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Investments
 9 Months Ended
Mar. 31, 2017
Investments Schedule [Abstract]  
Investments

NOTE 5. INVESTMENTS

The Company’s investments were comprised of the following:

 

     Ownership
Percentage as
of March 31,
2017		     As of
March 31,
2017		      As of
June 30,
2016		  
           (in millions)  

Equity method investments:

        

Foxtel(a)

      50 %    $ 1,205      $ 1,437  

Other equity method investments(b)

      various       146        101  

Loan receivable from Foxtel(c)

      N/A       344        338  

Available-for-sale securities(d)

      various       100        189  

Cost method investments(e)

      various       215        205  
    

 

 

     

 

 

  

Total Investments

      $ 2,010      $ 2,270  
    

 

 

     

 

 

  

 

(a)

During the second quarter of fiscal 2017, the Company recognized a $227 million non-cash write-down of the carrying value of its investment in Foxtel to fair value. As a result of Foxtel’s performance in the first half of fiscal 2017 and the competitive operating environment in the Australian pay-TV market, the Company revised its future outlook for the business, which resulted in a reduction in expected future cash flows. Based on the revised projections, the Company determined that the fair value of its investment in Foxtel declined below its $1.4 billion carrying value, which includes the gain recognized in connection with the acquisition of Consolidated Media Holdings Ltd. (“CMH”). Significant unobservable inputs utilized in the income approach valuation method were a discount rate of 9.0% and a long-term growth rate of 2.5%. Significant unobservable inputs utilized in the market approach valuation methods were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%. Any significant shortfall of the expected future cash flows of Foxtel could result in additional write downs for which non-cash charges would be required.

In November 2012, the Company acquired CMH, a media investment company that operates in Australia. CMH owned a 25% interest in Foxtel through its 50% interest in FOX SPORTS Australia. The CMH acquisition was accounted for in accordance with ASC 805 “Business Combinations” which requires an acquirer to remeasure its previously held equity interest in an acquiree at its acquisition date fair value and recognize the resulting gain or loss in earnings. 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 step-up and non-cash gain of approximately $1.3 billion for the fiscal year ended June 30, 2013, of which $0.9 billion related to Foxtel.

 

(b)

In January 2017, REA Group acquired an approximately 15% interest in Elara Technologies Pte. Ltd., a leading online real estate services provider in India (“Elara”), for $50 million. Elara operates PropTiger.com, Makaan.com and the recently acquired Housing.com, and the investment further strengthens REA Group’s presence in Asia. Following the completion of the investment and certain related transactions, including Elara’s acquisition of Housing.com, News Corporation’s pre-existing interest in Elara decreased to approximately 23%.
(c)

In May 2012, Foxtel purchased Austar United Communications Ltd. The transaction was funded by Foxtel bank debt and pro rata capital contributions made by Foxtel shareholders in the form of subordinated shareholder notes based on their respective ownership interests. The Company’s share of the subordinated shareholder notes was approximately A$451 million ($344 million and $338 million as of March 31, 2017 and June 30, 2016, respectively). The subordinated shareholder notes can be repaid beginning in July 2022 provided that Foxtel’s senior debt has been repaid. The subordinated shareholder notes have a maturity date of July 15, 2027, with interest payable on June 30 each year and at maturity. On June 22, 2016, Foxtel and Foxtel’s shareholders agreed to modify the terms of the loan receivable to reduce the interest rate from 12% to 10.5%, to more closely align with current market rates. Upon maturity, the principal advanced will be repayable.
(d)

Available-for-sale securities primarily include the Company’s investment in APN. During fiscal 2016, the Company participated in an entitlement offer to maintain its 14.99% interest in APN for $20 million. During the second quarter of fiscal 2017, the Company participated in an entitlement offer for $21 million and its interest was diluted from 14.99% to 13.23%. APN operates a portfolio of Australian radio and outdoor media assets.
(e)

Cost method investments primarily include the Company’s investment in SEEKAsia Limited and certain investments in China.

The Company measures the fair market values of available-for-sale investments as Level 1 financial instruments under ASC 820, “Fair Value Measurement,” as such investments have quoted prices in active markets. The cost basis, unrealized gains, unrealized losses and fair market value of available-for-sale investments are set forth below:

 

     As of
March 31,
2017		     As of
June 30,
2016		  
     (in millions)  

Cost basis of available-for-sale investments

    $ 98     $ 155  

Accumulated gross unrealized gain

      3       34  

Accumulated gross unrealized loss

      (1 )      —    
  

 

 

    

 

 

  

Fair value of available-for-sale investments

    $ 100     $ 189  
  

 

 

    

 

 

  

Net deferred tax (asset) liability

    $   —       $ 13  
  

 

 

    

 

 

  

 

Equity (Losses) Earnings of Affiliates

The Company’s (losses) earnings of its equity affiliates was as follows:

 

     For the three months ended
March 31,		     For the nine months ended
March 31,		  
            2017                   2016                2017             2016      
     (in millions)     (in millions)  

Foxtel(a)

    $ (16 )    $ 4     $ (260 )    $ 26  

Other equity affiliates, net

      (7 )      (2 )      (16 )      (1 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Total Equity (losses) earnings of affiliates

    $ (23 )    $ 2     $ (276 )    $ 25  
  

 

 

    

 

 

    

 

 

    

 

 

  

 

(a)

During the second quarter of fiscal 2017, the Company recognized a $227 million non-cash write-down of the carrying value of its investment in Foxtel to fair value. The write-down is reflected in Equity (losses) earnings of affiliates in the Statements of Operations for the nine months ended March 31, 2017. Refer to the discussion above for further details.

Additionally, in accordance with ASC 350, the Company amortized $16 million and $53 million related to excess cost over the Company’s proportionate share of its investment’s underlying net assets allocated to finite-lived intangible assets during the three and nine months ended March 31, 2017, respectively, and $12 million and $37 million in the corresponding periods of fiscal 2016. Such amortization is reflected in Equity (losses) earnings of affiliates in the Statements of Operations. The increase in amortization expense recognized by the Company in the current year period resulted from a corresponding decrease in amortization expense recognized by Foxtel as certain intangible assets were fully amortized in fiscal 2016. The higher amortization expense recognized by the Company was partially offset by the impact of the $227 million non-cash write-down of the carrying value of its investment in Foxtel in the second quarter of fiscal 2017.

Summarized financial information for Foxtel, presented in accordance with U.S. GAAP, was as follows:

 

     For the nine months ended
March 31,		  
         2017              2016      
     (in millions)  

Revenues

    $ 1,811      $ 1,763  

Operating income(a)

      263        269  

Net income

      40        126  

 

(a)

Includes Depreciation and amortization of $155 million and $170 million for the nine months ended March 31, 2017 and 2016, respectively. Operating income before depreciation and amortization was $418 million and $439 million for the nine months ended March 31, 2017 and 2016, respectively.

For the nine months ended March 31, 2017, Foxtel’s revenues increased $48 million, or 3%, as a result of the positive impact of foreign currency fluctuations as revenues decreased 2% in local currency. Operating income decreased primarily due to planned increases in programming spend and the lower revenues noted above, partially offset by lower depreciation costs and the positive impact of foreign currency fluctuations. Net income decreased mainly due to losses associated with Presto of $47 million, primarily resulting from Foxtel management’s decision to cease Presto operations in January 2017, and $36 million in losses associated with the change in the fair value of Foxtel’s investment in Ten Network Holdings (“Ten”).

 

During the first quarter of fiscal 2017, Foxtel was deemed to have significant influence over its investment in Ten. As a result, Foxtel was required to treat its investment in Ten as an equity method investment. Foxtel elected the fair value option under ASC 825, Financial Instruments, (“ASC 825”) and adjusts the carrying value of the Ten investment to fair value each reporting period. Although Foxtel ceased to have significant influence in Ten during the third quarter of fiscal 2017, it will continue to adjust the carrying value of the Ten investment to fair value each reporting period due to its election of the fair value option under ASC 825. This adjustment will be recorded as a component of Foxtel’s net income.