NOTE 11. EQUITY-BASED COMPENSATION

For the fiscal year ended June 30, 2015, the Company’s employees participated in the Company’s 2013 Long-Term Incentive Plan (the “2013 LTIP”) which was approved by the Compensation Committee of 21st Century Fox’s Board of Directors (the “21st Century Fox Compensation Committee”) prior to the Separation. The Company has the ability to award up to 30 million shares under the terms of the 2013 LTIP in addition to the converted awards described below under “News Corporation Incentive Plans subsequent to the Separation.” The equity-based compensation expense recorded by the Company for fiscal 2015 includes the direct expenses associated with equity awards granted to the Company’s employees under the 2013 LTIP. Prior to the Separation from 21st Century Fox, the Company’s employees participated in 21st Century Fox’s equity-based compensation plans (the “21st Century Fox Plans”) pursuant to which they were granted 21st Century Fox equity awards. The equity-based payment expense recorded by the Company prior to the Separation includes the expense associated with the employees historically attributable to the Company’s operations, as well as an allocation of equity-based compensation expense for 21st Century Fox corporate employees who provided certain centralized support functions.

In connection with the acquisition of Move in November 2014, the Company assumed Move’s equity incentive plans and substantially all of the awards outstanding under such plans. The stock options, RSUs and restricted stock awards that were assumed continue to have the same terms and conditions that applied to those awards immediately prior to the acquisition, except that such assumed awards were converted into awards with the right to be settled in, or by reference to, the Company’s Class A Common Stock in accordance with the acquisition agreement, using a formula designed to preserve the value of the awards based on the price per share paid in the acquisition. The Company assumed and converted approximately 4.3 million stock options and approximately 2.5 million RSUs and restricted stock awards in connection with the transaction.

The following table summarizes the Company’s equity-based compensation expense reported in the Statements of Operations:


	For the fiscal years ended June 30,
	2015		2014		2013
	(in millions)
News Corporation’s employees	$	54	$	34	$	41
Allocated^(a)		—		—		8

Total	$	54	$	34	$	49

Total intrinsic value of stock options exercised	$	24	$	2	$	23

^(a)	The allocated expense includes executive directors and corporate executives of 21st Century Fox, allocated using a proportional allocation methodology, which management has deemed to be reasonable.

As of June 30, 2015, total compensation cost not yet recognized for all plans presented related to unvested awards held by the Company’s employees was approximately $73 million and is expected to be recognized over a weighted average period between one and two years.

The tax benefit recognized on vested PSUs and RSUs for the Company’s employees and stock options exercised by the Company’s employees was $17 million, $8 million and $10 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively.

News Corporation Incentive Plans subsequent to the Separation

Subsequent to the Separation, employees of News Corporation participate in the 2013 LTIP under which equity-based compensation, including stock options, PSUs, restricted stock, RSUs and other types of awards, can be granted. The Compensation Committee of the Board of Directors determines the recipients, type of award to be granted and amounts of awards granted under the 2013 LTIP.

In addition, in connection with the Separation, RSUs and PSUs granted to the Company’s employees under the 21st Century Fox plan’s that vested on or after January 1, 2014 and stock option awards that expired on or after January 1, 2014 were converted into new equity awards of the Company, in accordance with the Employee Matters Agreement that the Company entered into with 21st Century Fox in connection with the Separation (the “Employee Matters Agreement”), using a formula designed to preserve the value of the awards immediately prior to the Separation. Converted awards have the same terms and features as the original awards, except with respect to PSU performance metrics, which were adjusted to account for the impact of the Separation. These awards will be settled under the terms of the Company’s 2013 LTIP.

21st Century Fox Incentive Plans prior to the Separation

Prior to the Separation, the Company’s employees participated in the 21st Century Fox Plans under which equity-based compensation, including stock options, PSUs, restricted stock, RSUs and other types of awards, was granted. The 21st Century Fox Compensation Committee determined the recipients, type of award to be granted and amounts of awards granted under the 21st Century Fox Plans. Stock options awarded under the 21st Century Fox Plans were granted at exercise prices which were equal to or exceeded the market price of the underlying shares of common stock at the date of grant. The majority of equity-based compensation awards which vested on or prior to December 31, 2013 were settled in 21st Century Fox stock. As of June 30, 2015, all awards held by the Company’s employees will be settled in shares of the Company.

Summary of Incentive plans

The fair value of equity-based compensation granted under the 2013 LTIP or the 21st Century Fox Plans, as applicable, is calculated according to the type of award issued. Cash settled awards are marked-to-market at each reporting period.

Performance Stock Units

PSUs are fair valued on the date of grant and expensed using a straight-line method as the awards cliff vest at the end of the three-year performance period. The number of shares expected to vest is based on management’s determination of the probable outcome of the performance condition. The number of shares that will be issued upon the vesting of PSUs can range from 0% to 200% of the target award. The Company records a cumulative adjustment in periods in which its estimate of the number of shares expected to vest changes. Additionally, the expense recognized is ultimately adjusted to reflect the actual vested shares following the achievement, if any, of the performance conditions. The number of awards which vest are also impacted by the Company’s three-year total shareholder return (“TSR”) as measured against the three-year TSR of the companies that comprise the Standard and Poor’s 500 Index. The fair value of the TSR condition is determined using a Monte Carlo simulation model. Any person who holds PSUs shall have no ownership interest in the shares to which such PSUs relate until and unless the shares are delivered to the holder. All shares of Class A Common Stock reserved for cancelled or forfeited equity-based compensation awards become available for future grants.

In the first quarter of fiscal 2015, certain executives of the Company responsible for various business units each received a grant of PSUs that has a three-year performance measurement period beginning on July 1, 2014. The awards are subject to the achievement of pre-defined targets for cumulative earnings per share and cumulative free cash flow for the applicable performance period. The majority of these awards will be settled in shares of the Company’s Class A Common Stock subject to the achievement of the relevant performance metrics and participants’ continued employment with the Company.

In the second quarter of fiscal 2014, certain executives of the Company responsible for various business units each received a grant of PSUs that has a three-year performance measurement period beginning on July 1, 2013. The awards are subject to the achievement of pre-defined targets for cumulative earnings per share and consolidated free cash flow growth for the applicable performance period. The majority of these awards will be settled in shares of the Company’s Class A Common Stock subject to the achievement of the relevant performance metrics and participants’ continued employment with the Company.

In the first quarter of fiscal 2013, certain executives of the Company responsible for various business units each received a grant of PSUs that has a three-year performance measurement period beginning in July 2012. The awards are subject to the achievement of pre-defined goals for operating profit, cash flow and key divisional performance indicators for the applicable performance period. These awards were converted to equity awards of the Company and the majority will be settled in shares of the Company’s Class A Common Stock subject to the achievement of the relevant performance metrics and participants’ continued employment with the Company.

For the fiscal years ended June 30, 2015, 2014 and 2013, a total of 3.4 million, 4.3 million and 1.7 million target PSUs were granted to the Company’s employees, respectively, of which 2.3 million, 2.7 million and 1.2 million, respectively, will be settled in Class A Common Stock of the Company, with the remaining having been granted to executive directors and to employees in certain foreign locations, being settled in cash.

Restricted Stock Units

RSU awards are grants that entitle the holder to shares of the Company’s Class A Common Stock or the cash equivalent value of such shares based on the expected vesting date. The fair value of RSUs issued under the 2013 LTIP or 21st Century Fox Plans is based upon the fair market value of the shares underlying the awards on the grant date. Any person who holds RSUs shall have no ownership interest in the shares to which such RSUs relate until and unless shares are delivered to the holder. Certain RSU awards are settled in cash and are subject to the terms and conditions of the 2013 LTIP and such other terms and conditions as were previously established by the 21st Century Fox Compensation Committee or as may be established by the Company’s Compensation Committee.

During fiscal 2015 and 2014, certain employees of the Company received a grant of time-vested RSUs. The awards are subject to the participants’ continued employment with the Company.

In fiscal 2013, certain executives responsible for various business units within the Company had the opportunity to earn a grant of RSUs under the 21st Century Fox Plans. These awards were conditioned upon the achievement of pre-determined operating profit goals for fiscal 2013 by the executive’s respective business unit. If the actual fiscal 2013 operating profit of the executive’s business unit as compared to its pre-determined target operating profit for the fiscal year was within a certain performance goal range, the executive was entitled to receive a grant of RSUs pursuant to a Performance Award. To the extent that it was determined that the business unit’s actual fiscal 2013 operating profit fell within the performance goal range for that fiscal year, the executive received a percentage of his or her annualized base salary, ranging from 0% to 100%, in time-vested RSUs representing shares of Class A Common Stock of either 21st Century Fox or the Company depending on the vesting date of such awards. As of June 30, 2014, all such RSUs were settled by the Company in accordance with the terms of the awards.

During the fiscal years ended June 30, 2015, 2014 and 2013, 0.5 million, 0.2 million and 0.2 million RSUs were granted to the Company’s employees, respectively, which primarily vest over three to four years. RSUs held by the Company’s employees as of the Distribution Date were settled in shares of 21st Century Fox’s Class A Common Stock if such awards vested on or prior to December 31, 2013. The remaining awards will be settled in shares of the Company’s Class A Common Stock or the cash equivalent value of such shares under the 2013 LTIP upon vesting. Approximately 52,000 cash-settled RSUs held by the Company’s employees vested during the fiscal year ended June 30, 2015, no cash-settled RSUs vested during the fiscal year ended June 30, 2014 and approximately 266,000 cash-settled RSUs vested during the fiscal year ended June 30, 2013. Cash paid to the Company’s employees for vested cash-settled RSUs was approximately $0.9 million for the fiscal year ended June 30, 2015, nil for the fiscal year ended June 30, 2014, and approximately $6 million in the fiscal year ended June 30, 2013.

The following table summarizes the activity related to the target PSUs and RSUs granted to the Company’s employees which will be settled in shares of the Company (PSUs and RSUs in thousands):


	Fiscal 2015					Fiscal 2014					Fiscal 2013
	Number of shares			Weighted average grant- date fair value^(g)		Number of shares			Weighted average grant- date fair value^(g)		Number of shares			Weighted average grant- date fair value^(g)
*PSUs and RSUs*
Unvested units at beginning of the year		7,222		$	13.00		5,557		$	9.46		3,076		$	14.81
Granted^(a)		2,975			17.29		2,924			19.06		1,414			24.83
RSUs assumed in acquisition^(b)		2,491			15.20		—			—		—			—
Vested^(c)		(3,131	)		10.19		(24	)		10.70		(869	)		14.46
Cancelled^(d)		(1,202	)		11.36		(1,235	)		11.39		(426	)		15.52
Units impacted by the Separation^(e)		—			—		—			—		(609	)		17.02
Units granted in conversion, as a result of the Separation		—			—		—			—		2,971			9.46

Unvested units at the end of the year^(f)		8,355		$	16.77		7,222		$	13.00		5,557		$	9.46

^(a)	Includes 2.3 million target PSUs and 0.5 million RSUs granted during fiscal 2015 and a payout adjustment of 0.2 million PSUs due to the actual performance level achieved for PSUs granted in 2012 that vested during fiscal 2015.

^(b)	Represents RSUs assumed in the Move acquisition. The weighted average grant date fair value for the assumed awards was calculated using the fair value of the awards at the acquisition date.

^(c)	The fair value of PSUs and RSUs held by the Company’s employees that vested during the fiscal years ended June 30, 2015, 2014 and 2013 was $32 million, nil and $20 million, respectively.

^(d)	Includes 0.3 million of target PSUs and 0.3 million RSUs cancelled during fiscal 2015 and a payout adjustment of 0.6 million PSUs due to the actual performance level achieved for PSUs granted in 2012 that vested during fiscal 2015.

^(e)

Represented 0.9 million of unvested PSUs and RSUs as of June 28, 2013, the date of the Separation, which were converted to and were settled in shares of 21st Century Fox Class A Common Stock as such awards vested on or prior to December 31, 2013, offset by 0.3 million awards which represent PSUs and RSUs held by 21st Century Fox Corporate employees who became employed by the Company during the 12 months prior to the Separation. These awards have been assumed by the Company and will be settled in the shares of the Company.

^(f)	The intrinsic value of these unvested RSUs and target PSUs was approximately $127 million as of June 30, 2015.

^(g)

The weighted average grant date fair value prior to June 30, 2013 represents the fair value of awards granted with respect to 21st Century Fox Class A Common Stock prior to conversion to awards of the Company. The weighted average grant date fair value of awards granted under the 21st Century Fox plans and converted into Company equity awards as of and subsequent to June 30, 2013 represents the fair value of the award using the conversion ratio set forth by the 21st Century Fox Compensation Committee.

Stock Options

As of June 28, 2013, the Company’s employees participated in certain stock option plans which were assumed by the Company. Outstanding awards under these plans were converted to and will be settled in Class A Common Stock of the Company as the expiration of such awards was subsequent to December 31, 2013. No stock options have been granted by the Company during the fiscal years ended June 30, 2015 and 2014.

The following table summarizes information about stock option transactions for the employee stock option plans (options in thousands):


	Fiscal 2015					Fiscal 2014					Fiscal 2013
	Options			Weighted average exercise price^(e)		Options			Weighted average exercise price^(e)		Options			Weighted average exercise price^(e)
				(in US$)					(in US$)					(in US$)		(in A$)
Outstanding at the beginning of the year		263		$	6.25		463		$	5.88		4,086		$	12.40	$	18.27
Options assumed in acquisition^(a)		4,336			7.46		—			—		—			—		—
Exercised		(2,521	)		6.22		(200	)		5.39		(2,924	)		12.57		18.53
Cancelled		(70	)		8.37		—			—		(191	)		12.39		18.86
Options impacted by the Separation^(b)		—			—		—			—		(786	)		11.27		17.08
Shares granted in conversion, as a result of the Separation		—			—		—			—		278			5.88		—

Outstanding at the end of the year^(c)		2,008		$	8.82		263		$	6.25		463		$	5.88	$	—

Exercisable at the end of the year^(d)		1,117					263					463

^(a)

Represents options assumed in the Move acquisition. The weighted average exercise price for the assumed options was calculated using the converted exercise price at the acquisition date. The converted exercise price was calculated using a formula designed to preserve the value of the awards based on the price per share paid in the acquisition.

^(b)	Represents 0.8 million of outstanding options as of the Distribution Date, which were converted into and settled in Class A Common Stock of 21st Century Fox.

^(c)

Represents the total number of outstanding options as of the Distribution Date which was converted to and will be settled in Class A Common Stock of the Company as the options expire subsequent to December 31, 2013. The intrinsic value of options outstanding held by the Company’s employees as of June 30, 2015, 2014 and 2013 was $12.8 million, $3.1 million, and $4.3 million, respectively. The weighted average remaining contractual life of options outstanding as of June 30, 2015 was 6.01 years.

^(d)	The weighted average remaining contractual life of options exercisable as of June 30, 2015 was 4.34 years.

^(e)

The weighted average exercise price prior to June 30, 2013 represents the exercise price of options granted with respect to 21st Century Fox Class A Common Stock prior to conversion to awards of the Company. The weighted average exercise price of awards as of and subsequent to June 30, 2013 represents the exercise price of the awards using the conversion ratio set forth by the 21st Century Fox Compensation Committee.

The exercise prices for the stock options issued prior to 21st Century Fox’s reorganization in November 2004 are in Australian dollars. The U.S. dollar equivalents presented above have been converted at historical exchange rates; therefore, the proceeds from the exercise of these stock options may differ due to fluctuations in exchange rates in periods subsequent to the date of the grant.