relationships
(c)
|
|
|
336
|
|
|
|
336
|
|
Other
(d)
|
|
|
30
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets subject to amortization, net
|
|
|
1,073
|
|
|
|
1,117
|
|
|
|
|
|
|
|
|
|
|
Total Intangible assets, net
|
|
$
|
2,207
|
|
|
$
|
2,203
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Net of accumulated
amortization of $58 million and $43 million as of June 30, 2016 and 2015, respectively. The average useful life of the channel distribution agreements is 25 years primarily based on the period that a majority of the future cash flows from these
intangibles will be generated.
|
(b)
|
Net of accumulated
amortization of $150 million and $122 million as of June 30, 2016 and 2015, respectively. The average useful life of publishing rights is 4 to 30 years primarily based on the weighted-average remaining contractual terms of the underlying publishing
contracts and the Companys estimates of the period within those terms that the asset is expected to generate a majority of its future cash flows.
|
(c)
|
Net of accumulated
amortization of $363 million and $340 million as of June 30, 2016 and 2015, respectively. The average useful life of customer relationships ranges from 2 to 25 years. The useful lives of these assets are estimated by applying historical attrition
rates and determining the resulting period over which a majority of the accumulated undiscounted cash flows related to the customer relationships are expected to be generated. The useful lives represent the periods over which these intangible assets
are expected to contribute directly or indirectly to the Companys future cash flows.
|
(d)
|
Net of accumulated
amortization of $69 million and $50 million as of June 30, 2016 and 2015, respectively. The average useful life of other intangible assets ranges from 2 to 15 years. The useful lives represent the periods over which these intangible assets are
expected to contribute directly or indirectly to the Companys future cash flows.
|
Amortization related
to amortizable intangible assets was $91 million, $90 million and $83 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
Based on the current amount of amortizable intangible assets, the estimated amortization expense for each of the succeeding five fiscal years is as follows: 2017$93 million; 2018$89 million;
2019$77 million; 2020$67 million; and 2021$60 million. These amounts may vary as acquisitions and disposals occur in the future and as purchase price allocations are finalized.
107
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The changes in the carrying value of goodwill, by segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and
Information
Services
|
|
|
Book
Publishing
|
|
|
Digital Real
Estate Services
|
|
|
Cable Network
Programming
|
|
|
Other
|
|
|
Total
Goodwill
|
|
|
|
(in millions)
|
|
Balance, June 30, 2014
|
|
$
|
1,701
|
|
|
$
|
71
|
|
|
$
|
86
|
|
|
$
|
599
|
|
|
$
|
|
|
|
$
|
2,457
|
|
Acquisitions
|
|
|
|
|
|
|
191
|
|
|
|
566
|
|
|
|
|
|
|
|
4
|
|
|
|
761
|
|
Foreign currency movements
|
|
|
(5
|
)
|
|
|
(21
|
)
|
|
|
(16
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2015
|
|
$
|
1,696
|
|
|
$
|
241
|
|
|
$
|
636
|
|
|
$
|
486
|
|
|
$
|
4
|
|
|
$
|
3,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
80
|
|
|
|
31
|
|
|
|
545
|
|
|
|
|
|
|
|
|
|
|
|
656
|
|
Foreign currency movements
|
|
|
(11
|
)
|
|
|
(12
|
)
|
|
|
28
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
$
|
1,765
|
|
|
$
|
260
|
|
|
$
|
1,209
|
|
|
$
|
476
|
|
|
$
|
4
|
|
|
$
|
3,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying amount of goodwill as of June 30, 2016 reflected accumulated impairments, principally
relating to the News and Information Services segment, of $3.4 billion.
Annual Impairment Assessments
Fiscal 2016
In
accordance with ASC 350, the Companys goodwill and indefinite-lived intangible assets are tested annually in the fourth quarter for impairment or earlier if events or circumstances change that would more likely than not reduce the fair value
of the reporting unit below its carrying amount. (See Note 2Summary of Significant Accounting Policies).
The
performance of the Companys annual impairment analysis did not result in any impairments of goodwill in fiscal 2016. Significant unobservable inputs utilized in the income approach valuation method were discount rates (ranging from 9%-14.5%),
long-term growth rates (ranging from 0%-3.5%) and royalty rates (ranging from 0.5%-3.4%). Significant unobservable inputs utilized in the market approach valuation method were EBITDA multiples from guideline public companies operating in similar
industries and control premiums (ranging from 10%-15%). Significant increases (decreases) in royalty rates, growth rates, control premiums and multiples, assuming no change in discount rates, would result in a significantly higher (lower) fair value
measurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premiums and multiples, would result in a significantly higher (lower) fair value measurement.
Fiscal 2015
The
performance of the Companys annual impairment analysis did not result in any impairments of goodwill in fiscal 2015. Significant unobservable inputs utilized in the income approach valuation method were discount rates (ranging from 9%-14%),
long-term growth rates (ranging from 0%-3%) and royalty rates (ranging from 0.5%-3.3%). Significant unobservable inputs utilized in the market approach valuation method were EBITDA multiples from guideline public companies operating in similar
industries and control premiums (ranging from 10%-15%). Significant increases (decreases) in royalty rates, growth rates, control premiums and multiples, assuming no change in discount rates, would result in a significantly higher (lower) fair value
measurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premiums and multiples, would result in a significantly higher (lower) fair value measurement.
108
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal 2014
The performance of the Companys annual impairment analysis did not result in any impairments of goodwill in fiscal 2014. Significant unobservable inputs utilized in the income approach valuation
method were discount rates (ranging from 9.0%-14.0%), long-term growth rates (ranging from 0.0%-4.0%) and royalty rates (ranging from 0.5%-2.8%). Significant unobservable inputs utilized in the market approach valuation method were EBITDA multiples
from guideline public companies operating in similar industries and control premiums (ranging from 10%-15%). Significant increases (decreases) in royalty rates, growth rates, control premiums and multiples, assuming no change in discount rates,
would result in a significantly higher (lower) fair value measurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premiums and multiples, would result in a significantly higher
(lower) fair value measurement.
NOTE 9. BORROWINGS
The Companys total borrowings consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 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
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
372
|
|
|
|
|
|
Less: Current portion
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 June 30, 2016, REA Group was paying a margin of between 1.00% and 1.20%. REA Group paid approximately $4
million in interest for the fiscal year ended June 30, 2016 at a weighted average interest rate of 3.2%. 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 June 30, 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.
109
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, the lenders commitments now terminate on
October 23, 2020, and any borrowings will be due at that time. 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 customary affirmative and negative covenants and events of default, with customary exceptions, including
limitations on the ability of the Company and its subsidiaries to 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. 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 June 30, 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 June 30, 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:
|
|
|
|
|
|
|
As of
June 30, 2016
|
|
|
|
(in millions)
|
|
Fiscal 2017
|
|
$
|
|
|
Fiscal 2018
|
|
|
90
|
|
Fiscal 2019
|
|
|
90
|
|
Fiscal 2020
|
|
|
180
|
|
Fiscal 2021
|
|
|
|
|
Thereafter
|
|
|
|
|
NOTE 10. REDEEMABLE PREFERRED STOCK
In connection with the Companys separation of its businesses (the Separation) from Twenty-First Century Fox, Inc. (21st Century Fox) on June 28, 2013 (the Distribution
Date), 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, in arrears. The preferred stock is callable by the Company at any time after the fifth year and is puttable at the option of the holder after 10 years. As of June 30, 2016 and 2015, $20 million was included in Redeemable preferred stock
on the Balance Sheets.
110
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. STOCKHOLDERS EQUITY
Authorized Capital Stock
The Companys authorized capital
stock consists of 1,500,000,000 shares of Class A Common Stock, par value $0.01 per share, 750,000,000 shares of Class B Common Stock, par value $0.01 per share, 25,000,000 shares of Series Common Stock, par value $0.01 per share, and 25,000,000
shares of Preferred Stock, par value $0.01 per share.
Common Stock
Shares Outstanding
Following the Separation, the Company had approximately 379 million shares of Class A Common Stock
outstanding at a par value of $0.01 per share and 200 million shares of Class B Common Stock outstanding at a par value of $0.01 per share. As of June 30, 2016, the Company had approximately 380 million shares of Class A Common Stock outstanding at
a par value of $0.01 per share and approximately 200 million shares of Class B Common Stock outstanding at a par value of $0.01 per share.
Dividends
Dividends declared and paid per share on both the Companys Class A Common Stock and Class B Common Stock totaled $0.20 for fiscal 2016. No dividends were declared or paid in
fiscal 2015 or fiscal 2014. The timing, declaration, amount and payment of future dividends to stockholders, if any, is within the discretion of the Companys Board of Directors (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.
Voting Rights
Holders of the Companys Class A Common Stock are entitled to vote only in the limited circumstances set forth in the Companys Restated Certificate of Incorporation.
Holders of the Companys Class B Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders.
Liquidation Rights
In the event of a liquidation or dissolution of the Company, holders of Class A Common Stock and Class B Common Stock shall be entitled to receive all of the remaining
assets of the Company available for distribution to its stockholders, ratably in proportion to the number of shares held by Class A Common Stock holders and Class B Common Stock holders, respectively. In the event of any merger or consolidation
with or into another entity, the holders of Class A Common Stock and the holders of Class B Common Stock shall generally be entitled to receive substantially identical per share consideration.
Stock Repurchases
In May 2013, 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. Through August 5, 2016, the Company repurchased approximately 5.2 million shares of
Class A Common Stock for an aggregate purchase price of approximately $71 million. The remaining authorized amount under the stock repurchase program as of August 5, 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
111
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. The total number and value of shares
repurchased for the fiscal years ended June 30, 2016, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Total cost of repurchases
|
|
$
|
39
|
|
|
$
|
32
|
|
|
|
|
|
Total number of shares repurchased
|
|
|
3.1
|
|
|
|
2.1
|
|
|
|
|
|
Stockholder Rights Agreement
During fiscal 2015, the Board of Directors adopted the second amended and restated rights agreement, which is referred to below as the rights agreement. Under the rights agreement, each
outstanding share of common stock of the Company has attached to it one right. Initially, the rights are represented by the common stock of the Company, are not traded separately from the common stock and are not exercisable. The rights, unless
redeemed or exchanged, will become exercisable for common stock of the Company 10 business days after public announcement that a person or group has obtained beneficial ownership (defined to include stock which a person has the right to acquire,
regardless of whether such right is subject to the passage of time or the satisfaction of conditions), including by means of a tender offer, of 15% or more of the outstanding shares of the Companys Class B Common Stock. Following such
acquisition of beneficial ownership, each right will entitle its holder (other than the acquiring person or group) to purchase, at the exercise price (subject to adjustments provided in the rights agreement), a number of shares of the Companys
Class A or Class B Common Stock, as applicable, having a then-current market value of twice the exercise price, and in the event of a subsequent merger or other acquisition of the Company or transfer of 50% or more of the Company, to purchase, at
the exercise price, a number of shares of common stock of the acquiring entity having a then-current market value of twice the exercise price. The exercise price for the Company rights will be $90.00, subject to certain adjustments.
The rights will not become exercisable by virtue of (i) any persons or groups beneficial ownership, as of the
Distribution Date, of 15% or more of the Class B Common Stock of the Company, unless such person or group acquires beneficial ownership of additional shares of the Companys Class B Common Stock after June 18, 2015; (ii) the repurchase of
the Companys shares that causes a holder to become the beneficial owner of 15% or more of the Companys Class B Common Stock, unless such holder acquires beneficial ownership of additional shares representing one percent or more of the
Companys Class B Common Stock; (iii) acquisitions by way of a pro rata stock dividend or a stock split; (iv) acquisitions solely as a result of any unilateral grant of any security by the Company or through the exercise of any
options, warrants, rights or similar interests (including restricted stock) granted by the Company to its directors, officers and employees pursuant to any equity incentive or award plan; or (v) certain acquisitions determined by the Board of
Directors to be inadvertent, provided, that following such acquisition, the acquirer promptly, but in any case within 10 business days, divests a sufficient number of shares so that such person would no longer otherwise qualify as an acquiring
person.
The rights will expire on June 18, 2018, unless the rights agreement is earlier terminated or such date is
advanced or extended by the Company, or the rights are earlier redeemed or exchanged by the Company.
NOTE 12. 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),
112
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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
addition to awards assumed in connection with the Separation and with acquisitions.
In connection with the acquisition of
Move in November 2014, 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.
The following table summarizes the Companys
equity-based compensation expense from continuing operations reported in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Total Equity compensation expense
|
|
$
|
55
|
|
|
$
|
53
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic value of stock options exercised
|
|
$
|
3
|
|
|
$
|
24
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016, total compensation cost not yet recognized for all plans presented related to
unvested awards held by the Companys employees was approximately $53 million and is expected to be recognized over a weighted average period of between one and two years.
The tax benefit recognized on PSUs and RSUs for the Companys employees that vested, and stock options that were exercised by the
Companys employees, during the applicable fiscal year was $11 million, $17 million and $8 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
Summary of Incentive Plans
The fair value of equity-based compensation
granted under the 2013 LTIP is calculated according to the type of award issued. Cash settled awards are marked-to-market at the end of each reporting period.
Performance Stock Units
PSU awards are grants that entitle the
holder to shares of the Companys Class A Common Stock or the cash equivalent value of such shares based on the achievement of pre-established performance metrics over the applicable performance period. PSUs are fair valued on the date of grant
and expensed using a straight-line method as the awards cliff vest at the end of the three-year performance period. The number of PSUs that will vest can range from 0% to 200% of the target award and will be based on the achievement of the
performance condition and the Companys three-year total shareholder return (TSR). The expense recorded for the portion of the award that is subject to the performance condition is based on managements determination of the
probable outcome of the performance condition and the corresponding number of shares expected to vest. The Company records a cumulative expense adjustment in periods in which its estimate of the number of shares expected to vest changes.
Additionally, the expense recognized is ultimately adjusted to reflect the actual number of shares that vested based on the achievement of the performance condition. The number of awards which vest is also
113
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
impacted by the Companys TSR as measured against the three-year TSR of the companies that comprise the Standard and Poors 500 Index. The fair value of the TSR condition is determined
using a Monte Carlo simulation model. Any person who holds PSUs shall have no ownership interest in the shares or cash to which such PSUs relate unless and until the shares or cash are delivered to the holder. All shares of Class A Common Stock
reserved for cancelled or forfeited equity-based compensation awards become available for future grants.
In the first
quarters of fiscal 2016 and 2015, certain employees of the Company each received a grant of PSUs that has a three-year performance measurement period beginning on July 1, 2015 and July 1, 2014, respectively. Vesting of the awards is subject to the
achievement of the performance condition, consisting of pre-defined targets for cumulative earnings per share and cumulative free cash flow for the applicable performance period, as well as the TSR condition. The majority of these awards will be
settled in shares of the Companys Class A Common Stock subject to the achievement of the relevant performance metrics and participants continued employment with the Company.
In the second quarter of fiscal 2014, certain employees of the Company each received a grant of PSUs that has a three-year performance
measurement period beginning on July 1, 2013. Vesting of the awards is subject to the achievement of the performance condition, consisting of pre-defined targets for cumulative earnings per share and consolidated free cash flow growth for the
applicable performance period, as well as the TSR condition. The majority of these awards will be settled in shares of the Companys Class A Common Stock subject to the achievement of the relevant performance metrics and
participants continued employment with the Company.
For the fiscal years ended June 30, 2016, 2015 and 2014, a total of
4.2 million, 3.4 million and 4.3 million target PSUs were granted to the Companys employees, respectively, of which 3.0 million, 2.3 million and 2.7 million, respectively, will be settled in Class A Common Stock of the Company, with
the remaining, having been granted to executive directors and to employees in certain foreign locations, being settled in cash.
For the fiscal years ended June 30, 2016, 2015 and 2014, approximately 1.2 million, 2.0 million and nil PSUs vested, respectively, of
which approximately 0.2 million, 0.5 million and nil PSUs, respectively, were settled in cash for approximately $3.3 million, $8.2 million and nil before statutory tax withholdings, respectively.
Restricted Stock Units
RSU awards are grants that entitle the holder to shares of the Companys Class A Common Stock or the cash equivalent value of such shares based on the share price on the expected vesting date.
The fair value of RSUs issued under the 2013 LTIP is based upon the fair market value of the shares underlying the awards on the grant date. Any person who holds RSUs shall have no ownership interest in the shares or cash to which such RSUs relate
unless and until shares or cash are delivered to the holder.
During fiscal 2016, 2015 and 2014, certain employees of the
Company each received a grant of time-vested RSUs. Vesting of the awards is subject to the participants continued employment with the Company through the applicable vesting date. During the fiscal years ended June 30, 2016, 2015 and 2014,
0.3 million, 0.5 million and 0.2 million RSUs were granted to the Companys employees, respectively, which primarily vest over three to four years.
114
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity from continuing and discontinued operations
related to the target PSUs and RSUs granted to the Companys employees which will be settled in shares of the Company (PSUs and RSUs in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant-
date fair
value
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant-
date fair
value
|
|
|
Number
of
shares
|
|
|
Weighted
average
grant-
date fair
value
|
|
PSUs and RSUs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested units at beginning of the year
|
|
|
8,355
|
|
|
$
|
16.77
|
|
|
|
7,222
|
|
|
$
|
13.00
|
|
|
|
5,557
|
|
|
$
|
9.46
|
|
Granted
(a)
|
|
|
3,472
|
|
|
|
15.51
|
|
|
|
2,975
|
|
|
|
17.29
|
|
|
|
2,924
|
|
|
|
19.06
|
|
RSUs assumed in acquisition
(b)
|
|
|
|
|
|
|
|
|
|
|
2,491
|
|
|
|
15.20
|
|
|
|
|
|
|
|
|
|
Vested
(c)
|
|
|
(1,913
|
)
|
|
|
13.56
|
|
|
|
(3,131
|
)
|
|
|
10.19
|
|
|
|
(24
|
)
|
|
|
10.70
|
|
Cancelled
(d)
|
|
|
(2,141
|
)
|
|
|
15.76
|
|
|
|
(1,202
|
)
|
|
|
11.36
|
|
|
|
(1,235
|
)
|
|
|
11.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested units at the end of the year
(e)
|
|
|
7,773
|
|
|
$
|
17.34
|
|
|
|
8,355
|
|
|
$
|
16.77
|
|
|
|
7,222
|
|
|
$
|
13.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
For fiscal 2016,
includes 3.0 million target PSUs and 0.3 million RSUs granted and a payout adjustment of 0.2 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2013 that vested during fiscal 2016.
|
For fiscal 2015, includes 2.3 million target PSUs and 0.5 million RSUs granted and a payout adjustment of 0.2 million PSUs due to the
actual performance level achieved for PSUs granted in fiscal 2012 that vested during fiscal 2015.
(b)
|
Represents RSUs
assumed in the Move acquisition. The weighted average grant date fair value for the assumed awards was calculated using the fair value of the awards at the acquisition date.
|
(c)
|
The fair value of
PSUs and RSUs held by the Companys employees that vested during the fiscal years ended June 30, 2016, 2015 and 2014 was $26 million, $32 million, and nil, respectively.
|
(d)
|
For fiscal 2016,
includes 0.8 million of target PSUs and 0.3 million RSUs cancelled and a payout adjustment of 1.0 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2013 that vested during fiscal 2016.
|
For fiscal 2015, includes 0.3 million of target PSUs and 0.3 million RSUs cancelled during fiscal 2015 and a payout adjustment of 0.6
million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2012 that vested during fiscal 2015.
(e)
|
The intrinsic
value of these unvested RSUs and target PSUs was approximately $89 million as of June 30, 2016.
|
115
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
The following table summarizes information about stock option transactions for the employee stock option plans (options in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
|
Fiscal 2014
|
|
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
|
Options
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
(in US$)
|
|
|
|
|
|
(in US$)
|
|
|
|
|
|
(in US$)
|
|
Outstanding at the beginning of the year
|
|
|
2,008
|
|
|
$
|
8.82
|
|
|
|
263
|
|
|
$
|
6.25
|
|
|
|
463
|
|
|
$
|
5.88
|
|
Options assumed in acquisition
(a)
|
|
|
|
|
|
|
|
|
|
|
4,336
|
|
|
|
7.46
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(508
|
)
|
|
|
7.34
|
|
|
|
(2,521
|
)
|
|
|
6.22
|
|
|
|
(200
|
)
|
|
|
5.39
|
|
Cancelled
|
|
|
(262
|
)
|
|
|
10.75
|
|
|
|
(70
|
)
|
|
|
8.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
(b)
|
|
|
1,238
|
|
|
$
|
9.03
|
|
|
|
2,008
|
|
|
$
|
8.82
|
|
|
|
263
|
|
|
$
|
6.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
(c)
|
|
|
945
|
|
|
|
|
|
|
|
1,117
|
|
|
|
|
|
|
|
263
|
|
|
|
|
|
(a)
|
Represents options
assumed in the Move acquisition. The weighted average exercise price for the assumed options was calculated using the converted exercise price at the acquisition date. The converted exercise price was calculated using a formula designed to preserve
the value of the awards based on the price per share paid in the acquisition.
|
(b)
|
The intrinsic
value of options outstanding held by the Companys employees as of June 30, 2016, 2015 and 2014 was $3 million, $12.8 million and $3.1 million, respectively. The weighted average remaining contractual life of options outstanding as of June
30, 2016 was 4.74 years.
|
(c)
|
The weighted
average remaining contractual life of options exercisable as of June 30, 2016 was 3.94 years.
|
116
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. EARNINGS (LOSS) PER SHARE
The following tables set forth the computation of basic and diluted earnings per share under ASC 260, Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions, except per share amounts)
|
|
Income from continuing operations
|
|
$
|
235
|
|
|
$
|
367
|
|
|
$
|
436
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
(71
|
)
|
|
|
(69
|
)
|
|
|
(55
|
)
|
Less: Redeemable preferred stock dividends
(a)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to News Corporation stockholders
|
|
|
162
|
|
|
|
296
|
|
|
|
379
|
|
Income (loss) from discontinued operations, net of tax, available to News Corporation stockholders
|
|
|
15
|
|
|
|
(445
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to News Corporation stockholders
|
|
$
|
177
|
|
|
$
|
(149
|
)
|
|
$
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstandingbasic
|
|
|
580.6
|
|
|
|
581.0
|
|
|
|
579.0
|
|
Dilutive effect of equity awards
|
|
|
1.9
|
|
|
|
1.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares of common stock outstandingdiluted
|
|
|
582.5
|
|
|
|
582.6
|
|
|
|
579.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations available to News Corporation stockholders per sharebasic and diluted
|
|
$
|
0.28
|
|
|
$
|
0.51
|
|
|
$
|
0.65
|
|
Income (loss) from discontinued operations available to News Corporation stockholders per sharebasic and
diluted
|
|
$
|
0.02
|
|
|
$
|
(0.77
|
)
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to News Corporation stockholders per sharebasic and diluted
|
|
$
|
0.30
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note
10
Redeemable Preferred Stock
|
NOTE 14. RELATED PARTY TRANSACTIONS
Related Party Transactions
In the ordinary course of business, the Company enters into transactions with related parties, such as equity affiliates, to sell certain
broadcast rights and purchase and/or sell advertising and administrative services. The following table sets forth the net revenue from related parties included in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Related party revenue, net of expense
|
|
$
|
319
|
|
|
$
|
281
|
|
|
$
|
305
|
|
The following table sets forth the amount of receivables due from and payable to related parties
outstanding on the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Accounts receivable from related parties
|
|
$
|
86
|
|
|
$
|
72
|
|
Notes receivable from related parties
|
|
|
338
|
|
|
|
345
|
|
Accounts payable to related parties
|
|
|
31
|
|
|
|
10
|
|
117
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has commitments under certain firm
contractual arrangements (firm commitments) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The following table summarizes the
Companys material firm commitments as of June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
1 year
|
|
|
2-3
years
|
|
|
4-5
years
|
|
|
After 5
years
|
|
|
|
(in millions)
|
|
Purchase obligations
(a)
|
|
$
|
787
|
|
|
$
|
339
|
|
|
$
|
183
|
|
|
$
|
99
|
|
|
$
|
166
|
|
Sports programming rights
(b)
|
|
|
1,184
|
|
|
|
158
|
|
|
|
379
|
|
|
|
388
|
|
|
|
259
|
|
Operating leases
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
1,436
|
|
|
|
129
|
|
|
|
274
|
|
|
|
207
|
|
|
|
826
|
|
Plant and machinery
|
|
|
4
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments and contractual obligations
|
|
$
|
3,411
|
|
|
$
|
628
|
|
|
$
|
838
|
|
|
$
|
694
|
|
|
$
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company has
commitments under purchase obligations related to printing contracts, capital projects, marketing agreements and other legally binding commitments.
|
(b)
|
The Company has
sports programming rights commitments with the National Rugby League, Australian Rugby Union and International Cricket as well as certain other broadcast rights which are payable through fiscal 2023. 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). 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). The sports programming rights for the Australian Football League were
novated to Foxtel in the fourth quarter of fiscal 2016 and are not included in the table above.
|
(c)
|
The Company leases
office facilities, warehouse facilities, printing plants and equipment. These leases, which are classified as operating leases, are expected to be paid at certain dates through fiscal 2062. This amount includes approximately $250 million for
office facilities that have been subleased from 21st Century Fox.
|
The Company has certain contracts to
purchase newsprint, ink and plates that require the Company to purchase a percentage of its total requirements for production. Since the quantities purchased annually under these contracts are not fixed and are based on the Companys total
requirements, the amount of the related payments for these purchases is excluded from the table above.
In accordance with ASC
715, the net liability for pension and other postretirement benefit plans recognized as of June 30, 2016 was approximately $356 million (See Note 16Retirement Benefit Obligations). This amount is affected by, among other items, statutory
funding levels, changes in plan demographics and assumptions and investment returns on plan assets. Because of the current overall funded status of the Companys material plans, the accrued liability does not represent expected near-term
liquidity needs and, accordingly, this amount is not included in the contractual obligations table.
118
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. The Company recognizes gain contingencies when the gain becomes realized or realizable.
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.
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 also settled a number of claims through a private compensation scheme which was closed to new claims after April 8,
2013.
119
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Separation, the Company and 21st Century Fox agreed in the
Separation and Distribution Agreement that 21st Century Fox would 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 $42 million, $101 million and $169 million for the fiscal years ended June 30, 2016, 2015 and 2014, 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 fiscal years ended June 30, 2016, 2015 and 2014, the Company has been or will be indemnified by 21st Century Fox for $23 million, net of tax, $51 million, net of tax and $97 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 $23 million,
$51 million and $97 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively, and recorded a corresponding receivable from 21st Century Fox. Therefore, the net impact on Selling, general and administrative expenses was $19
million, $50 million and $72 million for the fiscal years ended June 30, 2016, 2015 and 2014, 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 fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Gross legal and professional fees related to the U.K. Newspaper Matters
|
|
$
|
42
|
|
|
$
|
101
|
|
|
$
|
169
|
|
Indemnification from 21st Century Fox
|
|
|
(23
|
)
|
|
|
(51
|
)
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact on Selling, general and administrative expenses
|
|
$
|
19
|
|
|
$
|
50
|
|
|
$
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 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 approximately $99 million, of which approximately $55 million will be indemnified by 21st Century Fox, and a corresponding receivable was
recorded in Other current assets on the Balance Sheet as of June 30, 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.
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
120
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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 final settlement approval hearing for September 21, 2016. The NAM Group also settled related claims for approximately $30 million. As a result, the Company recorded one-time costs of approximately $280
million for the fiscal year ended June 30, 2016 in NAM Group and Zillow settlements, net in the Companys Statement 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, which motion was granted by the magistrate judge.
|
Valassis subsequently filed a
Notice of Violation of an order issued by the District Court in Valassis I. The Notice contained allegations that were substantially similar to the allegations Valassis made in Valassis II, described below, and sought treble damages, injunctive
relief and attorneys fees. The Notice also re-asserted 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 a
panel of antitrust experts previously appointed in Valassis I (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.
121
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
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 sought 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.
On May 17, 2016, the District Court held a status conference 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.
Zillow Settlement
In March 2014, Move, the National Association of Realtors
®
(NAR) and three related entities filed a complaint against Zillow, Inc. (Zillow) and Errol Samuelson in the Superior Court of the State of Washington alleging, among other things, misappropriation of trade secrets, tortious
interference, breach of fiduciary duties and breach of contract. The complaint was amended in February 2015 to add Curt Beardsley as a defendant. On June 6, 2016, the parties entered into a settlement agreement and release pursuant to which Zillow
paid the plaintiffs $130 million and the pending litigation was dismissed with prejudice. Under the terms of an agreement with Move, NAR received 10% of the settlement proceeds after deduction of Moves litigation-related costs and fees, and
Move received the remainder. As a result, the Company recognized a $122 million gain in NAM Group and Zillow settlements, net in the Companys Statement of Operations for the fiscal year ended June 30, 2016.
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
122
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. RETIREMENT BENEFIT OBLIGATIONS
The Companys employees participate in various defined benefit pension and postretirement plans sponsored by the Company and its
subsidiaries. Plans in the U.S., U.K., Australia, and Canada are accounted for as defined benefit pension plans. Accordingly, the funded and unfunded position of each plan is recorded in the Balance Sheets. Actuarial gains and losses that have not
yet been recognized through income are recorded in Accumulated other comprehensive (loss) income, net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of
expenses related to the plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, expected long-term rates of return on plan assets and mortality rates. Management develops each assumption using
relevant company experience in conjunction with market-related data for each individual country in which such plans exist. The funded status of the plans can change from year to year, but the assets of the funded plans have been sufficient to pay
all benefits that came due in each of fiscal 2016, 2015, and 2014.
Summary of Funded Status
The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The combined domestic and foreign
pension and postretirement plans resulted in a net pension and postretirement benefits liability of $356 million and $281 million at June 30, 2016 and 2015, respectively. The Company recognized these amounts in the Balance Sheets at June 30,
2016 and June 30, 2015 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement benefits
|
|
|
Total
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Other non-current assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
36
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4
|
|
|
$
|
36
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(9
|
)
|
|
|
(11
|
)
|
|
|
(10
|
)
|
|
|
(12
|
)
|
Retirement benefit obligations
|
|
|
(109
|
)
|
|
|
(80
|
)
|
|
|
(124
|
)
|
|
|
(103
|
)
|
|
|
(117
|
)
|
|
|
(122
|
)
|
|
|
(350
|
)
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(109
|
)
|
|
$
|
(80
|
)
|
|
$
|
(121
|
)
|
|
$
|
(68
|
)
|
|
$
|
(126
|
)
|
|
$
|
(133
|
)
|
|
$
|
(356
|
)
|
|
$
|
(281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the change in the projected benefit obligation, change in
the fair value of the Companys plan assets and funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement
Benefits
|
|
|
Total
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Projected benefit obligation, beginning of the year
|
|
$
|
382
|
|
|
$
|
350
|
|
|
$
|
1,272
|
|
|
$
|
1,252
|
|
|
$
|
133
|
|
|
$
|
150
|
|
|
$
|
1,787
|
|
|
$
|
1,752
|
|
Service cost
|
|
|
|
|
|
|
1
|
|
|
|
10
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
12
|
|
Interest cost
|
|
|
17
|
|
|
|
17
|
|
|
|
44
|
|
|
|
49
|
|
|
|
5
|
|
|
|
6
|
|
|
|
66
|
|
|
|
72
|
|
Benefits paid
|
|
|
(18
|
)
|
|
|
(16
|
)
|
|
|
(55
|
)
|
|
|
(58
|
)
|
|
|
(8
|
)
|
|
|
(9
|
)
|
|
|
(81
|
)
|
|
|
(83
|
)
|
Settlements
(a)
|
|
|
(11
|
)
|
|
|
(9
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
(9
|
)
|
Actuarial loss/(gain)
(b)
|
|
|
28
|
|
|
|
10
|
|
|
|
153
|
|
|
|
85
|
|
|
|
(2
|
)
|
|
|
(13
|
)
|
|
|
179
|
|
|
|
82
|
|
Foreign exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
|
|
(122
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(190
|
)
|
|
|
(123
|
)
|
Plan curtailments
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
Amendments, transfers and other
(c)
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of the year
|
|
|
396
|
|
|
|
382
|
|
|
|
1,201
|
|
|
|
1,272
|
|
|
|
126
|
|
|
|
133
|
|
|
|
1,723
|
|
|
|
1,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in the fair value of plan assets for the Companys benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of the year
|
|
|
302
|
|
|
|
301
|
|
|
|
1,204
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
1,506
|
|
|
|
1,535
|
|
Actual return on plan assets
|
|
|
14
|
|
|
|
5
|
|
|
|
107
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
96
|
|
Employer contributions
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
9
|
|
Benefits paid
|
|
|
(18
|
)
|
|
|
(16
|
)
|
|
|
(55
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
(74
|
)
|
Settlements
(a)
|
|
|
(11
|
)
|
|
|
(9
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44
|
)
|
|
|
(9
|
)
|
Foreign exchange rate changes
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
(169
|
)
|
|
|
(120
|
)
|
Amendments, transfers and other
(c)
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of the year
|
|
|
287
|
|
|
|
302
|
|
|
|
1,080
|
|
|
|
1,204
|
|
|
|
|
|
|
|
|
|
|
|
1,367
|
|
|
|
1,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(109
|
)
|
|
$
|
(80
|
)
|
|
$
|
(121
|
)
|
|
$
|
(68
|
)
|
|
$
|
(126
|
)
|
|
$
|
(133
|
)
|
|
$
|
(356
|
)
|
|
$
|
(281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Amounts related to
payments made to former employees of the Company in full settlement of their deferred pension benefits.
|
(b)
|
Fiscal 2016
actuarial losses for the Companys pension plans are primarily related to the reduction in discount rates used in measuring plan obligations as of June 30, 2016. Fiscal 2016 actuarial gains related to postretirement benefits primarily relate to
favorable changes in plan demographics. Fiscal 2015 actuarial losses for domestic pension plans are primarily related to the strengthening of the mortality tables utilized in measuring plan obligations as of June 30, 2015. Fiscal 2015 actuarial
losses for foreign pension plans are primarily related to changes in the discount rate utilized in measuring the plan obligations as of June 30, 2015. Fiscal 2015 actuarial gains related to postretirement benefits primarily relate to changes in plan
demographics.
|
(c)
|
For fiscal 2015,
the increase in the Companys pension benefit obligation and plan assets relates to the acquisition of Harlequin and the assumption of Harlequins defined benefit pension plans which resulted in an increase in the Companys net
pension liability of approximately $15 million.
|
124
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Amounts recognized in Accumulated other comprehensive (loss) income consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
Total
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Actuarial losses (gains)
|
|
$
|
158
|
|
|
$
|
131
|
|
|
$
|
452
|
|
|
$
|
439
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
612
|
|
|
$
|
574
|
|
Prior service (benefit) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
(41
|
)
|
|
|
(34
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
158
|
|
|
$
|
131
|
|
|
$
|
452
|
|
|
$
|
439
|
|
|
$
|
(32
|
)
|
|
$
|
(37
|
)
|
|
$
|
578
|
|
|
$
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in Accumulated other comprehensive (loss) income expected to be recognized as a component of net
periodic pension cost in fiscal 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
Total
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
|
|
As of June 30, 2016
|
|
|
|
(in millions)
|
|
Actuarial losses (gains)
|
|
$
|
5
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
22
|
|
Prior service (benefit) cost
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amounts recognized
|
|
$
|
5
|
|
|
$
|
17
|
|
|
$
|
(4
|
)
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated pension benefit obligations as of June 30, 2016 and 2015 were $1,588 million and $1,639
million, respectively. Below is information about funded and unfunded pension plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Pension Benefits
|
|
|
|
Funded Plans
|
|
|
Unfunded Plans
|
|
|
Total
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Projected benefit obligation
|
|
$
|
383
|
|
|
$
|
370
|
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
396
|
|
|
$
|
382
|
|
Accumulated benefit obligation
|
|
|
383
|
|
|
|
368
|
|
|
|
13
|
|
|
|
12
|
|
|
|
396
|
|
|
|
380
|
|
Fair value of plan assets
|
|
|
287
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
287
|
|
|
|
302
|
|
|
|
|
|
Foreign Pension Benefits
|
|
|
|
Funded Plans
|
|
|
Unfunded Plans
|
|
|
Total
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Projected benefit obligation
|
|
$
|
1,131
|
|
|
$
|
1,198
|
|
|
$
|
70
|
|
|
$
|
74
|
|
|
$
|
1,201
|
|
|
$
|
1,272
|
|
Accumulated benefit obligation
|
|
|
1,122
|
|
|
|
1,185
|
|
|
|
70
|
|
|
|
74
|
|
|
|
1,192
|
|
|
|
1,259
|
|
Fair value of plan assets
|
|
|
1,080
|
|
|
|
1,204
|
|
|
|
|
|
|
|
|
|
|
|
1,080
|
|
|
|
1,204
|
|
125
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The accumulated benefit obligation exceeds the fair value of plan assets for all
domestic pension plans. Below is information about foreign pension plans in which the accumulated benefit obligation exceeds the fair value of the plan assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Plans
|
|
|
Unfunded Plans
|
|
|
Total
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
821
|
|
|
$
|
550
|
|
|
$
|
70
|
|
|
$
|
74
|
|
|
$
|
891
|
|
|
$
|
624
|
|
Accumulated benefit obligation
|
|
|
821
|
|
|
|
549
|
|
|
|
70
|
|
|
|
74
|
|
|
|
891
|
|
|
|
623
|
|
Fair value of plan assets
|
|
|
773
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
773
|
|
|
|
525
|
|
Summary of Net Periodic Benefit Costs
The Company recorded $8 million, ($4) million and $7 million in net periodic benefit costs (income) in the Statements of Operations for
the fiscal years ended June 30, 2016, 2015 and 2014, respectively. Beginning in fiscal 2017, the Company will change the method used to estimate the service and interest cost components of net periodic benefit costs (income) for its pension and
other postretirement benefit plans. For fiscal 2016 and previous periods presented, the Company estimated the service and interest cost components utilizing a single weighted-average discount rate for each country derived from a yield curve used to
measure the benefit obligation. The new method utilizes a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their
underlying projected cash flows. The Company changed to the new method to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The
change is accounted for as a change in accounting estimate which is applied prospectively. This change in estimate is not expected to have a material impact on the Companys pension and postretirement net periodic benefit expense in future
periods.
The amortization of amounts related to unrecognized prior service costs (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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement Benefits
|
|
|
Total
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Service cost benefits earned during the period
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
10
|
|
|
$
|
12
|
|
|
$
|
17
|
|
Interest costs on projected benefit obligations
|
|
|
17
|
|
|
|
17
|
|
|
|
16
|
|
|
|
44
|
|
|
|
49
|
|
|
|
51
|
|
|
|
5
|
|
|
|
6
|
|
|
|
7
|
|
|
|
66
|
|
|
|
72
|
|
|
|
74
|
|
Expected return on plan assets
|
|
|
(19
|
)
|
|
|
(22
|
)
|
|
|
(17
|
)
|
|
|
(62
|
)
|
|
|
(71
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
(93
|
)
|
|
|
(93
|
)
|
Amortization of deferred losses
|
|
|
4
|
|
|
|
3
|
|
|
|
4
|
|
|
|
14
|
|
|
|
13
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
18
|
|
|
|
16
|
|
|
|
15
|
|
Amortization of prior service costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
(7
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
Settlements, curtailments and other
|
|
|
|
|
|
|
2
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefits costs- Total
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
11
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
|
$
|
(7
|
)
|
|
$
|
(6
|
)
|
|
$
|
8
|
|
|
$
|
(4
|
)
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Postretirement Benefits
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Additional information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.7
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
|
2.9
|
%
|
|
|
3.7
|
%
|
|
|
4.2
|
%
|
|
|
3.4
|
%
|
|
|
4.2
|
%
|
|
|
4.0
|
%
|
Rate of increase in future compensation
|
|
|
N/A
|
|
|
|
3.0
|
%
|
|
|
N/A
|
|
|
|
2.7
|
%
|
|
|
2.9
|
%
|
|
|
3.6
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
|
5.0
|
%
|
|
|
3.7
|
%
|
|
|
4.2
|
%
|
|
|
4.5
|
%
|
|
|
4.2
|
%
|
|
|
4.0
|
%
|
|
|
4.7
|
%
|
Expected return on plan assets
|
|
|
6.5
|
%
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
|
|
5.5
|
%
|
|
|
6.2
|
%
|
|
|
6.8
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in future compensation
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
|
|
5.3
|
%
|
|
|
2.9
|
%
|
|
|
3.6
|
%
|
|
|
3.7
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
N/A not applicable
The following assumed health care cost trend rates as
of June 30 were also used in accounting for postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits
|
|
|
|
Fiscal 2016
|
|
|
Fiscal 2015
|
|
Health care cost trend rate
|
|
|
6.7
|
%
|
|
|
6.6
|
%
|
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
|
|
|
4.5
|
%
|
|
|
4.6
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2028
|
|
|
|
2027
|
|
Assumed health care cost trend rates could have a significant effect on the amounts reported for the
postretirement health care plan. The effect of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate would have the following effects on the results for fiscal 2016:
|
|
|
|
|
|
|
|
|
|
|
Service and
Interest Costs
|
|
|
Benefit
Obligation
|
|
|
|
(in millions)
|
|
One percentage point increase
|
|
$
|
1
|
|
|
$
|
12
|
|
One percentage point decrease
|
|
$
|
|
|
|
$
|
(11
|
)
|
127
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the estimated benefit payments for the next five fiscal
years, and in aggregate for the five fiscal years thereafter. The expected benefits are estimated based on the same assumptions used to measure the Companys benefit obligation at the end of the fiscal year and include benefits attributable to
estimated future employee service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Benefit Payments
|
|
|
|
Pension Benefits
|
|
|
Postretirement
Benefits
|
|
|
Total
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
|
|
|
(in millions)
|
|
Fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
$
|
24
|
|
|
|
47
|
|
|
|
9
|
|
|
$
|
80
|
|
2018
|
|
|
21
|
|
|
|
48
|
|
|
|
9
|
|
|
|
78
|
|
2019
|
|
|
20
|
|
|
|
50
|
|
|
|
9
|
|
|
|
79
|
|
2020
|
|
|
20
|
|
|
|
53
|
|
|
|
9
|
|
|
|
82
|
|
2021
|
|
|
21
|
|
|
|
54
|
|
|
|
9
|
|
|
|
84
|
|
2022-2026
|
|
|
107
|
|
|
|
292
|
|
|
|
41
|
|
|
|
440
|
|
Plan Assets
The Company applies the provisions of ASC 715, which requires disclosures including: (i) investment policies and strategies; (ii) the major categories of plan assets; (iii) the inputs and valuation
techniques used to measure plan assets; (iv) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.
The table below presents the Companys plan assets by level within the fair value hierarchy, as described in Note 2 Summary
of Significant Accounting Policies, as of June 30, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
|
As of June 30, 2015
|
|
|
|
Total
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
|
|
|
|
Fair Value Measurements at
Reporting Date Using
|
|
Description
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
NAV
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
NAV
|
|
|
|
(in millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Pooled funds:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Domestic equity funds
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
International equity funds
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
Domestic fixed income funds
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
International fixed income funds
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
618
|
|
|
|
585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
585
|
|
Balanced funds
|
|
|
251
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
194
|
|
|
|
337
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
264
|
|
Other
|
|
|
13
|
|
|
|
2
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
18
|
|
|
|
6
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,367
|
|
|
$
|
2
|
|
|
$
|
57
|
|
|
$
|
11
|
|
|
$
|
1,297
|
|
|
$
|
1,506
|
|
|
$
|
6
|
|
|
$
|
77
|
|
|
$
|
12
|
|
|
$
|
1,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Open-ended pooled
funds that are registered and/or available to the general public are valued at the daily published net asset value (NAV). Other pooled funds are valued at the NAV provided by the fund issuer.
|
128
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The table below sets forth a summary of changes in the fair value of investments
reflected as Level 3 assets as of June 30, 2016 and 2015:
|
|
|
|
|
|
|
Level 3
Investments
|
|
|
|
(in millions)
|
|
Balance, June 30, 2014
|
|
$
|
12
|
|
Actual return on plan assets:
|
|
|
|
|
Relating to assets still held at end of period
|
|
|
1
|
|
Relating to assets sold during the period
|
|
|
|
|
Purchases, sales, settlements and issuances
|
|
|
(1
|
)
|
Transfers in and out of Level 3
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2015
|
|
$
|
12
|
|
Actual return on plan assets:
|
|
|
|
|
Relating to assets still held at end of period
|
|
|
|
|
Relating to assets sold during the period
|
|
|
|
|
Purchases, sales, settlements and issuances
|
|
|
(1
|
)
|
Transfers in and out of Level 3
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
$
|
11
|
|
|
|
|
|
|
The Companys investment strategy for its pension plans is to maximize the long-term rate of return
on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The Companys practice is to conduct a periodic strategic review of its asset allocation.
The Companys current broad strategic targets are to have a pension asset portfolio comprised of 26% equity securities, 62% fixed income securities and 12% in cash and other investments. In developing the expected long-term rate of return, the
Company considered the pension asset portfolios past average rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in short-term cash to provide for expected benefits to be
paid in the short term. The Companys equity portfolios are managed in such a way as to achieve optimal diversity. The Companys fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets
internally.
The Companys benefit plan weighted-average asset allocations, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Asset Category:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
26
|
%
|
|
|
29
|
%
|
Debt securities
|
|
|
62
|
%
|
|
|
55
|
%
|
Cash and other
|
|
|
12
|
%
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Required pension plan contributions for the next fiscal year are expected to be approximately $25
million; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status.
129
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. OTHER POSTRETIREMENT BENEFITS
Multiemployer Pension and Postretirement Plans
The Company contributes to
various multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of its union-represented employees, primarily at the newspaper businesses. The risks of participating in these multiemployer
pension plans are different from single-employer pension plans in that (i) contributions made by the Company to the multiemployer pension plans may be used to provide benefits to employees of other participating employers; (ii) if the
Company chooses to stop participating in certain of these multiemployer pension plans, it may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability; and
(iii) actions taken by a participating employer that lead to a deterioration of the financial health of a multiemployer pension plan may result in the unfunded obligations of the multiemployer pension plan being borne by its remaining
participating employers. While no multiemployer pension plan that the Company contributed to is individually significant to the Company, the Company was listed on certain Form 5500s as providing more than 5% of total contributions based on the
current information available. The financial health of a multiemployer plan is indicated by the zone status, as defined by the Pension Protection Act of 2006, which represents the funded status of the plan as certified by the plans actuary. In
general, plans in the red zone are less than 65% funded, plans in the yellow zone are between 65% and 80% funded, and plans in the green zone are at least 80% funded. The funded status of the plans which the Company was listed as providing more than
5% of total contributions reported green zone status for the most recent available plan year. Total contributions made by the Company to multiemployer pension plans for the fiscal years ended June 30, 2016, 2015 and 2014 were approximately $5
million.
Defined Contribution Plans
The Company has defined contribution plans for the benefit of substantially all employees meeting certain eligibility requirements. Employer contributions to such plans were $132 million, $138
million and $133 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
Deferred Compensation Plan
The Company has non-qualified deferred compensation plans for the benefit of certain management employees. The investment funds
offered to the participants generally correspond to the funds offered in the Companys 401(k) plan, and the account balance fluctuates with the investment returns on those funds. The unfunded obligation of the plans included in Other
liabilities as of June 30, 2016 and 2015 were $36 million, and the majority of these plans are closed to new employees.
NOTE 18. INCOME
TAXES
Income (loss) before income tax (benefit) expense was attributable to the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
(a)
|
|
|
|
(in millions)
|
|
U.S.
|
|
$
|
(125
|
)
|
|
$
|
148
|
|
|
$
|
(602
|
)
|
Foreign
|
|
|
306
|
|
|
|
404
|
|
|
|
424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (benefit) expense
|
|
$
|
181
|
|
|
$
|
552
|
|
|
$
|
(178
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Discussion of Foreign Tax Refund below.
|
130
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The significant components of the Companys income tax (benefit) expense were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
(a)
|
|
|
|
(in millions)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
15
|
|
|
$
|
35
|
|
|
$
|
86
|
|
State & local
|
|
|
5
|
|
|
|
11
|
|
|
|
(19
|
)
|
Foreign
|
|
|
102
|
|
|
|
135
|
|
|
|
(734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax
|
|
|
122
|
|
|
|
181
|
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(71
|
)
|
|
|
16
|
|
|
|
19
|
|
State & local
|
|
|
(106
|
)
|
|
|
1
|
|
|
|
12
|
|
Foreign
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax
|
|
|
(176
|
)
|
|
|
4
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
$
|
(54
|
)
(b)
|
|
$
|
185
|
|
|
$
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Discussion of Foreign Tax Refund below.
|
(b)
|
The Company recognized a tax benefit of approximately $144 million upon reclassification of the Digital Education segment to discontinued operations in
Income (loss) from discontinued operations, net of tax, in the Statements of Operations in fiscal 2016. In addition, a tax benefit of $30 million related to the current year operations of the Digital Education segment was recorded to discontinued
operations in Income (loss) from discontinued operations, net of tax, in the Statements of Operations in fiscal 2016. The tax (benefit) expense shown above excludes the tax benefit of the Companys digital education business. The Company will
not have a current federal tax expense after accounting for the current federal tax benefits attributed to discontinued operations.
|
Foreign Tax Refund
The Company filed refund claims for certain losses
pertaining to periods prior to the Separation in a foreign jurisdiction that were subject to litigation. During fiscal 2014, the litigation was resolved in favor of the Company and as a result, the Company received approximately $794 million for the
gross tax refund and interest owed to the Company by the foreign tax authority.
The Company recorded a tax benefit, net of
applicable taxes on interest, of $721 million for the fiscal year ended June 30, 2014 to Income tax benefit (expense) in the Statements of Operations. Refunds received related to these matters were paid to 21st Century Fox, net of applicable taxes
on interest, in accordance with the terms of the Tax Sharing and Indemnification Agreement. Accordingly, for the fiscal year ended June 30, 2014, the Company recorded an expense to Other, net of $721 million for the payment to 21st Century Fox in
the Statements of Operations which is included in U.S. pre-tax book income in the table of jurisdictional earnings above.
131
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Refer to the table below for the net impact of the tax refund and interest, net of tax,
recorded in the Statements of Operations:
|
|
|
|
|
|
|
For the fiscal year
ended June 30,
2014
|
|
|
|
(in millions)
|
|
Other, net
|
|
$
|
(721
|
)
|
Income tax benefit (expense)
|
|
|
721
|
|
|
|
|
|
|
Net impact to the Statement of Operations
|
|
$
|
|
|
|
|
|
|
|
The reconciliation between the Companys actual effective tax rate and the statutory U.S. Federal
income tax rate of 35% was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
U.S. Federal income tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State and local taxes, net
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
3
|
|
Effect of foreign operations
(a)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
38
|
|
Foreign tax refund received
(b)
|
|
|
|
|
|
|
|
|
|
|
405
|
|
Foreign tax refund paid to 21st Century Fox
(b)
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
Change in valuation allowance
(c)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
Non-deductible compensation and benefits
|
|
|
3
|
|
|
|
1
|
|
|
|
|
|
R&D credits
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
2
|
|
Other, net
|
|
|
5
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
(d)
|
|
|
(30
|
)%
|
|
|
34
|
%
|
|
|
345
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Companys foreign operations are located primarily in Australia and the United Kingdom (U.K.) which have lower income tax rates
than the U.S. For the fiscal years ended June 30, 2016 and June 30, 2015, the effect of foreign operations at lower tax rates decreased the Companys effective tax rate 1% and 2%, respectively, as the Company recorded pre-tax book
income on a consolidated basis. For the year ended June 30, 2014, the effect of foreign operations at lower tax rates increased the Companys effective tax rate 38% as the Company recorded pre-tax book loss on a consolidated basis.
|
(b)
|
The Company recorded a tax benefit, net of applicable taxes on interest, of $721 million for the fiscal year ended June 30, 2014 to Income tax
benefit (expense) in the Statements of Operations related to certain foreign tax refunds received. See the discussion of Foreign Tax Refund above. The tax benefit related to these refunds increased our effective tax rate 405%. These foreign tax
refunds received were paid to 21st Century Fox, net of applicable taxes on interest, in accordance with the terms of the Tax Sharing and Indemnification Agreement. Accordingly, for the fiscal year ended June 30, 2014, the Company recorded an
expense to Other, net of approximately $721 million for the payment to 21st Century Fox in the Statements of Operations. This expense is a non-deductible item the tax effect of which is approximately $252 million and reflected as a decrease of
approximately 142% in our effective tax rate.
|
(c)
|
Included in the change in valuation allowance is a tax benefit of $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 during fiscal 2016, as the Company
now expects to generate sufficient U.S. taxable income to utilize these deferred tax assets prior to expiration. Total tax benefits related to the release of valuation allowances decreased our effective tax rate by 62%.
|
132
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(d)
|
For the fiscal year ended June 30, 2016, the effective tax rate of (30%) represents income tax benefit when compared to consolidated pre-tax book
income. For the fiscal year ended June 30, 2015, the effective tax rate of 34% represents an income tax expense when compared to consolidated pre-tax book income. For the fiscal year ended June 30, 2014, the effective tax rate of 345%
represents an income tax benefit when compared to consolidated pre-tax book loss. As a result, certain reconciling items between the U.S. federal income tax rate and the Companys effective tax rate may have the opposite impact.
|
The Company recognized current and deferred income taxes in the Balance Sheets at June 30, 2016 and 2015,
respectively:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
(a)
|
|
|
|
(in millions)
|
|
Other current assets
|
|
$
|
|
|
|
$
|
63
|
|
Deferred income tax assets
|
|
|
602
|
|
|
|
219
|
|
Other current liabilities
|
|
|
|
|
|
|
(1
|
)
|
Deferred income tax liabilities
|
|
|
(171
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
431
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In fiscal 2016, the Company early-adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that deferred income
tax liabilities and assets be classified as non-current in the Consolidated Balance Sheet. As such, the requirement under 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 has been eliminated. The prior periods have not been retroactively adjusted as a result of the adoption of ASU 2015-17.
|
The significant components of the Companys deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
185
|
|
|
$
|
56
|
|
Capital loss carryforwards
|
|
|
803
|
|
|
|
892
|
|
Retirement benefit obligations
|
|
|
112
|
|
|
|
85
|
|
Net operating loss carryforwards
|
|
|
580
|
|
|
|
540
|
|
Business credits
|
|
|
38
|
|
|
|
46
|
|
Other
|
|
|
234
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
1,952
|
|
|
|
1,929
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Asset basis difference and amortization
|
|
|
(442
|
)
|
|
|
(465
|
)
|
Other
|
|
|
(65
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(507
|
)
|
|
|
(506
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance
|
|
|
1,445
|
|
|
|
1,423
|
|
Less: valuation allowance (See Note 21 - Valuation and Qualifying Accounts)
|
|
|
(1,014
|
)
|
|
|
(1,308
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
431
|
|
|
$
|
115
|
|
|
|
|
|
|
|
|
|
|
133
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2016, the Company had income tax Net Operating Loss Carryforwards (NOLs)
(gross, net of uncertain tax benefits), in various jurisdictions as follows:
|
|
|
|
|
|
|
Jurisdiction
|
|
Expiration
|
|
Amount
(in
millions)
|
|
U.S. Federal
|
|
2021 to 2036
|
|
$
|
858
|
|
U.S. States
|
|
Various
|
|
|
581
|
|
Australia
|
|
Indefinite
|
|
|
452
|
|
U.K.
|
|
Indefinite
|
|
|
134
|
|
Other Foreign
|
|
Various
|
|
|
346
|
|
Utilization of the NOLs is dependent on generating sufficient taxable income from our operations in each
of the respective jurisdictions to which the NOLs relate, while taking into account limitations and/or restrictions on our ability to use them. Certain of our U.S. Federal NOLs were acquired as part of the acquisitions of Move and Harlequin and are
subject to limitations as promulgated under Section 382 of the Code. Section 382 of the Code limits the amount of acquired NOLs that we can use on an annual basis to offset future U.S. consolidated taxable income. The NOLs are
also subject to review by relevant tax authorities in the jurisdictions to which they relate.
The Company recorded a deferred
tax asset of $580 million and $540 million (net of approximately $53 million and $95 million, respectively, of unrecognized tax benefits) associated with its NOLs as of June 30, 2016 and 2015, respectively. Significant judgment is applied in
assessing our ability to realize our NOLs and other tax assets. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize existing deferred tax assets within the
applicable expiration period. On the basis of this evaluation, valuation allowances of $97 million and $304 million have been established to reduce the deferred tax asset associated with the Companys NOLs to an amount that will more likely
than not be realized as of June 30, 2016 and 2015, respectively. The amount of the NOL deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if
objective negative evidence in the form of cumulative losses occurs.
As of June 30, 2016, the Company had approximately
$1.6 billion and $1.7 billion of capital loss carryforwards in Australia and the U.K., respectively, which may be carried forward indefinitely and which are subject to tax authority review. Realization of our capital losses is dependent on
generating capital gain taxable income and satisfying certain continuity of business requirements. The Company recorded a deferred tax asset of $803 million and $892 million as of June 30, 2016 and 2015, respectively for these capital loss
carryforwards, however, it is more likely than not that the Company will not generate capital gain income in the normal course of business in these jurisdictions. Accordingly, valuation allowances of $803 million and $892 million have been
established to reduce the capital loss carryforward deferred tax asset to an amount that will more likely than not be realized as of June 30, 2016 and 2015, respectively.
As of June 30, 2016, the Company had approximately $26 million of U.S. Federal tax credit carryforward which includes $22 million of foreign tax credits and $4 million of research &
development credits which begin to expire in 2025 and 2036, respectively.
As of June 30, 2016, the Company had
approximately $5 million of non-U.S. tax credit carryforwards which expire in various amounts beginning in 2025 and $8 million of state tax credit carryforwards (net of U.S. federal benefit), of which the balance can be carried forward indefinitely.
In accordance with the Companys accounting policy, a valuation allowance of $5 million has been established to reduce the deferred tax asset associated with the Companys non-U.S. and state credit carryforwards to an amount that will more
likely than not be realized as of June 30, 2016.
134
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Tax Sharing and Indemnification Agreement
The Company entered into a Tax Sharing and Indemnification Agreement with 21st Century Fox that governs the Companys and 21st
Century Foxs respective rights, responsibilities, and obligations with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxes and related tax returns. Among other
matters, as subsidiaries of 21st Century Fox prior to the Separation, the Company and each of its domestic subsidiaries have joint and several liability with 21st Century Fox for the consolidated U.S. federal income taxes of the 21st Century Fox
consolidated group relating to any taxable periods during which the Company or any of such subsidiaries were a member of the 21st Century Fox consolidated group. Under the Tax Sharing and Indemnification Agreement, 21st Century Fox will indemnify
the Company for any such liability.
The Tax Sharing and Indemnification Agreement provides that the Company will generally
indemnify 21st Century Fox against taxes attributable to the Companys assets or operations for all tax periods or portions thereof after the Separation. For taxable periods or portions thereof prior to the Separation, 21st Century Fox will
generally indemnify the Company against U.S. consolidated taxes attributable to such periods, and the Company will indemnify 21st Century Fox against the Companys separately filed U.S., state, and foreign taxes and foreign consolidated taxes
for such periods.
Uncertain Tax Positions
The following table sets forth the change in the Companys unrecognized tax benefits, excluding interest and penalties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Balance, beginning of period
|
|
$
|
129
|
|
|
$
|
58
|
|
|
$
|
127
|
|
Additions for prior year tax positions
|
|
|
6
|
|
|
|
79
|
|
|
|
39
|
|
Additions for current year tax positions
|
|
|
4
|
|
|
|
4
|
|
|
|
5
|
|
Reduction for prior year tax positions
|
|
|
(40
|
)
|
|
|
(7
|
)
|
|
|
(114
|
)
|
Lapse of the statute of limitations
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Cash settlements
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Impact of currency translations
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
86
|
|
|
$
|
129
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company recognizes interest and penalty charges related to unrecognized tax benefits as income
tax expense, which is consistent with the recognition in prior reporting periods. The Company recognized a benefit related to interest of $1 million for the fiscal year ended June 30, 2016 and interest charges of $6 million and nil during the
fiscal years ended June 30, 2015 and 2014, respectively. The Company recorded liabilities for accrued interest of approximately $6 million and $8 million as of June 30, 2016 and 2015, respectively.
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 our tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company is currently undergoing tax examinations in several states and foreign jurisdictions where the tax
authorities are reviewing a range of prior year transactions which are at various stages of development. 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
135
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ultimately expected to be paid, however, the Company may need to accrue additional income tax expense and our liability may need to be adjusted as new information becomes known and as these tax
examinations continue to progress, or as settlements or litigations occur.
The following is a summary of major tax
jurisdictions for which tax authorities may assert additional taxes based upon tax years currently under audit and subsequent years that could be audited by the respective taxing authorities.
|
|
|
Jurisdiction
|
|
Fiscal Years Open to Examination
|
U.S. Federal
|
|
2009-2015
|
U.S. States
|
|
Various
|
Australia
|
|
2010-2015
|
U.K.
|
|
2011-2015
|
It is reasonably possible that uncertain tax positions may increase or decrease in the next fiscal year,
however, actual developments in this area could differ from those currently expected. As of June 30, 2016, approximately $54 million would affect the Companys effective income tax rate, if and when recognized in future fiscal years. It is
reasonably possible the amount of uncertain tax liabilities which may be resolved within the next fiscal year is between the range of approximately nil and $35 million.
The Company has not provided for U.S. taxes on the undistributed earnings of foreign subsidiaries that are considered to be reinvested indefinitely. Calculation of the unrecognized deferred tax liability
for temporary differences related to these earnings is not practicable. Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested amounted to approximately $2.7 billion as of June 30, 2016. The amount of
undistributed earnings reflects adjustments related to the Separation from 21st Century Fox that were finalized with the filing of our income tax returns in periods after the Separation.
During the fiscal years ended June 30, 2016, 2015 and 2014, the Company paid gross income taxes of $103 million, $134 million and
$116 million, respectively, and received income tax refunds of $10 million, $8 million and $837 million, respectively. The income tax refunds for the fiscal year ended June 30, 2014 included the $794 million related to amounts received from a
foreign tax authority as discussed above.
NOTE 19. 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 the Dow Jones Media Group, which includes
Barron
s
and MarketWatch, as well as the Companys suite of professional information products, including Factiva,
Dow Jones Risk & Compliance, Dow Jones Newswires, Dow Jones PEVC 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 home-delivered shopper media, 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.
|
|
|
|
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
|
136
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
general fiction, nonfiction, childrens and religious publishing. HarperCollins owns more than 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, Sarah Young and Agatha Christie and popular titles such
as
The Hobbit
,
Goodnight Moon
,
To Kill a Mockingbird, Jesus Calling
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: REA) that advertises property and property-related services on websites and mobile applications across Australia, Europe and Asia. REA Group
operates Australias leading residential and commercial property websites, realestate.com.au and realcommercial.com.au. 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, 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.
|
Segment EBITDA is defined as revenues less operating expenses, and selling,
general and administrative expenses and excluding the impact from the NAM Group and Zillow legal settlements. 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. Segment EBITDA may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ
as to what items should be included in the calculation of Segment EBITDA.
Segment EBITDA is the primary measure used by
the Companys chief operating decision maker to evaluate the performance of and allocate resources within the Companys businesses. Segment EBITDA provides management, investors and equity analysts with a measure to analyze the
operating performance of each of the Companys business segments and its enterprise value against historical data and competitors data, although historical results may not be indicative of future results (as operating performance is
highly contingent on many factors, including customer tastes and preferences). The Company believes that information about Segment EBITDA allows users of its Consolidated Financial Statements to evaluate changes in the operating results of the
Companys portfolio of businesses separate from non-operational factors that affect net income (loss), thus providing insight into both operations and the other factors that affect reported results.
Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow
and other measures of financial performance reported in accordance with
137
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. The following table reconciles Total Segment EBITDA to income from continuing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
5,338
|
|
|
$
|
5,731
|
|
|
$
|
6,153
|
|
Book Publishing
|
|
|
1,646
|
|
|
|
1,667
|
|
|
|
1,434
|
|
Digital Real Estate Services
|
|
|
822
|
|
|
|
625
|
|
|
|
408
|
|
Cable Network Programming
|
|
|
484
|
|
|
|
500
|
|
|
|
491
|
|
Other
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
8,292
|
|
|
|
8,524
|
|
|
|
8,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
214
|
|
|
$
|
603
|
|
|
$
|
665
|
|
Book Publishing
|
|
|
185
|
|
|
|
221
|
|
|
|
197
|
|
Digital Real Estate Services
|
|
|
344
|
|
|
|
201
|
|
|
|
214
|
|
Cable Network Programming
|
|
|
124
|
|
|
|
135
|
|
|
|
128
|
|
Other
|
|
|
(183
|
)
|
|
|
(215
|
)
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment EBITDA
|
|
|
684
|
|
|
|
945
|
|
|
|
963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(505
|
)
|
|
|
(498
|
)
|
|
|
(552
|
)
|
Impairment and restructuring charges
|
|
|
(89
|
)
|
|
|
(84
|
)
|
|
|
(94
|
)
|
Equity earnings of affiliates
|
|
|
30
|
|
|
|
58
|
|
|
|
90
|
|
Interest, net
|
|
|
43
|
|
|
|
56
|
|
|
|
68
|
|
Other, net
|
|
|
18
|
|
|
|
75
|
|
|
|
(653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax benefit (expense)
|
|
|
181
|
|
|
|
552
|
|
|
|
(178
|
)
|
Income tax benefit (expense)
|
|
|
54
|
|
|
|
(185
|
)
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
235
|
|
|
$
|
367
|
|
|
$
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
347
|
|
|
$
|
365
|
|
|
$
|
458
|
|
Book Publishing
|
|
|
55
|
|
|
|
52
|
|
|
|
36
|
|
Digital Real Estate Services
|
|
|
69
|
|
|
|
44
|
|
|
|
20
|
|
Cable Network Programming
|
|
|
29
|
|
|
|
33
|
|
|
|
36
|
|
Other
|
|
|
5
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Depreciation and amortization
|
|
$
|
505
|
|
|
$
|
498
|
|
|
$
|
552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
174
|
|
|
$
|
238
|
|
|
$
|
268
|
|
Book Publishing
|
|
|
9
|
|
|
|
12
|
|
|
|
52
|
|
Digital Real Estate Services
|
|
|
64
|
|
|
|
45
|
|
|
|
24
|
|
Cable Network Programming
|
|
|
8
|
|
|
|
7
|
|
|
|
7
|
|
Other
|
|
|
1
|
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital expenditures
|
|
$
|
256
|
|
|
$
|
308
|
|
|
$
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Total assets:
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
6,728
|
|
|
$
|
6,749
|
|
Book Publishing
|
|
|
1,855
|
|
|
|
2,022
|
|
Digital Real Estate Services
|
|
|
2,158
|
|
|
|
1,278
|
|
Cable Network Programming
|
|
|
1,101
|
|
|
|
1,163
|
|
Other
(a)
|
|
|
1,371
|
|
|
|
1,352
|
|
Investments
|
|
|
2,270
|
|
|
|
2,379
|
|
Assets held for sale
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,483
|
|
|
$
|
15,035
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Other segment
primarily includes Cash and cash equivalents.
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Goodwill and intangible assets, net:
|
|
|
|
|
|
|
|
|
News and Information Services
|
|
$
|
2,651
|
|
|
$
|
2,593
|
|
Book Publishing
|
|
|
869
|
|
|
|
896
|
|
Digital Real Estate Services
|
|
|
1,499
|
|
|
|
835
|
|
Cable Network Programming
|
|
|
898
|
|
|
|
938
|
|
Other
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and intangible assets, net
|
|
$
|
5,921
|
|
|
$
|
5,266
|
|
|
|
|
|
|
|
|
|
|
Geographic Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Revenues:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Canada
(b)
|
|
$
|
3,920
|
|
|
$
|
3,808
|
|
|
$
|
3,631
|
|
Europe
(c)
|
|
|
1,873
|
|
|
|
1,982
|
|
|
|
2,045
|
|
Australasia and Other
(d)
|
|
|
2,499
|
|
|
|
2,734
|
|
|
|
2,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
8,292
|
|
|
$
|
8,524
|
|
|
$
|
8,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(a)
|
Revenues are
attributed to region based on location of customer.
|
(b)
|
Revenues include
approximately $3.8 billion for fiscal 2016, $3.6 billion for fiscal 2015 and $3.5 billion for fiscal 2014 from customers in the U.S.
|
(c)
|
Revenues include
approximately $1.5 billion for fiscal 2016, $1.6 billion for fiscal 2015 and $1.8 billion for fiscal 2014 from customers in the U.K.
|
(d)
|
Revenues include
approximately $2.3 billion for fiscal 2016, $2.3 billion for fiscal 2015 and $2.6 billion for fiscal 2014 from customers in Australia.
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Long-lived assets:
(a)
|
|
|
|
|
|
|
|
|
U.S. and Canada
|
|
$
|
1,058
|
|
|
$
|
1,097
|
|
Europe
|
|
|
939
|
|
|
|
1,201
|
|
Australasia and Other
|
|
|
804
|
|
|
|
859
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
2,801
|
|
|
$
|
3,157
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reflects total
assets less current assets, goodwill, intangible assets, investments and non-current deferred tax assets.
|
There is no material reliance on any single customer. Revenues are attributed to countries based on location of customers.
Australasia comprises Australia, Asia, Papua New Guinea and New Zealand.
NOTE 20. ADDITIONAL FINANCIAL INFORMATION
Other Current Assets
The following table sets forth the components of Other current assets included in the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Inventory
(a)
|
|
$
|
218
|
|
|
$
|
299
|
|
Deferred tax assets
|
|
|
|
|
|
|
63
|
|
Assets held for sale
|
|
|
|
|
|
|
92
|
|
Amounts due from 21st Century Fox
|
|
|
55
|
|
|
|
63
|
|
Prepayments and other current assets
|
|
|
240
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
Total Other current assets
|
|
$
|
513
|
|
|
$
|
780
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Inventory as of
June 30, 2016 and 2015 was primarily comprised of books, newsprint, printing ink, and programming rights.
|
140
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Other Non-Current Assets
The following table sets forth the components of Other non-current assets included in the Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Royalty advances to authors
|
|
$
|
311
|
|
|
$
|
304
|
|
Other
|
|
|
85
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
Total Other non-current assets
|
|
$
|
396
|
|
|
$
|
467
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities
The following table sets forth the components of Other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
As of June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Current tax payable
|
|
$
|
33
|
|
|
$
|
27
|
|
Royalties and commissions payable
|
|
|
179
|
|
|
|
163
|
|
Other
|
|
|
254
|
|
|
|
211
|
|
|
|
|
|
|
|
|
|
|
Total Other current liabilities
|
|
$
|
466
|
|
|
$
|
401
|
|
|
|
|
|
|
|
|
|
|
Other, net
The following table sets forth the components of Other, net included in the Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Gain on iProperty transaction
(a)
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
|
|
Impairment of marketable securities and cost method investments
(b)
|
|
|
(21
|
)
|
|
|
(5
|
)
|
|
|
(10
|
)
|
Foreign tax refund payable to 21st Century Fox
(c)
|
|
|
|
|
|
|
|
|
|
|
(721
|
)
|
Gain on third party pension contribution
(d)
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Gain on sale of Australian property
|
|
|
|
|
|
|
|
|
|
|
36
|
|
Gain on sale of marketable securities
(e)
|
|
|
|
|
|
|
29
|
|
|
|
6
|
|
Dividends received from cost method investments
|
|
|
|
|
|
|
25
|
|
|
|
|
|
Gain on sale of cost method investments
|
|
|
|
|
|
|
15
|
|
|
|
|
|
Other
|
|
|
10
|
|
|
|
11
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other, net
|
|
$
|
18
|
|
|
$
|
75
|
|
|
$
|
(653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
See Note
3Acquisitions, Disposals and Other Transactions.
|
(b)
|
See Note
6Investments
|
(c)
|
See Note
18Income Taxes
|
(d)
|
During the first
quarter of fiscal 2014 approximately $37 million of contributions were made to a foreign pension plan by a third party in connection with the sale of a business in a prior period on behalf of former employees who retained certain pension benefits.
This contribution reduced the Companys Retirement benefit obligation and resulted in a gain being recognized in Other, net in the Statement of Operations during the fiscal year ended June 30, 2014.
|
141
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(e)
|
In August 2014,
REA Group completed the sale of a minority interest held in marketable securities for total cash consideration of $104 million. As a result of the sale, REA Group recognized a pre-tax gain of $29 million, which was reclassified out of accumulated
other comprehensive income and included in Other, net in the Statement of Operations.
|
Accumulated Other Comprehensive
(Loss) Income
The components of Accumulated other comprehensive (loss) income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in millions)
|
|
Accumulated other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
19
|
|
|
$
|
24
|
|
|
$
|
2
|
|
Fiscal year activity
(a)
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
20
|
|
|
|
19
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Plan Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
(413
|
)
|
|
|
(384
|
)
|
|
|
(348
|
)
|
Fiscal year activity
(b)
|
|
|
(32
|
)
|
|
|
(29
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
(445
|
)
|
|
|
(413
|
)
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
(188
|
)
|
|
|
971
|
|
|
|
617
|
|
Fiscal year activity
(c)
|
|
|
(397
|
)
|
|
|
(1,159
|
)
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
(585
|
)
|
|
|
(188
|
)
|
|
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of other comprehensive income from equity affiliates, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Fiscal year activity
(d)
|
|
|
(16
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
(16
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive (loss) income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
(582
|
)
|
|
|
610
|
|
|
|
271
|
|
Fiscal year activity, net of income taxes
|
|
|
(444
|
)
|
|
|
(1,192
|
)
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
(1,026
|
)
|
|
$
|
(582
|
)
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Net of income tax
expense of nil, nil and $14 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
|
(b)
|
Net of income tax
(benefit) of ($14) million, ($11) million and ($3) million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
|
(c)
|
Excludes ($1)
million, ($24) million and $2 million relating to noncontrolling interests for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
|
(d)
|
Net of income tax
(benefit) expense of ($7) million, $1 million and ($1) million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.
|
142
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21. VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning of
year
|
|
|
Additions
|
|
|
Acquisitions
and disposals
|
|
|
Utilization
|
|
|
Foreign
exchange
|
|
|
Balance at
end of year
|
|
|
|
(in millions)
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for returns and doubtful accounts
|
|
$
|
(220
|
)
|
|
$
|
(566
|
)
|
|
$
|
(12
|
)
|
|
$
|
582
|
|
|
$
|
3
|
|
|
$
|
(213
|
)
|
Deferred tax valuation allowance
|
|
|
(1,308
|
)
|
|
|
(8
|
)
|
|
|
109
|
|
|
|
114
|
|
|
|
79
|
|
|
|
(1,014
|
)
|
Fiscal 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for returns and doubtful accounts
|
|
$
|
(175
|
)
|
|
$
|
(573
|
)
|
|
$
|
(68
|
)
|
|
$
|
586
|
|
|
$
|
10
|
|
|
$
|
(220
|
)
|
Deferred tax valuation allowance
|
|
|
(1,393
|
)
|
|
|
(102
|
)
|
|
|
(186
|
)
|
|
|
290
|
|
|
|
83
|
|
|
|
(1,308
|
)
|
Fiscal 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for returns and doubtful accounts
|
|
$
|
(175
|
)
|
|
$
|
(382
|
)
|
|
$
|
|
|
|
$
|
384
|
|
|
$
|
(2
|
)
|
|
$
|
(175
|
)
|
Deferred tax valuation allowance
|
|
|
(1,391
|
)
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
(1,393
|
)
|
143
NEWS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22. QUARTERLY DATA (UNAUDITED)
For convenience purposes, all references to September 30, 2015 and September 30, 2014 refer to the three months ended September 27, 2015
and September 28, 2014, respectively. All references to December 31, 2015 and December 31, 2014 refer to the three months ended December 27, 2015 and December 28, 2014, respectively. All references to March 31, 2016 and March 31, 2015 refer to
the three months ended March 27, 2016, and March 29, 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
(in millions, except per share amounts)
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,014
|
|
|
$
|
2,161
|
|
|
$
|
1,891
|
|
|
$
|
2,226
|
|
Income (loss) from continuing operations attributable to News Corporation stockholders
|
|
|
129
|
|
|
|
87
|
|
|
|
(147
|
)
|
|
|
95
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
46
|
|
|
|
(24
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
Net income (loss) attributable to News Corporation stockholders
|
|
|
175
|
|
|
|
63
|
|
|
|
(149
|
)
|
|
|
90
|
|
|
|
|
|
|
Income (loss) from continuing operations available to News Corporation stockholders per sharebasic and
diluted
|
|
$
|
0.22
|
|
|
$
|
0.15
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.16
|
|
Income (loss) available to News Corporation stockholders per sharebasic and diluted
|
|
|
0.08
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to News Corporation stockholders per sharebasic and diluted
|
|
$
|
0.30
|
|
|
$
|
0.11
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,108
|
|
|
$
|
2,258
|
|
|
$
|
2,041
|
|
|
$
|
2,117
|
|
|
|
|
|
|
Income from continuing operations attributable to News Corporation stockholders
|
|
|
86
|
|
|
|
162
|
|
|
|
45
|
|
|
|
5
|
|
Loss from discontinued operations, net of tax
|
|
|
(21
|
)
|
|
|
(19
|
)
|
|
|
(22
|
)
|
|
|
(383
|
)
|
Net income (loss) attributable to News Corporation stockholders
|
|
|
65
|
|
|
|
143
|
|
|
|
23
|
|
|
|
(378
|
)
|
|
|
|
|
|
Income from continuing operations available to News Corporation stockholders per sharebasic and diluted
|
|
$
|
0.15
|
|
|
$
|
0.27
|
|
|
$
|
0.08
|
|
|
$
|
0.01
|
|
Loss available to News Corporation stockholders per sharebasic and diluted
|
|
|
(0.04
|
)
|
|
|
(0.03
|
)
|
|
|
(0.04
|
)
|
|
|
(0.66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available to News Corporation stockholders per sharebasic and diluted
|
|
$
|
0.11
|
|
|
$
|
0.24
|
|
|
$
|
0.04
|
|
|
$
|
(0.65
|
)
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NOTE 23. SUBSEQUENT EVENTS
In August 2016, the Company declared a semi-annual cash dividend of $0.10 per share for Class A Common Stock and Class B Common Stock. This dividend is payable on October 19, 2016 to stockholders of
record as of September 14, 2016.
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