10-K 1 d581644d10k.htm 10-K 10-K
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K

 

 

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2013

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 001-35769

 

 

 

LOGO

NEWS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware   46-2950970

(State or Other Jurisdiction of

Incorporation or Organization)

  (I.R.S. Employer Identification No.)

 

1211 Avenue of the Americas, New York, New York   10036
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code (212) 416-3400

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange On Which Registered

Class A Common Stock, par value $0.01 per share

  The NASDAQ Global Select Market

Class B Common Stock, par value $0.01 per share

  The NASDAQ Global Select Market

Class A Preferred Stock Purchase Rights

  The NASDAQ Global Select Market

Class B Preferred Stock Purchase Rights

  The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨            Accelerated filer  ¨            Non-accelerated filer  x            Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes  ¨    No  x

The registrant’s Class A Common Stock and Class B Common Stock were not publicly traded as of the last business day of the registrant’s most recently completed second fiscal quarter.

As of September 10, 2013, 379,191,559 shares of Class A Common Stock and 199,630,240 shares of Class B Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.


Table of Contents

TABLE OF CONTENTS

 

          Page  

PART I

     

ITEM 1.

  

Business

     1   

ITEM 1A.

  

Risk Factors

     17   

ITEM 1B.

  

Unresolved Staff Comments

     30   

ITEM 2.

  

Properties

     30   

ITEM 3.

  

Legal Proceedings

     32   

ITEM 4.

  

Mine Safety Disclosures

     35   

PART II

     

ITEM 5.

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     36   

ITEM 6.

  

Selected Financial Data

     37   

ITEM 7.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     38   

ITEM 7A.

  

Quantitative and Qualitative Disclosures About Market Risk

     67   

ITEM 8.

  

Financial Statements and Supplementary Data

     69   

ITEM 9.

  

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

     135   

ITEM 9A.

  

Controls and Procedures

     135   

ITEM 9B.

  

Other Information

     135   

PART III

     

ITEM 10.

  

Directors, Executive Officers and Corporate Governance

     137   

ITEM 11.

  

Executive Compensation

     145   

ITEM 12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     164   

ITEM 13.

  

Certain Relationships and Related Transactions, and Director Independence

     168   

ITEM 14.

  

Principal Accountant Fees and Services

     169   

PART IV

     

ITEM 15.

  

Exhibits and Financial Statement Schedules

     170   
  

Signatures

     171   


Table of Contents

PART I

 

ITEM 1. BUSINESS

BACKGROUND

The Separation

News Corporation, a Delaware corporation, was originally formed on December 11, 2012 as New Newscorp LLC to hold certain businesses of its former parent company, Twenty-First Century Fox, Inc. (formerly named News Corporation) (“21st Century Fox”), consisting of newspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programming and pay-TV distribution in Australia. Unless otherwise indicated, references in this Annual Report on Form 10-K for the fiscal year ended June 30, 2013 (the “Annual Report”) to the “Company,” “News Corp,” “we,” “us,” or “our” means News Corporation and its subsidiaries. The Company was subsequently converted to New Newscorp Inc, a Delaware corporation, on June 11, 2013. On June 28, 2013 (the “Distribution Date”), the Company completed the separation of its businesses (the “Separation”) from 21st Century Fox. As of the effective time of the Separation, all of the outstanding shares of the Company were distributed to 21st Century Fox stockholders based on a distribution ratio of one share of Company Class A or Class B Common Stock for every four shares of 21st Century Fox Class A or Class B Common Stock, respectively, held of record as of June 21, 2013. Following the Separation, the Company’s Class A and Class B Common Stock began trading independently on The NASDAQ Global Select Market (“NASDAQ”) under the trading symbols “NWSA” and “NWS,” respectively. CHESS Depositary Interests (“CDIs”) representing the Company’s Class A and Class B Common Stock also trade on the Australian Securities Exchange (“ASX”) under the trading symbols “NWSLV” and “NWS,” respectively. In connection with the Separation, the Company assumed the name “News Corporation.”

The Company

News Corp is a global diversified media and information services company focused on creating and distributing authoritative and engaging content to consumers and businesses throughout the English-speaking world, as well as increasingly in other countries across the globe. The Company is comprised of leading businesses across a range of media, including: news and information services, cable network programming in Australia, digital real estate services, book publishing, and pay-TV distribution in Australia, that are distributed under some of the world’s most recognizable and respected brands, including The Wall Street Journal, Dow Jones, Herald Sun, The Sun, The Times, HarperCollins Publishers, FOX SPORTS Australia, realestate.com.au, and many others. The Company is also a rapidly developing provider of digital education content, assessment and delivery services. The Company’s commitment to premium content makes its properties a trusted source of news and information and a premier destination for consumers across various media. Many of these properties deliver broad reach and high audience engagement levels in their respective markets, making them attractive advertising vehicles for the Company’s advertising customers.

The Company delivers its premium content to consumers across numerous distribution platforms consisting not only of traditional print and television, but also through an expanding array of digital platforms including websites, electronic readers and applications for tablets and mobile devices. The Company is focused on pursuing integrated strategies across its businesses to continue to capitalize on the transition from print to digital consumption of high-quality content. The Company believes that the increasing availability of high-speed Internet access, electronic readers and connected mobile devices will allow it to continue to deliver its content in a more engaging, timely and personalized manner, provide opportunities to more effectively monetize its content via strong customer relationships and more compelling and engaging advertising solutions and reduce its physical production and distribution costs as it continues to shift to digital platforms.

The Company’s diversified revenue base consists of recurring subscriptions, circulation copies, licensing fees, affiliate fees and direct sales, as well as the sale of advertising and sponsorships. The Company manages its businesses to take advantage of opportunities to share technologies and practices across geographies and

 

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businesses and bundle selected offerings to provide greater value to consumers and advertising partners. Headquartered in New York, the Company operates primarily in North America, Australia and the U.K., and its content is distributed and consumed worldwide. The Company’s operations are organized into five reporting segments: (i) News and Information Services; (ii) Cable Network Programming; (iii) Digital Real Estate Services; (iv) Book Publishing; and (v) Other, which includes Amplify, the Company’s digital education business, the Company’s corporate Strategy and Creative Group, general corporate overhead expenses and costs related to the U.K. Newspaper Matters, as defined in “Item 1A. Risk Factors.” The Company also owns a 50% stake in Foxtel, which is accounted for as an equity investment.

The Company maintains a 52-53 week fiscal year ending on the Sunday nearest to June 30 in each year. All references to June 30, 2013, June 30, 2012 and June 30, 2011 relate to the 12-month periods ended June 30, 2013, July 1, 2012 and July 3, 2011, respectively. For convenience purposes, the Company continues to date its financial statements as of June 30. The Company’s principal executive offices are located at 1211 Avenue of the Americas, New York, New York 10036, and its telephone number is (212) 416-3400. More information regarding the Company is or will be available on its website at www.newscorp.com, including the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are or will be available free of charge, as soon as reasonably practicable after the material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).

Special Note Regarding Forward-Looking Statements

This document and any documents incorporated by reference into this Annual Report, including “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain statements that constitute “forward-looking statements” within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. The words “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this document and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company’s financial condition or results of operations and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. More information regarding these risks, uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading “Item 1A. Risk Factors” in this Annual Report. The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with the SEC. This section should be read together with the Consolidated and Combined Financial Statements of News Corporation (the “Financial Statements”) and related notes set forth elsewhere in this Annual Report. The Company believes that the assumptions underlying the Financial Statements are reasonable. However, the Financial Statements included herein may not necessarily reflect the Company’s results of operations, financial position and cash flows in the future or what they would have been had the Company been a separate, stand-alone company during the periods presented.

 

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BUSINESS OVERVIEW

The Company’s five reporting segments are described below. In addition, the Company owns a 50% stake in Foxtel, which is accounted for as an equity investment. For financial information regarding the Company’s segments and operations in geographic areas, see Note 16 to the Company’s Consolidated and Combined Financial Statements.

 

For the year ended June 30, 2013

 
     Revenues      Segment
EBITDA
 
     (in millions)  

News and Information Services

   $ 6,731       $ 795   

Cable Network Programming(a)

     324         63   

Digital Real Estate Services

     345         168   

Book Publishing

     1,369         142   

Other

     122         (480
  

 

 

    

 

 

 

Total

   $ 8,891       $ 688   
  

 

 

    

 

 

 

 

(a) 

As a result of the acquisition of Consolidated Media Holdings Ltd. (“CMH”), the Company’s ownership interest in FOX SPORTS Australia increased to 100% and accordingly, the results of FOX SPORTS Australia have been included in a new Cable Network Programming segment since November 2012.

News and Information Services

The Company’s News and Information Services segment consists of Dow Jones, News Corp Australia (which includes News Limited and its subsidiaries), News UK (formerly known as News International), the New York Post and News America Marketing. The News and Information Services segment generates revenue primarily through print and digital advertising sales and through circulation and subscriptions to its print and digital products.

Dow Jones

Dow Jones is a global provider of news and business information, which distributes its content and data through a variety of media channels including newspapers, newswires, websites, electronic readers, mobile applications, newsletters, magazines, proprietary databases, conferences, radio and video. Dow Jones offers products targeting individual consumer and enterprise customers, including The Wall Street Journal, DJX, Dow Jones Newswires, Factiva, Barron’s and MarketWatch, and its revenue is diversified across business-to-consumer and business-to-business subscriptions, advertising, and licensing fees for its print and digital products.

Through its premier brands and authoritative journalism, Dow Jones products targeting individual consumers provide insights, research and understanding that customers need in order to be informed and make educated financial decisions. With a focus on the financial markets, investing and other professional services, many of these products offer advertisers an attractive customer demographic. Products targeting consumers include the following:

 

   

The Wall Street Journal (WSJ). The Wall Street Journal, the Dow Jones flagship product, is available in print, online at WSJ.com, and across multiple mobile, electronic reader and tablet devices, and covers business developments and trends, national and international news along with analysis, economics, financial markets, investing, opinion, lifestyle, culture and sports. The Wall Street Journal is the leading circulation daily newspaper in the U.S., with total average print and digital circulation of 2,378,827 for the six months ended March 31, 2013 based on Alliance for Audited Media (“AAM”) data. WSJ is printed at plants located around the U.S., including nine owned by the Company. WSJ sells regional advertising in three major U.S. regional editions (Eastern, Central and Western) and 21 smaller sub-

 

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regional editions. WSJ.com, which offers both free and premium content, averaged more than 69 million visits per month for the year ended June 30, 2013 according to Adobe Omniture, and includes local language editions in Chinese, Japanese, German, Spanish, Portuguese, Bahasa, Turkish and Korean. Print and digital products under the WSJ brand include:

Print: The Wall Street Journal (including its Asia and Europe editions), The Wall Street Journal Sunday, and WSJ.Magazine.

Digital: WSJ.com (includes Risk & Compliance Journal, CIO Journal and CFO Journal), WSJ.com international sites (asia.WSJ.com, Europe.WSJ.com, WSJ.de (Germany), cn.WSJ.com (China), jp.WSJ.com (Japan), kr.wsj.com (Korea), indo.wsj.com (Indonesia), india.wsj.com, wsj.com.tr (Turkey) and Latin American and Brazil local language editions available through WSJ.com).

Video: WSJ Live (live and on-demand news online through WSJ.com and other platforms including Internet-connected TV and set-top boxes).

 

   

Barron’s. Barron’s is available in print, online at Barrons.com, and on electronic reader and mobile devices, and delivers news, analysis, investigative reporting, company profiles and insightful statistics for investors and others interested in the investment world. Print and digital products under the Barron’s brand include:

Print: Barron’s (weekly magazine with an average paid weekly circulation of 305,513 for the six months ended June 30, 2013 based on AAM data).

Digital: Barrons.com (offers both free and premium content providing in-depth analysis and commentary on the markets, updated every business day online, along with alerts and tools) and Barron’s iPad application (paid application which resembles the website). Barrons.com had over 170,000 paid subscribers on average for the year ended June 30, 2013.

 

   

The Wall Street Journal Digital Network. WSJDN comprises business and financial news websites and mobile applications. WSJDN had more than 1.3 million paid subscribers on average for the year ended June 30, 2013 and, during that same period, averaged more than 137 million visits per month with more than 523 million page views per month according to Adobe Omniture. In addition to WSJ.com and Barrons.com, discussed above, WSJDN includes MarketWatch, AllThingsD and related services.

Marketwatch.com. Marketwatch.com is an investing and financial news website targeting active investors. It also provides real-time commentary and investment tools and data. Products include an iPad application (paid application), MarketWatch Mobile (free iPhone application and mobile site), MarketWatch Premium Newsletter (paid newsletter on a variety of investing topics), Big Charts (free investment charting website) and Virtual Stock Exchange (free stock simulation game through the website). MarketWatch.com averaged more than 37 million visits per month for the year ended June 30, 2013 according to Adobe Omniture.

AllThingsD.com. AllThingsD.com is a personal technology site that features breaking technology news, in-depth coverage of Silicon Valley and the media industry, and product reviews and analysis.

 

   

Dow Jones Local Media. In September 2013, the Company sold the Dow Jones Local Media Group, which operates eight daily and 15 weekly newspapers in seven states, to an affiliate of Fortress Investment Group.

 

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Dow Jones Institutional products, which target enterprise customers, combine news and information with technology and tools that inform decisions and aid awareness, research and understanding. These products are designed to be integral to the success of Dow Jones’ enterprise customers, and Dow Jones expects to sustain strong retention rates by providing high levels of service and continued innovation through news, data and tools that meet its customers’ specific needs. These products include the following:

 

   

DJX. DJX was launched in April 2013 as a bundle of underlying products, including Factiva, Dow Jones Newswires (including the new DJ Dominant wire), certain Private Markets products (e.g., VentureSource, LP Source), certain Risk & Compliance products, WSJ.com and Barrons.com. Over the coming year, Dow Jones intends to begin consolidating the content within these products such that DJX is no longer a bundle of products, but instead, offers one unified product experience. DJX represents a change in Dow Jones’ institutional business strategy, particularly with respect to the enterprise market. In the future, Dow Jones expects that some of the individual products within DJX will no longer generally be available separately for sale or renewal, including the main Factiva product, the DJ Dominant wire, VentureSource, LP Source and Risk & Compliance – Risk Database Research. Certain products such as Dow Jones Newswires (other than DJ Dominant), the feeds associated with Factiva (but not the main Factiva product), WSJ.com and Barrons.com are expected to remain available for sale separately. More information on Factiva, Dow Jones Newswires, Private Markets products and Risk & Compliance products is provided below:

Factiva. Factiva is a leading provider of global business content, built on an archive of important, original publishing sources. This combination of business news and information, plus sophisticated tools, helps professionals find, monitor, interpret and share essential information. As of June 30, 2013, there were approximately 1.1 million activated Factiva users, including both institutional and individual accounts. Many of the institutional accounts have multiple individual users. Factiva offers content from over 32,000 global news and information sources from nearly 200 countries and in 28 languages. Thousands of Factiva’s sources are not available for free on the Internet and more than 3,800 sources make information available via Factiva on or before the date of publication by the source. Factiva leverages complex metadata extraction and text-mining to help its customers build precise searches and alerts to access and monitor this data.

Dow Jones Newswires. Dow Jones Newswires distributes real-time business news, information, analysis, commentary and statistical data to financial professionals and investors worldwide. It publishes, on average, over 19,000 news items in 13 languages each day via terminals and trading platforms reaching hundreds of thousands of financial professionals. This content also reaches millions of individual investors via customer portals and intranets of brokerage and trading firms, as well as digital media publishers. DJ Dominant is a new newswire feature that delivers certain exclusive news and analysis from Dow Jones journalists to DJX users before subscribers to other Dow Jones newswires and products.

Private Markets. Dow Jones Private Markets products provide news and comprehensive data on venture and private-equity backed private companies, and their investors, to help venture capitalists, financial professionals and other service providers identify deal and partnership opportunities, perform comprehensive due diligence and examine trends in venture capital investment, fund-raising and liquidity. Products include VentureSource, LP Source, VentureWire, Private Equity Analyst and LBO Wire.

Risk & Compliance. Dow Jones Risk & Compliance products provide data solutions for customers focused on anti-corruption, anti-money laundering and monitoring embargo and sanction lists. Dow Jones’ solutions allow customers to filter their business transactions against its data to identify regulatory, corporate and reputational risk, and request follow-up due diligence reports. Products include Dow Jones Watchlist, Dow Jones Anti-Corruption, Dow Jones Sanction Alert and Dow Jones Due Diligence.

 

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News Corp Australia

News Corp Australia is one of the leading news and information providers in Australia by readership and circulation, owning over 120 newspapers covering a national, regional and suburban footprint. As of June 30, 2013, its daily, Sunday, weekly and bi-weekly newspapers accounted for more than 59% of the total circulation of newspapers in Australia, and during the year ended June 30, 2013, its Sunday newspaper network was read by approximately 4.8 million Australians on average every week. In addition, its digital mastheads and other websites are among the leading digital properties in Australia based on monthly site visits. News Corp Australia’s news portfolio includes:

 

   

The Australian and The Weekend Australian (National). The Australian is published Monday through Friday, and The Weekend Australian is published on Saturday. Based on Audit Bureau of Circulations (“ABC”) data, average daily paid circulation for the year ended June 30, 2013 was approximately 121,000 for The Australian and 266,000 for The Weekend Australian. In addition, The Australian and The Weekend Australian had a total unduplicated print and digital audience of over 3.1 million for the month of June 2013 based on average monthly Enhanced Media Metrics Australia (“EMMA”) combined print, mobile and tablet audience data for the year ended June 30, 2013 and total unique website audience in June 2013 according to Nielsen monthly total audience ratings. The Company believes EMMA data, which incorporates more frequent sampling and combines both online and print usage into a single metric, more accurately and comprehensively reflects consumption of its publications.

 

   

The Daily Telegraph and The Sunday Telegraph (Sydney). The Daily Telegraph is published Monday through Saturday. Based on ABC data, average daily paid circulation for the year ended June 30, 2013 was approximately 320,000 for The Daily Telegraph and 575,000 for The Sunday Telegraph. In addition, The Daily Telegraph and The Sunday Telegraph had a total unduplicated print and digital audience of over 4.0 million for the month of June 2013 based on average monthly EMMA combined print, mobile and tablet audience data for the year ended June 30, 2013 and total unique website audience in June 2013 according to Nielsen monthly total audience ratings.

 

   

Herald Sun and Sunday Herald Sun (Melbourne). Herald Sun is published Monday through Saturday. Based on ABC data, average daily paid circulation for the year ended June 30, 2013 was approximately 438,000 for Herald Sun and 507,000 for Sunday Herald Sun. In addition, Herald Sun and Sunday Herald Sun had a total unduplicated print and digital audience of almost 4.1 million for the month of June 2013 based on average monthly EMMA combined print, mobile and tablet audience data for the year ended June 30, 2013 and total unique website audience in June 2013 according to Nielsen monthly total audience ratings.

 

   

The Courier Mail and The Sunday Mail (Brisbane). The Courier Mail is published Monday through Saturday. Based on ABC data, average daily paid circulation for the year ended June 30, 2013 was approximately 190,000 for The Courier Mail and 433,000 for The Sunday Mail. In addition, The Courier Mail and The Sunday Mail had a total unduplicated print and digital audience of over 2.8 million for the month of June 2013 based on average monthly EMMA combined print, mobile and tablet audience data for the year ended June 30, 2013 and total unique website audience in June 2013 according to Nielsen monthly total audience ratings.

 

   

The Advertiser and Sunday Mail (Adelaide). The Advertiser is published Monday through Saturday. Based on ABC data, average daily paid circulation for the year ended June 30, 2013 was approximately 172,000 for The Advertiser and 256,000 for Sunday Mail. In addition, The Advertiser and Sunday Mail had a total unduplicated print and digital audience of over 1.4 million for the month of June 2013 based on average monthly EMMA combined print, mobile and tablet audience data for the year ended June 30, 2013 and total unique website audience in June 2013 according to Nielsen monthly total audience ratings.

 

   

A large number of community newspapers in all major capitol cities, as well as leading regional publications in Cairns, Gold Coast, Townsville and Geelong and in the other capitol cities of Perth, Hobart and Darwin.

 

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News Corp Australia has launched paid-for digital platforms for Herald Sun, Sunday Herald Sun, The Daily Telegraph (Perth), The Sunday Telegraph, The Courier Mail, The Sunday Mail, The Advertiser, Sunday Mail and the FOX SPORTS website, which are encompassed under News Corp Australia’s news+ digital product brand. News Corp Australia’s broad portfolio of digital properties also comprises a number of other premier assets, including leading general interest sites in Australia such as news.com.au, which provides business, entertainment, lifestyle, news and sports information, taste.com.au, a leading food and recipe site, and kidspot.com.au, a leading parenting website. Other digital media assets include a 50% stake in CareerOne.com.au (a joint venture with Monster.com), a 50% stake in carsguide.com.au (a joint venture with a consortium of leading car dealers), an 89.5% stake in the SportingPulse (which supplies a scheduling tool for sports organizations), and 100% of Business Spectator and Eureka Report (online business and investment news and commentary services).

News UK

News UK publishes The Sun, The Times and The Sunday Times, which are leading newspapers in the U.K. As of June 30, 2013, sales of these three titles accounted for approximately one-third of all national newspaper sales in the U.K. News UK’s newspapers (except some Saturday and Sunday supplements) are printed at News UK’s world-class printing facilities in England, Scotland and Ireland. In addition to revenue from the sale of advertising, circulation and subscriptions to its print and digital products, News UK also generates revenue by providing third party printing services through these facilities and is one of the largest contract printers in the U.K. In addition, News UK has developed a portfolio of highly complementary ancillary product offerings, including Sun Bingo, the U.K.’s largest online bingo platform, as well as newer products such as Sunday Times Driving, a digital classified offering, and The Times and The Sunday Times Whisky Club, which supplies premium products and accompanying editorial content.

 

   

The Sun. The Sun newspaper is published Monday through Saturday and on Sunday since February 2012. Based on National Readership Survey data for the six months ended June 30, 2013, The Sun is the most read national newspaper in the U.K., with an average issue readership of approximately 6,200,000 Monday through Saturday for The Sun and 5,500,000 for The Sun on Sunday. Average daily paid print circulation for the six months ended June 30, 2013 based on ABC data was approximately 2,228,000 for The Sun and 1,914,000 for The Sun on Sunday.

 

   

The Times. The Times newspaper is published Monday through Saturday with an average issue readership of approximately 1,200,000 for the six months ended June 30, 2013 based on National Readership Survey data. Average daily paid print circulation for the six months ended June 30, 2013 based on ABC data was approximately 396,000, consisting of approximately 153,000 paid print subscribers and approximately 243,000 circulation copies. As of June 30, 2013, The Times also had approximately 140,000 paid digital subscribers based on internal sources. News UK also publishes The Times Literary Supplement, a weekly literary review.

 

   

The Sunday Times. The Sunday Times is the leading broadsheet Sunday newspaper in the U.K. with an average issue readership of approximately 2,500,000 for the six months ended June 30, 2013 based on National Readership Survey data. Average daily paid print circulation for the six months ended June 30, 2013 based on ABC data was approximately 867,000, consisting of approximately 185,000 paid print subscribers and approximately 682,000 circulation copies. As of June 30, 2013, The Sunday Times also had approximately 135,000 paid digital subscribers based on internal sources.

News UK also distributes content through its digital platforms, including its websites, thesun.co.uk, thetimes.co.uk and thesundaytimes.co.uk, as well as mobile applications. In August 2013, News UK launched The Sun iPad edition and Sun+, the title’s new digital bundle, which delivers exclusive digital entertainment, including Barclay’s Premier League match clips and Sun+ perks, a collection of perks, downloads, offers and competitions. The Sun is the first tabloid newspaper to be fully paid-for across every platform. News UK continues to enhance its online and mobile offerings, including through its recent acquisition of the rights to show Football Association match clips across its digital platforms for four years, beginning in 2014.

 

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New York Post

The New York Post (the “Post”) is the oldest continuously published daily newspaper in the U.S., with a focus on coverage of the New York metropolitan area. The print version of the Post is primarily distributed in New York and throughout the Northeast, as well as Florida and California. The Post provides a variety of general interest content ranging from breaking news to business analysis, and is known in particular for its comprehensive sports coverage, famous headlines and its iconic Page Six section, an authority on celebrity news. The Post’s digital platforms feature all the sections of the print version as well as continually updated breaking news and other content and extend the reach of the Post to a national audience. For the six months ended March 31, 2013, average weekday circulation, including digital editions, was 500,520. The Post is printed in a printing facility in the Bronx, New York and uses third party printers in its other markets in the U.S. The Company’s Community Newspaper Group also owns several local newspapers and other publications distributed in the New York metropolitan area.

News America Marketing (“NAM”)

NAM is a leading provider of coupon promotions, advertising programs, special offers and other direct consumer marketing solutions through a network of more than 1,700 publications, 50,000 retail stores and 400 partner sites including SmartSource.com as well as through the expanding audience for its app, SmartSource Xpress for iPad and iPhone. NAM offers direct consumer marketing solutions for companies that include consumer packaged goods manufacturers, financial services, pharmaceutical manufacturers, quick-service and casual restaurants, retailers and other marketers in the U.S. and Canada. NAM has developed broad, long-standing relationships with many well-known retailers and brands, including Procter & Gamble, General Mills, Kraft, GlaxoSmithKline, Walmart, Kroger, American Express, Target, Loblaws and DirectTV.

NAM’s marketing solutions are available via multiple distribution channels, including publications, in stores and online, primarily under the SmartSource brand name. NAM provides customers with “one-stop shopping” for their direct-to-consumer marketing needs through its three primary business areas:

 

   

Free-Standing Inserts: Free-standing inserts are multiple-page marketing booklets containing coupons, rebates and other consumer offers, which are distributed to consumers through insertion primarily into local Sunday publications. NAM is one of the two largest publishers of free-standing inserts in the U.S. Advertisers, primarily packaged goods companies, pay NAM to produce free-standing inserts where their offers are featured, often on an exclusive basis within their product category. NAM contracts with and pays newspaper publishers, among others, to include the free-standing inserts in their papers. NAM’s free-standing insert products, which are distributed under the SmartSource Magazine® brand, have a circulation of almost 74 million based on internal sources and are distributed 43 times a year.

 

   

In-Store Advertising and Merchandising: NAM is a leading provider of in-store marketing products and services, primarily to consumer packaged goods manufacturers. NAM’s marketing products include: at-shelf advertising such as coupon, information and sample-dispensing machines, as well as floor and shopping cart advertising, among others, and are found in approximately 50,000 supermarkets, drug stores, dollar stores, office supply stores and mass merchandisers across North America. NAM also provides in-store merchandising services, including production and installation of instant-redeemable coupons, on-pack stickers, shipper assembly, display set-up and refilling, shelf management and new product cut-ins.

 

   

SmartSource Digital: SmartSource Digital manages NAM’s portfolio of database and electronic marketing solutions. The database marketing business, branded SmartSource Direct, provides direct-mail solutions via access to a national network of retailer frequent-shopper card databases offering information on the purchase behavior of more than 100 million cardholders. The SmartSource Savings Network, which includes SmartSource.com and SmartSource Xpress, encompasses all of NAM’s electronic couponing and sampling solutions accessed through the web, mobile and tablet-based programming.

 

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NAM believes its programs have key advantages when compared to other marketing options available to packaged goods companies, retailers and other marketers. NAM offers cost-effective programs that reach a national audience of engaged consumers who are actively seeking coupons or discounts and who are at a critical moment in their purchase decision. By delivering an immediate incentive or brand message to shoppers as they are making brand decisions, NAM believes free-standing inserts and in-store advertising have an advantage over competing forms of mass media such as radio or television.

The Company’s News and Information Services products compete with a wide range of media businesses, including both print publications and digital media and information services.

The Company’s newspapers, magazines and digital publications compete for readership and advertising with local and national newspapers, web and application-based media, social media sources and other traditional media such as television, magazines, outdoor displays and radio. Competition for print and digital subscriptions is based on the news and editorial content, subscription pricing, cover price and, from time to time, various promotions. Competition for advertising is based upon advertisers’ judgments as to the most effective media for their advertising budgets, which is in turn based upon various factors including circulation volume, readership levels, audience demographics, advertising rates and advertising effectiveness results. In recent years, the newspaper industry has experienced difficulty increasing or maintaining circulation volume and revenue due to, among other factors, increased competition from new media formats and sources and shifting preferences among some consumers to receive all or a portion of their news from sources other than a newspaper, including digital sources available free of charge to consumers. The Company believes that these changes will continue to pose opportunities and challenges within the newspaper industry, and that it is well positioned to continue to benefit from the transition to digital consumption. The Company plans to leverage its global reach and brand recognition and its proprietary technology to expand its digital offerings, many of which are in early stages and have significant potential for growth.

DJX and other Dow Jones Institutional products that target enterprise customers compete with various information service providers and global financial newswires, including Thomson Reuters, Bloomberg L.P., LexisNexis, as well as many other Internet-based providers of news and information.

NAM competes against other providers of advertising, marketing and merchandising products and services, including those that provide promotional or advertising inserts, direct mailers of promotional or advertising materials, providers of point-of-purchase and other in-store programs and providers of savings and/or grocery-focused digital applications, as well as other traditional media such as television, magazines, outdoor displays and radio. Competition is based on, among other things, rates, availability of markets, quality of products and services provided and their effectiveness, rate of coupon redemption, store coverage and other factors. The Company believes that based on the circulation of its free-standing inserts, the reach of its in-store marketing products and the audience for its online programs, NAM provides broader consumer access than many of its competitors.

Cable Network Programming

The Company’s Cable Network Programming segment consists of FOX SPORTS Australia, the leading sports programming provider in Australia based on total subscribers as of June 30, 2013. FOX SPORTS Australia is focused on live national and international sports events and provides featured original and licensed premium sports content tailored to the Australian market, including live sports such as National Rugby League, the domestic football league, English Premier League, international cricket, as well as the NFL. FOX SPORTS Australia offers seven standard definition television channels, high definition versions of five of those channels, an interactive viewing application and one IPTV channel. Its channels consist of FOX SPORTS 1, FOX SPORTS 2, FOX SPORTS 3, FOX FOOTY, FOX SPORTS NEWS, FUEL TV and SPEED that broadcast an average of 23 hours of live sports per day reaching FOXTEL, Telstra and Optus subscription television customers. FOX SPORTS Australia is distributed via longstanding carriage agreements with pay-TV providers

 

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(mainly Foxtel) in Australia and generates revenue primarily through affiliate fees payable under these carriage agreements, as well as advertising sales. FOX SPORTS Australia’s access to compelling local and international sports programming, as well as its production of high-quality original sports content has made it the leading sports programming provider in Australia. FOX SPORTS Australia also operates foxsports.com.au, a leading general sports website in Australia, and offers an IPTV channel and several interactive mobile and tablet applications that extend the reach of its content across multiple new platforms.

Prior to November 2012, the Company owned a 50% interest in FOX SPORTS Australia, which it accounted for as an equity investment. In November 2012, the Company acquired CMH, an Australian media investment company that owned the remaining 50% interest in FOX SPORTS Australia. As a result of the CMH acquisition, the Company’s ownership interest in FOX SPORTS Australia increased to 100% and accordingly, the results of FOX SPORTS Australia have been included in a new Cable Network Programming segment since November 2012.

FOX SPORTS Australia competes primarily with ESPN, the Free-To-Air (“FTA”) channels and certain telecommunications companies in Australia.

Digital Real Estate Services

The Company’s Digital Real Estate Services segment consists of its 61.6% interest in REA Group, a publicly-traded company on ASX (ASX: REA) that is a leading digital advertising business specializing in real estate services. Established in Melbourne in 1995, REA Group owns and operates Australia’s largest residential property website, realestate.com.au, and Australia’s largest commercial property site, realcommercial.com.au, which together have approximately 20.6 million desktop visits each month based on Nielsen average monthly total traffic ratings for the year ended June 30, 2013. REA Group also operates a market-leading Italian property site, casa.it, and other property sites and apps in Europe and in Hong Kong, and its portfolio of property sites is used by approximately 21,000 real estate agents.

REA Group’s Australian operations are comprised primarily of realestate.com.au, realcommercial.com.au and REA Media. Realestate.com.au derives the majority of its revenue via residential monthly advertising subscriptions and advertising listing upgrades from real estate offices. Agents subscribing to the website may upload unlimited listings for sale or rent and purchase a selection of upgrade products to increase the prominence of their listings on the site. Additionally, realestate.com.au offers a variety of targeted products, including brand-building services for real estate agents. Realcommercial.com.au generates revenue through three main sources, agent subscription revenue, agent branding revenue and listing revenue. REA Media offers unique advertising opportunities on both realestate.com.au and realcommercial.com.au, as well as via mobile ad placements. Its revenue is generated primarily from commercial developers and banks / financial institutions which benefit from being able to target REA Group’s substantial audience base.

REA Group’s other operations include property sites in Italy, Luxembourg, France, Germany and Hong Kong. Casa.it, with approximately 7.8 million visits each month based on Adobe Omniture SiteCatalyst average monthly site visits for the year ended June 30, 2013, is Italy’s leading residential property site. Casa.it’s award winning social media strategy saw it named one of the 10 most popular brands in Italy. Squarefoot.com.hk is REA Group’s English and Chinese language property site in Hong Kong with approximately 345,000 visits per month based on Adobe Omniture SiteCatalyst average monthly site visits for the year ended June 30, 2013. The atHome Group operates atHome.lu and atOffice.lu, leading property sites in the Greater Luxembourg area, as well as sites in France and Germany. AtHome.lu, atOffice.lu, atHome.de and immoRegion.fr had combined visits of 798,000 based on Adobe Omniture SiteCatalyst average monthly site visits for the year ended June 30, 2013.

REA Group competes primarily with other real estate websites in its geographic markets, including domain.com.au in Australia.

 

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Book Publishing

The Company’s Book Publishing segment consists of HarperCollins Publishers (together with its subsidiaries and affiliates, “HarperCollins”), one of the largest English-language consumer publishers in the world based on global revenue, with operations in the U.S., the U.K., Canada, Australia, New Zealand and India. HarperCollins publishes and distributes consumer books globally through print, digital and audio formats. Its digital formats include electronic books, also referred to as e-books, for devices such as the Apple iPad, Amazon’s Kindle, Google’s Nexus and Barnes & Noble’s NOOK as well as audio downloads for smartphones and MP3 players. HarperCollins owns over 60 branded imprints, including Avon, Harper, HarperCollins Children’s Publishers, William Morrow and Christian publishers Zondervan and Thomas Nelson, which HarperCollins acquired in July 2012. HarperCollins publishes works by well-known authors such as J.R.R. Tolkien, Paulo Coelho, Rick Warren and Agatha Christie and popular titles such as The Hobbit, Goodnight Moon and To Kill a Mockingbird. Its active print and digital global catalog includes over 50,000 publications and approximately 100,000 SKUs, including various print and digital editions of the same title. HarperCollins publishes fiction and nonfiction, with a focus on general, children’s and religious content. Additionally, in the U.K., HarperCollins publishes titles for the equivalent of the K-12 educational market.

HarperCollins is rapidly transitioning from print production to digital with leading e-book offerings. As of June 30, 2013, HarperCollins offered approximately 30,000 e-book titles, which accounted for approximately 19% of global revenues in the quarter (up from approximately 16% in the prior year period). Nearly all of HarperCollins’ titles published in the last four years, as well as the majority of its entire catalog, are available in electronic reader and tablet formats. With the rapid adoption of electronic formats by consumers, HarperCollins is publishing many titles in digital formats before, or instead of, publishing a print edition. For example, through its popular romance imprint, Avon, HarperCollins launched a “digital-first” series which releases one new title per week in the romance category. The series has already generated three New York Times electronic bestsellers since its launch.

During fiscal 2013, HarperCollins U.S. had 167 titles on the New York Times bestseller list, with 16 titles hitting number one, including American Sniper by Chris Kyle with Scott McEwen and Jim DeFelice, Divergent by Veronica Roth, Insurgent by Veronica Roth, Pete the Cat: Rocking in My School Shoes by Eric Litwin, The Night Before Christmas by Clement C. Moore, The Fallen Angel by Daniel Silva, The 100 by Jorge Cruise, Heaven is For Real by Todd Burpo with Lynn Vincent, America the Beautiful by Ben Carson with Candy Carson, Beautiful Ruins by Jess Walters, Micro by Michael Crichton and Richard Preston, The One and Only Ivan, by Katherine Applegate, Pete the Cat Saves Christmas by Eric Litwin, Emeraldalicious by Victoria Kann, and The Elite by Kiera Cass.

HarperCollins derives its revenue from the sale of print and digital books to a customer base that includes global technology companies, traditional brick and mortar booksellers, wholesale clubs and discount stores, including Amazon, Apple, Barnes & Noble and Tesco. As Harper Collins’ digital products continue to account for more of its business, it expects to benefit from increased profit contribution and improved working capital dynamics due to diminishing physical plant requirements, inventory and returns related to its print business, as well as faster payment for e-books.

The book publishing business operates in a highly competitive market that is quickly changing and continues to see technological innovations, including e-book devices sold by Amazon, Apple, Google and Barnes & Noble. HarperCollins competes with other large publishers, such as Penguin Random House, Simon & Schuster and Hachette Livre, as well as with numerous smaller publishers, for the rights to works by well-known authors and public personalities; competition could also come from new entrants, since barriers to entry in book publishing are low. In addition, HarperCollins competes for readership with other media formats and sources. The Company believes HarperCollins is well positioned in the evolving book publishing market with significant size and brand recognition across multiple categories and geographies and as an early adopter of the digital model, where it is an industry leader with approximately 30,000 e-book titles. Furthermore, HarperCollins is a leader in children’s and religious books, categories which have been less impacted by the transition to digital consumption.

 

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Other

The Other segment includes Amplify, the Company’s digital education business, the Company’s corporate Strategy and Creative Group, general corporate overhead expenses and costs related to the U.K. Newspaper Matters.

Amplify

In July 2012, the Company launched Amplify, the brand for its digital education business. Amplify is dedicated to improving K-12 education by creating digital products and services that empower teachers, students and parents in new ways. Its products serve more than 200,000 educators and three million students in all 50 states. Amplify is focused on transforming teaching and learning by creating and scaling digital innovations in three areas:

 

   

Amplify Insight: Amplify’s successful data and analytics business, which formerly operated under the brand Wireless Generation, commenced operations in 2000 and was acquired in 2010. Amplify Insight provides powerful assessment products and services to support staff and technology development, including student assessment tools and analytic technologies, intervention programs, enterprise education information systems, and professional development and consulting services. Key products include mClassTM, a suite of products that enable teachers to easily and quickly monitor individual and class progression through goals and standards and access detailed analysis, custom grouping and instructional planning tools.

 

   

Amplify Learning: Amplify’s nascent digital curriculum business is developing new content in English Language Arts, Science and Math, including software that will combine interactive, game-like experiences with rigorous analytics, all driven by adaptive technologies that respond to individual students’ needs as they evolve. Amplify Learning’s digital curriculum will incorporate the new Common Core State Standards that is expected to be implemented in 45 states beginning with the 2014-2015 school year. Amplify launched pilots of its new digital English and Science curriculum for students in the middle grades during the 2013 fiscal year and is expected to launch additional pilots in fiscal 2014.

 

   

Amplify Access: Amplify’s distribution platform business, which is developing new distribution and delivery mechanisms, consists of an open tablet-based distribution platform that will offer curated third-party as well as proprietary curricular and extracurricular content, sophisticated analytic capabilities, a tablet, and 4G connectivity through a subscription-based bundle optimized for the K-12 market to facilitate personalized instruction and enable anywhere, anytime learning. Amplify launched pilots of its new distribution platform for the classroom during fiscal 2013 and began a commercial rollout in fiscal 2014.

Amplify’s digital products are or will generally be available on a subscription basis. The Company also expects to market and sell some supplemental print-based materials, as well as instructional and information technology-related services. In addition, while each of Amplify’s products will be available on a stand-alone basis, the Company also anticipates that it will have the ability to cross-sell products between Amplify’s three business areas and offer bundled solutions to its customers.

Amplify competes with existing K-12 education publishers and content providers such as Pearson plc and McGraw-Hill Education, large platform companies such as Google, Apple, and Amazon that market their tablet or e-reader products for educational use, as well as a number of smaller content, analytics and distribution platform companies. The Company believes that Amplify’s capabilities across analytics and assessment, content and curriculum and distribution and delivery make it well-positioned to offer schools a unique integrated learning solution.

 

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Corporate Strategy and Creative Group

The Company’s corporate Strategy and Creative Group was formed to identify new products and services across the Company’s businesses to increase revenues and profitability and to target and assess potential acquisitions and investments. Recent initiatives include the launch of the Company’s BallBall mobile app in Japan, Indonesia and Vietnam, which combines the Company’s rights to exclusive football highlight clips, expert coverage, commentary and analysis from The Times, The Sunday Times and The Sun, as well as the recently announced News Corp Global Exchange, the Company’s new global programmatic advertising exchange that will enable marketers to leverage the Company’s leading online and mobile products and first-party data for real-time bidding.

Equity Investments

Foxtel

The Company and Telstra, an ASX-listed telecommunications company, each own 50% of Foxtel, the largest pay-TV provider in Australia. Foxtel has approximately 2.4 million subscribing households throughout Australia, or over 30% of the country’s population, as of June 30, 2013 through cable, satellite and IPTV distribution.

Foxtel delivers more than 200 channels (including standard definition channels, high definition versions of some of those channels, and audio and interactive channels) covering news, sport, general entertainment, movies, documentaries, music and children’s programming. Foxtel’s premium content includes FOX SPORTS Australia’s suite of sports channels such as FOX SPORTS 1, FOX SPORTS 2 and FOX SPORTS 3 and TV shows from HBO, FOX and Universal, among others. Foxtel also owns and operates 26 channels, including general entertainment and movie channels, and sources an extensive range of movie programming through arrangements with major U.S. studios. Foxtel’s channels are distributed to subscribers via both Telstra’s hybrid fibrecoaxial cable network and a long-term contracted satellite platform provided by Optus. Foxtel offers limited versions of its services via broadband through Foxtel Play (an Internet television service), the Xbox platform, Telstra’s T-Box platform, select Samsung televisions, a number of Virgin Australia aircraft, and mobile devices and tablets (including iPads and iPhones via Foxtel Go), as well as via the Internet to personal computers. Foxtel customers are also able to access their electronic programming guide via their tablet, mobile devices and personal computers to remotely record programming.

Foxtel generates revenue primarily through subscription revenue as well as advertising revenue. For the year ended June 30, 2013, in accordance with U.S. generally accepted accounting principles (“GAAP”), Foxtel recorded revenues of $3.2 billion, net income before income taxes of $267 million, net interest expense of $231 million, depreciation and amortization of $441 million, calculated before purchase accounting adjustments, and equity earnings of affiliates and other, net, of $7 million. Foxtel’s EBITDA, which is calculated by excluding interest expense, depreciation and amortization and equity earnings of affiliates and other, net, from net income before income taxes, was $932 million for the year ended June 30, 2013. Management believes that EBITDA is an appropriate measure for evaluating the operating performance of this business for the reasons set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Segment Analysis” with respect to Segment EBITDA.

In the year ended June 30, 2013, Foxtel’s average residential recurring subscription revenue per user, or ARPU, was $97 per month (as calculated by Foxtel), and its annualized residential subscriber churn rate based on data for the year ended June 30, 2013 was 14.2% (as calculated by Foxtel). In addition, Foxtel had $2.0 billion of indebtedness outstanding as of June 30, 2013 (excluding $825 million of shareholder loans due to Telstra and the Company, which includes accrued interest payable of $15 million), and paid distributions of $159 million to the Company during the year ended June 30, 2013. In November 2012, the Company’s stake in Foxtel increased from 25% to 50% as a result of the CMH acquisition. The amount included for Foxtel in the Company’s Equity earnings of affiliates was $66 million for the year ended June 30, 2013.

 

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The Company and Telstra each have the right to appoint one-half of the board of directors of Foxtel. In addition, the Company has the right to appoint the Chief Executive Officer and Chief Financial Officer of Foxtel, while Telstra has the right to terminate these officers.

Foxtel competes primarily with the three major commercial FTA networks and two major government-funded FTA broadcasters in Australia for subscribers, as well as other pay-TV operators and IPTV providers. Foxtel provides a 200-plus channel selection with premium and exclusive content and a wide array of digital and mobile features that are not available to viewers on the FTA networks. Through innovations such as digital HD channels, the extension of pay-TV programming to mobile devices and the use of DVR and Electronic Program Guide technology, the Company believes Foxtel offers subscribers a compelling alternative to FTA TV and Foxtel’s other competitors.

Governmental Regulation

General

Various aspects of the Company’s activities are subject to regulation in numerous jurisdictions around the world. The Company believes that it is in material compliance with the requirements imposed by those laws and regulations described herein. The introduction of new laws and regulations in countries where the Company’s products and services are produced or distributed (and changes in the enforcement of existing laws and regulations in those countries) could have a negative impact on the Company’s interests.

Australian Media Regulation

The Company’s subscription television interests are subject to Australia’s regulatory framework for the broadcasting industry. The key regulatory body for the Australian broadcasting industry is the Australian Communications and Media Authority (“ACMA”).

Key regulatory issues for subscription television providers include: (a) anti-siphoning restrictions—currently under the ‘anti-siphoning’ provisions of the Australian Broadcasting Services Act 1992 (Cth), subscription television providers are prevented from acquiring rights to televise certain listed events (for example, the Olympic Games and certain Australian Rules football and cricket matches) unless national and commercial television broadcasters have not obtained these rights 12 weeks before the start of the event or the rights to televise are also held by commercial television licensees who have rights to televise the event to more than 50% of the Australian population or the rights to televise are also held by one of Australia’s two major government-funded broadcasters; (b) the Broadcasting Services Act—this legislation may impact the Company’s ownership structure and operations and restrict its ability to take advantage of acquisition or investment opportunities including, for example, preventing it from exercising control of a commercial television broadcasting license, a commercial radio license and a newspaper in the same license area; and (c) Convergence Review—on April 30, 2012, the then-Minister for Broadband, Communications and the Digital Economy released the Final Report of a comprehensive review of Australia’s communications and media regulation in light of increasing convergence in media platforms. The report covered a number of broad areas, including media ownership laws, media content standards, the ongoing production and distribution of Australian and local content and the allocation of radio communications spectrum. In March 2013, legislation was passed in response to the Convergence Review that, among other things, reduced the license fees payable by FTA networks by 50%. No legislation has yet been introduced removing the prohibition on an FTA network’s signal reaching greater than 75% of the Australian population. Any further changes in Australian media regulations could adversely impact the Company’s Australian businesses. However, the government that commissioned the Convergence Review lost power in the Australian federal election held on September 7, 2013.

 

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U.K. Press Regulation

On July 13, 2011, Prime Minister David Cameron announced a two-part inquiry into the U.K. press and appointed Lord Justice Leveson as Chairman of the Inquiry. The inquiry was triggered by allegations of illegal voicemail interception at the Company’s former publication, The News of the World. Hearings opened on November 14, 2011 with respect to the first part of the inquiry, and Lord Justice Leveson published his report on November 29, 2012.

The report made recommendations on the future of press regulation and governance in the U.K., which have been the subject of debate in the U.K. parliament, as well as discussion both among newspaper groups (including News UK) and the industry and the government.

On March 18, 2013, the U.K. Government published a draft Royal Charter on Self-Regulation of the Press which, if granted, would establish a Recognition Panel that would be responsible for recognizing, overseeing and monitoring a new press regulatory body. The new press regulatory body, a majority of the members of which would be independent of the industry, would be responsible for overseeing the U.K. press and would replace the existing Press Complaints Commission. The U.K. Government has also proposed legislation which would ensure that the Royal Charter could only be altered by a two-thirds majority of parliament. In addition to the Royal Charter and establishment of a new regulatory body, rules have been proposed which, if adopted, would result in publishers who do not participate in this new U.K. press regulatory system being potentially liable for exemplary damages in certain cases where such damages are not currently awarded.

On April 24, 2013, an alternative proposed form of Royal Charter was published by a group representing a significant majority of the U.K. press, including News UK. This contained many similar provisions but omitted or varied several others, including the requirement for any future alteration to be approved by a two-thirds majority of parliament. While a new regulatory regime is supported by the primary political parties in the U.K. and is likely to be introduced, at this time it remains unclear what precise form the new regime will take and when it will come into force.

The new U.K. press regulatory body is likely to, among other things, introduce and oversee a revised press code, require members to implement appropriate internal governance processes and require self-reporting of any failures, provide a complaints handling service, have the ability to require publications to print corrections, have the power to investigate serious or systemic breaches of the press code and be able to levy fines. It may also introduce an arbitration service to resolve claims against publications. Changes may also be made to U.K. data protection legislation. If adopted, the proposed new regulatory regime may impose burdens on the print media, including the Company’s newspaper businesses in the U.K., that represent competitive disadvantages versus other forms of media and may increase the costs of compliance. A date has yet to be set for the second part of the inquiry.

Internet

In the U.S., the Children’s Online Privacy Protection Act of 1998 (“COPPA”) prohibits websites from collecting personally identifiable information online from children under age 13 without prior parental consent. In addition, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM”) regulates the distribution of unsolicited commercial emails, or “spam.” Online services provided by the Company may be subject to COPPA and CAN-SPAM requirements.

U.S. federal regulators’ interest in issues of privacy, cybersecurity and data security has been steadily increasing. On February 23, 2012, the Obama administration issued a white paper on consumer data privacy that includes a Consumer Privacy Bill of Rights. The Obama administration is convening a multi-stakeholder process to implement the Bill of Rights through industry codes of conduct that would be enforceable by the Federal Trade Commission (“FTC”) and State Attorneys General. The Obama administration also announced it would work with Congress to implement these rights through legislation. On March 26, 2012, the FTC released a report

 

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on consumer privacy, which sets forth a detailed privacy framework and urges industry to accelerate the pace of adoption of self-regulatory measures, including more widespread adoption of a Do-Not-Track browser mechanism. The report also recommends that Congress consider baseline privacy legislation incorporating the principles articulated in the framework. A number of privacy and data security bills have been introduced in both Houses of Congress that address the collection, maintenance and use of personal information, web browsing and geolocation data, data security and breach notification requirements, and cybersecurity. Several Congressional hearings have examined privacy implications for online, offline and mobile data. Some state legislatures have already adopted legislation that regulates how businesses operate on the Internet, including measures relating to privacy, data security and data breaches. The industry released a set of self-regulatory online behavioral advertising principles in 2009, which have been implemented by web publishers, online advertisers and online advertising networks. In November 2011, these principles were extended to the use of online consumer data for purposes other than advertising. It is unclear whether these and other industry self-regulatory efforts alone will address the concerns expressed by some federal and state officials about the collection of anonymous data online or via mobile applications to serve targeted content and advertising. It is not possible to predict whether proposed privacy and data security legislation will be enacted or to determine what effect such legislation might have on the Company’s business.

Foreign governments are raising similar privacy and data security concerns. In particular, the EU has proposed a new privacy regulation (the “EU Regulation”) that would replace the current Data Protection Directive, would tighten regulation of the collection, use and security of online data and would continue to restrict the trans-border flow of data. European industry has implemented a self-regulatory regime for online behavioral advertising that is largely consistent with the U.S. self-regulatory framework. The proposed EU Regulation will not be effective for at least two or three years and may undergo many changes before it is adopted. It is unclear how the final EU Regulation would affect the Company’s business.

The Company monitors pending legislation and regulatory initiatives to ascertain relevance, analyze impact and develop strategic direction surrounding regulatory trends and developments.

Education

The availability of funding for K-12 education is affected by changes in legislation, both at the federal and state level, as well as changes in the state procurement process. Future changes in federal funding and the state and local tax base could create an unfavorable environment, leading to budget issues resulting in a decrease in educational funding.

Intellectual Property

The Company’s intellectual property assets include: copyrights in newspapers, books, television programming and other content and technologies; trademarks in names and logos; domain names; and licenses of intellectual property rights. In addition, its intellectual property assets include patents or patent applications for inventions related to its products, business methods and/or services, none of which are material to its financial condition or results of operations. The Company derives value and revenue from these assets through, among other things, print and digital newspaper and magazine subscriptions and sales, the sale, distribution and/or licensing of print and digital books, the sale of subscriptions to its content and information services, the operation of websites and other digital properties and the distribution and/or licensing of its television programming to cable and satellite television services.

The Company devotes significant resources to protecting its intellectual property in the U.S., the U.K., Australia and other foreign territories. To protect these assets, the Company relies upon a combination of copyright, trademark, unfair competition, patent, trade secret and other laws and contract provisions. However, there can be no assurance of the degree to which these measures will be successful in any given case. Policing unauthorized use of the Company’s products, services and content and related intellectual property is often

 

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difficult and the steps taken may not in every case prevent the infringement by unauthorized third parties of the Company’s intellectual property. The Company seeks to limit that threat through a combination of approaches, including pursuing legal sanctions for infringement, promoting appropriate legislative initiatives and international treaties and enhancing public awareness of the meaning and value of intellectual property and intellectual property laws. Piracy, including in the digital environment, continues to present a threat to revenues from products and services based on intellectual property.

Third parties may challenge the validity or scope of the Company’s intellectual property from time to time, and such challenges could result in the limitation or loss of intellectual property rights. Irrespective of their validity, such claims may result in substantial costs and diversion of resources that could have an adverse effect on the Company’s operations. Moreover, effective intellectual property protection may be either unavailable or limited in certain foreign territories. Therefore, the Company engages in efforts to strengthen and update intellectual property protection around the world, including efforts to ensure the effective enforcement of intellectual property laws and remedies for infringement.

Raw Materials

As a major publisher of newspapers, magazines, free-standing inserts and books, the Company utilizes substantial quantities of various types of paper. In order to obtain the best available prices, substantially all of the Company’s paper purchasing is done on a regional, volume purchase basis, and draws upon major paper manufacturing countries around the world. The Company believes that under present market conditions, its sources of paper supply used in its publishing activities are adequate.

Employees

As of June 30, 2013, the Company had approximately 24,000 employees, of whom approximately 9,000 were located in the U.S., 4,000 were located in the U.K. and 9,000 were located in Australia. Of the Company’s employees, approximately 6,000 were represented by various employee unions. The contracts with such unions will expire during various times over the next several years. The Company believes its current relationships with employees are generally good.

 

ITEM 1A. RISK FACTORS

You should carefully consider the following risks and other information in this Annual Report in evaluating the Company and its common stock. If any of the following risks develop into actual events, it could materially and adversely affect the Company’s business, results of operations or financial condition, and could, in turn, impact the trading price of the Company’s common stock. The risk factors generally have been separated into three groups: risks related to the Company’s business, risks related to the Company’s Separation from 21st Century Fox and risks related to the Company’s common stock.

Risks Related to the Company’s Business

A Decline in Customer Advertising Expenditures in the Company’s Newspaper and Other Businesses Could Cause its Revenues and Operating Results to Decline Significantly in any Given Period or in Specific Markets.

The Company derives substantial revenues from the sale of advertising on or in its newspapers, integrated marketing services and digital media properties. The Company and its affiliates also derive revenues from the sale of advertising on their cable channels and pay-TV programming. Expenditures by advertisers tend to be cyclical, reflecting overall economic conditions, as well as budgeting and buying patterns. National and local economic conditions, particularly in major metropolitan markets, affect the levels of retail, national and classified newspaper advertising revenue. Changes in gross domestic product, consumer spending, auto sales, housing sales, unemployment rates, job creation and circulation levels and rates all impact demand for advertising. A decline in the economic prospects of advertisers or the economy in general could alter current or prospective

 

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advertisers’ spending priorities. The Company’s advertising revenues in the fiscal year ended June 30, 2013 declined 7% as compared to the prior year, due in large part to lower advertising revenues at its Australian newspapers as a result of the weaker Australian economy, particularly among consumers, as well as, to a lesser extent, declines in advertising revenues at Dow Jones. These declines were offset, in part, by increased revenues in the Company’s Digital Real Estate Services segment. In addition to economic conditions, other factors such as consolidation across various industries may also reduce the Company’s overall advertising revenue.

Demand for the Company’s products is also a factor in determining advertising rates. For example, circulation levels for the Company’s newspapers and ratings points for its cable channels are among the factors that are weighed when determining advertising rates. In addition, newer technologies, including new downloading capabilities via the Internet, digital distribution models for books and other devices and technologies are increasing the number of media choices available to audiences. These technological developments may cause changes in consumer behavior that could affect the attractiveness of the Company’s offerings to advertisers.

In addition, the range of advertising choices across digital products and platforms and the large inventory of available digital advertising space have historically resulted in significantly lower rates for digital advertising than for print advertising. Consequently, the Company’s digital advertising revenue may not be able to replace print advertising revenue lost as a result of the shift to digital consumption. A decrease in advertising expenditures by the Company’s customers, reduced demand for the Company’s offerings or a surplus of advertising inventory could lead to a reduction in pricing and advertising spending, which could have an adverse effect on the Company’s businesses and assets.

Advertising, Circulation and Audience Share May Continue to Decline as Consumers Migrate to Other Media Alternatives.

The Company’s businesses face competition from other sources of news, information and entertainment content delivery, and the Company may be adversely affected if consumers migrate to other media alternatives. For example, advertising and circulation revenues in the Company’s News and Information Services segment may continue to decline, reflecting general trends in the newspaper industry, including declining newspaper buying by younger audiences and consumers’ increasing reliance on the Internet for the delivery of news and information, often without charge. In recent years, Internet sites devoted to recruitment, automobile sales and real estate services have become significant competitors of the Company’s newspapers and websites for classified advertising sales. As a result, in the fiscal year ended June 30, 2013, the Company’s advertising revenues decreased 10% in the News and Information Services segment as compared to the prior year. In addition, due to innovations in content distribution platforms, consumers are now more readily able to watch Internet-delivered content on television sets and mobile devices, in some cases also without charge, which could reduce consumer demand for the Company’s television programming and pay-TV services and adversely affect both its subscription revenue and advertisers’ willingness to purchase television advertising from the Company.

The Company Must Respond to Changes in Consumer Behavior as a Result of New Technologies in Order to Remain Competitive.

Technology continues to evolve rapidly, leading to alternative methods for the delivery and storage of digital content. These technological advancements have driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume digital content. Content owners are increasingly delivering their content directly to consumers over the Internet, often without charge, and innovations in distribution platforms have enabled consumers to view such Internet-delivered content on portable devices and televisions. There is a risk that the Company’s responses to these changes and strategies to remain competitive, including distribution of its content on a “pay” basis, may not be adopted by consumers. In addition, enhanced Internet capabilities and other new media may reduce the demand for newspapers and television viewership, which could negatively affect the Company’s revenues. The trend toward digital media

 

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may drive down the price consumers are willing to spend on the Company’s products disproportionately to the costs associated with generating content. The Company’s failure to protect and exploit the value of its content, while responding to and developing new products and business models to take advantage of advancements in technology and the latest consumer preferences, could have a significant adverse effect on its businesses, asset values and results of operations.

The Inability to Renew Sports Programming Rights Could Cause the Revenue of Certain of the Company’s Australian Operating Businesses to Decline Significantly in any Given Period.

The sports rights contracts between certain of the Company’s Australian operating businesses, on the one hand, and various professional sports leagues and teams, on the other, have varying duration and renewal terms. As these contracts expire, renewals on favorable terms may be sought; however, third parties may outbid the current rights holders for the rights contracts. In addition, professional sports leagues or teams may create their own networks or the renewal costs could substantially exceed the original contract cost. The loss of rights could impact the extent of the sports coverage offered by the Company and could adversely affect its revenues. Upon renewal, the Company’s results could be adversely affected if escalations in sports programming rights costs are unmatched by increases in subscriber and carriage fees and advertising rates.

No Assurance of Profitability of Amplify.

Many of Amplify’s newer lines of business are still under development. Accordingly, Amplify’s prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as digital education. These risks for Amplify include, but are not limited to, an evolving business model and the management of growth. Amplify must, among other things, develop a customer base for its full range of offerings, including by utilizing the existing customers associated with its data and analytics business, implement and successfully execute its business and marketing strategy, continue to develop and upgrade its software and content offerings, respond to competitive developments, and attract, retain and motivate qualified personnel. Since the 2010 acquisition of Wireless Generation, the former brand of Amplify’s data and analytics business, now Amplify Insight, and the initiation of the development of the broader business initiatives of Amplify, the Company’s digital education business has recorded a cumulative loss before income taxes of approximately $265 million through June 30, 2013. The portion of this loss recognized in the year ended June 30, 2013 was approximately $163 million. Losses are expected to be higher in fiscal 2014 as a result of continued product development efforts. Significant expenses associated with Amplify’s businesses include salaries, employee benefits and other routine overhead associated with product development. There can be no assurance that Amplify will be successful in addressing these risks or in achieving these goals, and the failure to do so could have a material adverse effect on Amplify’s business, prospects, financial condition and results of operations.

The Company May Make Strategic Acquisitions That Could Introduce Significant Risks and Uncertainties.

In order to position its business to take advantage of growth opportunities, the Company may make strategic acquisitions that involve significant risks and uncertainties. These risks and uncertainties include, among others: (1) the difficulty in integrating newly acquired businesses and operations in an efficient and effective manner, (2) the challenges in achieving strategic objectives, cost savings and other anticipated benefits, (3) the potential loss of key employees of the acquired businesses, (4) the risk of diverting the attention of the Company’s senior management from the Company’s operations, (5) the risks associated with integrating financial reporting and internal control systems, (6) the difficulties in expanding information technology systems and other business processes to accommodate the acquired businesses, (7) potential future impairments of goodwill associated with the acquired business and (8) in some cases, increased regulation. If an acquired business fails to operate as anticipated or cannot be successfully integrated with the Company’s existing business, the Company’s business, results of operations and financial condition could be adversely affected.

 

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Global Economic Conditions May Have a Continuing Adverse Effect on the Company’s Business.

The U.S. and global economies have undergone a period of economic uncertainty, which caused, among other things, a general tightening in the credit markets, limited access to the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, lower consumer and business spending and lower consumer net worth. The resulting pressure on the labor and retail markets and the downturn in consumer confidence weakened the economic climate in certain markets in which the Company does business and has had and may continue to have an adverse effect on its business, results of operations, financial condition and liquidity. A continued decline in these economic conditions could further impact the Company’s business, reduce its advertising and other revenues and negatively impact the performance of its newspapers, books, television operations and other consumer products. These conditions could also impair the ability of those with whom the Company does business to satisfy their obligations to the Company. In particular, the Company has significant exposure to certain Australian business risks, including specific Australian legal and regulatory risks, consumer preferences and competition because it holds a substantial amount of Australian assets. As a result, the Company’s results of operations may be adversely affected by negative developments in the Australian market. Although the Company believes that its capitalization and operating cash flow will give it the ability to meet its financial needs for the foreseeable future, there can be no assurance that continued or increased volatility and disruption in the global capital and credit markets will not impair the Company’s liquidity or increase its cost of borrowing.

The Company Does Not Have the Right to Manage Foxtel, Which Means It is Not Able to Cause Foxtel to Operate or Make Corporate Decisions in a Manner that is Favorable to the Company.

The Company does not have the right to manage the business or affairs of Foxtel. While the Company’s rights include the right to appoint one-half of the board of directors of Foxtel, the Company is not able to cause management or the board of directors to take any specific actions on its behalf, including with regards to declaring and paying dividends.

The Company Faces Investigations Regarding Allegations of Voicemail Interception, Illegal Data Access, Inappropriate Payments to Public Officials, Obstruction of Justice and Other Related Matters and Related Civil Lawsuits.

U.K. and U.S. regulators and governmental authorities are conducting investigations relating to voicemail interception, illegal data access, inappropriate payments to public officials and obstruction of justice at its former publication, The News of the World, and at The Sun, and related matters, which are referred to as the U.K. Newspaper Matters. The investigation by the U.S. Department of Justice (the “DOJ”) is directed at conduct that occurred within 21st Century Fox prior to the creation of the Company. Accordingly, 21st Century Fox has been and continues to be responsible for responding to the DOJ investigation. The Company, together with 21st Century Fox, is cooperating with these investigations.

The Company has admitted liability in many civil cases related to the voicemail interception allegations and has settled many cases. The Company also announced a private compensation scheme under which parties could pursue claims against it. While additional civil lawsuits may be filed, no additional civil claims may be brought under the compensation scheme after April 8, 2013.

The Company is not able to predict the ultimate outcome or cost of the civil claims or criminal matters. From July 1, 2010 through June 30, 2013, the Company incurred aggregate legal and professional fees related to the U.K. Newspaper Matters of $307 million and paid $23 million to claimants for civil settlements. In addition, as of June 30, 2013, the Company has provided for its best estimate of the liability for the claims that have been filed and costs incurred and has accrued $66 million. Certain liabilities recorded by the Company in the fiscal year ended June 30, 2013 related to matters that will be indemnified by 21st Century Fox as described below. Accordingly, the Company also recorded an indemnification asset of approximately $40 million as of June 30, 2013.

 

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In connection with the Separation, the Company and 21st Century Fox agreed in the Separation and Distribution Agreement that 21st Century Fox will indemnify the Company for payments made after the Distribution Date arising out of civil claims and investigations relating to the U.K. Newspaper Matters as well as legal and professional fees and expenses paid in connection with the criminal matters, other than fees, expenses and costs relating to employees (i) who are not directors, officers or certain designated employees or (ii) with respect to civil matters, who are not co-defendants with the Company or 21st Century Fox. In addition, violations of law may result in criminal fines or penalties for which the Company will not be indemnified by 21st Century Fox. 21st Century Fox’s indemnification obligations with respect to these matters will be settled on an after-tax basis. It is possible that these proceedings and any adverse resolution thereof, including any fines or other penalties associated with any plea, judgment or similar result for which the Company will not be indemnified, could damage its reputation, impair the Company’s ability to conduct its business and adversely affect its results of operations and financial condition. See “Item 3. Legal Proceedings” and Note 11 to the Consolidated and Combined Financial Statements of News Corporation for additional information.

The Company Could Suffer Losses Due to Asset Impairment and Restructuring Charges.

As a result of adverse developments in the Company’s industry and challenging economic and market conditions, the Company may recognize impairment charges for write-downs of goodwill and intangible assets, as well as restructuring charges relating to the reorganization of its businesses, which negatively impact the Company’s financial results. In the fourth quarter of fiscal 2013, as part of its long-range planning process in preparation for the Separation, the Company adjusted its future outlook and related strategy principally with respect to its News and Information Services business in Australia and secondarily with respect to its News and Information Services businesses in the U.S. These adjustments reflect adverse trends affecting the Company’s News and Information Services segment, including declines in advertising revenue and continued declines in the economic environment in Australia, and resulted in a reduction in expected future cash flows. Consequently, the Company determined that the fair value of these reporting units had declined below their respective carrying values and recorded an impairment charge of approximately $1.4 billion ($1.1 billion, net of tax) in the fiscal year ended June 30, 2013. In response to these challenging conditions the Company has reorganized its Australian newspaper businesses, and the Company recognized $293 million of restructuring charges in the year ended June 30, 2013, a significant portion of which resulted from its restructuring activities in Australia and the U.K.

In accordance with GAAP, the Company will continue to perform an annual impairment assessment of its recorded goodwill and indefinite-lived intangible assets, including newspaper mastheads and distribution networks, during the fourth quarter of each fiscal year. The Company also continually evaluates whether current factors or indicators, such as prevailing conditions in the capital markets or the economy generally, require the performance of an interim impairment assessment of those assets, as well as other investments and other long-lived assets, or require the Company to engage in any additional business restructurings to address these conditions. Any significant shortfall, now or in the future, in advertising revenue and/or the expected popularity of the programming for which the Company has acquired rights could lead to a downward revision in the fair value of certain reporting units. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” for an analysis of the sensitivity of the fair value of goodwill and intangible assets to changes in key assumptions. Any further downward revisions in the fair value of a reporting unit, indefinite-lived intangible assets, investments or long-lived assets could result in additional impairments for which non-cash charges would be required. Any such charge could be material to the Company’s reported results of operations. The Company may also incur additional restructuring charges in the future if it is required to further realign its resources in response to significant shortfalls in revenue or other adverse trends.

The Company’s Business Could Be Adversely Impacted by Changes in Governmental Policy and Regulation.

Various aspects of the Company’s activities are subject to regulation in numerous jurisdictions around the world, and the introduction of new laws and regulations in countries where the Company’s products and services are produced or distributed (and changes in the enforcement of existing laws and regulations in those countries) could have a negative impact on its interests.

 

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For example, the Company’s Australian operating businesses may be adversely affected by changes in government policy, regulation or legislation, or the application or enforcement thereof, applying to companies in the Australian media industry or to Australian companies in general. This includes:

 

   

anti-siphoning legislation which currently prevents pay-TV providers such as Foxtel from acquiring rights to televise certain listed events (for example, the Olympic Games and certain Australian Rules football and cricket matches) unless:

 

   

national and commercial television broadcasters have not obtained these rights 12 weeks before the start of the event;

 

   

the rights to televise are also held by commercial television licensees who have rights to televise the event to more than 50% of the Australian population; or

 

   

the rights to televise are also held by one of Australia’s two major government-funded broadcasters; and

 

   

legislation such as the Broadcasting Services Act that regulates ownership interests and control of Australian media organizations. Such legislation may have an impact on the Company’s ownership structure and operations and may restrict its ability to take advantage of acquisition or investment opportunities. For example, current media diversity rules would prevent the Company from exercising control of a commercial television broadcasting license, a commercial radio license and a newspaper in the same license area.

On April 30, 2012, the then-Minister for Broadband, Communications and Digital Economy released the Final Report of a comprehensive review of Australia’s communications and media regulation referred to as the Convergence Review. In March 2013, legislation was passed in response to the Convergence Review that, among other things, reduced the license fees payable by FTA networks. Certain other legislative changes that would have had a significant impact on the way the Company operates its business and which would have limited its ability to acquire new businesses were proposed by the Australian Government, but withdrawn without becoming law. Any further changes in Australian media regulations could adversely impact the Company’s Australian businesses. However, the government that commissioned the Convergence Review lost power in the Australian federal election held on September 7, 2013.

In addition, the Company’s newspaper businesses in the U.K. are likely to be subject to greater regulation and oversight following the implementation of recommendations of the Leveson inquiry into the U.K. press, which was established by Prime Minister David Cameron in mid-2011. The inquiry was triggered by allegations of illegal voicemail interception at the Company’s former publication, The News of the World. Lord Justice Leveson, Chairman of the Inquiry, has concluded the first part of the inquiry and published a report in late November 2012 containing various recommendations for greater regulation and oversight of the U.K. press. In response, the U.K. Government has proposed establishing a regulatory body to oversee the U.K. press, a majority of the members of which would be independent of the industry. If adopted, a new regulatory regime may impose burdens on the print media in the U.K., including the Company’s newspaper businesses in the U.K., that represent competitive disadvantages versus other forms of media and may increase the costs of compliance.

The Company’s Business Could Be Adversely Impacted by Changes in Educational Funding.

The Company’s U.S. educational businesses may be adversely affected by changes in state educational funding as a result of changes in legislation, both at the federal and state level, changes in the state procurement process and changes in the condition of the local, state or U.S. economy. Future changes in federal funding and the state and local tax base could create an unfavorable environment, leading to budget issues that result in a decrease in educational funding.

Newsprint Prices May Continue to Be Volatile and Difficult to Predict and Control.

Newsprint is one of the largest expenses of the Company’s publishing units. During the year ended June 30, 2013, the Company’s average cost per ton of newsprint was approximately 3.0% higher than its historical average annual cost per ton over the past five fiscal years. The price of newsprint has historically been volatile

 

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and the consolidation of newsprint mills over the years has reduced the number of suppliers, which has led to increases in newsprint prices. Failure to maintain the Company’s current consumption levels, further supplier consolidation or the inability to maintain the Company’s existing relationships with its newsprint suppliers could adversely impact newsprint prices in the future.

The Company Relies on Network and Information Systems and Other Technology That May Be Subject to Disruption or Misuse, Which Could Result in Improper Disclosure of Personal Data or Confidential Information as well as Increased Costs or Loss of Revenue.

Network and information systems and other technologies, including those related to the Company’s network management, are important to its business activities. Network and information systems-related events, such as computer hackings, computer viruses, worms or other destructive or disruptive software, process breakdowns, denial of service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing, could result in a disruption of the Company’s services or improper disclosure of personal data or confidential information. Improper disclosure of such information could harm the Company’s reputation, require it to expend resources to remedy such a security breach or subject it to liability under laws that protect personal data, resulting in increased costs or loss of revenue.

Technological Developments May Increase the Threat of Content Piracy and Limit the Company’s Ability to Protect Its Intellectual Property Rights.

The Company seeks to limit the threat of content piracy; however, policing unauthorized use of its products and services and related intellectual property is often difficult and the steps taken by the Company may not in every case prevent infringement by unauthorized third parties. Developments in technology increase the threat of content piracy by making it easier to duplicate and widely distribute pirated material. The Company has taken, and will continue to take, a variety of actions to combat piracy, both individually and, in some instances, together with industry associations. However, protection of the Company’s intellectual property rights is dependent on the scope and duration of its rights as defined by applicable laws in the U.S. and abroad and the manner in which those laws are construed. If those laws are drafted or interpreted in ways that limit the extent or duration of the Company’s rights, or if existing laws are changed, the Company’s ability to generate revenue from its intellectual property may decrease, or the cost of obtaining and maintaining rights may increase. There can be no assurance that the Company’s efforts to enforce its rights and protect its products, services and intellectual property will be successful in preventing content piracy.

The Company’s Business Relies on Certain Intellectual Property and Brands.

The Company’s businesses rely on a combination of trademarks, trade names, copyrights, and other proprietary rights, as well as contractual arrangements, including licenses, to establish and protect their intellectual property and brand names. The Company believes its proprietary trademarks and other intellectual property rights are important to its continued success and its competitive position. Any impairment of any such intellectual property or brands could adversely impact the Company’s results of operations or financial condition.

Fluctuations in Foreign Exchange Rates Could Have an Adverse Effect on the Company’s Results of Operations.

The Company has significant operations in a number of foreign jurisdictions and certain of its operations are conducted in foreign currencies, primarily the Australian dollar and the British pound sterling. The value of these currencies fluctuates relative to the U.S. dollar. As a result, the Company is exposed to exchange rate fluctuations, which could have an adverse effect on its results of operations in a given period or in specific markets.

Labor Disputes May Have an Adverse Effect on the Company’s Business.

In a variety of the Company’s businesses, it engages the services of employees who are subject to collective bargaining agreements. If the Company is unable to renew expiring collective bargaining agreements, it is possible that the affected unions could take action in the form of strikes or work stoppages. Such actions, as well

 

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as higher costs in connection with these collective bargaining agreements or a significant labor dispute, could have an adverse effect on the Company’s business by causing delays in production or by reducing profit margins.

Risks Related to the Company’s Separation from 21st Century Fox

If the Separation, Together with Certain Related Transactions, Were Ultimately Determined to be Taxable Transactions for U.S. Federal Income Tax Purposes, then the Company, 21st Century Fox and Its Stockholders Could Be Subject to Significant Tax Liability, and the Company may be Required to Indemnify 21st Century Fox for Tax-Related Liabilities Incurred by 21st Century Fox.

In connection with the Separation, 21st Century Fox received a private letter ruling from the IRS to the effect that, among other things, the distribution of the Company’s Class A Common Stock and Class B Common Stock qualified as tax-free under Sections 368 and 355 of the Code except for cash received in lieu of fractional shares. In addition, 21st Century Fox received an opinion from its tax counsel confirming the tax-free status of the Separation for U.S. federal income tax purposes, including the satisfaction of the requirements under Section 368 and 355 of the Code not specifically addressed in the IRS private letter ruling. The opinion of 21st Century Fox’s tax counsel is not binding on the IRS or the courts, and there is no assurance that the IRS or a court will not take a contrary position.

The private letter ruling and the opinion relied on certain facts and assumptions, and certain representations from the Company and 21st Century Fox regarding the past and future conduct of their respective businesses and other matters. Notwithstanding the receipt of the private letter ruling and the opinion, the IRS could determine on audit that the distribution or the internal transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representations or undertakings is not correct or has been violated, or that the distribution or the internal transactions should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the Separation. If the distribution ultimately is determined to be taxable, the distribution could be treated as a taxable dividend or capital gain for U.S. federal income tax purposes, and U.S. stockholders and certain non-U.S. stockholders could incur significant U.S. federal income tax liabilities. In addition, if the internal reorganization and/or the distribution is ultimately determined to be taxable, 21st Century Fox would recognize gains on the internal reorganization and/or recognize gain in an amount equal to the excess of the fair market value of shares of the Company’s common stock distributed to 21st Century Fox’s stockholders on the Distribution Date over 21st Century Fox’s tax basis in such shares. As described below, the Company may in certain circumstances be required to indemnify 21st Century Fox for liabilities arising out of the foregoing.

Under the terms of the Tax Sharing and Indemnification Agreement that the Company and 21st Century Fox entered into in connection with the Separation, the Company will, in certain circumstances, be responsible for all taxes, including interest and penalties, and tax-related liabilities incurred by 21st Century Fox as a result of actions taken by the Company or any of its subsidiaries after the Separation. Specifically, in the event that the distribution or the internal transactions intended not to be subject to tax were determined to be subject to tax and such determination was the result of certain actions taken, or omitted to be taken, after the Separation by the Company or any of its subsidiaries and such actions (1) were inconsistent with any representation or covenant made in connection with the private letter ruling or opinion of 21st Century Fox’s tax counsel, (2) violated any representation or covenant made in the Tax Sharing and Indemnification Agreement, or (3) the Company or any of its subsidiaries knew or reasonably should have expected, after consultation with its advisors, could result in any such determination, the Company will be responsible for any tax-related liabilities incurred by 21st Century Fox as a result of such determination.

The Company Could Be Liable for Income Taxes Owed by 21st Century Fox.

Each member of the 21st Century Fox consolidated group, which, prior to the Separation, included 21st Century Fox, the Company and 21st Century Fox’s other subsidiaries, is jointly and severally liable for the U.S. federal income tax liability of each other member of the consolidated group for periods prior to and including the

 

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Separation. Consequently, the Company could be liable in the event any such liability is incurred, and not discharged, by any member of 21st Century Fox’s consolidated group. The Tax Sharing and Indemnification Agreement requires 21st Century Fox to indemnify the Company for any such liability. Disputes or assessments could arise during future audits by the IRS in amounts that the Company cannot quantify.

The Company Might Not Be Able to Engage in Desirable Strategic Transactions and Equity Issuances Following the Separation Because of Certain Restrictions Relating to Requirements for Tax-Free Distributions for U.S. Federal Income Tax Purposes.

The Company’s ability to engage in significant strategic transactions and equity issuances may be limited or restricted after the Separation in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution by 21st Century Fox. Even if the distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, it may result in corporate level taxable gain to 21st Century Fox under Section 355(e) of the Code if 50% or more, by vote or value, of shares of the Company’s stock is acquired or issued as part of a plan or series of related transactions that includes the distribution.

To preserve the tax-free treatment to 21st Century Fox of the distribution and the internal transactions in connection with the distribution for U.S. federal income tax purposes, under the Tax Sharing and Indemnification Agreement that the Company entered into with 21st Century Fox, the Company is prohibited from taking or failing to take certain actions that may prevent the distribution and related transactions from being tax-free for U.S. federal income tax purposes. Further, for the two-year period following the Separation, without obtaining the consent of 21st Century Fox, the Company may be prohibited from:

 

   

approving or allowing any transaction that results in a change in ownership of more than a specified percentage of the Company’s common stock,

 

   

a merger,

 

   

a redemption of equity securities,

 

   

a sale or other disposition of certain businesses or a specified percentage of the Company’s assets,

 

   

an acquisition of a business or assets with equity securities to the extent one or more persons would acquire in excess of a specified percentage of the Company’s common stock, or

 

   

amending the Company’s organizational documents or taking any other action through stockholder vote or otherwise that affects the relative economic or voting rights of the Company’s outstanding stock.

These restrictions may limit the Company’s ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of its business. Moreover, the Tax Sharing and Indemnification Agreement also provides that the Company is responsible for any tax-related liabilities incurred by 21st Century Fox or any of its affiliates as a result of the failure of the distribution or the internal transactions to qualify for favorable treatment under the Code if such failure is attributable to certain actions taken after the Separation by or in respect of the Company or any of its affiliates.

The Separation and Distribution Agreement May Restrict the Company From Acquiring or Owning Certain Types of Assets in the U.S.

The Federal Communications Commission (“FCC”) has promulgated certain rules and regulations that limit the ownership of radio and television broadcast stations, television broadcast networks and newspapers (the “Broadcast Ownership Rules”) and place commercial restrictions on a cable network programmer in which a cable television operator holds an ownership interest (the “Program Access Rules”). Under the FCC’s rules for determining ownership of the media assets described above, the Murdoch Family Trust’s ownership interest in both the Company and 21st Century Fox following the Separation would generally result in each company’s businesses and assets being attributable to the Murdoch Family Trust for purposes of determining compliance with the Broadcast Ownership Rules and the Program Access Rules. Consequently, the Company’s future

 

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conduct, including its acquisition of any newspapers in the same local markets in which 21st Century Fox owns or operates television stations or the Company’s acquisition of an ownership interest in a cable operator, may affect 21st Century Fox’s ability to own and operate its television stations or otherwise comply with the Broadcast Ownership Rules, or may subject 21st Century Fox to the Program Access Rules. Therefore, the Company and 21st Century Fox agreed in the Separation and Distribution Agreement that if the Company acquires, after the Distribution Date, newspapers, radio or television broadcast stations or television broadcast networks in the U.S. and such acquisition would impede or be reasonably likely to impede 21st Century Fox’s business, then the Company will be required to take certain actions, including divesting assets, in order to permit 21st Century Fox to hold its media interests and to comply with such rules. In addition, the Company will be prohibited from acquiring an interest in a multichannel video programming distributor, including a cable television operator, if such acquisition would subject 21st Century Fox to the Program Access Rules to which it is not then subject. This agreement effectively limits the activities or strategic business alternatives available to the Company if such activities or strategic business alternatives implicate the Broadcast Ownership Rules or Program Access Rules and would impede or be reasonably likely to impede 21st Century Fox’s business.

The Indemnification Arrangements the Company Entered Into With 21st Century Fox in Connection With the Separation May Require the Company to Divert Cash to Satisfy Indemnification Obligations to 21st Century Fox.

Pursuant to the Separation and Distribution Agreement and certain other related agreements, 21st Century Fox agreed to indemnify the Company for certain liabilities, and the Company agreed to indemnify 21st Century Fox for certain liabilities. As a result, the Company could be required, under certain circumstances, to indemnify 21st Century Fox and its affiliates against certain liabilities to the extent such liabilities result from an action the Company or its affiliates take or from any breach of the Company or its affiliates’ representations, covenants or obligations under the Separation and Distribution Agreement, Tax Sharing and Indemnification Agreement or any other agreement the Company entered into in connection with the Separation. The diversion of cash that may occur if the Company is required to indemnify 21st Century Fox under these agreements could limit the Company’s ability to grow its businesses or capitalize on acquisition opportunities.

Certain Agreements That the Company Entered Into With 21st Century Fox in Connection With the Separation May Limit Its Ability to Take Certain Actions With Respect to the Civil U.K. Newspaper Matters.

Under the terms of the Separation and Distribution Agreement, in consideration for 21st Century Fox’s agreement to certain indemnification arrangements, the Company agreed that 21st Century Fox would have the right to control the Company’s defense of civil claims relating to the U.K. Newspaper Matters. In exercising its rights to control the defense of the civil claims relating to the U.K. Newspaper Matters, 21st Century Fox may be guided by interests that are different than or adverse to the Company’s interests and the interests of its stockholders and advocate strategies that the Company’s management would not otherwise adopt. Furthermore, if the Company fails to comply with these control arrangements or does not consent to settlements with respect to such matters proposed by 21st Century Fox, the Company has agreed with 21st Century Fox that it will, at 21st Century Fox’s discretion, forego any indemnification with regard to such or all of these matters. The Company’s inability to take actions with respect to these civil matters without 21st Century Fox’s consent or the Company’s adoption of strategies advocated by 21st Century Fox could damage the Company’s reputation or impair the Company’s ability to conduct its business while the taking of any such action by the Company without 21st Century Fox’s consent in breach of the Company’s agreements could increase its liability exposure with regard to such matters and adversely affect the Company’s results of operations and financial condition. See “Item 3. Legal Proceedings” and Note 11 to the Consolidated and Combined Financial Statements of News Corporation for additional information.

There Can Be No Assurance That the Company Will Have Access to the Capital Markets on Terms Acceptable to It.

From time to time the Company may need to access the long-term and short-term capital markets to obtain financing. Although the Company believes that the sources of capital currently in place will permit the Company to finance its operations for the foreseeable future on acceptable terms and conditions, the Company’s access to,

 

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and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including, but not limited to: (1) the Company’s financial performance, (2) the Company’s credit ratings or absence of a credit rating, (3) the liquidity of the overall capital markets and (4) the state of the economy. There can be no assurance, particularly as a new company that currently has no credit rating, that the Company will have access to the capital markets on terms acceptable to it.

The Company May be Unable to Achieve Some or All of the Benefits That It Expects to Achieve as an Independent, Publicly-Traded Company.

By separating from 21st Century Fox, there is a risk that the Company may be more susceptible to market fluctuations and other adverse events than it would have otherwise been while it was still a part of 21st Century Fox. As part of 21st Century Fox, the Company was able to enjoy certain benefits from 21st Century Fox’s operating diversity and access to capital for investments, which benefits are no longer available to the Company after the Separation.

As an independent, publicly-traded company, the Company believes that its businesses will benefit from, among other things, sharpened focus on the financial and operational resources of its specific business, allowing the Company’s management to design and implement a capital structure, corporate strategies and policies that are based primarily on the business characteristics and strategic opportunities of its businesses. The Company anticipates this will allow it to respond more effectively to industry dynamics and to create effective incentives for the Company’s management and employees that are more closely tied to its business performance. However, the Company may not be able to achieve some or all of the expected benefits. If the Company fails to achieve some or all of the benefits in the time it expects, the Company’s business, financial condition and results of operations could be materially and adversely affected.

The Company Has a Very Limited Operating History as an Independent, Publicly-Traded Company, and Its Historical Financial Statements Are Not Necessarily Representative of the Results It Would Have Achieved as an Independent, Publicly-Traded Company and May Not Be Reliable Indicators of Its Future Results.

The Company’s historical financial statements included in this Annual Report do not necessarily reflect the results of operations, cash flows and financial condition that it would have achieved as an independent, publicly-traded company during the periods presented or those that it will achieve in the future, primarily as a result of the following factors:

 

   

Historically, the Company’s working capital requirements and capital for its general corporate purposes, including acquisitions and capital expenditures, were provided by 21st Century Fox to the extent the Company did not generate sufficient cash flows to cover its cash requirements. 21st Century Fox historically managed and retained the cash generated by the Company. Following the Separation, 21st Century Fox no longer provides the Company with funds to finance its working capital or other cash requirements. Without the opportunity to obtain capital from 21st Century Fox, the Company may need to access capital markets, and there is no guarantee that capital will be available to the Company or available on terms that are as favorable as those it could have obtained when it was part of 21st Century Fox.

 

   

Prior to the Separation, the Company’s business was operated by 21st Century Fox as part of its broader corporate organization, rather than as an independent company. 21st Century Fox historically performed various corporate functions for the Company, including, but not limited to, tax administration, treasury activities, accounting, legal, ethics and compliance program administration, investor and public relations, certain governance functions (including internal audit) and external reporting. The Company’s historical financial statements reflect allocations of corporate expenses from 21st Century Fox for these and similar functions. However, these allocations may be more or less than the comparable expenses that the Company would have incurred had it operated as an independent, publicly traded company.

 

   

Other significant changes may occur in the Company’s cost structure, management, financing, business operations, personnel needs, tax and structure as a result of its operation as a company separate from 21st Century Fox. The Company benefited from 21st Century Fox’s operating diversity, size and

 

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purchasing power, and it will lose such benefits as an independent company. Additionally, the Company will be entering into transactions with 21st Century Fox that did not exist prior to the Separation.

The Company’s Accounting and Other Management Systems and Resources May Not be Adequately Prepared to Meet the Financial Reporting and Other Requirements to Which It Is Subject Following the Separation. If the Company Is Unable to Achieve and Maintain Effective Internal Controls, Its Results of Operations, Cash Flows and Financial Condition Could Be Materially Adversely Affected.

The Company’s financial results previously were included within the consolidated results of 21st Century Fox, and the Company believes that its reporting and control systems were appropriate for those of subsidiaries of a public company. However, the Company was not directly subject to the reporting and other requirements of the Exchange Act. As a result of the Separation, the Company is directly subject to reporting and other obligations under the Exchange Act. Further, beginning with the Company’s annual report on Form 10-K for the fiscal year ending June 30, 2014, it will be required to comply with Section 404 of the Sarbanes Oxley Act of 2002, which will require annual management assessments of the effectiveness of the Company’s internal control over financial reporting and a report by its independent registered public accounting firm. These reporting and other obligations will place significant demands on the Company’s management and administrative and operational resources, including accounting resources. To comply with these requirements, the Company may need to upgrade its systems, including information technology, and implement additional financial and management controls, reporting systems and procedures. The Company expects to incur additional annual expenses related to these steps, and those expenses may be significant. If the Company is unable to upgrade its financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, the Company’s ability to comply with its financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

Certain of the Company’s Directors and Officers May Have Actual or Potential Conflicts of Interest Because of Their Equity Ownership in 21st Century Fox, and Certain of the Company’s Officers and Directors May Have Actual or Potential Conflicts of Interest Because They Also Serve as Officers and/or on the Board of Directors of 21st Century Fox, Which May Result in the Diversion of Corporate Opportunities to 21st Century Fox.

Certain of the Company’s directors and executive officers own shares of 21st Century Fox’s common stock, and the individual holdings may be significant for some of these individuals compared to their total assets. In addition, certain of the Company’s officers and directors also serve as officers and/or as directors of 21st Century Fox, including K. Rupert Murdoch, who serves as the Company’s Executive Chairman and the Chairman and Chief Executive Officer of 21st Century Fox, and Gerson Zweifach, who serves as the Company’s General Counsel and as Senior Executive Vice President and Group General Counsel of 21st Century Fox. This ownership or service to both companies may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for the Company and 21st Century Fox. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between the Company and 21st Century Fox regarding the terms of the agreements governing the internal reorganization, the Separation and the relationship thereafter between the companies, including with respect to the indemnification of certain matters. In addition to any other arrangements that the Company and 21st Century Fox may agree to implement, the Company and 21st Century Fox have agreed that officers and directors who serve at both companies will recuse themselves from decisions where conflicts arise due to their positions at both companies.

The Company’s Restated Certificate of Incorporation acknowledges that the Company’s directors and officers, as well as certain of its stockholders, including K. Rupert Murdoch, certain members of his family and certain family trusts (so long as such persons continue to own, in the aggregate, 10% or more of the voting stock of each of the Company and 21st Century Fox), each of which is referred to as a covered stockholder, are or may

 

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become stockholders, directors, officers, employees or agents of 21st Century Fox and certain of its affiliates. The Company’s Restated Certificate of Incorporation provides that any such overlapping person will not be liable to the Company, or to any of its stockholders, for breach of any fiduciary duty that would otherwise exist because such individual directs a corporate opportunity (other than certain limited types of restricted business opportunities set forth in the Company’s restated certificate of incorporation) to 21st Century Fox instead of the Company. As 21st Century Fox does not have a similar provision regarding corporate opportunities in its certificate of incorporation, the provisions in the Company’s Restated Certificate of Incorporation could result in an overlapping person submitting any corporate opportunities other than restricted business opportunities to 21st Century Fox instead of the Company.

Risks Related to the Company’s Common Stock

The Market Price of the Company’s Stock May Fluctuate Significantly

The Company cannot predict the prices at which its common stock may trade. The market price of the Company’s common stock may fluctuate significantly, depending upon many factors, some of which may be beyond its control, including: (1) the Company’s quarterly or annual earnings, or those of other companies in its industry; (2) actual or anticipated fluctuations in the Company’s operating results; (3) success or failure of the Company’s business strategy; (4) the Company’s ability to obtain financing as needed; (5) changes in accounting standards, policies, guidance, interpretations or principles; (6) changes in laws and regulations affecting the Company’s business; (7) announcements by the Company or its competitors of significant new business developments or customers; (8) announcements by the Company or its competitors of significant acquisitions or dispositions; (9) changes in earnings estimates by securities analysts or the Company’s ability to meet its earnings guidance, if any; (10) the operating and stock price performance of other comparable companies; (11) results from material litigation or governmental investigations; (12) changes in capital gains taxes and taxes on dividends affecting stockholders; and (13) overall market fluctuations and general economic conditions.

Certain Provisions of the Company’s Certificate of Incorporation, By-laws, Tax Sharing and Indemnification Agreement, Separation and Distribution Agreement and Delaware Law, the Company’s Stockholder Rights Agreement and the Ownership of the Company’s Common Stock by the Murdoch Family Trust May Discourage Takeovers and the Concentration of Ownership Will Affect the Voting Results of Matters Submitted for Stockholder Approval.

The Company’s Restated Certificate of Incorporation and Amended and Restated By-laws contain certain anti-takeover provisions that may make more difficult or expensive a tender offer, change in control, or takeover attempt that is opposed by the Company’s Board of Directors or certain stockholders holding a significant percentage of the voting power of the Company’s outstanding voting stock. In particular, the Company’s Restated Certificate of Incorporation and Amended and Restated By-laws provide for, among other things:

 

   

a dual class common equity capital structure;

 

   

stockholders to remove directors only for cause;

 

   

a prohibition on stockholders taking any action by written consent without a meeting;

 

   

special stockholders’ meeting to be called only by the Chief Executive Officer, the Board of Directors, or the holders of not less than 20% of the voting power of the Company’s outstanding voting stock;

 

   

the requirement that stockholders give the Company advance notice to nominate candidates for election to the Board of Directors or to make stockholder proposals at a stockholders’ meeting;

 

   

the requirement of an affirmative vote of at least 65% of the voting power of the Company’s outstanding voting stock to amend or repeal its by-laws;

 

   

certain restrictions on the transfer of the Company’s shares; and

 

   

the Board of Directors to issue, without stockholder approval, Preferred Stock and Series Common Stock with such terms as the Board of Directors may determine.

 

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These provisions could discourage potential acquisition proposals and could delay or prevent a change in control of the Company, even in the case where a majority of the stockholders may consider such proposals, if effective, desirable.

In addition, in connection with the Separation, the Company’s Board of Directors adopted a stockholder rights agreement pursuant to which each outstanding share of the Company’s common stock has attached to it a right entitling its holder to purchase from the Company additional shares of its Class A Common Stock and Class B Common Stock in the event that a person or group acquires beneficial ownership of 15% or more of the then-outstanding Class B Common Stock without approval of the Company’s Board of Directors, subject to exceptions for persons beneficially owning 15% or more of the Company’s Class B Common Stock as of May 24, 2013. The stockholder rights agreement could make it more difficult for a third-party to acquire the Company’s voting common stock without the approval of its Board of Directors. Acquisitions of shares of the Company’s Class B Common Stock as a result of acquiring additional 21st Century Fox Class B Common Stock prior to the Separation or shares representing the Company’s Class B Common Stock in the when-issued trading market or as a result of the Separation will each be included in determining the beneficial ownership of a person, and all such acquisitions made after May 24, 2013 will be taken into account in determining whether a person is an acquiring person under the terms of the stockholder rights agreement. The rights expire on June 28, 2014, except as otherwise provided in the rights agreement.

Further, as a result of his ability to appoint certain members of the board of directors of the corporate trustee of the Murdoch Family Trust, which beneficially owns less than one percent of the Company’s outstanding Class A Common Stock and approximately 38.4% of the Company’s Class B Common Stock as of September 10, 2013, K. Rupert Murdoch may be deemed to be a beneficial owner of the shares beneficially owned by the Murdoch Family Trust. K. Rupert Murdoch, however, disclaims any beneficial ownership of these shares. Also, K. Rupert Murdoch beneficially owns or may be deemed to beneficially own an additional one percent of the Company’s Class B Common Stock and less than one percent of the Company’s Class A Common Stock as of September 10, 2013. Thus, K. Rupert Murdoch may be deemed to beneficially own in the aggregate less than one percent of the Company’s Class A Common Stock and approximately 39.4% of the Company’s Class B Common Stock as of September 10, 2013. This concentration of voting power could discourage third parties from making proposals involving an acquisition of the Company. Additionally, the ownership concentration of Class B Common Stock by the Murdoch Family Trust increases the likelihood that proposals submitted for stockholder approval that are supported by the Murdoch Family Trust will be adopted and proposals that the Murdoch Family Trust does not support will not be adopted, whether or not such proposals to stockholders are also supported by the other holders of Class B Common Stock. Furthermore, the adoption of the stockholder rights agreement will prevent, unless the Company’s Board of Directors otherwise determines at the time, other potential stockholders from acquiring a similar ownership position in the Company’s Class B Common Stock and, accordingly, could prevent a meaningful challenge to the Murdoch Family Trust’s influence over matters submitted for stockholder approval.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2. PROPERTIES

The Company owns and leases various real properties in the U.S., Europe, Australia and Asia that are utilized in the conduct of its businesses. Each of these properties is considered to be in good condition, adequate for its purpose and suitably utilized according to the individual nature and requirements of the relevant operations. The Company’s policy is to improve and replace property as considered appropriate to meet the needs of the individual operation.

 

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United States

The Company’s principal real properties in the U.S. are the following:

 

  (a) The U.S. headquarters of the Company, located at 1211 Avenue of the Americas, New York, New York and the offices of the Company located at 1185 Avenue of the Americas, New York, New York, each of which are subleased from 21st Century Fox. These spaces include the executive and corporate offices of the Company, the executive and editorial offices of Dow Jones, the editorial offices of the Post, the executive offices of NAM and the corporate offices of Amplify;

 

  (b) The leased offices of HarperCollins U.S. in New York, New York;

 

  (c) The leased office and warehouse facilities of HarperCollins U.S. in Scranton, Pennsylvania;

 

  (d) The owned office and warehouse facilities of Thomas Nelson in Nashville, Tennessee;

 

  (e) The leased printing plant of the Post located in Bronx, New York;

 

  (f) The leased offices of Amplify in Brooklyn, New York; and

 

  (g) The office space campus owned by the Company in South Brunswick, New Jersey.

Europe

The Company’s principal real properties in Europe are the following:

 

  (a) The newspaper production and printing facilities for its U.K. newspapers, which consist of:

 

  1. The leased office space at each of Thomas More Square, London, England; Fleet House, Peterborough, England; Dublin, Ireland and Glasgow City Centre, Scotland; and

 

  2. The freehold interests in each of a publishing and printing facility in Broxbourne, England and printing facilities in Knowsley, England and North Lanarkshire, Scotland.

 

  (b) The leased headquarters and editorial offices of HarperCollins Publishers Limited in London, England;

 

  (c) The leased executive and editorial offices of Dow Jones in London, England; and

 

  (d) The leased warehouse and office facilities of HarperCollins Publishers Limited in Glasgow, Scotland.

In July 2013, the Company agreed on a plan to move the London operations of News UK, Dow Jones and HarperCollins to a centralized site in The Place, located in London’s Southwark borough. Relocation is expected to begin in the summer of 2014.

Australia and Asia

The Company’s principal real properties in Australia and Asia are the following:

 

  (a) The Australian newspaper production and printing facilities which consist of:

 

  1. The Company-owned print center and office building in Sydney, Australia at which The Australian, the Daily Telegraph and The Sunday Telegraph are printed and published;

 

  2. The Company-owned print center and the leased office facility in Melbourne, Australia at which Herald-Sun and the Sunday Herald-Sun are printed and published;

 

  3. The Company-owned print center and office building in Adelaide, Australia utilized in the printing and publishing of The Advertiser and The Sunday Mail;

 

  4. The Company-owned print center and office building in Brisbane, Australia at which The Courier Mail and Sunday Mail are printed and published;

 

  5. The two Company-owned buildings in Perth, Australia used to print and publish The Sunday Times;

 

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  (b) The leased offices and studios of FOX SPORTS Australia in Sydney, Australia;

 

  (c) The leased offices and studios of FOX SPORTS Australia in Melbourne, Australia;

 

  (d) The leased corporate offices of REA Group in Melbourne, Australia; and

 

  (e) The leased office space of Dow Jones in Hong Kong.

 

ITEM 3. LEGAL PROCEEDINGS

The Company routinely is involved in legal proceedings, claims and governmental inspections or investigations, or other legal matters, arising in the ordinary course of its business.

U.K. Newspaper Matters and Related Investigations and Litigation

On July 19, 2011, a purported class action lawsuit captioned Wilder v. News Corp., et al. was filed on behalf of all purchasers of 21st Century Fox’s common stock between March 3, 2011 and July 11, 2011, in the U.S. District Court for the Southern District of New York. The plaintiff brought claims under Section 10(b) and Section 20(a) of the Exchange Act, alleging that false and misleading statements were issued regarding alleged acts of voicemail interception at The News of the World. The suit named as defendants 21st Century Fox, Rupert Murdoch, James Murdoch and Rebekah Brooks, and sought compensatory damages, rescission for damages sustained, and costs.

On June 5, 2012, the court issued an order appointing the Avon Pension Fund (“Avon”) as lead plaintiff in the litigation and Robbins Geller Rudman & Dowd as lead counsel. Thereafter, on July 3, 2012, the court issued an order providing that an amended consolidated complaint was to be filed by July 31, 2012. Avon filed an amended consolidated complaint on July 31, 2012, which among other things, added as defendants the Company’s subsidiary, NI Group Limited (now known as News Corp UK & Ireland Limited), and Les Hinton, and expanded the class period to include February 15, 2011 to July 18, 2011. Defendants have filed their motions to dismiss, which are pending. The Company’s management believes these claims are entirely without merit and intends to vigorously defend this action.

In addition, U.K. and U.S. regulators and governmental authorities continue to conduct investigations initiated in 2011 with respect to the U.K. Newspaper Matters. The investigation by the DOJ is directed at conduct that occurred within 21st Century Fox prior to the creation of the Company. Accordingly, 21st Century Fox has been and continues to be responsible for responding to the DOJ investigation. The Company, together with 21st Century Fox, is cooperating with these investigations.

The Company has admitted liability in many civil cases related to the voicemail interception allegations and has settled many cases. The Company also announced a private compensation scheme under which parties could pursue claims against it. While additional civil lawsuits may be filed, no additional civil claims may be brought under the compensation scheme after April 8, 2013.

The Company is not able to predict the ultimate outcome or cost of the civil claims or criminal matters. The Company incurred legal and professional fees related to the U.K. Newspaper Matters and costs for civil settlements totaling approximately $183 million and $199 million during the years ended June 30, 2013 and 2012, respectively. As of June 30, 2013, the Company has provided for its best estimate of the liability for the claims that have been filed and costs incurred and has accrued approximately $66 million. It is not possible to estimate the liability for any additional claims that may be filed given the information that is currently available to the Company. If more claims are filed and additional information becomes available, the Company will update the liability provision for such matters. As described below, the Company will be indemnified by 21st Century Fox for certain payments made by the Company that relate to, or arise from, the U.K. Newspaper Matters, including certain of the liabilities recorded by the Company in the fiscal year ended June 30, 2013. Accordingly, the Company also recorded an indemnification asset of approximately $40 million as of June 30, 2013.

 

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In connection with the Separation, the Company and 21st Century Fox agreed in the Separation and Distribution Agreement that 21st Century Fox will indemnify the Company for payments made after the Distribution Date arising out of civil claims and investigations relating to the U.K. Newspaper Matters as well as legal and professional fees and expenses paid in connection with the criminal matters, other than fees, expenses and costs relating to employees (i) who are not directors, officers or certain designated employees or (ii) with respect to civil matters, who are not co-defendants with the Company or 21st Century Fox. In addition, violations of law may result in criminal fines or penalties for which the Company will not be indemnified by 21st Century Fox. 21st Century Fox’s indemnification obligations with respect to these matters will be settled on an after-tax basis. It is possible that these proceedings and any adverse resolution thereof, including any fines or other penalties associated with any plea, judgment or similar result for which the Company will not be indemnified, could damage its reputation, impair its ability to conduct its business and adversely affect its results of operations and financial condition.

HarperCollins

Commencing on August 9, 2011, twenty-nine purported consumer class actions were filed in the U.S. District Courts for the Southern District of New York and for the Northern District of California, which relate to the decisions by certain publishers, including HarperCollins Publishers L.L.C., to begin selling their e-books pursuant to an agency relationship. The Judicial Panel on Multidistrict Litigation transferred the various class actions to the Honorable Denise L. Cote in the Southern District of New York. On January 20, 2012, plaintiffs filed a consolidated amended complaint, again alleging that certain named defendants, including HarperCollins, violated the antitrust and unfair competition laws by virtue of the switch to the agency model for e-books. The actions sought as relief treble damages, injunctive relief and attorney’s fees. On June 21, 2013, plaintiffs filed a motion for preliminary approval of a settlement with HarperCollins, among others, for a class of consumers residing in Minnesota, which is the only state that did not sign onto the settlement agreement with the Attorneys General discussed below, approval of which bars consumers in the other states and territories from participating in these class actions. On August 5, 2013, Judge Cote granted preliminary approval of the Minnesota consumer settlement. While the settlement agreement is still subject to final approval by the court, the Company believes that the proposed settlement will not have a material impact on the results of operations or the financial position of the Company. However, the Company can make no assurances that the proposed settlement will receive final approval. Additional information about In re MDL Electronic Books Antitrust Litigation, Civil Action No. 11-md-02293 (DLC), can be found on Public Access to Court Electronic Records (PACER).

Following an investigation, on April 11, 2012, the DOJ filed an action in the U.S. District Court for the Southern District of New York against certain publishers, including HarperCollins, and Apple, Inc. The DOJ’s complaint alleged antitrust violations relating to defendants’ decisions to begin selling e-books pursuant to an agency relationship. The case was assigned to Judge Cote. Simultaneously, the DOJ announced that it had reached a proposed settlement with three publishers, including HarperCollins, and filed a Proposed Final Judgment and related materials detailing that agreement. Among other things, the Proposed Final Judgment required that HarperCollins terminate its agreements with certain e-book retailers and placed certain restrictions on any agreements subsequently entered into with such retailers. On September 5, 2012, Judge Cote entered the Final Judgment. Additional information about the Final Judgment can be found on the DOJ’s website.

Following an investigation, on April 11, 2012, 16 State Attorneys General led by Texas and Connecticut (the “AGs”) filed a similar action against certain publishers and Apple, Inc. in the Western District of Texas. On April 26, 2012, the AGs’ action was transferred to Judge Cote. On May 17, 2012, 33 AGs filed a second amended complaint. As a result of a memorandum of understanding agreed upon with the AGs for Texas and Connecticut, HarperCollins was not named as a defendant in this action. Pursuant to the terms of the memorandum of understanding, HarperCollins entered into a settlement agreement with the AGs for Texas, Connecticut and Ohio on June 11, 2012. By August 28, 2012, forty-nine states (all but Minnesota) and five U.S. territories had signed on to that settlement agreement. On August 29, 2012, the AGs simultaneously filed a complaint against HarperCollins and two other publishers, a motion for preliminary approval of that settlement

 

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agreement and a proposed distribution plan. On September 14, 2012, Judge Cote granted the AGs’ motion for preliminary approval of the settlement agreement and approved the AGs’ proposed distribution plan. Notice was subsequently sent to potential class members, and a fairness hearing took place on February 8, 2013 at which Judge Cote gave final approval to the settlement. The settlement is now effective, and the final judgment bars consumers from states and territories covered by the settlement from participating in the class actions.

On October 12, 2012, HarperCollins received a Civil Investigative Demand from the Attorney General from the State of Minnesota (the “Minnesota AG”). HarperCollins complied with the Demand on November 16, 2012. On June 26, 2013, the Minnesota AG filed a petition for an order approving an assurance of discontinuance in the Second Judicial District Court for the State of Minnesota, wherein Minnesota agreed to cease its investigation and not seek further legal remedies relating to or arising from the alleged conduct. On June 28, 2013, Judge Gary Bastion signed an order approving the discontinuance.

The European Commission conducted an investigation into whether certain companies in the book publishing and distribution industry, including HarperCollins, violated the antitrust laws by virtue of the switch to the agency model for e-books. HarperCollins settled the matter with the European Commission on terms substantially similar to the settlement with the DOJ. On December 13, 2012, the European Commission formally adopted the settlement.

Commencing on February 24, 2012, five purported consumer class actions were filed in the Canadian provinces of British Columbia, Quebec and Ontario, which relate to the decisions by certain publishers, including HarperCollins, to begin selling their e-books in Canada pursuant to an agency relationship. The actions seek as relief special, general and punitive damages, injunctive relief and the costs of the litigations. While it is not possible to predict with any degree of certainty the ultimate outcome of these class actions, HarperCollins believes it was compliant with applicable antitrust and competition laws and intends to defend itself vigorously.

In July 2012, HarperCollins Canada, a wholly-owned subsidiary of HarperCollins, learned that the Canadian Competition Bureau (“CCB”) had commenced an inquiry regarding the sale of e-books in Canada. HarperCollins currently is cooperating with the CCB with respect to its inquiry. While it is not possible to predict with any degree of certainty the ultimate outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust and competition laws.

On February 15, 2013, a purported class of independent bricks-and-mortar bookstores filed an action in the U.S. District Court for the Southern District of New York entitled The Book House of Stuyvesant Plaza, Inc, et. al. v. Amazon.com, Inc., et. al, which relates to the digital rights management protection (“DRM”) of certain publishers’, including HarperCollins’, e-books being sold by Amazon.com, Inc. Plaintiffs filed an Amended Complaint on March 21, 2013. The case involves allegations that certain named defendants in the book publishing and distribution industry, including HarperCollins, violated the antitrust laws by virtue of requiring DRM protection. The action seeks declaratory and injunctive relief, reasonable costs and attorneys’ fees. On April 1, 2013, Defendants moved to dismiss the Amended Complaint. The court heard oral argument on Defendants’ motion to dismiss on April 25, 2013. Additional information about The Book House Of Stuyvesant Plaza, Inc. et al v. Amazon.Com, Inc. et al., Civil Action No. 1:13-cv-01111-JSR, can be found on PACER. While it is not possible to predict with any degree of certainty the ultimate outcome of this class action, HarperCollins believes it was compliant with applicable antitrust laws and intends to defend itself vigorously.

The Company is not able to predict the ultimate outcome or cost of the unresolved HarperCollins matters described above. During the years ended June 30, 2013 and 2012, the legal and professional fees and settlements incurred in connection with these matters were not material, and as of June 30, 2013, the Company did not have a material accrual related to these matters.

 

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Other

On August 16, 2013, in connection with a pending action in the United States District Court for the Eastern District of Michigan in which The Dial Corporation, H.J. Heinz Company and Foster Poultry Farms (with Foster Poultry Farms as proposed class representative on behalf of putative classes of purchasers) have alleged various claims under federal and state antitrust law against News Corporation, News America Incorporated, News America Marketing FSI L.L.C., and News America Marketing In-Store Services L.L.C. (together, the “NAM Group”), plaintiffs filed a motion for leave to file a third amended complaint, with plaintiffs The Dial Corporation, Henkel Consumer Goods, Inc., H.J. Heinz Company, H.J. Heinz Company, L.P., Foster Poultry Farms, Smithfield Foods, Inc., HP Hood LLC, BEF Foods, Inc., and Spectrum Brands, Inc. now asserting the same federal and state antitrust claims both individually and on behalf of the two putative classes in connection with plaintiffs’ purchase of in-store marketing services and free-standing insert coupons. The complaint seeks treble damages, injunctive relief and attorneys’ fees. The NAM Group’s motion to transfer the action to the Southern District of New York, which the magistrate judge recommended be granted, is still pending before the district court judge.

In a parallel action, News America Marketing FSI L.L.C. and News America Marketing In-Store Services L.L.C. have filed a complaint in the United States District Court for the Southern District of New York against The Dial Corporation H.J. Heinz Company, H.J. Heinz Company L.P. and Foster Poultry Farms, seeking a declaratory judgment that plaintiffs did not violate federal or state antitrust laws and for damages for breach of contract. On August 28, 2013, the defendants filed a motion to dismiss.

While it is not possible at this time to predict with any degree of certainty the ultimate outcome of these actions, the NAM Group believes it was compliant with applicable antitrust laws and intends to defend itself vigorously.

In addition, the Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, the Company is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its consolidated financial condition, future results of operations or liquidity.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

News Corporation’s Class A Common Stock and Class B Common Stock are listed and traded on The NASDAQ Global Select Market (“NASDAQ”), its principal market, under the symbols “NWSA” and “NWS,” respectively. CHESS Depositary Interests (“CDIs”) representing the Company’s Class A Common Stock and Class B Common Stock are listed and traded on the Australian Securities Exchange (“ASX”) under the symbols “NWSLV” and “NWS,” respectively. As of June 30, 2013, there were approximately 28,000 holders of record of shares of Class A Common Stock and 900 holders of record of shares of Class B Common Stock. News Corporation’s Class A Common Stock and Class B Common Stock began regular-way trading on NASDAQ on July 1, 2013.

The following table sets forth the reported high and low sales prices for the Class A Common Stock and Class B Common Stock on NASDAQ during the fourth quarter of fiscal 2013, beginning from June 19, 2013, the date that the Class A Common Stock and Class B Common Stock began trading in the “when-issued” market, as reported on NASDAQ:

 

     Class B
Common  Stock
     Class A
Common  Stock
 
     High      Low      High      Low  

Fiscal year ended June 30, 2013:

           

Fourth Quarter (since June 19, 2013)

   $ 15.80       $ 15.37       $ 15.80       $ 15.25   

Dividend Policy

The Company expects to pay regular cash dividends in the future, though the timing, declaration, amount and payment of future dividends to stockholders will fall within the discretion of its Board of Directors. The Board of Directors’ decisions regarding the payment of future dividends will depend on many factors, including the Company’s financial condition, earnings, capital requirements and debt facility covenants (if any), other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice and other factors that the Board of Directors deems relevant. The Board of Directors has not yet declared any cash dividends and cannot provide any assurances that any dividends will be declared or paid.

Issuer Purchases of Equity Securities

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. Through September 10, 2013 the Company has not repurchased any Class A Common Stock. All decisions regarding any future stock repurchases will be at the sole discretion of a duly appointed committee of the Board of Directors and management. The stock repurchase authorization may be modified, extended, suspended or discontinued at any time by the Board of Directors.

 

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ITEM 6. SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL DATA

The selected consolidated and combined financial data should be read in conjunction with “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8—Financial Statements and Supplementary Data” and the other financial information included elsewhere herein.

 

     For the fiscal years ended June 30,  
     2013 (a)      2012 (a)     2011 (a)      2010 (b)      2009 (c)  
     (in millions except per share information)  

STATEMENT OF OPERATIONS DATA:

             

Revenues

   $ 8,891       $ 8,654      $ 9,095       $ 8,752       $ 8,338   

Net income (loss) attributable to News Corporation stockholders

     506         (2,075     678         243         (2,365

Income (loss) attributable to News Corporation stockholders per share—basic(d)

     0.87         (3.58     1.17         0.42         (4.08

Income (loss) attributable to News Corporation stockholders per share—diluted(d)

     0.87         (3.58     1.17         0.42         (4.08
     As of June 30,  
     2013 (e)      2012     2011      2010      2009  
     (in millions)  

BALANCE SHEET DATA:

             

Cash and cash equivalents

   $ 2,381       $ 1,133      $ 2,022       $ 1,080       $ 844   

Total assets

     15,643         13,090        17,008         14,326         14,776   

Redeemable preferred stock

     20         —          —           —           —     

 

(a) 

See Notes 3, 4, 5, 7 and 12 to the Consolidated and Combined Financial Statements of News Corporation for information with respect to significant acquisitions, disposals, impairment charges, restructuring charges, legal settlements and other transactions during fiscal 2013, 2012 and 2011.

(b) 

Fiscal 2010 results included the contribution of the Dow Jones Indexes business to a joint venture formed with CME Group, Inc. and the sale of the Company’s investment in STOXX AG, a European market index provider (“STOXX”). The Company received $903 million in cash proceeds from these transactions in fiscal 2010.

(c) 

Fiscal 2009 results included non-cash impairment charges of approximately $3.1 billion ($2.8 billion, net of tax) consisting of a write-down of $2.4 billion of goodwill, a write-down of intangible assets of $0.5 billion and a write-down of fixed assets of $0.2 billion. In fiscal 2009, the Company recorded restructuring charges of approximately $111 million consisting of $78 million recorded at the newspaper businesses and $33 million recorded at the book publishing business.

(d) 

On June 28, 2013, (the “Distribution Date”), approximately 579 million shares of News Corporation common stock were distributed to 21st Century Fox shareholders of record on June 21, 2013. This initial share amount is being utilized for the calculation of both basic and diluted earnings per share for all years presented that ended prior to the Distribution Date as no News Corporation common stock or equity-based awards were outstanding prior to June 28, 2013. The dilutive effect of the Company’s equity-based awards which were issued in connection with the Separation and the conversion of outstanding 21st Century Fox awards to News Corporation awards is included in the computation of diluted earnings per share in the period subsequent to the Separation.

(e) 

In accordance with the Separation and Distribution Agreement, the Company’s target aggregate cash and cash equivalents balance at the Distribution Date was approximately $2.6 billion. As of June 30, 2013, the Company had cash and cash equivalents of approximately $2.4 billion. The remaining $207 million will be received from 21st Century Fox during the first quarter of fiscal 2014 and is recorded in Amounts due from 21st Century Fox on the Consolidated and Combined Balance Sheets as of June 30, 2013.

 

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. The words “expect,” “estimate,” “anticipate,” “predict,” “believe” and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this discussion and analysis and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company’s financial condition or results of operations and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. More information regarding these risks, uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading “Risk Factors” in Item 1A of this Annual Report on Form 10-K (the “Annual Report”). The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with the Securities and Exchange Commission (the “SEC”). This section should be read together with the Consolidated and Combined Financial Statements of News Corporation and related notes set forth elsewhere in this Annual Report.

INTRODUCTION

News Corporation (together with its subsidiaries, “News Corporation” or the “Company”) is a global diversified media and information services company comprised of businesses across a range of media, including: news and information services, cable network programming in Australia, digital real estate services, book publishing, digital education and pay-TV distribution in Australia.

The Separation and Distribution

On June 28, 2013 (the “Distribution Date”), the Company completed the separation of its businesses (the “Separation”) from Twenty-First Century Fox, Inc. (“21st Century Fox”). As of the effective time of the Separation, all of the outstanding shares of the Company were distributed to 21st Century Fox stockholders based on a distribution ratio of one share of Company Class A or Class B Common Stock for every four shares of 21st Century Fox Class A or Class B Common Stock, respectively, held of record as of June 21, 2013. Following the Separation, the Company’s Class A and Class B Common Stock began trading independently on NASDAQ, and CDIs representing the Company’s Class A and Class B Common Stock began trading on the ASX. In connection with the Separation, the Company entered into the separation and distribution agreement (the “Separation and Distribution Agreement”) and certain other related agreements which govern the Company’s relationship with 21st Century Fox following the Separation. (See Note 11 to the Consolidated and Combined Financial Statements of News Corporation).

Basis of presentation

Prior to the Separation, the Company’s combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records of 21st Century Fox. The Company’s financial statements as of June 30, 2012 and for the fiscal years ended June 30, 2012 and 2011 are on a combined basis and presented as carve-out financial statements as the Company was not a separate consolidated group prior to the Distribution Date. These statements reflect the combined historical results of operations, financial position and cash flows of 21st Century Fox’s publishing businesses, its education division and other Australian assets. Subsequent to the Distribution Date, the Company’s financial statements as of and for the year ended June 30, 2013 are presented on a consolidated basis as the Company became a separate consolidated group.

 

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The Company’s consolidated and combined statements of operations (the “Statements of Operations”) for the fiscal years ended June 30, 2013, 2012 and 2011 include allocations of general corporate expenses for certain support functions that were provided on a centralized basis by 21st Century Fox and not recorded at the business unit level, such as expenses related to finance, human resources, information technology, facilities, and legal, among others. These expenses have been allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis of combined or consolidated revenues, operating income, headcount or other measures of the Company. Management believes the assumptions underlying the combined and consolidated financial statements (the “Financial Statements”), including the assumptions regarding allocating general corporate expenses from 21st Century Fox are reasonable. Nevertheless, the Financial Statements may not include all of the actual expenses that would have been incurred by the Company and may not reflect the Company’s consolidated and combined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.

The Company’s consolidated balance sheet as of June 30, 2013 consists of the Company’s consolidated balances, subsequent to the Separation. The balances reflect the assets and liabilities that were historically included in 21st Century Fox’s publishing business, its education division and other Australian assets, as well as assets and liabilities transferred to the Company as part of the internal reorganization. All assets and liabilities included in the Company’s consolidated balance sheet are recorded on a historical cost basis. The Company’s combined balance sheet as of June 30, 2012 consists of the combined balances of 21st Century Fox’s publishing businesses, its education division and other Australian assets. The consolidated and combined balance sheets will be referred to as the “Balance Sheets” herein.

The Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intracompany transactions and accounts within News Corporation have been eliminated for the Financial Statements.

For purposes of the Company’s Financial Statements for periods prior to the Separation, income tax expense has been recorded as if the Company filed tax returns on a stand-alone basis separate from 21st Century Fox. This separate return methodology applies the accounting guidance for income taxes to the stand-alone financial statements as if the Company was a stand-alone enterprise for the periods prior to the Distribution Date. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the Company’s actual tax balances prior to or subsequent to the Separation. Prior to the Distribution Date, the Company’s operating results were included in 21st Century Fox’s consolidated U.S. federal and state income tax returns. Pursuant to rules promulgated by the Internal Revenue Service and various state taxing authorities, the Company will file its initial U.S. income tax returns for the period June 29, 2013, through June 30, 2013.

The income tax accounts reflected in the Balance Sheets as of June 30, 2013 include income taxes payable and deferred taxes allocated to the Company at the time of the Separation. The calculation of the Company’s income taxes involves considerable judgment and the use of both estimates and allocations.

Management’s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of the Company’s financial condition, changes in financial condition and results of operations for the fiscal periods presented. This discussion is organized as follows:

 

   

Overview of the Company’s Business—This section provides a general description of the Company’s businesses, as well as developments that occurred during fiscal 2012, fiscal 2013 or early fiscal 2014 that the Company believes are important in understanding its results of operations and financial condition or to disclose known trends.

 

   

Results of Operations—This section provides an analysis of the Company’s results of operations for the three fiscal years ended June 30, 2013, respectively. This analysis is presented on both a consolidated or

 

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combined basis and a segment basis. In addition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed.

 

   

Liquidity and Capital Resources—This section provides an analysis of the Company’s cash flows for the three fiscal years ended June 30, 2013, respectively, as well as a discussion of the Company’s financial arrangements and outstanding commitments, both firm and contingent, that existed as of June 30, 2013.

 

   

Critical Accounting Policies—This section discusses accounting policies considered important to the Company’s financial condition and results of operations, and which require significant judgment and estimates on the part of management in application. In addition, Note 2 to the accompanying Consolidated and Combined Financial Statements of News Corporation summarizes the Company’s significant accounting policies, including the critical accounting policy discussion found in this section.

OVERVIEW OF THE COMPANY’S BUSINESSES

The Company manages and reports its businesses in the following five segments:

 

   

News and Information Services—The News and Information Services segment includes the global product offerings of The Wall Street Journal and Barron’s publications, The Wall Street Journal Digital Network (“WSJDN”) and the Company’s suite of information services including DJX, Dow Jones Newswires and Factiva. In addition to WSJ.com and Barrons.com, WSJDN includes MarketWatch, AllThingsD and related services. The Company launched DJX in April 2013 as a bundle of underlying products, including Factiva, Dow Jones Newswires (including the new DJ Dominant wire), certain Private Markets products (e.g., Venturesource, LP Source), certain Risk & Compliance products, WSJ.com and Barrons.com. The Company also owns, among other publications, The Australian, The Daily Telegraph, Herald Sun and The Courier Mail in Australia, The Times, The Sunday Times, The Sun and The Sun on Sunday in the U.K. and the New York Post in the U.S. This segment also includes the integrated marketing services business, News America Marketing (“NAM”), a leading provider of free-standing coupon inserts, in-store marketing products and digital marketing solutions. NAM’s customers include many of the largest consumer packaged goods advertisers in the U.S. and Canada.

 

   

Cable Network Programming—The Cable Network Programming segment consists of FOX SPORTS Australia, the leading sports programming provider in Australia with seven standard definition television channels, high definition versions of five of these channels, an interactive viewing application and one IPTV channel and broadcast rights to live sporting events in Australia including: National Rugby League, the domestic football league, English Premier League, international cricket as well as the National Football League (“NFL”). Prior to the November 2012 acquisition of the portion of FOX SPORTS Australia that it did not own, the Company accounted for its investment in FOX SPORTS Australia under the equity method of accounting. The Company now owns 100% of FOX SPORTS Australia and its results are included within this new segment.

 

   

Digital Real Estate Services—The Company owns 61.6% of REA Group Limited (“REA Group”), a publicly traded company listed on the Australian Securities Exchange (“ASX”) (ASX: REA) that is a leading digital advertising business specializing in real estate services. REA Group operates Australia’s largest residential property website, realestate.com.au, as well as Australia’s leading commercial property website, realcommercial.com.au. REA Group also operates a market-leading Italian property site, casa.it, and other property sites and apps in Europe and Hong Kong.

 

   

Book Publishing—The Book Publishing segment consists of HarperCollins which is one of the largest English-language consumer publishers in the world, with particular strengths in general fiction, nonfiction, children’s and religious publishing, and an industry leader in digital publishing. HarperCollins includes over 60 branded publishing imprints including Avon, Harper, HarperCollins Children’s Publishers, William Morrow and Christian publishers Zondervan and Thomas Nelson, and publishes works by well-known authors such as J.R.R. Tolkien, Paulo Coelho, Rick Warren and Agatha Christie and popular titles such as The Hobbit, Goodnight Moon and To Kill a Mockingbird.

 

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OtherThe Other segment consists of Amplify, the corporate Strategy and Creative Group, general corporate overhead expenses and costs related to the U.K. Newspaper Matters. Amplify focuses on three areas of business: data and analytics; digital curriculum; and distribution platforms for education. The Company’s corporate Strategy and Creative Group has been formed to identify new products and services across its businesses to increase revenues and profitability.

News and Information Services

Revenue at the News and Information Services segment is derived from the sale of advertising space, circulation and subscriptions, as well as licensing. Adverse changes in general market conditions for advertising may continue to affect revenues. Circulation and subscription revenues can be greatly affected by changes in the prices of the Company’s and/or competitors’ products, as well as by promotional activities.

Operating expenses include costs related to paper, production, distribution, editorial and commissions. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other routine overhead.

The News and Information Services segment’s advertising volume, circulation and the price of paper are the key variables whose fluctuations can have a material effect on the Company’s operating results and cash flow. The Company has to anticipate the level of advertising volume, circulation and paper prices in managing its businesses to maximize operating profit during expanding and contracting economic cycles. The Company continues to be exposed to risks associated with paper used for printing. Paper is a basic commodity and its price is sensitive to the balance of supply and demand. The Company’s expenses are affected by the cyclical increases and decreases in the price of paper. The News and Information Services segment’s products compete for readership and advertising with local and national competitors and also compete with other media alternatives in their respective markets. Competition for circulation and subscriptions is based on the content of the products provided, pricing and, from time to time, various promotions. The success of these products also depends upon advertisers’ judgments as to the most effective use of their advertising budgets. Competition for advertising is based upon the reach of the products, advertising rates and advertiser results. Such judgments are based on factors such as cost, availability of alternative media, distribution and quality of readership demographics.

Like other newspaper groups, the Company faces challenges to its traditional print business model from new media formats and shifting consumer preferences. The Company is also exposed to the impact of long-term structural movements in advertising spending, in particular, the move in classified advertising from print to digital. These new media formats could impact the Company’s overall performance, positively or negatively.

As a multi-platform news provider, the Company recognizes the importance of maximizing revenues from new media, both in terms of paid-for content and in new advertising models, and continues to invest in its digital products. The development of technologies such as smartphones, tablets and similar devices and their related applications provides continued opportunities for the Company to make its journalism available to a new audience of readers, introduce new or different pricing schemes, develop its products to continue to attract advertisers and/or affect the relationship between publisher and consumer. The Company continues to develop and implement strategies to exploit its content in new media channels, including the implementation of digital subscriptions.

Cable Network Programming

The Cable Network Programming segment consists of FOX SPORTS Australia which offers the following channels: FOX SPORTS 1, FOX SPORTS 2, FOX SPORTS 3, FOX FOOTY, FOX SPORTS NEWS, FUEL TV and SPEED. Revenue is derived from monthly affiliate fees received from cable and satellite television systems, and other distribution systems based on the number of subscribers.

FOX SPORTS Australia competes primarily with ESPN, the FTA channels and certain telecommunications companies in Australia.

 

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The most significant operating expenses of the Cable Network Programming segment are the acquisition and production expenses related to programming and the expenses related to operating the technical facilities of the cable network. Other expenses include promotional expenses related to improving the market visibility and awareness of the cable network and its programming. Additional expenses include sales commissions paid to the in-house advertising sales force, as well as salaries, employee benefits, rent and other routine overhead expenses.

Digital Real Estate Services

The Digital Real Estate Services segment sells online advertising services on its residential real estate and commercial property sites. Significant expenses associated with these sites include development costs, advertising and promotional expenses, salaries, employee benefits and other routine overhead expenses.

Consumers are increasingly turning to the Internet and mobile devices for real estate information. The Digital Real Estate Services segment’s success depends on its continued innovation to provide products and services that make its websites and mobile applications useful for consumers and real estate and mortgage professionals and attractive to its advertisers.

Book Publishing

The Book Publishing segment derives revenues from the sale of general fiction, nonfiction, children’s and religious books in the U.S. and internationally. The revenues and operating results of the Book Publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace. The book publishing marketplace is subject to increased periods of demand in the summer months and during the end-of-year holiday season. This marketplace continues to change due to technical innovations, electronic book devices and other factors. Each book is a separate and distinct product, and its financial success depends upon many factors, including public acceptance.

Major new title releases represent a significant portion of the Book Publishing segment’s sales throughout the fiscal year. Print-based consumer books are generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the Book Publishing segment is subject to global trends and local economic conditions.

Operating expenses for the Book Publishing segment include paper, printing, authors’ royalties, editorial, promotional, art and design expenses. Selling, general and administrative expenses include salaries, employee benefits, rent and other routine overhead.

The book publishing business has been affected in recent years by new electronic distribution methods and models and the Company expects that electronic books (“e-books”) will represent an increasing portion of book publishing revenues in coming years.

Other

The Other segment primarily consists of Amplify, the corporate Strategy and Creative Group, general corporate overhead expenses and costs related to the U.K. Newspaper Matters. Amplify, the Company’s digital education business concentrating on the K-12 learning market, is focused on transforming teaching and learning by creating and scaling digital innovations in three areas:

 

   

Amplify Insight, Amplify’s data and analytics division, which formerly operated under the brand Wireless Generation, Inc. (“Wireless Generation”) commenced operations in 2000 and was acquired in fiscal 2011. Amplify Insight provides powerful assessment products and services to support staff and technology development, including student assessment tools and analytic technologies, intervention programs, enterprise education information systems, and professional development and consulting services.

 

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Amplify Learning, Amplify’s nascent digital curriculum business, is developing new content in English Language Arts, Science and Math, including software that will combine interactive, game-like experiences with rigorous analytics, all driven by adaptive technologies that respond to individual students’ needs as they evolve. Amplify Learning’s digital curriculum will incorporate the new Common Core State Standards that is expected to be implemented in 45 states beginning with the 2014-2015 school year.

 

   

Amplify Access, Amplify’s distribution platform business, is developing new distribution and delivery mechanisms, consists of an open tablet-based distribution platform that will offer curated third-party as well as proprietary curricular and extracurricular content, sophisticated analytic capabilities, a tablet, and 4G connectivity through a subscription-based bundle optimized for the K-12 market to facilitate personalized instruction and enable anywhere, anytime learning.

Significant expenses associated with the Company’s digital education business include salaries, employee benefits and other routine overhead. The Company’s corporate Strategy and Creative group was formed to identify new products and services across the Company’s businesses to increase revenues and profitability and to target and assess potential acquisitions and investments.

Other Business Developments

In July 2011, 21st Century Fox announced that it would close its publication, The News of the World, after allegations of voicemail interception and payments to public officials. As a result of 21st Century Fox’s approval of the shutdown of The News of the World, 21st Century Fox reorganized portions of the U.K. newspaper business and recorded restructuring charges in fiscal 2013 and 2012, primarily for termination benefits and certain organizational restructuring at the U.K. newspapers. (See Note 4 to the Consolidated and Combined Financial Statements of News Corporation). 21st Century Fox and the Company are subject to several ongoing investigations by U.K. and U.S. regulators and governmental authorities relating to voicemail interception, illegal data access, inappropriate payments to public officials and obstruction of justice at The News of the World and The Sun and related matters (the “U.K. Newspaper Matters”). The investigation by the U.S. Department of Justice (the “DOJ”) is directed at conduct that occurred within 21st Century Fox prior to the creation of the Company. Accordingly, 21st Century Fox has been and continues to be responsible for responding to the DOJ investigation. The Company, together with 21st Century Fox, is cooperating with these investigations. In addition, the Company has admitted liability in many civil cases related to the voicemail interception allegations and has settled many cases. The Company has established a Management & Standards Committee (the “MSC”) to continue and complete the responsibilities of the Management & Standards Committee that had been created by 21st Century Fox (the “Fox MSC”). The MSC is authorized to, among other things, respond to civil claims and lawsuits, ensure cooperation with all relevant investigations and inquiries into the U.K. Newspaper Matters, while ensuring that the rights of all parties are protected, and address all other related issues. The MSC has one independent member, Lord Grabiner QC, who served as independent Chairman of the Fox MSC. Gerson Zweifach, the Company’s General Counsel, serves as Lead Member of the MSC with respect to civil and parliamentary matters, and David Pitofsky, the Company’s Deputy General Counsel, serves as Lead Member with respect to criminal and regulatory matters. Messrs. Zweifach and Pitofsky report to the independent members of the Board of Directors through their representative Peter Barnes, the Company’s Lead Director and Chairman of the Company’s Audit Committee.

In July 2012, the Company acquired Thomas Nelson, Inc. (“Thomas Nelson”), one of the leading Christian book publishers in the U.S., for approximately $200 million in cash.

In July 2012, the Company acquired Australian Independent Business Media Pty Limited (“AIBM”) for approximately $30 million in cash. AIBM publishes a subscription-based online newsletter for investors and a business news and commentary website.

In November 2012, the Company acquired Consolidated Media Holdings Ltd. (“CMH”), a media investment company that operates in Australia, for approximately $2 billion in cash and assumed debt of

 

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approximately $235 million. This acquisition supports the Company’s strategic priority of acquiring greater control of investments that complement its portfolio of businesses. CMH owned a 25% interest in Foxtel through its 50% interest in FOX SPORTS Australia. Foxtel is the largest pay-TV provider in Australia, serving approximately 2.4 million subscribing households in Australia, or over 30% of the country’s population as of June 30, 2013. Foxtel’s 200-plus channel selection (which includes standard definition channels, high definition versions of some of those channels, and audio and interactive channels) provides premium and exclusive content and a wide array of digital and mobile features. The remaining 50% of Foxtel is owned by Telstra Corporation Limited, one of Australia’s leading telecommunications companies. The acquisition doubled the Company’s stakes in FOX SPORTS Australia and Foxtel to 100% and 50%, respectively. Accordingly, the results of FOX SPORTS Australia have been included within a new Cable Network Programming segment in the Company’s consolidated results of operations since November 2012. Prior to November 2012, the Company accounted for its investment in FOX SPORTS Australia under the equity method of accounting. The Company’s investment in Foxtel is accounted for under the equity method of accounting.

In March 2013, the Company sold its 44% equity interest in SKY Network Television Ltd. for approximately $675 million.

In April 2013, the Company sold its remaining 10% investment in the Dow Jones Indexes business to CME. Since 2010, the Company has divested all of its interests in the Dow Jones Indexes business and STOXX and received cumulative proceeds of approximately $1 billion.

In September 2013, the Company sold the Dow Jones Local Media Group, which operates eight daily and 15 weekly newspapers in seven states.

RESULTS OF OPERATIONS

Results of Operations—Fiscal 2013 versus Fiscal 2012

The following table sets forth the Company’s operating results for fiscal 2013 as compared to fiscal 2012.

 

     For the fiscal years ended June 30,  
     2013     2012     Change     % Change  
     (in millions, except %)  

Revenues:

        

Advertising

   $ 4,346      $ 4,693      $ (347     (7 )% 

Circulation and Subscription

     2,669        2,365        304        13

Consumer

     1,286        1,123        163        15

Other

     590        473        117        25
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     8,891        8,654        237        3

Operating expenses

     (5,420     (5,122     (298     6

Selling, general and administrative

     (2,783     (2,750     (33     1

Depreciation and amortization

     (548     (483     (65     13

Impairment and restructuring charges

     (1,737     (2,763     1,026        (37 )% 

Equity earnings of affiliates

     100        90        10        11

Interest, net

     77        56        21        38

Other, net

     1,593        (59     1,652        *
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax benefit

     173        (2,377     2,550        *

Income tax benefit

     374        337        37        11
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     547        (2,040     2,587        *

Less: Net income attributable to noncontrolling interests

     (41     (35     (6     17
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to News Corporation

   $ 506      $ (2,075   $ 2,581        *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

 

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RevenuesRevenues increased 3% for the fiscal year ended June 30, 2013 as compared to fiscal 2012, primarily due to the inclusion of revenues resulting from the consolidation of FOX SPORTS Australia and the acquisition of Thomas Nelson (the “Acquisitions”) of approximately $324 million and $172 million, respectively, and higher U.K. newspaper revenues of approximately $89 million principally due to the inclusion of revenues from the launch of the Sunday edition of The Sun in February 2012. Also contributing to the revenue increase was higher advertising revenues at the Digital Real Estate Services segment of $59 million. These increases were partially offset by lower revenues at the Australian newspapers of $350 million, primarily reflecting lower newspaper advertising revenues principally due to the continued challenging economic environment in Australia, and lower revenues at Dow Jones of $76 million reflecting lower advertising revenues.

Operating ExpensesOperating expenses increased 6% for the fiscal year ended June 30, 2013 as compared to fiscal 2012, primarily due to the inclusion of operating expenses related to the Acquisitions of $370 million, partially offset by a $96 million decrease in operating expenses at the News and Information Services segment primarily due to lower printing, production and distribution expenses resulting from decreased revenues.

Selling, general and administrative expensesSelling, general and administrative expenses increased 1% for the fiscal year ended June 30, 2013 as compared to fiscal 2012, primarily due to a $99 million increase at the Other segment, the inclusion of $35 million in expenses resulting from the Acquisitions and higher expenses of $20 million in the Digital Real Estate Services segment directly relating to revenue growth supporting innovation, development and the sale of real estate advertising products. These increases were partially offset by lower expenses of $87 million at the News and Information Services segment principally resulting from the positive impact of cost savings initiatives and lower litigation settlement costs at the Book Publishing segment of approximately $25 million related to an e-books antitrust action that settled in fiscal 2012.

Depreciation and amortizationDepreciation and amortization increased 13% for the fiscal year ended June 30, 2013 as compared to fiscal 2012, primarily due to the inclusion of expenses resulting from the Acquisitions of approximately $32 million and higher depreciation expense at the News and Information Services segment of $25 million.

Impairment and restructuring chargesDuring the fourth quarter of fiscal 2013, as part of the Company’s long-range planning process in preparation for the Separation, the Company adjusted its future outlook and related strategy principally with respect to the News and Information Services business in Australia and secondarily with respect to the News and Information Services businesses in the U.S. These adjustments reflect adverse trends affecting the Company’s News and Information Services segment, including declines in advertising revenue and continued declines in the economic environment in Australia, and resulted in a reduction in expected future cash flows. As a result, the Company determined that the fair value of these reporting units declined below their respective carrying values and recorded non-cash impairment charges of approximately $1.4 billion ($1.1 billion, net of tax) in the fiscal year ended June 30, 2013. The charges primarily consisted of a write-down of the Company’s goodwill of $494 million, a write-down of intangible assets (primarily newspaper mastheads) of $862 million, and a write-down of fixed assets of $46 million. The impairment charges also include $42 million for the potential sale of assets at values below their carrying values.

During the fourth quarter of fiscal 2012, the Company completed its annual impairment review of goodwill and indefinite-lived intangible assets. As a result of the impairment review performed, the Company recorded non-cash impairment charges of approximately $2.6 billion ($2.2 billion, net of tax) for the fiscal year ended June 30, 2012. The charges consisted of a write-down of goodwill of approximately $1.3 billion and a write-down of the indefinite-lived intangible assets (primarily newspaper mastheads and distribution networks) of approximately $1.3 billion. These impairment charges were primarily the result of adverse trends affecting several businesses in the Company’s News and Information Services segment, including secular declines in the economic environment in Australia, a decline in in-store advertising spend by consumer packaged goods manufacturers in the U.S. and lower forecasted revenues from certain businesses utilizing various trade names owned by the Company’s newspaper operations. The charges also reflected the expected sale of certain assets at a value below their carrying value.

 

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In fiscal 2013, the Company recorded restructuring charges of $293 million, of which $276 million related to the newspaper businesses. The restructuring charges primarily related to the reorganization of the Australian newspaper businesses which was announced at the end of fiscal 2012 and the continued reorganization of the U.K. newspaper businesses. The restructuring charges recorded are primarily for termination benefits in Australia and contract termination payments in the U.K.

In fiscal 2012, the Company recorded restructuring charges of $156 million, of which $151 million related to the newspaper businesses. The Company commenced the reorganization of portions of the newspaper businesses and recorded restructuring charges primarily for termination benefits as a result of the shutdown of The News of the World, certain organizational restructurings at other newspapers and the shutdown of a regional newspaper.

Equity earnings of affiliates—Equity earnings of affiliates increased $10 million for the fiscal year ended June 30, 2013 as compared to fiscal 2012, primarily due to the Company’s increased ownership interest in Foxtel and lower losses at other equity affiliates, partially offset by the consolidation of FOX SPORTS Australia and the sale of the Company’s investment in SKY Network Television Ltd.

 

     For the fiscal years ended June 30,  
         2013             2012         Change     % Change  
     (in millions, except %)  

Foxtel(a)

   $ 66      $ 31      $ 35        *

Pay television and cable network programming equity affiliates(b)

     51        83        (32     (39 )% 

Other equity affiliates

     (17     (24     7        (29 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity earnings of affiliates

   $ 100      $ 90      $ 10        11
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful
(a) 

The Company owned 25% of Foxtel through November 2012. In November 2012, the Company increased its ownership in Foxtel to 50% as a result of the CMH acquisition.

(b) 

Includes equity earnings of FOX SPORTS Australia and SKY Network Television Ltd. The Company acquired the remaining interest in FOX SPORTS Australia in November 2012 as a result of the CMH acquisition and sold its investment in SKY Network Television Ltd. in March 2013. The results of FOX SPORTS Australia have been included within a new Cable Network Programming segment in the Company’s consolidated results of operations since November 2012.

Interest, net—Interest, net for the fiscal year ended June 30, 2013 increased $21 million as compared to fiscal 2012, primarily due to increased interest received from the note receivable from Foxtel. (See Note 5 to the Consolidated and Combined Financial Statements of News Corporation).

Other, net

 

     For the fiscal  years
ended June 30,
 
             2013                     2012          
     (in millions)  

Gain on CMH transaction(a)

   $ 1,263      $ —     

Gain on sale of investment in SKY Network Television Ltd.(b)

     321        —     

Gain on the financial indexes transactions(b)

     12        —     

Loss on sale of U.K. newspaper headquarters(a)

     —          (22

Investment write-offs(b)

     —          (30

Other

     (3     (7
  

 

 

   

 

 

 

Total Other, net

   $ 1,593      $ (59
  

 

 

   

 

 

 

 

(a) 

See Note 3 to the Consolidated and Combined Financial Statements of News Corporation.

 

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(b) 

See Note 5 to the Consolidated and Combined Financial Statements of News Corporation.

Income tax benefit—The Company’s tax benefit and effective tax rate for the fiscal year ended June 30, 2013 were $374 million and (216)%, respectively, as compared to $337 million and 14%, respectively, for fiscal 2012.

For the fiscal year ended June 30, 2013 the Company recorded a $306 million tax benefit as a result of a reversal of deferred tax liabilities arising from intangible and fixed asset impairments recorded in fiscal 2013 and a reversal of historic deferred tax liabilities related to the consolidation of FOX SPORTS Australia of $49 million. The Company’s tax benefit and effective tax rate for the fiscal year ended June 30, 2013 were lower than the U.S. statutory tax rate of 35% primarily due to the impact of certain non-recurring items of pre-tax income and expense including $0.5 billion of non-deductible goodwill impairment charges, a $1.3 billion non-taxable gain on the consolidation of CMH and a $0.3 billion non-taxable gain on the sale of SKY Network Television Ltd. The effective tax rate was impacted by a 247% reduction relating to the non-taxable gain on the consolidation of CMH and reversal of the historic deferred tax liability related to the consolidation of FOX SPORTS Australia, a 56% rate reduction due to the non-taxable gain on the sale of SKY Network Television Ltd., and a 35% rate reduction due to the Company’s foreign operations which are subject to lower tax rates, partially offset by an 87% rate increase due to the impact of non-deductible goodwill impairment charges.

For the fiscal year ended June 30, 2012 the Company recorded a $454 million tax benefit as a result of a reversal of deferred tax liabilities arising from intangible asset impairments recorded in fiscal 2012 offset by tax expense recorded on pre-tax income. The Company’s tax benefit and effective tax rate for the fiscal year ended June 30, 2012 were lower than the U.S. statutory rate of 35% primarily due to a 16% rate reduction from the impact of non-deductible goodwill impairment charges and a 4% rate reduction as a result of the Company’s foreign operations which are subject to lower tax rates.

Net income (loss)—The Company recorded net income of $506 million for the fiscal year ended June 30, 2013 as compared to a net loss of $2.1 billion in fiscal 2012, primarily due to the gain on the CMH transaction of $1.3 billion, the gain on the sale of the investment in SKY Network Television Ltd. of $321 million and lower impairment and restructuring charges in fiscal 2013 of $1 billion.

Net income attributable to noncontrolling interests—Net income attributable to noncontrolling interests increased by $6 million for the fiscal year ended June 30, 2013 as compared to fiscal 2012, due to higher results at REA Group.

Segment Analysis

Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include: Depreciation and amortization, impairment and restructuring charges, equity earnings of affiliates, interest, net, other, net, income tax benefit (expense) and net income attributable to noncontrolling interests. Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of the Company’s business segments because it is the primary measure used by the Company’s chief operating decision maker to evaluate the performance and allocate resources within the Company’s businesses. Segment EBITDA provides management, investors and equity analysts a measure to analyze operating performance of each of the Company’s 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).

Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as

 

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depreciation and amortization and impairment and restructuring charges, which are significant components in assessing the Company’s financial performance. The following table reconciles Total Segment EBITDA to Income (loss) before income tax benefit.

 

     For the fiscal years ended June 30,  
     2013     2012     Change     % Change  
     (in millions, except %)  

Revenues

   $ 8,891      $ 8,654      $ 237        3

Operating expenses

     (5,420     (5,122     (298     6

Selling, general and administrative expenses

     (2,783     (2,750     (33     1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Segment EBITDA

     688        782        (94     (12 )% 

Depreciation and amortization

     (548     (483     (65     13

Impairment and restructuring charges

     (1,737     (2,763     1,026        (37 )% 

Equity earnings of affiliates

     100        90        10        11

Interest, net

     77        56        21        38

Other, net

     1,593        (59     1,652        *
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax benefit

   $ 173      $ (2,377   $ 2,550        *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

 

     For the fiscal years ended June 30,  
     2013     2012  
     Revenues      Segment
EBITDA
    Revenues      Segment
EBITDA
 
     (in millions)  

News and Information Services

   $ 6,731       $ 795      $ 7,058       $ 939   

Cable Network Programming

     324         63        —           —     

Digital Real Estate Services

     345         168        286         129   

Book Publishing

     1,369         142        1,189         86   

Other

     122         (480     121         (372
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 8,891       $ 688      $ 8,654       $ 782   
  

 

 

    

 

 

   

 

 

    

 

 

 

News and Information Services (76% of the Company’s consolidated revenues in fiscal 2013 and 82% of the Company’s combined revenues in fiscal 2012)

 

     For the fiscal years ended June 30,  
     2013     2012     Change     % Change  
     (in millions, except %)  

Revenues:

        

Advertising

   $ 3,938      $ 4,388      $ (450     (10 )% 

Circulation and Subscription

     2,370        2,326        44        2

Other

     423        344        79        23
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     6,731        7,058        (327     (5 )% 

Operating expenses

     (4,099     (4,195     96        (2 )% 

Selling, general and administrative

     (1,837     (1,924     87        (5 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ 795      $ 939      $ (144     (15 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

For the fiscal year ended June 30, 2013, revenues at the News and Information Services segment decreased $327 million, or 5%, as compared to fiscal 2012, primarily due to lower advertising revenues of $450 million principally reflecting the continued challenging economic environment in Australia and to a lesser extent

 

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decreased advertising revenues at Dow Jones. The revenue decrease was partially offset by higher circulation and subscription revenues primarily due to the launch of the Sunday edition of The Sun in the U.K. in February 2012 and higher other revenues due to increased revenues from third party printing contracts.

Revenues at the Australian newspapers for the fiscal year ended June 30, 2013 decreased 15%, as compared to fiscal 2012, primarily reflecting lower newspaper advertising revenues principally due to the continued challenging economic environment in Australia. The strengthening of the U.S. dollar against the Australian dollar resulted in a revenue decrease of $8 million for the fiscal year ended June 30, 2013 as compared to fiscal 2012.

For the fiscal year ended June 30, 2013, revenues at the U.K. newspapers increased 6% as compared to fiscal 2012 principally due to the inclusion of advertising and circulation revenues from the launch of the Sunday edition of The Sun in February 2012 and revenues from third party printing contracts. The strengthening of the U.S. dollar against the British pound resulted in a revenue decrease of $11 million for the fiscal year ended June 30, 2013 as compared to fiscal 2012.

Revenues at Dow Jones decreased 4% for the fiscal year ended June 30, 2013 as compared to fiscal 2012 primarily due to lower advertising revenues resulting from lower volume and the shift from print to digital advertising. The strengthening of the U.S. dollar against various currencies resulted in a decrease of $5 million for the fiscal year ended June 30, 2013 as compared to fiscal 2012.

For the fiscal year ended June 30, 2013, revenues at the integrated marketing services business increased 2%, as compared to fiscal 2012 primarily due to increased revenues for in-store advertising in Canada.

For the fiscal year ended June 30, 2013, Segment EBITDA at the News and Information Services segment decreased $144 million, or 15%, as compared to fiscal 2012, primarily due to: a $192 million decrease at the Australian newspapers driven by lower advertising revenues; a $47 million decrease at the integrated marketing services business primarily related to increased production and retail commission costs; and a $25 million decrease at Dow Jones primarily as a result of decreased revenues and partially offset by the positive impact of cost saving initiatives. These decreases were partially offset by an increase at the U.K. newspapers of $98 million principally related to increases in circulation revenues.

Cable Network Programming (4% of the Company’s consolidated revenues in fiscal 2013 and 0% of the Company’s combined revenues in fiscal 2012)

 

     For the fiscal years ended June 30,  
         2013             2012          Change  
     (in millions)  

Revenues:

       

Advertising

   $ 55      $ —         $ 55   

Circulation and Subscription

     259        —           259   

Other

     10        —           10   
  

 

 

   

 

 

    

 

 

 

Total Revenues

     324        —           324   

Operating expenses

     (242     —           (242

Selling, general and administrative

     (19     —           (19
  

 

 

   

 

 

    

 

 

 

Segment EBITDA

   $ 63      $ —         $ 63   
  

 

 

   

 

 

    

 

 

 

For the fiscal year ended June 30, 2013, revenues at the Cable Network Programming segment were $324 million and Segment EBITDA was $63 million which reflects the consolidation of FOX SPORTS Australia beginning in November 2012 due to the acquisition of CMH.

 

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On a stand-alone basis, revenues at FOX SPORTS Australia increased 8% for the fiscal year ended June 30, 2013 as compared to the corresponding period of fiscal 2012 primarily due to strong advertising performance driven by key sports content across the FOX SPORTS channels and modest subscription revenue growth across both residential and commercial markets. On a stand-alone basis, Segment EBITDA at FOX SPORTS Australia for the fiscal year ended June 30, 2013 decreased 13% compared with Segment EBITDA for the corresponding period of fiscal 2012 primarily due to increased expenses associated with the new National Rugby League rights contract which began in March 2013.

Digital Real Estate Services (4% of the Company’s consolidated revenues in fiscal 2013 and 3% of the Company’s combined revenues in fiscal 2012)

 

     For the fiscal years ended June 30,  
     2013     2012     Change     % Change  
     (in millions, except %)  

Revenues:

        

Advertising

   $ 345      $ 286      $ 59        21
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     345        286        59        21

Selling, general and administrative

     (177     (157     (20     13
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ 168      $ 129      $ 39        30
  

 

 

   

 

 

   

 

 

   

 

 

 

For the fiscal year ended June 30, 2013, revenues at the Digital Real Estate Services segment increased $59 million, or 21%, as compared to fiscal 2012, primarily due to the increase in revenue from listing depth products in Australia.

For the fiscal year ended June 30, 2013, Segment EBITDA at the Digital Real Estate Services segment increased $39 million, or 30%, as compared to fiscal 2012, primarily due to the revenue increase noted above, partially offset by increased expenses directly related to revenue growth supporting innovation, development and the sale of real estate advertising products.

Book Publishing (15% of the Company’s consolidated revenues in fiscal 2013 and 14% of the Company’s combined revenues in fiscal 2012)

 

     For the fiscal years ended June 30,  
     2013     2012     Change     % Change  
     (in millions, except %)  

Revenues:

        

Consumer

   $ 1,286      $ 1,123      $ 163        15

Other

     83        66        17        26
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     1,369        1,189        180        15

Operating expenses

     (1,028     (886     (142     16

Selling, general and administrative

     (199     (217     18        (8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ 142      $ 86      $ 56        65
  

 

 

   

 

 

   

 

 

   

 

 

 

For the fiscal year ended June 30, 2013, revenues at the Book Publishing segment increased $180 million, or 15%, as compared to fiscal 2012, primarily due to the inclusion of revenues from Thomas Nelson of $172 million which was acquired in fiscal 2013. During the fiscal year ended June 30, 2013, HarperCollins had 167 titles on The New York Times Bestseller List with 16 titles reaching the number one position.

For the fiscal year ended June 30, 2013, Segment EBITDA at the Book Publishing segment increased $56 million, or 65%, as compared to fiscal 2012, primarily due to the inclusion of Segment EBITDA from Thomas

 

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Nelson in fiscal 2013 of $27 million and lower litigation settlement costs of approximately $25 million related to an e-books antitrust action that settled in fiscal 2012, offset by a reduction of Segment EBITDA of $13 million related to the Australian and Canadian operations and the decision to exit the third party distribution business in the U.S. The remaining increase in Segment EBITDA was primarily due to synergies within the Christian publishing business, the impact of cost containment initiatives and lower manufacturing costs reflecting the continued shift to digital book sales.

Other (1% of the Company’s consolidated revenues in fiscal 2013 and 1% of the Company’s combined revenues in fiscal 2012)

 

     For the fiscal years ended June 30,  
     2013     2012     Change     % Change  
     (in millions, except %)  

Revenues:

        

Advertising

   $ 8      $ 19      $ (11     (58 )% 

Circulation and Subscription

     40        39        1        3

Other

     74        63        11        17
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     122        121        1        1

Operating expenses

     (51     (41     (10     24

Selling, general and administrative

     (551     (452     (99     22
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ (480   $ (372   $ (108     29
  

 

 

   

 

 

   

 

 

   

 

 

 

For the fiscal year ended June 30, 2013, revenues at the Other segment increased $1 million, or 1%, as compared to fiscal 2012, primarily due to higher revenues at Amplify of $19 million, partially offset by lower revenues at the Company’s Australian digital businesses of $18 million resulting from the sales of these businesses during fiscal 2013.

Segment EBITDA at the Other segment for the fiscal year ended June 30, 2013 decreased $108 million as compared to fiscal 2012, primarily as a result of higher Selling, general and administrative expenses of $99 million principally due to an approximately $100 million increase at Amplify primarily due to higher product development costs. Losses are expected to be higher in fiscal 2014 when compared to fiscal 2013 as a result of continued development efforts of the Company’s digital curricula and education products. The decrease in Segment EBITDA was also due to increased corporate overhead expenses of $29 million, partially offset by lower legal and professional fees related to the U.K. Newspaper Matters of approximately $16 million which decreased from $199 million in fiscal 2012 to $183 million in fiscal 2013 and lower Selling, general and administrative expenses at the Australian digital businesses of $13 million.

As discussed in Note 4 of the Consolidated and Combined Financial Statements of News Corporation, as part of the Separation and Distribution Agreement, 21st Century Fox will indemnify the Company, on an after-tax basis, 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 criminal matters, other than fees, expenses and costs relating to employees (i) who are not directors, officers or certain designated employees or (ii) who are not co-defendants with the Company with respect to civil matters. For the fiscal year ended June 30, 2013 and 2012 the Company incurred $183 million and $199 million of U.K. Newspaper Matters expenses, respectively, of which $165 million and $186 million, respectively, would have been eligible for indemnification, on an after-tax basis, from 21st Century Fox had the Company been a separate company from 21st Century Fox. Historical payments eligible for indemnification may not be representative of the future pattern of expenses and payments to be incurred.

 

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Results of Operations—Fiscal 2012 versus Fiscal 2011

The following table sets forth the Company’s operating results for fiscal 2012 as compared to fiscal 2011.

 

     For the fiscal years ended June 30,  
     2012     2011     Change     % Change  
     (in millions, except %)  

Revenues:

        

Advertising

   $ 4,693      $ 4,945      $ (252     (5 )% 

Circulation and Subscription

     2,365        2,549        (184     (7 )% 

Consumer

     1,123        1,124        (1     —  

Other

     473        477        (4     (1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     8,654        9,095        (441     (5 )% 

Operating expenses

     (5,122     (5,234     112        (2 )% 

Selling, general and administrative

     (2,750     (2,648     (102     4

Depreciation and amortization

     (483     (430     (53     12

Impairment and restructuring charges

     (2,763     (25     (2,738     *

Equity earnings of affiliates

     90        109        (19     (17 )% 

Interest, net

     56        47        9        19

Other, net

     (59     47        (106     *
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax benefit (expense)

     (2,377     961        (3,338     *

Income tax benefit (expense)

     337        (257     594        *
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (2,040     704        (2,744     *

Less: Net income attributable to noncontrolling interests

     (35     (26     (9     35
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to News Corporation

   $ (2,075   $ 678      $ (2,753     *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

RevenuesRevenues decreased 5% for the fiscal year ended June 30, 2012 as compared to fiscal 2011, primarily due to lower revenues at the newspaper businesses in the U.K. of approximately $300 million, principally resulting from a decrease of $226 million in revenues resulting from the closure of The News of the World in July 2011 and lower advertising and circulation revenues at the Australian newspapers of approximately $225 million partially offset by favorable foreign exchange rate fluctuations of approximately $120 million due to the weakening of the U.S. dollar against local currencies, primarily the Australian dollar. These decreases were partially offset by an increase of approximately $55 million in revenues from Wireless Generation (now Amplify Insight), which was acquired in fiscal 2011.

Operating ExpensesOperating expenses decreased 2% for the fiscal year ended June 30, 2012 as compared to fiscal 2011, primarily due to a decrease at the News and Information Services segment of $99 million principally resulting from a decrease in operating expenses resulting from the closure of The News of the World. Paper costs were relatively consistent year-over-year as lower volume was offset by higher pricing.

Selling, general and administrative expenses—Selling, general and administrative expenses increased 4% for the fiscal year ended June 30, 2012 as compared to fiscal 2011, primarily due to $199 million of legal and professional fees related to the U.K. Newspaper Matters and an increase of approximately $65 million in expenses related to Wireless Generation (now Amplify Insight). These increases were partially offset by the positive impact from cost savings initiatives at Dow Jones of approximately $50 million. In addition, fiscal 2011 included a litigation settlement charge of $125 million at the News and Information Services segment which did not recur in fiscal 2012.

Depreciation and amortization—Depreciation and amortization increased 12% for the fiscal year ended June 30, 2012 as compared to fiscal 2011, primarily due to an increase in depreciation expense at the News and

 

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Information Services segment of $37 million principally resulting from additional property, plant and equipment placed into service and additional depreciation and amortization of approximately $10 million from the acquisition of Wireless Generation (now Amplify Insight) at the Other segment.

Impairment and restructuring chargesDuring the fourth quarter of fiscal 2012, the Company completed its annual impairment review of goodwill and indefinite-lived intangible assets. As a result of the impairment review performed, the Company recorded non-cash impairment charges of approximately $2.6 billion ($2.2 billion, net of tax) for the fiscal year ended June 30, 2012. The charges consisted of a write-down of the Company’s goodwill of approximately $1.3 billion and a write-down of the indefinite-lived intangible assets (primarily newspaper mastheads and distribution networks) of approximately $1.3 billion. These impairment charges were primarily the result of adverse trends affecting several businesses in the Company’s News and Information Services segment, including secular declines in the economic environment in Australia, a decline in in-store advertising spend by consumer packaged goods manufacturers in the U.S. and lower forecasted revenues from certain businesses utilizing various trade names owned by the Company’s newspaper operations. The charges also reflected the expected sale of certain assets at a value below their carrying value.

In fiscal 2012, the Company recorded restructuring charges of $156 million, of which $151 million related to the newspaper businesses. The Company commenced the reorganization of portions of the newspaper businesses and recorded restructuring charges primarily for termination benefits as a result of the U.K. Newspaper Matters, certain organizational restructurings at other newspapers and the shutdown of a regional newspaper.

In fiscal 2011, the Company recorded restructuring charges of approximately $25 million related to termination benefits recorded at the newspaper businesses.

Equity earnings of affiliates—Equity earnings of affiliates decreased $19 million for the fiscal year ended June 30, 2012 as compared to fiscal 2011, primarily due to a $14 million impairment of the Company’s investment in a newspaper business in fiscal 2012.

 

     For the fiscal years ended June 30,  
       2012         2011       Change     % Change  
     (in millions, except %)  

Foxtel

   $ 31      $ 32      $ (1     (3 )% 

Pay television and cable network programming equity affiliates

     83        82        1        1

Other equity affiliates

     (24     (5     (19     *
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity earnings of affiliates

   $ 90      $ 109      $ (19     (17 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

Interest, net—Interest, net for the fiscal year ended June 30, 2012 increased $9 million as compared to fiscal 2011, primarily due to interest from the Company’s loan to Foxtel.

Other, net—

 

     For the fiscal years ended June 30,  
         2012             2011      
     (in millions)  

Loss on sale of U.K. newspaper headquarters(a)

   $ (22   $ —     

Gain on the financial indexes business transactions(b)

     —          43   

Investment write-offs(c)

     (30     —     

Other

     (7     4   
  

 

 

   

 

 

 

Total Other, net

   $ (59   $ 47   
  

 

 

   

 

 

 

 

(a) 

See Note 3 to the Consolidated and Combined Financial Statements of News Corporation.

 

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(b) 

The Company sold its 33% interest in STOXX to its partners, Deutsche Börse AG and SIX Group AG, for $295.8 million in cash. The Company was entitled to receive additional consideration if STOXX achieved certain revenue targets in calendar year 2010. These revenue targets were met and in June 2011, the Company received additional consideration of approximately $43 million.

(c) 

See Note 5 to the Consolidated and Combined Financial Statements of News Corporation.

Income tax benefit (expense)The Company’s tax benefit (expense) and effective tax rate for the fiscal year ended 2012 were $337 million and 14% respectively, as compared to ($257) million and 27%, respectively, for the fiscal year ended June 30, 2011.

For the fiscal year ended June 30, 2012 the Company recorded a $454 million tax benefit as a result of a reversal of deferred tax liabilities arising from intangible asset impairments recorded in fiscal 2012 offset by tax expense recorded on pre-tax income. The Company’s effective tax rate for the fiscal year ended June 30, 2012 were lower than the U.S. statutory tax rate of 35% primarily due to a 16% rate reduction from the impact of non-deductible goodwill impairment charges and a 4% rate reduction as a result of the Company’s foreign operations which are subject to lower tax rates.

The Company’s tax provision and effective tax rate for the fiscal year ended June 30, 2011 were lower than the U.S. statutory tax rate of 35% primarily due to a 9% rate reduction as a result of foreign operations which are subject to lower tax rates, partially offset by a 2% rate increase due to permanent differences.

Net (loss) income— The Company recorded a net loss for the fiscal year ended June 30, 2012 as compared to net income in fiscal 2011, primarily due to the higher impairment and restructuring charges and the revenue decreases noted above.

Net income attributable to noncontrolling interests— Net income attributable to noncontrolling interests increased for the fiscal year ended June 30, 2012 as compared to fiscal 2011, due to higher results at REA Group.

Segment Analysis

Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include: Depreciation and amortization, impairment and restructuring charges, equity earnings of affiliates, interest, net, other, net, income tax benefit (expense) and net income attributable to noncontrolling interests. Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of the Company’s business segments because it is the primary measure used by the Company’s chief operating decision maker to evaluate the performance and allocate resources within the Company’s businesses. Total Segment EBITDA provides management, investors and equity analysts a measure to analyze operating performance of each of the Company’s 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).

Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net (loss) income, cash flow and other measures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing the Company’s financial performance. The following table reconciles Total Segment EBITDA to (Loss) income before income tax benefit (expense).

 

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     For the fiscal years ended June 30,  
     2012     2011     Change     Change %  
     (in millions, except %)  

Revenues

   $ 8,654      $ 9,095      $ (441     (5 )% 

Operating expenses

     (5,122     (5,234     112        (2 )% 

Selling, general and administrative expenses

     (2,750     (2,648     (102     4
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Segment EBITDA

     782        1,213        (431     (36 )% 

Depreciation and amortization

     (483     (430     (53     12

Impairment and restructuring charges

     (2,763     (25     (2,738     *

Equity earnings of affiliates

     90        109        (19     (17 )% 

Interest, net

     56        47        9        19

Other, net

     (59     47        (106     *
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax benefit (expense)

   $ (2,377   $ 961      $ (3,338     *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

 

     For the fiscal years ended June 30,  
     2012     2011  
     Revenues      Segment
EBITDA
    Revenues      Segment
EBITDA
 
     (in millions)  

News and Information Services

   $ 7,058       $ 939      $ 7,576       $ 1,153   

Digital Real Estate Services

     286         129        235         102   

Book Publishing

     1,189         86        1,195         93   

Other

     121         (372     89         (135
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 8,654       $ 782      $ 9,095       $ 1,213   
  

 

 

    

 

 

   

 

 

    

 

 

 

News and Information Services (82% and 83% of the Company’s combined revenues in fiscal 2012 and 2011, respectively)

 

     For the fiscal years ended June 30,  
     2012     2011     Change     % Change  
     (in millions, except %)  

Revenues:

        

Advertising

   $ 4,388      $ 4,694      $ (306     (7 )% 

Circulation and subscription

     2,326        2,522        (196     (8 )% 

Other

     344        360        (16     (4 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     7,058        7,576        (518     (7 )% 

Operating expenses

     (4,195     (4,294     99        (2 )% 

Selling, general and administrative

     (1,924     (2,129     205        (10 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ 939      $ 1,153      $ (214     (19 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

For the fiscal year ended June 30, 2012, revenues at the News and Information Services segment decreased $518 million, or 7%, as compared to fiscal 2011, primarily due to lower circulation and advertising revenues in the U.K., principally resulting from decreased revenues resulting from the shutdown of The News of the World in July 2011 and lower advertising revenues at the U.K. newspapers, lower advertising and circulation revenues at the Australian newspapers and lower advertising revenues at the integrated marketing services business resulting from lower volume of in-store marketing products.

Revenues at the Australian newspapers for the fiscal year ended June 30, 2012 decreased 4%, as compared to fiscal 2011, primarily due to lower advertising and circulation revenues at the Australian newspapers of

 

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approximately $225 million, partially offset by the weakening of the U.S. dollar against the Australian dollar resulted in a revenue increase of approximately $105 million for the fiscal year ended June 30, 2012 as compared to fiscal 2011.

For the fiscal year ended June 30, 2012, revenues at the U.K. newspapers decreased 18% as compared to fiscal 2011 resulting from a decrease of $226 million in revenues resulting from the closure of The News of the World in July 2011 and lower advertising revenues of approximately $85 million. The strengthening of the U.S. dollar against the British pound resulted in a revenue decrease of approximately $5 million for the fiscal year ended June 30, 2012 as compared to fiscal 2011.

Revenues at Dow Jones decreased 2% for the fiscal year ended June 30, 2012 as compared to fiscal 2011 primarily due to lower advertising revenues.

For the fiscal year ended June 30, 2012, revenues at the integrated marketing services business decreased 6%, as compared to fiscal 2011, primarily due to lower volume of in-store marketing products.

For the fiscal year ended June 30, 2012, Segment EBITDA at the News and Information Services segment decreased $214 million, or 19%, as compared to fiscal 2011, primarily due to a $165 million decrease at the U.K. newspapers primarily due to a decrease of $122 million in Segment EBITDA resulting from the shutdown of The News of the World and a decrease of $152 million at the Australian newspapers principally related to the decreases in revenue, partially offset by the positive impact of foreign exchange fluctuations. These decreases in Segment EBITDA were partially offset by an increase at Dow Jones of $84 million primarily due to the impact of cost containment initiatives. The integrated marketing services business was relatively consistent with fiscal 2011 as lower litigation settlement costs were offset by the decreased revenues and higher operating expenses.

Digital Real Estate Services (3% of the Company’s combined revenues in fiscal 2012 and 2011, respectively)

 

     For the fiscal years ended June 30,  
     2012     2011     Change     % Change  
     (in millions, except %)  

Revenues

        

Advertising

   $ 286      $ 235      $ 51        22
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     286        235        51        22

Selling, general and administrative

     (157     (133     (24     18
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ 129      $ 102      $ 27        26
  

 

 

   

 

 

   

 

 

   

 

 

 

For the fiscal year ended June 30, 2012, revenues at the Digital Real Estate Services segment increased $51 million, or 22%, as compared to fiscal 2011, primarily due to increased revenues for value-added products and development of new products such as Diamond Subscription and Highlight. Media and developer revenues increased 36%, primarily due to developer display advertising and an ongoing focus on innovation.

For the fiscal year ended June 30, 2012, Segment EBITDA at the Digital Real Estate Services segment increased $27 million, or 26%, as compared to fiscal 2011, primarily due to the revenue increases noted above, partially offset by an increase in expenses resulting from increased marketing costs, employee costs and the continued expansion of the business.

 

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Book Publishing (14% and 13% of the Company’s combined revenues in fiscal 2012 and 2011, respectively)

 

     For the fiscal years ended June 30,  
     2012     2011     Change     % Change  
     (in millions, except %)  

Revenues:

        

Consumer

   $ 1,123      $ 1,124      $ (1     —     

Other

     66        71        (5     (7 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     1,189        1,195        (6     (1 )% 

Operating expenses

     (886     (906     20        (2 )% 

Selling, general and administrative

     (217     (196     (21     11
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ 86      $ 93      $ (7     (8 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

For the fiscal year ended June 30, 2012, revenues at the Book Publishing segment decreased $6 million, or 1%, as compared to fiscal 2011, primarily due to lower print book sales of approximately $80 million, partially offset by strong growth in digital book sales of approximately $60 million and higher sales in the U.K. due to the success of The Game of Thrones series by George R.R. Martin of approximately $15 million. During the fiscal year ended June 30, 2012, HarperCollins had 144 titles on The New York Times Bestseller List with 17 titles reaching the number one position.

For the fiscal year ended June 30, 2012, Segment EBITDA at the Book Publishing segment decreased $7 million, or 8%, as compared to fiscal 2011, primarily due to the revenue decreases noted above and a fiscal 2012 litigation settlement of approximately $25 million related to an e-books antitrust action, partially offset by approximately $15 million in lower manufacturing costs reflecting the continued shift to digital book sales.

Other (1% of the Company’s combined revenues in fiscal 2012 and 2011, respectively)

 

     For the fiscal years ended June 30,  
     2012     2011     Change     % Change  
     (in millions, except %)  

Revenues:

        

Advertising

   $ 19      $ 16      $ 3        19

Circulation and subscription

     39        27        12        44

Other

     63        46        17        37
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

     121        89        32        36

Operating expenses

     (41     (34     (7     21

Selling, general and administrative

     (452     (190     (262     *
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment EBITDA

   $ (372   $ (135   $ (237     *
  

 

 

   

 

 

   

 

 

   

 

 

 

 

** not meaningful

For the fiscal year ended June 30, 2012, revenues at the Other segment increased $32 million, or 36%, as compared to fiscal 2011, primarily due to the inclusion of revenues from Wireless Generation (now Amplify Insight) which was acquired in fiscal 2011.

Segment EBITDA declined at the Other segment for the fiscal year ended June 30, 2012 by $237 million as compared to fiscal 2011, primarily due to $199 million of legal and professional fees related to the U.K. Newspaper Matters and the inclusion of approximately $65 million in Selling, general and administrative expenses resulting from the Wireless Generation (now Amplify Insight) acquisition partially offset by the revenue increase noted above.

 

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LIQUIDITY AND CAPITAL RESOURCES

Current Financial Condition

The Company’s principal source of liquidity is internally generated funds and cash and cash equivalents on hand. In accordance with the Separation and Distribution Agreement, 21st Century Fox made a cash contribution to the Company such that at the Distribution Date, the Company had approximately $2.4 billion of cash on hand and will receive the remaining $0.2 billion from 21st Century Fox during the first quarter of fiscal 2014. The Company expects these elements of liquidity will enable it to meet its liquidity needs in the foreseeable future. In addition, the Company expects to establish a revolving credit facility during fiscal 2014 and expects to have access to the worldwide capital markets, subject to market conditions, in order to issue debt if required. Although the Company believes that its future cash from operations, together with its access to the capital markets, will provide adequate resources to fund its operating and financing needs, its access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) its credit rating, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy. There can be no assurances that the Company will continue to have access to the capital markets on acceptable terms. See “Item 1A. Risk Factors” for a further discussion.

As of June 30, 2013, the Company’s consolidated assets included $644 million in cash and cash equivalents that was held by its foreign subsidiaries. $235 million of this amount is cash held at the Digital Real Estate Services segment which is not readily accessible by the Company as it is held by REA Group, a majority owned but separately listed public company. REA Group must declare a dividend in order for the Company to have access to its share of REA Group’s cash balance. The Company earns income outside the U.S., which is deemed to be permanently reinvested in certain foreign jurisdictions. The Company does not currently intend to repatriate these funds. Should the Company require more capital in the U.S. than is generated by and/or available to its domestic operations, the Company could elect to transfer funds held in foreign jurisdictions. The transfer of funds from foreign jurisdictions may be cumbersome due to local regulations, foreign exchange control and withholding taxes. Additionally, the transfer of funds from foreign jurisdictions may result in higher effective tax rates and higher cash paid for income taxes for the Company.

The principal uses of cash that affect the Company’s liquidity position include the following: operational expenditures including employee costs; paper purchases and capital expenditures; income tax payments; investments in associated entities and acquisitions.

In addition to the Acquisitions and sales disclosed elsewhere, the Company has evaluated, and expects to continue to evaluate, possible acquisitions and dispositions of certain businesses. Such transactions may be material and may involve cash, the issuance of the Company’s securities or the assumption of indebtedness.

The Company’s Board of Directors has authorized the Company to repurchase up to an aggregate of $500 million of its Class A Common Stock. All decisions regarding any future stock repurchases will be at the sole discretion of a duly appointed committee of the Company’s Board of Directors and management. The committee’s decisions regarding future stock repurchases will be evaluated from time to time in light of many factors, including the Company’s financial condition, earnings, capital requirements and debt facility covenants, if any, other contractual restrictions, as well as legal requirements (including compliance with the IRS private letter ruling), regulatory constraints, industry practice and other factors that the committee may deem relevant. The stock repurchase authorization may be modified, extended, suspended or discontinued at any time by the Company’s Board of Directors and the Company’s Board of Directors cannot provide any assurances that any shares will be repurchased. Through September 10, 2013 the Company has not repurchased any common stock.

Sources and Uses of Cash—Fiscal 2013 versus Fiscal 2012

Net cash provided by operating activities for the fiscal years ended June 30, 2013 and 2012 was as follows (in millions):

 

For the fiscal years ended June 30,

   2013      2012  

Net cash provided by operating activities

   $ 501       $ 851   
  

 

 

    

 

 

 

 

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The decrease in net cash provided by operating activities during the fiscal year ended June 30, 2013 as compared to fiscal 2012 primarily reflects higher payments under restructuring programs of $164 million, increased pension and postretirement contributions of approximately $130 million and the inclusion of sports programming payments at FOX SPORTS Australia of $125 million, partially offset by increases in dividends received of $35 million and interest income of approximately $20 million. Pension contributions for the fiscal year ended June 30, 2013 included approximately $115 million in contributions related to the Separation.

Net cash used in investing activities for the fiscal years ended June 30, 2013 and 2012 was as follows (in millions):

 

For the fiscal years ended June 30,

   2013     2012  

Net cash used in investing activities

   $ (1,674   $ (659
  

 

 

   

 

 

 

The increase in net cash used in investing activities during the fiscal year ended June 30, 2013 as compared to fiscal 2012 was primarily due to cash utilized for Acquisitions of $2.2 billion, partially offset by cash proceeds from dispositions of $826 million, primarily related to the sale of the investment in SKY Network Television Ltd. and the Company’s investment in its venture with CME. Capital expenditures in fiscal 2013 were $332 million as compared to $375 million in fiscal 2012.

Net cash provided by (used in) financing activities for the fiscal years ended June 30, 2013 and 2012 was as follows (in millions):

 

For the fiscal years ended June 30,

   2013      2012  

Net cash provided by (used in) financing activities

   $ 2,486       $ (1,006
  

 

 

    

 

 

 

The change in net cash provided by (used in) financing activities for the fiscal year ended June 30, 2013 as compared to fiscal 2012 was primarily due to net transfers from 21st Century Fox and its affiliates of $2.7 billion during the fiscal year ended June 30, 2013 as compared to net transfers to 21st Century Fox and its affiliates of $993 million in fiscal 2012, partially offset by payment of debt acquired in the acquisition of CMH of approximately $235 million.

Sources and Uses of Cash—Fiscal 2012 versus Fiscal 2011

Net cash provided by operating activities for the fiscal years ended June 30, 2012 and 2011 was as follows (in millions):

 

For the fiscal years ended June 30,

   2012      2011  

Net cash provided by operating activities

   $ 851       $ 1,331   
  

 

 

    

 

 

 

The decrease in net cash provided by operating activities during the fiscal year ended June 30, 2012 as compared to fiscal 2011 was primarily due to lower advertising receipts, higher payments under restructuring plans of $92 million, decreased contributions from The News of the World of approximately $120 million and costs incurred for the U.K. Newspaper Matters of $199 million.

Net cash used in investing activities for the fiscal years ended June 30, 2012 and 2011 was as follows (in millions):

 

For the fiscal years ended June 30,

   2012     2011  

Net cash (used in) investing activities

   $ (659   $ (881
  

 

 

   

 

 

 

 

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The decrease in net cash used in investing activities during the fiscal year ended June 30, 2012 as compared to fiscal 2011 reflects lower capital expenditures of approximately $174 million and lower cash paid for acquisitions of approximately $305 million. This decrease was partially offset by the Company’s loan to Foxtel in fiscal 2012 of approximately $230 million. In fiscal 2012, the Company utilized $92 million of cash for acquisitions primarily due to the acquisition of Kidspot.com.au Pty Limited. In fiscal 2011, the Company utilized $397 million of cash for acquisitions primarily due to the acquisition of Wireless Generation (now Amplify Insight). Capital expenditures in fiscal 2012 were $375 million as compared to $549 million in fiscal 2011.

Net cash (used in) provided by financing activities for the fiscal years ended June 30, 2012 and 2011 was as follows (in millions):

 

For the fiscal years ended June 30,

   2012     2011  

Net cash (used in) provided by financing activities

   $ (1,006   $ 270   
  

 

 

   

 

 

 

The change in net cash (used in) provided by financing activities for the fiscal year ended June 30, 2012 as compared to fiscal 2011 was primarily due to net transfers to 21st Century Fox and its affiliates of $993 million in fiscal 2012 as compared to net transfers from 21st Century Fox and its affiliates of $293 million in fiscal 2011.

Reconciliation of Free Cash Flow Available to News Corporation

Free cash flow available to News Corporation is a non-GAAP financial measure defined as net cash provided by operating activities, less payments for property, plant and equipment, net of acquisitions and REA Group free cash flow, plus cash dividends received from REA Group.

The Company considers free cash flow available to News Corporation to provide useful information to management and investors about the amount of cash generated by the business after the acquisition of property and equipment, which can then be used for strategic opportunities including, among others, investing in the Company’s business, strategic acquisitions, strengthening the Company’s balance sheet, dividend payouts and repurchasing stock. A limitation of free cash flow available to News Corporation is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for the limitation of free cash flow available to News Corporation by also relying on the net change in cash and cash equivalents as presented in the Company’s consolidated and combined statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.

The following table presents a reconciliation of net cash provided by operating activities to free cash flow available to News Corporation:

 

     For the fiscal years ended June 30,  
         2013             2012         2011  
     (in millions)  

Net cash provided by operating activities

   $ 501      $ 851      $ 1,331   

Less: Property, plant and equipment, net of acquisitions

     (332     (375     (549
  

 

 

   

 

 

   

 

 

 
     169        476        782   

Less: REA Group free cash flow

     (127     (79     (55

Plus: Cash dividends received from REA Group

     30        11        —     
  

 

 

   

 

 

   

 

 

 

Free cash flow available to News Corporation

   $ 72      $ 408      $ 727   
  

 

 

   

 

 

   

 

 

 

Free cash flow available to News Corporation in fiscal 2013 of $72 million decreased from $408 million in fiscal 2012 primarily due to lower Total Segment EBITDA, higher payments under restructuring programs of $164 million, increased pension and postretirement contributions of approximately $130 million, the inclusion of sports programming payments at FOX SPORTS Australia of $125 million, partially offset by lower capital expenditures of $43 million.

 

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Free cash flow available to News Corporation in fiscal 2012 of $408 million decreased from $727 million in fiscal 2011, primarily due to lower advertising receipts, higher payments under restructuring plans of $92 million, decreased contributions from The News of the World of approximately $120 million and costs incurred for the U.K. Newspaper Matters of $199 million, partially offset by lower capital expenditures of $174 million.

Commitments

The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The following table summarizes the Company’s material firm commitments as of June 30, 2013.

 

     As of June 30, 2013  
     Payments Due by Period  
     Total      1 year      2-3 years      4-5 years      After 5
years
 
     (in millions)  

Purchase obligations(a)

   $ 2,105       $ 587       $ 649       $ 297       $ 572   

Sports programming rights(b)

     655         127         343         175         10   

Operating leases(c)

              

Land and buildings

     1,059         154         255         211         439   

Plant and machinery

     15         9         6         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commitments and contractual obligations

   $ 3,834       $ 877       $ 1,253       $ 683       $ 1,021   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) 

The Company has commitments under purchase obligations related to printing contracts, capital projects, marketing agreements, and other legally binding commitments.

(b) 

The Company has sports programming rights commitments with National Rugby League, Football Federation Australia, English Premier League as well as certain other broadcast rights which are payable through fiscal 2018.

(c) 

The Company leases office facilities, warehouse facilities, printing plants and equipment. These leases, which are classified as operating leases, are expected to be paid at certain dates through fiscal 2062. This amount includes approximately $225 million of office facilities that have been subleased from 21st Century Fox.

The table excludes the Company’s direct pension, other postretirement benefits (“OPEB”) obligations and the gross unrecognized tax benefits for uncertain tax positions as the Company is unable to reasonably predict the ultimate amount and timing of the commitments. The Company made contributions of $180 million and $48 million to its direct pension plans in fiscal 2013 and fiscal 2012, respectively. Included within the total contributions for fiscal 2013, were contributions of approximately $115 million the Company made in connection with the Separation. These contributions were a combination of required and voluntary contributions made to improve the funding status of the direct plans. Future direct plan contributions are dependent upon actual direct plan asset returns and interest rates and statutory requirements. The Company anticipates that it will make contributions of $21 million in fiscal 2014, assuming that actual plan asset returns are consistent with the Company’s expected returns in fiscal 2013 and beyond, and that interest rates remain constant. The Company will continue to make voluntary contributions as necessary to improve the funded status of the plans. Payments due to participants under the Company’s direct pension plans are primarily paid out of underlying trusts. Payments due under the Company’s direct OPEB plans are not required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations, and are principally dependent upon the future cost of retiree medical benefits under the Company’s direct OPEB plans. The Company expects its net direct OPEB payments to approximate $10 million in fiscal 2014. (See Note 13 to the Consolidated and Combined Financial Statements of News Corporation for further discussion of the Company’s pension and OPEB plans).

 

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Contingencies

As disclosed in the notes to the Financial Statements, U.K. and U.S. regulators and governmental authorities are conducting investigations relating to the U.K. Newspaper Matters. The investigation by the DOJ is directed at conduct that occurred within 21st Century Fox prior to the creation of the Company. Accordingly, 21st Century Fox has been and continues to be responsible for responding to the DOJ investigation. The Company, together with 21st Century Fox, is cooperating with these investigations.

The Company has admitted liability in many civil cases related to the voicemail interception allegations and has settled many cases. The Company also announced a private compensation scheme under which parties could pursue claims against it. While additional civil lawsuits may be filed, no additional civil claims may be brought under the compensation scheme after April 8, 2013.

The Company is not able to predict the ultimate outcome or cost of the civil claims or criminal matters. As of June 30, 2013 the Company has provided for its best estimate of the liability for the claims that have been filed and costs incurred and has accrued approximately $66 million. It is not possible to estimate the liability for any additional claims that may be filed given the information that is currently available to the Company. If more claims are filed and additional information becomes available, the Company will update the liability provision for such matters. Accordingly, the Company recorded an indemnification asset of approximately $40 million as of June 30, 2013. As the liabilities were incurred while the Company was a wholly-owned subsidiary of 21st Century Fox, the indemnification asset was established as part of the Separation through 21st Century Fox’s investment in equity.

The Company and 21st Century Fox agreed in the Separation and Distribution Agreement that 21st Century Fox will indemnify the Company for payments made after the Distribution Date arising out of civil claims and investigations relating to the U.K. Newspaper Matters as well as legal and professional fees and expenses paid in connection with the criminal matters, other than fees, expenses and costs relating to employees (i) who are not directors, officers or certain designated employees or (ii) with respect to civil matters, who are not co-defendants with the Company or 21st Century Fox. In addition, violations of law may result in criminal fines or penalties for which the Company will not be indemnified by 21st Century Fox. 21st Century Fox’s indemnification obligations with respect to these matters will be settled on an after-tax basis. It is possible that these proceedings and any adverse resolution thereof, including any fines or other penalties associated with any plea, judgment or similar result for which the Company will not be indemnified, could damage its reputation, impair its ability to conduct its business and adversely affect its results of operations and financial condition. Certain liabilities recorded by the Company in the fiscal year ended June 30, 2013 related to matters that will be indemnified by 21st Century Fox.

The Company’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, it is regularly audited by federal, state and foreign tax authorities. The Company believes it has appropriately accrued for the expected outcome of all pending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its financial condition, future results of operations or liquidity. As subsidiaries of 21st Century Fox prior to the Separation, the Company and 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 its domestic subsidiaries are or were a member of the 21st Century Fox consolidated group. Consequently, the Company could be liable in the event any such liability is incurred, and not discharged, by any other member of the 21st Century Fox consolidated group. The Tax Sharing and Indemnification Agreement requires 21st Century Fox to indemnify the Company for any such liability. Disputes or assessments could arise during future audits by the IRS or other taxing authorities in amounts that the Company cannot quantify.

CRITICAL ACCOUNTING POLICIES

An accounting policy is considered to be critical if it is important to the Company’s financial condition and results and if it requires significant judgment and estimates on the part of management in its application. The

 

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development and selection of these critical accounting policies have been determined by management of the Company. (See Note 2 to the Consolidated and Combined Financial Statements of News Corporation for the Company’s summary of significant accounting policies).

Intangible Assets

The Company has a significant amount of intangible assets, including goodwill, newspaper mastheads, distribution networks, publishing rights and other copyright products and trademarks. Intangible assets acquired in business combinations are recorded at their estimated fair value at the date of acquisition. Goodwill is recorded as the difference between the cost of acquiring an entity and the estimated fair values assigned to its tangible and identifiable intangible net assets and is assigned to one or more reporting units for purposes of testing for impairment.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Identifying reporting units and assigning goodwill to them requires judgment involving the aggregation of business units with similar economic characteristics and the identification of existing business units that benefit from the acquired goodwill. The judgments made in determining the estimated fair value assigned to each class of intangible assets acquired, their reporting unit, as well as their useful lives can significantly impact net income. The Company allocates goodwill to disposed businesses using the relative fair value method.

The Company tests goodwill for impairment on an annual basis in the fourth quarter and at other times if a significant event or change in circumstances indicates that it is more likely than not that the fair value of these assets has been reduced. The Company uses its judgment in assessing whether assets may have become impaired between annual impairment assessments. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities, loss of key personnel and acts by governments and courts, may signal that an asset has become impaired.

The valuation of goodwill requires assumptions and estimates of many factors, including revenue and market growth, operating cash flows, market multiples and discount rates. During the fourth quarter of fiscal 2013, as part of the Company’s long-range planning process in preparation for the Separation, the Company adjusted its future outlook and related strategy principally with respect to the News and Information Services business in Australia and secondarily with respect to the News and Information Services businesses in the U.S. which resulted in a reduction in expected future cash flows. As a result, the Company determined that the fair value of these reporting units declined below their respective carrying values. The Company recorded non-cash impairment charges of approximately $1.4 billion ($1.1 billion, net of tax) during the fiscal year ended June 30, 2013. The charges consisted of a write-down of goodwill of $494 million, a write-down of indefinite-lived intangible assets of $862 million and a write-down of fixed assets of $46 million. The impairment charges also include $42 million for the potential sale of assets at values below their carrying value.

The methods used to estimate the fair value measurements of impaired goodwill and indefinite-lived intangible assets included those based on the income approach (including the discounted cash flow and relief-from-royalty methods) and those based on the market approach (primarily the guideline public company method). Significant unobservable inputs utilized in the income approach valuation methods were discount rates (ranging from 11.0%-14.5%), long-term growth rates (ranging from (0.5)%-1.5%) and royalty rates (ranging from 0.5%-1.5%). Significant unobservable inputs utilized in the market approach valuation methods were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 5%. Significant increases (decreases) in royalty rates, growth rates, control premium and multiples, assuming no change in discount rates, would result in a significantly higher (lower) fair value measurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premium and multiples, would result in a significantly higher (lower) fair value measurement. A hypothetical 10% decrease in

 

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the fair value of the reporting unit with the goodwill impairment, would not result in an additional write-down of goodwill as all of the goodwill for this reporting unit has been written off. Had the fair values of indefinite-lived intangible assets with impairments been hypothetically lowered by 10%, the additional write-down of indefinite-lived intangible assets would be immaterial.

Income Taxes

The Company is subject to income taxes in the U.S. and various foreign jurisdictions in which it operates and records its tax provision for the anticipated tax consequences in its reported results of operations. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining the Company’s tax expense and in evaluating its tax positions including evaluating uncertainties as promulgated under ASC 740, “Income Taxes.”

The Company’s annual tax rate is based on its income, statutory tax rates and tax planning strategies available in the various jurisdictions in which it operates. Significant management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against the Company’s net deferred tax assets, if any. In assessing the likelihood of realization of deferred tax assets, management considers estimates of the amount and character of future taxable income. The Company’s actual effective tax rate and income tax expense could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, tax planning and the Company’s forecasted financial condition and results of operations in future periods. Although the Company believes current estimates are reasonable, actual results could differ from these estimates.

The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the Financial Statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Significant management judgment is required to determine whether the recognition threshold has been met and, if so, the appropriate amount of unrecognized tax benefits to be recorded in the Consolidated Financial Statements. Management reevaluates tax positions each period in which new information about recognition or measurement becomes available.

Retirement Benefit Obligations

The Company provides defined benefit pension, postretirement health care, defined contribution and medical benefits to the Company’s eligible employees and retirees. Certain of the Company’s employees participate in defined benefit pension plans sponsored by 21st Century Fox. Prior to the Separation, the Statements of Operations included expenses related to these shared plans including direct expenses related to the Company’s employees as well as allocations of expenses related to corporate employees through the corporate expense allocations. (See Note 1 to the Consolidated and Combined Financial Statements of News Corporation).

Certain employee benefit plans are the direct obligations of the Company and have been recorded within the Company’s historical Financial Statements. The Company records amounts relating to these direct plans based on calculations specified by GAAP. The measurement and recognition of costs of the Company’s direct pension and other postretirement benefit plans require the use of significant management judgments, including discount rates, expected return on plan assets, future compensation and other actuarial assumptions. For financial reporting purposes, direct net periodic pension expense (income) is calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations and an expected rate of return on plan assets. Current market conditions, including changes in investment returns and interest rates, were considered in making these assumptions. In developing the expected long-term rate of return, the direct pension portfolio’s past average rate of returns, and future return expectations of the various asset classes were considered. The expected long-term rate of return is based on a direct asset allocation assumption of 38% equities, 48% fixed-income securities and

 

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14% cash and other investments. Total direct benefit plan net expenses recorded for these direct plans by the Company were $35 million, $31 million and $38 million, for the fiscal years ended June 30, 2013, 2012 and 2011, respectively.

The discount rate reflects the market rate for high-quality fixed-income investments on the Company’s annual measurement date of June 30 and is subject to change each fiscal year. The discount rate assumptions used to account for direct pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. The rate was determined by matching the Company’s expected benefit payments for the direct plans to a hypothetical yield curve developed using a portfolio of several hundred high-quality non-callable corporate bonds.

The key assumptions used in developing the Company’s fiscal 2013, 2012 and 2011 net periodic pension expense for its direct plans consist of the following:

 

     2013     2012     2011  
     (in millions, except %)  

Discount rate used to determine net periodic benefit cost

     4.5     5.7     5.8

Assets:

      

Expected rate of return

     6.8     7.0     7.0

Expected return

   $ 78      $ 82      $ 74   

Actual return

   $ 121      $ 39      $ 157   
  

 

 

   

 

 

   

 

 

 

Gain/(Loss)

   $ 43      $ (43   $ 83   

One year actual return

     10.8     2.7     13.7

Five year actual return

     5.8     1.9     3.8

The weighted average discount rate is volatile from year to year because it is determined based upon the prevailing rates in the U.S., the U.K. and Australia as of the measurement date. The Company will utilize a weighted average discount rate of 4.6% in calculating the direct fiscal 2014 net periodic pension expense. The Company will use a weighted average long-term rate of return of 6.8% for fiscal 2014 based principally on a combination of direct asset mix and historical experience of direct actual plan returns. The accumulated net pre-tax losses on the Company’s direct pension plans as of June 30, 2013 were approximately $472 million which increased from approximately $455 million as of June 30, 2012. This increase of approximately $17 million was due primarily to changes in inflation rates and the strengthening of the mortality tables used for the Company’s foreign pension plans offset by the impact of changes in the discount rates used domestically. Lower discount rates increase present values of benefit obligations and increase the Company’s deferred losses and also increase subsequent-year pension expense. Higher discount rates decrease the present values of benefit obligations and reduce the Company’s accumulated net loss and also decrease subsequent-year pension expense. These deferred losses are being systematically recognized in future net periodic pension expense in accordance with ASC 715, “Compensation—Retirement Benefits.” Unrecognized losses in excess of 10% of the greater of the market-related value of plan assets or the plan’s projected benefit obligation are recognized over the average future service of the plan participants or average life expectancy for plan participants for plans where the majority of plan participants are not accruing additional benefits.

The Company made contributions of $180 million, $48 million and $45 million to its direct pension plans in fiscal 2013, 2012 and 2011, respectively. Future plan contributions are dependent upon actual plan asset returns, statutory requirements and interest rate movements. Assuming that actual plan returns are consistent with the Company’s expected plan returns in fiscal 2013 and beyond, and that interest rates remain constant, the Company anticipates that it will make contributions of $21 million in fiscal 2014, assuming that actual plan asset returns are consistent with the Company’s expected returns in fiscal 2013 and beyond, and that interest rates remain constant. The Company will continue to make voluntary contributions as necessary to improve the funded status of the plans. (See Note 13 to the Combined and Consolidated Financial Statements of News Corporation for further discussion of the Company’s pension plans).

 

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Changes in net periodic pension expense may occur in the future due to changes in the Company’s expected rate of return on plan assets and discount rate resulting from economic events. The following table highlights the sensitivity of the Company’s pension obligations and expense to changes in these assumptions, assuming all other assumptions remain constant:

 

Changes in Assumption

  

Impact on Annual

Pension Expense

  

Impact on Projected

Benefit Obligation

0.25 percentage point decrease in
discount rate

   Increase $1 million    Increase $49 million

0.25 percentage point increase in
discount rate

   Decrease $1 million    Decrease $46 million

0.25 percentage point decrease in
expected rate of return on assets

   Increase $3 million                —  

0.25 percentage point increase in
expected rate of return on assets

   Decrease $3 million                —  

Recent Accounting Pronouncements

See Note 2 to the Consolidated and Combined Financial Statements of News Corporation for discussion of recent accounting pronouncements.

 

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has exposure to different types of market risk including changes in foreign currency exchange rates and stock prices. The Company neither holds nor issues financial instruments for trading purposes.

The following sections provide quantitative information on the Company’s exposure to foreign currency exchange rate risk and stock price risk. The Company makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.

Foreign Currency Exchange Rates

The Company conducts operations in three principal currencies: the U.S. dollar; the Australian dollar; and the British pound sterling. These currencies operate primarily as the functional currency for the Company’s U.S., Australian and U.K. operations, respectively. Cash is managed centrally within each of the three regions with net earnings reinvested locally and working capital requirements met from existing liquid funds. To the extent such funds are not sufficient to meet working capital requirements, funding in the appropriate local currencies is made available from intercompany capital. The Company does not hedge its investments in the net assets of its Australian and U.K. foreign operations.

Because of fluctuations in currency exchange rates, the Company is subject to currency translation exposure on the results of its operations. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to the Company’s reporting currency (the U.S. dollar) for consolidation purposes. The Company does not hedge translation risk because it generally generates positive cash flows from its international operations that are typically reinvested locally. Currency exchange rates with the most significant impact to its translation include the Australian dollar and British pound sterling. As currency exchange rates fluctuate, translation of its Statements of Operations into U.S. dollars affects the comparability of revenues and operating expenses between years.

The table below details the percentage of revenues and expenses by the three principal currencies for the fiscal years ended June 30, 2013 and 2012:

 

     U.S.
Dollars
    Australian
Dollars
    British Pound
Sterling
 

Fiscal year ended June 30, 2013

      

Revenues

     52     31     17

Operating expenses

     53     29     18

Fiscal year ended June 30, 2012

      

Revenues

     52     32     16

Operating expenses

     53     28     19

Based on the year ended June 30, 2013, a one cent change in both the U.S. dollar/Australian dollar and the U.S. dollar/British pound sterling rates will impact revenues by approximately $28 million and $23 million, respectively, on an annual basis, and will impact Total Segment EBITDA by approximately $4 million and $0.3 million, respectively, on an annual basis.

Stock Prices

The Company has one common stock investment in a publicly traded company that is subject to market price volatility. This investment is a cost method investment which is not material. As a result, the Company has limited exposure to stock price risk.

 

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Credit Risk

Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may 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.

The Company’s receivables did not represent significant concentrations of credit risk as of June 30, 2013 or June 30, 2012 due to the wide variety of customers, markets and geographic areas to which the Company’s products and services are sold.

The Company monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. As of June 30, 2013, the Company did not anticipate nonperformance by any of the counterparties.

 

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NEWS CORPORATION

INDEX TO FINANCIAL STATEMENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     70   

Consolidated Statement of Operations for the fiscal year ended June  30, 2013 and Combined Statements of Operations for the fiscal years ended June 30, 2012 and 2011

     71   

Consolidated Statement of Comprehensive (Loss) Income for the fiscal year ended June  30, 2013 and Combined Statements of Comprehensive (Loss) Income for the fiscal years ended June 30, 2012 and 2011

     72   

Consolidated Balance Sheet as of June 30, 2013 and Combined Balance Sheet as of June 30, 2012

     73   

Consolidated Statement of Cash Flows for the fiscal year ended June  30, 2013 and Combined Statements of Cash Flows for the fiscal years ended June 30, 2012 and 2011

     74   

Consolidated Statement of Equity for the fiscal year ended June  30, 2013 and Combined Statements of Equity for the fiscal years ended June 30, 2012 and 2011

     75   

Notes to the Consolidated and Combined Financial Statements

     76   

 

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of News Corporation:

We have audited the accompanying consolidated and combined balance sheets of News Corporation as of June 30, 2013 and 2012, and the related consolidated and combined statements of operations, comprehensive (loss) income, equity, and cash flows for each of the three years in the period ended June 30, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated and combined financial position of News Corporation at June 30, 2013 and 2012, and the consolidated and combined results of its operations and its cash flows for each of the three years in the period ended June 30, 2013, in conformity with U.S. generally accepted accounting principles.

/s/    Ernst & Young LLP

New York, New York

September 20, 2013

 

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NEWS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(IN MILLIONS EXCEPT PER SHARE INFORMATION)

 

            For the fiscal years ended June 30,  
     Notes      2013     2012     2011  

Revenues:

         

Advertising

      $ 4,346      $ 4,693      $ 4,945   

Circulation and subscription

        2,669        2,365        2,549   

Consumer

        1,286        1,123        1,124   

Other

        590        473        477   
     

 

 

   

 

 

   

 

 

 

Total Revenues

        8,891        8,654        9,095   

Operating expenses

        (5,420     (5,122     (5,234

Selling, general and administrative

        (2,783     (2,750     (2,648

Depreciation and amortization

        (548     (483     (430

Impairment and restructuring charges

     4, 7         (1,737     (2,763     (25

Equity earnings of affiliates

     5         100        90        109   

Interest, net

        77        56        47   

Other, net

     17         1,593        (59     47   
     

 

 

   

 

 

   

 

 

 

Income (loss) before income tax benefit (expense)

        173        (2,377     961   

Income tax benefit (expense)

     15         374        337        (257
     

 

 

   

 

 

   

 

 

 

Net income (loss)

        547        (2,040     704   

Less: Net income attributable to noncontrolling interests

        (41     (35     (26
     

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to News Corporation stockholders

      $ 506      $ (2,075   $ 678   
     

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to News Corporation stockholders per share

         

Basic

      $ 0.87      $ (3.58   $ 1.17   

Diluted

      $ 0.87      $ (3.58   $ 1.17   

 

The accompanying notes are an integral part of these audited consolidated and combined financial statements.

 

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NEWS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(IN MILLIONS)

 

     For the fiscal years ended June 30,  
         2013             2012         2011  

Net income (loss)

   $ 547      $ (2,040   $ 704   

Other comprehensive (loss) income:

      

Foreign currency translation adjustments

     (797     (345     1,356   

Unrealized holding gains on securities

     1        —          2   

Benefit plan adjustments

     10        (144     (10
  

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (786     (489     1,348   
  

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income

     (239     (2,529     2,052   
  

 

 

   

 

 

   

 

 

 

Less: Net income attributable to noncontrolling interests

     (41     (35     (26

Less: Other comprehensive loss (income) attributable to noncontrolling interests

     10        5        (14
  

 

 

   

 

 

   

 

 

 

Comprehensive (loss) income attributable to News Corporation stockholders

   $ (270   $ (2,559   $ 2,012   
  

 

 

   

 

 

   

 

 

 

 

 

 

The accompanying notes are an integral part of these audited consolidated and combined financial statements.

 

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NEWS CORPORATION

CONSOLIDATED AND COMBINED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

            As of June 30,  
     Notes      2013      2012  

Assets:

        

Current assets:

        

Cash and cash equivalents

      $ 2,381       $ 1,133   

Amounts due from 21st Century Fox

     11         247         —     

Receivables, net

     2         1,335         1,369   

Other current assets

     17         680         613   
     

 

 

    

 

 

 

Total current assets

        4,643         3,115   
     

 

 

    

 

 

 

Non-current assets:

        

Investments

     5         2,499         1,126   

Property, plant and equipment, net

     6         2,992         3,274   

Intangible assets, net

     7         2,186         2,461   

Goodwill

     7         2,725         2,588   

Other non-current assets

     17         598         526   
     

 

 

    

 

 

 

Total assets

      $ 15,643       $ 13,090   
     

 

 

    

 

 

 

Liabilities and Equity:

        

Current liabilities:

        

Accounts payable

      $ 242       $ 284   

Accrued expenses

        1,108         996   

Deferred revenue

        389         386   

Other current liabilities

     17         432         801   
     

 

 

    

 

 

 

Total current liabilities

        2,171         2,467   
     

 

 

    

 

 

 

Non-current liabilities:

        

Retirement benefit obligations

     13         345         490   

Deferred income taxes

     15         152         926   

Other non-current liabilities

        279         288   

Commitments and contingencies

     12         

Redeemable preferred stock

     8         20         —     

Class A common stock(a)

        4         —     

Class B common stock(b)

        2         —     

21st Century Fox investment

        —           7,762   

Additional paid-in capital

        12,281         —     

Accumulated other comprehensive income

        271         1,047   
     

 

 

    

 

 

 

Total News Corporation stockholders’ equity

        12,558         8,809   

Noncontrolling interests

        118         110   
     

 

 

    

 

 

 

Total equity

        12,676         8,919   
     

 

 

    

 

 

 

Total liabilities and equity

      $ 15,643       $ 13,090   
     

 

 

    

 

 

 

 

(a) 

Class A common stock, $0.01 par value per share (“Class A Common Stock”), 1,500,000,000 shares authorized, 379,174,445 and nil shares issued and outstanding, net of 27,395,821 and nil treasury shares at par at June 30, 2013 and 2012, respectively.

(b) 

Class B common stock, $0.01 par value per share (“Class B Common Stock”), 750,000,000 shares authorized, 199,630,240 and nil shares issued and outstanding, net of 78,430,424 and nil treasury shares at par at June 30, 2013 and 2012, respectively.

The accompanying notes are an integral part of these audited consolidated and combined financial statements.

 

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NEWS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

 

            For the fiscal years ended June 30,  
     Note          2013             2012             2011      

Operating activities:

         

Net income (loss)

      $ 547      $ (2,040   $ 704   

Adjustments to reconcile net income (loss) to cash provided by operating activities:

         

Depreciation and amortization

        548        483        430   

Equity earnings of affiliates

     5         (100     (90     (109

Cash distributions received from affiliates

        220        185        159   

Impairment charges (net of tax of $306 million, $454 million and nil for the fiscal years ended June 30, 2013, 2012 and 2011, respectively)

        1,138        2,153        —     

Other, net

     17         (1,593     59        (47

Deferred income taxes and taxes payable

        (153     29        88   

Change in operating assets and liabilities, net of acquisitions:

         

Receivables and other assets

        —          96        132   

Inventories, net

        (15     (6     (13

Accounts payable and other liabilities

        44        (2     (10

Pension and postretirement benefit plans

        (135     (16     (3
     

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

        501        851        1,331   
     

 

 

   

 

 

   

 

 

 

Investing activities:

         

Property, plant and equipment, net of acquisitions

        (332     (375     (549

Acquisitions, net of cash acquired

        (2,156     (92     (397

Investments in equity affiliates

        (5     (33     (10

Other investments

        (7     (230     1   

Proceeds from dispositions

        826        71        74   
     

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

        (1,674     (659     (881
     

 

 

   

 

 

   

 

 

 

Financing activities:

         

Net transfers from (to) 21st Century Fox and affiliates

        2,749        (993     293   

Borrowings

        —          —          16   

Repayment of borrowings

        (235     —          (16

Dividends paid

        (20     (13     (10

Other

        (8     —          (13
     

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

        2,486        (1,006     270   
     

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

        1,313        (814     720   

Cash and cash equivalents, beginning of year

        1,133        2,022        1,080   

Exchange movement on opening cash balance

        (65     (75     222   
     

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of year

      $ 2,381      $ 1,133      $ 2,022   
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these audited consolidated and combined financial statements.

 

74


Table of Contents

NEWS CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(IN MILLIONS)

 

     Class A      Class B      21st  Century
Fox
Investment
    Additional
Paid-in
Capital
     Accumulated
Other
Comprehensive
Income
    Total
News
Corporation
Equity
    Noncontrolling
Interests
    Total
Equity
 
     Common Stock      Common Stock                
     Shares      Amount      Shares      Amount                

Balance, June 30, 2010

     —         $ —           —         $ —         $ 9,836      $ —         $ 197      $ 10,033      $ 59      $ 10,092   

Net income

     —           —           —           —           678        —           —          678        26        704   

Other comprehensive income

     —           —           —           —           —          —           1,334        1,334        14        1,348   

Dividends

     —           —           —           —           —          —           —          —          (10     (10

Other

                 —          —           —          —          6        6   

Net increase in 21st Century Fox investment

     —           —           —           —           289        —           —          289        —          289   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance, June 30, 2011

     —           —           —           —           10,803        —           1,531        12,334        95        12,429   

Net (loss) income

     —           —           —           —           (2,075     —           —          (2,075     35        (2,040

Other comprehensive loss

     —           —           —           —           —          —           (484     (484     (5     (489