Equity-Based Compensation

12 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Equity-Based Compensation

NOTE 14. EQUITY-BASED COMPENSATION

Employees, Directors and other service providers of the Company are eligible to participate in the News Corporation 2013 Long-Term Incentive Plan (as amended and restated, the “2013 LTIP”), which provides for equity-based compensation including stock options, performance stock units (“PSUs”), restricted stock units (“RSUs”) and other types of awards. The Company has the ability to award up to 50 million shares of Class A Common Stock under the terms of the 2013 LTIP in addition to awards assumed in connection with acquisitions.

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

	For the fiscal years ended June 30,
	2020		2019		2018
	(in millions)
Total equity compensation expense	$	69	$	73	$	76
Total intrinsic value of stock options exercised	$	1	$	1	$	1

As of June 30, 2020, total compensation cost not yet recognized for all unvested awards held by the Company’s employees was approximately $48 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 $24 million, $16 million and $9 million for the fiscal years ended June 30, 2020, 2019 and 2018, 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

PSUs 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. The fair value of PSUs is determined on the date of grant and expensed using a straight-line method over the applicable vesting period. The expense is adjusted to reflect the number of shares expected to vest based on management’s determination of the probable achievement of the pre-established performance metrics. The Company records a cumulative adjustment in periods in which its estimate of the number of shares expected to vest changes. Additionally, the Company ultimately adjusts the expense recognized to reflect the actual vested shares following the final determination of the achievement of the performance conditions. 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. Each PSU is entitled to receive dividend equivalents for each regular cash dividend on the Class A Common Stock paid by the Company during the award period, subject to the same terms and conditions as apply to the underlying award.

In the first quarter of fiscal 2020, 2019 and 2018, certain participants in the 2013 LTIP received grants of PSUs which have a three-year performance measurement period. The number of shares that will be issued upon vesting of these PSUs can range from 0% to 200% of the target award, subject to three-year performance conditions consisting of a combination of cumulative business-unit-specific revenue, EBITDA (as defined in Note 9—Borrowings) and free cash flow or the Company’s cumulative earnings per share, cumulative free cash flow and three-year TSR relative to that of the companies that comprise the Standard and Poor’s 1500 Media Index. In addition, in the first quarter of fiscal 2019 and 2018, certain participants other than named executive officers of the Company also received grants of PSUs which have a one-year performance measurement period. The number of shares that will be issued upon vesting of these PSUs can range from 0% to 200% of the target award, subject to one-year performance conditions consisting of a combination of business-unit-specific revenue and free cash flow or Company earnings per share and free cash flow.

For the fiscal years ended June 30, 2020, 2019 and 2018, the Company granted approximately 2.1 million, 6.0 million and 4.4 million PSUs, respectively, at target to the Company’s employees, of which approximately 1.2 million, 4.3 million and 3.2 million PSUs, respectively, will be settled in Class A Common Stock, with the remaining PSUs, which are granted to executive Directors and to employees in certain foreign locations, being settled in cash, assuming performance conditions are met.

For the fiscal years ended June 30, 2020, 2019 and 2018, approximately 6.3 million, 4.2 million and 1.6 million PSUs respectively, vested, of which approximately 1.6 million, 1.1 million and 0.5 million PSUs, respectively, were settled in cash for approximately $20.9 million, $15.4 million and $6.6 million, respectively, before statutory tax withholdings.

Restricted Stock Units

RSUs are grants that entitle the holder to shares of the Company’s Class A Common Stock or the cash equivalent value of such shares. The fair value of RSUs is based upon the fair market value of the shares underlying the awards on the grant date and expensed using a straight-line method over the applicable vesting period. Any person who holds RSUs shall have no ownership interest in the shares or cash to which such RSUs relate unless and until the shares or cash are delivered to the holder.

During fiscal 2020, 2019 and 2018, certain participants in the 2013 LTIP received grants 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, 2020, 2019 and 2018, 4.2 million, 1.1 million and 0.3 million RSUs, respectively, were granted to the Company’s employees. Of the awards granted during fiscal 2020, approximately 0.9 million RSUs, which are granted to employees in certain foreign locations, will be settled in cash, with the remaining RSUs outstanding being settled in Class A Common Stock. These RSUs have graded vesting primarily over one to four years.

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

	Fiscal 2020			Fiscal 2019			Fiscal 2018
	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	10,280	$	13.70	9,341	$	14.54	8,652	$	15.57
Granted(a)	4,468	12.79		5,445	12.98		3,510	13.47
Vested(b)	(5,565)	14.12		(3,534)	14.72		(1,467)	16.70
Cancelled(c)	(1,466)	10.97		(972)	14.02		(1,354)	16.04
Unvested units at the end of the year(d)	7,717	$	13.39	10,280	$	13.70	9,341	$	14.54

________________________

(a)For fiscal 2020, includes 1.1 million target PSUs and 3.3 million RSUs granted and a payout adjustment of 0.1 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2019 that vested during fiscal 2020.

For fiscal 2019, includes 3.8 million target PSUs and 1.1 million RSUs granted and a payout adjustment of 0.5 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2018 that vested during fiscal 2019.

For fiscal 2018, includes 3.2 million target PSUs and 0.3 million RSUs granted.

(b)The fair value of PSUs and RSUs held by the Company’s employees that vested during the fiscal years ended June 30, 2020, 2019 and 2018 was $79 million, $52 million and $25 million, respectively.

(c)For fiscal 2020, includes 0.4 million of target PSUs and 0.7 million RSUs cancelled and a payout adjustment of 0.4 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2017 that vested during fiscal 2020.

For fiscal 2019, includes 0.6 million of target PSUs and 0.1 million RSUs cancelled and a payout adjustment of 0.3 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2016 that vested during fiscal 2019.

For fiscal 2018, includes 0.6 million of target PSUs and 0.1 million RSUs cancelled and a payout adjustment of 0.7 million PSUs due to the actual performance level achieved for PSUs granted in fiscal 2015 that vested during fiscal 2018.

(d)The intrinsic value of these unvested RSUs and target PSUs was approximately $130 million as of June 30, 2020.

Stock Options

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

	Fiscal 2020			Fiscal 2019			Fiscal 2018
	Options	Weighted average exercise price		Options	Weighted average exercise price		Options	Weighted average exercise price
Outstanding at the beginning of the year	335	$	8.04	473	$	7.61	666	$	7.74
Exercised	(103)	8.25		(136)	6.58		(189)	8.04
Cancelled	—	—		(2)	5.90		(4)	9.04
Outstanding at the end of the year(a)	232	$	8.45	335	$	8.04	473	$	7.61
Exercisable at the end of the year(b)	232			335			470

________________________

(a)The intrinsic value of options outstanding held by the Company’s employees as of June 30, 2020, 2019 and 2018 was $0.8 million, $1.9 million and $3.7 million, respectively. The weighted average remaining contractual life of options outstanding as of June 30, 2020 was 2.72 years.

(b)The weighted average remaining contractual life of options exercisable as of June 30, 2020 was 2.72 years.