10-Q 1 d527776d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 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 001-32352

 

 

NEWS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

(State or Other Jurisdiction

of Incorporation or Organization)

 

26-0075658

(I.R.S. Employer

Identification No.)

1211 Avenue of the Americas, New York, New York

(Address of Principal Executive Offices)

 

10036

(Zip Code)

Registrant’s telephone number, including area code (212) 852-7000

 

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

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

As of May 6, 2013, 1,516,022,059 shares of Class A Common Stock, par value $0.01 per share, and 798,520,953 shares of Class B Common Stock, par value $0.01 per share, were outstanding.

 

 

 


Table of Contents

NEWS CORPORATION

FORM 10-Q

TABLE OF CONTENTS

 

               Page  

Part I. Financial Information

  
  

Item 1.

   Financial Statements   
      Unaudited Consolidated Statements of Operations for the three and nine months ended March 31, 2013 and 2012      3   
      Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2013 and 2012      4   
      Consolidated Balance Sheets at March 31, 2013 (unaudited) and June 30, 2012 (audited)      5   
      Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 2013 and 2012      6   
      Notes to the Unaudited Consolidated Financial Statements      7   
  

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      47   
  

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      65   
  

Item 4.

   Controls and Procedures      66   

Part II. Other Information

  

  

Item 1.

   Legal Proceedings      67   
  

Item 1A.

   Risk Factors      72   
  

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      79   
  

Item 3.

   Defaults Upon Senior Securities      79   
  

Item 4.

   Mine Safety Disclosures      79   
  

Item 5.

   Other Information      79   
  

Item 6.

   Exhibits      80   
  

Signature

     81   

 

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NEWS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

 

     For the three months
ended March 31,
    For the nine months
ended March 31,
 
     2013     2012     2013     2012  

Revenues

   $ 9,538     $ 8,402     $ 27,099     $ 25,336  

Operating expenses

     (6,114     (5,216     (16,831     (15,552

Selling, general and administrative

     (1,705     (1,580     (4,981     (4,721

Depreciation and amortization

     (357     (294     (967     (869

Impairment and restructuring charges

     (56     (27     (273     (154

Equity earnings of affiliates

     157       204       521       467  

Interest expense, net

     (276     (258     (809     (773

Interest income

     32       26       100       91  

Other, net

     2,431       27       5,206       22  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     3,650       1,284       9,065       3,847  

Income tax expense

     (741     (281     (1,402     (931
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income

     2,909       1,003       7,663       2,916  

Less: Net income attributable to noncontrolling interests

     (55     (66     (195     (184
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to News Corporation stockholders

   $ 2,854     $ 937     $ 7,468     $ 2,732  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares:

        

Basic

     2,324       2,468       2,344       2,527  

Diluted

     2,330       2,475       2,348       2,534  

Net income attributable to News Corporation stockholders per share:

        

Basic

   $ 1.23     $ 0.38     $ 3.19     $ 1.08  

Diluted

   $ 1.22     $ 0.38     $ 3.18     $ 1.08  

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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NEWS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(IN MILLIONS)

 

     For the three months
ended March 31,
    For the nine months
ended March 31,
 
     2013     2012     2013     2012  

Net income

   $ 2,909     $ 1,003     $ 7,663     $ 2,916  

Other comprehensive (loss) income:

        

Foreign currency translation adjustments

     (433     361       (152     (659

Unrealized holding (losses) gains on securities

     (27     53       (25     (30

Benefit plan adjustments

     13       —         41       18  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (447     414       (136     (671
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

     2,462       1,417       7,527       2,245  
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income attributable to noncontrolling interests(a)

     (55     (66     (195     (184

Less: Other comprehensive income attributable to noncontrolling interests

     —         —         (2     4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to News Corporation stockholders

   $ 2,407     $ 1,351     $ 7,330     $ 2,065  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Net income attributable to noncontrolling interests includes $26 million and $21 million for the three months ended March 31, 2013 and 2012, respectively, and $74 million and $55 million for the nine months ended March 31, 2013 and 2012, respectively, relating to redeemable noncontrolling interests.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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NEWS CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

     As of March 31,
2013
     As of June 30,
2012
 
     (unaudited)      (audited)  

Assets:

     

Current assets:

     

Cash and cash equivalents

   $ 9,324      $ 9,626  

Receivables, net

     7,136        6,608  

Inventories, net

     3,476        2,595  

Other

     857        619  
  

 

 

    

 

 

 

Total current assets

     20,793        19,448  
  

 

 

    

 

 

 

Non-current assets:

     

Receivables

     431        387  

Investments

     6,622        4,968  

Inventories, net

     5,002        4,596  

Property, plant and equipment, net

     5,984        5,814  

Intangible assets, net

     8,331        7,133  

Goodwill

     20,139        13,174  

Other non-current assets

     1,188        1,143  
  

 

 

    

 

 

 

Total assets

   $ 68,490      $ 56,663  
  

 

 

    

 

 

 

Liabilities and Equity:

     

Current liabilities:

     

Borrowings

   $ 157      $ 273  

Accounts payable, accrued expenses and other current liabilities

     6,030        5,405  

Participations, residuals and royalties payable

     1,915        1,691  

Program rights payable

     1,776        1,368  

Deferred revenue

     1,175        880  
  

 

 

    

 

 

 

Total current liabilities

     11,053        9,617  
  

 

 

    

 

 

 

Non-current liabilities:

     

Borrowings

     16,317        15,182  

Other liabilities

     4,279        3,650  

Deferred income taxes

     2,947        2,388  

Redeemable noncontrolling interests

     645        641  

Commitments and contingencies

     

Equity:

     

Class A common stock(a)

     15        15  

Class B common stock(b)

     8        8  

Additional paid-in capital

     15,902        16,140  

Retained earnings and accumulated other comprehensive income

     14,139        8,521  
  

 

 

    

 

 

 

Total News Corporation stockholders’ equity

     30,064        24,684  

Noncontrolling interests

     3,185        501  
  

 

 

    

 

 

 

Total equity

     33,249        25,185  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 68,490      $ 56,663  
  

 

 

    

 

 

 

 

(a) 

Class A common stock, $0.01 par value per share, 6,000,000,000 shares authorized, 1,521,003,250 shares and 1,584,519,372 shares issued and outstanding, net of 1,775,907,212 and 1,775,983,637 treasury shares at par at March 31, 2013 and June 30, 2012, respectively.

(b) 

Class B common stock, $0.01 par value per share, 3,000,000,000 shares authorized, 798,520,953 shares issued and outstanding, net of 313,721,702 treasury shares at par at March 31, 2013 and June 30, 2012, respectively.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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NEWS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

 

     For the nine months ended
March 31,
 
     2013     2012  

Operating activities:

    

Net income

   $ 7,663     $ 2,916  

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation and amortization

     967       869  

Amortization of cable distribution investments

     67       69  

Equity earnings of affiliates

     (521     (467

Cash distributions received from affiliates

     311       313  

Impairment charges

     35       10  

Other, net

     (5,206     (22

Change in operating assets and liabilities, net of acquisitions:

    

Receivables and other assets

     (295     (551

Inventories, net

     (1,043     (577

Accounts payable and other liabilities

     785       161  
  

 

 

   

 

 

 

Net cash provided by operating activities

     2,763       2,721  
  

 

 

   

 

 

 

Investing activities:

    

Property, plant and equipment, net of acquisitions

     (627     (651

Acquisitions, net of cash acquired

     (2,746     (532

Investments in equity affiliates

     (618     (14

Other investments

     (63     (198

Proceeds from dispositions

     2,670       408  
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,384     (987
  

 

 

   

 

 

 

Financing activities:

    

Borrowings

     1,277       —    

Repayment of borrowings

     (989     (32

Issuance of shares

     170       87  

Repurchase of shares

     (1,834     (3,294

Dividends paid

     (384     (323

Purchase of subsidiary shares from noncontrolling interests

     (9     —    

Other, net

     70       —    
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,699     (3,562
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (320     (1,828

Cash and cash equivalents, beginning of year

     9,626       12,680  

Exchange movement on opening cash balance

     18       (166
  

 

 

   

 

 

 

Cash and cash equivalents, end of year

   $ 9,324     $ 10,686  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

News Corporation, a Delaware corporation, with its subsidiaries (together, “News Corporation” or the “Company”), is a diversified global media company, which manages and reports its businesses in six segments: Cable Network Programming, Filmed Entertainment, Television, Direct Broadcast Satellite Television, Publishing and Other.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair presentation have been reflected in these unaudited consolidated financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2013.

These interim unaudited consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2012 as filed with the Securities and Exchange Commission (“SEC”) on August 14, 2012 and as amended on October 1, 2012 (the “2012 Form 10-K”).

The consolidated financial statements include the accounts of News Corporation and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not exercise control and is not the primary beneficiary are accounted for using the equity method. Investments in which the Company is not able to exercise significant influence over the investee are designated as available-for-sale if readily determinable fair values are available. If an investment’s fair value is not readily determinable, the Company accounts for its investment under the cost method.

The Company evaluates whether a News Corporation entity or interest is a variable interest entity (“VIE”) and whether the Company is the primary beneficiary. Consolidation is required if both of these criteria are met. The Company’s majority owned subsidiary, Sky Deutschland AG (“Sky Deutschland”) is considered a VIE. (See Note 6—Investments)

The Company owns a 34% interest in Hulu LLC (“Hulu”) which is considered a VIE. The Company’s risk of loss related to this investment is $115 million, the portion of Hulu’s debt that it guarantees. (See Note 13—Commitments and Contingencies)

The Company also has an investment in a VIE that it consolidates; however, the assets, liabilities, net income and cash flows attributable to this entity were not material to the Company in any of the periods presented.

The preparation of consolidated financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

The Company’s fiscal year ends on the Sunday closest to June 30. Fiscal 2013 and fiscal 2012 include 52 weeks. All references to March 31, 2013 and March 31, 2012 relate to the three and nine months ended March 31, 2013 and April 1, 2012, respectively. For convenience purposes, the Company continues to date its financial statements as of March 31.

Certain fiscal 2012 amounts have been reclassified to conform to the fiscal 2013 presentation.

Recently Adopted and Recently Issued Accounting Guidance

Adopted

In the first quarter of fiscal 2013, the Company adopted Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”) which requires an entity to present total comprehensive income, the components of net income and the components of other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The adoption of ASU 2011-05 resulted in two separate but consecutive statements.

In the first quarter of fiscal 2013, the Company adopted ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”). Under ASU 2011-08 the Company has the option to make a qualitative assessment of

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the two-step goodwill impairment model that is currently in place. If it is determined through the qualitative assessment that a reporting unit’s fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary.

In the second quarter of fiscal 2013, the Company adopted ASU 2012-07, “Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs” (“ASU 2012-07”), which would have the effect of incorporating into the fair value measurement used for the impairment analysis of unamortized film costs only information that is known or knowable as of the measurement date, consistent with how information is incorporated into other fair value measurements. ASU 2012-07 is effective for the Company for impairment assessments performed on or after December 15, 2012. Prospective application of ASU 2012-07 had no effect on the consolidated financial statements of the Company for the current periods presented.

Issued

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU 2012-02, “Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”), which permits an entity to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit’s indefinite-lived intangible asset is less than the asset’s carrying value before applying a quantitative impairment assessment. If it is determined through the qualitative assessment that the fair value of a reporting unit’s indefinite-lived intangible asset is more likely than not greater than the asset’s carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. ASU 2012-02 is effective for the Company for annual and interim indefinite-lived intangible asset impairment tests performed beginning July 1, 2013, however, early adoption is permitted. The Company is currently evaluating the impact ASU 2012-02 will have on its consolidated financial statements.

In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which requires the Company to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, it requires the Company to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, the Company is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for the Company for interim reporting periods beginning July 1, 2013, however, early adoption is permitted. The Company is currently evaluating the impact ASU 2013-02 will have on its consolidated financial statements.

In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” (“ASU 2013-04”). The objective of ASU 2013-04 is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation (within the scope of this guidance) is fixed at the reporting date. Examples of obligations within the scope of ASU 2013-04 include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. ASU 2013-04 is effective for the Company for interim reporting periods beginning July 1, 2014, however, early adoption is permitted. The Company is currently evaluating the impact ASU 2013-04 will have on its consolidated financial statements.

In March 2013, the FASB issued ASU 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity,” (“ASU 2013-05”). The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets or a business within a foreign entity. ASU 2013-05 is effective for the Company for interim reporting periods beginning July 1, 2014, however, early adoption is permitted. The Company is currently evaluating the impact ASU 2013-05 will have on its consolidated financial statements.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS

Fiscal 2013

Acquisitions

During the nine months ended March 31, 2013, the Company completed a number of acquisitions as more fully described below. All of the Company’s acquisitions were accounted for under Accounting Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), which requires, among other things, that an acquirer (i) remeasure any previously held equity interest in an acquiree at its acquisition date fair value and recognize any resulting gains or losses in earnings and (ii) record any non-controlling interests in an acquiree at their acquisition date fair values. Accordingly, several of the transactions described below resulted in the recognition of remeasurement gains since the Company acquired control of an acquiree in stages. Further, other transactions described below involved the Company acquiring control with an ownership stake of less than 100%. In those instances, the allocation of the excess purchase price reflects 100% of the fair value of the acquiree with the non-controlling interests recorded at fair value.

The below acquisitions all support the Company’s strategic priority of increasing its brand presence and reach in key international and domestic markets, acquiring greater control of investments that complement its portfolio of businesses and creating new pay-TV sports franchises. For those acquisitions where the allocation of the excess purchase price is not final, the amounts allocated to intangibles and goodwill, the estimates of useful lives and the related amortization expense are subject to change pending the completion of final valuations of certain assets and liabilities. A change in the purchase price allocations and any estimates of useful lives could result in a change in the value allocated to the intangible assets that could impact future amortization expense.

For the nine months ended March 31, 2013, the below acquisitions contributed $935 million in revenues and $85 million in Segment operating income in the Company’s unaudited consolidated results of operations.

Thomas Nelson

In July 2012, the Company acquired Thomas Nelson, Inc. (“Thomas Nelson”), one of the leading Christian book publishers in the U.S., for approximately $200 million in cash. The acquisition of Thomas Nelson increased the Company’s presence and reach in the Christian publishing market. In accordance with ASC 350, “Intangibles—Goodwill and Other,” (“ASC 350”) the excess purchase price of approximately $160 million has been preliminarily allocated as follows: $65 million to publishing rights with a useful life of 20 years, $25 million to imprints which have an indefinite life and approximately $70 million representing the goodwill on the transaction.

Eredivisie Media & Marketing

In November 2012, the Company acquired a controlling 51% ownership stake in Eredivisie Media & Marketing CV (“EMM”) for approximately $350 million, of which $325 million was cash and $25 million was contingent consideration. EMM is a media company that holds the collective media and sponsorship rights of the Dutch Premier League. The remaining 49% of EMM, which is owned by the Dutch Premier League and the global TV production company Endemol, has been recorded at its acquisition date fair value. In accordance with ASC 350, the excess purchase price, based on a valuation of 100% of EMM, of approximately $660 million has been preliminarily allocated as follows: $275 million to amortizable intangible assets, primarily customer relationships, with useful lives ranging from 6 to 20 years, $45 million to trade names which have an indefinite life and approximately $340 million representing the goodwill on the transaction.

Fox Sports Asia (formerly ESPN Star Sports)

In November 2012, the Company acquired the remaining 50% interest in Fox Sports Asia (formerly ESPN STAR Sports) that it did not already own for approximately $220 million, net of cash acquired. Fox Sports Asia is a leading sports broadcaster in Asia and the Company now, through its wholly owned subsidiaries, owns 100% of Fox Sports Asia. The carrying amount of the Company’s previously held equity interest in Fox Sports Asia was revalued to fair value as of the acquisition date, resulting in a non-taxable gain of approximately $174 million which was included in Other, net in the unaudited consolidated statements of operations for the nine months ended March 31, 2013. In accordance with ASC 350, the aggregate excess purchase price, including the revalued previously held investment, of approximately $595 million has been preliminarily allocated as follows: $120 million to amortizable intangible assets, primarily MSO agreements, with useful lives ranging from 8 to 15 years and approximately $475 million representing the goodwill on the transaction.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated Media Holdings

In November 2012, the Company acquired Consolidated Media Holdings Ltd. (“CMH”), a media investment company that operates in Australia, for approximately $2 billion in cash and assumed debt of approximately $235 million. CMH owned a 25% interest in Foxtel through its 50% interest in FOX SPORTS Australia. 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 are included in the Company’s unaudited consolidated results of operations beginning in November 2012. Prior to November 2012, the Company accounted for its investment in FOX SPORTS Australia under the equity method of accounting. The Company’s investment in Foxtel continues to be accounted for under the equity method of accounting.

The carrying amount of the Company’s previously held equity interest in FOX SPORTS Australia, through which the Company held its indirect 25% interest in Foxtel, was revalued to fair value as of the acquisition date, resulting in a non-taxable gain of approximately $1.2 billion which was included in Other, net in the unaudited consolidated statements of operations for the nine months ended March 31, 2013. The fair value of our previously held equity interest of $1.6 billion was determined using an income approach (discounted cash flow analysis) adjusted to remove an assumed control premium. Significant unobservable inputs utilized in the income approach valuation method were discount rates ranging from 9.5% to 10.5%, based on weighted average cost of capital for FOX SPORTS Australia and Foxtel using the capital asset pricing model, and long-term growth rates of approximately 2.5%, reflecting our assessment of the long-term inflation rate for Australia. In accordance with ASC 350, the excess purchase price, including the revalued previously held investment, of approximately $3.1 billion has been preliminarily allocated as follows: $1.8 billion to equity method investments, approximately $685 million to amortizable intangible assets, primarily customer relationships, with useful lives ranging from 15 to 25 years, $100 million to trade names which have an indefinite life and approximately $515 million representing the goodwill on the transaction.

SportsTime Ohio

In December 2012, the Company acquired SportsTime Ohio, a Regional Sports Network (“RSN”) serving the Cleveland, Ohio market, for an estimated total purchase price, including post-closing costs, of approximately $285 million, of which $135 million was in cash. The balance of the purchase price represents the fair value of deferred payments and payments that are contingent upon achievement of certain performance objectives. In accordance with ASC 350, the excess purchase price of approximately $275 million has been preliminarily allocated as follows: $135 million to amortizable intangible assets, primarily MSO agreements, with useful lives ranging from 8 to 20 years and approximately $140 million representing the goodwill on the transaction.

Sky Deutschland

During the third quarter of fiscal 2013, the Company obtained the power to control Sky Deutschland through the acquisition of an additional 5% ownership interest that increased the Company’s ownership interest to 55%. The remaining 45% non-controlling interests in Sky Deutschland have been recorded at fair value, based on the closing price of its shares on the Frankfurt Stock Exchange on the date control was acquired. The carrying amount of the Company’s previously held equity interest in Sky Deutschland was revalued to fair value as of the acquisition date, resulting in a gain of approximately $2.1 billion which was included in Other, net in the unaudited consolidated statements of operations for the three and nine months ended March 31, 2013. In accordance with ASC 350, the aggregate excess purchase price, including the revalued previously held investment, of $5.4 billion has been preliminarily allocated to goodwill and is not being amortized. Due to the limited time since the acquisition date the initial accounting for the business combination is incomplete at this time. As a result, we are unable to provide amounts recognized as of the acquisition date for major classes of assets. The results of Sky Deutschland are included in the Company’s unaudited consolidated results of operations beginning in January 2013. (See Note 6—Investments)

Other

In July 2011, the Company announced that it would close its publication, The News of the World, after allegations of phone hacking and payments to public officials. As a result of management’s approval of the shutdown of The News of the World, the Company has reorganized portions of the U.K. newspaper business and has recorded restructuring charges in fiscal 2013 and 2012 primarily for termination benefits and certain organizational restructuring at the U.K. newspapers. (See Note 4—Restructuring Programs) The Company is subject to several ongoing investigations by U.K. and U.S. regulators and governmental authorities relating to phone hacking, illegal data access and inappropriate payments to officials at The News of the World and The Sun and related matters (the “U.K. Newspaper Matters”). The Company is cooperating with these investigations. In addition, the Company has admitted liability in many civil cases related to the phone hacking allegations and has settled many cases. The Company created an independently-chaired Management & Standards Committee (the “MSC”), which operates independently from NI Group Limited (“News International”) and

 

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has full authority to ensure cooperation with all relevant investigations and inquiries into the U.K. Newspaper Matters and all other related issues. The MSC conducts its own internal investigation where appropriate. The MSC has an independent Chairman, Lord Grabiner QC, and reports directly to Gerson Zweifach, Senior Executive Vice President and Group General Counsel of the Company. Mr. Zweifach reports to the independent members of the Board of Directors (the “Board”) through their representative Viet Dinh, an independent director and Chairman of the Company’s Nominating and Corporate Governance Committee. The independent directors of the Board have retained independent outside counsel and are actively engaged in these matters. The MSC conducted an internal investigation of the three other titles at NI Group Limited (“News International”) and engaged independent outside counsel to advise it on these investigations and all other matters it handles. As a result of these matters, News International has instituted governance reforms and issued certain enhanced policies to its employees. (See Note 13—Commitments and Contingencies for a summary of the costs of The News of the World Investigations and Litigation.)

In May 2012, the Company renewed its existing FOX affiliation agreement with a major FOX affiliate group (“Network Affiliate”). As part of the transaction, the Company received a one-time payment of $25 million and an option to buy Network Affiliate’s stations in any three of four markets or, if such option is not exercised, receive an additional $25 million cash payment. Further, Network Affiliate has an option to buy the Company’s Baltimore station. The Company decided not to exercise its option and the option expired in March 2013. As a result, the Company received the additional $25 million cash payment in April 2013. The Company is amortizing the $50 million received from the Network Affiliate over the term of the affiliation agreement. Network Affiliate exercised its option to purchase the Baltimore station and the Company recognized a loss of approximately $90 million which was included in Other, net in the unaudited consolidated statements of operations for the nine months ended March 31, 2013.

On June 28, 2012, the Company announced its intent to pursue the separation of its business into two separate independent public companies, one of which will hold the Company’s global media and entertainment businesses and the other, New Newscorp LLC (“New News Corporation”), which will hold the businesses comprising the Company’s newspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programming and pay-TV distribution in Australia. The Company has announced that it intends to change its name to Twenty-First Century Fox, Inc. (“21st Century Fox”) after the separation, subject to stockholder approval and other conditions to the separation. On December 4, 2012, the Company’s board of directors authorized management to proceed with the proposed distribution, subject to the satisfaction or waiver of certain conditions and the board of directors’ ongoing consideration of the transaction and its final approval, which may not be granted.

To effect the distribution, the Company will first undertake an internal reorganization. Following the internal reorganization, the Company will distribute all of the shares of New News Corporation’s common stock to its stockholders on a pro rata basis. After the distribution, the Company will not own any equity interest in New News Corporation, and New News Corporation will operate independently from the Company.

In connection with the separation, on December 21, 2012, New News Corporation filed with the SEC an initial Form 10 registration statement, which has been amended, and, on April 30, 2013, the Company filed with the SEC a definitive proxy statement on Schedule 14A. The Company’s stockholders will not be required to vote to approve the distribution. However, in order to effectuate the distribution in the manner discussed in the Form 10 registration statement, the Company will be required to amend its Restated Certificate of Incorporation, and the Company will hold a Special Meeting on June 11, 2013 in connection therewith. The Company has also applied for certain regulatory approvals and tax rulings required to enable the separation to be completed as described. There can be no assurances given that the separation of the Company’s businesses as described will occur.

At the end of fiscal 2012, the Company identified certain businesses as held for sale and reclassified the net assets to other current assets. During the nine months ended March 31, 2013, as a result of revised projections, the Company recorded a non-cash impairment charge of $35 million related to its assets held for sale to reduce the carrying value of these assets to fair value less cost to sell. The assets, liabilities and cash flows attributable to these businesses were not material to the Company in any of the periods presented and, accordingly, have not been presented separately.

Fiscal 2012

Acquisitions

In December 2011, the Company acquired the 67% equity interest it did not already own in Fox Pan American Sports LLC (“FPAS”) for approximately $400 million. FPAS, an international sports programming and production entity, which owns and operates Fox Sports Latin America network, a Spanish and Portuguese-language sports network distributed to subscribers in certain Caribbean and

 

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Central and South American nations, and partially through its ownership in FPAS, a 53% interest in Fox Deportes, a Spanish-language sports programming service distributed in the United States. As a result of this transaction, the Company now owns 100% of FPAS and Fox Deportes. Accordingly, the Company changed its accounting for FPAS from an equity method investment to a consolidated subsidiary beginning in December 2011. The acquisition of FPAS supports the Company’s strategic priority of increasing its brand presence and reach in key international markets.

The FPAS acquisition was accounted for in accordance with ASC 805. The carrying amount of the Company’s previously held equity interest in FPAS was revalued to fair value at the acquisition date, resulting in a non-taxable gain of approximately $158 million which was included in Other, net in the unaudited consolidated statements of operations for the nine months ended March 31, 2012.

The Company finalized the purchase accounting for FPAS in the second quarter of fiscal 2013 with approximately $280 million allocated to finite-lived intangible assets with useful lives ranging from 5 to 15 years and approximately $320 million allocated to goodwill which will not be amortized. The goodwill reflects the synergies and increased market penetration expected from combining the operations of FPAS and the Company.

In May 2012, the Company acquired an approximate 23% interest in Latin America Pay Television (“LAPTV”), a partnership that distributes premium and basic television channels in Latin America, for approximately $64 million in cash. As a result of this transaction, the Company increased its interest in LAPTV to approximately 78% from the 55% it owned as of June 30, 2011.

Disposals

In July 2011, the Company sold its majority interest in its outdoor advertising businesses in Russia and Romania (“News Outdoor Russia”) for cash consideration of approximately $360 million. In connection with the sale, the Company repaid $32 million of News Outdoor Russia debt. (See Note 9—Borrowings) The Company recorded a gain related to the sale of this business, which was included in Other, net in the unaudited consolidated statements of operations for the nine months ended March 31, 2012. The gain on the sale and the net income, assets, liabilities and cash flow attributable to the News Outdoor Russia operations were not material to the Company in any of the periods presented and, accordingly, have not been presented separately.

In May 2012, the Company sold its former U.K. newspaper division headquarters located in East London, which it relocated from in August 2010, for consideration of approximately £150 million (approximately $235 million), of which £25 million (approximately $39 million) was received on closing of the sale. The remaining £125 million (approximately $196 million) is in the form of a secured note and the Company will receive £25 million (approximately $39 million) on May 31, 2013, and annually thereafter until May 31, 2017. The Company recorded a loss of approximately $22 million on this transaction, which was included in Other, net in the consolidated statements of operations for the fiscal year ended June 30, 2012.

Other

In fiscal 2012, the Company entered into an asset acquisition agreement with a third party in exchange for a noncontrolling ownership interest in one of the Company’s majority-owned RSN. The noncontrolling shareholder has a put option related to its ownership interest that is exercisable beginning in fiscal 2015. Since redemption of the noncontrolling interest is outside of the control of the Company, the Company has accounted for this put option in accordance with ASC 480-10-S99-3A, “Distinguishing Liabilities from Equity” (“ASC 480-10-S99-3A”), and has recorded the put option at its fair value as a redeemable noncontrolling interest in the consolidated balance sheets.

NOTE 3. RECEIVABLES, NET

Receivables are presented net of an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be collectible. In determining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and acceptance of the Company’s products. Based on this information, management reserves a percentage of each dollar of product sales that provide the customer with the right of return. The allowance for doubtful accounts is estimated based on historical experience, receivable aging, current economic trends and specific identification of certain receivables that are at risk of not being paid.

The Company has receivables with original maturities greater than one year in duration principally related to the Company’s sale of program rights in the television syndication markets within the Filmed Entertainment segment. Allowances for credit losses are established against these non-current receivables as necessary. As of March 31, 2013 and June 30, 2012, these allowances were not material.

 

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Receivables, net consisted of:

 

     As of
March 31,
2013
    As of
June 30,
2012
 
     (in millions)  

Total receivables

   $ 8,736     $ 7,981  

Allowances for returns and doubtful accounts

     (1,169     (986
  

 

 

   

 

 

 

Total receivables, net

     7,567       6,995  

Less: current receivables, net

     (7,136     (6,608
  

 

 

   

 

 

 

Non-current receivables, net

   $ 431     $ 387  
  

 

 

   

 

 

 

NOTE 4. RESTRUCTURING PROGRAMS

Fiscal 2013

The Company recorded restructuring charges of $56 million and $238 million in the three and nine months ended March 31, 2013, respectively, of which $52 million and $227 million, respectively, related to the newspaper businesses. The restructuring charges primarily relate 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 business. The restructuring charges recorded are primarily for termination benefits in Australia and contract termination payments in the U.K.

Fiscal 2012

The Company recorded restructuring charges of $17 million and $144 million in the three and nine months ended March 31, 2012, respectively, of which $12 million and $132 million, respectively, related to the newspaper businesses. The Company reorganized 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. As a result of the shutdown of the regional newspaper, the Company wrote-off associated intangible assets of approximately $10 million in the three and nine months ended March 31, 2012.

Changes in the program liabilities were as follows:

 

     For the three months ended March 31,  
     2013     2012  
     One time
termination
    benefits    
    Facility
related
    costs    
    Other
    costs    
        Total         One time
termination
    benefits    
    Facility
related
    costs    
    Other
    costs    
        Total      
     (in millions)  

Beginning of period

   $ 38     $ 175     $ 3     $ 216     $ 59     $ 195     $ —        $ 254  

Additions

     35       3       18       56       8       3       6       17  

Payments

     (38     (8     (16     (62     (29     (9     (1     (39

Other

     (1     —         (4     (5     —         —         (4     (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 34     $ 170     $ 1     $ 205     $ 38     $ 189     $ 1     $ 228  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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     For the nine months ended March 31,  
     2013     2012  
     One time
termination
    benefits    
    Facility
related
    costs    
    Other
    costs    
        Total         One time
termination
    benefits    
    Facility
related
    costs    
    Other
    costs    
        Total      
     (in millions)  

Beginning of period

   $ 64     $ 185     $ —       $ 249     $ 27     $ 207     $ —       $ 234  

Additions

     153       8       77       238       110       9       25       144  

Payments

     (182     (23     (68     (273     (94     (27     (13     (134

Other

     (1     —         (8     (9     (5     —         (11     (16
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

End of period

   $ 34     $ 170     $ 1     $ 205     $ 38     $ 189     $ 1     $ 228  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company expects to record an additional $71 million of restructuring charges, principally related to accretion on facility termination obligations through fiscal 2021 and additional termination benefits related to the newspaper businesses. As of March 31, 2013, $65 million of the Company’s accrued restructuring liability was included in current liabilities and the balance was included in long-term other liabilities. Amounts included in other liabilities primarily relate to facility termination obligations, which are expected to be paid through fiscal 2021.

NOTE 5. INVENTORIES

The Company’s inventories were comprised of the following:

 

     As of
March 31,
2013
    As of
June 30,
2012
 
     (in millions)  

Programming rights

   $ 5,302     $ 4,285  

Books, DVDs, Blu-rays, paper and other merchandise

     385       348  

Filmed entertainment costs:

    

Films:

    

Released (including acquired film libraries)

     616       846  

Completed, not released

     75       135  

In production

     711       502  

In development or preproduction

     234       140  
  

 

 

   

 

 

 
     1,636       1,623  
  

 

 

   

 

 

 

Television productions:

    

Released (including acquired libraries)

     727       561  

In production

     426       370  

In development or preproduction

     2       4  
  

 

 

   

 

 

 
     1,155       935  
  

 

 

   

 

 

 

Total filmed entertainment costs, less accumulated amortization(a)

     2,791       2,558  
  

 

 

   

 

 

 

Total inventories, net

     8,478       7,191  

Less: current portion of inventory, net(b)

     (3,476     (2,595
  

 

 

   

 

 

 

Total noncurrent inventories, net

   $ 5,002     $ 4,596  
  

 

 

   

 

 

 

 

(a) 

Does not include $374 million and $397 million of net intangible film library costs as of March 31, 2013 and June 30, 2012, respectively, which are included in intangible assets subject to amortization in the consolidated balance sheets.

(b) 

Current inventory as of March 31, 2013 and June 30, 2012 is comprised of programming rights ($3,120 million and $2,279 million, respectively), books, DVDs, Blu-rays, paper and other merchandise.

 

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NOTE 6. INVESTMENTS

The Company’s investments were comprised of the following:

 

          Ownership
Percentage

As of
March 31,
2013
    As of
March 31,
2013
     As of
June 30,
2012
 
                (in millions)  

Equity method investments:

          

Foxtel(a)

   Australian pay-TV operator      50   $ 2,207      $ 205  

British Sky Broadcasting Group plc(a) (b)

   U.K. DBS operator      39     1,944        1,710  

Yankees Entertainment and Sports Network

   Regional sports network      49     830        —    

SKY Network Television Ltd.(a) (c)

   New Zealand media company      —       —          390  

Sky Deutschland(d)

   German pay-TV operator      55     —          231  

NDS Group Limited(e)

   Digital technology company      —       —          492  

Other equity method investments

        various        447        699  

Fair value of available-for-sale investments

        various        305        561  

Loan receivable from Foxtel

        N/A        462        227  

Other investments

        various        427        453  
       

 

 

    

 

 

 

Total Investments

        $ 6,622      $ 4,968  
       

 

 

    

 

 

 

 

(a) 

For the nine months ended March 31, 2013 the Company received dividends of $166 million from British Sky Broadcasting Group plc (“BSkyB”), $60 million from SKY Network Television Ltd. and $57 million from Foxtel.

(b) 

The Company’s investment in BSkyB had a market value of $8,492 million at March 31, 2013 and was valued using the quoted market price.

(c) 

In March 2013, the Company sold its 44% investment in SKY Network Television Ltd.

(d) 

In January 2013, the Company acquired, through a combination of a private placement and a rights offering, additional shares of Sky Deutschland increasing its ownership to approximately 55%. As a result of these transactions, the Company has the power to control Sky Deutschland and the results of Sky Deutschland are included in the Company’s unaudited consolidated results of operations beginning in January 2013.

(e) 

In July 2012, the Company sold its 49% investment in NDS Group Limited (“NDS”).

Foxtel

In May 2012, Foxtel, a cable and satellite television service in Australia, in which the Company at the time indirectly owned a 25% interest, purchased Austar United Communications Ltd to create a national subscription television service in Australia. The transaction was funded by Foxtel bank debt and Foxtel’s shareholders made pro-rata capital contributions in the form of subordinated shareholder notes based on their respective ownership interest. The Company’s share of the funding contribution was approximately $230 million. The subordinated shareholder note has a maximum term of 15 years, with interest payable on June 30th each year and at maturity. The subordinated shareholder note can be repaid in 10 years provided that Foxtel’s senior debt has been repaid. Upon maturity, the principal advanced will be repayable. In November 2012, the Company increased its investment in Foxtel to 50% from 25% through the acquisition of CMH which also held the same subordinated shareholder note. Accordingly, the carrying value of the shareholder note receivable from Foxtel doubled to $460 million. (See Note 2—Acquisitions, Disposals and Other Transactions)

BSkyB

During fiscal 2010, the Company announced that it had proposed to the board of directors of BSkyB, in which the Company currently has an approximate 39% interest, to make a cash offer for the BSkyB shares that the Company does not already own. On July 13, 2011, the Company announced that it no longer intended to make an offer for the BSkyB shares that the Company does not already own. As a result of the July 2011 announcement, the Company paid BSkyB a termination fee of approximately $63 million in accordance with a cooperation agreement between the parties. The termination fee was reflected in Other, net in the Company’s unaudited consolidated statements of operations for the nine months ended March 31, 2012.

 

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In November 2011, BSkyB’s shareholders and board of directors authorized a share repurchase program and in November 2012 they authorized an increase in the share repurchase program. The Company entered into an agreement with BSkyB under which, following any market purchases of shares by BSkyB, the Company will sell to BSkyB sufficient shares to maintain its approximate 39% interest subsequent to those market purchases, for a price equal to the price paid by BSkyB in respect of the relevant market purchases. BSkyB began repurchasing shares as part of this share repurchase program during the second quarter of fiscal 2012. As a result, during the three and nine months ended March 31, 2013, the Company received cash consideration of approximately $14 million and $272 million, respectively, and recognized a gain of $11 million and $217 million, respectively, which was included in Equity earnings of affiliates in the Company’s unaudited consolidated statements of operations.

Yankees Entertainment and Sports Network

In December 2012, the Company acquired a 49% equity interest in the Yankees Entertainment and Sports Network (“YES”), a RSN, for approximately $584 million and simultaneous with the closing of this transaction, the Company paid approximately $250 million of upfront costs on behalf of YES. The Company’s investment of approximately $834 million is being allocated between tangible and intangible assets in accordance with ASC 323, “Investments—Equity Investments”. The allocation of the excess cost is not final and is subject to change upon completion of final valuations of certain assets and liabilities. Changes in how the Company allocates excess cost could reduce future equity earnings as a result of additional amortization. In fiscal 2016, the remaining partners can exercise a put option that would require the Company to acquire up to an additional 31% interest. If the put option is not exercised, the Company has a call option beginning in fiscal 2017 that would allow the Company to acquire up to an additional 31% interest.

SKY Network Television Ltd.

In March 2013, the Company sold its 44% equity interest in SKY Network Television Ltd. for approximately $675 million and recorded a gain of approximately $321 million which was included in Other, net in the unaudited consolidated statements of operations for the three and nine months ended March 31, 2013.

Sky Deutschland

During the three months ended March 31, 2013, the Company acquired, through a combination of a private placement and a rights offering, approximately 92 million additional shares of Sky Deutschland increasing its ownership to approximately 55%. The aggregate cost of the shares acquired by the Company was approximately €410 million (approximately $550 million). As a result of these transactions, the Company has the power to control Sky Deutschland and the results of Sky Deutschland are included in the Company’s unaudited consolidated results of operations beginning in January 2013. Prior to the acquisition of the additional shares, the Company accounted for its investment in Sky Deutschland under the equity method of accounting and the Company’s investment consisted of common stock, convertible bonds and loans.

In addition, the Company has guaranteed Sky Deutschland’s new €300 million (approximately $400 million) five-year bank credit facility, of which approximately €225 million (approximately $290 million) has been utilized and is included in borrowings. In connection with the consolidation of Sky Deutschland, the Company assumed $480 million in bank debt, which Sky Deutschland repaid in full during the three months ended March 31, 2013. Additionally, the Company is the guarantor to the German Football League for Sky Deutschland’s Bundesliga broadcasting license for the 2013/14 to 2016/17 seasons in an amount up to 50% of the license fee per season and the Company has also agreed to extend the maturity of existing shareholder loans that were issued before it became a consolidated subsidiary.

In January 2011, the Company purchased a convertible bond from Sky Deutschland for approximately $225 million. The Company currently has the right to convert the bonds into 53.9 million underlying Sky Deutschland shares, subject to certain black-out periods. If not converted, the Company will have the option to redeem the bonds for cash upon their maturity in January 2015. The convertible bonds were separated into their host and derivative financial instrument components. Prior to Sky Deutschland becoming a consolidated subsidiary, both the host and derivative financial instrument components were recorded at their estimated fair value in Investments in the consolidated balance sheets. The change in estimated fair value of the derivative instrument resulted in a gain of approximately $58 million and a loss of approximately $82 million and were recorded in Other, net in the Company’s unaudited consolidated statements of operations for the nine months ended March 31, 2013 and 2012, respectively. The change in estimated fair value of the host was not material for the nine months ended March 31, 2013 and 2012. Subsequent to becoming a consolidated subsidiary, the convertible loan was effectively settled as a pre-existing relationship under the provisions of ASC 805-10-25-21 with

 

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the carrying amount of the asset for the derivative component written off as a settlement loss which was included in Other, net in the unaudited consolidated statements of operations for the three and nine months ended March 31, 2013.

NDS

In July 2012, the Company sold its 49% investment in NDS to Cisco Systems Inc. for approximately $1.9 billion, of which approximately $60 million has been set aside in escrow to satisfy any indemnification obligations. The Company recorded a gain of approximately $1.4 billion on this transaction which was included in Other, net in the unaudited consolidated statements of operations for the nine months ended March 31, 2013.

Other

In March 2012, the Company sold its 17% interest in Hathway Cable and Datacom Limited for approximately $71 million. The Company recorded a gain of approximately $23 million on this transaction which was included in Other, net in the consolidated statements of operations for the nine months ended March 31, 2012.

In May 2012, the Company acquired a 17% interest in Bona Film Group (“Bona”), a film distributor in China, for approximately $70 million in cash. As a result of this transaction, the Company has significant influence and therefore, accounts for its investment in Bona under the equity method of accounting.

In March 2013, the Company sold a portion of its interest in Phoenix Satellite Television (“Phoenix”), for approximately $90 million in cash. The Company decreased its interest in Phoenix to approximately 12% from the 18% it owned at June 30, 2012. The Company recorded a gain of approximately $81 million on this transaction which was included in Other, net in the unaudited consolidated statements of operations for the three and nine months ended March 31, 2013.

Fair value of available-for-sale investments

The cost basis, unrealized gains, unrealized losses and fair market value of available-for-sale investments are set forth below:

 

     As of
March 31,
2013
     As of
June 30,
2012
 
     (in millions)  

Cost basis of available-for-sale investments

   $ 37      $ 278  

Accumulated gross unrealized gain

     268        305  

Accumulated gross unrealized loss

     —          (22
  

 

 

    

 

 

 

Fair value of available-for-sale investments(a)

   $ 305      $ 561  
  

 

 

    

 

 

 

Net deferred tax liability(b)

   $ 94      $ 108  
  

 

 

    

 

 

 

 

(a) 

Includes investments in publicly traded common stock, which were valued using quoted market prices, and as of June 30, 2012 the convertible bond issued by Sky Deutschland, which consisted of the host and derivative financial instrument components. Prior to the consolidation of Sky Deutschland, the convertible bond components were measured using the discounted cash flows and Black-Scholes valuation methods. Inputs to these valuation measures included observable market data such as stock prices and interest rates.

(b) 

The net deferred tax liability includes $94 million and $107 million related to unrealized gains recorded in comprehensive income as of March 31, 2013 and June 30, 2012, respectively.

NOTE 7. FAIR VALUE

In accordance with ASC 820, “Fair Value Measurement,” fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes market participant assumptions into the following categories: (i) inputs that are quoted prices in active markets (“Level 1”); (ii) inputs other than quoted prices included within Level 1 that are observable, including quoted prices for similar assets or liabilities (“Level 2”); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions (“Level 3”). Additionally, in accordance with ASC 815, “Derivatives and Hedging,” the Company has included additional disclosures about the Company’s derivatives and hedging activities (Level 2).

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The tables below present information about financial assets and liabilities carried at fair value on a recurring basis:

 

     Fair Value Measurements  
     As of March 31, 2013  

Description

   Total     Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
     (in millions)  

Assets

         

Available-for-sale securities(a)

   $ 305     $ 305      $ —       $ —    

Derivatives(b)

     4       —          4       —    

Liabilities

         

Derivatives(b)

     (13     —          (13     —    

Redeemable noncontrolling interests(c)

     (645     —          —         (645
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (349   $ 305      $ (9   $ (645
  

 

 

   

 

 

    

 

 

   

 

 

 
     As of June 30, 2012  

Description

   Total     Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
     (in millions)  

Assets

         

Available-for-sale securities(a)

   $ 561     $ 351      $ 210     $ —    

Derivatives(b)

     17       —          17       —    

Redeemable noncontrolling interests(c)

     (641     —          —         (641
  

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ (63   $ 351      $ 227     $ (641
  

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) 

See Note 6—Investments.

(b) 

Represents derivatives associated with the Company’s foreign exchange forward contracts.

(c) 

The Company accounts for the redeemable noncontrolling interests in accordance with ASC 480-10-S99-3A because their exercise is outside the control of the Company and, accordingly, as of March 31, 2013 and June 30, 2012, has included the fair value of the redeemable noncontrolling interests in the consolidated balance sheets. The majority of redeemable noncontrolling interests recorded at fair value are put arrangements held by the noncontrolling interests in two of the Company’s majority-owned RSNs and in one of the Company’s Asian general entertainment television joint ventures.

The Company utilizes the market, income or cost approaches or a combination of these valuation techniques for its Level 3 fair value measures. Inputs to such measures could include observable market data obtained from independent sources such as broker quotes and recent market transactions for similar assets. It is the Company’s policy to maximize the use of observable inputs in the measurement of its Level 3 fair value measurements. To the extent observable inputs are not available, the Company utilizes unobservable inputs based upon the assumptions market participants would use in valuing the asset. Examples of utilized unobservable inputs are future cash flows, long term growth rates and applicable discount rates.

Significant unobservable inputs used in the fair value measurement of the Company’s redeemable noncontrolling interests are earnings before interest, taxes, depreciation and amortization (“EBITDA”) growth rates (3%-4% range) and discount rates (8%-9% range). Significant increases (decreases) in growth rates 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 growth rates and multiples, would result in a significantly higher (lower) fair value measurement.

 

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The fair value of the redeemable noncontrolling interests in the RSNs were primarily determined by (i) applying a multiples-based formula that is intended to approximate fair value for one of the RSNs and (ii) using a discounted EBITDA valuation model, assuming a 9% discount rate for the other RSN. As of March 31, 2013, the minority shareholder’s put right in one of the RSNs is currently exercisable.

The fair value of the redeemable noncontrolling interest in the Asian general entertainment television joint venture was determined using a market approach. As of March 31, 2013, the minority shareholder’s put right is exercisable.

The remaining redeemable noncontrolling interest is currently not exercisable and is not material.

The changes in redeemable noncontrolling interests classified as Level 3 measurements were as follows:

 

     For the nine months ended
March 31,
 
     2013     2012  
     (in millions)  

Beginning of period

   $ (641   $ (242

Total gains (losses) included in net income

     (74     (55

Total gains (losses) included in other comprehensive income

     —         —    

Issuance of redeemable noncontrolling interest

     —         (273

Other

     70       (32
  

 

 

   

 

 

 

End of period

   $ (645   $ (602
  

 

 

   

 

 

 

Financial Instruments

The carrying value of the Company’s financial instruments, including cash and cash equivalents, receivables, payables and cost investments, approximates fair value.

The aggregate fair value of the Company’s borrowings at March 31, 2013 was approximately $19,939 million compared with a carrying value of $16,474 million and, at June 30, 2012, was approximately $18,300 million compared with a carrying value of $15,455 million. Fair value is generally determined by reference to market values resulting from trading on a national securities exchange or in an over-the-counter market.

Foreign Currency Forward Contracts

The Company uses financial instruments designated as cash flow hedges primarily to hedge certain exposures to foreign currency exchange risks associated with the cost for producing or acquiring films and television programming abroad. The notional amount of foreign exchange forward contracts designated as cash flow hedges with foreign currency risk outstanding at March 31, 2013 and June 30, 2012 was $318 million and $294 million, respectively. As of March 31, 2013 and June 30, 2012, the fair values of the foreign exchange forward contracts of approximately $4 million and $17 million, respectively, were recorded in the underlying hedged balances. The Company’s foreign currency forward contracts are valued using an income approach based on the present value of the forward rate less the contract rate multiplied by the notional amount.

The effective changes in fair value of derivatives designated as cash flow hedges for the three months ended March 31, 2013 and 2012 of $5 million and $(8) million, respectively, were recorded in accumulated other comprehensive income with foreign currency translation adjustments. The effective changes in fair value of derivatives designated as cash flow hedges for the nine months ended March 31, 2013 and 2012 of nil and $47 million, respectively, were recorded in accumulated other comprehensive income with foreign currency translation adjustments. The ineffective changes in fair value of derivatives designated as cash flow hedges were immaterial. Amounts are reclassified from accumulated other comprehensive income when the underlying hedged item is recognized in earnings. During the three months ended March 31, 2013 and 2012, the Company reclassified (losses) gains of approximately $(2) million and $11 million, respectively, from other comprehensive income to net income. During the nine months ended March 31, 2013 and 2012, the Company reclassified gains of approximately $13 million and $12 million, respectively, from other comprehensive

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

income to net income. The Company expects to reclassify the cumulative change in fair value included in other comprehensive income within the next 24 months. Cash flows from the settlement of foreign exchange forward contracts offset cash flows from the underlying hedged item and are included in operating activities in the consolidated statements of cash flows.

Changes in the fair value of derivatives that are not designated as hedges are recorded in earnings each period. The Company uses these financial instruments as economic hedges for certain exposures to foreign currency exchange risks. The notional amount of foreign exchange forward contracts used as economic hedges with foreign currency risk outstanding at March 31, 2013 was $726 million. As of March 31, 2013, the fair values of the foreign exchange forward contracts of approximately $(13) million were recorded in other current liabilities. The Company expects the economic hedges utilized against the majority of this exposure to be settled in the fourth quarter of fiscal 2013. The effective changes in fair value of derivatives designated as economic hedges for the three and nine months ended March 31, 2013 of $(13) million were recorded in net income. Derivatives designated as economic hedges in the corresponding prior year periods were immaterial.

Concentrations of Credit Risk

Cash and cash equivalents are maintained with several financial institutions. The Company has deposits held with banks that exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bear minimal credit risk.

The Company’s receivables did not represent significant concentrations of credit risk as of March 31, 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. At March 31, 2013, the Company did not anticipate nonperformance by any of the counterparties.

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying value of goodwill, by segment, are as follows:.

 

     Cable
Network
Programming
     Filmed
Entertainment
    Television     Direct
Broadcast
Satellite
Television
    Publishing      Other     Total
Goodwill
 
     (in millions)  

Balance, June 30, 2012

   $ 6,494      $ 1,557     $ 1,909     $ 554     $ 2,152      $ 508     $ 13,174  

Acquisitions

     955        —         —         5,429       96        518       6,998  

Dispositions

     —          (5     (27     —         —          (31     (63

Foreign exchange movements

     —          (15     —         (21     7        4       (25

Impairments

     —          —         —         —         —          (35     (35

Adjustments

     90        —         —         —         —          —         90  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance, March 31, 2013

   $ 7,539      $ 1,537     $ 1,882     $ 5,962     $ 2,255      $ 964     $ 20,139  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

The increase in the carrying value of Goodwill during the nine months ended March 31, 2013 was primarily due to the consolidation of Sky Deutschland at the Direct Broadcast Satellite Television segment, the consolidation of Fox Sports Asia and the acquisitions of EMM and SportsTime Ohio at the Cable Network Programming segment and the consolidation of FOX SPORTS Australia at the Other segment. The increase at the Publishing segment was primarily due to the acquisition of Thomas Nelson.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9. BORROWINGS

Notes Due 2022

In September 2012, News America Incorporated (“NAI”), a wholly-owned subsidiary of the Company, issued $1.0 billion of 3.00% Senior Notes due 2022. The net proceeds of approximately $987 million will be used for general corporate purposes.

Notes Due 2013

In February 2013, the Company retired the remaining $273 million of its 9.25% Senior Debentures.

Other

In August 2006, the Company entered into a loan agreement with Raiffeisen Zentralbank Österreich AG (“RZB”), which was subsequently amended in September 2009. The Company repaid the outstanding balance of $32 million in July 2011 in connection with the disposal of News Outdoor Russia.

In January 2013, Sky Deutschland, a majority owned subsidiary of the Company, entered into a credit agreement, with major financial institutions, that NAI and the Company have both guaranteed. The credit agreement provides a €300 million unsecured credit facility with a sub-limit of €75 million revolving credit facility available for cash drawdowns or the issuance of letters of credit and a maturity date of January 2018. Sky Deutschland may request that the maturity date be extended for one year. The significant terms of the agreement include limitations on liens and indebtedness. Fees under the credit agreement are based on the Company’s long-term senior unsecured non-credit enhanced debt ratings. Given the current debt ratings of the Company, Sky Deutschland pays a facility fee of 0.125% and interest of Eurocurrency Rate plus 1.125%. As of March 31, 2013, €225 million (approximately $290 million) was outstanding under this credit agreement and €75 million available for either additional financing or letters of credit. The proceeds were used to pay off existing Sky Deutschland debt.

Included in Borrowings within current liabilities as of March 31, 2013, was 8.625% Senior Notes of A$150 million ($157 million) that is due in the next 12 months.

NOTE 10. FILM PRODUCTION FINANCING

The Company enters into arrangements with third parties to co-produce certain of its theatrical productions. These arrangements, which are referred to as co-financing arrangements, take various forms. The parties to these arrangements include studio and non-studio entities both domestic and international. In several of these agreements, other parties control certain distribution rights. The Filmed Entertainment segment records the amounts received for the sale of an economic interest as a reduction of the cost of the film, as the investor assumes full risk for that portion of the film asset acquired in these transactions. The substance of these arrangements is that the third-party investors own an interest in the film and, therefore, receive a participation based on the third-party investor’s contractual interest in the profits or losses incurred on the film. Consistent with the requirements of ASC 926, “Entertainment—Films,” the estimate of the third-party investor’s interest in profits or losses incurred on the film is determined by reference to the ratio of actual revenue earned to date in relation to total estimated ultimate revenues. During fiscal 2013, the Company entered into a new co-financing arrangement with a new investor group for a five year term for production through December 31, 2017, with the option to extend.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11. STOCKHOLDERS’ EQUITY

The following table summarizes changes in equity:

 

     For the three months ended March 31,  
     2013     2012  
     News
Corporation
Stockholders
    Noncontrolling
Interests
    Total
Equity
    News
Corporation
Stockholders
    Noncontrolling
Interests
    Total
Equity
 
     (in millions)  

Balance, beginning of period

   $ 28,152     $ 853     $ 29,005     $ 28,017     $ 495     $ 28,512  

Net income

     2,854       29 (a)      2,883       937       45 (a)      982  

Other comprehensive (loss) income

     (447     —         (447     414       —         414  

Cancellation of shares, net

     (361     —         (361     (734     —         (734

Dividends declared

     (197     —         (197     (209     —         (209

Acquisitions

     —         2,301 (b)      2,301       —         —         —    

Other

     63       2 (c)      65       45       (2 )(c)      43  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 30,064     $ 3,185     $ 33,249     $ 28,470     $ 538     $ 29,008  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the nine months ended March 31,  
     2013     2012  
     News
Corporation
Stockholders
    Noncontrolling
Interests
    Total
Equity
    News
Corporation
Stockholders
    Noncontrolling
Interests
    Total
Equity
 
     (in millions)  

Balance, beginning of period

   $ 24,684     $ 501     $ 25,185     $ 30,069     $ 578     $ 30,647  

Net income

     7,468       121 (a)      7,589       2,732       129 (a)      2,861  

Other comprehensive loss

     (138     2       (136     (667     (4     (671

Cancellation of shares, net

     (1,573     —         (1,573     (3,134     —         (3,134

Dividends declared

     (398     —         (398     (455     —         (455

Acquisitions

     —         2,619 (b)      2,619       —         3       3  

Other

     21       (58 )(c)      (37     (75     (168 )(c)      (243
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, end of period

   $ 30,064     $ 3,185     $ 33,249     $ 28,470     $ 538     $ 29,008  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

Net income attributable to noncontrolling interests excludes $26 million and $21 million for the three months ended March 31, 2013 and 2012, respectively, and $74 million and $55 million for the nine months ended March 31, 2013 and 2012, respectively, relating to redeemable noncontrolling interests which are reflected in temporary equity.

(b) 

Represents the non-controlling interest in Sky Deutschland and EMM at their acquisition date fair values. The Company acquired the power to control Sky Deutschland in January 2013 and in EMM in November 2012.

(c) 

Other activity attributable to noncontrolling interests excludes $(30) million and $(6) million for the three months ended March 31, 2013 and 2012, respectively, and $(70) million and $305 million for the nine months ended March 31, 2013 and 2012, respectively, relating to redeemable noncontrolling interests.

Dividends

The Company declared a dividend of $0.085 per share on both the Class A common stock, par value $0.01 per share (“Class A Common Stock”) and the Class B common stock, par value $0.01 per share (“Class B Common Stock”) in the three months ended March 31, 2013, which was paid in April 2013 to stockholders of record on March 13, 2013. The related total aggregate dividend paid to stockholders in April 2013 was approximately $200 million.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The Company declared a dividend of $0.085 per share on both the Class A Common Stock and the Class B Common Stock in the three months ended September 30, 2012, which was paid in October 2012 to stockholders of record on September 12, 2012. The related total aggregate dividend paid to stockholders in October 2012 was approximately $200 million.

The Company declared a dividend of $0.085 per share on both the Class A Common Stock and the Class B Common Stock in the three months ended March 31, 2012, which was paid in April 2012 to stockholders of record on March 14, 2012. The related total aggregate dividend paid to stockholders in April 2012 was approximately $209 million.

The Company declared a dividend of $0.095 per share on both the Class A Common Stock and the Class B Common Stock in the three months ended September 30, 2011, which was paid in October 2011 to stockholders of record on September 14, 2011. The related total aggregate dividend paid to stockholders in October 2011 was approximately $246 million.

Stock Repurchase Program

The Board had previously authorized a total stock repurchase program of $6 billion with a remaining authorized amount under the program of approximately $1.8 billion, excluding commissions as of June 30, 2011. In July 2011, the Company announced that the Board had authorized increasing the total amount of the stock repurchase program remaining by approximately $3.2 billion to $5 billion.

In May 2012, the Company announced that the Board approved a $5 billion increase to the Company’s stock repurchase program for the repurchase of Class A Common Stock.

The remaining authorized amount under the Company’s stock repurchase program as of March 31, 2013, excluding commissions, was approximately $3.6 billion.

The program may be modified, extended, suspended or discontinued at any time.

Temporary Suspension of Voting Rights Affecting Non-U.S. Stockholders

On April 18, 2012, the Company announced that it suspended 50% of the voting rights of the Class B Common Stock held by stockholders who are not U.S. citizens (“Non-U.S. Stockholders”) in order to maintain compliance with U.S. law which states that no broadcast station licensee may be owned by a corporation if more than 25% of that corporation’s stock was owned or voted by Non-U.S. Stockholders. The Company owns broadcast station licensees in connection with its ownership and operation of U.S. television stations. As of April 2013, the suspension of voting rights of shares of Class B Common Stock held by Non-U.S. Stockholders was 40%. This suspension of voting rights will remain in place for as long as the Company deems it necessary to maintain compliance with applicable U.S. law, and may be adjusted by the Audit Committee as it deems appropriate. However, the suspension will not apply in connection with any vote on any matter on which holders of Class A Common Stock shall be entitled to vote together with holders of Class B Common Stock as described in the Company’s Restated Certificate of Incorporation. The suspension will not impact the rights of Non-U.S. Stockholders of Class B Common Stock to receive dividends and distributions. The suspension was the subject of litigation as to which the court has approved the settlement and dismissed the action with prejudice. (See Note 13—Commitments and Contingencies for a summary of the litigation and settlement)

Voting Agreement with the Murdoch Family Interests

On April 18, 2012, the Murdoch Family Trust and K. Rupert Murdoch (together the “Murdoch Family Interests”) entered into an agreement with the Company, whereby the Murdoch Family Interests agreed to limit their voting rights during the voting rights suspension period. Under this agreement, the Murdoch Family Interests will not vote or provide voting instructions with respect to a portion of their shares of Class B Common Stock to the extent that doing so would increase their percentage of voting power from what it was prior to the suspension of voting rights. Currently, as a result of the suspension of voting rights, the aggregate percentage vote of the Murdoch Family Interests is at 39.4% of the outstanding shares of Class B Common Stock not subject to the suspension of voting rights, and the percentage vote may be adjusted as provided in the agreement with the Company.

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 12. EQUITY BASED COMPENSATION

The following table summarizes the Company’s equity-based compensation transactions:

 

     For the three months
ended March 31,
     For the nine months
ended March 31,
 
     2013      2012      2013      2012  
     (in millions)  

Equity-based compensation

   $ 75      $ 58      $ 233      $ 165  
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash received from exercise of equity-based compensation

   $ 29      $ 72      $ 148      $ 80  
  

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2013, the Company’s total compensation cost related to restricted stock units (“RSUs”) and performance stock units (“PSUs”) not yet recognized for all equity-based compensation plans was approximately $236 million, and is expected to be recognized over a weighted average period between one and two years. Compensation expense on all equity-based awards is generally recognized on a straight-line basis over the vesting period of the entire award. However, certain performance based awards are recognized on an accelerated basis.

The intrinsic value of stock options exercised during the nine months ended March 31, 2013 and 2012 was $51 million and $18 million, respectively. The intrinsic value of the stock options outstanding as of March 31, 2013 and June 30, 2012 was $47 million and $39 million, respectively.

As of March 31, 2013 and June 30, 2012, the liability for cash-settled awards was approximately $176 million and $119 million, respectively. Cash settled awards are marked-to-market at each reporting period.

The Company recognized a tax benefit on vested RSUs and stock options exercised of approximately $34 million and $13 million for the nine months ended March 31, 2013 and 2012, respectively.

Performance Stock Units

During the nine months ended March 31, 2013 and 2012, approximately 7.9 million and 9.1 million target PSUs were granted, respectively, of which 6.1 million and 6.8 million, respectively, will be settled in shares of Class A Common Stock. PSUs granted to executive directors and certain awards granted to employees in certain foreign locations are settled in cash.

Restricted Stock Units

During the nine months ended March 31, 2013 and 2012, approximately 1.4 million and 6.7 million RSUs were granted, respectively, of which 1.3 million and 6.5 million, respectively, will be settled in shares of Class A Common Stock. RSUs granted to executive directors and certain awards granted to employees in certain foreign locations are settled in cash.

During the nine months ended March 31, 2013 and 2012, approximately 7.1 million and 8.4 million RSUs vested, respectively, of which approximately 6.2 million and 7.2 million, respectively, were settled in shares of Class A Common Stock, before statutory tax withholdings. The fair value of RSUs settled in shares of Class A Common Stock was approximately $147 million and $119 million for the nine months ended March 31, 2013 and 2012, respectively. The remaining 0.9 million and 1.2 million RSUs settled during the nine months ended March 31, 2013 and 2012, respectively, were settled in cash of approximately $22 million and $19 million, respectively, before statutory tax withholdings.

NOTE 13. COMMITMENTS AND CONTINGENCIES

Commitments

The Company has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These firm commitments secure the future rights to various assets and services to be used in the normal course of operations. The total firm commitments and future debt payments as of March 31, 2013 and June 30, 2012 were $82,946 million and $63,644 million,

 

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NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

respectively. The increase from June 30, 2012 was primarily due to the businesses acquired or consolidated during the nine months ended March 31, 2013, the renewal of rights for MLB and NASCAR and the issuance of 3.00% Senior Notes due 2022.

Guarantees

The Company also has certain contractual arrangements in relation to certain investees that would require the Company to make payments or provide funding if certain circumstances occur (“contingent guarantees”). The Company does not expect that these contingent guarantees will result in any material amounts being paid by the Company in the foreseeable future. The total contingent guarantees decreased 6% as of March 31, 2013 as compared to June 30, 2012 due to the acquisition of 50% of Fox Sports Asia that the Company did not own, partially offset by an additional guarantee issued to Hulu as noted below.

In October 2012, Hulu redeemed Providence Equity Partners’ equity interest for $200 million. In connection with the transaction, Hulu incurred a charge primarily related to employee equity-based compensation. Accordingly, the Company recorded approximately $60 million to reflect its share of the charge in the second quarter of fiscal 2013. The Company has guaranteed $115 million of Hulu’s $338 million five-year term loan which was used by Hulu, in part, to finance the transaction. The fair value of this guarantee was calculated using level 3 inputs and was included in the consolidated balance sheet in other liabilities. As of March 31, 2013 the Company owns 34% of Hulu and continues to account for its interest in Hulu as an equity method investment.

In April 2013, the Company sold its 10% investment in its joint venture formed with CME Group Inc. (“CME”). As a result of the transaction, the Company was released from its agreement to indemnify CME with respect to any payment of principal, premium and interest CME makes under its guarantee of the third-party debt issued by the joint venture.

Contingencies

Shareholder Litigation

Delaware

On March 16, 2011, a complaint seeking to compel the inspection of the Company’s books and records pursuant to 8 Del. C. § 220, captioned Central Laborers Pension Fund v. News Corporation, was filed in the Delaware Court of Chancery. The plaintiff requested the Company’s books and records to investigate alleged possible breaches of fiduciary duty by the directors of the Company in connection with the Company’s purchase of Shine (the “Shine Transaction”). The Company moved to dismiss the action. On November 30, 2011, the court issued an order granting the Company’s motion and dismissing the complaint. The plaintiff filed a notice of appeal on December 13, 2011. The Delaware Supreme Court heard argument on the fully-briefed appeal on April 18, 2012 and issued a decision on May 29, 2012 in which it affirmed the Court of Chancery’s dismissal of the complaint.

Also on March 16, 2011, two purported shareholders of the Company, one of which was Central Laborers Pension Fund, filed a derivative action in the Delaware Court of Chancery, captioned The Amalgamated Bank v. Murdoch, et al. (the “Amalgamated Bank Litigation”). The plaintiffs alleged that both the directors of the Company and Rupert Murdoch as a “controlling shareholder” breached their fiduciary duties in connection with the Shine Transaction. The suit named as defendants all directors of the Company, and named the Company as a nominal defendant. Similar claims against the same group of defendants were filed in the Delaware Court of Chancery by a purported shareholder of the Company, New Orleans Employees’ Retirement System, on March 25, 2011 (the “New Orleans Employees’ Retirement Litigation”). Both the Amalgamated Bank Litigation and the New Orleans Employees’ Retirement Litigation were consolidated on April 6, 2011 (the “Consolidated Action”), with The Amalgamated Bank’s complaint serving as the operative complaint. The Consolidated Action was captioned In re News Corp. Shareholder Derivative Litigation. On April 9, 2011, the court entered a scheduling order governing the filing of an amended complaint and briefing on potential motions to dismiss.

Thereafter, the plaintiffs in the Consolidated Action filed a Verified Consolidated Shareholder Derivative and Class Action Complaint (the “Consolidated Complaint”) on May 13, 2011, seeking declaratory relief and damages. The Consolidated Complaint largely restated the claims in The Amalgamated Bank’s initial complaint and also raised a direct claim on behalf of a purported class of Company shareholders relating to the possible addition of Elisabeth Murdoch to the Company’s Board. The defendants filed opening briefs in support of motions to dismiss the Consolidated Complaint on June 10, 2011, as contemplated by the court’s scheduling order. On July 8, 2011, the plaintiffs filed a Verified Amended Consolidated Shareholder Derivative and Class Action Complaint (the “Amended Complaint”). In addition to the claims that were previously raised in the Consolidated Complaint, the Amended Complaint brought claims relating to the alleged acts of voicemail interception at The News of the World (the “NoW Matter”). Specifically, the plaintiffs claimed in the Amended Complaint that the directors of the Company failed in their duty of oversight regarding the NoW Matter.

 

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On July 15, 2011, another purported stockholder of the Company filed a derivative action captioned Massachusetts Laborers’ Pension & Annuity Funds v. Murdoch, et al., in the Delaware Court of Chancery (the “Mass. Laborers Litigation”). The complaint names as defendants the directors of the Company and the Company as a nominal defendant. The plaintiffs’ claims are substantially similar to those raised by the Amended Complaint in the Consolidated Action. Specifically, the plaintiff alleged that the directors of the Company have breached their fiduciary duties by, among other things, approving the Shine Transaction and for failing to exercise proper oversight in connection with the NoW Matter. The plaintiff also brought a breach of fiduciary duty claim against Rupert Murdoch as “controlling shareholder,” and a waste claim against the directors of the Company. The action seeks as relief damages, injunctive relief, fees and costs. On July 25, 2011, the plaintiffs in the Consolidated Action requested that the court consolidate the Mass. Laborers Litigation into the Consolidated Action. On August 24, 2011, the Mass. Laborers Litigation was consolidated with the Consolidated Action.

On September 29, 2011, the plaintiffs filed a Verified Second Amended Consolidated Shareholder Derivative and Class Action Complaint (“Second Amended Complaint”). In the Second Amended Complaint, the plaintiffs removed their claims involving the possible addition of Elisabeth Murdoch to the Company’s Board, added some factual allegations to support their remaining claims and added a claim seeking to enjoin a buyback of Common B shares to the extent it would result in a change of control. The Second Amended Complaint seeks declaratory relief, an injunction preventing the buyback of Class B shares, damages, pre- and post-judgment interest, fees and costs.

The defendants filed a motion to dismiss the Second Amended Complaint. The hearing on the defendants’ fully-briefed motion to dismiss was postponed to allow further briefing by plaintiffs after the Cohen Litigation, which is defined and described below, was consolidated with the Consolidated Action.

On March 2, 2012, another purported stockholder of the Company filed a derivative action captioned Belle M. Cohen v. Murdoch, et al., in the Delaware Court of Chancery (the “Cohen Litigation”). The complaint names as defendants the directors of the Company and the Company as a nominal defendant. The complaint’s claims and allegations pertain to the NoW Matter and are substantially similar to the NoW Matter allegations raised in the Second Amended Complaint in the Consolidated Action. The complaint asserts causes of action against the defendants for alleged breach of fiduciary duty, gross mismanagement, contribution and indemnification, abuse of control, and waste of corporate assets. The action seeks as relief damages, fees and costs. On March 20, 2012, the Cohen Litigation was consolidated with the Consolidated Action.

On June 18, 2012, the plaintiffs in the Consolidated Action filed a Verified Third Amended Consolidated Shareholder Derivative Complaint (the “Third Amended Complaint”). The Third Amended Complaint alleges claims against director defendants for breach of fiduciary duty arising from the Shine Transaction; against Rupert Murdoch for breach of fiduciary duty as the purported controlling shareholder of the Company in connection with the Shine Transaction; against director defendants for breach of fiduciary duty arising from their purported failure to investigate illegal conduct in the NoW Matter and allegedly permitting the Company to engage in a cover up; against certain defendants for breach of fiduciary duty in their capacity as officers arising from a purported failure to investigate illegal conduct in the NoW Matter and allegedly permitting the Company to engage in a cover up; and against James Murdoch for breach of fiduciary duty for allegedly engaging in a cover up related to the NoW Matter. The class action claim asserted in the Second Amended Complaint pertaining to the buyback of Common B shares and the relief related to that claim were removed. The Third Amended Complaint seeks a declaration that the defendants violated their fiduciary duties, damages, pre- and post-judgment interest, fees and costs.

On July 18, 2012, the defendants renewed their postponed motion to dismiss in the Consolidated Action, and in support thereof, they filed supplemental briefing directed towards the allegations of the Third Amended Complaint. Plaintiffs’ response was filed on August 8, 2012. A hearing on the fully briefed motion was held in Chancery Court on September 19, 2012. The Court reserved decision.

On April 17, 2013, the parties reached an agreement in principle to settle the Consolidated Action. Pursuant to the terms of that settlement, which is subject to the approval of the Delaware Court of Chancery after notice to the stockholders and a hearing, the parties agreed that the director defendants in the Consolidated Action would cause to be paid on their behalf the amount of $139 million to the Company, minus any attorneys’ fees and expenses awarded by the Court to the plaintiffs’ counsel. Such amount is to be paid from an escrow account created for the benefit of the director defendants pursuant to an agreement reached between the defendants and their directors’ and officers’ liability insurers for the payment of insurance proceeds, subject to a claims release. In addition to the payment to the Company, the settlement contemplates that the Company will build on corporate governance and

 

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compliance enhancements which the Company has implemented in the past year. These shall remain in effect at least through December 31, 2016, and would be applicable to both 21st Century Fox and New News Corporation. The Memorandum of Understanding related to the settlement has been filed with the Court. On May 3, 2013, the Stipulation of Settlement was filed with the Court. On May 6, 2013, the Court entered a Scheduling Order, which, among other things, set the settlement hearing for June 26, 2013, and approved the form of Notice of Pendency of Derivative Action, Proposed Settlement of Derivative Action, Settlement Hearing, and Right to Appear, which is being distributed to holders of the Company’s common stock in accordance with the Scheduling Order. In addition to requiring the approval of the Delaware Court of Chancery, the settlement will not become effective unless the Shields Litigation, the Iron Workers Litigation and the Stricklin Litigation (each as described below under the heading “Shareholder Litigation—Southern District of New York”) are also dismissed.

On May 30, 2012, a purported stockholder of the Company filed a class action lawsuit in the Delaware Court of Chancery on behalf of all non-U.S. stockholders of the Company’s Class B shares, captioned Första Ap-Fonden v. News Corporation, et al. The plaintiff alleges that, by temporarily suspending 50% of the voting rights of the Class B shares held by non-U.S. stockholders to remain in compliance with U.S. governing broadcast licenses (the “Suspension”), the Company and the Board violated the Company’s charter and the General Corporation Law of the State of Delaware (“DGCL”) and the directors breached their fiduciary duties, both in approving the Suspension and in failing to monitor the Company’s ownership by non-U.S. stockholders. The complaint named as defendants the Company and all directors of the Company at the time of the Suspension. The complaint sought a declaration that the defendants violated the Company’s charter and the DGCL, a declaration that the directors breached their fiduciary duties, a declaration that the Suspension is invalid and unenforceable, an injunction of the Suspension, damages, fees, and costs. On June 11, 2012, the defendants filed an opening brief in support of a motion to dismiss the complaint in its entirety. On August 2, 2012, the plaintiff filed a Verified Amended and Supplemented Class Action Complaint (the “Amended and Supplemented Complaint”). The Amended and Supplemented Complaint seeks a declaration that the defendants violated the Company’s charter and the DGCL, a declaration that the directors breached their fiduciary duties, a declaration that the Suspension is invalid and unenforceable, an injunction of the Suspension, a declaration that non-U.S. stockholders of the Company’s Class B shares are entitled to vote all of their shares on the Proposed Separation Transaction, damages, fees, and costs. On August 28, 2012, the parties entered into a Memorandum of Understanding providing for an agreement in principle to settle the lawsuit. The Memorandum of Understanding, which was filed with the Court on September 5, 2012, provides in pertinent part: (i) within 5 business days after receiving Court approval, the Company will file a petition with the FCC requesting permission to comply with law governing broadcast licenses for any meeting of stockholders by (a) determining the number of shares held by foreign stockholders that are present at the meeting and that would be entitled to vote but for the Suspension, and (b) counting as votes cast all voted shares held by foreign stockholders, up to a total of 25% of the shares voted; (ii) the Company’s Audit Committee will determine on at least an annual basis the total number of voting shares held by non-U.S. citizens and will have the power to modify or eliminate any then-existing suspension; the Company will disclose this information in its annual proxy materials and (iii) the Company will not consent to amend, modify or terminate the Murdoch Family Interests agreement without prior approval of the Audit Committee, which in the case of any vote related to the Proposed Separation Transaction, must be unanimous. The settlement is subject to Court approval after notice to the stockholders and a hearing. The Stipulation of Settlement was filed with the Court on November 30, 2012. On December 10, 2012, the Court entered a Scheduling Order, which, among other things, set the settlement hearing for April 26, 2013, and approved the form of Notice of Pendency of Class Action, Proposed Settlement of Class Action, Settlement Hearing, and Right to Appear, which has been distributed to holders of the Company’s Class B Common Stock in accordance with the Scheduling Order. At a hearing held on April 26, 2013, the Court approved the settlement and dismissed the action with prejudice.

Southern District of New York

On July 18, 2011, a purported shareholder of the Company filed a derivative action captioned Shields v. Murdoch, et al. (“Shields Litigation”), in the United States District Court for the Southern District of New York. The plaintiff alleged violations of Section 14(a) of the Securities Exchange Act, as well as state law claims for breach of fiduciary duty, gross mismanagement, waste, abuse of control and contribution/indemnification arising from, and in connection with, the NoW Matter. The complaint names the directors of the Company as defendants and names the Company as a nominal defendant, and seeks damages and costs. On August 4, 2011, the plaintiff filed an amended complaint. The plaintiff seeks compensatory damages, an order declaring the October 15, 2010 shareholder vote on the election of the Company’s directors void; an order setting an emergency shareholder vote date for election of new directors; an order requiring the Company to take certain specified corporate governance actions; and an order (i) putting forward a shareholder vote resolution for amendments to the Company’s Article of Incorporation and (ii) taking such other action as may be necessary to place before shareholders for a vote on corporate governance policies that: (a) appoint a non-executive Chair of the Board who is not related to the Murdoch family or extended family; (b) appoint an independent Chair of the Board’s Audit Committee; (c) appoint at least three independent directors to the Governance and Nominating Committees; (d) strengthen the Board’s supervision of financial reporting processes and implement procedures for greater shareholder input into the policies and guidelines of the Board; and (e) appropriately test and strengthen the internal and audit control functions.

 

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On July 19, 2011, a purported class action lawsuit captioned Wilder v. News Corp., et al. (“Wilder Litigation”), was filed on behalf of all purchasers of the Company’s common stock between March 3, 2011 and July 11, 2011, in the United States District Court for the Southern District of New York. The plaintiff brought claims under Section 10(b) and Section 20(a) of the Securities Exchange Act, alleging that false and misleading statements were issued regarding the NoW Matter. The suit names as defendants the Company, Rupert Murdoch, James Murdoch and Rebekah Brooks, and seeks compensatory damages, rescission for damages sustained, and costs.

On July 22, 2011, a purported shareholder of the Company filed a derivative action captioned Stricklin v. Murdoch, et al. (“Stricklin Litigation”), in the United States District Court for the Southern District of New York. The plaintiff brought claims for breach of fiduciary duty, gross mismanagement, and waste of corporate assets in connection with, among other things, (i) the NoW Matter; (ii) News America’s purported payments to settle allegations of anti-competitive behavior; and (iii) the Shine Transaction. The action names as defendants the Company, Les Hinton, Rebekah Brooks, Paul Carlucci and the directors of the Company. On August 3, 2011, the plaintiff served a motion for expedited discovery and to appoint a conservator over the Company, which defendants objected to. The motion has not been formally calendared and there is no briefing schedule yet. On August 16, 2011, the plaintiffs filed an amended complaint. The plaintiff seeks various forms of relief including compensatory damages, injunctive relief, disgorgement, the award of voting rights to Class A shareholders, the appointment of a conservator over the Company to oversee the Company’s responses to investigations and litigation related to the NoW Matter, fees and costs.

On August 10, 2011, a purported shareholder of the Company filed a derivative action captioned Iron Workers Mid-South Pension Fund v. Murdoch, et al. (“Iron Workers Litigation”), in the United States District Court for the Southern District of New York. The plaintiff brought claims for breach of fiduciary duty, waste of corporate assets, unjust enrichment and alleged violations of Section 14(a) of the Securities Exchange Act in connection with the NoW Matter. The action names as defendants the Company, Les Hinton, Rebekah Brooks and the directors of the Company. The plaintiff seeks various forms of relief including compensatory damages, voiding the election of the director defendants, an order requiring the Company to take certain specified corporate governance actions, injunctive relief, restitution, fees and costs.

The Wilder Litigation, the Stricklin Litigation and the Iron Workers Litigation are all now before the judge in the Shields Litigation. On November 21, 2011, the court issued an order setting a briefing schedule for the defendants’ motion to stay the Stricklin Litigation, the Iron Workers Litigation and the Shields Litigation pending the outcome of the consolidated action pending in the Delaware Court of Chancery. On September 18, 2012, the Court denied the motion as to two of the cases and dismissed the third with leave to replead, which plaintiff has done. Specifically, on October 4, 2012, Stricklin filed a Second Amended Complaint that added a claim under Section 14(a) of the Securities Exchange Act challenging the disclosures in the Company’s definitive proxy statements issued during the years of 2005 through 2012. The plaintiff seeks, among other things, to void the election of the director defendants at the Company’s 2012 annual meeting. The plaintiffs in Shields, Stricklin and Iron Workers have requested a pre-motion conference to address the potential consolidation of these derivative actions and a briefing schedule regarding the potential leadership structure for the plaintiffs. The pre-motion conference has not yet been scheduled. In the Wilder Litigation, on June 5, 2012, the court issued an order appointing the Avon Pension Fund (“Avon”) as lead plaintiff and Robbins Geller Rudman & Dowd as lead counsel. Thereafter, on July 3, 2012, the court issued an order providing that an amended consolidated complaint shall be filed by July 31, 2012. Avon filed an amended consolidated complaint on July 31, 2012, which among other things, added as defendants NI Group Limited and Les Hinton, and expanded the class period to include February 15, 2011 to July 18, 2011. Defendants filed their motion to dismiss on September 25, 2012, plaintiffs’ opposition was filed November 6, 2012 and defendants’ reply was filed November 30, 2012. The motion is pending.

The Company’s management believes these shareholder claims are entirely without merit, and intends to vigorously defend these actions. The settlement of the Consolidated Action (described above under the heading “Shareholder Litigation—Delaware”) will not become effective unless the Shields Litigation, the Iron Workers Litigation and the Stricklin Litigation are also dismissed.

The News of the World Investigations and Litigation

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 Company is cooperating with these investigations.

 

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

The Company is not able to predict the ultimate outcome or cost of the civil claims or criminal matters. The Company has incurred legal and professional fees related to the U.K. Newspaper Matters and costs for civil settlements totaling approximately $42 million and $63 million during the three months ended March 31, 2013 and 2012, respectively, and $165 million and $167 million during the nine months ended March 31, 2013 and 2012, respectively. These costs are included in Selling, general and administrative expenses in the Company’s unaudited consolidated statements of operations. As of March 31, 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 $60 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.

In connection with the proposed separation, the Company and New News Corporation will agree in a separation and distribution agreement that the Company will indemnify New News Corporation 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 who are not (i) directors, officers or certain designated employees or (ii) with respect to civil matters, co-defendants with New News Corporation. In addition, violations of law may result in criminal fines or penalties for which New News Corporation will not be indemnified by the Company. 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 could damage the Company’s 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 have been filed in the U.S. District Courts for the Southern District of New York and for the Northern District of California, which relate to the decisions by certain publishers, including HarperCollins Publishers L.L.C. (“HarperCollins”), to begin selling their eBooks pursuant to an agency relationship. The cases all involve allegations that certain named defendants in the book publishing and distribution industry, including HarperCollins, violated the antitrust and unfair competition laws by virtue of the switch to the agency model for eBooks. The actions seek as relief treble damages, injunctive relief and attorneys’ fees. The Judicial Panel on Multidistrict Litigation has 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 eBooks. Defendants filed a motion to dismiss on March 2, 2012. On May 15, 2012, Judge Cote denied defendants’ motion to dismiss. On June 22, 2012, Judge Cote held a status conference to address discovery and scheduling issues. On June 25, 2012, Judge Cote issued a scheduling order for the multi-district litigation going forward. 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). 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.

Following an investigation, on April 11, 2012, the Department of Justice (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 alleges antitrust violations relating to defendants’ decisions to begin selling eBooks pursuant to an agency relationship. This 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 requires that HarperCollins terminate its agreements with certain eBook retailers and places certain restrictions on any agreements subsequently entered into with such retailers. Pursuant to the Antitrust Procedures and Penalties Act, the Proposed Final Judgment could not be entered by Judge Cote for at least sixty days while the DOJ received public comments. The public comment period ended on June 25, 2012. Pursuant to Judge Cote’s June 25, 2012 scheduling order, the DOJ’s motion for entry of the Proposed Final Judgment was fully briefed by August 22, 2012, and on September 5, 2012, Judge Cote granted the DOJ’s motion and entered

 

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the Final Judgment. A third party has filed a motion to intervene in the case for the purpose of appealing Judge Cote’s decision entering the Final Judgment to the United States Court of Appeals for the Second Circuit. On March 26, 2013, the United States Court of Appeals for the Second Circuit dismissed his appeal. 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 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 was held on February 8, 2013, where Judge Cote granted final approval of the settlement. The settlement now is effective and the final judgment will bar consumers from states and territories covered by the settlement from participating in the class action.

On October 12, 2012, HarperCollins received a Civil Investigative Demand from the Attorney General from the State of Minnesota. HarperCollins complied with the Demand on November 16, 2012 and is cooperating with that investigation. 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 laws.

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 eBooks. Following discussions with the European Commission, the Office of Fair Trading closed its investigation in favor of the European Commission’s investigation on December 6, 2011. 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 eBooks 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, especially given their early stages, 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 eBooks 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.

Other

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.

The Company establishes an accrued liability for legal claims when the Company determines that a loss is both probable and the amount of the loss can be reasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Legal fees associated with litigation and similar proceedings that are not expected to provide a benefit in future periods are expensed as incurred. Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by the Company in connection with the various proceedings could affect the Company’s results of operations and financial condition. For the contingencies disclosed above for which there is at least a reasonable possibility that a loss may be incurred, other than the accrual provided, the Company was unable to estimate the amount of loss or range of loss.

 

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NOTE 14. PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors non-contributory pension plans and retiree health and life insurance benefit plans covering specific groups of employees which are closed to new participants (with the exception of groups covered by collective bargaining agreements). The benefits payable for the Company’s non-contributory pension plans are based primarily on a formula factoring both an employee’s years of service and pay near retirement. Participant employees are vested in the pension plans after five years of service. The Company’s policy for all pension plans is to fund amounts, at a minimum, in accordance with statutory requirements. Plan assets consist principally of common stocks, marketable bonds and government securities. The retiree health and life insurance benefit plans offer medical and/or life insurance to certain full-time employees and eligible dependents that retire after fulfilling age and service requirements.

The components of net periodic benefits costs were as follows:

 

     Pension Benefits     Postretirement Benefits  
     For the three months ended March 31,  
     2013     2012     2013     2012  
     (in millions)  

Service cost benefits earned during the period

   $ 31     $ 25     $ 1     $ 1  

Interest costs on projected benefit obligation

     41       44       3       4  

Expected return on plan assets

     (47     (46     —         —    

Amortization of deferred losses

     23       12       —         —    

Other

     (1     3       (2     (5
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefits costs

   $ 47     $ 38     $ 2     $ —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash contributions

   $ 39     $ 16     $ 4     $ 4  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Pension Benefits     Postretirement Benefits  
     For the nine months ended March 31,  
     2013     2012     2013     2012  
     (in millions)  

Service cost benefits earned during the period

   $ 94     $ 73     $ 4     $ 4  

Interest costs on projected benefit obligation

     123       133       10       12  

Expected return on plan assets

     (141     (139     —         —    

Amortization of deferred losses

     71       36       —         —    

Other

     7       8       (5     (14
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefits costs

   $ 154     $ 111     $ 9     $ 2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash contributions

   $ 65     $ 45     $ 14     $ 14  
  

 

 

   

 

 

   

 

 

   

 

 

 

NOTE 15. SEGMENT INFORMATION

The Company is a diversified global media company, which manages and reports its businesses in the following six segments:

 

   

Cable Network Programming, which principally consists of the production and licensing of programming distributed through cable television systems and direct broadcast satellite operators primarily in the United States, Latin America, Europe and Asia.

 

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Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide.

 

   

Television, which principally consists of the broadcasting of network programming in the United States and the operation of 27 full power broadcast television stations, including 9 duopolies, in the United States (of these stations, 17 are affiliated with the FOX Broadcasting Company and 10 are affiliated with Master Distribution Service, Inc. (“MyNetworkTV”)).

 

   

Direct Broadcast Satellite Television, which consists of the distribution of basic and premium programming services via satellite and cable directly to subscribers in Italy, Germany and Austria.

 

   

Publishing, which principally consists of the Company’s newspapers and information services, book publishing and integrated marketing services businesses. The newspapers and information services business principally consists of the publication of national newspapers in the United Kingdom, the publication of approximately 140 newspapers in Australia, the publication of a metropolitan newspaper and a national newspaper (with international editions) in the United States and the provision of information services. The book publishing business consists of the publication of English language books throughout the world and the integrated marketing services business consists of the publication of free-standing inserts and the provision of in-store marketing products and services in the United States and Canada.

 

   

Other, which principally consists of FOX SPORTS Australia, the leading sports programming provider in Australia, the Company’s digital media properties and Amplify, the Company’s education technology businesses.

The Company’s operating segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, of which the primary financial measures are segment operating income (loss) and segment operating income (loss) before depreciation and amortization.

Segment operating income (loss) does not include: Impairment and restructuring charges, equity earnings of affiliates, interest expense, net, interest income, other, net, income tax expense and net income attributable to noncontrolling interests. The Company believes that information about segment operating income (loss) assists all users of the Company’s consolidated financial statements by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing insight into both operations and the other factors that affect reported results.

Segment operating income (loss) before depreciation and amortization is defined as segment operating income (loss) plus depreciation and amortization and the amortization of cable distribution investments and eliminates the variable effect across all business segments of depreciation and amortization. Depreciation and amortization expense includes the depreciation of property and equipment, as well as amortization of finite-lived intangible assets. Amortization of cable distribution investments represents a reduction against revenues over the term of a carriage arrangement and, as such, it is excluded from segment operating income (loss) before depreciation and amortization.

Total segment operating income and segment operating income (loss) before depreciation and amortization are non-GAAP measures 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, these measures do not reflect cash available to fund requirements. These measures exclude items, such as impairment and restructuring charges, which are significant components in assessing the Company’s financial performance. Segment operating income (loss) before depreciation and amortization also excludes depreciation and amortization which are also significant components in assessing the Company’s financial performance.

Management believes that total segment operating income and segment operating income (loss) before depreciation and amortization are appropriate measures for evaluating the operating performance of the Company’s business. Total segment operating income and segment operating income (loss) before depreciation and amortization provide management, investors and equity analysts measures to analyze operating performance of the Company’s business and its enterprise value against historical data and competitors’ data, although historical results, including total segment operating income and segment operating income (loss) before depreciation and amortization, may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences).

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

     For the three months ended
March 31,
    For the nine months ended
March 31,
 
     2013     2012     2013     2012  
     (in millions)  

Revenues:

        

Cable Network Programming

   $ 2,782     $ 2,375     $ 7,790     $ 6,656  

Filmed Entertainment

     2,014       1,722       5,826       5,563  

Television

     1,225       1,208       3,716       3,651  

Direct Broadcast Satellite Television

     1,300       923       3,007       2,792  

Publishing

     1,938       2,025       6,105       6,224  

Other

     279       149       655       450  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 9,538     $ 8,402     $ 27,099     $ 25,336  
  

 

 

   

 

 

   

 

 

   

 

 

 

Segment operating income (loss):

        

Cable Network Programming

   $ 993     $ 846     $ 2,891     $ 2,503  

Filmed Entertainment

     289       272       1,072       1,012  

Television

     196       171       576       493  

Direct Broadcast Satellite Television

     (11     40       (8     165  

Publishing

     85       130       376       458  

Other

     (190     (147     (587     (437
  

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating income

     1,362       1,312       4,320       4,194  
  

 

 

   

 

 

   

 

 

   

 

 

 

Impairment and restructuring charges

     (56     (27     (273     (154

Equity earnings of affiliates

     157       204       521       467  

Interest expense, net

     (276     (258     (809     (773

Interest income

     32       26       100       91  

Other, net

     2,431       27       5,206       22  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

     3,650       1,284       9,065       3,847  

Income tax expense

     (741     (281     (1,402     (931
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2,909       1,003       7,663       2,916  

Less: Net income attributable to noncontrolling interests

     (55     (66     (195     (184
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to News Corporation stockholders

   $ 2,854     $ 937     $ 7,468     $ 2,732  
  

 

 

   

 

 

   

 

 

   

 

 

 

Intersegment revenues, generated primarily by the Filmed Entertainment segment, of approximately $330 million and $291 million for the three months ended March 31, 2013 and 2012, respectively, and of approximately $779 million and $824 million for the nine months ended March 31, 2013 and 2012, respectively, have been eliminated within the Filmed Entertainment segment. Intersegment operating profit generated primarily by the Filmed Entertainment segment of approximately $13 million and $17 million for the three months ended March 31, 2013 and 2012, respectively, and of approximately $21 million and $64 million for the nine months ended March 31, 2013 and 2012, respectively, have been eliminated within the Filmed Entertainment segment.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

     For the three months ended March 31, 2013  
     Segment operating
income (loss)
    Depreciation and
amortization
     Amortization
of cable
distribution
investments
     Segment operating
income (loss)
before
depreciation and
amortization
 
     (in millions)  

Cable Network Programming

   $ 993     $ 53      $ 23      $ 1,069  

Filmed Entertainment

     289       32        —          321  

Television

     196       23        —          219  

Direct Broadcast Satellite Television

     (11     101        —          90  

Publishing

     85       118        —          203  

Other

     (190     30        —          (160
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 1,362     $ 357      $ 23      $ 1,742  
  

 

 

   

 

 

    

 

 

    

 

 

 
     For the three months ended March 31, 2012  
     Segment operating
income (loss)
    Depreciation and
amortization
     Amortization
of cable
distribution
investments
     Segment operating
income (loss)
before
depreciation and
amortization
 
     (in millions)  

Cable Network Programming

   $ 846     $ 42      $ 22      $ 910  

Filmed Entertainment

     272       33        —          305  

Television

     171       21        —          192  

Direct Broadcast Satellite Television

     40       76        —          116  

Publishing

     130       106        —          236  

Other

     (147     16        —          (131
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 1,312     $ 294      $ 22      $ 1,628  
  

 

 

   

 

 

    

 

 

    

 

 

 
     For the nine months ended March 31, 2013  
     Segment operating
income (loss)
    Depreciation and
amortization
     Amortization
of cable
distribution
investments
     Segment operating
income (loss)
before
depreciation and
amortization
 
     (in millions)  

Cable Network Programming

   $ 2,891     $ 140      $ 67      $ 3,098  

Filmed Entertainment

     1,072       98        —          1,170  

Television

     576       66        —          642  

Direct Broadcast Satellite Television

     (8     249        —          241  

Publishing

     376       348        —          724  

Other

     (587     66        —          (521
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 4,320     $ 967      $ 67      $ 5,354  
  

 

 

   

 

 

    

 

 

    

 

 

 

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

     For the nine months ended March 31, 2012  
     Segment operating
income (loss)
    Depreciation and
amortization
     Amortization
of cable
distribution
investments
     Segment operating
income (loss)
before
depreciation and
amortization
 
     (in millions)  

Cable Network Programming

   $ 2,503     $ 117      $ 69      $ 2,689  

Filmed Entertainment

     1,012       95        —          1,107  

Television

     493       63        —          556  

Direct Broadcast Satellite Television

     165       228        —          393  

Publishing

     458       319        —          777  

Other

     (437     47        —          (390
  

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 4,194     $ 869      $ 69      $ 5,132  
  

 

 

   

 

 

    

 

 

    

 

 

 

 

     As of
March 31,
2013
     As of
June 30,
2012
 
     (in millions)  

Total assets:

     

Cable Network Programming

   $ 17,656      $ 14,896  

Filmed Entertainment

     8,642        8,102  

Television

     6,341        6,110  

Direct Broadcast Satellite Television

     8,622        2,455  

Publishing

     11,277        10,913  

Other

     9,330        9,219  

Investments

     6,622        4,968  
  

 

 

    

 

 

 

Total assets

   $ 68,490      $ 56,663  
  

 

 

    

 

 

 

Goodwill and Intangible assets, net:

     

Cable Network Programming

   $ 9,188      $ 7,626  

Filmed Entertainment

     2,455        2,531  

Television

     4,222        4,317  

Direct Broadcast Satellite Television

     5,965        554  

Publishing

     4,739        4,586  

Other

     1,901        693  
  

 

 

    

 

 

 

Total goodwill and intangible assets, net

   $ 28,470      $ 20,307  
  

 

 

    

 

 

 

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 16. ADDITIONAL FINANCIAL INFORMATION

Supplemental Cash Flows Information

 

     For the nine months ended
March 31,
 
         2013             2012      
     (in millions)  

Supplemental cash flows information:

    

Cash paid for income taxes

   $ (980   $ (957

Cash paid for interest

     (816     (782

Return of capital from equity method investments

     272       190  

Payments for equity method investments

     (890     (204

Sale of other investments

     2       5  

Purchase of other investments

     (65     (203

Supplemental information on businesses acquired:

    

Fair value of assets acquired

     7,658       862  

Cash acquired

     775       21  

Liabilities assumed

     (2,293     (72

Noncontrolling interest (increase) decrease

     (2,619     15  

Cash paid

     (3,521     (553
  

 

 

   

 

 

 

Fair value of equity instruments issued to third parties

     —         273  

Issuance of subsidiary common units

     —         (273
  

 

 

   

 

 

 

Fair value of equity instruments consideration

   $ —       $ —    
  

 

 

   

 

 

 

Other, net

The following table sets forth the components of Other, net included in the unaudited consolidated statements of operations:

 

     For the three months ended
March 31,
    For the nine months ended
March 31,
 
         2013             2012             2013             2012      
     (in millions)  

Gain on Sky Deutschland transaction(a), (b)

   $ 2,069     $ —       $ 2,069     $ —    

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

     321       —         321       —    

Gain on Phoenix Satellite Television transaction(a)

     81       —         81       —    

Gain on CMH transaction(b)

     —         —         1,245       —    

Gain on sale of investment in NDS(a)

     —         —         1,446       —    

Gain on Fox Sports Asia transaction(b)

     —         —         174       —    

Change in fair value of Sky Deutschland convertible securities(a)

     —         7       58       (82

Gain on FPAS transaction(b)

     —         —         —         158  

Gain on Hathway Cable transaction(a)

     —         23       —         23  

BSkyB termination fee(a)

     —         —         —         (63

Other

     (40     (3     (188     (14
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Other, net

   $ 2,431     $ 27     $ 5,206     $ 22  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) 

See Note 6—Investments

(b) 

See Note 2—Acquisitions, Disposals and Other Transactions

 

36


Table of Contents

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 17. SUPPLEMENTAL GUARANTOR INFORMATION

In May 2012, NAI, a 100% owned subsidiary of the Company as defined in Rule 3-10(h) of Regulation S-X, entered into a credit agreement (the “Credit Agreement”), among NAI as Borrower, the Company as Parent Guarantor, the lenders named therein, the initial issuing banks named therein, JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) and Citibank, N.A. as Co-Administrative Agents, JPMorgan Chase as Designated Agent and Bank of America, N.A. as Syndication Agent. The Credit Agreement provides a $2 billion unsecured revolving credit facility with a sub-limit of $400 million (or its equivalent in Euros) available for the issuance of letters of credit and a maturity date of May 2017. Under the Credit Agreement, the Company may request an increase in the amount of the credit facility up to a maximum amount of $2.5 billion and the Company may request that the maturity date be extended for up to two additional one-year periods. Borrowings are issuable in U.S. dollars only, while letters of credit are issuable in U.S. dollars or Euros. The significant terms of the agreement include the requirement that the Company maintain specific leverage ratios and limitations on secured indebtedness. Fees under the Credit Agreement will be based on the Company’s long-term senior unsecured non-credit enhanced debt ratings. Given the current debt ratings, NAI pays a facility fee of 0.125% and an initial drawn cost of LIBOR plus 1.125%.

The Parent Guarantor presently guarantees the senior public indebtedness of NAI and the guarantee is full and unconditional. The supplemental condensed consolidating financial information of the Parent Guarantor should be read in conjunction with these consolidated financial statements.

In accordance with rules and regulations of the SEC, the Company uses the equity method to account for the results of all of the non-guarantor subsidiaries, representing substantially all of the Company’s consolidated results of operations, excluding certain intercompany eliminations.

The following condensed consolidating financial statements present the results of operations, financial position and cash flows of NAI, the Company and the subsidiaries of the Company and the eliminations and reclassifications necessary to arrive at the information for the Company on a consolidated basis.

 

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NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Condensed Consolidating Statement of Operations

For the three months ended March 31, 2013

(in millions)

 

     News America
Incorporated
    News
Corporation
    Non-Guarantor     Reclassifications
and Eliminations
    News
Corporation
and
Subsidiaries
 

Revenues

   $ 1     $ —       $ 9,537     $ —       $ 9,538  

Expenses

     (132     —         (8,100     —         (8,232

Equity earnings (losses) of affiliates

     1       —         156       —         157  

Interest expense, net

     (380     (120     (18     242       (276

Interest income

     —         1       273       (242     32  

Earnings (losses) from subsidiary entities

     2,397       2,971       —         (5,368     —    

Other, net

     (16     2       2,445       —         2,431  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     1,871       2,854       4,293       (5,368     3,650  

Income tax (expense) benefit

     (309     —         (881     449       (741
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     1,562       2,854       3,412       (4,919     2,909  

Less: Net income attributable to noncontrolling interests

     —         —         (55     —         (55
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to News Corporation stockholders

   $ 1,562     $ 2,854     $ 3,357     $ (4,919   $ 2,854  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to News Corporation stockholders

   $ 1,485     $ 2,407     $ 3,263     $ (4,748   $ 2,407  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See notes to supplemental guarantor information

 

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Table of Contents

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Condensed Consolidating Statement of Operations

For the three months ended March 31, 2012

(in millions)

 

     News America
Incorporated
    News
Corporation
     Non-Guarantor     Reclassifications
and Eliminations
    News
Corporation
and
Subsidiaries
 

Revenues

   $ 1     $ —        $ 8,401     $ —       $ 8,402  

Expenses

     (104     —          (7,013     —         (7,117

Equity earnings (losses) of affiliates

     (1     —          205       —         204  

Interest expense, net

     (375     373        (3     (253     (258

Interest income

     1       1        (229     253       26  

Earnings (losses) from subsidiary entities

     128       563        —         (691     —    

Other, net

     15       —          12       —         27  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     (335     937        1,373       (691     1,284  

Income tax (expense) benefit

     73       —          (284     (70     (281
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

     (262     937        1,089       (761     1,003  

Less: Net income attributable to noncontrolling interests

     —         —          (66     —         (66
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to News Corporation stockholders

   $ (262   $ 937      $ 1,023     $ (761   $ 937  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to News Corporation stockholders

   $ (239   $ 1,351      $ 1,219     $ (980   $ 1,351  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

 

See notes to supplemental guarantor information

 

39


Table of Contents

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Condensed Consolidating Statement of Operations

For the nine months ended March 31, 2013

(in millions)

 

     News America
Incorporated
    News
Corporation
    Non-Guarantor     Reclassifications
and Eliminations
    News
Corporation
and
Subsidiaries
 

Revenues

   $ 1     $ —       $ 27,098     $ —       $ 27,099  

Expenses

     (388     —         (22,664     —         (23,052

Equity earnings (losses) of affiliates

     (1     —         522       —         521  

Interest expense, net

     (1,143     (354     (29     717       (809

Interest income

     1       5       811       (717     100  

Earnings (losses) from subsidiary entities

     4,011       7,811       —         (11,822     —    

Other, net

     (8     6       5,208       —         5,206  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     2,473       7,468       10,946       (11,822     9,065  

Income tax (expense) benefit

     (382     —         (1,693     673       (1,402
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2,091       7,468       9,253       (11,149     7,663  

Less: Net income attributable to noncontrolling interests

     —         —         (195     —         (195
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to News Corporation stockholders

   $ 2,091     $ 7,468     $ 9,058     $ (11,149   $ 7,468  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to News Corporation stockholders

   $ 1,995     $ 7,330     $ 8,883     $ (10,878   $ 7,330  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See notes to supplemental guarantor information

 

40


Table of Contents

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Condensed Consolidating Statement of Operations

For the nine months ended March 31, 2012

(in millions)

 

     News America
Incorporated
    News
Corporation
    Non-Guarantor     Reclassifications
and Eliminations
    News
Corporation
and
Subsidiaries
 

Revenues

   $ 1     $ —       $ 25,335     $ —       $ 25,336  

Expenses

     (309     —         (20,987     —         (21,296

Equity earnings (losses) of affiliates

     (5     —         472       —         467  

Interest expense, net

     (1,121     (299     (10     657       (773

Interest income

     3       5       740       (657     91  

Earnings (losses) from subsidiary entities

     290       3,090       —         (3,380     —    

Other, net

     24       (64     62       —         22  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     (1,117     2,732       5,612       (3,380     3,847  

Income tax (expense) benefit

     271       —         (1,359     157       (931
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (846     2,732       4,253       (3,223     2,916  

Less: Net income attributable to noncontrolling interests

     —         —         (184     —         (184
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to News Corporation stockholders

   $ (846   $ 2,732     $ 4,069     $ (3,223   $ 2,732  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to News Corporation stockholders

   $ (724   $ 2,065     $ 3,604     $ (2,880   $ 2,065  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See notes to supplemental guarantor information

 

41


Table of Contents

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Condensed Consolidating Balance Sheet

At March 31, 2013

(in millions)

 

     News America
Incorporated
     News
Corporation
     Non-Guarantor     Reclassifications
and Eliminations
    News
Corporation
and
Subsidiaries
 

ASSETS:

            

Current assets:

            

Cash and cash equivalents

   $ 384      $ 5,034      $ 3,906     $ —       $ 9,324  

Receivables, net

     7        —          7,129       —         7,136  

Inventories, net

     —          —          3,476       —         3,476  

Other

     26        6        825       —         857  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     417        5,040        15,336       —         20,793  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets:

            

Receivables

     19        —          412       —         431  

Inventories, net

     —          —          5,002       —         5,002  

Property, plant and equipment, net

     127        —          5,857       —         5,984  

Intangible assets, net

     —          —          8,331       —         8,331  

Goodwill

     —          —          20,139       —         20,139  

Other

     363        —          825       —         1,188  

Investments:

            

Investments in associated companies and other investments

     84        54        6,484       —         6,622  

Intragroup investments

     54,556        59,535        —         (114,091     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total investments

     54,640        59,589        6,484       (114,091     6,622  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 55,566      $ 64,629      $ 62,386     $ (114,091   $ 68,490  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities:

            

Borrowings

   $ 157      $ —        $ —       $ —       $ 157  

Other current liabilities

     528        197        10,171       —         10,896  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     685        197        10,171       —         11,053  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Non-current liabilities:

            

Borrowings

     16,029        —          288       —         16,317  

Other non-current liabilities

     875        —          6,351       —         7,226  

Intercompany

     28,332        34,368        (62,700     —         —    

Redeemable noncontrolling interests

     —          —          645       —         645  

Total equity

     9,645        30,064        107,631       (114,091     33,249  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 55,566      $ 64,629      $ 62,386     $ (114,091   $ 68,490  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See notes to supplemental guarantor information

 

42


Table of Contents

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Condensed Consolidating Balance Sheet

At June 30, 2012

(in millions)

 

     News America
Incorporated
     News
Corporation
     Non-Guarantor     Reclassifications
and Eliminations
    News
Corporation
and
Subsidiaries
 

ASSETS

            

Current Assets:

            

Cash and cash equivalents

   $ 561      $ 6,005      $ 3,060     $ —       $ 9,626  

Receivables, net

     1        9        6,598       —         6,608  

Inventories, net

     —          —          2,595       —         2,595  

Other

     17        14        588       —         619  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     579        6,028        12,841       —         19,448  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets:

            

Receivables

     19        —          368       —         387  

Inventories, net

     —          —          4,596       —         4,596  

Property, plant and equipment, net

     119        —          5,695       —         5,814  

Intangible assets, net

     —          —          7,133       —         7,133  

Goodwill

     —          —          13,174       —         13,174  

Other

     334        2        807       —         1,143  

Investments:

            

Investments in associated companies and other investments

     95        39        4,834       —         4,968  

Intragroup investments

     49,266        49,953        —         (99,219     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total investments

     49,361        49,992        4,834       (99,219     4,968  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL ASSETS

   $ 50,412      $ 56,022      $ 49,448     $ (99,219   $ 56,663  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

            

Current liabilities:

            

Borrowings

   $ 273      $ —        $ —       $ —       $ 273  

Other current liabilities

     510        —          8,834       —         9,344  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     783        —          8,834       —         9,617  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Non-current liabilities:

            

Borrowings

     15,182        —          —         —         15,182  

Other non-current liabilities

     384        —          5,654       —         6,038  

Intercompany

     27,470        31,338        (58,808     —         —    

Redeemable noncontrolling interests

     —          —          641       —         641  

Total equity

     6,593        24,684        93,127       (99,219     25,185  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

   $ 50,412      $ 56,022      $ 49,448     $ (99,219   $ 56,663  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

See notes to supplemental guarantor information

 

43


Table of Contents

NEWS CORPORATION

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Supplemental Condensed Consolidating Statement of Cash Flows

For the nine months ended March 31, 2013

(in millions)

 

     News
America
Incorporated
    News
Corporation
    Non-Guarantor     Reclassifications
and
Eliminations
     News
Corporation
and
Subsidiaries
 

Operating activities:

           

Net cash provided by (used in) operating activities

   $ (869   $ 909     $ 2,723     $ —        $ 2,763  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Investing activities:

           

Property, plant and equipment, net of acquisitions

     (16     —         (611     —          (627

Investments

     (6     (15     (3,406     —          (3,427

Proceeds from dispositions

     —         —         2,670       —          2,670  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     (22     (15     (1,347     —          (1,384
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Financing activities:

           

Borrowings

     987       —         290       —          1,277