Income Taxes (Tables)

12 Months Ended

Jun. 30, 2014

Schedule of (Loss) Income Before Income Tax (Benefit) Expense Attributable to Jurisdictions

(Loss) income before income tax (benefit) expense was attributable to the following jurisdictions:


	For the fiscal years ended June 30,
	2014^(a)			2013			2012
	(in millions)
U.S.	$	(821	)	$	(432	)	$	(829	)
Foreign		424			605			(1,548	)

(Loss) income before income tax (benefit)	$	(397	)	$	173		$	(2,377	)

^(a)	See discussion of Foreign Tax Refund below.

Schedule of Components of Income Tax (Benefit)

The significant components of the Company’s income tax (benefit) were as follows:


	For the fiscal years ended June 30,
	2014^(a)			2013			2012
	(in millions)
Current:
U.S.
Federal	$	11		$	183		$	29
State & local		(19	)		21			11
Foreign		(734	)		99			104

Total current tax		(742	)		303			144

U.S.
Federal		17			(317	)		(254	)
State & local		12			(33	)		(31	)
Foreign		22			(327	)		(196	)

Total deferred tax		51			(677	)		(481	)

Total income tax (benefit)	$	(691	)	$	(374	)	$	(337	)

^(a)	See discussion of Foreign Tax Refund below.

Net Impact of Tax Refund and Interest, Net of Tax, Recorded in Statement of Operations

Refer to the table below for the net impact of the tax refund and interest, net of tax, recorded in the Statements of Operations:


	For the fiscal year ended June 30, 2014
	(in millions)
Other, net	$	(721	)
Income tax benefit		721

Net impact to the Statement of Operations	$	—

Effective Income Tax Rate Reconciliation

The reconciliation between the Company’s actual effective tax rate and the statutory U.S. Federal income tax rate of 35% was:


	For the fiscal years ended June 30,
	2014			2013			2012
U.S. federal income tax rate		35	%		35	%		35	%
State and local taxes, net		1			(2	)		1
Foreign operations at lower tax rates^(a)		17			(35	)		(4	)
Foreign tax refund received^(b)		182			—			—
Foreign tax refund paid to 21st Century Fox^(b)		(64	)		—			—
Impact of CMH transaction^(c)		—			(247	)		—
Non-taxable gain on SKY Network Television Ltd.^(d)		—			(56	)		—
Non-deductible goodwill on asset impairment^(e)		—			87			(16	)
Other		3			2			(2	)

Effective tax rate^(f)		174	%		(216	)%		14	%

^(a)

The Company’s foreign operations are located primarily in Australia and the United Kingdom (“UK”) which have lower income tax rates than the U.S. For the year ended June 30, 2014, the effect of foreign operations had the opposite impact on the effective tax rate from the prior years due to the overall pre-tax book loss. The significant amount of pre-tax income from foreign jurisdictions in fiscal 2013 disclosed in the table of jurisdictional earnings above is primarily attributable to non-recurring gains from our operations in Australia, including the CMH transaction, and gain from the sale of the Company’s investment in SKY Network Television Ltd. which are discussed in footnotes (d) and (e) below. The impact of foreign operations on the Company’s effective tax rate is dependent on the mix of pre-tax book income or loss amongst jurisdictions and the overall level of pre-tax book income, including non-recurring items. In addition to tax rates in Australia and the UK being lower than in the U.S., in fiscal 2013, the effect of our foreign operations had a greater percentage impact on our effective tax rate than in prior years due to the Company’s comparatively low amount of overall pre-tax book income in that year.

^(b)

The Company recorded a tax benefit, net of applicable taxes on interest, of $721 million for the fiscal year ended June 30, 2014 to Income tax benefit in the Statements of Operations related to certain foreign tax refunds received. See the discussion of Foreign Tax Refund above. The tax benefit related to these refunds increased our effective tax rate 182%.

These foreign tax refunds received were remitted to 21st Century Fox, net of applicable taxes on interest, in accordance with the terms of the Tax Sharing and Indemnification Agreement. Accordingly, for the fiscal year ended June 30, 2014, the Company recorded an expense to Other, net of approximately $721 million for the payment to 21st Century Fox in the Statements of Operations. This expense is a non-deductible item the tax effect of which is approximately $252 million and reflected as a decrease of approximately 64% in our effective tax rate.

^(c)

The Company recognized a non-recurring pre-tax gain of approximately $1.3 billion associated with the acquisition of CMH for the fiscal year ended June 30 2013. This pre-tax gain does not give rise to taxable income. The 247% reduction in our effective tax rate in fiscal 2013 is attributable to the non-taxable gain recognized on the acquisition of CMH, which was a result of revaluing the Company’s non-controlling interest to fair value as of the acquisition date, as well as the reversal of the historic deferred tax liability related to the consolidation of FOX SPORTS Australia. See Note 3—Acquisitions, Disposals and Other Transactions for further information.

^(d)	In March 2013, the Company sold its 44% equity interest in SKY Network Television Ltd. and recorded a non-taxable gain of approximately $321 million which was included in Other, net in the Statements of Operations for the fiscal year ended June 30, 2013. See Note 5—Investments.

^(e)	The Company recorded non-cash charges related to the impairment of Goodwill. To the extent these expenses are non-deductible they have an impact on our effective tax rate. See Note 7—Goodwill and Other Intangible Assets

^(f)

For the fiscal year ended June 30, 2014, the effective tax rate of 174% represents an income tax benefit when compared to a pre-tax book loss. As a result, certain reconciling items between the U.S. federal income tax rate and the Company’s effective tax rate may have the opposite impact as in prior years. For the fiscal year ended June 30, 2013, the negative effective tax rate results from the Company’s total tax benefit when compared to pre-tax book income. Further, reconciling items for the fiscal year ended June 30, 2013 have a greater percentage impact on the Company’s effective tax rate due to the comparatively lower amount of pre-tax book income and related tax at the U.S. statutory tax rate of 35%.

Summary of Recognized Current and Deferred Income Taxes in Balance Sheets

The Company recognized current and deferred income taxes in the Balance Sheets at June 30, 2014 and 2013, respectively:


	As of June 30,
	2014			2013
	(in millions)
Other current assets	$	76		$	55
Other non-current assets		146			139
Other current liabilities		(36	)		(61	)
Deferred income taxes		(224	)		(152	)

Net deferred tax liabilities	$	(38	)	$	(19	)

Schedule of Components of Deferred Tax Assets and Liabilities

The significant components of the Company’s deferred tax assets and liabilities were as follows:


	As of June 30,
	2014			2013
	(in millions)
Deferred tax assets:
Accrued liabilities	$	49		$	61
Capital loss carryforwards		1,120			1,124
Retirement benefit obligations		89			105
Net operating loss carryforwards		262			275
Business credits		47			20
Other		225			155

Total deferred tax assets		1,792			1,740

Deferred tax liabilities:
Asset basis difference and amortization		(376	)		(366	)
Other		(61	)		(2	)

Total deferred tax liabilities		(437	)		(368	)

Net deferred tax asset before valuation allowance		1,355			1,372
Less: valuation allowance (See Note 20 - Valuation and Qualifying Accounts)		(1,393	)		(1,391	)

Net deferred tax liabilities	$	(38	)	$	(19	)

Change in Unrecognized Tax Benefits, Excluding Interest and Penalties

The following table sets forth the change in the Company’s unrecognized tax benefits, excluding interest and penalties:


	For the fiscal years ended June 30,
	2014			2013			2012
	(in millions)
Balance, beginning of period	$	127		$	132		$	132
Additions for prior year tax positions		39			1			—
Additions for current year tax positions		5			6			5
Reduction for prior year tax positions		(114	)		—			—
Impact of currency translations		1			(12	)		(5	)

Balance, end of period	$	58		$	127		$	132

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

+ References+ Details