NOTE 12. EQUITY-BASED COMPENSATION

Employees of the Company participate in the News Corporation 2013 Long-Term Incentive Plan (the “2013 LTIP”) under which equity-based compensation, including stock options, performance stock units (“PSUs”), restricted stock awards, RSUs and other types of awards can be granted. The Company has the ability to award up to 30 million shares of Class A Common Stock under the terms of the 2013 LTIP in addition to awards assumed in connection with the Separation and with acquisitions.

In connection with the acquisition of Move in November 2014, the Company assumed 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 from continuing operations reported in the Statements of Operations:


	For the fiscal years ended June 30,
	2016		2015		2014
	(in millions)
Total Equity compensation expense	$	55	$	53	$	32

Total intrinsic value of stock options exercised	$	3	$	24	$	2

As of June 30, 2016, total compensation cost not yet recognized for all plans presented related to unvested awards held by the Company’s employees was approximately $53 million and is expected to be recognized over a weighted average period of between one and two years.

The tax benefit recognized on PSUs and RSUs for the Company’s employees that vested, and stock options that were exercised by the Company’s employees, during the applicable fiscal year was $11 million, $17 million and $8 million for the fiscal years ended June 30, 2016, 2015 and 2014, respectively.

Summary of Incentive Plans

The fair value of equity-based compensation granted under the 2013 LTIP is calculated according to the type of award issued. Cash settled awards are marked-to-market at the end of each reporting period.

Performance Stock Units

PSU awards are grants that entitle the holder to shares of the Company’s Class A Common Stock or the cash equivalent value of such shares based on the achievement of pre-established performance metrics over the applicable performance period. PSUs are fair valued on the date of grant and expensed using a straight-line method as the awards cliff vest at the end of the three-year performance period. The number of PSUs that will vest can range from 0% to 200% of the target award and will be based on the achievement of the performance condition and the Company’s three-year total shareholder return (“TSR”). The expense recorded for the portion of the award that is subject to the performance condition is based on management’s determination of the probable outcome of the performance condition and the corresponding number of shares expected to vest. The Company records a cumulative expense adjustment in periods in which its estimate of the number of shares expected to vest changes. Additionally, the expense recognized is ultimately adjusted to reflect the actual number of shares that vested based on the achievement of the performance condition. The number of awards which vest is also impacted by the Company’s 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 or cash to which such PSUs relate unless and until the shares or cash are delivered to the holder. All shares of Class A Common Stock reserved for cancelled or forfeited equity-based compensation awards become available for future grants.

In the first quarters of fiscal 2016 and 2015, certain employees of the Company each received a grant of PSUs that has a three-year performance measurement period beginning on July 1, 2015 and July 1, 2014, respectively. Vesting of the awards is subject to the achievement of the performance condition, consisting of pre-defined targets for cumulative earnings per share and cumulative free cash flow for the applicable performance period, as well as the TSR condition. The majority of these awards will be settled in shares of the 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 employees of the Company each received a grant of PSUs that has a three-year performance measurement period beginning on July 1, 2013. Vesting of the awards is subject to the achievement of the performance condition, consisting of pre-defined targets for cumulative earnings per share and consolidated free cash flow growth for the applicable performance period, as well as the TSR condition. The majority of these awards will be settled in shares of the 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, 2016, 2015 and 2014, a total of 4.2 million, 3.4 million and 4.3 million target PSUs were granted to the Company’s employees, respectively, of which 3.0 million, 2.3 million and 2.7 million, respectively, will be settled in Class A Common Stock of the Company, with the remaining, having been granted to executive directors and to employees in certain foreign locations, being settled in cash.

For the fiscal years ended June 30, 2016, 2015 and 2014, approximately 1.2 million, 2.0 million and nil PSUs vested, respectively, of which approximately 0.2 million, 0.5 million and nil PSUs, respectively, were settled in cash for approximately $3.3 million, $8.2 million and nil before statutory tax withholdings, respectively.

Restricted Stock Units

RSU awards are grants that entitle the holder to shares of the Company’s Class A Common Stock or the cash equivalent value of such shares based on the share price on the expected vesting date. The fair value of RSUs issued under the 2013 LTIP is based upon the fair market value of the shares underlying the awards on the grant date. Any person who holds RSUs shall have no ownership interest in the shares or cash to which such RSUs relate unless and until shares or cash are delivered to the holder.

During fiscal 2016, 2015 and 2014, certain employees of the Company each received a grant of time-vested RSUs. Vesting of the awards is subject to the participants’ continued employment with the Company through the applicable vesting date. During the fiscal years ended June 30, 2016, 2015 and 2014, 0.3 million, 0.5 million and 0.2 million RSUs were granted to the Company’s employees, respectively, which primarily vest over three to four years.

The following table summarizes the activity from continuing and discontinued operations 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 2016					Fiscal 2015					Fiscal 2014
	Number of shares			Weighted average grant- date fair value		Number of shares			Weighted average grant- date fair value		Number of shares			Weighted average grant- date fair value
*PSUs and RSUs*
Unvested units at beginning of the year		8,355		$	16.77		7,222		$	13.00		5,557		$	9.46
Granted^(a)		3,472			15.51		2,975			17.29		2,924			19.06
RSUs assumed in acquisition^(b)		—			—		2,491			15.20		—			—
Vested^(c)		(1,913	)		13.56		(3,131	)		10.19		(24	)		10.70
Cancelled^(d)		(2,141	)		15.76		(1,202	)		11.36		(1,235	)		11.39

Unvested units at the end of the year^(e)		7,773		$	17.34		8,355		$	16.77		7,222		$	13.00

^(a)	For fiscal 2016, includes 3.0 million target PSUs and 0.3 million RSUs granted and a payout adjustment of 0.2 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2013 that vested during fiscal 2016.

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

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

^(c)	The fair value of PSUs and RSUs held by the Company’s employees that vested during the fiscal years ended June 30, 2016, 2015 and 2014 was $26 million, $32 million, and nil, respectively.

^(d)	For fiscal 2016, includes 0.8 million of target PSUs and 0.3 million RSUs cancelled and a payout adjustment of 1.0 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2013 that vested during fiscal 2016.

For fiscal 2015, includes 0.3 million of target PSUs and 0.3 million RSUs cancelled during fiscal 2015 and a payout adjustment of 0.6 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2012 that vested during fiscal 2015.

^(e)	The intrinsic value of these unvested RSUs and target PSUs was approximately $89 million as of June 30, 2016.

Stock Options

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


	Fiscal 2016					Fiscal 2015					Fiscal 2014
	Options			Weighted average exercise price		Options			Weighted average exercise price		Options			Weighted average exercise price
				(in US$)					(in US$)					(in US$)
Outstanding at the beginning of the year		2,008		$	8.82		263		$	6.25		463		$	5.88
Options assumed in acquisition^(a)		—			—		4,336			7.46		—			—
Exercised		(508	)		7.34		(2,521	)		6.22		(200	)		5.39
Cancelled		(262	)		10.75		(70	)		8.37		—			—

Outstanding at the end of the year^(b)		1,238		$	9.03		2,008		$	8.82		263		$	6.25

Exercisable at the end of the year^(c)		945					1,117					263

^(a)

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

^(b)	The intrinsic value of options outstanding held by the Company’s employees as of June 30, 2016, 2015 and 2014 was $3 million, $12.8 million and $3.1 million, respectively. The weighted average remaining contractual life of options outstanding as of June 30, 2016 was 4.74 years.

^(c)	The weighted average remaining contractual life of options exercisable as of June 30, 2016 was 3.94 years.