new newscorp llc
TRANSCRIPT
As filed with the Securities and Exchange Commission on March 8, 2013File No. 001-35769
UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
Amendment No. 1to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIESPURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
New Newscorp LLC(Exact name of registrant as specified in its charter)
Delaware 00-0000000(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)
1211 Avenue of the Americas,New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 212-852-7000
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each classto be so registered
Name of each exchange on whicheach class is to be registered
Class A Common Stock, par value $0.01 per shareClass B Common Stock, par value $0.01 per share
NASDAQ Global Select Market
Securities to be registered pursuant to Section 12(g) of the Act:None
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ (Do not check if a smaller reporting company) Smaller reporting company ☐
NEW NEWSCORP LLCINFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OFFORM 10
Cross-Reference Sheet Between Information Statement and Items of Form 10
Certain information required to be included in this Form 10 is incorporated by reference to specifically-identified portions of the body of the informationstatement filed herewith as Exhibit 99.1 (the “Information Statement”). None of the information contained in the Information Statement shall be incorporated byreference herein or deemed to be a part hereof unless such information is specifically incorporated by reference. Item 1. Business.
The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Business”and “Our Relationship with Parent Following the Distribution.” Those sections are incorporated herein by reference. Item 1A. Risk Factors.
The information required by this item is contained under the sections of the information statement entitled “Risk Factors” and “Cautionary StatementsConcerning Forward-Looking Statements.” Those sections are incorporated herein by reference. Item 2. Financial Information.
The information required by this item is contained under the sections of the information statement entitled “Selected Historical Combined Financial Data,”“Unaudited Pro Forma Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Thosesections are incorporated herein by reference. Item 3. Properties.
The information required by this item is contained under the section of the information statement entitled “Business—Properties.” That section isincorporated herein by reference. Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain BeneficialOwners and Management.” That section is incorporated herein by reference. Item 5. Directors and Executive Officers.
The information required by this item is contained under the section of the information statement entitled “Management.” That section is incorporatedherein by reference. Item 6. Executive Compensation.
The information required by this item is contained under the sections of the information statement entitled “Compensation of Directors,” “Management”and “Executive Compensation.” Those sections are incorporated herein by reference. Item 7. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is contained under the sections of the information statement entitled “Management,” “Certain Relationships andRelated Person Transactions” and “Our Relationship With Parent Following the Distribution.” Those sections are incorporated herein by reference.
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Item 8. Legal Proceedings.
The information required by this item is contained under the section of the information statement entitled “Business—Legal Proceedings.” That section isincorporated herein by reference. Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
The information required by this item is contained under the sections of the information statement entitled “Dividend Policy” and “Description of OurCapital Stock.” Those sections are incorporated herein by reference. Item 10. Recent Sales of Unregistered Securities.
The information required by this item is contained under the section of the information statement entitled “Description of Our Capital Stock—Sale ofUnregistered Securities.” That section is incorporated herein by reference. Item 11. Description of Registrant’s Securities to be Registered.
The information required by this item is contained under the section of the information statement entitled “Description of Our Capital Stock.” That sectionis incorporated herein by reference. Item 12. Indemnification of Directors and Officers.
The information required by this item is contained under the section of the information statement entitled “Description of Our Capital Stock—Limitation ofLiability for Officers and Directors and Insurance.” That section is incorporated herein by reference. Item 13. Financial Statements and Supplementary Data.
The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” (and the financialstatements referenced therein). That section is incorporated herein by reference. Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None. Item 15. Financial Statements and Exhibits.
(a) Financial Statements
The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” (and the financialstatements referenced therein). That section is incorporated herein by reference.
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(b) Exhibits
See below.
The following documents are filed as exhibits hereto: ExhibitNumber Exhibit Description
2.1 Form of Separation and Distribution Agreement
2.2 Form of Tax Sharing and Indemnification Agreement
2.3 Form of Transition Services Agreement
2.4 Form of Employee Matters Agreement
3.1* Form of Certificate of Incorporation of New News Corporation
3.2* Form of By-laws of New News Corporation
10.1* Employment Agreement between NC Transaction, Inc. and Robert J. Thomson
10.2* Employment Agreement between NC Transaction, Inc. and Bedi Ajay Singh
10.3* New News Corporation 2013 Long-Term Incentive Plan
21.1* List of Subsidiaries
24.1† Power of Attorney
99.1 Preliminary Information Statement * To be filed by amendment
† Previously filed
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Exhibit Index ExhibitNumber Exhibit Description
2.1 Form of Separation and Distribution Agreement
2.2 Form of Tax Sharing and Indemnification Agreement
2.3 Form of Transition Services Agreement
2.4 Form of Employee Matters Agreement
3.1* Form of Certificate of Incorporation of New News Corporation
3.2* Form of By-laws of New News Corporation
10.1* Employment Agreement between NC Transaction, Inc. and Robert J. Thomson
10.2* Employment Agreement between NC Transaction, Inc. and Bedi Ajay Singh
10.3* New News Corporation 2013 Long-Term Incentive Plan
21.1* List of Subsidiaries
24.1† Power of Attorney
99.1 Preliminary Information Statement * To be filed by amendment.
† Previously filed
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed onits behalf by the undersigned, thereunto duly authorized.
NEW NEWSCORP LLC
/s/ K. Rupert MurdochBy: K. Rupert MurdochTitle: Executive Chairman
Date: March 8, 2013
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Exhibit 2.1
FORM OF SEPARATION AND DISTRIBUTION AGREEMENT
among
NEWS CORPORATION,
NEW NEWS CORPORATION
and
NEWS INTERNATIONAL HOLDINGS
Dated as of , 2013
TABLE OF CONTENTS Page
ARTICLE I DEFINITIONS 2 Section 1.01 Definitions 2
ARTICLE II THE INTERNAL REORGANIZATION AND SEPARATION 14 Section 2.01 Internal Reorganization and Other Transactions 14 Section 2.02 The Separation and Related Transactions 14
ARTICLE III THE DISTRIBUTION 19 Section 3.01 Efforts 19 Section 3.02 The Distribution 20 Section 3.03 Conditions to Distribution 21
ARTICLE IV SURVIVAL AND INDEMNIFICATION; MUTUAL RELEASES 23 Section 4.01 Survival of Agreements 23 Section 4.02 Indemnification by New News Corporation 23 Section 4.03 Indemnification by Remainco 24 Section 4.04 Insurance 25 Section 4.05 Procedures for Indemnification; Third-Party Claims 25 Section 4.06 U.K. Newspaper Matters 27 Section 4.07 Direct Claims 31 Section 4.08 Survival of Indemnities 32 Section 4.09 Remedies Cumulative 32 Section 4.10 Ancillary Agreements 32 Section 4.11 Release of Pre-Distribution Claims 32 Section 4.12 Indemnification Payments 34
ARTICLE V CERTAIN ADDITIONAL COVENANTS 34 Section 5.01 Further Assurances 34 Section 5.02 Certain Business Matters 35 Section 5.03 Settlement of Certain Insurance Claims 36 Section 5.04 Intellectual Property Matters 37 Section 5.05 Marks 38 Section 5.06 Misdirected Customer Payments 39 Section 5.07 Consents for Business 39 Section 5.08 Additional Consents 39 Section 5.09 Conduct of Business Following the Separation 40
ARTICLE VI ACCESS TO INFORMATION 41 Section 6.01 Agreement for Exchange of Information 41 Section 6.02 Ownership of Information 42 Section 6.03 Compensation for Providing Information 42 Section 6.04 Record Retention 42 Section 6.05 Other Agreements Providing for Exchange of Information 43 Section 6.06 Control of Litigation; Production of Witnesses; Records; Cooperation 43 Section 6.07 Confidentiality 44 Section 6.08 Privileged Information 46
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Section 6.09 Policies and Best Practices 46 Section 6.10 Compliance with Laws and Agreements 46
ARTICLE VII NO REPRESENTATION OR WARRANTY 47 Section 7.01 NO REPRESENTATIONS OR WARRANTIES 47
ARTICLE VIII TERMINATION 48 Section 8.01 Termination 48 Section 8.02 Effect of Termination 48
ARTICLE IX MISCELLANEOUS 48 Section 9.01 Complete Agreement; Representations 48 Section 9.02 Costs and Expenses; Payment 48 Section 9.03 Governing Law 49 Section 9.04 Notices 49 Section 9.05 Amendment, Modification or Waiver 49 Section 9.06 No Assignment; Binding Effect; No Third-Party Beneficiaries 50 Section 9.07 Counterparts 50 Section 9.08 Dispute Resolution 50 Section 9.09 Specific Performance 52 Section 9.10 Interpretation; Conflict With Ancillary Agreements 52 Section 9.11 Severability 53
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SEPARATION AND DISTRIBUTION AGREEMENT
This SEPARATION AND DISTRIBUTION AGREEMENT (this “Agreement”), dated as of [—], 2013 by and among News Corporation, a Delawarecorporation (“Remainco”), New Newscorp LLC, a Delaware limited liability company and a wholly owned subsidiary of Remainco (“New News Corporation”)and, solely for the purposes of Sections 4.06, 9.08 and 9.09 hereof, News International Holdings, a U.K. unlimited company (“NIH,” and, together withRemainco and New News Corporation, each a “Party” and collectively the “Parties”).
RECITALS
WHEREAS, the Board of Directors of Remainco has determined that it is in the best interests of Remainco and its stockholders to separate the SeparatedBusiness (as defined below) and the Remainco Business (as defined below) into two independent publicly traded companies (the “Separation”), on the terms ofthis Agreement and the Ancillary Agreements and subject to the conditions set forth in this Agreement, in order to, among other things, (i) allow each company tofocus on and pursue distinct strategic priorities and industry-specific opportunities that would maximize each company’s long-term potential; (ii) allow eachcompany to benefit from greater financial and operational flexibility and better positioning the companies to compete; (iii) allow the companies to each respondand react more quickly to rapidly-evolving technology and global market opportunities; (iv) provide investors in each company with a more targeted investmentopportunity, each with different inherent values, including different financial and operational structures; and (v) allow the companies to tailor their capitalstructures, allocate and deploy resources and implement compensation plans in a manner consistent with strategic objectives that best enhance value for theirrespective stockholder groups;
WHEREAS, to further effect the Separation, New News Corporation intends to obtain and retain ownership and possession of all Separated Assets (asdefined below) and Remainco intends to retain ownership and possession of all Remainco Assets (as defined below);
WHEREAS, except as specifically otherwise set forth herein, to further effect the Separation, New News Corporation intends to assume sole liability for allSeparated Liabilities (as defined below) and Remainco intends to retain sole liability for all Remainco Liabilities (as defined below);
WHEREAS, Remainco intends to distribute to the holders of issued and outstanding shares of (i) Class A common stock, par value $0.01 per share, ofRemainco (the “Class A Remainco Common Stock”), and (ii) Class B common stock, par value $0.01 per share, of Remainco (the “Class B RemaincoCommon Stock” and, together with the Class A Remainco Common Stock, the “Remainco Common Stock”), as of the Record Date (as defined below), bymeans of a pro rata dividend, 100% of the issued and outstanding shares of (x) Class A common stock, par value $0.01 per share, of New News Corporation (the“Class A New News Corporation Common Stock”) and (y) Class B common stock, par value $0.01 per share, of New News Corporation (the “Class B NewNews Corporation Common Stock” and, together with the Class A New News Corporation Common Stock, the “New News Corporation Common Stock”) onthe basis of [—] shares of Class A New News Corporation Common Stock
for every then issued and outstanding share of Class A Remainco Common Stock and [—] shares of Class B New News Corporation Common Stock for everythen issued and outstanding share of Class B Remainco Common Stock (the “Distribution”) on the terms and subject to the conditions set forth in thisAgreement;
WHEREAS, the treatment, in connection with the Distribution, of any outstanding Remainco stock options, performance stock units, restricted stock unitsor other types of awards will be as specified in the Employee Matters Agreement (as defined below);
WHEREAS, the Parties intend that, for U.S. federal income tax purposes, the Separation and Distribution and the other transactions contemplated in theInternal Reorganization are treated in the manner described as the Intended Tax Treatment (as such term is defined in the Tax Sharing and IndemnificationAgreement);
WHEREAS, it is the intention of the Parties that, for Australian tax purposes (i) no part of the Distribution will be a dividend; and (ii) the Commissioner ofTaxation will not make a determination under either section 45A or 45B to deem all or part of the Distribution to be an unfranked dividend;
WHEREAS, (i) the Board of Directors of Remainco has (x) determined that the Separation, the Distribution and the other transactions contemplated by thisAgreement and the Ancillary Agreements (as defined below) have a valid business purpose, are in furtherance of and consistent with its business strategy and arein the best interests of Remainco and its stockholders and (y) approved this Agreement and each of the Ancillary Agreements and (ii) the Board of Directors ofNew News Corporation has approved this Agreement and each of the Ancillary Agreements (to the extent New News Corporation is a party thereto); and
WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation and the Distribution and certainother agreements relating to the relationship of Remainco and New News Corporation and their respective Subsidiaries following the Distribution.
NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein and for other goodand valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree asfollows:
ARTICLE IDEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following terms shall have the meanings set forth below:
“Action” means any claim, demand, action, cause of action, suit, countersuit, arbitration, litigation, inquiry, subpoena, proceeding or investigation by orbefore any court, grand jury, Governmental Authority or any arbitration or mediation tribunal or authority.
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“Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, iscontrolled by or is under common control with, such specified Person; provided, however, that for purposes of this Agreement, no member of either Group shallbe deemed to be an Affiliate of any member of the other Group, including by reason of having one or more directors or officers in common. As used herein,“control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether throughownership of voting securities or other interests, by Contract or otherwise.
“Agreement” has the meaning assigned to such term in the Preamble hereto.
“Applicable Rate” shall mean a rate per annum equal, at the time of determination, to the sum of (i) the Prime Rate and (ii) two percent (2%).
“Ancillary Agreements” means all of the written contracts, instruments, assignments or other arrangements (other than this Agreement) entered into inconnection with the transactions contemplated hereby, including the Employee Matters Agreement, the Tax Sharing and Indemnification Agreement, theTransition Services Agreement and any other agreement to be entered into by and between Remainco (or any Subsidiary of Remainco) and New NewsCorporation (or any Subsidiary of New News Corporation) at, prior to or after the Distribution Date in connection with the Separation or Distribution.
“Arbitral Tribunal” has the meaning assigned to such term in Section 9.08.
“ASIC” means the Australian Securities and Investments Commission.
“Asset” means, with respect to any Person, any and all of such Person’s right, title and ownership interest in and to all of the property, claims, Contracts,businesses or assets (including goodwill), whether real, personal or mixed, tangible or intangible of any kind, nature and description, whether accrued, contingentor otherwise, and wheresoever situated (including in the possession of vendors or other third parties or elsewhere) and whether or not carried or reflected, orrequired to be carried or reflected, on the books of any Person.
“ASX” means the Australian Securities Exchange.
“ATO” means the Australian Taxation Office.
“Balance Sheet” means the unaudited pro forma combined balance sheet of New News Corporation, including the notes thereto, as of [—], as set forth inthe Information Statement.
“Business” means the Separated Business and/or the Remainco Business, as the context requires.
“By-laws” means the Amended and Restated By-laws of New News Corporation substantially in the form filed as an exhibit to the Registration Statement,with such changes as may be may be made by Remainco, in its sole discretion.
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“Cash Equivalents” shall mean (i) cash and (ii) marketable securities, short-term instruments and other cash equivalents, funds in time and demanddeposits or similar accounts.
“CDI” means, in respect of any Remainco Common Stock (comprising either Class A Remainco Common Stock or Class B Remainco Common Stock) orNew News Corporation Common Stock (comprising either Class A New News Corporation Common Stock or Class B New News Corporation Common Stock),a CHESS Depository Interest (being a unit of beneficial ownership) in respect of that common stock.
“Certificate of Incorporation” means the Amended and Restated Certificate of Incorporation of New News Corporation substantially in the form filed asan exhibit to the Registration Statement, with such changes as may be made by Remainco, in its sole discretion.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Consents” means any consents, waivers, notices, reports or other filings to be obtained from or made, including with respect to any Contract, or anyregistrations, licenses, permits, authorizations to be obtained from, or approvals from, or notification requirements to, any third parties, including any third partyto a Contract and to any Governmental Authority.
“Contract” shall mean any contract, agreement, lease, license, instrument or other commitment, whether or not written, that is binding on any Person orentity or any part of its property under applicable Law.
“Copyrights” means all copyrights and copyrightable subject matter.
“Class A New News Corporation Common Stock” has the meaning assigned to such term in the Recitals hereto.
“Class A Remainco Common Stock” has the meaning assigned to such term in the Recitals hereto.
“Class B New News Corporation Common Stock” has the meaning assigned to such term in the Recitals hereto.
“Class B Remainco Common Stock” has the meaning assigned to such term in the Recitals hereto.
“D&O Policies” has the meaning assigned to such term in Section 5.03(c).
“Decision on Interim Relief” has the meaning assigned to such term in Section 9.08.
“Delayed Transfer Asset or Liability” has the meaning assigned to such term in Section 2.02(b).
“Dispute” has the meaning assigned to such term in Section 9.08.
“Distribution” has the meaning assigned to such term in the Recitals hereto.
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“Distribution Agent” means [Computershare Trust Company, N.A.]
“Distribution Agent Agreement” has the meaning assigned to such term in Section 3.01(b).
“Distribution Date” means [—], which is the date on which the Distribution shall be effected, as determined by the Board of Directors of Remainco.
“Employee Matters Agreement” means the employee matters agreement to be entered into by and between Remainco and New News Corporation,substantially in the form filed as an exhibit to the Registration Statement, with such changes as may be agreed to by the Parties.
“Environmental Laws” means all Laws, including all judicial and administrative orders, determinations, and consent agreements or decrees, relating topollution, the protection, restoration or remediation of or prevention of harm to the environment or natural resources, or the protection of human health and safetyfrom the presence of Hazardous Substances, including Laws relating to: (i) the exposure to, or presence, release or threatened release of, Hazardous Substances;(ii) the generation, manufacture, processing, distribution, use, treatment, containment, disposal, storage, release, transport or handling of Hazardous Substances;or (iii) recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Substances, in each case enacted on the date of this Agreement(regardless of whether the compliance date relating thereto is before or after the Distribution).
“Environmental Liabilities” means any Liabilities, arising out of or resulting from any Environmental Law, Contract or agreement relating to theenvironment, Hazardous Substances or human exposure to Hazardous Substances, including (a) fines, penalties, judgments, awards, settlements, losses, damages(including consequential damages), costs, fees (including attorneys’ and consultants’ fees), expenses and disbursements, (b) costs of defense and other responsesto any administrative or judicial action (including notices, claims, complaints, suits and other assertions of liability) and (c) responsibility for any investigation,remediation, monitoring or cleanup costs, injunctive relief, natural resource damages, and any other environmental compliance or remedial measures, in each caseknown or unknown, foreseen or unforeseen.
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
“FCC” means the Federal Communications Commission or any successor agency.
“FCC Broadcast Ownership Rules” means any federal statute, including, without limitation, Section 202 of the Telecommunications Act of 1996, asamended, or FCC rule, including, without limitation, 47 C.F.R. § 73.658(g) and § 73.3555, that limits, directly or indirectly, the ownership or control of radiobroadcast stations, television broadcast stations, newspapers and/or television broadcast networks, as currently in effect and as may hereafter be amended orbecome effective from time to time, and any FCC policy or decision implementing, interpreting or modifying such statute or rule.
“FCC Ownership Interest” has the meaning assigned to such term in Section 5.09(a).
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“FCC MVPD Interest” has the meaning assigned to such term in Section 5.09(b).
“FCC Program Access Rules” means any federal statute, including, without limitation, 47 U.S.C. § 548, or FCC rule, including, without limitation, 47C.F.R. Part 76, regulating contractual relationships between programming vendors and Multichannel Video Programming Distributors (as defined by the FCC), ascurrently in effect and as may hereafter be amended or become effective from time to time, and any FCC policy or decision implementing, interpreting ormodifying such statute or rule.
“Governmental Approvals” means any notices, reports or other filings to be given to or made with, or any releases, Consents, substitutions, approvals,amendments, registrations, permits or authorizations to be obtained from, any Governmental Authority.
“Governmental Authority” means any federal, state, local, foreign or international court, government, department, commission, board, bureau or agency,or any other regulatory, self-regulatory, administrative or governmental organization or authority, including the ASIC, the ASX, the ATO and NASDAQ.
“Group” means the Remainco Group and/or the New News Corporation Group, as the context requires.
“Guaranty Obligation” has the meaning assigned to such term in Section 2.02(f).
“Hazardous Substances” means all materials, wastes, chemicals or substances (or combination thereof) that is listed, defined, designated, regulated orclassified as hazardous, toxic, radioactive, dangerous, a pollutant, a contaminant, petroleum, oil, or words of similar meaning or effect under Environmental Law.
“ICC” has the meaning assigned to such term in Section 9.08.
“ICC Court” has the meaning assigned to such term in Section 9.08.
“ICC Ruling” has the meaning assigned to such term in Section 9.08.
“Indemnified Party” has the meaning assigned to such term in Section 4.03.
“Indemnifying Party” means New News Corporation, for any indemnification obligation arising under Section 4.02, and Remainco, for anyindemnification obligation arising under Section 4.03.
“Information” means all information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored inany medium, including confidential or non-public information (including non-public financial information), proprietary
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information, studies, reports, records, books, accountants’ work papers, contracts, instruments, surveys, discoveries, ideas, concepts, processes, know-how,techniques, designs, specifications, drawings, blueprints, diagrams, models, methodologies, prototypes, samples, flow charts, data, computer data, informationcontained in disks, diskettes, tapes, computer programs or other Software, marketing plans, customer data, communications by or to attorneys (including attorneywork product), memos and other materials prepared by attorneys and accountants or under their direction (including attorney work product), and other technical,financial, legal, employee or business information or data.
“Information Statement” means the information statement of New News Corporation, included as Exhibit 99.1 to the Registration Statement, to bedistributed to holders of Remainco Common Stock in connection with the Distribution, including any amendments or supplements thereto.
“Initial New News Corporation Capital Stock” has the meaning assigned to such term in Section 2.01.
“Intellectual Property” means all intellectual property and other similar proprietary rights of every kind and description throughout the world, whetherregistered or unregistered, including such rights in and to U.S. and foreign: (i) trademarks, trade dress, service marks, certification marks, logos, slogans, designrights, trade names and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing (collectively,“Trademarks”); (ii) patents and patent applications, and any and all divisionals, continuations, continuations-in-part, reissues, reexaminations, and extensionsthereof, any counterparts claiming priority therefrom, utility models, certificates of invention, certificates of registration, design registrations or patents andsimilar rights (collectively, “Patents”); (iii) rights in inventions, invention disclosures, discoveries and improvements, whether or not patentable; (iv) Copyrights;(v) trade secrets (including, those trade secrets defined in the Uniform Trade Secrets Act and under corresponding foreign statutory Law and common law),proprietary rights in Information, and rights to limit the use or disclosure of any of the foregoing by any Person; (vi) rights in computer programs (whether insource code, object code, or other form), algorithms, databases, application programming interfaces, compilations and data, technology supporting the foregoing,and all documentation and specifications related to any of the foregoing (collectively, “Software”); (vii) domain names, uniform resource locators, andusernames, account names and identifiers (whether textual, graphic, pictorial or otherwise), and sub-domain names and personal URL’s used or acquired inconnection with a third-party website; (viii) moral rights and rights of attribution and integrity; (ix) rights of publicity, privacy, and rights to personal information;(x) all rights in the foregoing and in other similar intangible assets; (xi) all applications and registrations for the foregoing; and (x) all rights and remedies againstpast, present, and future infringement, misappropriation, or other violation thereof.
“Intercompany Agreement” means any agreement, arrangement, commitment or understanding, whether or not in writing, between or among anymember of the New News Corporation Group, on the one hand, and any member of the Remainco Group, on the other hand. Notwithstanding the foregoing, noneof this Agreement or the Ancillary Agreements and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement tobe entered into by any of the parties or any member of the New News Corporation Group and any member of the Remainco Group shall be an IntercompanyAgreement.
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“Interim Relief” has the meaning assigned to such term in Section 9.08.
“Internal Reorganization” means all of the transactions, other than the Distribution, described in the document entitled “Detailed Transaction Steps”delivered by Remainco to New News Corporation.
“Inter-Group Indebtedness” means any intercompany receivables, payables, accounts, advances, loans, guarantees, commitments and indebtedness forborrowed funds between a member of the Remainco Group and a member of the New News Corporation Group as of the Distribution; provided, that “Inter-Group Indebtedness” shall not include any contingent Liabilities and accounts payable arising pursuant to (i) any Intercompany Agreement that will survive theInternal Reorganization and Distribution, (ii) the Ancillary Agreements, (iii) any agreements with respect to continuing transactions between Remainco and NewNews Corporation and (iv) any other agreements entered into in the ordinary course of business at or following the Distribution.
“Law” means any applicable foreign, federal, national, state, provincial or local law (including common law), statute, ordinance, rule, regulation, code orother requirement enacted, promulgated, issued or entered into, or act taken, by a Governmental Authority.
“Liabilities” means all debts, liabilities, obligations, responsibilities, Losses, damages (whether compensatory, punitive, consequential, treble or other),fines, penalties and sanctions, absolute or contingent, matured or unmatured, reserved or unreserved, liquidated or unliquidated, foreseen or unforeseen, on or offbalance sheet, joint, several or individual, asserted or unasserted, accrued or unaccrued, known or unknown, whenever arising, including those arising under or inconnection with any Law (including any Environmental Law), or other pronouncements of Governmental Authorities constituting an Action, order or consentdecree of any Governmental Authority or any award of any arbitration tribunal, and those arising under any Contract, agreement, guarantee, commitment orundertaking, whether sought to be imposed by a Governmental Authority, private party, or a Party, whether based in contract, tort, implied or express warranty,strict liability, criminal or civil statute, or otherwise, and including any costs, expenses, interest, attorneys’ fees, disbursements and expense of counsel, expert andconsulting fees, fees of third party administrators, and costs related thereto or to the investigation or defense thereof.
“Loss” means any claim, demand, complaint, damage (including indirect, punitive, exemplary, special and consequential damages (including loss of profitsor revenue)), loss, Liability, cost or expense, including fees and expenses of counsel, whether or not arising out of, relating to or in connection with any Action.
“Media Company Interest” means a direct or indirect ownership, managerial or other interest in a radio broadcast station, television broadcast station,television broadcast network or newspaper that is “cognizable” or “attributable” for purposes of one or more of the FCC Broadcast Ownership Rules.
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“Misdirected Invoice” has the meaning assigned to such term in Section 5.06(b).
“Misdirected New News Corporation Payments” means the amount of any customer payments that relate to accounts receivable of any member of theNew News Corporation Group received by any member of the Remainco Group after the Distribution Date, plus the amount of any customer set-off with regardsto such payments that relates to any Remainco payables to such customer.
“Misdirected Remainco Payments” means the amount of customer payments that relate to accounts receivable of any member of the Remainco Groupreceived by any member of the New News Corporation Group after the Distribution Date, plus the amount of any customer set-off with regards to such paymentsthat relates to any New News Corporation payables to such customer.
“Mixed Accounts” has the meaning assigned to such term in Section 2.02(g)(ii).
“Mixed Contract” has the meaning assigned to such term in Section 2.02(g)(i).
“NASDAQ” means the NASDAQ Global Select Market.
“New News Corporation” has the meaning assigned to such term in the Preamble hereto.
“New News Corporation Amounts” has the meaning assigned to such term in Section 4.06(a).
“New News Corporation Benefit Plans” has the meaning assigned to such term in the Employee Matters Agreement.
“New News Corporation Common Stock” has the meaning assigned to such term in the Recitals hereto.
“New News Corporation Group” means New News Corporation and each of its Subsidiaries and Affiliates after giving effect to the InternalReorganization, including the entities listed on Schedule [—], and any corporation or entity that may become part of such Group from time to time, provided thatfor the purposes of Section 4.11(a), the term “Affiliates” as used in this definition shall be limited to entities and shall not include any natural persons.
“New News Corporation Indemnified Parties” has the meaning assigned to such term in Section 4.03.
“New News Corporation Marks” means the names and marks NEWS CORP, NEWSCORP, A NEWS CORPORATION COMPANY, and NEWSCORPORATION, and any other NEWS CORP-, NEWSCORP-, A NEWS CORPORATION COMPANY- or NEWS CORPORATION-formative Trademarks orany derivation or variation of the foregoing or any confusingly similar Trademark.
“New News Corporation Receivables” has the meaning assigned to such term in Section 5.05(a).
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“NIH” has the meaning assigned to such term in the Preamble hereto.
“NIH Amounts” has the meaning assigned to such term in Section 4.06(a).
“Parties” has the meaning assigned to such term in the Preamble hereto.
“Patents” has the meaning assigned to such term in the definition of Intellectual Property.
“Person” means any natural person, corporation, general or limited partnership, limited liability company or partnership, joint stock company, jointventure, association, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority.
“Prime Rate” means the rate per annum publicly announced by JPMorgan Chase Bank (or successor thereto) from time to time as its prime rate in effect atits principal office in New York City. For purposes of this Agreement, any change in the Prime Rate shall be effective on the date such change in the Prime Rateis publicly announced as effective.
“Record Date” means the close of business on [—], which is the date determined by the Board of Directors of Remainco as the record date for determiningstockholders of Remainco entitled to receive shares of New News Corporation Common Stock pursuant to the Distribution.
“Registration Statement” means the Registration Statement on Form 10 of New News Corporation (which includes the Information Statement) relating tothe registration under the Exchange Act of New News Corporation Common Stock, including all amendments or supplements thereto.
“Related Claims” means a claim or claims against a Remainco insurance policy or reserve made by each of Remainco and/or its insured parties, on the onehand, or New News Corporation and/or its insured parties, on the other hand, filed in connection with Losses suffered by each of Remainco (and/or its insuredparties) and New News Corporation (and/or its insured parties) arising out of the same underlying transactions or events.
“Remainco” has the meaning assigned to such term in the Preamble hereto.
“Remainco Assets” means all Assets of the Remainco Group, other than the Separated Assets.
“Remainco Business” means all businesses and operations of the Remainco Group, other than the Separated Business.
“Remainco Common Stock” has the meaning assigned to such term in the Recitals hereto.
“Remainco Consultation Rights” has the meaning assigned to such term in Section 4.06(c)(iv).
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“Remainco Dispute Judgment” has the meaning assigned to such term in Section 4.06(g)(ii)(2).
“Remainco Group” means Remainco and each of its direct and indirect Subsidiaries and Affiliates immediately after the Distribution, and any corporationor entity that is or may become part of such Group from time to time after the Distribution, provided that for the purposes of Section 4.11(b), the term “Affiliates”as used in this definition shall be limited to entities and shall not include any natural persons.
“Remainco Indemnified Parties” has the meaning assigned to such term in Section 4.02.
“Remainco Liabilities” means the Liabilities of Remainco, other than the Separated Liabilities, including, for the avoidance of doubt, all Liabilitiesrelating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a materialfact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the RegistrationStatement or the Information Statement.
“Remainco Receivables” has the meaning assigned to such term in Section 5.05(a).
“SEC” means the United States Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at thetime that reference is made thereto.
“Separated Assets” means, without duplication:
(i) all interests in the capital stock of, or any other equity interests in, the members of the New News Corporation Group held, directly or indirectly, byRemainco immediately prior to the Distribution (other than New News Corporation);
(ii) the Assets listed or described on Schedule [—] (which for the avoidance of doubt is not a comprehensive listing of all Separated Assets and is notintended to limit other clauses of this definition of “Separated Assets”);
(iii) the Assets expressly contributed, assigned, transferred, conveyed or delivered to the New News Corporation Group pursuant to this Agreement or theAncillary Agreements;
(iv) the Contract rights, licenses and Intellectual Property, and any other rights, claims or properties (including any and all rights as an insured party underany Remainco insurance policy), in each case that primarily relate to the New News Corporation Group and as of the Distribution; and
(v) all other Assets that are held by the New News Corporation Group or Remainco Group immediately prior to the Distribution and that primarily relate toor are primarily used or held for use in the Separated Business as conducted immediately prior to the Distribution (the intention of this clause (v) is only to rectifyan inadvertent omission of transfer or assignment of
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any Asset that, had the parties given specific consideration to such Asset as of the date of this Agreement, would have otherwise been classified as a SeparatedAsset; no Asset shall be a Separated Asset solely as a result of this clause (v) unless a claim with respect thereto is made by New News Corporation on or prior tothe date that is 24 months after the Distribution).
“Separated Business” means the business and operations conducted by the New News Corporation Group from time to time, whether prior to, at or afterthe Distribution, including the business and operations conducted by the New News Corporation Group as more fully described in the Information Statement.
“Separated Liabilities” means, without duplication:
(i) all Liabilities reflected on the Balance Sheet, including any such Liabilities arising or assumed by any member of the New News Corporation Groupsubsequent to the date of the Balance Sheet that, had they arisen or been assumed on or before the date of such Balance Sheet, would have been reflected on aconsolidated balance sheet of New News Corporation, and the notes thereto, on a basis consistent with the determination of Liabilities reflected on the BalanceSheet, subject to the discharge of any such Liabilities subsequent to the date of the Balance Sheet;
(ii) all Liabilities listed or described on Schedule [—] and all Liabilities expressly assumed by the New News Corporation Group pursuant to thisAgreement or the Ancillary Agreements, including any obligations and Liabilities of any member of the New News Corporation Group under this Agreement orthe Ancillary Agreements;
(iii) all Liabilities relating to, arising out of or resulting from:
(1) any Separated Asset, including any and all Liabilities of the members of the New News Corporation Group;
(2) the operation or conduct of the Separated Business, as conducted at any time prior to the Distribution (including any Liability relating to, arisingout of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or waswithin such person’s authority), which act or failure to act relates to the Separated Business);
(3) the operation or conduct of any business conducted by any member of the New News Corporation Group at any time after the Distribution(including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative(whether or not such act or failure to act is or was within such person’s authority));
(4) any Environmental Liability relating to any current or former properties at any time included in or primarily related to the Separated Assets(including any business, operations or properties, and any Liability resulting from off-site disposal of waste from such business, operations or properties,for which a current or future owner or operator of the Separated Assets or the Separated Business may be alleged to be responsible as a
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matter of Law, contract or otherwise due to such ownership or operation of such business, operations or properties of the Separated Assets or SeparatedBusiness), arising prior to, on or after the Distribution;
provided that this clause (iii) shall not apply to the U.K. Newspaper Matters, which shall be addressed for the purposes of this definition by clause (vi)
(iv) except to the extent expressly provided for in the Employee Matters Agreement, all employee benefits plans, programs, policies or similarcompensation arrangements sponsored or maintained by any member of the New News Corporation Group as of immediately prior to the Distribution and anyand all Liabilities relating thereto, arising out of, or resulting therefrom;
(v) all Liabilities to the extent relating to, arising out of or resulting from the applicable New News Corporation proportion of any shared Liability pursuantto the terms of any Mixed Contract as provided for under this Agreement or any Ancillary Agreement; and
(vi) all Liabilities (other than Liabilities to the extent relating to, arising out of or resulting from the status as a defendant of Remainco, any member of theRemainco Group, or any and all current or former directors, officers, agents and employees of Remainco or any member of the Remainco Group (in their capacityas such) and each of their heirs, executors, successors and assigns) associated with any and all (a) civil U.K. Newspaper Matters, to the extent applicable inaccordance with Section 4.06(g)(ii)(2) or the last sentence of Section 4.06(c)(v) and (b) criminal U.K. Newspaper Matters other than those subject toindemnification pursuant to Section 4.06(d).
provided, however, that such term shall not include any indebtedness of Remainco (including any Liabilities arising out of or resulting from any claim by aholder of such indebtedness, in its capacity as such), all of which shall remain Liabilities of Remainco.
“Separation” has the meaning assigned to such term in the Recitals hereto.
“Shared Director, Officer or Employee” has the meaning assigned to such term in Section 2.02(h).
“Software” has the meaning assigned to such term in the definition of Intellectual Property.
“SOX” means the Sarbanes Oxley Act of 2002, as amended from time to time.
“Subsidiary” means, with respect to any Person, any other Person of which a Person (either alone or through or together with any other Subsidiary of suchPerson) owns, directly or indirectly, a majority of the stock or other equity interests the holders of which are generally entitled to vote for the election of the boardof directors or other governing body of such corporation or other legal entity.
“Tax Sharing and Indemnification Agreement” means the Tax Sharing and Indemnification Agreement to be entered into by and between Remainco andNew News Corporation, substantially in the form filed as an exhibit to the Registration Statement, with such changes as may be agreed to by the Parties.
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“Third-Party Claim” has the meaning assigned to such term in Section 4.05(a).
“Trademarks” has the meaning assigned to such term in the definition of Intellectual Property.
“Transition Services Agreement” means the transition services agreement to be entered into by and between Remainco and New News Corporation,substantially in the form filed as an exhibit to the Registration Statement, with such changes as may be agreed to by the Parties.
“U.K. Newspaper Matters” means any past, present or future civil claims or criminal investigations and/or proceedings, brought either civilly orcriminally by any U.K. or U.S. Person or Government Authority against the New News Corporation Group, the Remainco Group, any of their respective past,present or future officers or directors, or any Person named as a co-defendant with the New News Corporation Group or the Remainco Group, as the case may be,in a civil proceeding with respect to whom the New News Corporation Group or the Remainco Group, as applicable, has incurred costs, regarding or resultingfrom the alleged conduct prior to the Distribution of the Remainco Group, the New News Corporation Group and/or any of their respective directors, officers,agents and employees relating to phone hacking, illegal data access or unlawful payments to public officials at the publications operated by News Internationaland its subsidiaries and related matters.
“U.K. Newspaper Matters Claim” has the meaning assigned to such term in Section 4.06(b).
“U.K. Newspaper Matters Indemnification Dispute” has the meaning assigned to such term in Section 4.06(g).
“U.K. Newspaper Matters Indemnification Final Award” has the meaning assigned to such term in Section 4.06(g)(i).
“Unrelated Claims” means a claim or claims against a Remainco insurance policy or reserve made by each of Remainco and/or its insured parties, on theone hand, or New News Corporation and/or its insured parties, on the other hand, filed in connection with Losses suffered by each of Remainco (and/or itsinsured parties) and New News Corporation (and/or its insured parties) arising out of unrelated and separate transactions or events.
ARTICLE IITHE INTERNAL REORGANIZATION AND SEPARATION
Section 2.01 Internal Reorganization and Other Transactions. Prior to the Distribution, the parties shall cause the Internal Reorganization to be completed,and shall, and shall cause their respective Subsidiaries to, execute all such instruments, assignments, documents and other agreements necessary to effect theInternal Reorganization.
Section 2.02 The Separation and Related Transactions. (a) (i) Prior to the Distribution and subject to the terms of the Ancillary Agreements, the partiesshall, and shall cause their respective Subsidiaries to (x) execute such instruments of assignment and transfer and take such other corporate actions as arenecessary to (A) transfer to one or more members of the New News Corporation Group all of the right, title and interest of the Remainco Group in and to allSeparated Assets and (B) transfer to one or more members of the Remainco Group all of the right, title and interest of the New News Corporation Group in and toall Remainco Assets and (y)
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take all actions as are necessary to (A) cause one or more members of the New News Corporation Group to assume (or, as applicable, retain) all of the SeparatedLiabilities and (B) cause one or more members of the Remainco Group to assume (or, as applicable, retain) all of the Remainco Liabilities. With regards to thetransfers described in the preceding sentence, the Parties shall cooperate and use their respective commercially reasonable efforts to obtain the necessary Consentsor Governmental Approvals to effectuate such transfers. Notwithstanding anything to the contrary, this Agreement and the Ancillary Agreements do not purportto transfer any insurance policy.
(ii) Pursuant to the Separation and unless otherwise set forth in this Agreement or any Ancillary Agreement, New News Corporation, or a member of theNew News Corporation Group, (x) shall be the sole owner, and shall have exclusive right, title and interest in and to, all Separated Assets and (y) shall be solelyliable for, and shall faithfully perform, fulfill and discharge fully in due course, all of the Separated Liabilities in accordance with their respective terms. Pursuantto the Separation and unless otherwise set forth in this Agreement or any Ancillary Agreement, Remainco, or a member of the Remainco Group, (x) shall be thesole owner, and shall have exclusive right, title and interest in and to, all Remainco Assets and (y) shall remain and be solely liable for, and shall faithfullyperform, fulfill and discharge fully in due course, all of the Remainco Liabilities in accordance with their respective terms. Unless otherwise set forth in thisAgreement or any Ancillary Agreement, from and after the Distribution, New News Corporation or a member of the New News Corporation Group shall besolely responsible for all Separated Liabilities and Remainco or a member of the Remainco Group shall be solely responsible for all Remainco Liabilities,regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, on or subsequent to the Distribution,regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by Remainco’s or NewNews Corporation’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Remainco Group or the New NewsCorporation Group, as the case may be) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise fromnegligence, recklessness, violation of Law, fraud, misrepresentation or otherwise.
(b) Delayed Transfer of Assets or Liabilities.
(i) To the extent that the assignment, assumption or transfer of Assets or Liabilities pursuant to Section 2.02 shall not have been consummated as of theDistribution, whether by their terms, by the terms of this Agreement, or by operation of Law (any such Asset or Liability, a “Delayed Transfer Asset orLiability”) and subject to the terms of any Ancillary Agreements, Remainco and New News Corporation thereafter shall, and shall cause the members of theirrespective Groups to, use commercially reasonable efforts and cooperate to effect such assignment, assumption or transfer as promptly as practicable followingthe Distribution. From and after the Distribution until the time such Delayed Transfer Asset or Liability is assigned, transferred or assumed, (i) the Party retainingsuch Asset shall thereafter, with respect to any such Asset, use commercially reasonable efforts, to hold such Asset in trust for the use and benefit of the Partyentitled to such Asset (at the expense of the Party entitled to such Assets), with such cost to be promptly reimbursed), and (ii) the Party intended to assume suchLiability
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shall, or shall cause the applicable member of its Group to, pay or reimburse the Party retaining such Liability for all amounts paid or incurred in connection withthe retention of such Liability; in each case in order to place each Party, insofar as is reasonably possible, in the same position as would have existed had suchDelayed Transfer Asset or Liability been assigned, assumed or transferred as contemplated hereby. To the extent that New News Corporation is provided the useor benefit of any Separated Asset or has any Separated Liability held for its account or for which it is liable pursuant to this Section 2.02(b), New NewsCorporation shall perform, for the benefit of Remainco and any third Person, the obligations of Remainco thereunder or in connection therewith, or as may bedirected by Remainco and if New News Corporation shall fail to perform to the extent required herein, New News Corporation shall hold Remainco harmless andindemnify Remainco therefor. To the extent that Remainco is provided the use or benefit of any Remainco Asset or has any Remainco Liability held for itsaccount or for which it is liable pursuant to this Section 2.02(b), Remainco shall perform, for the benefit of New News Corporation and any third Person, theobligations of New News Corporation thereunder or in connection therewith, or as may be directed by New News Corporation and if Remainco shall fail toperform to the extent required herein, Remainco shall hold New News Corporation harmless and indemnify New News Corporation therefor. Nothing in thisAgreement shall be deemed to require the assignment or transfer (or the provision of use or benefit) of any Asset or the assumption of any Liability that, by theirrespective terms or by operation of Law or otherwise, cannot or is not permitted to be so transferred, assigned, or assumed (or for which such provision of use orbenefit thereof is not possible or permitted by their respective terms or by operation of Law or otherwise).
(ii) From and after the Distribution, the Parties agree to treat, for U.S. federal, state, local and non–U.S. income tax purposes, any Delayed Transfer Assetor Liability as owned by the member of the Group to which such Asset or Liability was intended to be transferred. The parties shall not take any positioninconsistent with this Section 2.02(b)(ii) unless otherwise required by applicable Law or any relevant accounting position.
(c) Assignment of Certain Agreements. Notwithstanding anything to the contrary herein and subject to the Ancillary Agreements and to Section 2.02(g)hereof and if required under the circumstances, (i) Remainco shall assign to New News Corporation (or its Subsidiaries) all of its right, title and interest under theagreements comprising Separated Assets, and (ii) New News Corporation shall assign to Remainco (or its Subsidiaries) all of its right, title and interest under theagreements comprising Remainco Assets, and each Party shall execute and deliver any and all instruments of substitution and such other instruments oragreements as shall be necessary in connection with the discharge of the other Party from its respective obligations with respect to such agreements; provided,however, that no Party shall be required to assign any Contract or any claim, right or benefit arising thereunder or resulting therefrom if an attempted or actualassignment thereof, without a Governmental Approval or the Consent of a third party thereto, would constitute a breach or other contravention thereof, violateLaw or in any way adversely affect the rights of Remainco or New News Corporation thereunder. With respect to any such Contract or any claim, right or benefitarising thereunder or resulting therefrom, Remainco or New News Corporation, as the case may be, will use its commercially reasonable efforts to obtain theGovernmental Approval or Consent, as applicable, of the other parties to any such Contract for the assignment thereof to New News Corporation or Remainco, asthe case may be.
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If such Governmental Approval or Consent is not obtained, or if an attempted or actual assignment thereof would be ineffective or would materially adverselyaffect (in the sole discretion of Remainco) the rights of Remainco or New News Corporation, as the case may be, thereunder so that New News Corporation orRemainco, as the case may be, would not in fact receive all such rights, Remainco and New News Corporation will cooperate in a mutually agreeablearrangement under which New News Corporation or Remainco, as the case may be, would obtain substantially the same economic benefits that would beobtained under an assignment thereof and assume the obligations thereunder in accordance with this Agreement, including subcontracting, sublicensing orsubleasing to New News Corporation or Remainco, as the case may be, or under which Remainco or New News Corporation, as the case may be, would enforcefor the benefit of New News Corporation or Remainco, as the case may be, with New News Corporation or Remainco, as the case may be, assuming Remainco’sor New News Corporation’s, as the case may be, obligations, and any and all rights of Remainco, or New News Corporation, as the case may be, against a thirdparty thereto.
(d) Survival of Certain Agreements. The members of the New News Corporation Group, on the one hand, and the members of the Remainco Group, on theother hand, hereby agree that all Intercompany Agreements (other than any agreements or arrangements that provide for Inter-Group Indebtedness) that areeffective as of the Distribution will survive the Distribution.
(e) Settlement of Inter-Group Indebtedness. Each of Remainco or any member of the Remainco Group, on the one hand, and New News Corporation or anymember of the New News Corporation Group, on the other hand, will settle with the other Party, as the case may be, all Inter-Group Indebtedness, including anyaccounts receivable or payable or promissory notes, owned or owed by the other Party on or prior to the Distribution, except as otherwise agreed to in good faithby the Parties in writing on or after the date hereof, it being understood and agreed by the Parties that all Guaranty Obligations shall be governed bySection 2.02(f).
(f) Guarantee Obligations. New News Corporation shall, and shall cause the members of the New News Corporation Group to, (i) other than with regard tothe obligations as set forth on Schedule 2.02(f), use commercially reasonable efforts to terminate, or to cause a member of the New News Corporation Group tobe substituted in all respects for any member of the Remainco Group in respect of, all obligations of such member of the Remainco Group under any SeparatedLiability for which such member of the Remainco Group may be liable as guarantor, original tenant, primary obligor or otherwise as of the Distribution Date(each, including for the avoidance of doubt the obligations set forth on Schedule 2.02(f) a “Guaranty Obligation”), and (ii) (A) indemnify and hold harmless theRemainco Indemnified Party for any Liability arising from or relating to any Guaranty Obligation and (B) not, without the prior written consent of Remainco,from and after the Distribution, amend, renew or extend the term of, increase its obligations under, or transfer to a third Person, any loan, lease, Contract or otherobligation for which any member of the Remainco Group is or may be liable, unless such amendments do not increase the financial obligations of the RemaincoGroup and/or extend the term of any existing obligations; provided, that the limitations in clause (B) shall not apply in the event that a member of the New NewsCorporation Group obtains a letter of credit from a financial institution reasonably acceptable to Remainco and for the benefit of any member of the RemaincoGroup with respect to such Guaranty Obligation.
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(g) Mixed Contracts; Mixed Accounts. (i) Unless the Parties agree in writing otherwise or as otherwise may be provided in any Ancillary Agreement, anyagreement to which any member of the Remainco Group or the New News Corporation Group is a party prior to the Distribution that inures to the benefit orburden of both of the Remainco Business and the Separated Business (a “Mixed Contract”) shall be assigned in part to New News Corporation or one of itsSubsidiaries, and/or to Remainco or one of its Subsidiaries, as the case may be, if so assignable, prior to or as of the Distribution, such that each Party or itsrespective Subsidiaries shall be entitled to its portion of the rights and benefits thereof, as determined in the sole discretion of Remainco (to be exercised in goodfaith), and shall assume the related portion of any obligations thereunder and any Liabilities inuring to their respective Businesses; provided, however, that in noevent shall either Party be required to assign any Mixed Contract in its entirety. If any Mixed Contract cannot be so partially assigned to any extent, Remaincoand New News Corporation shall, and shall cause each of their respective Subsidiaries to, take such other reasonable and permissible actions to cause thefollowing: (A) the Assets associated with that portion of each Mixed Contract (as determined by Remainco, in its sole discretion (to be exercised in good faith)that relates to the Separated Business to be enjoyed by New News Corporation or a New News Corporation Subsidiary; (B) the Liabilities associated with thatportion of each Mixed Contract (as determined by Remainco, in its sole discretion (to be exercised in good faith) that relates to the Separated Business to be borneby New News Corporation or a New News Corporation Subsidiary; (C) the Assets associated with that portion of each Mixed Contract (as determined byRemainco, in its sole discretion (to be exercised in good faith)that relates to the Remainco Business to be enjoyed by Remainco or a Remainco Subsidiary; and(D) the Liabilities associated with that portion of each Mixed Contract (as determined by Remainco, in its sole discretion (to be exercised in good faith) thatrelates to the Remainco Business to be borne by Remainco or a Remainco Subsidiary; provided, however, that the arrangements described in clauses (A), (B),(C) and (D) shall terminate on the termination of the applicable Mixed Contract or, if later, the associated liability.
(ii) Except as may otherwise be agreed in writing by the Parties or as otherwise may be provided in any Ancillary Agreement, neither Party shall seek toassign any accounts receivable or accounts payable relating to both the Remainco Business and the Separated Business (“Mixed Accounts”). Remainco and NewNews Corporation shall, and shall cause each of their respective Subsidiaries to, take such other reasonable and permissible actions to cause the following: (A) theAssets associated with that portion of each Mixed Account (as determined by Remainco, in its sole discretion (to be exercised in good faith) that relates to theRemainco Business to be enjoyed solely by Remainco or a Remainco Subsidiary; (B) the Liabilities associated with that portion of each Mixed Account (asdetermined by Remainco, in its sole discretion (to be exercised in good faith) that relates to the Remainco Business to be borne solely by Remainco or aRemainco Subsidiary; (C) the Assets associated with that portion of each Mixed Account (as determined by Remainco, in its sole discretion (to be exercised ingood faith) that relates to the Separated Business to be enjoyed solely by New News Corporation or a New News Corporation Subsidiary; and (D) the Liabilitiesassociated with that portion of each Mixed Account (as determined by Remainco, in its sole discretion (to be exercised in good faith) that relates to the SeparatedBusiness to be borne solely by New News Corporation or a New News Corporation Subsidiary; provided, however, that the arrangements described in clauses(A), (B), (C) and (D) shall terminate on the maturity or payment date of the applicable Mixed Account.
(iii) Nothing in this Section 2.02(g) shall require any member of either Group to make any payment, incur any obligation or grant any concession, in anycase, to any third party in order to effect any transaction contemplated by this Section 2.02(g).
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(h) Shared Directors, Officers or Employees. Immediately prior to the Distribution, (i) each Person who is an officer, director or employee of any memberof the New News Corporation Group and an officer, director or employee of any member of the Remainco Group (a “Shared Director, Officer or Employee”)and who is to continue as an officer, director or employee of any member of the New News Corporation Group after the Distribution shall resign, effective at orprior to the Distribution, from each of such Person’s positions with each member of the Remainco Group, except for (a) K. Rupert Murdoch, who will continue toserve as the Chairman and Chief Executive Officer of Remainco [and a director [and officer] of certain members of the Remainco Group], (b) Gerson Zweifach,who will continue to serve as Senior Executive Vice President and Group General Counsel of Remainco [and a director [and officer] of certain members of theRemainco Group], and (c) [—] who will continue as [—] of Remainco; and (ii) each such Shared Director, Officer or Employee who is to continue as a director,officer or employee of any member of the Remainco Group after the Distribution shall resign, effective at or prior to the Distribution, from each of such Person’spositions with each member of the New News Corporation Group, except for (a) K. Rupert Murdoch, who will continue to serve as the Executive Chairman ofNew News Corporation [and a director [and officer] of certain members of the New News Corporation Group], (b) Gerson Zweifach, who will continue to serveas General Counsel of New News Corporation [and a director [and officer] of certain members of the New News Corporation Group], and (c) [—] who willcontinue as a director, officer or employee, as the case may be, of New News Corporation.
(i) Treatment of Cash; Capital Contribution. From the date of this Agreement until the Distribution, except as separately provided in the next sentence,Remainco shall be entitled to use, retain or otherwise dispose of all Cash Equivalents generated by the Separated Business and the Separated Assets in accordancewith the ordinary course operation of Remainco’s cash management systems. Remainco shall contribute to New News Corporation an amount of CashEquivalents such that as of immediately prior to the Distribution New News Corporation and its consolidated Subsidiaries will have a minimum Cash Equivalentsbalance of approximately $[—]. All Cash Equivalents held by any member of the New News Corporation Group as of the Distribution shall be a Separated Assetand all Cash Equivalents held by any member of the Remainco Group as of the Distribution shall be a Remainco Asset.
ARTICLE IIITHE DISTRIBUTION
Section 3.01 Efforts. Each of New News Corporation and Remainco shall cooperate with the other Party to accomplish the Distribution and shall use theircommercially reasonable efforts to take any and all actions necessary or desirable to effect the Distribution.
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Section 3.02 The Distribution. Subject to the satisfaction or waiver of the conditions set forth in Section 3.03, the actions set forth in this Section 3.02 shallbe taken on the Distribution Date.
(a) Remainco shall effect the Distribution by causing all of the issued and outstanding shares of New News Corporation Common Stock beneficially ownedby Remainco to be distributed to record holders of shares of Remainco Common Stock, including such holders that are Subsidiaries of Remainco, as of theRecord Date, other than with respect to shares of Remainco Common Stock held in the treasury of Remainco, by means of a pro rata dividend of such New NewsCorporation Common Stock, including such rights, to holders of shares of Remainco Common Stock, on the terms and subject to the conditions set forth in thisAgreement.
(b) Each record holder of (i) Class A Remainco Common Stock on the Record Date (or such holder’s bank, brokerage firm or other designated transferee ortransferees), will be entitled to receive in the Distribution [—] shares of Class A New News Corporation Common Stock with respect to every share of Class ARemainco Common Stock held by such record holder on the Record Date, and (ii) each record holder of Class B Remainco Common Stock on the Record Date(or such holder’s bank, brokerage firm or other designated transferee or transferees), will be entitled to receive in the Distribution [—] shares of Class B NewNews Corporation Common Stock with respect to every share of Class B Remainco Common Stock held by such record holder on the Record Date. Thetreatment, in connection with the Distribution, of any outstanding Remainco stock option or restricted share unit will be as specified in the Employee MattersAgreement. Remainco shall direct the Distribution Agent to distribute on the Distribution Date or as soon as reasonably practicable thereafter electronically, bydirect registration in book-entry form, the appropriate number of whole shares of New News Corporation Common Stock to each such record holder (or suchholder’s bank, brokerage firm or other designated transferee(s)).
(c) Each record holder of (i) Class A Remainco Common Stock CDIs on the Record Date, will be entitled to receive in the Distribution [—] Class A NewNews Corporation Common Stock CDIs with respect to every Class A Remainco Common Stock CDI held by such record holder on the Record Date, and(ii) each record holder of Class B Remainco Common Stock CDIs on the Record Date, will be entitled to receive in the Distribution [—] Class B New NewsCorporation Common Stock CDIs with respect to every Class B Remainco Common Stock CDI held by such record holder on the Record Date. Remainco shalldirect the Distribution Agent to distribute on the Distribution Date or as soon as reasonably practicable thereafter the appropriate number of whole New NewsCorporation Common Stock CDIs to each such record holder.
(d) Remainco shall direct the Distribution Agent, to determine, as soon as is practicable after the Distribution Date, the number of fractional shares, if any,of New News Corporation Common Stock allocable to each holder of record of Remainco Common Stock entitled to receive New News Corporation CommonStock in the Distribution and to promptly thereafter aggregate all such fractional shares and sell the whole shares obtained thereby, in open market transactions atthe then prevailing trading prices, and to cause to be distributed to each such holder, in lieu of any fractional share, such holder’s ratable share of the proceeds ofsuch sale, after making appropriate deductions of the amounts required to be withheld for federal income tax purposes and costs.
(e) Any New News Corporation Common Stock or cash, in lieu of fractional shares, with respect to New News Corporation Common Stock that remainsunclaimed by any holder of record 180 days after the Distribution Date shall be delivered to New News Corporation. New News Corporation shall hold such NewNews Corporation Common Stock or cash for the account of such holder of record and any such holder of record shall look only to New News Corporation forsuch New News Corporation Common Stock or cash, if any, in lieu of fractional share interests, subject in each case to applicable escheat or other abandonedproperty laws.
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Section 3.03 Conditions to Distribution. The obligation of Remainco to consummate the Distribution is subject to the prior or simultaneous satisfaction, orwaiver by Remainco, in its sole and absolute discretion, of each of the following conditions:
(a) final approval of the Distribution and all related transactions shall have been given by the Board of Directors of Remainco (and shall not have beenwithdrawn, whether before or after declaration of the Distribution), and the Board of Directors of Remainco shall have declared the Distribution, each such actionin its sole and absolute discretion;
(b) the affirmative vote of the holders of Remainco’s Class A Common Stock and Class B Common Stock, each voting as a separate class, approvingcertain amendments to Remainco’s Restated Certificate of Incorporation, in the form attached as Exhibit A to this Agreement;
(c) the Separation and Internal Reorganization shall have been consummated in accordance with this Agreement and any Ancillary Agreement;
(d) Remainco shall have received a private letter ruling from the Internal Revenue Service in a form satisfactory to Remainco in its sole and absolutediscretion, to the effect that, among other things, the Separation and Distribution will qualify for non-recognition of gain or loss to Parent and its stockholdersunder Sections 368(a)(1)(D) and 355 of the Code except to the extent of cash received in lieu of fractional shares, and such private letter ruling shall not havebeen revoked or materially amended;
(e) Remainco shall have received the ATO Class Ruling or other evidence in a form satisfactory to Remainco in its sole and absolute discretion, confirmingthat, in the circumstances of the Distribution and for Australian tax purposes (i) no part of the Distribution will be a dividend; and (ii) the Commissioner ofTaxation will not make a determination under either section 45A or 45B to deem all or part of the Distribution to be an unfranked dividend;
(f) Remainco shall have received an opinion from Hogan Lovells US LLP, in form and substance satisfactory to Remainco in its sole and absolutediscretion, that, subject to the accuracy of and compliance with certain representations, assumptions and covenants, (i) the relevant aspects of the InternalReorganization will qualify for non-recognition of gain or loss to Remainco and its stockholders pursuant to Sections 368(a)(1)(D) and 355 of the Code and(ii) the Distribution will qualify for non-recognition of gain or loss to Remainco and Remainco’s stockholders pursuant to Section 355 of the Code, except to theextent of cash received in lieu of fractional shares;
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(g) no order, injunction or decree issued by any Governmental Authority or other legal restraint or prohibition, which remains in effect, preventing theconsummation of the Separation or the Distribution or any of the other transactions contemplated by this Agreement or any Ancillary Agreement shall have beenthreatened or be in effect and no other event outside the control of Remainco shall have occurred or failed to occur that prevents the consummation of theDistribution;
(h) no other events or developments shall have occurred subsequent to the date of this Agreement that, in the judgment of the Board of Directors ofRemainco, would result in the consummation of the transactions contemplated by this Agreement or any Ancillary Agreement having a material adverse effect onRemainco or its stockholders;
(i) the Ancillary Agreements shall have been duly executed and delivered and such agreements shall be in full force and effect and the parties thereto shallhave performed or complied with all of their respective covenants, obligations and agreements contained herein and therein and as required to be performed orcomplied with prior to the Distribution;
(j) Remainco shall have elected the individuals to be listed in the Information Statement as members of New News Corporation’s Board of Directors post-Distribution, prior to the Distribution;
(k) the Registration Statement shall have been filed with, and declared effective by, the SEC, and there shall be no suspension, withdrawal or stop-order ineffect with respect thereto and no proceeding for that purpose shall have been instituted or threatened by the SEC;
(l) no rating agency action shall have occurred that is likely to result in either Remainco or New News Corporation being downgraded below investmentgrade after giving effect to the Separation and Distribution;
(m) New News Corporation’s Class A Common Stock and Class B Common Stock shall have been approved for listing on NASDAQ and Class ACommon Stock and Class B Common Stock (trading as CDIs) shall have been approved for admission to the official list of the ASX;
(n) the Information Statement shall have been mailed to Remainco stockholders, which for purposes of this Section 3.03(n) includes electronic deliverywhere not prohibited by Law;
(o) the actions and filings necessary or appropriate under applicable federal and state securities laws and state blue sky laws of the U.S. (and anycomparable laws under any foreign jurisdictions) in connection with the Distribution (including, if applicable, any actions and filings relating to the RegistrationStatement) and any other necessary and applicable Consents shall have been taken, obtained and, where applicable, have become effective or been accepted, eachas the case may be;
(p) Remainco shall have established the Record Date and shall have given NASDAQ not less than ten days’ advance notice of the Record Date incompliance with Rule 10b–17 under the Exchange Act and given ASX not less than seven Business Days’ (as defined under the ASX Listing Rules) advancenotice of the Record Date in compliance with ASX Listing Rule 3.20; and
(q) the Certificate of Incorporation and the By-laws of New News Corporation, each in substantially the form filed with Registration Statement, shall be ineffect at or prior to the Distribution.
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Each of the foregoing conditions is for the sole benefit of Remainco and Remainco may, in its sole and absolute discretion, determine whether to waive anysuch condition. Any determination made by Remainco, in its sole and absolute discretion, prior to the Distribution concerning the satisfaction or waiver of any orall of the conditions set forth in this Section 3.03 shall be conclusive and binding on the Parties. Each Party will use commercially reasonable efforts to keep theother Party apprised of its efforts with respect to, and the status of, each of the foregoing conditions.
ARTICLE IVSURVIVAL AND INDEMNIFICATION; MUTUAL RELEASES
Section 4.01 Survival of Agreements. All covenants and agreements of the Parties contained in this Agreement shall survive each of the Separation and theDistribution.
Section 4.02 Indemnification by New News Corporation. In addition to any other provision of this Agreement requiring indemnification, New NewsCorporation shall indemnify, defend, release, discharge and hold harmless Remainco, each member of the Remainco Group and each of their respective currentand former directors, officers, agents and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “RemaincoIndemnified Parties”), from and against any and all Losses or Liabilities of the Remainco Indemnified Parties relating to, arising out of or resulting from any ofthe following items regardless of whether arising from or alleged to arise from negligence (whether simple, contributory or gross), recklessness, violation of Law,fraud, misrepresentation or otherwise (without duplication) to the fullest extent permitted by applicable Law:
(a) the failure of New News Corporation or any other member of the New News Corporation Group or any other Person to pay, perform or otherwisepromptly discharge any Separated Liability or any Contract, agreement or arrangement included in the Separated Assets in accordance with their respective terms,whether arising prior to, on or after the Distribution;
(b) (i) any Separated Liability and (ii) other than with regard to any U.K. Newspaper Matters, any Separated Asset or the Separated Business, whether, inthe case of clause (i) or (ii), arising prior to, on or after the Distribution;
(c) any breach by New News Corporation or any member of the New News Corporation Group of this Agreement or, subject to Section 4.10 hereof, any ofthe Ancillary Agreements, subject to any indemnification provision or any specific limitation on liability contained in any Ancillary Agreement;
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(d) any breach by any member of the New News Corporation Group of any of the Mixed Contracts, subject to any indemnification provision or anyspecific limitation on liability contained in any Ancillary Agreement;
(e) any Guaranty Obligations in accordance with the terms and conditions of Section 2.02(f);
(f) the failure by New News Corporation to perform in connection with any Delayed Transfer Asset or Liability held by Remainco for New NewsCorporation’s benefit pursuant to Section 2.02(b); and
(g) the FCC Broadcast Ownership Rules or the FCC Program Access Rules as a result of the acquisition or prospective acquisition by New NewsCorporation of an FCC Ownership Interest or FCC MVPD Interest.
Section 4.03 Indemnification by Remainco. In addition to any other provision of this Agreement requiring indemnification, Remainco shall indemnify,defend, release, discharge and hold harmless New News Corporation, each member of the New News Corporation Group and each of their respective current andformer directors, officers, agents and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “New NewsCorporation Indemnified Parties,” and, together with Remainco Indemnified Parties, the “Indemnified Parties”), from and against any and all Losses orLiabilities of the New News Corporation Indemnified Parties relating to, arising out of or resulting from any of the following items regardless of whether arisingfrom or alleged to arise from negligence (whether simple, contributory or gross), recklessness, violation of Law, fraud, misrepresentation or otherwise (withoutduplication) to the fullest extent permitted by applicable Law:
(a) the failure of Remainco or any other member of the Remainco Group or any other Person to pay, perform or otherwise promptly discharge anyRemainco Liability or any Contract, agreement or arrangement included in the Remainco Assets in accordance with their respective terms, whether arising priorto, on or after the Distribution;
(b) any Remainco Liability, Remainco Asset or the Remainco Business, whether arising prior to, on or after the Distribution;
(c) any material breach by Remainco or any member of the Remainco Group of this Agreement or, subject to Section 4.10 hereof, any of the AncillaryAgreements, subject to any indemnification provision or any specific limitation on liability contained in any Ancillary Agreement;
(d) any breach by any member of the Remainco Group of any of the Mixed Contracts, subject to any indemnification provision or any specific limitation onliability contained in any Ancillary Agreement;
(e) the failure by Remainco to perform in connection with any Delayed Transfer Asset or Liability held by New News Corporation for Remainco’s benefitpursuant to Section 2.02(b); and
(f) the FCC Broadcast Ownership Rules or the FCC Program Access Rules as a result of the acquisition or prospective acquisition by Remainco of an FCCOwnership Interest or FCC MVPD Interest.
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Section 4.04 Insurance. (a) Each of Remainco and New News Corporation shall use its respective commercially reasonable efforts to collect any proceedsunder its respective available and applicable third party insurance policies to which it or any of its Subsidiaries is entitled prior to seeking indemnification underthis Agreement, where allowed; provided, however, that any such actions by an Indemnified Party will not relieve the Indemnifying Party of any of its obligationsunder this Agreement, including the Indemnifying Party’s obligation to pay directly or reimburse the Indemnified Party for costs and expenses actually incurredby the Indemnified Party.
(b) The amount of any Loss subject to indemnification pursuant to this Agreement will be reduced by any amounts actually recovered (including insuranceproceeds or other amounts actually recovered under insurance policies, net of any out-of-pocket costs or expenses incurred in the collection thereof), whetherretroactively or prospectively, by the Indemnified Party from any third Person with respect to such Loss. If any Indemnified Party recovers an amount from a thirdPerson in respect of any Loss for which indemnification is provided in this Agreement after the full amount of such indemnifiable Loss has been paid by anIndemnifying Party or after an Indemnifying Party has made a payment of a portion, but not all of, such indemnifiable Loss and the amount received from thethird Person exceeds the remaining unpaid balance of such indemnifiable Loss, then the Indemnified Party will promptly remit to the Indemnifying Party thepositive excess (if any) of (i) the sum of the amount previously paid by such Indemnifying Party in respect of such indemnifiable Loss plus the amount receivedby such Indemnified Party from such third Person in respect of such indemnifiable Loss (after deducting any costs and expenses that have not yet been paid orreimbursed by the Indemnifying Party), minus (ii) the full amount of such indemnifiable Loss. An insurer or other third Person who would otherwise be obligatedto pay any Loss shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogationrights with respect thereto, it being understood and agreed that no insurer or any third Person shall be entitled to a “windfall” (i.e., a benefit it would not beentitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof.
Section 4.05 Procedures for Indemnification; Third-Party Claims. Other than with respect to indemnification for any U.K. Newspaper Matter underSection 4.03(f), which shall be governed solely by Section 4.06:
(a) If an Indemnified Party shall receive notice or otherwise learn of the assertion by any Person who is not a member of the Remainco Group or the NewNews Corporation Group, as the case may be, of any claim, or of the commencement by any such Person of any Action, with respect to which an IndemnifyingParty may be obligated to provide indemnification to such Indemnified Party pursuant to Section 4.02 or Section 4.03, or any other Section of this Agreement orany Ancillary Agreement (collectively, a “Third-Party Claim”), such Indemnified Party shall give such Indemnifying Party written notice thereof within 20 daysafter such Indemnified Party received notice or otherwise learned of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonabledetail, including, if known, the
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amount of the Loss or Liability for which indemnification may be available. Notwithstanding the foregoing, the failure of any Indemnified Party or other Personto give notice as provided in this Section 4.05(a) shall not relieve the related Indemnifying Party of its obligations under this Article IV, except to the extent thatsuch Indemnifying Party is actually materially prejudiced by such failure to give notice.
(b) An Indemnifying Party shall be entitled (but shall not be required) to assume and control the defense of such Third-Party Claim at its expense andthrough counsel of its choice that is reasonably acceptable to the Indemnified Party if it gives notice of its intention to do so to the Indemnified Party within 20days of the receipt of such notice from the Indemnified Party. In the event of a conflict of interest between the Indemnifying Party and the Indemnified Party, theIndemnified Party shall be entitled to retain, at the Indemnifying Party’s expense, separate counsel as required by the applicable rules of professional conduct withrespect to such matter. If the Indemnifying Party elects to undertake any such defense at its own expense, the Indemnified Party shall cooperate with theIndemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party’s expense, all witnesses, pertinent records, materialsand information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as are reasonably required by the IndemnifyingParty. Similarly, if the Indemnified Party is conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with theIndemnified Party in such defense and make available to the Indemnified Party, at the Indemnifying Party’s expense, all witnesses, pertinent records, materialsand information in the Indemnifying Party’s possession or under the Indemnifying Party’s control relating thereto as are reasonably required by the IndemnifiedParty.
(c) If, in such notice, an Indemnifying Party elects not to assume responsibility for defending a Third-Party Claim, or fails to notify an Indemnified Party ofits election as provided in Section 4.05(b), such Indemnified Party may defend such Third-Party Claim at the cost and expense of the Indemnifying Party;provided, that the Indemnifying Party may at any time thereafter assume the defense of such Third-Party Claim upon notice to the Indemnified Party (but the costand expense incurred by the Indemnified Party in defending such Third-Party Claim until such date as the Indemnifying Party shall assume the defense of suchThird-Party Claim shall be paid by the Indemnifying Party).
(d) The Indemnified Party may not settle or compromise any Third-Party Claim without the consent of the Indemnifying Party (such consent not to beunreasonably withheld or delayed).
(e) The Indemnifying Party shall have the right to compromise or settle a Third-Party Claim the defense of which it shall have assumed pursuant toSection 4.05(b) or Section 4.05(c) and any such settlement or compromise made or caused to be made of a Third-Party Claim in accordance with this Article IVshall be binding on the Indemnified Party, in the same manner as if a final judgment or decree had been entered by a court of competent jurisdiction in the amountof such settlement or compromise. Notwithstanding the foregoing sentence, the Indemnifying Party shall not settle any such Third Party Claim without the writtenconsent of the Indemnified Party (not to be unreasonably withheld) unless such settlement (A) completely and unconditionally releases the Indemnified Party inconnection with such matter, (B) provides relief consisting solely of money damages borne by the Indemnifying Party and (C) does not involve any admission bythe Indemnified Party of any wrongdoing or violation of Law.
(f) In the event of an Action in which the Indemnifying Party is not a named defendant, if either the Indemnified Party or Indemnifying Party shall sorequest, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant, if at all practicable and advisable under the circumstances. Ifsuch substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Actionas set forth in this Article IV.
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Section 4.06 U.K. Newspaper Matters. (a) In addition to the obligations of Section 4.03, and subject to Section 4.06(g)(ii)(b) and the last sentence ofSection 4.06(c)(v), after the Distribution Date Remainco shall, without duplication, defend, release, discharge, hold harmless and indemnify (by means of acontribution to) (i) NIH from and against any and all Losses or Liabilities arising out of or resulting from any payments made after the Distribution Date by NIHor any of its Subsidiaries to any payee located in the U.K. in connection with the civil U.K. Newspaper Matters or the criminal U.K. Newspaper matters to theextent provided for in Section 4.06(d) (all such amounts being the “NIH Amounts”); and (ii) New News Corporation (or any of its designated Subsidiaries) fromand against any and all Losses or Liabilities of the New News Corporation Group arising out of or resulting from any payments made after the Distribution Dateby any member of the New News Corporation Group to any payee not located in the U.K. in connection with the civil U.K. Newspaper Matters or the criminalU.K. Newspaper Matters to the extent provided for in Section 4.06(d) (all such amounts being the “New News Corporation Amounts”), in each case regardlessof whether arising from or alleged to arise from negligence (whether simple, contributory or gross), recklessness, violation of Law, fraud, misrepresentation orotherwise (without duplication) to the fullest extent permitted by applicable Law.
(b) If New News Corporation shall receive notice or otherwise learn of the assertion by any Person (including any Governmental Authority) of any Action,or of the commencement or threat by any such Person of any Action, which may constitute, in whole or in part, a U.K. Newspaper Matter indemnifiable underSection 4.06(a) (to the extent any such Action constitutes such a U.K. Newspaper Matter, a “U.K. Newspaper Matters Claim”), New News Corporation shallgive Remainco written notice as promptly as reasonably practicable, but in no event later than 5 days after receiving notice or otherwise learning of such U.K.Newspaper Matters Claim. Any such notice shall describe the U.K. Newspaper Matters Claim in reasonable detail, including, if known, all parties involved, anyallegations relating to such Action, the basis upon which it is alleged indemnification for such Action is available under Section 4.06(a) and the amount of anyLoss for which indemnification may be available. For the purposes of this Section 4.06(b), New News Corporation shall be deemed to have provided writtennotice to Remainco of any U.K. Newspaper Matters Claim in existence as of the date of this Agreement. Without limiting the immediately preceding sentence, forthe purposes of this Section 4.06, notice shall be deemed to have been provided upon, but only upon, receipt of written notice by the Remainco Notice Parties orNew News Corporation Notice Parties, as applicable, as listed on Schedule 4.06(b).
(c) Civil U.K. Newspaper Matters Claims.
(i) Remainco shall be entitled (but shall not be required) to assume and control the defense of any civil U.K. Newspaper Matters Claims through counsel ofits choice if it gives notice of its intention to do so to New News Corporation within 20 days of the receipt of notice
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from New News Corporation of a civil U.K. Newspaper Matters Claim. If Remainco elects to undertake any such defense, New News Corporation shallcooperate with Remainco in such defense to the maximum extent permitted by applicable Law and make available to Remainco, at Remainco’s expense, alldirectors, officers, employees, agents and other witnesses (including for the purposes of, among other things, fact finding, consultation, and interviews and toprovide testimony through declarations, witness statements, affidavits, depositions, or at any hearing during proceedings, trial and/or post trial ancillaryproceedings and to work with Remainco and its counsel in preparation for such events consistent with deadlines imposed on such matters), pertinent records,materials and information in New News Corporation’s possession or under New News Corporation’s control relating thereto. The legal fees, expenses of counseland court costs of Remainco’s defense in accordance with this Section 4.06(c) shall be paid by New News Corporation (or any of its designated Subsidiaries) orNIH, as applicable, and Remainco shall indemnify (by means of a contribution to) New News Corporation (or any of its designated Subsidiaries) or NIH, asapplicable, for such amounts paid. Notwithstanding anything to the contrary in this Section 4.06(c), in any instance that Remainco has assumed the control ofdefense of any civil U.K. Newspaper Matters Claim in accordance with this Section 4.06(c), Remainco shall not be required to fund any separate New NewsCorporation counsel with regard to such matters, except, if applicable, with respect to any period prior to such assumption or following the termination of suchassumption.
(ii) If Remainco elects by notice to New News Corporation, in its sole and absolute discretion, not to assume and control the defense of any civil U.K.Newspaper Matters Claim, or fails to notify New News Corporation of its election to assume and control such defense as provided in Section 4.06(b), New NewsCorporation shall assume the defense of the applicable civil U.K. Newspaper Matters Claim and Remainco shall indemnify (by means of contribution) New NewsCorporation (or any of its designated Subsidiaries) or NIH, as applicable, for the costs and expenses paid by such entity for such defense; provided, that Remaincomay at any time thereafter assume the defense of such civil U.K. Newspaper Matters Claim, at its cost and through counsel of its choice, upon notice to NewNews Corporation (but Remainco shall indemnify (by means of contribution) New News Corporation (or its designated Subsidiaries) or NIH, as applicable, forthe cost and expense of defending such civil U.K. Newspaper Matters Claim incurred under Section 4.06(c) until such date as Remainco shall assume the defenseof such civil U.K. Newspaper Matters Claim). In connection with any civil U.K. Newspaper Matters Claim in which Remainco does not control the defense, NewNews Corporation shall make available to Remainco, at Remainco’s expense, all witnesses, pertinent records, materials and information in New NewsCorporation’s possession, custody or control relating thereto (subject only to applicable Law and to the extent that Remainco’s participation does not affect anyprivilege in a material and adverse manner), and shall provide Remainco with the Remainco Consultation Rights (as defined below) and New News Corporationshall incorporate all timely comments of Remainco in connection with the Remainco Consultation Rights to the extent reasonably practicable. If New NewsCorporation has assumed the defense against any civil U.K. Newspaper Matters Claim, Remainco shall cooperate with New News Corporation in such defenseand make available to New News Corporation, at Remainco’s expense, all witnesses, pertinent records, materials and information in Remainco’s possession orunder Remainco’s control relating thereto as are reasonably required by New News Corporation for conducting such a defense (subject only to applicable Lawand to the extent that Remainco’s participation does not affect any privilege in a material and adverse manner).
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(iii) Notwithstanding anything to the contrary in this Agreement, no member of the New News Corporation Group shall settle, compromise, or pay anyfinancial penalties or amounts related to any civil U.K. Newspaper Matters Claim without the consent of Remainco (such consent to be determined in Remainco’ssole and absolute discretion).
(iv) To the extent that the indemnification obligations of Remainco shall have been deemed to have ceased in accordance with Sections 4.06(g)(ii)(2) or thelast sentence of 4.06(c)(v), Remainco shall no longer have the right under Section 4.06(c)(i) to assume and control the defense of any civil U.K. NewspaperMatters that are Separated Liabilities and New News Corporation shall, from and after such cessation, grant Remainco, at Remainco’s expense, the reasonableopportunity to consult, advise and comment in all preparation, planning and strategy regarding any such action, including with regard to any drafts of notices andother conferences and communications to be provided or submitted by New News Corporation to any third party involved in a civil U.K. Newspaper MattersClaim (including any Governmental Authority), to the extent that Remainco’s participation does not affect any privilege in a material and adverse manner;provided that to the extent that any such action requires the submission by New News Corporation of any content relating to any current or former officer ordirector of Remainco (including any shared officers or directors of both Remainco and New News Corporation, such content will only be submitted in a formapproved by Remainco in its reasonable discretion (the “Remainco Consultation Rights”).
(v) Remainco shall have the right to cause any member of the New News Corporation Group to (i) compromise or settle a civil U.K. Newspaper MattersClaim the defense of which it has assumed pursuant to Section 4.06(c) and (ii) directly fund any such settlement, subject to Remainco’s obligation to indemnifyNew News Corporation or NIH, as applicable, for any amounts paid in accordance with Section 4.06(a). Any settlement or compromise made or caused to bemade of any assumed U.K. Newspaper Matters Claim in accordance with this Article IV shall be binding on the members of the New News Corporation Group inthe same manner as if a final judgment or decree had been entered by a court of competent jurisdiction in the amount of such settlement or compromise.Notwithstanding the foregoing sentence, Remainco shall not cause the settlement of any such U.K. Newspaper Matters Claim without the written consent of theapplicable member of the New News Corporation Group (such consent not to be unreasonably withheld or delayed). In the event that the applicable member ofthe New News Corporation Group does not consent to a settlement, Remainco shall have no further obligations under this Section 4.06 with respect to that U.K.Newspaper Matter Claim and any civil U.K. Newspaper Matters under such U.K. Newspaper Matters Claim shall constitute “Separated Liabilities” thereafter.
(d) Criminal U.K. Newspaper Matters Claims. With regard to any criminal U.K. Newspaper Matters, Remainco shall indemnify (by means of acontribution to) New News Corporation (or any of its designated Subsidiaries) or NIH, as applicable, for all legal fees and expenses of counsel and court costspaid by it to the extent related to or arising from such criminal U.K. Newspaper Matters; provided that such costs shall not include any fines or other financialpenalties or amounts associated with any settlement, judgment or similar result associated with the criminal U.K. Newspaper Matters.
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(e) In all matters with respect to all the provisions of this Section 4.06, Remainco and New News Corporation, on behalf of each member of the New NewsCorporation Group, agree that any correspondence, communications, documents, materials or other information of whatever kind exchanged between themselvesshall remain confidential and shall, to the maximum extent under applicable Law, be protected from disclosure to any third party by the common interest andjoint-defense privileges, and, where applicable, the attorney-client privilege, lawyers secrecy, banking secrecy, the attorney work product doctrine, the self-evaluative privilege doctrine, legal advice privilege, litigation privilege, or any other privilege or immunity that is recognized or may apply in any relevantjurisdiction or under any applicable Law.
(f) Notwithstanding anything to the contrary herein, with regard to any record, materials or other information known after reasonable investigation by NewNews Corporation or Remainco to be relevant to any U.K. Newspaper Matters, no such information may be discarded or destroyed without the written approvalof the other Party.
(g) All Disputes (as defined in Section 9.08) where Remainco alleges, maintains or claims that any member of the New News Corporation Group hasbreached any of its substantive obligations arising out of or related to Sections 4.06(b), (c), (e) and (f) (but only with regard to civil U.K. Newspaper MattersClaims), (“U.K. Newspaper Matters Indemnification Dispute”) shall be subject to the dispute resolution procedure set forth in Section 9.08, except as modifiedherein.
(i) From the date of delivery of Remainco’s Request for Arbitration (as defined in the ICC Rules and in accordance with Section 9.08) with regard to anyU.K. Newspaper Matters Indemnification Dispute, the obligations of Remainco to indemnify New News Corporation (or any of its designated Subsidiaries) orNIH, as applicable, for the U.K. Newspaper Matters that are the subject of such Dispute in accordance with Section 4.06(a) shall be suspended until the ArbitralTribunal (as defined in Section 9.08) has issued a final award disposing of all U.K. Newspaper Matters Indemnification Disputes before the Arbitral Tribunal(“U.K. Newspaper Matters Indemnification Final Award”). The Arbitral Tribunal shall endeavor, to the greatest extent practicable (taking into account thetiming and status of any then-current proceedings), to finally resolve all U.K. Newspaper Matters Indemnification Disputes, and all matters arising out of the U.K.Newspaper Matters Indemnification Disputes, in a single award; provided that the Arbitral Tribunal may, in its discretion, adjudicate all such matters whiledeferring for a subsequent adjudication the question of the allocation of fees and costs (as provided for in Section 9.08) to be determined in a further award.
(ii) In any U.K. Newspaper Matters Indemnification Final Award, the Arbitral Tribunal shall expressly indicate whether Remainco or New NewsCorporation is the prevailing party in connection with each U.K. Newspaper Matters Indemnification Dispute.
(1) If, in the U.K. Newspaper Matters Indemnification Final Award, the Arbitral Tribunal determines that New News Corporation is theprevailing party in connection with all of the U.K. Newspaper Matters Indemnification Disputes,
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then any and all obligations of Remainco to indemnify New News Corporation (or any of its designated Subsidiaries) or NIH, as applicable,in accordance with Section 4.06(a) for the U.K. Newspaper Matters referenced in the U.K. Newspaper Matters Indemnification Final Awardshall be reinstated, subject to the rendering of any future Remainco Dispute Judgment (as defined below) or as set forth in and the lastsentence of Section 4.06(c)(v).
(2) If, in the U.K. Newspaper Matters Indemnification Final Award, the Arbitral Tribunal determines that Remainco is the prevailingparty in connection with any U.K. Newspaper Matters Indemnification Disputes (a “Remainco Dispute Judgment”), then, from and afterthe date of the initiation of such Dispute, any and all obligations of Remainco to indemnify New News Corporation (or any of its designatedSubsidiaries) or NIH, as applicable, for any and all civil U.K. Newspaper Matters in accordance with Section 4.06(a) shall be deemed tohave ceased and to be of no further force or effect and any and all past (to the extent not already finally determined by a court or otherGovernmental Authority of competent jurisdiction or settled in a binding manner in accordance with Section 4.06 (to the extent applicable)),present, pending and future civil U.K. Newspaper Matters shall be deemed to constitute “Separated Liabilities” in accordance with the termsof this Agreement, except to the extent that Remainco, in its sole and absolute discretion, determines with respect to any particular RemaincoDispute Judgment that its obligation to indemnify New News Corporation (or any of its designated Subsidiaries) or NIH, as applicable, shallcease only with regard to the civil U.K. Newspaper Matters that are subject to such Remainco Dispute Judgment and that only such civilU.K. Newspaper Matters shall constitute “Separated Liabilities” by virtue of such Remainco Dispute Judgment.
(h) Notwithstanding anything to the contrary in this Agreement, the indemnity contributions by Remainco with regard to the NIH Amount and the NewNews Corporation Amount as required by this Section 4.06 shall be made by quarterly payments of the then-accrued NIH Amount or New News CorporationAmount, as applicable, as demonstrated by New News Corporation’s or NIH’s, as applicable, delivery to Remainco of evidence of payment regarding suchamounts.
(i) Other than with regard to the right to indemnification for Separated Liabilities under Section 4.02, Remainco shall not have any right to indemnificationfrom any member of the New News Corporation Group for any U.K. Newspaper Matters.
Section 4.07 Direct Claims. (a) An Indemnified Party shall give the Indemnifying Party notice of any matter that an Indemnified Party has determined hasgiven or could give rise to a right of indemnification under this Agreement (other than a Third Party Claim which shall be governed by Section 4.05 or any U.K.Newspaper Matter, which shall be governed by Section 4.06), within thirty (30) days of such determination, stating the amount of the Indemnifiable Loss claimed,if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification isclaimed by such Indemnified Party or arises; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of itsobligations except and solely to the extent the Indemnifying Party shall have been actually materially prejudiced as a result of such failure. If such IndemnifyingParty does not respond in writing within such 30-day period, such
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Indemnifying Party shall be deemed to have agreed to accept responsibility to indemnify the Indemnified Party pursuant to the provisions of this Agreement. Ifsuch Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnified Party shall be free to pursue anyand all remedies as may be available to such Party as contemplated by this Agreement.
Section 4.08 Survival of Indemnities. The rights and obligations of each of Remainco and New News Corporation and their respective Indemnified Partiesunder this Article IV shall survive the sale or other transfer by any Party of any of its Assets or Businesses or the assignment by it of any Liabilities.
Section 4.09 Remedies Cumulative. The remedies provided in this Article IV or elsewhere in this Agreement shall be cumulative and shall not precludeassertion by any Indemnified Party of any other rights or the seeking of any and all other remedies against any Indemnifying Party; provided, that the proceduresset forth in this Article IV shall be the exclusive procedures governing any indemnity action brought under this Agreement.
Section 4.10 Ancillary Agreements. Notwithstanding anything in this Agreement to the contrary, to the extent any Ancillary Agreement contains anyspecific, express indemnification obligation or contribution obligation relating to any Remainco Liability, Remainco Asset, Separated Liability or Separated Assetcontributed, assumed, retained, transferred, delivered or conveyed pursuant to such Ancillary Agreement, or relating to any other specific matter, theindemnification obligations contained herein shall not apply to such Remainco Liability, Remainco Asset, Separated Liability or Separated Asset, or such otherspecific matter, and instead the indemnification and/or contribution obligations set forth in such Ancillary Agreement shall govern with regard to such RemaincoAsset, Remainco Liability, Separated Asset or Separated Liability or any such other specific matter. For the avoidance of doubt, nothing in any AncillaryAgreement shall affect the treatment of any indemnification for any U.K. Newspaper Matter, which shall be governed solely in accordance with the terms ofSection 4.06 herein.
Section 4.11 Release of Pre-Distribution Claims.
(a) Except (i) as provided in Section 4.11(c), (ii) as may otherwise be provided in this Agreement or any Ancillary Agreement and (iii) for any matter forwhich any Remainco Indemnified Party is entitled to indemnification pursuant to this Article IV, effective as of the Distribution, Remainco does hereby, for itselfand each other member of the Remainco Group and their respective successors and assigns, and, to the extent Remainco legally may, all Persons that at any timeprior or subsequent to the Distribution have been stockholders, directors, officers, members, agents or employees of Remainco or any other member of theRemainco Group (in each case, in their respective capacities as such), remise, release and forever discharge New News Corporation and each member of the NewNews Corporation Group and their respective successors and assigns from any and all Liabilities whatsoever, whether at law or in equity, whether arising underany Contract or agreement, by operation of law or otherwise, existing or arising from or relating to any acts or events occurring or failing to occur or alleged tohave occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution, whether or not known as of theDistribution, including in connection with the transactions and all other activities to implement the Separation or the Distribution.
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Remainco shall not make, and shall not permit any other member of the Remainco Group to make, any claim or demand, or commence any Action asserting anyclaim or demand, including any claim for indemnification, against any member of the New News Corporation Group with respect to any Liabilities releasedpursuant to this Section 4.11(a).
(b) Except (i) as provided in Section 4.11(c), (ii) as may be otherwise provided in this Agreement or any Ancillary Agreement and (iii) for any matter forwhich any New News Corporation Indemnified Party is entitled to indemnification pursuant to this Article IV, New News Corporation does hereby, for itself andeach other member of the New News Corporation Group and their respective successors and assigns, and, to the extent New News Corporation legally may, allPersons that at any time prior or subsequent to the Distribution have been stockholders, directors, officers, members, agents or employees of New NewsCorporation or any other member of the New News Corporation Group (in each case, in their respective capacities as such), remise, release and forever dischargeRemainco and each member of the Remainco Group and their respective successors and assigns from any and all Liabilities whatsoever, whether at law or inequity, whether arising under any Contract or agreement, by operation of law or otherwise, existing or arising from or relating to any acts or events occurring orfailing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution, whetheror not known as of the Distribution, including in connection with the transactions and all other activities to implement the Separation or the Distribution. NewNews Corporation shall not, and shall not permit any other member of the New News Corporation Group to, make any claim or demand, or commence anyAction asserting any claim or demand, including any claim for indemnification, against any member of the Remainco Group with respect to any Liabilitiesreleased pursuant to this Section 4.11(b)
(c) Nothing contained in Sections 4.11(a) or (b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or anyarrangement that is not to terminate as of the Distribution, as specified in Section 2.02(d). Nothing contained in Sections 4.11(a) or (b) shall release any Partyfrom:
(i) any Liability provided in or resulting from any agreement among any member of the Remainco Group and any member of the New News CorporationGroup that is not to terminate as of the Distribution, as specified in Section 2.02(d), or any other Liability that is not to terminate as of the Distribution, asspecified in Section 2.02(d);
(ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with,or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement; or
(iii) any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 4.11; provided that theparties agree not to bring suit or permit any of their Subsidiaries to bring suit against any Person with respect to any Liability to the extent that such Person wouldbe released with respect to such Liability by this Section 4.11 but for the provisions of this clause (iii).
(d) At any time, at the request of any other Party, each Party shall cause each member of its respective Group to execute and deliver releases in formreasonably satisfactory to the other Party reflecting the provisions of this Section 4.11.
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Section 4.12 Indemnification Payments. (a) Subject to Section 4.06(h), indemnification required by this Article IV shall be made by periodic payments ofthe amount thereof during the course of the investigation or defense, as and when bills are received or an indemnifiable Loss is incurred.
(b) If the Indemnifying Party or the applicable payor under Section 4.06 fails to make an indemnification payment required by this Article IV within 30days after receipt of a bill therefore or notice that an indemnifiable Loss has been incurred, such Party shall also be required to pay interest on the amount of suchindemnification payment, from the date of receipt of the bill or notice of the indemnified Loss to but not including the date of payment, at the Applicable Rate.
(c) The amount of any indemnification payment required under this Agreement in respect of any claim by an Indemnified Party shall be made on an After-Tax Basis (as defined in the Tax Sharing and Indemnification Agreement).
(d) Except for the items set forth in Section 4.06, for all Tax purposes and to the extent permitted by applicable Law, the Parties hereto shall treat anypayment made pursuant to this Article IV as a capital contribution or a distribution, as the case may be, immediately prior to the Distribution.
ARTICLE VCERTAIN ADDITIONAL COVENANTS
Section 5.01 Further Assurances. (a) Each of the Parties shall use its commercially reasonable efforts, on and after the Distribution, to take, or cause to betaken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and agreements toconsummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, on and after the Distribution, each Party shall cooperate with the other Party, and without any further consideration, butat the expense of the requesting Party, to cause, or to cause a member of their respective Group to cause, to be executed and delivered, all instruments, includinginstruments of assignment, assumption and transfer, and to make all filings with, and to obtain all Consents under, any permit, license, agreement, indenture orother instrument, and to take all such other actions as either Party may request to be taken by any other Party from time to time, consistent with the terms of thisAgreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and, to the extentnecessary, (i) the transfer of any Separated Asset from any member of the Remainco Group to any member of the New News Corporation Group and theassumption of any Separated Liability by any member of the New News Corporation Group and (ii) the transfer of any Remainco Asset from any member of theNew News Corporation Group to any member of the Remainco Group and the assumption of any
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Remainco Liability by any member of the Remainco Group, and the other transactions contemplated hereby and thereby; provided that, except to the extentotherwise expressly provided herein, neither Party shall be obligated to make any payment, incur any obligation or grant any concession, other than the paymentof ordinary and customary fees to Governmental Authorities.
(c) Remainco and New News Corporation, in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall eachproperly ratify any actions that are reasonably necessary or desirable to be taken by Remainco and New News Corporation, or any of their respective Subsidiaries,as the case may be, to effectuate the transactions contemplated by this Agreement and any Ancillary Agreements.
(d) Each of the Parties shall, and shall cause each of the members of their respective Groups to, at the request of the other, use its commercially reasonableefforts to obtain, or cause to be obtained, any Governmental Approval, Consent, substitution or amendment required to novate or assign all obligations underagreements, leases, licenses and other obligations or Liabilities of any nature whatsoever that constitute Separated Liabilities or Remainco Liabilities, as the casemay be, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of either the New News Corporation Group orthe Remainco Group, as the case may be, so that, in any such case, the New News Corporation Group will be solely responsible for all Separated Liabilities andthe Remainco Group will be solely responsible for all Remainco Liabilities.
(e) If at any time and from time to time (whether prior to, at or after the Distribution), any member of the Remainco Group shall receive or otherwisepossess or control any Separated Asset, Remainco shall or shall cause such member of the Remainco Group to promptly transfer such Separated Asset to NewNews Corporation or its Affiliate or designee.
(f) If at any time and from time to time (whether prior to, at or after the Distribution), any member of the New News Corporation Group shall receive orotherwise possess or control any Remainco Asset, New News Corporation shall or shall cause such member of the New News Corporation Group to promptlytransfer such Remainco Asset to Remainco or its Affiliate or designee.
Section 5.02 Certain Business Matters. (a) Following the Distribution and except as set forth in this Agreement or any Ancillary Agreement, no member ofeither the Remainco Group or the New News Corporation Group shall have any duty to refrain from (i) engaging in the same or similar activities or lines ofbusiness as any member of the other Group, (ii) conducting its business with any potential or actual supplier or customer of any member of the other Group or(iii) engaging in any other activities whatsoever relating to any of the potential or actual suppliers or customers of any member of the other Group.
(b) Each of Remainco and New News Corporation is aware that from time to time certain business opportunities may arise that more than one Group maybe financially able to undertake, and that are, from their nature, in the line of more than one Group’s Business and are of practical advantage to more than oneGroup. In connection therewith, the Parties agree that, following the Distribution, if either Remainco or New News Corporation acquires knowledge of
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an opportunity that meets the foregoing standard with respect to more than one Group, neither Remainco nor New News Corporation shall have any duty tocommunicate or offer such opportunity to the other and each may pursue or acquire such opportunity for itself, or direct such opportunity to any other Person.
Section 5.03 Settlement of Certain Insurance Claims. (a) If, and to the extent, determined by Remainco, in its sole discretion, until the Distribution, eachmember of either Group shall (i) cause itself and its employees, officers and directors to continue to be covered as insured parties under existing policies ofinsurance and (ii) permit the members of the other Group and their respective employees, officers and directors to submit claims arising from or relating to facts,circumstances, events or matters that occurred at or prior to the Distribution to the extent permitted under such policies. Except as is necessary for Remainco, inits reasonable judgment, to comply with its obligations under Section 5.03(c), from and after the Distribution, (x) no member of either Group will haveresponsibility to obtain coverage for any member of the other Group, (y) each member of either Group shall have the right to remove any member of the otherGroup and its current, former and future employees, officers and directors as insured parties under any policy of insurance issued by any insurance carriereffective immediately following the Distribution and (z) following the Distribution, neither Party will be entitled to make any claims for insurance coverage underthe other insurance policies of the members of the other Group to the extent such claims are based upon facts, circumstances, events or matters occurring after theDistribution. No member of either Group shall be deemed to have made any representation or warranty as to the availability of any coverage under any suchinsurance policy.
(b) The Parties acknowledge and agree that following the Distribution, each member of each Group, and their respective current, former and futuredirectors, officers and employees, may make claims arising out of occurrences or events that occurred prior to the Distribution against insurance policies of theother Party, in accordance with the terms and subject to the conditions of such policies, and the Party bringing such claim shall control the claims process withrespect to such claim to the maximum extent allowable under the applicable policies; provided that with regard to any Related Claims, Remainco shall have theright to control the claims process. Neither Party shall be responsible to negotiate, investigate, defend, settle or otherwise handle such claims on behalf of theother Party. In connection with any such claim made by a Party under the other Party’s insurance policy after the Distribution, such other Party shall instruct theapplicable insurance carrier to negotiate with and accept proof of Loss directly from the Party asserting the claim, and to pay such claim directly to the Partyasserting the claim. With regard to Unrelated Claims, the Party bringing any such claim shall bear the cost of any deductible, out-of-pocket costs or Losses notcovered under the applicable policy with regard to such claims. With regard to Related Claims, the Parties shall bear their pro rata portion, as determined byRemainco, in its sole and reasonable discretion, of any deductibles, out-of pocket costs (including the costs related to the defense or settlement of such RelatedClaims) or Losses not covered under the applicable policy with regard to such claims, based on the relationship such costs or Losses incurred by each such Partybear to the total costs and/or Loss to both such Parties from the occurrence or event underlying the Related Claims. Remainco and New News Corporation eachagree to provide necessary reasonable releases to resolve claim settlements. Each Party agrees to cooperate with the other Party as reasonably requested by theother Party in order to pursue such claim. Where indemnification is not available under Article IV, each
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member of each Group shall be responsible for pursuing and administering its own insurance claims and any other member of either Group shall provide suchreasonable cooperation as is appropriate with respect to notice of those claims and otherwise, and, with respect to those claims, in the event any member of eitherGroup elects to pursue insurance coverage through litigation or other action against an insurer, that member will be responsible for its own costs and fees inconnection therewith.
(c) After the Distribution, under the directors and officers liability insurance policies or fiduciary liability insurance policies (collectively, “D&O Policies”)maintained by the members of the Remainco Group, the members of the Remainco Group shall not take any action that would eliminate or substantially reducethe coverage of the individuals who acted as directors or officers of any member of Remainco Group or as the fiduciaries of the employee benefit plans of anymember of the Remainco Group, in each case, at or prior to the Distribution under any D&O Policies maintained by the members of the Remainco Group. Themembers of the Remainco Group shall reasonably cooperate with the individuals who acted as directors and officers of any member of the Remainco Group or asthe fiduciaries of the employee benefit plans of any member of the Remainco Group, in each case, at or prior to the Distribution in their pursuit of any coverageclaims under such D&O Policies that could inure to the benefit of such individuals. The members of the Remainco Group shall allow the members of the NewNews Corporation Group and their agents and representatives, upon reasonable prior notice and during regular business hours, to examine and make copies of therelevant D&O Policies and shall provide such cooperation as is reasonably requested by the members of the New News Corporation Group, their directors andtheir officers.
(d) To the extent that the proceeds from any Remainco or New News Corporation insurance policy, as the case may be, are insufficient to cover anyreimbursements for any Unrelated Claims, whether in part or as a whole, filed by Remainco and/or New News Corporation (or any member of their respectiveGroups), the insurance proceeds available under such policies shall be paid on a “first come, first served” basis, with such determination being made based on thedate that either Remainco or New News Corporation (or any member of their respective Groups) submitted such Unrelated Claim under the applicable policy.
(e) If Remainco and New News Corporation file Related Claims under any Remainco or New News Corporation insurance policy, as the case may be,arising out of occurrences or events that occurred prior to the Distribution, each of New News Corporation and Remainco shall receive a pro rata amount of theavailable (as determined in the sole discretion of Remainco) insurance proceeds, based on the relationship the Loss incurred by each such Party bears to the totalLoss to both such Parties from the occurrence or event underlying the Related Claims.
Section 5.04 Intellectual Property Matters. Without limiting the obligations under Section 5.01 and subject to the terms of any Ancillary Agreement, fromand after the Distribution Date, the Parties hereto agree, upon the other Party’s reasonable request and at the requesting Party’s cost, to (and to cause any relevantmember of its Group to) execute and deliver any documents or instruments (including instruments of conveyance, assignment and transfer) and perform anyactions (including, without limitation, making filings with Internet domain registries, the U.S. Patent and Trademark Office, the U.S. Copyright Office and similar
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foreign and successor offices or registries) reasonably necessary or desirable to evidence, confirm, effect, perfect and/or record each Party’s (and the relevantmembers of its Group’s) right, title or interest in any Assets that consist of Intellectual Property that are allocated to such Party (or such member of its Group)pursuant to this Agreement or any Ancillary Agreement.
Section 5.05 Marks.
(a) Coincident with the Distribution, Remainco will change its name, and as soon as is reasonably practicable following the Distribution shall cause othermembers of the Remainco Group to change their names (to the extent applicable), to remove any reference to the New News Corporation Marks or any use of theterm NEWS as the primary identifier of such name (e.g., News America Incorporated would be required to change its name, but Fox News, LLC would not).
(b) Effective as of the Distribution, New News Corporation (on behalf of itself and the other members of the New News Corporation Group) hereby grantsto Remainco Group, for a period of twelve (12) months after the Distribution (the “Trademark Transition Period”), a non-exclusive, worldwide, and royalty-free license to use the New News Corporation Marks in a manner generally consistent with the use of such Trademark prior to the Distribution, to facilitate thetransition by the Remainco Group to new names and marks. Subject to the following paragraph, during the Transition Period, the Remainco Group shall phase-outuse of the New News Corporation Marks as soon as reasonably practicable.
(c) Notwithstanding anything to the contrary in this Agreement or under applicable Law, upon the expiration of the Trademark Transition Period, NewNews Corporation (on behalf of itself and the other members of the New News Corporation Group) acknowledges and agrees that Remainco Group shall not berequired to remove, modify or take any other action regarding any use of the New News Corporation Marks made prior to or during the Trademark TransitionPeriod to the extent such use is on products and other materials already in commerce or already created for use in commerce, including making reproductions ofsuch products and other materials following the Trademark Transition Period to the extent such reproductions are used in substantially the same manner as usedprior to the Distribution (for example, and without limitation, creation and sale of DVDs with existing packaging bearing a New News Corporation Mark,reproduction of film prints that include a New News Corporation Mark in opening or closing credits, etc.). Effective as of the Distribution, New NewsCorporation (on behalf of itself and the other members of the New News Corporation Group) hereby grants to Remainco Group a non-exclusive, worldwide, androyalty-free license to make the foregoing uses of the New News Corporation Marks; provided that Remainco Group shall use commercially reasonable efforts tophase-out such use of the New News Corporation Marks as such materials are otherwise modified in any significant respect in the ordinary course of business (forexample, and without limitation, when packaging for a DVD is modified to change the cover graphic, the New News Corporation Marks shall be removed fromsuch modified packaging).
(d) All goodwill associated with the New News Corporation Marks generated by the Remainco Group’s use of the New News Corporation Marks pursuantto the licenses granted in this Section 5.5 shall inure to the benefit of the New News Corporation Group. The Remainco Group shall use the New NewsCorporation Marks pursuant to the licenses granted in this
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Section 5.5 at a level of quality equivalent in all material respects to that in effect for the New News Corporation Marks as of the Distribution. For purposes ofclarity, nothing in this Section 5.5 shall preclude any uses of the New News Corporation Marks by Remainco Group, during or after the Trademark TransitionPeriod, that are required (or could otherwise be made by a third party) under applicable Law, including uses of the New News Corporation Marks not incommerce, uses that would not cause confusion as to the origin of a good or service, and references to the New News Corporation Marks in historical, tax, andregulatory filings and similar records.
(e) Without limiting any obligations in this Agreement and subject to the terms of any Ancillary Agreement, from and after the Distribution Date, theParties hereto agree, upon the other Party’s reasonable request and at the requesting Party’s cost, to (and to cause any relevant member of its Group, including, forthe avoidance of doubt, News Australia Pty. Ltd., to) execute and deliver a short form license agreement reflecting the licenses granted hereunder and performany actions (including, without limitation, making filings with the U.S. Patent and Trademark Office, the U.S. Copyright Office and similar foreign and successoroffices or registries) reasonably necessary or desirable to evidence, confirm, effect, perfect and/or record such licenses or the use of the New News CorporationMarks in commerce.
Section 5.06 Misdirected Customer Payments.
(a) In the event that after the Distribution Date, any member of the Remainco Group receives a Misdirected New News Corporation Payment or anymember of the New News Corporation Group receives a Misdirected Remainco Payment, the receiving Party shall remit such payment to the appropriate memberof the Remainco Group or the New News Corporation Group, as applicable, as soon as reasonably practicable.
(b) Following the Distribution Date, Remainco will promptly upon receipt thereof forward to New News Corporation any invoice received by any memberof the Remainco Group and addressed to any member of the New News Corporation Group, and New News Corporation will promptly upon receipt thereofforward to Remainco any invoice received by any member of the New News Corporation Group and addressed to any member of the Remainco Group (anyinvoice described in this sentence, a “Misdirected Invoice”). For the avoidance of doubt, obligations under, and Liabilities associated with, any MisdirectedInvoice shall be deemed for the purposes of this Agreement (including with respect to any indemnification obligations under Article IV) to be Liabilities of theaddressee of such Misdirected Invoice.
Section 5.07 Consents for Business. After the Distribution, each Party shall cause the appropriate members of its respective Group to prepare and file withthe appropriate Governmental Authorities applications for the transfer or issuance, as each of the Parties determines is necessary or advisable, to its Group of allmaterial Consents required for the members of its Group to operate its Business. The members of the New News Corporation Group and the members of theRemainco Group shall cooperate and use all commercially reasonable efforts to secure the transfer or issuance of such Consents.
Section 5.08 Additional Consents. In addition to the actions described in Section 5.07, the members of the Remainco Group and the members of the NewNews Corporation Group
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shall cooperate to make all other filings and to give notice to and obtain any Consent required or advisable to consummate the transactions that are contemplatedto occur from and after the Distribution by this Agreement and the Ancillary Agreements.
Section 5.09 Conduct of Business Following the Separation. After the Distribution:
(a) The Remainco Group and New News Corporation Group shall each be permitted to acquire any Media Company Interest, provided, however, that if atthe time that any acquisition occurs, such acquisition would cause the other Party (or any members of the Remainco Group or New News Corporation Group, asapplicable) to be (or potentially to be) in violation of the FCC Broadcast Ownership Rules, or would limit in any manner under such Rules the ability of the otherParty (or any members of the Remainco Group or New News Corporation Group, as applicable) to hold its then-existing Media Company Interests, suchacquisition shall be deemed a “FCC Ownership Interest.” In the event that either Party (or any members of the Remainco Group or New News CorporationGroup, as applicable) acquires a FCC Ownership Interest, then upon notification from the other Party exercising its reasonable, good faith judgment that the FCCOwnership Interest does or is reasonably likely to impede its business, the Party that acquired such FCC Ownership Interest shall (or as necessary shall direct themembers of the Remainco Group or New News Corporation Group, as applicable) take any and all steps necessary, including without limitation promptlydivesting the FCC Ownership Interest or the business or asset giving rise to such FCC Ownership Interest, so that the ability of the other Party to operate in amanner consistent with the FCC Broadcast Ownership Rules, or to continue to hold its Media Company Interests, is not impaired in any respect.
(b) Neither the Remainco Group nor New News Corporation Group shall acquire an interest in a Multichannel Video Programming Distributor to the extentthat such acquisition would subject the other Party or any of its subsidiaries to the FCC Program Access Rules (an “FCC MVPD Interest”); provided, however,that a Party may acquire an FCC MVPD Interest if at the time of the acquisition of such FCC MVPD Interest the other Party is for independent reasons alreadysubject either to the FCC Program Access Rules or to a government regulation, order, determination, consent agreement or decree that imposes effectively thesame limitations on such other Party as the FCC Program Access Rules.
(c) The Remainco Group and New News Corporation Group shall each provide the other with any Information in accordance with Section 6.01(a) that anymember of the other Party is required to include in submissions made to the FCC. Without limiting the generality of the foregoing, the parties agree that anycommunication with the FCC in connection with a FCC Ownership Interest or FCC MVPD Interest acquired by either of them, or sought to be acquired, shall bemade by, and under the direction of, Remainco in its sole and absolute discretion, provided that Remainco shall consult with New News Corporation about suchcommunications in advance and in good faith incorporate into such communications the reasonable views expressed by New News Corporation.
(d) The provisions of paragraphs (a), (b) and (c) of this Section 5.09 and the parties’ rights and obligations thereunder shall terminate and no longer be ineffect from and after such time as no person or entity is deemed to have an interest in both Remainco and New News Corporation that is attributable for purposesof the FCC Broadcast Ownership Rules (in the case
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of paragraphs (a) and (c)) or the FCC Program Access Rules (in the case of paragraphs (b) and (c)). Notwithstanding any termination pursuant this paragraph (d),the parties hereto shall remain liable for any breaches of this Section 5.09 occurring prior to such time.
ARTICLE VIACCESS TO INFORMATION
Section 6.01 Agreement for Exchange of Information. (a) Each of Remainco and New News Corporation, on behalf of its respective Group, agrees toprovide, or cause to be provided, to the other Party and its auditors, at any time before, on or after the Distribution, as soon as reasonably practicable after writtenrequest therefor from such other Party, any Information in the possession or under the control of such respective Group (including access to such Group’saccountants, personnel and facilities) that the requesting Party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed onthe requesting Party (including under applicable securities laws) by a Governmental Authority having jurisdiction over the requesting Party (including pursuant toSection 6.01(d)), (ii) for use in any other judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, claims, regulatory,litigation, Action or other similar requirements, (iii) to comply with its obligations under this Agreement or any Ancillary Agreement, (iv) for employee benefits,regulatory or Tax matters, or (v) for any other reasonable purposes; provided, however, that in the event that any Party reasonably determines that any suchprovision of Information could be commercially detrimental to such Party or any member of its Group, violate any Law or agreement to which such Party ormember of its Group is a party, or waive any attorney-client or attorney work product privileges applicable to such Party or member of its Group, the Parties shalluse reasonable efforts to provide any such Information and the Parties shall take all reasonable measures to comply with the obligations pursuant to thisSection 6.01(a) in a manner that mitigates any such harm or consequence and prevents waiver of any privilege to the extent practicable. Remainco and New NewsCorporation intend that any transfer of Information that would otherwise be within the attorney-client or attorney work product privileges shall not operate as awaiver of any potentially applicable privilege.
(b) Following the Distribution, each Party shall make its employees and facilities reasonably available and accessible to provide an examination of anyInformation provided hereunder.
(c) Until the end of the first full Remainco fiscal year occurring after the Distribution (and for a reasonable period of time afterwards as required for eachParty to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution occurs), each Partyshall use its commercially reasonable efforts, consistent with past practice, to enable the other Party to meet its timetable for dissemination of its financialstatements and enable such other Party’s auditors to timely complete their annual audit and review of quarterly financial statements.
(d) In order to enable the principal executive officer or officers, principal financial officer or officers and controller or controllers of the other Party to makethe certifications required of them under SOX § 302, within 30 days following the end of any fiscal quarter during which New News Corporation is a Subsidiaryof Remainco, each Party shall cause its officers or
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employees to provide the other Party with the certification statements of such officers and employees with respect to such quarter or portion thereof to thoseofficers and employees of the other Party, in substantially the same form and manner as such officers or employees provided such certification statements prior tothe Distribution, or as otherwise agreed upon between the Parties. Such certification statements shall also reflect any changes in certification statementsnecessitated by the Separation, Distribution, Internal Reorganization and any other transactions related thereto.
Section 6.02 Ownership of Information. Any Information owned by one Group that is provided to a requesting Party pursuant to Section 6.01 shall bedeemed to remain the property of the providing Party. Unless specifically set forth herein or in any Ancillary Agreement, nothing contained in this Section 6.01shall be construed as granting or conferring rights of license or otherwise in any such Information.
Section 6.03 Compensation for Providing Information. The Party requesting any Information referenced in Section 6.01(a) agrees to reimburse the otherParty for the reasonable out-of-pocket costs, if any, and personnel costs of creating, gathering and copying such Information or for providing explanations ofInformation provided, to the extent that such costs are incurred for the benefit of the requesting Party by or on behalf of such other Party’s Group. Except as maybe specifically provided elsewhere in this Agreement or in any other Ancillary Agreement, such costs shall be computed in accordance with the providing Party’sreasonable standard methodology and procedures.
Section 6.04 Record Retention. Except as otherwise required or agreed in writing, or as otherwise provided in the Tax Sharing and IndemnificationAgreement or any other Ancillary Agreement, with regard to any Information referenced in Section 6.01(a), each Party shall use its commercially reasonableefforts to retain, until the latest of, as applicable, (i) the date on which such Information is no longer required to be retained pursuant to Remainco’s applicablerecord retention policy as in effect immediately prior to the Distribution, including, without limitation, pursuant to any “Litigation Hold” issued by Remainco orany of its Subsidiaries prior to the Distribution, (ii) any period as may be required by any applicable Law, (iii) any period during which such Information relates toa pending or threatened claim, demand or Action which is known to the members of the Group in possession of such Information at the time any retentionobligation with regard to such Information would otherwise expire, (iv) any period during which the destruction of such Information could interfere with apending or threatened investigation by a Governmental Authority which is known to the members of the Group in possession of such Information at the time anyretention obligation with regard to such Information would otherwise expire and (v) with respect to Information relating to Taxes, one year after the expiration ofthe applicable statute of limitations (such latest period, the “Retention Period”), at such party’s sole cost and expense; provided that with respect to any pendingor threatened claim, demand or Action arising after the Distribution, clause (iii) of this sentence applies only to the extent that whichever member of the NewNews Corporation Group or the Remainco Group is in possession of such Information has been notified in writing pursuant to a “Litigation Hold” by the otherParty of the relevant pending or threatened claim, demand or Action. Prior to destroying or disposing of any such Information, (a) the Party proposing to disposeof or destroy any such Information shall use its commercially reasonable efforts to provide no less than 30 days’ prior
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written notice to the other Party, specifying the Information proposed to be destroyed or disposed of and (b) if, prior to the scheduled date for such destruction ordisposal, the other Party requests in writing that any of the Information proposed to be destroyed or disposed of be delivered to such other Party, the Partyproposing to dispose of or destroy such Information shall promptly arrange for the delivery of the requested Information to a location specified by, and at theexpense of, the requesting Party; provided, however, that in the event that any Party reasonably determines that any such provision of Information could becommercially detrimental to such Party or any member of its Group, violate any Law or agreement to which such Party or member of its Group is a party, orwaive any attorney-client or attorney work product privileges applicable to such Party or member of its Group, the Parties shall take all reasonable measures topermit the compliance with the obligations pursuant to this Section 6.04 in a manner that avoids any such harm or consequence. Remainco and New NewsCorporation intend that any transfer of Information that would otherwise be within the attorney-client or attorney work product privileges shall not operate as awaiver of any potentially applicable privilege.
Section 6.05 Other Agreements Providing for Exchange of Information. The rights and obligations granted under this Article VI are subject to any specificlimitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in this Agreement or any AncillaryAgreement. The provisions of Section 6.01 through Section 6.06 shall not apply to matters that are specifically governed by the Tax Sharing and IndemnificationAgreement, the Employee Matters Agreement, the Transition Services Agreement or any other Ancillary Agreement.
Section 6.06 Control of Litigation; Production of Witnesses; Records; Cooperation. (a) Subject to Section 4.05, from and after the Distribution, New NewsCorporation (or an applicable member of the New News Corporation Group) shall be responsible for managing, and shall have the authority to manage, thedefense or prosecution, as applicable, and resolution (including settlement) of any Action by New News Corporation, and Remainco (or an applicable member ofthe Remainco Group) shall be responsible for managing, and shall have the authority to manage, the defense or prosecution, as applicable, and resolution(including settlement) of any Action by Remainco.
(b) Except in the case of an Action by one Party against another Party (which shall be governed by such discovery rules as may be applicable thereto), eachParty shall use its commercially reasonable efforts to make available to the other Party, upon written request, the former, current and future directors, officers,employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or whichit otherwise has the ability to make available, to the extent that any such Person (giving consideration to business demands of such directors, officers, employees,other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting Party mayfrom time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requested partyagrees to make the designated person or persons available to the requesting party upon reasonable notice to the same extent such requested party would havemade such person available if the Distribution had not occurred. The requesting party agrees to cooperate with the requested party in giving consideration to suchpersons’ business demands. The requesting Party shall bear all reasonable out-of-pocket costs and expenses, including, without limitation, reasonable legal feesand expenses, in connection therewith.
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(c) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third-Party Claim, the Indemnified Party shall use its commerciallyreasonable efforts to make available to the Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personneland agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the abilityto make available, to the extent that any such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents)or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation orpursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case maybe. The Indemnifying Party shall bear all reasonable out-of-pocket expenses, including, without limitation, reasonable legal fees and expenses, in connectiontherewith.
(d) Without limiting the foregoing, the Parties shall cooperate and consult, and shall cause each member of its respective Group to cooperate and consult, tothe extent reasonably necessary with respect to any Actions and any Related Claims with respect thereto.
(e) The obligation of the Parties to provide witnesses pursuant to this Section 6.06 is intended to be interpreted in a manner so as to facilitate cooperationand shall include the obligation to provide as witnesses, former, current and future directors, officers, employees, other personnel and agents (subject to theexception set forth in the first sentence of Section 6.06(b)).
(f) Nothing in this Section 6.06 shall be deemed to apply to the U.K. Newspaper Matters or any U.K. Newspaper Matters Claim, which shall be governedexclusively by Section 4.06.
Section 6.07 Confidentiality. (a) General. Each Party acknowledges (i) that such Party has in its possession and in connection with this Agreement and theAncillary Agreements, such Party will receive Information of the other Party that is not available to the general public, and (ii) that such Information mayconstitute, contain or include material nonpublic Information of the other Party. Subject to Section 6.07(c), as of the Distribution, Remainco, on behalf of itselfand each of its Affiliates, and New News Corporation, on behalf of itself and each of its Affiliates, agrees to hold or cause to be held, and to cause its respectivedirectors, officers, employees, agents, third-party contractors, vendors, accountants, counsel and other advisors and representatives to hold, in strict confidence,with at least the same degree of care that such Party applies to its own confidential and proprietary Information pursuant to its applicable policies and proceduresin effect as of the Distribution, all Information (including Information received and/or obtained pursuant to Section 6.01) concerning the other Party (or itsBusiness) and such other Party’s Affiliates (or their respective Business) that is either in its possession (including Information in its possession prior to theDistribution) or furnished by the other Party or the other Party’s Affiliates or their respective directors, officers, employees, agents, third-party contractors,vendors, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement and the Ancillary Agreements or otherwise, and willnot use such Information other than for such purposes as may be expressly permitted hereunder or thereunder, except, in each
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case, to the extent that such Information: (i) is or becomes available to the general public, other than as a result of a disclosure by such Party or its Affiliates orany of their respective directors, officers, employees, agents, third-party contractors, vendors, accountants, counsel and other advisors and representatives inbreach of this Agreement; (ii) was available to such Party or its Affiliates or becomes available to such Party or its Affiliates, on a non-confidential basis from asource other than the other Party hereto, provided, that, the source of such Information was not bound by a confidentiality obligation with respect to suchInformation, or otherwise prohibited from transmitting the Information to such Party or its Affiliates by a contractual, legal or fiduciary obligation; or (iii) isindependently generated by such Party without use of or reference to any proprietary or confidential Information of the other Party.
(b) No Release, Compliance with Law, Return or Destruction. Following the Distribution, each Party agrees not to release or disclose, or permit to bereleased or disclosed, any Information described in Sections 6.07(a)(i) and (ii) to any other Person, except its directors, officers, employees, agents, third-partycontractors, vendors, accountants, counsel, lenders, investors and other advisors and representatives who need to know such Information pursuant to thisAgreement or the Ancillary Agreements or otherwise, and except in compliance with Section 6.07(c). Each Party shall advise its directors, officers, employees,agents, third-party contractors, vendors, accountants, counsel, lenders, investors and other advisors and representatives who have been provided with suchInformation of such Party’s confidentiality obligations hereunder and that such Information may constitute, contain or include material non-public Information ofthe other Party. Following the Distribution, each Party shall, and shall cause, its directors, officers, employees, agents, third-party contractors, vendors,accountants, counsel, lenders, investors and other advisors and representatives who have been provided with such Information to use such Information only inaccordance with (i) the terms of this Agreement or the Ancillary Agreements and (ii) applicable Law (including federal and state securities Laws). Following theDistribution, each Party shall promptly, after receiving a written request of the other Party, return to the other Party all such Information in a tangible form(including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other Party that it has destroyed such Information (and suchcopies thereof and such notes, extracts or summaries based thereon), as directed by the other Party, except, that the receiving Party is not obligated to return ordestroy copies of Information that are required to be maintained by applicable Law or regulation or such Party’s bona fide business management policies as ineffect as of the date such request for return or destruction is received.
(c) Protective Arrangements. Notwithstanding anything herein to the contrary, in the event that, following the Distribution, either Party or any of itsdirectors, officers, employees, agents, third-party contractors, vendors, accountants, counsel, lenders, investors and other advisors and representatives eitherdetermines on the advice of its counsel that it is required to disclose any Information pursuant to applicable Law or the rules or regulations of a GovernmentalAuthority or receives any request or demand under lawful process or from any Governmental Authority to disclose or provide Information of the other Party thatis subject to the confidentiality provisions hereof, such Party shall, if possible, notify the other Party prior to disclosing or providing such Information and shallcooperate at the expense of the requesting Party in seeking any reasonable protective arrangements requested by such other Party. In the event that a protectivearrangement is not obtained, the Person that received such request (i) may
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thereafter disclose or provide such Information to the extent required by such Law (as so advised by counsel) or by lawful process or such GovernmentalAuthority, without liability therefor and (ii) shall exercise its commercially reasonable efforts to have confidential treatment accorded any such Information sofurnished.
Section 6.08 Privileged Information. In furtherance of the rights and obligations of the parties set forth in this Article VI:
(a) Each of New News Corporation (on behalf of itself and the other members of the New News Corporation Group) and Remainco (on behalf of itself andthe other members of the Remainco Group) acknowledges that: (i) each member of the New News Corporation Group and the Remainco Group has or may obtainInformation that is or may be protected from disclosure pursuant to the attorney-client privilege, the work product doctrine, the common interest and joint defensedoctrines or other applicable privileges (“Privileged Information”); (ii) actual, threatened or future litigation, investigations, proceedings (including arbitrationproceedings), claims or other legal matters have been or may be asserted by or against, or otherwise affect, some or all members of the New News CorporationGroup or the Remainco Group (“Litigation Matters”); (iii) members of the New News Corporation Group and the Remainco Group have or may in the futurehave a common legal interest in Litigation Matters, in the Privileged Information and in the preservation of the protected status of the Privileged Information; and(iv) each of New News Corporation and Remainco (on behalf of itself and the other members of its Group) intends that the transactions contemplated by thisAgreement and the Ancillary Agreements and any transfer of Privileged Information in connection herewith or therewith shall not operate as a waiver of anyapplicable privilege or protection afforded Privileged Information.
(b) Each of New News Corporation and Remainco agrees, on behalf of itself and each member of the Group of which it is a member, not to disclose orotherwise waive any privilege or protection attaching to any Privileged Information relating to a member of the other Group or relating to or arising in connectionwith the relationship between the Groups prior to the Distribution, without providing prompt written notice to and obtaining the prior written consent of the other.
(c) In the event that both a member or members of the New News Corporation Group and the Remainco Group are defendants in the same proceeding, theappropriate member or members of each Group will enter into a mutually acceptable joint defense agreement[, substantially in the form attached as Exhibit B tothis Agreement], so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of any Group.
Section 6.09 Policies and Best Practices. Without representation or warranty, New News Corporation and Remainco shall continue to be permitted to share,on a confidential basis, “best practices” information and materials (such as policies, workflow templates and standard form contracts).
Section 6.10 Compliance with Laws and Agreements. Nothing in this Article VI shall be deemed to require any Person to provide any Information if doingso would, in the opinion of counsel to such Person, be inconsistent with any legal or constitutional obligation applicable to such Person.
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ARTICLE VIINO REPRESENTATION OR WARRANTY
Section 7.01 NO REPRESENTATIONS OR WARRANTIES. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, EACH PARTY, ONBEHALF OF ITSELF AND ALL MEMBERS OF ITS GROUP, UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREINOR IN ANY ANCILLARY AGREEMENT, (A) NO MEMBER OF THE REMAINCO GROUP, THE NEW NEWS CORPORATION GROUP OR ANYOTHER PERSON IS, IN THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR IN ANY OTHER AGREEMENT OR DOCUMENT, MAKING ANYREPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, TO ANY PARTY OR ANY MEMBER OF ANY GROUPIN ANY WAY WITH RESPECT TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THE BUSINESS, ASSETS (OR TITLE THERETO),CONDITION OR PROSPECTS (FINANCIAL OR OTHERWISE) OF, OR ANY OTHER MATTER INVOLVING, ANY REMAINCO ASSETS, ANYREMAINCO LIABILITIES, THE REMAINCO BUSINESS, ANY SEPARATED ASSETS, ANY SEPARATED LIABILITIES, THE SEPARATED BUSINESSOR ANY U.K. NEWSPAPER MATTER, (B) EACH PARTY AND EACH MEMBER OF EACH GROUP SHALL TAKE ALL OF THE ASSETS, BUSINESSAND LIABILITIES TRANSFERRED TO, RETAINED BY OR ASSUMED BY IT PURSUANT TO THIS AGREEMENT OR ANY ANCILLARYAGREEMENT ON AN “AS IS, WHERE IS” BASIS, AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A SPECIFICPURPOSE OR OTHERWISE ARE HEREBY EXPRESSLY DISCLAIMED, AND (C) NONE OF REMAINCO, NEW NEWS CORPORATION OR ANYMEMBERS OF THE REMAINCO GROUP OR THE NEW NEWS CORPORATION GROUP OR ANY OTHER PERSON MAKES ANY REPRESENTATIONOR WARRANTY WITH RESPECT TO THE SEPARATION, THE DISTRIBUTION OR THE ENTERING INTO OF THIS AGREEMENT, THE ANCILLARYAGREEMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY. EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANYANCILLARY AGREEMENT, EACH PARTY AND EACH MEMBER OF EACH GROUP SHALL BEAR THE ECONOMIC AND LEGAL RISK THAT ANYCONVEYANCES OF ASSETS SHALL PROVE TO BE INSUFFICIENT OR THAT THE TITLE OF ANY MEMBER OF ANY GROUP TO ANY ASSETSSHALL BE OTHER THAN GOOD AND MARKETABLE AND FREE FROM ENCUMBRANCES. NOTWITHSTANDING ARTICLE IV, NO PARTYSHALL HAVE ANY LIABILITY TO THE OTHER PARTY IF ANY INFORMATION EXCHANGED OR PROVIDED PURSUANT TO THIS AGREEMENTTHAT IS AN ESTIMATE OR FORECAST, OR WHICH IS BASED ON AN ESTIMATE OR FORECAST, IS FOUND TO BE INACCURATE. NO PARTYSHALL HAVE ANY LIABILITY TO THE OTHER PARTY IN CONNECTION WITH INFORMATION DISPOSED OF OR DESTROYED AFTER USINGITS COMMERCIALLY REASONABLE EFFORTS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 6.04.
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ARTICLE VIIITERMINATION
Section 8.01 Termination. This Agreement or any Ancillary Agreement may be terminated by Remainco in its sole discretion at any time prior to theconsummation of the Distribution and shall automatically terminate upon the public announcement by Remainco that it has determined to abandon or notconsummate the Separation or Distribution.
Section 8.02 Effect of Termination. In the event of any termination of this Agreement or any Ancillary Agreement prior to consummation of theDistribution, neither Party (nor any of its directors or officers or member of such Party’s Group) shall have any Liability or further obligation to the other Party.
ARTICLE IXMISCELLANEOUS
Section 9.01 Complete Agreement; Representations. (a) This Agreement, together with any exhibits and schedules hereto and the Ancillary Agreements,constitutes the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments andwritings with respect to such subject matter.
(b) Remainco represents on behalf of itself and each other member of the Remainco Group and New News Corporation represents on behalf of itself andeach other member of the New News Corporation Group as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute,deliver and perform each of this Agreement and each other Ancillary Agreement to which it is a party and to consummate the transactions contemplated by suchagreements; and
(ii) this Agreement has been duly executed and delivered by such Person (if such Person is a Party) and constitutes a valid and binding agreement of itenforceable in accordance with the terms hereof (assuming the due execution and delivery thereof by the other Party), and each of the other Ancillary Agreementsto which it is or will be a party is or will be duly executed and delivered by it and will constitute a valid and binding agreement of it enforceable in accordancewith the terms thereof (assuming the due execution and delivery thereof by the other party or parties to such Ancillary Agreements), except as such enforceabilitymay be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other Laws relating to creditors’ rights generally and bygeneral equitable principles.
Section 9.02 Costs and Expenses; Payment. Except as expressly provided in this Agreement or any Ancillary Agreement, Remainco shall bear all directand indirect costs and expenses incurred in connection with the negotiation, preparation and execution of this Agreement, the Ancillary Agreements and thetransactions contemplated hereby and thereby; provided, that, except as otherwise expressly provided in this Agreement or any Ancillary Agreement, from andafter the Distribution, each Party shall bear its own direct and indirect costs and expenses related to its performance of this Agreement or any AncillaryAgreement. Except
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as expressly provided in this Agreement or any Ancillary Agreement, any amount payable pursuant to this Agreement or any Ancillary Agreement by one party(or any member of such party’s Group) shall be paid within 30 days after presentation of an invoice or a written demand by the party entitled to receive suchpayments. Such demand shall include documentation setting forth the basis for the amount payable. Any payment not made within 30 days of the written demandfor such payment shall accrue interest at a rate equal to the Prime Rate.
Section 9.03 Governing Law. This Agreement and any dispute arising out of, in connection with or relating to this Agreement shall be governed by andconstrued in accordance with the Laws of the State of Delaware, without giving effect to the conflicts of laws principles thereof.
Section 9.04 Notices. All notices, requests, claims, demands and other communications hereunder must be in writing and will be deemed to have been dulygiven only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the Parties at the following addresses or facsimilenumbers:
If to Remainco or any member of the Remainco Group, to:
News Corporation[Contact Information]
If to New News Corporation or any member of the New News Corporation Group, to:
New News Corporation[Contact Information]
All such notices, requests and other communications will (i) if delivered personally to the address as provided in this section, be deemed given upondelivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this section, be deemed given upon receipt and (iii) if delivered by mailin the manner described above to the address as provided in this section, be deemed given upon receipt (in each case regardless of whether such notice, request orother communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this section).Any Party from time to time may change its address, facsimile number or other information for the purpose of notices to that Party by giving notice specifyingsuch change to the other Party.
Section 9.05 Amendment, Modification or Waiver. (a) Prior to the Distribution, this Agreement may be amended, modified, waived, supplemented orsuperseded, in whole or in part, by Remainco in its sole discretion by execution of a written document delivered to New News Corporation. Subsequent to theDistribution, this Agreement may be amended, modified, waived, supplemented or superseded, in whole or in part, only by a written agreement signed by dulyauthorized signatories of the Parties.
(b) Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof (except as otherwise set forth inSection 3.03), but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term orcondition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed or construed as a waiver of the sameor any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will becumulative and not alternative.
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Section 9.06 No Assignment; Binding Effect; No Third-Party Beneficiaries. (a)Neither this Agreement nor any right, interest or obligation hereunder maybe assigned by either Party hereto without the prior written consent of the other Party hereto and any attempt to do so will be void, except that each Party heretomay assign any or all of its rights, interests and obligations hereunder to an Affiliate, provided that any such Affiliate agrees in writing to be bound by all of theterms, conditions and provisions contained herein; provided further that no assignment shall relieve the assigning Party of any of its obligations under thisAgreement unless agreed to by the non-assigning Party. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and isenforceable by the Parties hereto and their respective successors and permitted assigns.
(b) Except for the provisions of Article IV relating to rights and obligations of Indemnified Parties and Indemnifying Parties, as applicable, the terms andprovisions of this Agreement are intended solely for the benefit of each Party hereto and its respective Affiliates, successors or permitted assigns, and it is not theintention of the Parties to confer third-party beneficiary rights upon any other Person, provided that, notwithstanding anything to the contrary in this Agreement,no natural Person shall be deemed to have any third party beneficiary rights with regard to the U.K. Newspaper Matters.
Section 9.07 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.
Section 9.08 Dispute Resolution. Any claim, controversy or dispute between or among any of the Parties hereto arising out of or related to this Agreement,including with respect to the validity, intent, interpretation, performance, enforcement, breach or termination of this Agreement or any of the terms contained inthis Agreement (a “Dispute”) shall be submitted to final and binding arbitration administered by the International Chamber of Commerce (“ICC”) pursuant to itsRules of Arbitration then in effect (the “ICC Rules”), except as modified herein or, as applicable, by Section 4.06(g) above:
(a) The arbitration shall be conducted by a three-member arbitral tribunal (the “Arbitral Tribunal”). The claimant shall nominate one arbitrator inaccordance with the ICC Rules, and the respondent shall nominate one arbitrator in accordance with the ICC Rules within twenty-one days (21) after theappointment of the first arbitrator. The third arbitrator, who shall serve as chair of the Arbitral Tribunal, shall be jointly nominated by the two party-nominatedarbitrators within twenty-one (21) days of the confirmation of the appointment of the second arbitrator. On the request of any party to the arbitration, anyarbitrator(s) not timely nominated shall be appointed by the ICC Court of Arbitration (the “ICC Court”) in accordance with the ICC Rules.
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(b) The arbitration shall be held, and the award shall be rendered, in New York, New York, in the English language.
(c) For the avoidance of doubt, by submitting their dispute to arbitration under the ICC Rules, the Parties expressly agree that all issues of arbitrability,including all issues concerning the propriety and timeliness of the commencement of the arbitration (including any defense based on a statute of limitation, ifapplicable), the jurisdiction of the Arbitral Tribunal, and the procedural conditions for arbitration, shall be finally and solely determined by the Arbitral Tribunal.
(d) Without derogating from paragraph 9.08(e) below, the Arbitral Tribunal shall have the full authority to grant any pre-arbitral injunction, pre-arbitralattachment, interim or conservatory measure or other order in aid of arbitration proceedings (“Interim Relief”). The parties shall exclusively submit anyapplication for Interim Relief to only: (A) the Arbitral Tribunal; or (B) prior to the constitution of the Arbitral Tribunal, an Emergency Arbitrator appointed in themanner provided for in the ICC Rules. Any Interim Relief so issued shall, to the extent permitted by applicable Law, be deemed a final arbitration award forpurposes of enforceability, and, moreover, shall also be deemed a term and condition of this Agreement subject to specific performance in Section 9.09 below.The foregoing procedures shall constitute the exclusive means of seeking Interim Relief, provided, however, that (i) the Arbitral Tribunal shall have the power tocontinue, review, vacate or modify any Interim Relief granted by an Emergency Arbitrator; (ii) in the event an Emergency Arbitrator or the Arbitral Tribunalissues an order granting, denying or otherwise addressing Interim Relief (a “Decision on Interim Relief”), any Party may apply to enforce or require specificperformance of such Decision on Interim Relief in any court of competent jurisdiction; and (iii) either Party shall retain the right to apply for freezing orders toprevent the improper dissipation of transfer of assets to a court of competent jurisdiction.
(e) The Arbitral Tribunal shall have the power to grant any remedy or relief that it deems just and equitable and that is in accordance with the terms of thisAgreement, including specific performance and temporary or final injunctive relief, provided, however, that the Arbitral Tribunal shall have no authority or powerto limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement or any Ancillary Agreement, nor any right or power toaward punitive, exemplary or treble damages.
(f) The Arbitral Tribunal shall have the power to allocate the costs and fees of the arbitration, including reasonable attorneys’ fees and costs as well as thosecosts and fees addressed in the ICC Rules, between the parties in the manner it deems fit.
(g) Arbitration under this Section 9.08 shall be the sole and exclusive remedy for any Dispute, and any award rendered thereby shall be final and bindingupon the parties as from the date rendered. Judgment on the award rendered by the Arbitral Tribunal may be entered in any court having jurisdiction thereof,including any court having jurisdiction over the relevant Party or its Assets.
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(h) The Parties agree that any arbitration hereunder shall be kept confidential, and that the existence of the proceeding and all of its elements (including anypleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions, and any awards) shall be deemed confidential, and shallnot be disclosed beyond the Arbitral Tribunal, the Parties, their counsel, and any Person necessary to the conduct of the proceeding, except as and to the extentrequired by law and to defend or pursue any legal right. In the event any Party makes application to any court in connection with this Section 9.08 (including anyproceedings to enforce a final award or any Interim Relief), that party shall take all steps reasonably within its power to cause such application, and any exhibits(including copies of any award or decisions of the Arbitral Tribunal or Emergency Arbitrator) to be filed under seal, shall oppose any challenge by any third partyto such sealing, and shall give the other Party immediate notice of such challenge.
Section 9.09 Specific Performance. From and after the Distribution, in the event of any actual or threatened default in, or breach of, any of the terms,conditions and provisions of this Agreement or any Ancillary Agreement, the Parties agree that the Party or Parties to this Agreement or such AncillaryAgreement who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its or their rights underthis Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall becumulative. The Parties agree that, from and after the Distribution, the remedies at law for any breach or threatened breach of this Agreement or any AncillaryAgreement, including monetary damages, are inadequate compensation for any Loss, that any defense in any action for specific performance that a remedy at lawwould be adequate is hereby waived, and that any requirements for the securing or posting of any bond with such remedy are hereby waived.
Section 9.10 Interpretation; Conflict With Ancillary Agreements. When a reference is made in this Agreement to a Section, Article, Annex or Exhibit, suchreference shall be to a Section, Article, Annex or Exhibit of this Agreement unless otherwise indicated. The table of contents and headings contained in thisAgreement or in any Exhibit are for convenience of reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Allwords used in this Agreement will be construed to be of such gender or number as the circumstances require. Any capitalized terms used in any Schedule, Annexor Exhibit but not otherwise defined therein shall have the meaning as defined in this Agreement or the Ancillary Agreement to which such Schedule, Annex orExhibit is attached, as applicable. All Schedules, Annexes and Exhibits annexed hereto or referred to in this Agreement are hereby incorporated in and made apart of this Agreement as if set forth in this Agreement. The word “including” and words of similar import when used in this Agreement shall mean “including,without limitation,” unless otherwise specified. Any reference to any federal, state, local or non-U.S. statute or Law shall be deemed to also refer to all rules andregulations promulgated thereunder, unless the context otherwise requires. Unless the context requires otherwise, references in this Agreement to “Remainco”shall also be deemed to refer to the applicable member of the Remainco Group, references to “New News Corporation” shall also be deemed to refer to theapplicable member of the New News Corporation Group, references to “NIH” shall also be deemed to refer to the applicable Subsidiaries of NIH and referencesto a “Party” shall also be deemed to refer to the applicable member of that Party’s Group (as applicable). Except as
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otherwise expressly provided in this Agreement, in the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of anAncillary Agreement, the provisions of the Ancillary Agreement shall control over the inconsistent provisions of this Agreement as to matters specificallyaddressed in the Ancillary Agreement. For the avoidance of doubt, the Tax Sharing and Indemnification Agreement shall govern all matters (including anyindemnities and payments among the parties and each other member of their respective Groups and the allocation of any rights and obligations pursuant toagreements entered into with Third Parties) relating to Taxes or otherwise specifically addressed in the Tax Sharing and Indemnification Agreement.
Section 9.11 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, the remainingprovisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severanceherefrom.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the date first above written.
NEWS CORPORATION
By: Name: Title:
NEW NEWSCORP LLC
By: Name: Title:
NEWS INTERNATIONAL HOLDINGS (solely for thepurposes of Sections 4.06, 9.08 and 9.09)
By: Name: Title:
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Exhibit 2.2
FORM OF TAX SHARING AND INDEMNIFICATION AGREEMENT
Between
NEWS CORPORATION
and
NEW NEWS CORPORATION
Dated as of , 2013
TABLE OF CONTENTS Page
ARTICLE 1 DEFINITIONS 3 Section 1.01. General 11 Section 1.02. Interpretation 11
ARTICLE 2 PREPARATION AND FILING OF TAX RETURNS, PAYMENT OF TAXES 11 Section 2.01. Preparation and Filing of Tax Returns 11 Section 2.02. Allocation and Payment of Taxes 13 Section 2.03. Transfer Taxes 14
ARTICLE 3 TAX MATTERS 15 Section 3.01. Use of Tax Benefit Attributes 15 Section 3.02. Pre-Distribution Earnings and Profits 15 Section 3.03. Section 83(h) Matters 15 Section 3.04. Dual Consolidated Losses 16 Section 3.05. Gain Recognition Agreements 16 Section 3.06. U.K. Group Relief 17 Section 3.07. Consistency in Filing Tax Returns 18
ARTICLE 4 INDEMNITY 19 Section 4.01. Indemnification 19 Section 4.02. Treatment of Indemnity Payments 20 Section 4.03. Timing of Indemnity Payments 20 Section 4.04. Refunds of Indemnified Taxes 20
ARTICLE 5 REFUNDS, AUDITS, CONTROVERSIES, ADJUSTMENTS 21 Section 5.01. Refunds 21 Section 5.02. Notification 21 Section 5.03. Contests 22 Section 5.04. Adjustments After Final Determination 23 Section 5.05. Section 83(h) Deductions 23 Section 5.06. Newspaper VAT Group 23
ARTICLE 6 INFORMATION AND COOPERATION; BOOKS AND RECORDS 24 Section 6.01. New News Corporation Tax Information 24 Section 6.02. Remainco Tax Information 25 Section 6.03. Record Retention 25 Section 6.04. Cooperation 25 Section 6.05. Copies of Tax Returns and Related Workpapers 26
ARTICLE 7 REPRESENTATIONS AND WARRANTIES AND COVENANTS 26 Section 7.01. Representations and Warranties and Covenants 26 Section 7.02. Exceptions to Covenants 27 Section 7.03. Certain Taxing Authority Contacts by New News Corporation Group 28
ARTICLE 8 GENERAL PROVISIONS 28 Section 8.01. No Duplication of Payment 28
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Section 8.02. Interest 28 Section 8.03. Termination 28 Section 8.04. Effectiveness 28 Section 8.05. Notices 28 Section 8.06. Complete Agreement; Construction 29 Section 8.07. Counterparts 29 Section 8.08. Waiver 29 Section 8.09. Amendments 29 Section 8.10. Successors and Assigns 29 Section 8.11. Subsidiaries 29 Section 8.12. Third Party Beneficiaries 29 Section 8.13. Headings 30 Section 8.14. Specific Performance 30 Section 8.15. Governing Law 30 Section 8.16. Arbitration 30 Section 8.17. Severability 30 Section 8.18. Costs and Expenses 30 Section 8.19. Coordination with Separation and Distribution Agreement 30
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TAX SHARING AND INDEMNIFICATION AGREEMENT
TAX SHARING AND INDEMNIFICATION AGREEMENT (this “Agreement”), signed on [—], 2013 and effective as of [—], 2013, by and betweenNEWS CORPORATION, a Delaware corporation (“Remainco”), and NEW NEWSCORP LLC, a Delaware limited liability company and a wholly ownedsubsidiary of Remainco (“New News Corporation”). Capitalized terms used herein but not defined shall have the meaning ascribed to them in the Separation andDistribution Agreement, dated as of [—], 2013, between Remainco and New News Corporation (the “Separation and Distribution Agreement”).
WITNESSETH
WHEREAS, Remainco and New News Corporation have entered into the Separation and Distribution Agreement pursuant to which (a) (i) Remainco will,and will cause its Subsidiaries to, transfer certain assets, liabilities, subsidiaries and businesses of Remainco and its Subsidiaries to New News Corporation and itsSubsidiaries, and (ii) Remainco and New News Corporation will, and will cause their respective Subsidiaries to, effect the Restructuring (as defined below) and(b) Remainco will distribute the stock of New News Corporation to its shareholders (the “Distribution”) as described therein;
WHEREAS, prior to consummation of the Restructuring and the Distribution, Remainco was the publicly-traded parent of a multinational group ofcorporations (“Remainco Existing Group”) and the common parent of an affiliated group of corporations within the meaning of Section 1504(a) of the Code thatfiles consolidated U.S. federal income Tax Returns (“Remainco Consolidated Group”);
WHEREAS, as a result of the Distribution, members of the New News Corporation Group will cease to be members of the Remainco Existing Group andwill cease to file Tax Returns with other members of the Remainco Existing Group;
WHEREAS, prior to consummation of the Restructuring and the Distribution, a member of the Remainco Group was a member of the group for thepurposes of United Kingdom value added tax, of which the “representative member” was NI Group Limited (the “Newspaper VAT Group”), and certain membersof the Remainco Group and the New News Corporation Group together formed a group for the purposes of the United Kingdom corporation tax group relieflegislation;
WHEREAS, prior to the Distribution, (i) Remainco or other members of the Remainco Group will have formed [—] (“Newco”) and undertaken the NewcoContribution, and (ii) such member of the Remainco Group will have undertaken the Newco Preferred Stock Sale;
WHEREAS, the Parties intend that for U.S. federal income tax purposes, (i) the Internal Distributions will qualify for non-recognition of gain or loss underSections 355 and 368(a)(1)(D) of the Code; (ii) the Newco Contribution will be a transaction pursuant to which gain or loss is recognized under Section 1001 ofthe Code, (iii) the Newco Contribution Losses and the Newco Contribution Gains will be recognized and taken into account by the Remainco ConsolidatedGroup, (iv) the New News Corporation Contribution will qualify as a tax-free reorganization under Section 368(a)(1)(D) of the Code; (v) the NAI Spinco mergerwill qualify
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as a tax-free reorganization under Section 368(a) of the Code; and (vi) the Distribution will qualify for non-recognition of gain or loss under Sections 355 and368(a)(1)(D) of the Code (collectively, “Intended US Tax Treatment”);
WHEREAS, the Parties intend that for Australian tax purposes (i) no part of the distribution will be a dividend and (ii) the Commissioner of Taxation willnot make a determination under either section 45A or 45B to deem all or part of the Distribution to be an unfranked dividend (the “Intended Australian TaxTreatment” and, collectively with the Intended US Tax Treatment, the “Intended Tax Treatment”);
WHEREAS, Remainco has obtained the US Ruling and the Opinion to the effect that, subject to the assumptions set forth therein, the Restructuring and theDistribution will qualify for the Intended US Tax Treatment;
WHEREAS, the Australian Taxation Office (the “ATO”) has issued the Australian Ruling to the effect that, subject to the assumptions set forth therein, theRestructuring and the Distribution will qualify for the Intended Australian Tax Treatment;
WHEREAS, an indirect subsidiary of Remainco is, as of the date hereof, engaged in a Tax dispute with a foreign Taxing Authority as described in ExhibitA (the “Remainco Foreign Tax Matter”);
WHEREAS, various indirect subsidiaries of New News Corporation are, as of the date hereof, engaged in a Tax dispute with a foreign Taxing Authority asdescribed in Exhibit A (the “New News Corporation Foreign Tax Matter”);
WHEREAS, in contemplation of the Distribution, the Parties desire to enter into this Agreement to provide for the allocation among them of the liabilitiesfor Taxes arising prior to, as a result of and subsequent to the Distribution, and to provide for and agree upon other matters relating to Taxes;
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NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree asfollows:
ARTICLE 1DEFINITIONS
Section 1.01. General. As used in this Agreement, capitalized terms shall have the following meanings:
“Additional Tax” means:
(i) with respect to a Tainting Act by a New News Corporation Group member that results in the Remainco Group not being able to utilize any NewcoContribution Losses, an amount equal to the sum of (a) the amount of any Tax refund, credit or similar benefit that the Remainco Consolidated Group wouldotherwise have received under applicable Tax law if the Newco Contribution Losses had been utilizable by the Remainco Consolidated Group and, whererelevant, the Remainco Consolidated Group could have carried back the Newco Contribution Losses to one or more taxable periods prior to the taxable periodduring which the Newco Contribution Losses would have been incurred, and, without duplication, (b) the product of (x) the amount by which the consolidatedtaxable income (as determined under Treasury regulation section 1.1502-11) of the Remainco Consolidated Group for the taxable period during which the NewcoContribution Losses would have been incurred and each successive taxable period thereafter (determined without taking into account any Tax Benefit Attributesof the Remainco Consolidated Group) otherwise would have been reduced by the Newco Contribution Losses, multiplied by (y) the highest marginal corporatetax rate for the applicable taxable period under federal, state and local Tax law;
(ii) subject to clause (i) above and without duplication, with respect to any Tainting Act that affects the amount of any Tax imposed on or attributable to anymember of the Remainco Group for which Remainco otherwise is responsible under this Agreement, an amount equal to the excess (if any) of (a) the cumulativeamount of Tax for which Remainco is responsible under this Agreement after taking into account any and all Tainting Acts by the New News Corporation Group,over (b) the cumulative amount of Tax for which Remainco would be responsible under this Agreement determined without taking into account any Tainting Act;and
(iii) subject to clauses (i) and (ii) and without duplication, with respect to any Tainting Act that affects a Tax Benefit Attribute of any Remainco Groupmember, an amount equal to the refund, credit or other similar reduction in otherwise required Tax payments relating to the utilization of such Tax BenefitAttribute that Remainco otherwise would have recognized if such Tainting Act had not occurred.
“After-Tax Basis” means with respect to an indemnified liability, that, notwithstanding anything to the contrary contained in this Agreement, theindemnification payment in respect of such indemnified liability (x) shall be reduced by an amount equal to the present value of any Tax benefit made allowableto the indemnified Party (which Tax benefit would not have arisen or been allowable but for such indemnified liability) and (y) shall be increased by an amount ofany Tax detriment equal to the present value of any Tax imposed on the receipt of the indemnification payment (including, any additional amounts receivedpursuant to this clause (ii)). For purposes hereof, Tax benefit and detriment shall be determined (i) using the highest marginal rate in effect at the time of thedetermination in each relevant jurisdiction, assuming
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that the indemnified Party will be liable for Taxes at such marginal rates; (ii) assuming that any non-United States income Taxes attributable to such indemnifiedliability or indemnification payment are fully creditable as foreign tax credits; (iii) assuming that no other Tax attributes are available at the time of thedetermination; and (iv) assuming that any Tax benefit is used, or Tax detriment is recognized, at the earliest date allowable by applicable Law. The present valuereferred to in the immediately preceding sentence shall be determined using a discount rate equal to the midterm applicable federal rate in effect at the time of thepayment of the relevant indemnity payment.
“Agreement” has the meaning assigned in the preamble hereto;
“ATO” has the meaning assigned in the preamble hereto;
“Australian Ruling” means the Class Ruling issued by the ATO in connection with the Restructuring and the Distribution, together with any supplementsissued by, and submissions to, the ATO with respect to such ruling;
“Business Day” means any day other than a Saturday, a Sunday and a day on which banks are required or authorized by law to be closed in the City of NewYork;
“Business Purpose Letter” means the letter attached as Exhibit B, setting forth the business purpose of the Distribution;
“Cash Equivalents” has the meaning set forth in the Separation and Distribution Agreement;
“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time and any successor legislation;
“Consolidated Group” means, with respect to a Person, (i) the Remainco Consolidated Group if the Person is a member thereof for such taxable period and(ii) the New News Corporation Consolidated Group if such Person is a member thereof for such taxable period;
“CTA 2009” means the Corporation Tax Act 2009 of the United Kingdom;
“CTA 2010” means the Corporation Tax Act 2010 of the United Kingdom;
“Current Employer” has the meaning assigned in Section 3.03;
“DCL” has the meaning assigned in Section 3.04;
“Distribution” has the meaning assigned in the preamble hereto;
“Distribution Date” means the date of the Distribution;
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“Distribution Tax” means (i) any Tax, calculated without regard to any Tax Benefit Attributes of the Remainco Group, required to be paid by or imposed onany Remainco Group member resulting from, or arising in connection with, the failure of any of the Internal Distributions, the New News CorporationContribution or the Distribution to qualify for the Intended Tax Treatment, including by reason of the application of Section 355(e) of the Code to theDistribution, and (ii) any and all losses and liabilities relating to or arising from claims of lawsuits by stockholders of Remainco or stockholders of New NewsCorporation resulting from (A) the failure of the Distribution to be tax-free to such stockholders under Section 355 of the Code (except with respect to cashreceived in lieu of fractional shares of New News Corporation stock) or (B) the Distribution and the Restructuring not being treated, for U.S. federal income taxpurposes, in accordance with the Intended Tax Treatment;
“Final Determination” means the final resolution of liability for any Tax for any taxable period by or as a result of (i) a final and unappealable decision,judgment, decree or other order of a court of competent jurisdiction; (ii) a final settlement, compromise or other agreement with the relevant Taxing Authority, anagreement that constitutes a determination under Section 1313(a)(4) of the Code, an agreement contained in an IRS Form 870-AD, a closing agreement oraccepted offer in compromise under Section 7121 or 7122 of the Code, or a comparable agreement under state, local or foreign law; (iii) the expiration of theapplicable statute of limitations; or (iv) payment of such Tax, if assessed by a Taxing Authority, pursuant to an agreement in writing by New News Corporationand Remainco to accept such assessment;
“Governmental Authority” means any U.S. or non-U.S. national, federal, state or local governmental, regulatory or administrative authority, agency orcommission or any judicial or arbitral body;
“GRA” has the meaning assigned in Section 3.05;
“Group” of which a Person is a member means (i) the Remainco Group if the Person is a member of the Remainco Group and (ii) the New NewsCorporation Group if such Person is a member of the New News Corporation Group;
“Indemnifying Party” has the meaning assigned in Section 4.03;
“Indemnitee” has the meaning assigned in Section 4.03;
“Intended Australian Tax Treatment” has the meaning assigned in the preamble hereto;
“Intended Tax Treatment” has the meaning assigned in the preamble hereto;
“Intended US Tax Treatment” has the meaning assigned in the preamble hereto;
“Internal Distributions” means the distributions of stock within the Remainco Existing Group that are described in the US Ruling as qualifying fornonrecognition treatment under Sections 355 and 368(a)(1)(D) of the Code;
“IRS” means the U.S. Internal Revenue Service;
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“NAI Spinco” means [—];
“NAI Spinco Merger” means the merger of NAI Spinco with and into New News Corporation, which is part of the Restructuring and which the Partiesintend to be treated as a reorganization for U.S. federal income tax purposes;
“New News Corporation” has the meaning assigned in the preamble hereto;
“New News Corporation Assumed DCL” has the meaning assigned in Section 3.04;
“New News Corporation Class A Common Stock” means the authorized and outstanding class A common stock of New News Corporation;
“New News Corporation Consolidated Group” means the affiliated group of corporations (as defined in Section 1504(a) of the Code) as in existence afterthe Distribution Date of which New News Corporation is the common parent;
“New News Corporation Contribution” means the transfer of Separated Assets by Remainco to New News Corporation pursuant to the Separation andDistribution Agreement;
“New News Corporation Foreign Tax Matter” has the meaning assigned in the preamble hereto;
“New News Corporation Group” means New News Corporation and any Subsidiary, from time to time, of New News Corporation after the New NewsCorporation Contribution;
“New News Corporation Separate Returns” has the meaning assigned in Section 2.01(c);
“Newco” has the meaning assigned in the preamble hereto;
“Newco Contribution” means the contribution by a subsidiary of Remainco of the assets set forth in Exhibit C in exchange (to the extent provided in therelevant capitalization agreement) for all of the outstanding preferred stock of Newco (“Newco Preferred Stock”) and the outstanding common stock of Newco(“Newco Common Stock”);
“Newco Contribution Gains” means any gains recognized by Remainco or any other member of the Remainco Group as a result of the transfer of the assetsset forth in Exhibit C to Newco in exchange for Newco Common Stock pursuant to the Newco Contribution and the Newco Preferred Stock Sale;
“Newco Contribution Losses” means any losses recognized by Remainco or any other member of the Remainco Group as a result of the transfer of theassets set forth in Exhibit C to Newco in exchange for Newco Common Stock pursuant to the Newco Contribution and the Newco Preferred Stock Sale;
“Newco Preferred Stock Sale” means the sale of all of the Newco Preferred Stock by a subsidiary of Remainco to unrelated third party investors pursuantto a pre-existing binding commitment that was entered into by such subsidiary and such investors prior to the Newco Contribution;
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“Newco Restricted Transaction” means (i) any redemption by Newco, or an acquisition by any member of the New News Corporation Group or any thirdparty acquisitions on behalf of a member of the New News Corporation Group, of the Newco Preferred Stock prior to the day that is the fifth anniversary of theDistribution Date, (ii) any issuance by Newco of any common stock or preferred stock prior to the day that is the fifth anniversary of the Distribution Date, and(iii) any liquidation or dissolution of Newco prior to the day that is the fifth anniversary of the Distribution Date;
“Newspaper VAT Group” has the meaning assigned in the preamble hereto;
“Newspaper VAT Group Returns” means any United Kingdom VAT returns relating to the Newspaper VAT Group;
“Opinion” means the tax opinion rendered by Hogan Lovells US LLP regarding certain U.S. federal income tax consequences of certain transactionseffected as part of the Reorganization and Distribution, including that the Distribution qualifies under Section 355 of the Code;
“Parent” means Remainco with respect to the Remainco Group and New News Corporation with respect to the New News Corporation Group;
“Party” means each of Remainco and New News Corporation;
“Person” means an individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, person, trust, association,organization or other entity, including any Governmental Authority, and including any successor, by merger or otherwise, of any of the foregoing;
“Post-Distribution Period” means any Tax period beginning after the Distribution Date and the portion of any Straddle Period commencing after theDistribution Date;
“Pre-Distribution Period” means any Tax period ending on or before the Distribution Date and the portion of any Straddle Period ending on the DistributionDate;
“Regulations” means the final, temporary and proposed Treasury regulations promulgated under the Code;
“Remainco” has the meaning assigned in the preamble hereto;
“Remainco Class A Common Stock” means the Class A common stock of Remainco authorized and outstanding on the Distribution Date;
“Remainco Consolidated Group” has the meaning assigned in the preamble hereto;
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“Remainco Consolidated Return” means any consolidated U.S. federal income Tax Return or amendment thereof of the Remainco Consolidated Group thatincludes New News Corporation or one or more of the New News Corporation Subsidiaries;
“Remainco Existing Group” has the meaning assigned in the preamble hereto;
“Remainco Foreign Tax Matter” has the meaning assigned in the preamble hereto;
“Remainco Group” means Remainco and any Subsidiary of Remainco that is not a member of the New News Corporation Group;
“Remainco Separate Returns” has the meaning assigned in Section 2.01(c);
“Remainco-New News Corporation Combined Returns” means any combined, unitary, consolidated or other group or similar Tax Return in respect of anyTaxes (including non-income Taxes) filed or to be filed with a state or non-U.S. Taxing Authority that includes both a member of the Remainco Group and amember of the New News Corporation Group, excluding any United Kingdom VAT return relating to the Newspaper VAT Group;
“Restricted Transaction” means any transaction or series of transactions by a Person during the period from the Distribution Date to the first day after thesecond anniversary of the Distribution Date to:
(i) cause or allow the Remainco Consolidated Group or the New News Corporation Consolidated Group to cease to be engaged in any of the active tradesor businesses listed in Exhibit D;
(ii) sell, exchange, distribute, transfer or otherwise dispose of or agree to transfer or dispose of (all as determined for U.S. federal income tax purposes) 50percent or more of the gross assets of the Remainco Consolidated Group or the New News Corporation Consolidated Group (as it exists on the day after the dateof the Distribution) other than pursuant to sales or transfers in the ordinary course of business or to other members of the “separate affiliated group” (as defined inSection 355(b)(3) of the Code and as it exists on the day after the date of the Distribution), of Remainco or New News Corporation, respectively;
(iii) in the case of Remainco or New News Corporation, redeem or otherwise purchase any of its outstanding common stock other than through stockpurchases meeting the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to its amendment by Revenue Procedure 2003-48);
(iv) in the case of Remainco or New News Corporation, issue any of its stock (including, without limitation, restricted stock or any instrument convertibleor exchangeable into stock), unless such stock is issued in exchange for property, services or cash of approximately equivalent value and
(1) solely in the case of the Remainco Group, does not constitute (individually or in the aggregate) more than 49 percent of the aggregate value oraggregate voting power of its capital stock outstanding immediately after the Distribution; or
(2) is issued to an employee or director in connection with the performance of services (and the stock issued is not excessive by reference to theservices performed) in accordance with Safe Harbor VIII in Section 1.355-7(d) of the Regulations;
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(v) in the case of New News Corporation, enter into any agreements for sale or other disposition of its capital stock or amend its certificate of incorporationor other organizational documents or take any other action through shareholder vote or otherwise that affects the relative economic or voting rights of itsoutstanding stock (including, without limitation, any recapitalization, stock dividend or otherwise), other than as permitted in paragraph (iv)(2) above;
(vi) effect any transaction that separately or in conjunction with other transactions, may cause the Distribution to be treated as part of a plan pursuant towhich one or more persons acquire directly or indirectly stock representing a “50 percent or greater interest” in Remainco or New News Corporation within themeaning of Section 355(e)(4) of the Code, including New News Corporation entering into, or taking affirmative steps in relation to, any negotiations, agreementsor arrangements with respect to transactions or events (including stock issuances, option grants, capital contributions, acquisitions and changes in the votingpower of any of its stock);
(vii) in the case of New News Corporation, fail to continue the historic business of NAI Spinco or to use a substantial portion of the historic business assetsof NAI Spinco in a business within the meaning of Section 1.368-1(d) of the Regulations; and
(viii) have any plan or enter into any arrangement or agreement to cause any of the foregoing (i) through (vii) to occur after the first day that is the secondanniversary of the Distribution Date;
“Restructuring” shall mean each of the steps occurring prior to and in connection with the Distribution as set forth in the Ruling;
“Restructuring Tax” means any Tax (other than any Distribution Tax, Additional Tax, or Transfer Tax) imposed on or attributable to the Restructuring;
“Separated Assets” has the meaning assigned in the Separation and Distribution Agreement;
“Separated Business” has the meaning assigned in the Separation and Distribution Agreement;
“Separation and Distribution Agreement” has the meaning assigned in the preamble hereto;
“Straddle Period” means a Tax Period beginning on or before, and ending after, the Distribution Date;
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“Subsidiary” of any Person means (a) a corporation, more than fifty percent (50%) of the voting or capital stock of which is, as of the time in question,directly or indirectly owned by such Person or (b) a partnership, joint venture, association, joint stock company, trust, unincorporated organization or other entityin which such Person, directly or indirectly, owns more than fifty percent (50%) of the equity economic interest thereof or for which such Person, directly orindirectly, has the power to elect or direct the election of more than fifty percent (50%) of the members of the governing body or over which such Personotherwise has control (e.g., as the managing partner of a partnership);
“Tainting Act” means with respect to either Group (i) any act, failure to act or omission of or by any member of the Group, at a time when it was a memberof such Group, that causes any Tax Representation or information submitted to the IRS or with respect to the US Ruling, the Australian Ruling or the Opinion tobe inaccurate, or violates any covenant made in connection with the US Ruling, the Australian Ruling or the Opinion; (ii) a failure of any representations madeherein by any member of such Group to be true and complete when made; (iii) the breach by any member of such Group of any covenant made herein by suchmember; or (iv) any other action or omission by any member of such Group, at a time when it was a member of such Group, that is not required pursuant to thisAgreement or the Separation and Distribution Agreement, which such member knows or reasonably should expect, after consultation with its tax advisor, may beinconsistent with the Intended Tax Treatment or may give rise to Additional Tax, Restructuring Tax or Distribution Tax;
“Tax” or “Taxes” means (i) any federal, state, local or foreign income, gross receipts, franchise, estimated, extension, alternative minimum, add-onminimum, sales, use, goods and services, transfer, real property gains, registration, value added, excise, natural resources, severance, stamp, occupation, premium,windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license,employee, withholding or other tax of any kind whatsoever, and (ii) any levies, duties, customs or other charges or assessments in the nature of or in lieu of anytax, in each case, imposed by a Governmental Authority and including any interest, penalties or additions to tax or additional amounts in respect of the foregoing;
“Tax Benefit Attribute” means any net operating loss, net capital loss, foreign tax credit, general business credit, fuel credit, minimum tax credit or anyother similar Tax attribute;
“Taxing Authority” means any governmental body, agency, commission or authority having jurisdiction over the assessment, determination, collection orimposition of any Tax;
“Tax Package” has the meaning assigned in Section 6.01(b);
“Tax Representations” means the representations and covenants submitted or made by Remainco and its Subsidiaries in connection with obtaining (i) theUS Ruling, (ii) the Australian Ruling, or (iii) the Opinion;
“Tax Return” means any Tax return, declaration, statement, report, form and information return relating to Taxes, including any amendments thereto andany related or supporting information;
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“Transfer Taxes” has the meaning assigned in Section 2.03;
“UK CT Accounting Period” means an accounting period as determined under Chapter 2 of Part 2 of the CTA 2009;
“US Ruling” means the private letter ruling issued by the IRS to Remainco in connection with the Restructuring and the Distribution, together with anysupplements issued by, and submissions to, the IRS with respect to such ruling;
“VATA 1994” means the Value Added Tax Act 1994 of the United Kingdom.
Section 1.02. Interpretation. The provisions of Section 9.10 of the Separation and Distribution Agreement with respect to Interpretation are incorporated byreference and shall apply to the terms and provisions of this Agreement and the Parties hereto mutatis mutandis.
ARTICLE 2PREPARATION AND FILING OF TAX RETURNS,
PAYMENT OF TAXES
Section 2.01. Preparation and Filing of Tax Returns.
(a) Remainco Consolidated Returns. For each taxable year for which Remainco files a consolidated federal income Tax Return that begins on or before theDistribution Date, Remainco shall include all members of the New News Corporation Group that are permitted to be included under applicable law in such TaxReturn. Remainco shall prepare and timely file (or cause to be prepared and timely filed) with the IRS any and all such Remainco Consolidated Returns(including extension requests, and other documents and statements). Remainco Consolidated Returns shall include all income, gains, losses, deductions, creditsand other Tax attributes of the members of the New News Corporation Group that are members of the Remainco Consolidated Group for all taxable periods forwhich Remainco is entitled to include such member of the New News Corporation Group in such Tax Returns. To the extent permitted under applicable Tax law,New News Corporation agrees to, and shall compel each other such included member of the New News Corporation Group to, (i) file or join in the filing of suchTax Returns, provide such authorizations, elections, consents and other documents as may be required in connection with such filings, and (ii) take such otheractions as may be reasonably necessary, in the judgment of Remainco, to prepare, complete and timely file Remainco Consolidated Returns and to carry out thepurposes and intent of this Section 2.01(a).
(b) Remainco-New News Corporation Combined Returns. Remainco shall prepare and timely file (or cause to be prepared and timely filed) with the TaxingAuthority of the relevant State or non-U.S. jurisdiction any Remainco-New News Corporation Combined Returns (including extension requests, and otherdocuments and statements), consistent with past practice, with the member composition of such Tax Returns as reasonably determined by Remainco. New NewsCorporation agrees to, and shall compel each other member of the New News Corporation Group whose Tax information is included in any Remainco-New NewsCorporation Combined Return to, (i) evidence agreement to be included in such Tax Return on the appropriate form and (ii) take such other action as may bereasonably necessary, in the judgment of Remainco, to carry out the purposes and intent of this Section 2.01(b).
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(c) Separate Returns. Remainco shall be responsible for the preparation and filing of any other Tax Return with respect to any Tax (including non-incomeTaxes) that includes a member of the Remainco Group (the “Remainco Separate Returns”), other than Newspaper VAT Group Returns. New News Corporationshall be responsible for the preparation and filing of any Tax Return with respect to any Tax (including non-income Taxes) that includes a member of the NewNews Corporation Group or their operations or assets and that does not include any member of the Remainco Group or their operations or assets (the “New NewsCorporation Separate Returns”).
(d) U.K. Returns. Notwithstanding anything to the contrary contained in this Agreement, New News Corporation shall be responsible for the preparationand filing of any Tax Return with respect to any Tax (including non-income Taxes) that includes a member of the New News Corporation Group or theiroperations or assets which is filed with a U.K. Taxing Authority, including any Newspaper VAT Group Returns. Such Tax Returns shall be considered New NewsCorporation Separate Returns for purposes of this Agreement.
(e) Australia Returns. Notwithstanding anything to the contrary contained in this Agreement, New News Corporation shall be responsible for thepreparation and filing of any Tax Return with respect to any Tax (including non-income Taxes) that includes a member of the New News Corporation Group ortheir operations or assets which is filed with an Australian Taxing Authority. Such Tax Returns shall be considered New News Corporation Separate Returns forpurposes of this Agreement. Remainco agrees to, and shall compel each other member of the Remainco Group whose Tax information is included in any TaxReturn subject to this Section 2.01(e) to, (i) evidence agreement to be included in such Tax Return on the appropriate form and (ii) take such other action as maybe reasonably necessary, in the judgment of New News Corporation, to carry out the purposes and intent of this Section 2.01(e).
(f) Remainco Returns. Remainco shall have exclusive responsibility for and control of the preparation and filing of Remainco Consolidated Returns,Remainco-New News Corporation Combined Returns, Remainco Separate Returns and any other Tax Return filed with any Taxing Authority in connection withthe determination of the U.S. federal income tax liability of the Remainco Consolidated Group or a Tax liability with respect to a Remainco-New NewsCorporation Combined Return or Remainco Separate Return; provided, that, for a taxable period prior to or including the Distribution Date, such Tax Returnsshall be prepared in a manner consistent with Remainco’s (or its relevant Subsidiary’s) prior practice, elections, positions and methods used in filing the relevantTax Returns, unless otherwise required by applicable Tax law or as determined in good faith by Remainco. Notwithstanding the foregoing, Remainco shall notifyNew News Corporation of any portion of any such Tax Return that relates to the New News Corporation Group and is not prepared in a manner consistent withprior practice.
(g) New News Corporation Returns. New News Corporation shall have exclusive responsibility for and control of the preparation and filing of New NewsCorporation Separate Returns; provided, that, for a taxable period prior to or including the Distribution Date, such Tax Returns shall be prepared in a mannerconsistent with New News Corporation’s (or its relevant Subsidiary’s) prior practice, elections, positions and methods used in filing the relevant Tax Returns,unless otherwise required by applicable Tax law or as determined in good faith by New
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News Corporation. Notwithstanding the foregoing, New News Corporation shall notify Remainco of any portion of any such Tax Return that relates to theRemainco Group and is not prepared in a manner consistent with prior practice.
(h) Authorizations. Remainco and New News Corporation shall, to the extent permitted under applicable Tax law and if necessary or appropriate, shallcause their respective Subsidiaries to, prepare, sign and timely file any consents, elections, powers of attorney and other documents, and shall take any otheractions necessary or appropriate, to effect the filing of any Tax Return pursuant to this Section 2.01 or to contest such Tax Return in accordance with Section 5.03.
Section 2.02. Allocation and Payment of Taxes.
(a) Remainco Consolidated Returns and Remainco-New News Corporation Combined Returns. With respect to any Taxes due with respect to or required tobe reported on any Remainco Consolidated Returns and Remainco-New News Corporation Combined Returns:
(i) Pre-Distribution Period. Remainco shall be liable for and shall pay (or cause to be paid) to the relevant Taxing Authority any Taxes of or relatingto any member of the Remainco Existing Group for any Pre-Distribution Period (including any portion of a Straddle Period that is treated as a Pre-Distribution Period under Section 2.02(a)(iii)).
(ii) Post-Distribution Period. New News Corporation shall be liable for and shall pay (or cause to be paid) to the relevant Taxing Authority (or, in thecase of Taxes in respect of any Straddle Period allocated to the Post-Distribution Period under 2.02(a)(iii), to Remainco) any Taxes of or relating to NewNews Corporation or any member of the New News Corporation Group for any Post-Distribution Period (including any portion of a Straddle Period that istreated as a Post-Distribution Period under Section 2.02(a)(iii)).
(iii) Straddle Period. With respect to any Tax Return for a Straddle Period that includes a member of the New News Corporation Group or any suchmember’s assets or operations, the Parties and their respective Subsidiaries shall treat, and elect to treat the Distribution Date as the last day of the Taxperiod. If no such election is permitted, the Taxes for the Straddle Period shall be allocated to the Pre-Distribution Period as follows: (A) in the case of realor personal property taxes, taxes based on capital, or a flat minimum amount tax, the total amount of such Taxes multiplied by a fraction, the numerator ofwhich is the number of days in the partial period through and including the Distribution Date and the denominator of which is the total number of days insuch Straddle Period; (B) in the case of all other Taxes based on or in respect of income, the Tax computed on the basis of the taxable income or loss ofNew News Corporation and any member of the New News Corporation Group, as applicable, for such partial period determined from its books and recordsbased upon an actual closing of the books methodology; and (C) in the case of all other Taxes, the Tax computed on the basis of the actual activities orattributes of New News Corporation or any member of the New News Corporation Group, as applicable, for such partial period as determined from itsbooks and records. New News Corporation shall pay or cause to be paid to Remainco such
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amount of Straddle Period Taxes that is attributable to the Post-Distribution Period under this Section 2.02(a)(iii) within five (5) Business Days prior to theactual due date for payments in respect of the corresponding Tax Return for such Straddle Period Taxes. New News Corporation shall be responsible forany Taxes attributable to the portion of the Straddle Period that begins after the Distribution Date as allocated under this Section 2.02(a)(iii).
(b) New News Corporation Separate Returns. New News Corporation shall be liable for and shall pay (or cause to be paid) to the relevant Taxing Authorityany Taxes due with respect to or required to be reported on any New News Corporation Separate Return.
(c) Remainco Separate Returns. Remainco shall be liable for and shall pay (or cause to be paid) to the relevant Taxing Authority any Taxes due with respectto or required to be reported on any Remainco Separate Return.
(d) Taxes Not Shown on a Tax Return. Each Party, or its respective Subsidiaries, shall timely pay when due any Taxes not shown on a Tax Return filed by amember of a Group, such as Taxes invoiced by a Taxing Authority, provided that, in the case of any such Taxes with respect to a Straddle Period, such Taxes shallbe allocated in accordance with the principles of Section 2.02(a)(iii).
(e) Utilization of Tax Benefit Attributes. Except as provided in Section 3.01(a) and Section 3.06, no Group member that utilizes a Tax Benefit Attribute of amember of the other Group shall be required to compensate or make any payment to such member of the other Group with respect to the utilization of such TaxBenefit Attribute.
Section 2.03. Transfer Taxes. Notwithstanding anything to the contrary in this Agreement, the Parties agree that all sales, use, transfer, intangible,recordation, documentary stamp or similar Taxes or charges of a similar nature (“Transfer Taxes”), applicable to, or resulting from, any distribution, transfer,assignment, other disposition, receipt, purchase or other acquisition of Separated Assets in connection with the Restructuring shall be borne by New NewsCorporation. All other Transfer Taxes applicable to, or resulting from the transactions effectuated pursuant to the Restructuring shall be borne by Remainco. Tothe extent permitted under applicable Tax law, the parties shall cooperate with each other in mitigating the imposition or assessment of Transfer Taxes. The Partythat is responsible for an applicable Transfer Tax pursuant to this Section 2.03 shall determine the manner in which any Transfer Taxes and any correspondingtransactions are reported for Tax purposes, including any position that no Transfer taxes are due and payable and, unless otherwise required pursuant to a FinalDetermination, no other Party shall take any action that is inconsistent with the manner in which such Transfer Taxes and transactions are reported. Theresponsible Party shall file all necessary documentation with respect to such Transfer Taxes on a timely basis; provided that the other Party shall cooperate withthe preparation of any such documentation and, to the extent required by applicable Tax law (or, in the case of any such documentation relating to UnitedKingdom stamp duty, the published practice of the relevant Taxing Authority), will timely file such documentation.
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ARTICLE 3TAX MATTERS
Section 3.01. Use of Tax Benefit Attributes.
(a) Carrybacks. If a Tax Benefit Attribute arises in any taxable period beginning after the Distribution Date in respect of any Tax Return, to the fullestextent permitted under applicable Tax law, the New News Corporation Consolidated Group, or the relevant member of the New News Corporation Group, asapplicable, shall waive the carryback of such Tax Benefit Attribute. To the extent such a waiver is not permitted under applicable Tax law, New News Corporationshall be entitled to any refund for Tax actually received by the Remainco Group (or any member of the Remainco Group) as a result of the carryback of losses orcredits of any member of such New News Corporation Group from any taxable period beginning after the Distribution Date to any taxable period ending on orbefore the Distribution Date, provided that New News Corporation has notified Remainco with respect to such carryback. Such refund shall be limited to the netamount received by the Remainco Group (by refund, offset against other Taxes or otherwise), net of any net Tax cost and other expenses incurred by theRemainco Group with respect to such refund, and shall be paid within thirty (30) days after payment is received (or deemed received by reason of the reduction ofTaxes otherwise payable) by the Remainco Group from a Taxing Authority. The application of such carrybacks (if any) by New News Corporation and/or anySubsidiary of New News Corporation shall be in accordance with the Code and the Regulations promulgated thereunder or other applicable Tax laws. If any suchrefund is subsequently disallowed, New News Corporation shall promptly pay to Remainco the full amount of such refund (together with any interest or penaltiesthat are imposed).
(b) Carryforwards. Remainco shall promptly notify New News Corporation (a) of any consolidated carryover item that may be partially or totally allocableto a member of the New News Corporation Group and carried over to a taxable period beginning after the Distribution Date and (b) of subsequent adjustmentswhich may affect such carryover item. Remainco shall determine that allocation of consolidated carryover items in accordance with applicable law, in its solediscretion, but agrees to consider in good faith any reasonable written comments provided by New News Corporation in respect of any such allocation. Asreasonably requested by New News Corporation, Remainco agrees to provide New News Corporation with copies of any workpapers or other documentation thatwere used in connection with determining the allocation of consolidated carryover items. Notwithstanding anything to the contrary contained in this Agreement,no Newco Contribution Losses will be allocated to a member of the New News Corporation Group.
(c) Use of Tax Benefit Attributes By Related Persons. No member of either Group shall enter into a transaction after the Distribution Date with theprincipal purpose or effect of reducing a Tax Benefit Attribute that otherwise could be used or available to the other Group, without the prior written consent ofthe Parent of such other Group.
Section 3.02. Pre-Distribution Earnings and Profits. Earnings and profits shall be allocated between the Parties in accordance with Section 1.312-10 of theRegulations.
Section 3.03. Section 83(h) Matters. Subject to Section 5.05 and except as otherwise
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required by applicable law, solely the member of the Group for which the relevant individual is employed at the time or, if such individual is not employed at thetime by a member of the Group, solely the member of the Group for which the individual was most recently employed prior to the time of the vesting, exercise,disqualifying disposition, payment or other relevant taxable event which fixes the timing of the applicable income Tax deduction in respect of equity awards andother incentive compensation (the “Current Employer”) shall be entitled to claim any such income Tax deduction in respect of such equity awards and otherincentive compensation on its respective Tax Return associated with such event. Notwithstanding the foregoing, if, under applicable law, a Person that is not amember of the same Group as the Current Employer is entitled to claim the deduction, then (a) such Person shall claim such deduction, and (b) the Parent of theGroup of which such Person is a member shall make a payment to the Parent of the other Group, equal to the amount by which the Taxes of such Person havebeen reduced (using the assumptions in the definition of “After-Tax Basis”).
Section 3.04. Dual Consolidated Losses. The Parties shall cooperate to avoid causing the Distribution to be a “triggering event” requiring recapture of anydual consolidated loss (within the meaning of Section 1503(d) of the Code and the Regulations thereunder) (“DCL”) for which the Remainco Existing Group hasmade a “domestic use election” under Reg. §1.1503(d)-6(d) or an election under Reg. §1.1503-2(g)(2), which arose in a Pre-Distribution Period and relates to theSeparated Business or the Separated Assets. Without limiting the foregoing, the New News Corporation Group shall make new domestic use elections under Reg.§1.1503(d)-6(f)(2) or enter into closing agreements with the Remainco Group and the IRS under Reg. §1.1503-2(g)(2)(iv)(B) with respect to any such DCL (a“New News Corporation Assumed DCL”), and shall make any additional certifications or enter into any additional agreements under the Regulations, to theextent necessary to avoid recapture of such New News Corporation Assumed DCL. Each of Remainco and New News Corporation shall execute and deliver, oruse its best efforts to cause to be executed and delivered, all instruments, data or information, including any required certifications, and to make all filings, andobtain all representations or consents required by the IRS, and to take all such other actions as may be requested by the IRS from time to time in order to enterinto one or more DCL closing agreements with respect to the New News Corporation Assumed DCLs. Remainco and New News Corporation shall share equallyall third-party costs and expenses incurred by them in connection with entering into a closing agreement with respect to any New News Corporation AssumedDCL. Any Taxes owed in connection with the disallowance of, the failure of certifying, or the recapture of any New News Corporation Assumed DCL shall beborne by Remainco; provided, however, that where such Taxes are attributable to any action, or failure to take any action, after the Distribution by a party hereto(or its Subsidiaries) that would be inconsistent with any applicable domestic use election or DCL closing agreement, or otherwise results in a “triggering event”(within the meaning of Section 1503 of the Code and the Regulations promulgated thereunder), then such party shall bear all of the Taxes resulting from suchrecapture.
Section 3.05. Gain Recognition Agreements. If the Remainco Group has entered into any gain recognition agreements (“GRAs”) within the meaning ofReg. §1.367(a)-8 under which the Distribution would otherwise result in the recognition of gain but for this Section 3.05, New News Corporation or the relevantmember of the New News Corporation Group shall take any action necessary to avoid triggering gain with respect to such GRAs, including entering intosuccessor GRAs and making additional certifications as prescribed by the Regulations. Any
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Taxes resulting from the failure by New News Corporation to comply with its obligations under this Section 3.05 or a subsequent trigger of a GRA of theRemainco Consolidated Group shall be borne by New News Corporation.
Section 3.06. U.K. Group Relief
(a) The provisions of Sections 3.01 to 3.05 are subject to the provisions of this Section 3.06.
(b) References in this Section 3.06 to:
“profits” are to profits for United Kingdom corporation tax purposes; and
a “surrenderable amount” are to any amount available for surrender by way of group relief in accordance with Part 5 CTA 2010.
(c) If a Group member has, for any UK CT Accounting Period beginning before the Distribution Date, any surrenderable amount (each such GroupMember being for the purposes of Sections 3.06(c) to 3.06(h) a “Surrendering Company”), then:
(i) where that surrenderable amount is of a type which is available for surrender even if that Surrendering Company has other profits from which itmay be deducted, that surrenderable amount shall, to the maximum extent permitted by law and so as to maximize the amount of that surrenderable amountso used, be either:
(A) surrendered (for no payment) by way of group relief to any other member or members of that Surrendering Company’s Group which
has or have profits from which the surrenderable amount can be deducted; or
(B) retained by that Surrendering Company and deducted from that Surrendering Company’s own profits; and
(ii) where that surrenderable amount is of a type which is available for surrender only if that Surrendering Company has no other profits from whichit may be deducted, that surrenderable amount shall to the maximum extent permitted by law be surrendered (for no payment) by way of group relief to anyother member or members of that Surrendering Company’s Group which has or have profits from which the surrenderable amount can be deducted.
(d) If and to the extent that a Surrendering Company has, for any UK CT Accounting Period beginning before the Distribution Date, a surrenderableamount which cannot be (i) surrendered by way of group relief or (ii) retained by that Surrendering Company and deducted from that Surrendering Company’sprofits (as applicable) under Section 3.06(c), then that surrenderable amount shall to the maximum extent permitted by law (and for no payment) be surrenderedby way of group relief to such member or members of the other Group as Remainco (where the other Group is the Remainco Group) or New News Corporation(where the other Group is the New News Corporation Group) shall determine.
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(e) Any question of whether a surrenderable amount is to be surrendered under Section 3.06(c)(i)(A) above or retained by the relevant SurrenderingCompany under Section 3.06(c)(i)(B) above shall be determined in the absolute discretion of Remainco where the relevant Surrendering Company is a member ofthe Remainco Group, and of New News Corporation where the relevant Surrendering Company is a member of the New News Corporation Group.
(f) In determining for any purpose of Section 3.06(c) whether any company has profits from which a surrenderable amount can be deducted, profits of thatcompany shall not be taken into account to the extent that that company has Tax attributes, other than (i) the relevant surrenderable amount and (ii) anysurrenderable amount capable of being surrendered to that company by any other member of its Group, which can be applied to reduce such profits.
(g) Remainco and New News Corporation shall each:
(i) provide to the other, as reasonably requested by the other, copies of any workpapers or other documentation that were used in connection withdetermining whether, and if so the extent to which, any surrenderable amount falls within Section 3.06(d); and
(ii) cause their respective Subsidiaries to prepare, sign and timely file any consents, claims and any other documents, and take any other actionsnecessary or appropriate, to give effect to Sections 3.06(c) and 3.06(d).
(h) Remainco and New News Corporation acknowledge and agree that the actions required under Section 3.06(g)(ii) in order to give effect to Sections3.06(c) and 3.06(d) may not be limited to initial filings and that, in order to give effect to those Sections, it may from time to time be necessary (for example,without limitation, due to a Tax attribute of a Surrendering Company being confirmed to be available following an enquiry by a Taxing Authority) for theirrespective Subsidiaries to change positions taken in such initial filings (such as, for example, without limitation, by making additional surrenders of surrenderableamounts or giving consents to such surrenders, or by amending or revoking claims or consents in relation to surrenders already made).
Section 3.07. Consistency in Filing Tax Returns.
(a) On or after the Distribution Date, neither Party shall, nor shall permit any member of its Group to, make or change any accounting method, change itstaxable year, amend any Tax
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Return or take any Tax position on any Tax Return, take any other action, omit to take any action, or enter into any transaction, that may reasonably be expectedto result in any increased Tax liability of a member of the other Group, except with the prior written consent of Remainco or New News Corporation, as the casemay be, which consent shall not be unreasonably withheld or delayed. Remainco and New News Corporation each agrees to file, and to cause the other membersof its Group, to file, all Tax Returns in accordance with this Article 3.
(b) Unless otherwise required by a Final Determination, the tax treatment reported on any Tax Return of the Remainco Group and the New NewsCorporation Group shall be consistent with the Intended Tax Treatment. To the extent that there are transactions relating to the Distribution that are not coveredby the Intended Tax Treatment, Remainco shall determine the proper Tax treatment for such transactions and the method of reporting such transactions on anyTax Return, shall give notice to New News Corporation of such treatment and method of reporting, and such treatment and reporting method shall be used by therelevant Group in preparing and filing any Tax Return of such Group.
ARTICLE 4INDEMNITY
Section 4.01. Indemnification.
(a) Indemnification by New News Corporation. New News Corporation shall, on an After-Tax basis, indemnify the Remainco Group against and hold theRemainco Group harmless from:
(i) except to the extent such amount relates to Additional Taxes, Restructuring Taxes or Distribution Taxes, any Taxes, including the increase in theamount of any such Taxes as a result of a Final Determination, as described in Section 5.04, of or relating to (x) New News Corporation and any member ofthe New News Corporation Group for, and allocated hereunder, to any Post-Distribution Period; and (y) any New News Corporation Separate Return;
(ii) any amount of Restructuring Tax or Distribution Tax resulting from a Tainting Act of the New News Corporation Group;
(iii) any Tax incurred by the Remainco Group as a result of the recapture of a New News Corporation Assumed DCL resulting from any act of theNew News Corporation Group after the Distribution; and
(iv) any amount of Additional Tax.
(b) Indemnification by Remainco. Remainco shall, on an After-Tax basis, indemnify the New News Corporation Group against and hold the New NewsCorporation Group harmless from:
(i) except to the extent such amount relates to New News Corporation Separate Returns, Additional Taxes or Distribution Taxes, any Taxes, includingthe increase in the amount of any such Taxes as a result of a Final Determination, as
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described in Section 5.04, of or relating to (x) any Remainco Consolidated Return, Remainco-New News Corporation Combined Return or RemaincoSeparate Return, (y) Restructuring Taxes (except as provided in Section 4.01(a)(ii)), and (z) liabilities of any member of the New News Corporation Groupfor Taxes of any Person as a result of such member of the New News Corporation Group being, or having been, on or before the Distribution Date, amember of a consolidated group of which Remainco was the parent under Regulations section 1.1502-6(a); and
(ii) any amount of Distribution Tax, except to the extent due to a Tainting Act of the New News Corporation Group.
Section 4.02. Treatment of Indemnity Payments. Except to the extent otherwise required by applicable Tax law:
(i) except as set forth in Section 4.02(ii), any payment under Section 4.01 or Section 5.01 shall be treated, for all Tax purposes, as made immediatelybefore the Distribution (i) as an adjustment to the Cash Equivalents contribution made by Remainco to New News Corporation pursuant to Section 2.02(i)of the Separation and Distribution Agreement, if paid by New News Corporation to Remainco, and (ii) as a contribution by Remainco to New NewsCorporation, if paid by Remainco to New News Corporation; and
(ii) where it is agreed or determined that an indemnity payment is payable hereunder, the Parties shall (on the request of either Party no later than tenBusiness Days after it is agreed or determined that the relevant indemnity payment is payable hereunder) consult in good faith for a period of not less thanten Business Days (or such longer or shorter period as the parties may agree) with a view to agreeing an acceptable arrangement for satisfying theobligation to pay the amount so claimed in an efficient manner that does not prejudice the interests of the Party to whom the indemnity payment is payable.If the Parties fail to agree on any particular manner of payment during the course of such consultations (but not before), then Section 4.02(i) shall apply inrelation to the relevant indemnity payment.
Section 4.03. Timing of Indemnity Payments. To the extent that one Party (the “Indemnifying Party”) has an indemnification obligation to another Party(the “Indemnitee”), the Indemnitee shall provide the Indemnifying Party with a written claim that includes its calculation of the amount of such indemnificationpayment. Such calculation shall provide sufficient detail to permit the Indemnifying Party to reasonably understand the calculations. The Indemnifying Party shallmake the required payment to the Indemnitee within thirty (30) Business Days of receipt of such claim, but in no event more than five (5) Business Days prior tothe due date of the related payment of Taxes to the relevant Taxing Authority (including extensions), unless explicitly provided otherwise in this Agreement. AnyParty making an indemnification payment under this Agreement shall have the right to reduce any such payment by any amounts owed to it by the other Party tothis Agreement.
Section 4.04. Refunds of Indemnified Taxes. If any portion of Taxes with respect to which the Indemnitee is indemnified by the Indemnifying Partypursuant to Section 4.01 is
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refunded by a Taxing Authority, such refund, including any related interest thereon but net of any Taxes and out-of-pocket costs and expenses incurred by theIndemnitee in connection with such refund, shall be the property of the Indemnifying Party that made a payment to the Indemnitee pursuant to Section 4.01, and,if received by the Indemnitee that received the payment pursuant to Section 4.01, such Indemnitee shall promptly pay over such amount to the Indemnifying Partythat made the payment.
ARTICLE 5REFUNDS, AUDITS, CONTROVERSIES, ADJUSTMENTS
Section 5.01. Refunds. Except to the extent set forth in Section 4.04, Remainco shall have the right to any Tax refunds or other Tax benefits, and anyinterest thereon, in respect of any Remainco Consolidated Return, any Remainco-New News Corporation Combined Return, and any Remainco Separate Return,and New News Corporation shall promptly pay over to Remainco any refund to which Remainco is entitled pursuant to this Section 5.01 that is received by amember of the New News Corporation Group. New News Corporation shall have the right to any Tax refund or other Tax benefits and any interest thereon inrespect of any New News Corporation Separate Return, and Remainco shall promptly pay over to New News Corporation any refund to which New NewsCorporation is entitled pursuant to this Section 5.01 that is received by a member of the Remainco Group. Notwithstanding the foregoing, if any member of theNew News Corporation Group receives a refund of Tax with respect to the New News Corporation Foreign Tax Matter (which, the Parties acknowledge, may bereduced by reason of a foreign loss sharing agreement, which the Parties agree to cause their respective relevant subsidiaries not to alter or terminate without theconsent of both of the Parties), New News Corporation shall pay to Remainco an amount equal to the amount of such refund, including applicable interest(reduced by the amount of such interest multiplied by the highest United States federal corporate income tax rate in effect at the time of receipt), within thirty(30) Business Days of receipt of such refund. If a Party pays a refund over to another Party pursuant to this Section 5.01 and such refund is subsequentlydisallowed, such other Group shall repay the amount of the refund to such Party on an After-Tax Basis together with any interest or penalties due thereon.
Section 5.02. Notification. If one of the Parties (or any of their respective Subsidiaries) receives any written notice of deficiency, claim or adjustment orany other written communication from a Taxing Authority regarding any Distribution Tax, Restructuring Tax or Additional Tax, the Party (or its Subsidiary)receiving such notice or communication shall promptly give written notice thereof to the other Party. New News Corporation shall promptly forward any writtennotice of deficiency, claim or adjustment or any other written communication that any member of the New News Corporation Group receives from a TaxingAuthority to Remainco if such notice or communication may relate to any Remainco Consolidated Return, Remainco-New News Corporation Combined Returnor Remainco Separate Return. Remainco shall promptly forward any written notice of deficiency, claim or adjustment or any other written communication thatany member of the Remainco Group receives from a Taxing Authority to New News Corporation if such notice or communication may relate to a New NewsCorporation Separate Return or a Tax for which New News Corporation may be liable or responsible for under this Agreement. A failure of Remainco on the onehand, or New News Corporation, on the other, to comply with this Section 5.02 shall not relieve the other Party of its indemnification obligation hereunder,except to the extent that such failure materially prejudices the ability of the other Party to contest the liability for the relevant Tax or increases the amount of suchliability.
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Section 5.03. Contests.
(a) Remainco Consolidated Returns, Remainco-New News Corporation Combined Returns and Remainco Separate Returns. Remainco shall have exclusiveresponsibility and control of the conduct of examinations and audits of any Remainco Consolidated Return, any Remainco-New News Corporation CombinedReturn or any Remainco Separate Return by any Taxing Authority, and of any refund claims with respect thereto. If a Remainco Consolidated Return, aRemainco-New News Corporation Combined Return or a Remainco Separate Return becomes the subject of litigation in any court, the conduct of the litigationshall be controlled exclusively by Remainco. New News Corporation shall assist and cooperate with Remainco during the course of any such examination, auditor litigation. New News Corporation shall have the right to participate, at its own expense, in any audit, examination or litigation that relates to a matter for whichNew News Corporation is required to indemnify Remainco pursuant to Section 4.01(a), and Remainco shall not settle such audit, examination or litigationwithout the prior consent of New News Corporation, which consent shall not be unreasonably withheld or delayed. New News Corporation shall reimburseRemainco for all reasonable out-of-pocket costs and expenses incurred by the Remainco Group that directly relate to any examination, audit or litigation of anymatter for which New News Corporation is required to indemnify Remainco pursuant to Section 4.01(a) within thirty (30) Business Days of receiving an invoicefrom Remainco therefor, including a calculation of the amount of costs or expenses that provides sufficient detail to permit New News Corporation to reasonablyunderstand the calculations; provided that if New News Corporation is only liable under this Agreement for a portion of the relevant adjustment, New NewsCorporation shall only be responsible for a proportionate amount of such costs and expenses.
(b) Foreign Tax Matters. Remainco shall, at its own expense, have exclusive responsibility and control of the Remainco Foreign Tax Matter and the NewNews Corporation Foreign Tax Matter. The Parties shall assist and cooperate with each other during the course of any such examination, audit or litigation.Remainco shall reimburse New News Corporation for all reasonable out-of-pocket costs and expenses incurred by the New News Corporation Group that directlyrelate to the Remainco Foreign Tax Matter and the New News Corporation Foreign Tax Matter within thirty (30) Business Days of receiving an invoice from NewNews Corporation therefor, including a calculation of the amount of costs or expenses that provides sufficient detail to permit Remainco to reasonably understandthe calculations.
(c) New News Corporation Separate Returns. New News Corporation shall have exclusive and sole responsibility and control of the conduct ofexaminations and audits of any New News Corporation Separate Return (including, for the avoidance of doubt, any Tax Return treated as a New NewsCorporation Separate Return under Section 2.01(c) or 2.01(d)) by any Taxing Authority and any litigation in respect thereof. Remainco shall assist and cooperatewith the New News Corporation during the course of any such proceeding. Notwithstanding the foregoing, if any Taxing Authority asserts that a member of theNew News Corporation Group that was subject to a New News Corporation Separate Return should have instead been subject to a Remainco-New NewsCorporation Combined Return, the examination and audit of such issue shall be subject to the provisions of Section 5.03(a).
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Section 5.04. Adjustments After Final Determination. Notwithstanding anything to the contrary contained in this Agreement, if, as a result of a FinalDetermination, an adjustment to income or other item is made with respect to any Remainco Consolidated Return, Remainco-New News Corporation CombinedReturn, Remainco Separate Return or New News Corporation Separate Return, the allocation of liability and payment for Taxes shall be made in accordance withSection 2.02 and Section 4.01.
Section 5.05. Section 83(h) Deductions. If, as a result of a Final Determination, a Party (or its Subsidiary) that claimed a deduction pursuant to Section 3.03is not allowed that deduction, in whole or in part, the other Party (or its Subsidiary) shall, upon request by such first Party, make a claim for such deductions if thetaxable year to which such deductions would relate is not yet closed. The other Party shall pay the first Party an amount equal to the amount by which the Taxesof the other Party have been reduced (using the assumptions in the definition of After-Tax Basis), as reflected on an amended Tax Return or claim for a refund, asa result of such deduction in such taxable year, or any prior or future taxable year to which such deductions may be carried.
Section 5.06. Newspaper VAT Group.
(a) In this Section 5.06:
(i) “Exit Date” means, in relation to an Exiting Newspaper VAT Group Member, the Distribution Date or (as the case may be) such other effectivedate from which HM Revenue and Customs shall agree that that Exiting Newspaper VAT Group Member ceases to be a member of the Newspaper VATGroup;
(ii) “Exiting Newspaper VAT Group Member” means any member of the Remainco Group that is or has been a member of the Newspaper VATGroup;
(iii) “Remainco VAT” means VAT (and related interest or penalties), in respect of supplies, acquisitions and imports made or deemed to be made byany Exiting Newspaper VAT Group Member in any prescribed accounting period beginning before the Distribution Date, less any recoverable input taxincurred or deemed to be incurred in such a period by the relevant Exiting Newspaper VAT Group Member; and
(iv) “input tax”, “output tax” and “prescribed accounting period” shall have the meanings given to them in VATA 1994.
(b) In determining for the purposes of this Section 5.06 by or to whom a supply, acquisition or import is made or is deemed to be made, the deemingprovisions of section 43 VATA 1994 shall be ignored.
(c) The Parties shall co-operate to procure that each Exiting Newspaper VAT Group Member leaves the Newspaper VAT Group as of the Distribution Date,so far as it is still a member.
(d) Remainco shall pay (or procure that the relevant Exiting Newspaper VAT Group Member pays) to New News Corporation, or as New NewsCorporation directs, the amount of any Remainco VAT which is to be paid by any other member of Newspaper VAT Group to HM
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Revenue and Customs (or which would be paid but for the availability to any member of the Newspaper VAT Group of any tax attribute), such payment byRemainco to be made in cleared funds not later than three Business Days before the Remainco VAT in question is due to HM Revenue and Customs (or wouldhave been due but for the availability of a Tax attribute). Where the amount of the Remainco VAT is subsequently adjusted or discovered to be incorrect, theParties shall as soon as is practicable after such adjustment or discovery make or procure the appropriate payment to the other. Remainco shall have no obligationunder this Section 5.06(d) in respect of any Remainco VAT, if and to the extent that any member of the New News Corporation Group has any entitlement otherthan under this Section 5.06(d) to receive payment from any member of the Remainco Group (including the relevant Exiting Newspaper VAT Group Member) inrespect of that Remainco VAT.
Where the recoverable input tax incurred or deemed to be incurred by an Exiting Newspaper VAT Group Member in any prescribed accounting periodending on or before the Exit Date exceeds the output tax in respect of supplies, acquisitions and importations made or deemed to be made by that ExitingNewspaper VAT Group Member in such a period, New News Corporation shall pay or procure the payment to Remainco of an amount equal to the excess to theextent that the relevant Exiting Newspaper VAT Group Member has not previously received a payment in respect of such excess from any member of theNewspaper VAT Group prior to the Distribution Date, no later than thirty (30) Business Days after the end of the prescribed accounting period to which suchexcess relates.
ARTICLE 6INFORMATION AND COOPERATION; BOOKS AND RECORDS
Section 6.01. New News Corporation Tax Information.
(a) General. Each Party shall deliver to the other Party, as soon as practicable, such information and data as the other Party may reasonably request, andshall make available such knowledgeable employees as the other Party may reasonably request, including providing the information and data required by eachParty’s customary internal tax and accounting procedures, in order to enable the other Party to complete and timely file all Tax Returns that may be required to befiled with respect to the activities of any member of the New News Corporation Group, to respond to audits by any Taxing Authorities with respect to suchactivities, to prosecute or defend any administrative or judicial proceeding and to otherwise enable each Party to satisfy its accounting and tax requirements,including in connection with any potential audits or proceedings relating to Distribution Tax, Additional Tax, or Restructuring Tax.
(b) New News Corporation Tax Package. The New News Corporation Group shall provide to Remainco in a format reasonably determined by Remainco allinformation reasonably requested by Remainco as necessary to prepare any Remainco Consolidated Return, any Remainco-New News Corporation CombinedReturn, and any Remainco Separate Return that includes Separated Assets (each, a “Tax Package”). The Tax Package shall include fully completed informationreports required to be included with any Remainco Consolidated Return, any Remainco-New News Corporation Combined Return, and any Remainco SeparateReturn, including without limitation IRS Form 5471, Form 8621, Form 926 and any statements required to be attached to the applicable Tax Return, to the extentsuch reports relate to items of a member
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of the New News Corporation Group. The Tax Package shall be prepared on a basis consistent with current practices of the Remainco Consolidated Group, therelevant Remainco-New News Corporation Combined Return and the relevant Remainco Separate Return to which the Tax Package relates. New NewsCorporation shall furnish to Remainco the Tax Package for the relevant Remainco Consolidated Return, Remainco-New News Corporation Combined Return orRemainco Separate Return in respect of a taxable year no later than one-hundred twenty (120) days after the close of the relevant taxable year or, in the case of ashort taxable year, no more than sixty (60) days after Remainco requests New News Corporation to complete such Tax Package. New News Corporation shallalso furnish Remainco work papers and other such information and documentation as is reasonably requested by Remainco for Tax preparation purposes withrespect to any member of the New News Corporation Group.
Section 6.02. Remainco Tax Information. No more than sixty (60) days after New News Corporation’s request for information, Remainco shall deliver toNew News Corporation in a format reasonably determined by New News Corporation, all information reasonably requested by New News Corporation asnecessary to prepare a New News Corporation Separate Return, such information and data required to be supplied pursuant to Section 3.01(b), and informationand data to respond to audits by any Taxing Authorities with respect to the activities of the New News Corporation Group or the Separated Assets, to prosecute ordefend claims for Taxes in any administrative or judicial proceeding and to otherwise enable New News Corporation to satisfy its accounting and taxrequirements. In addition, Remainco shall make available to New News Corporation Remainco’s knowledgeable employees for such purpose.
Section 6.03. Record Retention. Each of New News Corporation, on the one hand, and Remainco on the other hand, (and their respective Subsidiaries)shall retain all books, records, documentation or other information relied on or otherwise used in the preparation of any Remainco Consolidated Return,Remainco-New News Corporation Combined Return or Remainco Separate Return reflecting Separated Assets for taxable periods beginning before theDistribution Date until the later of the six-year anniversary of the filing of the relevant Tax Return or the expiration of the relevant statute of limitations(including, in each case, any extension thereof). Upon the expiration of the relevant period, the foregoing information may be destroyed or disposed of; provided,however, that (i) the Party retaining the documentation or other information provides sixty (60) days prior written notice to the other Party describing, inreasonable detail, the documentation to be destroyed or disposed of and (ii) such other Party agrees in writing to such destruction or disposal. If a Party objects tothe proposed destruction or disposal, then the other Party shall promptly deliver such materials to the objecting Party or continue to retain such materials, in eithercase at the expense of the objecting Party.
Section 6.04. Cooperation. The Parties shall reasonably cooperate with one another in a timely manner with respect to any matter arising hereunder,including the preparation and execution of memoranda and representations, the execution of any document that may be necessary or reasonably helpful inconnection with any audit or contest, the filing or amending of a Tax Return or obtaining any tax opinion or private letter ruling. The Parties shall perform allactions required or permitted under this Agreement in good faith. If one Party requests the cooperation of the other Party, the requesting Party shall reimburse theother Party for all reasonable out-of-pocket costs and expenses incurred by the other Party in complying with the requesting Party’s request; provided that theother Party shall provide the requesting Party with a written notice prior to incurring any out-of-pocket costs or expenses.
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Section 6.05. Copies of Tax Returns and Related Workpapers.
(a) As soon as reasonably practicable but in no event later than September 30, 2013, Remainco shall furnish the relevant portions of any and all TaxReturns, and any related workpapers as reasonably determined by Remainco, of or that includes any member of the New News Corporation Group for the pastthree (3) taxable years for which Tax Returns have been filed (measured as of the Distribution Date).
(b) As soon as reasonably practicable but in no event later than September 30, 2013, New News Corporation shall furnish the relevant portions of any andall Newspaper Group VAT Returns, and any related workpapers as reasonably determined by New News Corporation, of or that includes any Exiting NewspaperVAT Group Member for the past three (3) taxable years for which Newspaper Group VAT Returns have been filed (measured as of the Distribution Date).
ARTICLE 7REPRESENTATIONS AND WARRANTIES AND COVENANTS
Section 7.01. Representations and Warranties and Covenants.
(a) Representations and Warranties and Covenants of Remainco. Remainco hereby represents and warrants to New News Corporation, and covenants, that
(i) as of the date hereof, no member of the Remainco Group knows of any fact that is inconsistent with the Tax Representations, the conclusions ofthe US Ruling, the Australian Ruling or the Opinion, or the Intended Tax Treatment;
(ii) as of the date hereof, no member of the Remainco Group has any plan or intention to take any action or fail to take any action if such action orfailure to act would be inconsistent with the Tax Representations;
(iii) each member of the Remainco Group will treat, on any relevant Tax Return, each part of the Restructuring and the Distribution in accordancewith the Intended Tax Treatment;
(iv) no member of the Remainco Group is aware of any fact as of the date hereof or will take any action inconsistent with the Business PurposeLetter; and
(v) no member of the Remainco Group will enter into a Restricted Transaction.
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(b) Representations and Warranties and Covenants of New News Corporation. New News Corporation hereby represents and warrants to Remainco, andcovenants, that
(i) as of the date hereof, no member of the New News Corporation Group knows of any fact that is inconsistent with the Tax Representations, theconclusions of the US Ruling, the Australian Ruling or the Opinion, or the Intended Tax Treatment;
(ii) as of the date hereof, no member of the New News Corporation Group has any plan or intention to take any action or fail to take any action ifsuch action or failure to act would be inconsistent with the Tax Representations;
(iii) each member of the New News Corporation Group will treat, on any relevant Tax Return, each part of the Restructuring and the Distribution inaccordance with the Intended Tax Treatment;
(iv) no member of the New News Corporation Group is aware of any fact as of the date hereof or will take any action inconsistent with the BusinessPurpose Letter; and
(v) no member of the New News Corporation Group will enter into a Restricted Transaction or a Newco Restricted Transaction.
Section 7.02. Exceptions to Covenants.
(a) Restricted Transaction. Notwithstanding Section 7.01(a)(v) and Section 7.01(b)(v), a Party or a member of its Group may enter into a RestrictedTransaction if:
(i) prior to entering into each such Restricted Transaction, the Party entering into such Restricted Transaction receives a ruling from the IRS in a formand substance reasonably satisfactory to the other Party, to the effect that the Restricted Transaction will not cause the Restructuring or the Distribution tofail to qualify for the Intended Tax Treatment in whole or in part; or
(ii) the other Party consents in writing to such Restricted Transaction (which consent may be withheld by such other Party at its sole discretion).
Each Party shall cooperate with the other Party in connection with obtaining such IRS ruling. The Party proposing to enter in a Restricted Transaction shallreimburse each member of the Group of the other Party for all reasonable out-of-pocket costs and expenses incurred by the such Group in connection withrequesting or obtaining an IRS ruling pursuant to this Section 7.02(a) within thirty (30) Business Days of receiving an invoice from such other Party therefor.
(b) Newco Restricted Transaction. Notwithstanding Section 7.01(b)(v), a member of the New News Corporation Group may enter into a RestrictedTransaction or Newco Restricted Transaction if Remainco consents in writing, which may be granted or withheld in the sole discretion of Remainco.
(c) No Exception to Liability. For the avoidance of doubt, notwithstanding Section 7.02(a) or Section 7.02(b), entering into a Restricted Transaction or aNewco Restricted Transaction shall be treated as a Tainting Act for all purposes of this Agreement, and each Party shall be liable for any Additional Tax,Restructuring Tax or Distribution Tax resulting from any Restricted Transaction or Newco Restricted Transaction in which such Party participates.
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Section 7.03. Certain Taxing Authority Contacts by New News Corporation Group. Subject to Section 7.02(a), no member of the New News CorporationGroup shall seek any guidance from the IRS or any other Taxing Authority (whether written or oral) at any time concerning the consequences of the Restructuringor the Distribution to Remainco or the Remainco Consolidated Group, including the effect of any other transactions, without prior written consent of Remainco,which consent shall not be unreasonably withheld or delayed.
ARTICLE 8GENERAL PROVISIONS
Section 8.01. No Duplication of Payment. Notwithstanding anything to the contrary herein, nothing in this Agreement shall require a Party hereto to makeany payment attributable to any indemnification for Taxes or payment of Taxes hereunder, or for any Tax Benefit Attribute, for which payment has previouslybeen made by such Party hereunder.
Section 8.02. Interest. Any payments required pursuant to this Agreement which are not made within the time period specified in this Agreement shall bearinterest for the period the amount remains unpaid at a rate equal to the rate specified in Section 6621(c) of the Code.
Section 8.03. Termination. This Agreement shall remain in force and be binding so long as the applicable period for assessments or collections of Tax(including extensions) remains unexpired for any Taxes contemplated by, or indemnified against in, this Agreement.
Section 8.04. Effectiveness. The effectiveness of this Agreement and the obligations and rights created hereunder are subject to and conditioned upon thecompletion of the Distribution pursuant to the terms of the Separation and Distribution Agreement.
Section 8.05. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shallbe deemed to have been duly given or made upon receipt) by delivery in person, by courier service (including overnight delivery) or by registered or certifiedmail (postage prepaid, return receipt requested) to Remainco and New News Corporation at their respective addresses (or at such other address as shall bespecified in a notice given in accordance with this Section 8.05) listed below:
(a) To Remainco:
Attn: General Counsel and Tax Director
(b) To New News Corporation:
Attn: General Counsel and Tax Director
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Section 8.06. Complete Agreement; Construction. This Agreement is intended to provide rights, obligations and covenants in respect of Taxes and shallsupersede all prior agreements and undertakings, both written and oral, between members of the Remainco Group, on the one hand, and members of the NewNews Corporation Group, on the other, with respect to the subject matter hereof and thereof.
Section 8.07. Counterparts. This Agreement may be executed in one or more counterparts, and by Remainco and New News Corporation in separatecounterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
Section 8.08. Waiver. Remainco and New News Corporation, as the case may be, may (a) extend the time for the performance of any of the obligations orother acts of the other party or parties, (b) waive any inaccuracies in the representations and warranties of the other party or parties contained herein or in anydocument delivered by the other party or parties pursuant hereto or (c) waive compliance with any of the agreements or conditions of the other party or partiescontained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver ofany term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any otherterm or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any such rights.
Section 8.09. Amendments. This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, Remaincoand New News Corporation or (b) by a waiver in accordance with Section 8.08.
Section 8.10. Successors and Assigns. The provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by Remainco andNew News Corporation and their respective successors and permitted assigns. This Agreement cannot be assigned by Remainco or New News Corporationwithout the consent of the other Party.
Section 8.11. Subsidiaries. Remainco and New News Corporation shall each cause to be performed, and hereby guarantees the performance of, all actions,agreements and obligations set forth herein to be performed by any Subsidiary of such Party (including predecessors and successors) or by any entity thatbecomes a Subsidiary of such Party on or after the Distribution Date.
Section 8.12. Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of Remainco and New News Corporation andtheir respective Subsidiaries, and nothing herein, express or implied, is intended to or shall confer upon any third parties any legal or equitable right, benefit orremedy of any nature whatsoever under or by reason of this Agreement.
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Section 8.13. Headings. The descriptive headings contained in this Agreement are for convenience of reference only and shall not affect in any way themeaning or interpretation of this Agreement.
Section 8.14. Specific Performance. Remainco and New News Corporation agree that irreparable damage would occur in the event any provision of thisAgreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition toany other remedy at law or equity.
Section 8.15. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, applicable tocontracts executed in and to be performed entirely within that State.
Section 8.16. Arbitration. Any conflict or disagreement arising out of the interpretation, implementation, or compliance with the provisions of thisAgreement shall be finally settled pursuant to the provisions of Section 9.08 (Dispute Resolution) of the Separation and Distribution Agreement, which provisionsare incorporated herein by reference.
Section 8.17. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, allother terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Restructuring andthe Distribution is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal orincapable of being enforced, Remainco and New News Corporation shall negotiate in good faith to modify this Agreement so as to effect the original intent of theparties as closely as possible in an acceptable manner in order that the Restructuring and the Distribution contemplated hereby are consummated as originallycontemplated to the greatest extent possible.
Section 8.18. Costs and Expenses. Unless specifically provided herein, each Party agrees to pay its own costs and expenses resulting from the fulfillment ofits respective obligations hereunder.
Section 8.19. Coordination with Separation and Distribution Agreement. Except as explicitly set forth in the Separation and Distribution Agreement, thisAgreement shall be the exclusive agreement among the Parties with respect to all Tax matters, including indemnification in respect of Tax matters. The Partiesagree that this Agreement shall take precedence over any and all agreements among the Parties with respect to Tax matters.
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IN WITNESS WHEREOF, Remainco and New News Corporation have caused this Agreement to be executed as of the date first written above by theirrespective officers thereunto duly authorized.
NEWS CORPORATION
By: /s/
Name:
Title:
NEW NEWSCORP LLC
By: /s/
Name:
Title:
31
Exhibit 2.3
FORM OF TRANSITION SERVICES AGREEMENT
between
NEWS CORPORATION
and
NEW NEWS CORPORATION
Dated as of [·], 2013
TABLE OF CONTENTS Page
Article I
SERVICES
Section 1.1 Provision of Services 1 Section 1.2 Additional Services 2 Section 1.3 Term of Agreement and Services 3 Section 1.4 Subcontracting of Services 3 Section 1.5 Standard of Service 3 Section 1.6 Right to Decline Services 4 Section 1.7 Compensation and Other Payments 4 Section 1.8 Billing and Payment Terms 4 Section 1.9 Interruption of Services 5 Section 1.10 Supervision and Compensation 6 Section 1.11 Limited Remedy and Limitation of Damages 6
Article II
MUTUAL OBLIGATIONS; COVENANTS
Section 2.1 Providing Periodic Reports 7 Section 2.2 Means of Providing Services 7 Section 2.3 Consents; Further Assurances 7 Section 2.4 Cooperation 7
Article III
TAX MATTERS
Section 3.1 Service Taxes 8 Section 3.2 Limitation of Damages 8
Article IV
ACCESS TO INFORMATION AND PERSONNEL
Section 4.1 Access to Information 8 Section 4.2 Privilege 9
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Article V
CONFIDENTIALITY
Section 5.1 Confidential Information 9 Section 5.2 Ownership of Assets 10
Article VI
DISCLAIMER, LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 6.1 Disclaimer of Warranties 12 Section 6.2 Limitation of Consequential Damages 12 Section 6.3 Liability Cap 12 Section 6.4 Third Party Vendors 13 Section 6.5 Mixed Contracts Limitation 13 Section 6.6 Indemnification by Service Recipient 13 Section 6.7 Indemnification by Service Provider 14 Section 6.8 Indemnification Procedures 14 Section 6.9 Mitigation 14
Article VII
OTHER PROVISIONS
Section 7.1 Records 14 Section 7.2 Inspection Rights 15
Article VIII
TERMINATION
Section 8.1 Termination 15 Section 8.2 Termination Notices 16 Section 8.3 Consequences of Termination 16 Section 8.4 Procedures Following Termination 16 Section 8.5 Survival 16
Article IX
MISCELLANEOUS
Section 9.1 Force Majeure 17 Section 9.2 Assignment 17 Section 9.3 Relationship of the Parties 18 Section 9.4 Governing Law and Submission to Jurisdiction 18 Section 9.5 Entire Agreement 18 Section 9.6 Notices 18 Section 9.7 Negotiation and Dispute Resolution 19 Section 9.8 Conflicting Provisions 19 Section 9.9 Severability 19 Section 9.10 Interpretation 19
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Section 9.11 Counterparts 20 Section 9.12 Further Cooperation 20 Section 9.13 Amendment and Waiver 20 Section 9.14 Duly Authorized Signatories 20 Section 9.15 Waiver of Trial By Jury 20 Section 9.16 Title and Headings 20 Section 9.17 No Third Party Beneficiaries 20 Section 9.18 Successors and Assigns 21 Section 9.19 Certain Definitions 21
Exhibits
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TRANSITION SERVICES AGREEMENT (this “Agreement”), dated as of [·], 2013 (the “Effective Date”), by and among News Corporation, a Delawarecorporation (“Remainco”) and New Newscorp LLC, a Delaware limited liability company and a wholly owned subsidiary of Remainco (“New NewsCorporation,” and, together with Remainco, each a “Party” and collectively the “Parties”).
W I T N E S S E T H:
WHEREAS, Remainco and New News Corporation have entered into a Separation and Distribution Agreement (the “Separation Agreement”) which setsforth, among other things, the terms of the separation, which shall occur in a series of transactions, by Remainco of its Separated Business, such that Remaincowill own and conduct, directly and indirectly, the Remainco Business and New News Corporation will own and conduct, directly and indirectly, the SeparatedBusiness (such transactions, as may be amended or modified from time to time, the “Separation”);
WHEREAS, in connection with the transactions contemplated by the Separation Agreement and in order to ensure an orderly and expeditious transitionfollowing the Separation, each party desires that the other party provide, or cause its Affiliates or contractors to provide, certain transition services in exchange forthe consideration stated in this Agreement and in accordance with the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, Remainco and New News Corporation have each determined that it is desirable to enter into this Agreement, which sets forth the terms ofcertain relationships and other agreements among Remainco and New News Corporation as set forth herein.
NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, and intending to belegally bound, the Parties hereby agree as follows:
ARTICLE I
SERVICES
Section 1.1 Provision of Services.
(a) Upon the terms and subject to the conditions set forth in this Agreement, each Party, as Service Provider, agrees to provide (or cause one of itsSubsidiaries or Affiliates to provide) to the other Party (or to one of its Subsidiaries or Affiliates), as Service Recipient, in each case as applicable, those servicesdescribed in the exhibits attached hereto (each an “Exhibit,” and each such Exhibit, together with the terms and conditions of this Agreement, a “ServicesAgreement”), each on and pursuant to the terms set forth therein (together, with the Additional Services (as defined in Section 1.2), the “Services”). The Servicesshall be specifically limited to those tasks described in the Exhibits to this Agreement unless specifically expanded by amendment to this Agreement; provided,however, that the Parties may
mutually agree (in their respective sole discretion) to the provision of certain ad hoc services related to the Services through the issuance and acceptance of one ormore work orders by the Parties.
(b) The Parties agree and acknowledge that the obligation to provide, and the right to receive, any Services (or portions thereof) may be assigned,allocated and/or contributed, in whole or in part, to any Affiliate(s) of the relevant Party. To the extent so assigned, allocated and/or contributed, the relevantAffiliate shall be deemed the relevant Service Provider or Service Recipient, as applicable, with respect to the relevant portion of such Services; provided that noassignment shall relieve the assigning Party of any of its obligations under this Agreement unless agreed to by the non-assigning Party.
(c) Notwithstanding anything to the contrary in this Agreement, nothing herein shall prohibit, modify or limit Remainco’s ability to transfer orallocate assets and liabilities, as the case may be, to any entity in connection with, or in contemplation of, the Separation, the Separation Agreement, the AncillaryAgreements (other than this Agreement) or otherwise, and to the extent that any such transfer or allocation results in a change to which Party reasonably shouldbe Service Provider and/or Service Recipient then the relevant Parties shall make such amendments, revisions or modifications to the Exhibits as are reasonablynecessary to reflect the appropriate Service Provider and/or Service Recipient, as the case may be.
Section 1.2 Additional Services.
(a) From time to time during the Term (as defined in Section 1.3), a Service Recipient may find it desirable to request, in addition to the Servicesdescribed in the applicable Exhibits, additional services to be made available to such Service Recipient by the applicable Service Provider (“AdditionalServices”). In the event that such Service Recipient makes a written request that a Service Provider provide Additional Services, Service Provider shall usecommercially reasonable efforts to provide such Additional Services and the relevant Parties shall negotiate in good faith and execute amendments to the relevantExhibits for such Additional Services that shall set forth the terms and conditions for the provision of such Additional Services, including, among other things,(a) the time period during which the Additional Services shall be provided, (b) a description of the Additional Services, and (c) the estimated charge for theAdditional Services. A Service Provider’s obligations with respect to providing any such Additional Services shall become effective only upon an amendment tothe relevant Exhibits being duly executed and delivered by the relevant Service Provider and the relevant Service Recipient.
(b) The Parties agree and acknowledge that any other transition or similar assistance that may be provided by a Party or its Affiliates to another Partyor its Affiliates (but is not described in an Exhibit hereto and is not otherwise agreed to in writing pursuant to Section 1.2(a) or part of the terms of the SeparationAgreement or any Ancillary Agreements) in connection with the Separation shall be deemed to be provided under this Agreement as Services (and thereforesubject to the terms and conditions of this Agreement, including the exclusions of, and limitations on, liability), unless the Parties expressly agree in writing thatsuch other transition or similar assistance is not governed by this Agreement. For the avoidance of doubt, the foregoing shall not require any Party to provide anytransition or similar assistance that is not otherwise required under this Agreement.
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Section 1.3 Term of Agreement and Services. The term of a Services Agreement shall commence upon the date or time set forth in the applicable Exhibitand, unless earlier terminated by the relevant Parties as provided herein, shall expire in accordance with the terms of such Services Agreement. The term of thisAgreement shall commence on the Effective Date and, unless terminated by the relevant Parties as provided herein, shall expire upon the last day on which eitherParty is required to provide Services to any Service Recipient hereunder or under any other Service Agreement (the “Term”).
Section 1.4 Subcontracting of Services. Each Service Recipient under a Services Agreement acknowledges and agrees that the Service Provider (a) mayhave subcontracted, and may continue to subcontract, with unaffiliated third parties to provide services in connection with all or any portion of the Services to beprovided under such Services Agreement (“Third Party Providers”) and (b) shall be entitled to, as it deems necessary and appropriate, employ the services ofThird Party Providers to provide the Services that are, as of the date of this Agreement, provided by the Service Provider; provided, that the level of serviceremains materially consistent with the level of service previously provided to the Service Recipient in the 12 months prior to the Distribution To the extentprovided, the Service Provider shall use commercially reasonable efforts to (i) cause such Third Party Provider to provide such Services under this Agreementand/or (ii) enable the Service Recipient to avail itself of such Services; provided, however, that if any such Third Party Provider shall thereafter become unable orunwilling to provide any such Services, the Service Provider shall notify the Service Recipient thereof in writing and shall use its commercially reasonable effortsto provide such Services or, after consultation with the Service Recipient, use its commercially reasonable efforts to determine an alternative manner in whichsuch Services can best be provided; and provided, further, that except as provided in Section 6.4, nothing in the preceding sentence shall require the ServiceProvider or any of its Affiliates to commence any legal proceeding or other action in connection with its enforcement of its rights under any agreement with anyThird Party Provider. Notwithstanding the foregoing, each Service Recipient to a Services Agreement acknowledges that any Services subcontracted to a ThirdParty Provider will be provided in accordance with the applicable Service Provider’s agreement with such Third Party Provider, subject to Section 1.5.
Section 1.5 Standard of Service. Each Service Provider agrees that in providing (or causing others to provide) the Services under any Services Agreement,it shall use commercially reasonable efforts to (and shall use commercially reasonable efforts to cause each Affiliate or advisor and, to the extent practicable, anyother third-party service provider to) at all times perform such Services: (i) (a) in a manner that is substantially similar in nature, quality, frequency and timelinessto the services provided in the twelve months prior to the Effective Date, (b) with the use of reasonable care, (c) in material compliance with applicable Laws and(d) with substantially the same priority under comparable circumstances as the Service Provider previously provided such services (it being understood, however,that in the event of any shortfall of capacity or resources to deliver the services, as between Service Provider and its Affiliates, on the one hand, and ServiceRecipient, on the other hand, provision or usage shall be reduced or allocated in a manner proportionate to the historical allocation of such provision or usageexisting immediately prior to the applicable shortfall); and (ii) comply in all material
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respects with any applicable standards, procedures, policies, operating guidelines, practices and instructions specifically set forth in the Exhibits describing therelevant Services. In the event of a conflict between 1.5(a)(i) and 1.5(a)(ii), the standards of 1.5(a)(ii) shall govern. For any work performed on the premises ofService Recipient, Service Provider will use its commercially reasonable efforts to comply with the security, confidentiality, safety and health policies of ServiceRecipient, if any, to the extent the Service Recipient provides the Service Provider with such policies, in writing, in a reasonable period of time prior to thecommencement of such Services. Notwithstanding the foregoing, it shall not be deemed to be a breach of this Agreement if a Party to a Services Agreement failsto meet the standards required under this Section 1.5 because of the failure of the other Party to such Services Agreement to cooperate with or provideinformation or services to such Party as required under such Services Agreement.
Section 1.6 Right to Decline Services. Notwithstanding anything to the contrary contained in this Agreement or any Services Agreement, a ServiceProvider may decline to provide all or any part of any particular Services if it reasonably believes that the performance of its obligations relating thereto wouldviolate any applicable law, regulation, judicial or administrative ruling or decision applicable to its business, but only (a) to the extent reasonably necessary forsuch Party to ensure compliance therewith, (b) after such Party has applied commercially reasonable efforts to reduce the amount and/or effect of any suchrestrictions and (c) after such Party has delivered written notice to the Service Recipient specifying in reasonable detail the nature of the applicable restrictionsand of any proposed resulting modification in such Party’s obligations.
Section 1.7 Compensation and Other Payments.
(a) Each Service Recipient under a Services Agreement agrees to pay the Service Provider under such Services Agreement (or, if the ServiceProvider so directs, to an Affiliate of the Service Provider) in accordance with Section 1.8, an amount equal to the amounts set forth in the relevant ServicesAgreement (the “Service Recipient Payables”).
(b) Each Service Recipient shall reimburse the Service Provider for reasonable out-of-pocket costs and expenses incurred by the Service Provider orany of its Affiliates in connection with providing the applicable Services (including reasonable travel-related expenses) to the extent that such costs and expensesare not already included in the Service Recipient Payables for such Services; provided, however, that any such cost or expense not consistent with historicalpractice between the Parties for any Service (including business travel and related expenses) shall require advance approval of the Service Recipient. To theextent not included in the Service Recipient Payables relating to any Services, the reasonable out-of-pocket costs and expenses incurred by Service Provider willbe billed in the month after they are incurred.
Section 1.8 Billing and Payment Terms.
(a) The Parties under this Agreement or a Services Agreement (or, if applicable, their respective Affiliates) agree to pay the applicable payee Party,or if such payee Party so directs, an Affiliate of such payee Party, in accordance with, and subject to, the billing and payment terms set forth in this Agreement orsuch Services Agreement, as applicable. The
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Parties agree that payments will be billed in advance on a monthly schedule, as set forth in this Section 1.8(a), unless otherwise agreed to in writing by the Parties.The initial invoices under this Agreement or the applicable Services Agreements will be delivered by each payee Party to each payor Party on July 1, 2013 andwill be due and payable by the payor Party July 15, 2013. Thereafter, on the fifteenth (15 ) of each month following the Effective Date, or the effective date of anapplicable Services Agreement, each payee Party to this Agreement or such Services Agreement, as applicable, shall provide each applicable payor Party to thisAgreement or such Services Agreement, as applicable, with invoices detailing the charges for all amounts due by such payor Party to such payee Party under thisAgreement or such Services Agreement, as applicable, (where practicable, the Parties shall provide a single invoice that includes the amounts due under allServices Agreements) and each Party shall pay such invoices by the fifteenth (15 ) day of each month following the receipt of such invoice. Except as set forth inany Exhibit or agreed in writing by the Parties, the Parties shall net each monthly invoice against each other and the Party with the outstanding payment balanceshall pay or cause to be paid any amounts owed as a result of such netting. Amounts not paid in accordance with this Section 1.8(a) within thirty (30) days afterreceipt of such invoice shall accumulate interest at a rate per annum equal to the then applicable Prime Rate plus four percent (4%) (or the maximum legal rate,whichever is lower) (such rate being referred to herein as the “Interest Rate”). Upon the termination of the Services, the payee Party will invoice the payor Partyfor Services incurred or other applicable charges since the last invoice in accordance with the terms and conditions set forth in this Agreement or the applicableServices Agreement.
(b) Each applicable payor Party shall promptly notify the applicable payee Party in writing of any amounts billed to it that are in dispute; provided,that no such dispute and notice shall relieve such payor Party from paying, nor may such payor Party withhold, any amounts owed to the payee Party pursuant toSection 1.8(a); except that the payor Party may withhold payments for third party pass-through charges, solely to the extent permitted by the applicable third-party agreement, upon notice to the payee Party (similarly, the payee Party shall continue to perform its obligations that are in dispute (including the provision ofServices), pursuant to Section 9.7). Upon receipt of such notice, the applicable payee Party will research the items in question in a reasonably prompt manner andcooperate to resolve any differences with such payor Party. In the event that the relevant Parties mutually agree that any amount that was paid by such payor Partywas not properly owed, the payee Party will refund that amount plus interest (accumulating from the original due date for such amount at the Interest Rate) tosuch payor Party within thirty (30) days after receipt of such notice (or, alternatively, the payee Party may deduct the dollar amount from the next invoicesubmitted to such payor Party). In the event agreement is not reached by the relevant Parties within thirty (30) days after receipt of the notice referred to above,the matter shall be referred to resolution in accordance with Section 9.7.
Section 1.9 Interruption of Services.
(a) Except as otherwise provided herein, each Service Provider will use its commercially reasonable efforts to provide uninterrupted Services to theService Recipient through the Term. In the event, however, that any such Service Provider, or its respective suppliers or subcontractors are wholly or partiallyprevented from providing a Service or Services to a Service Recipient or if a Service or Services are interrupted or suspended, in either
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case by reason of any force majeure event set forth in Section 9.1, or the Service Provider shall deem it reasonably necessary to suspend delivery of a Servicehereunder for purposes of maintenance, repair or replacement of equipment parts or structures, the Service Provider shall not be obligated to deliver such Serviceduring such periods; provided, that the Service Provider: (i) has given, whenever possible, reasonable written notice of the interruption in accordance withSection 9.6 within a reasonable period of time, explaining the reason, purpose and likely duration thereof; and (ii) used commercially reasonable efforts tominimize the duration and impact of the interruption. If such interruption of Services has a more than minimal negative impact on any material aspect of a ServiceRecipient’s business and the applicable Service Provider cannot readily and materially reinstate the Service involved, such Service Provider will use itscommercially reasonable efforts to assist any such Service Recipient in securing alternative services to try to minimize such negative impact on such ServiceRecipient.
(b) Each Party shall promptly notify the other Party under a Services Agreement of any event or circumstance of which such Party or any of itsrepresentatives has knowledge that would or would be reasonably likely to cause a disruption in any Services under such Services Agreement.
Section 1.10 Supervision and Compensation; Staffing of Personnel. Each Service Provider shall select, employ, pay, supervise, direct and discharge all thepersonnel providing Services for it, which personnel will be instructed by such Service Provider to perform Services in a timely, efficient and workmanlikemanner. Each Service Provider shall be solely responsible for the payment of all benefits and any other direct and indirect compensation for such Service Providerpersonnel assigned to perform Services for it under this Agreement, as well as such personnel’s worker’s compensation insurance, employment taxes, and otheremployer liabilities relating to such personnel as required by law.
Section 1.11 Limited Remedy and Limitation of Damages.
(a) Limited Remedy. In the event that any Service Provider materially fails to perform any Service in breach of this Agreement (including anyServices Agreement), then at the Service Recipient’s request, the Service Provider shall use commercially reasonable efforts to re-perform such Service as soon asreasonably practicable, with the same degree of care used in correcting a failure of a similar service for itself, at no cost to the Service Recipient. The ServiceProvider shall have no obligation to recreate any lost or destroyed data, but will provide such data to Service Recipient to the extent the same is re-created throughsuch re-performance of Services. Except for any such failure to perform that results in a claim for indemnification under Article VI and subject to the provisionsthereof, the foregoing in this Section 1.11(a) sets forth the Service Recipient’s sole and exclusive remedy, and the Service Provider’s sole and exclusive liabilityand obligation, with respect to the performance (or nonperformance) of Services under any Services Agreement, except for such specific performance or otherequitable remedy that may be awarded by a court of competent jurisdiction.
(b) EACH SERVICE RECIPIENT ACKNOWLEDGES THAT (I) EACH SERVICE PROVIDER IS NOT A COMMERCIAL PROVIDER OF THESERVICES PROVIDED HEREIN AND IS PROVIDING THE SERVICES AS AN ACCOMMODATION AND AT COST TO SERVICE RECIPIENT PARTIESIN CONNECTION WITH THE
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SEPARATION; AND (II) THIS AGREEMENT IS NOT INTENDED BY THE PARTIES TO HAVE THE APPLICABLE SERVICE PROVIDER MANAGEAND OPERATE THE REMAINCO BUSINESS OR SEPARATED BUSINESS, AS APPLICABLE, IN LIEU OF THE APPLICABLE SERVICE RECIPIENT.THE PARTIES AGREE THAT THE FOREGOING SHALL BE TAKEN INTO CONSIDERATION IN ANY CLAIM MADE UNDER THIS AGREEMENT.
ARTICLE II
MUTUAL OBLIGATIONS; COVENANTS
Section 2.1 Providing Periodic Reports. Each Party, in its capacity as Service Provider, will provide (or cause an Affiliate of such Party to provide), uponreasonable written notice, such periodic reports with respect to the Services it provides under a Services Agreement as is reasonably requested by a ServiceRecipient receiving such Services, including such reports as are specified in the relevant Exhibits.
Section 2.2 Means of Providing Services. With respect to any particular Service to be provided under a Services Agreement, the Service Provider, shall,unless otherwise specified in this Agreement or the Exhibits, determine the means and resources used to provide such Service in accordance with its prudentbusiness judgments.
Section 2.3 Consents; Further Assurances.
(a) The Parties shall reasonably cooperate and use commercially reasonable efforts to obtain all third party consents, licenses and other agreementsnecessary for the provision of the Services. In the event that any consent, license or other agreement under this Section 2.3 cannot be obtained despite the Parties’commercially reasonable efforts, then (i) the Party first ascertaining that such consent, license or other agreement will not be granted by the applicable third partyshall immediately notify all other affected Parties, and the Service Provider shall as soon as practicable notify the Service Recipient in reasonable detail the natureof the applicable exposure and of any proposed resulting modification in the Services, (ii) the Parties shall cooperate and assist the affected Service Recipients inobtaining alternative arrangements, (iii) the Service Provider shall continue to provide the Services to the extent reasonably practicable under such circumstances,and (iv) the affected Parties shall use commercially reasonable efforts to reduce the amount and/or effect of disruption caused by any such failure to obtain suchconsent, license or other agreement.
(b) Each Party shall execute and deliver such further documents and take such other actions as may be reasonably requested of it by the other Partyin order to effect or enable the provision of the Services contemplated hereunder. In addition, each Party shall cause its Affiliates who provide Services pursuantto any Exhibits, to perform their obligations in accordance with this Agreement and the Exhibits, including, all payment obligations hereunder and thereunder,and shall remain liable for the failure of its Affiliates to so perform.
Section 2.4 Cooperation. During the Term, the Parties shall, and shall cause each of their respective Affiliates and each of the foregoing entities’ respectiveagents, auditors
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and representatives to, cooperate with each other in good faith (i) in the performance of the Services and the Parties’ respective obligations under this Agreement,(ii) to facilitate an orderly and efficient transition of services, processes and functions that were shared by the Parties and their respective Affiliates prior to theSeparation, in each case in a manner consistent with the intent of this Agreement and without undue burden on any Party, (iii) to provide knowledge transferregarding the Remainco Business or the Separated Business, as applicable, including with respect to tax and regulatory matters and historical journal entries and(iv) to reasonably assist the other Party in the orderly and efficient transition in becoming an independent company; in each case, except as may otherwise beagreed to by the Parties in writing or expressly set forth in this Agreement or any Ancillary Agreement, at no additional cost to the Party requesting suchassistance other than for the actual out-of-pocket costs incurred by any such Party, if applicable. The cooperation and assistance provided for in this Section 2.4shall not be required to the extent such cooperation and assistance would result in an undue burden on any Party or would unreasonably interfere with theoperation of any Party’s business or with any Party’s employees’ normal functions and duties.
ARTICLE III
TAX MATTERS
Section 3.1 Service Taxes. Each Party in its capacity as Service Recipient shall pay or cause to be paid all sales, service, valued added, use, excise,occupation, and other similar taxes and duties (together in each case with all interest, penalties, fines and additions thereto) that are assessed against the relevantParties on the provision of Services as a whole, or any particular Service (including with respect to amounts paid by the Service Provider to third parties),including Additional Services, received by any applicable Service Recipient or any of its Affiliates from any Service Provider or any of its Affiliates pursuant tothe terms of this Agreement (collectively, “Service Taxes”). If required under applicable law (or, in the case of Service Taxes relating to amounts paid by theService Provider to third parties), each Service Provider shall invoice the Service Recipient for the full amount of all Service Taxes, and such Service Recipientshall pay, in addition to the other amounts required to be paid pursuant to the terms of this Agreement, such Service Taxes to such Service Provider
Section 3.2 Limitation of Damages. Notwithstanding anything to the contrary contained in a Services Agreement, each Service Provider shall not be liablefor any claim in respect of Services relating to Taxes or Tax Returns of the Service Recipient or any of its Affiliates, except to the extent that such claim arisesfrom the willful misconduct or gross negligence of such Service Provider.
ARTICLE IV
ACCESS TO INFORMATION AND PERSONNEL
Section 4.1 Access to Information. Subject to the confidentiality provisions set forth in Article V below and any other restrictions contained in thisAgreement, each Party shall, and shall cause their respective Affiliates to, provide, upon written request, any information within such Party’s, or their respectiveAffiliates’, possession, and access to such Party’s relevant
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management and employees, that the requesting Party reasonably needs in connection with Services being provided by or to such requesting Party (i) to complywith requirements imposed on the requesting Party by a governmental authority; (ii) for use by such requesting Party in any proceeding or to satisfy audit,accounting, tax or similar requirements; or (iii) to comply with such requesting Party’s obligations under this Agreement.
Section 4.2 Privilege. The Parties recognize that legal and other professional services have been and will be provided prior to and following the EffectiveDate that were or will be rendered for the collective benefit of each of the Parties to this Agreement. The Parties agree that their respective rights with respect toall privileged information in connection with such services shall be governed by Section 6.08 of the Separation Agreement.
ARTICLE V
CONFIDENTIALITY
Section 5.1 Confidential Information.
(a) Each Party may from time to time disclose Confidential Information to another Party (both orally and in writing) to the extent necessary to carryout their obligations or exercise their rights under this Agreement and the Exhibits, including with respect to Services.
(b) Each receiving Party agrees to treat all Confidential Information provided by any disclosing Party pursuant to this Agreement and any Exhibits asproprietary and confidential to the disclosing Party, and the receiving Party shall not (without the prior written consent of the disclosing Party) disclose or permitdisclosure of such Confidential Information to any third party; provided, that the receiving Party may disclose, on a need-to-know basis, such ConfidentialInformation to (i) its Third Party Providers or to its Affiliates who are subject to non-disclosure obligations in favor of the receiving Party and/or (ii) its currentemployees, officers, or directors, or legal representatives. The receiving Party shall use the disclosing Party’s Confidential Information solely for the purpose offulfilling its obligations and exercising its rights under this Agreement and the Exhibits.
(c) Notwithstanding this Section 5.1, the Parties acknowledge and agree that information shall not be deemed Confidential Information, and thereceiving Party shall have no confidentiality, non-use or nondisclosure obligation with respect to any such information to the extent that it: (i) is or becomesavailable to the general public, other than as a result of a disclosure by such Party or its Affiliates or any of their respective directors, officers, employees, agents,third-party contractors, vendors, accountants, counsel and other advisors and representatives in breach of this Agreement; (ii) was available to such Party or itsAffiliates or becomes available to such Party or its Affiliates, on a non-confidential basis from a source other than the other Party or its Affiliates hereto, provided,that, the source of such Information was not bound by a confidentiality obligation with respect to such Information, or otherwise prohibited from transmitting theInformation to such Party or its Affiliates by a contractual, legal or fiduciary obligation; or (iii) is independently generated by such Party without use of orreference to any proprietary or confidential Information of the other Party. The Parties further acknowledge and agree that Confidential Information may bedisclosed pursuant to the lawful
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requirement or order of a court or governmental agency; provided, that upon the receiving Party’s request for such a disclosure, the receiving Party gives promptwritten notice thereof to the disclosing Party (unless such notice is not possible under the circumstances, and in such event, such notice shall be provided aspromptly as possible thereafter) so that the disclosing Party may have the opportunity to intervene and contest such disclosure and/or seek a protective order orother appropriate remedy.
(d) All Confidential Information transmitted or disclosed hereunder will be and remain the property of the disclosing Party, and the receiving Partyshall (at the disclosing Party’s election) promptly destroy or return to the disclosing Party, as directed by the disclosing Party, any and all copies thereof upontermination or expiration of this Agreement and/or the applicable Exhibit, or upon the written request of the disclosing Party, to the extent such destruction orreturn does not affect the ability of the receiving Party to perform any Services required hereunder; except, that the receiving Party is not obligated to return ordestroy copies of Confidential Information that are required to be maintained by applicable law or regulation or such Party’s bona fide business managementpolicies as in effect as of the date such request for return or destruction is received. Upon the request of the disclosing Party, the receiving Party shall certify anysuch destruction in writing.
Section 5.2 Ownership of Assets.
(a) License to Service Provider. Subject to the terms and conditions of this Agreement and any applicable Third Party Provider agreements pursuantto which Service Recipient or its Affiliates obtain rights to Intellectual Property or data, Service Recipient hereby grants, on behalf of itself and its Affiliates, toService Provider and its Affiliates, a non-exclusive, non-sublicensable (other than to Third Party Providers, but solely to enable such Third Party Providers toprovide such Services), non-transferable (except as set forth herein), royalty-free, worldwide license, during the Term, to use and otherwise exploit (including theright to make derivative works thereof) such Intellectual Property and data that is owned or licensed from third parties by Service Recipient or its Affiliates andreasonably necessary for performance of the Services (or any other obligations under this Agreement) by Service Provider, its Affiliates or Third Party Providers,solely for the purpose of performing the Services (or any other obligations under this Agreement).
(b) License to Service Recipient. Subject to the terms and conditions of this Agreement and any applicable third party agreements pursuant to whichService Provider or its Affiliates obtain rights to Intellectual Property or data, Service Provider hereby grants, on behalf of itself and its Affiliates, to ServiceRecipient and its Affiliates, a perpetual, non-exclusive, non-sublicensable (other than to third parties for use on Service Recipient’s or its Affiliates’ behalf), non-transferable (except as set forth herein), royalty-free, worldwide license to use and otherwise exploit (including the right to make derivative works thereof) suchIntellectual Property and data that is owned or licensed from third parties by Service Recipient or its Affiliates and reasonably necessary for receipt or use of theServices or the results thereof by Service Recipient or its Affiliates, solely for the purpose of receiving or using the Services or the results thereof in the operationof the Separated Business, with respect to New News Corporation as Service Recipient, or the Remainco Business, with respect to Remainco as ServiceRecipient.
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(c) Ownership of Data and Intellectual Property. Except for the licenses granted pursuant to Sections 5.2(a) and (b) and except as set forth in thesubsequent sentences in this Section 5.2(c), as between Service Provider and its Affiliates, on the one hand, and Service Recipient and its Affiliates, on the otherhand, each Party and its Affiliates shall retain and shall be the sole and exclusive owner of all right, title and interest in and to its Intellectual Property used inconnection with the Services, including, with respect to Service Provider and its Affiliates, any Intellectual Property created by Service Provider, its Affiliates orany Third Party Provider in providing the Services, and no implied licenses of any kind are granted by either Party in connection herewith. Notwithstanding theforegoing sentence, all Intellectual Property created or developed by Service Provider pursuant to the Services (i) that solely relates to the Separated Business,with respect to New News Corporation as Service Recipient, or the Remainco Business, with respect to Remainco as Service Recipient, shall be owned byService Recipient, and (ii) that relates to both the Separated Business and the Remainco Business, shall be owned by Service Provider and Service Recipientjointly, without any obligation to account to the other for any fees, royalties, profits or other proceeds resulting from any sale, license or other commercialexploitation of such jointly owned Intellectual Property and without any requirement to obtain the consent of the other party to use or otherwise exploit suchIntellectual Property in any manner. All data generated by Service Provider, its Affiliates or any Third Party Provider pursuant to a Service and on behalf ofService Recipient or its Affiliates will be owned by the Service Recipient or such Affiliate. To the extent that any right, title or interest in or to any IntellectualProperty or data vests in a Party or its Affiliates, by operation of law or otherwise, in a manner contrary to the agreed upon ownership as set forth in thisAgreement, such Party (on behalf of itself and its Affiliates) shall, and hereby does, perpetually and irrevocably assign to the other relevant Party or its designatedAffiliate any and all such right, title, and interest throughout the world in and to such Intellectual Property and data, without the need for any further action byeither Party or either Party’s Affiliates. With respect to any Intellectual Property that is jointly owned by Service Provider and Service Recipient, each Party shall(and shall cause its respective Affiliates to) execute and deliver such further documents and take such other actions as may be reasonably requested by the otherParty, at such other Party’s cost, in connection with the securing, establishing, maintaining, perfecting, protecting, enforcing or defending of such Party’s rights insuch jointly-owned Intellectual Property, including appearing as a party in an action or proceeding if the appearance of such Person is required for such Party’sstanding to sue.
(d) Additional Terms Regarding Data. To the extent reasonably required by Service Provider, Service Recipient shall (and shall cause its Affiliatesto) execute a written agreement with Service Provider, its Affiliates or a Third Party Provider that is sufficient to comply with applicable Law relating to dataprotection and privacy. Notwithstanding anything to the contrary herein, to the extent that access to, and/or any license to use, the Service Provider’s, itsAffiliates’ or any Third Party Provider’s data products [set forth on Exhibit [·]] are provided hereunder, such access and/or license shall be subject to the ServiceProvider’s standard terms and conditions of use that are applicable to third parties (other than with respect to payment terms, which are set forth in thisAgreement).
(e) Other Assets. Except as otherwise noted in this Section 5.2, all procedures, methods, systems, strategies, tools, equipment, facilities and otherresources used by a Party hereto, any of its Affiliates or any relevant Third Party Provider shall remain the property of such Party or its Affiliates and, except asotherwise provided herein, shall at all times be under the sole direction and control of such Party, its Affiliates or such third party.
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ARTICLE VI
DISCLAIMER, LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 6.1 Disclaimer of Warranties. The Parties acknowledge and agree that, except as expressly set forth in this Agreement, the Services are to beprovided as-is, and the Service Recipients assume all risk and liability arising from or relating to their use and reliance upon the Services. EXCEPT ASEXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS ORIMPLIED, WITH RESPECT TO THE SERVICES TO BE PROVIDED OR RECEIVED (INCLUDING WITH REGARD TO QUALITY, PERFORMANCE,NONINFRINGEMENT, COMMERCIAL UTILITY, MERCHANTABILITY OR FITNESS OF SUCH SERVICES FOR A PARTICULAR PURPOSE) BY ITOR OTHERWISE WITH RESPECT TO THIS AGREEMENT (INCLUDING ANY SERVICES AGREEMENT).
Section 6.2 Limitation of Consequential Damages. NO PARTY (OR ANY OF ITS AFFILIATES OR RELATED PARTIES) SHALL UNDER ANYCIRCUMSTANCES BE LIABLE TO ANY OTHER PARTY, SUCH OTHER PARTY’S AFFILIATES OR RELATED PARTIES OR ANY OTHER THIRDPARTIES FOR ANY SPECIAL, INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS ORREVENUE) RESULTING OR ARISING FROM THIS AGREEMENT (INCLUDING ANY SERVICES AGREEMENT), INCLUDING THE SERVICES, ANYPERFORMANCE OR NONPERFORMANCE OF THE SERVICES OR TERMINATION OF THE SERVICES REGARDLESS OF WHETHER SUCHDAMAGES OR OTHER RELIEF ARE SOUGHT BASED ON BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY,IN TORT (INTENTIONAL OR OTHERWISE) OR ANY OTHER LEGAL OR EQUITABLE THEORY, REGARDLESS OF WHETHER SUCH DAMAGESWERE OR ARE FORESEEABLE OR ANY SUCH PARTY WAS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SUCH DAMAGES.
Section 6.3 Liability Cap.
(a) Notwithstanding anything in this Agreement (including any Services Agreement) to the contrary, to the maximum extent permitted by law, theaggregate liability of each Party (including its Related Parties) arising out of or in connection with any Services Agreement shall under no circumstances exceedthe “liability cap” (where “liability cap” means, for each Services Agreement, the total aggregate service charges paid by Service Recipient to Service Provider(excluding any third-party cost or expenses) for services under such Services Agreement); provided that a Service Recipient’s obligation to pay the applicableservices fees hereunder or under a Services Agreement shall not be affected by the foregoing “liability cap” in this Section 6.3(a); provided further, that the“liability cap” shall not apply if and to the extent that the Losses incurred by Service Recipient are otherwise indemnifiable under this Agreement and are incurredas a direct result of Service Recipient’s contracting a third party, after reasonable notice to the Service Provider under the circumstances, to replace any Servicesto be provided
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under this Agreement or any Services Agreement as a direct result of Service Provider’s failure to provide such Services as required under the terms of thisAgreement or any Services Agreement.
(b) The Parties acknowledge and agree that the limitations specified in this Section 6.3 will survive and apply even if any limited or sole remedyspecified in this Agreement (including any Services Agreement) is found to have failed of its essential purpose.
Section 6.4 Third Party Vendors.
(a) In no event will any Party be liable for the products and services of any third party licensors, contractors, outsourcers or other vendors, includingThird Party Providers, except to the extent for which such Party is otherwise liable under this Agreement.
(b) Notwithstanding anything in this Agreement (including any Services Agreement) to the contrary, with respect to any such third party licensors,subcontractors, outsourcers or other vendors, including Third Party Providers, the Parties agree to reasonably and diligently cooperate to pass through to eachService Recipient, to the extent permitted by the applicable contracts, the benefit of any indemnities, representations and warranties under the applicable contractswith such Third Party Providers. Upon request, the Service Provider agrees at its option to either (i) enforce its rights under such contracts, or (ii) grant to theService Recipient rights of subrogation, to the extent permitted under the applicable contract(s), so that the Service Recipient may directly enforce the applicablecontract(s) against the applicable vendor. The Service Provider will under no circumstances be responsible for any failure by any Third Party Provider to provideany remedies to which the Service Provider and the Service Recipient are entitled from the applicable vendors. The Service Recipient will be responsible for itsown costs and the cost incurred by the Service Provider in seeking or enforcing any rights or remedies with respect to any such vendors for the benefit of ServiceRecipient.
Section 6.5 Mixed Contracts Limitation. Notwithstanding anything in this Agreement (including any Services Agreement) to the contrary, nothing in thisAgreement (including any Services Agreement) is intended to supersede the Separation Agreement with respect to the Parties’ liability for Mixed Contracts. Inthe event of any conflict between this Agreement and the Separation Agreement with respect to Mixed Contracts, the Separation Agreement shall control.
Section 6.6 Indemnification by Service Recipient. Subject to Sections 6.2 and 6.3, the Service Recipient hereunder shall indemnify, defend and holdharmless the Service Provider, each Third Party Provider, each of their respective Affiliates and representatives, and each of the successors and assigns of any ofthe foregoing (collectively, the “Service Provider Indemnitees”), from and against any and all Losses, damages, liabilities, judgments, costs and expenses(including reasonable attorneys’ fees) arising out of or resulting from (a) any breach of the Service Recipient’s representations or warranties set forth in thisAgreement and (b) any third party claim relating to, arising out of or resulting from the Service Provider or any third party providing Services hereunderfurnishing or failing to furnish the Services provided for in this Agreement or performing any of its covenants hereunder, other than claims arising out of thenegligence, fraud, bad faith, gross negligence or willful misconduct of the Service Provider or any such Third Party Provider.
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Section 6.7 Indemnification by Service Provider. Subject to Sections 6.2 and 6.3, the Service Provider hereunder shall indemnify, defend and hold harmlessthe Service Recipient, its Affiliates and representatives, and each of the successors and assigns of any of the foregoing (collectively, the “Service RecipientIndemnitees”) from and against any and all Losses, damages, liabilities, judgments, costs and expenses (including reasonable attorneys’ fees) arising out of orresulting from (a) any breach of the Service Provider’s representations or warranties set forth in this Agreement and (b) any negligence, fraud, bad faith, grossnegligence or willful misconduct of the Service Provider in performing its covenants hereunder or with respect to any third party providing Services hereunder inthe performance of the Services, including any third party claim relating to, arising out of or resulting from the negligence, fraud, bad faith, gross negligence orwillful misconduct of the Service Provider or any third party providing Services hereunder. Notwithstanding anything to the contrary herein, Service Providershall not be obligated to indemnify any Service Recipient Indemnitee for any actions giving rise to indemnification hereunder if such actions were consistent withthe manner in which the Separated Business or Remainco Business, as applicable, was operated prior to the Distribution.
Section 6.8 Indemnification Procedures. All claims for indemnification under this Agreement will be made in accordance with the procedures as set forth inArticle IV of the Separation Agreement.
Section 6.9 Mitigation. The Parties will, in all circumstances, use commercially reasonable efforts to mitigate and otherwise minimize damages, whetherdirect or indirect, due to, resulting from or arising in connection with any failure by the other Party to comply fully with is obligations under this Agreement.
Section 6.10 Exclusive Remedy. Except for the right of reperformance or any entitlement to specific performance or other equitable remedy, each solely ascontemplated by Section 1.11(a), the remedies provided in this Article VI shall be deemed the sole and exclusive remedies of the parties, from and after theEffective Date, with respect to the subject matters of the indemnification provisions of this Article VI, and the parties each hereby waive to the extent permittedby applicable law any other remedy, to which they or any other Party are entitled to indemnification hereunder may have at law or in equity with respect thereto.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 Records. Each Service Provider agrees to maintain accurate records arising from or related to any Services provided under any ServicesAgreement, including accounting records (which shall also be at least sufficient to permit a proper audit to demonstrate compliance with the requirements ofSection 404 of the Sarbanes-Oxley Act of 2002, as amended (a “404 Audit”)) and documentation produced in connection with the rendering of any Services.Each Service Provider’s accounting records and as appropriate, other records, shall be reasonably sufficient to permit the computation and verification of allpayments due hereunder.
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Section 7.2 Inspection Rights. During the Term and for sixty (60) days thereafter, each Service Provider shall, upon twenty (20) days’ prior written noticefrom the Service Recipient, permit such Service Recipient or its authorized representatives to inspect and audit such Service Provider’s records relating to theServices during regular business hours; provided, that the Service Recipient shall comply with the Service Provider’s reasonable security and safety procedures assuch procedures are communicated to such Service Recipient, that such inspection and audit will not unreasonably interfere with any of the business or operationsof the Service Provider and that any expenses (including relating to copying) in connection the inspection or audit shall be the sole obligation of such ServiceRecipients.
ARTICLE VIII
TERMINATION
Section 8.1 Termination.
(a) This Agreement may be terminated by mutual written consent of each Party (such termination shall also terminate all Service Agreementshereunder between such Parties), and any Services Agreement may be terminated (x) by mutual written agreement of the Parties to such Services Agreement,(y) as may be set forth in the applicable Exhibit or (z) by any Party to a Services Agreement (a “Non-Defaulting Party”) upon written notice to one or more of theother relevant Parties to such Services Agreement if:
(i) the other Party fails in any material respect to perform its obligations under or breaches in any material respect this Agreement or theapplicable Services Agreement (the “Defaulting Party”) and such failure to perform or breach of an obligation is not cured within sixty (60) days ofthe date on which written notice is received by the Defaulting Party setting forth in reasonable detail the manner in which the Defaulting Party failedto perform its obligations hereunder and stating that the Non-Defaulting Party intends to terminate this Agreement with respect to the DefaultingParty if such failure or breach is not cured within sixty (60) days of such notice. For the avoidance of doubt, the foregoing shall not limit any rightsof a payee Party under Section 1.8(b); or
(ii) the other Party makes a general assignment for the benefit of creditors, becomes insolvent, a receiver is appointed, or a court approvesreorganization or arrangement proceedings.
(b) Any Service or Services provided hereunder may be terminated by a Service Provider upon written notice to the relevant Service Recipient(s) ofsuch Service or Services if performance of any such Service or Services has been rendered [permanently] impossible or impracticable by reason of the occurrenceof any of the events described in Section 9.1; provided, that such Service Provider has used commercially reasonable efforts not to suspend services as providedin Section 1.9.
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(c) Any Service or Services provided hereunder may be terminated in whole, but not in part, by a Service Recipient upon sixty (60) days priorwritten notice (or such period of time set forth in the applicable Exhibit, if different) to the relevant Service Provider(s) of such Service or Services for any or noreason; provided, that such Service Recipient will be liable for all Transition Costs and Unrecovered Costs in connection with such termination for convenience,in accordance with Section 8.3. Any Termination pursuant to this Section 8.1(c) shall be irrevocable. For the avoidance of doubt, the provisions of thisSection 8.1(c) shall not prejudice the rights of Service Recipient with respect to the application of Sections 1.11 or 9.1 hereunder.
Section 8.2 Termination Notices. Any termination notice delivered by any Party shall specify the effective date of termination and, where applicable, indetail the Service or Services to be terminated
Section 8.3 Consequences of Termination. In the event that this Agreement is terminated for any reason or a Service is terminated pursuant to the relevantExhibits or pursuant to Section 8.1(b) or Section 8.1(c):
(a) Upon request, each Party involved in such Service shall return to the other Party all tangible personal property, books and records owned by theother Party and relating to the Services in their possession (other than Confidential Information, which is governed by Section 5.1) as of the relevant terminationdate.
(b) In the event of any termination, in whole or in part, of any Service pursuant to Section 8.1(a) or Section 8.1(c), Service Recipient shall pay toService Provider (i) all reasonable Transition Costs as incurred and invoiced on a monthly basis, and (ii) shall continue to pay any Unrecovered Costs inaccordance with the same payment schedule as such costs would have been paid if the applicable Services had continued to be provided until their intendedexpiration date. Invoices for such charges shall be prepared in reasonable detail by the relevant Service Provider and payment shall be due within thirty (30) daysafter receipt of such invoice.
Section 8.4 Procedures Following Termination. Following any termination of this Agreement or termination of any services each Party hereto willcooperate with the other Party, at the other Party’s expense, as reasonably necessary to avoid disruption of the ordinary course of the other Party’s and itsAffiliates’ businesses.
Section 8.5 Survival. Expiration or termination of all or a portion of the Services for any reason shall not terminate the other obligations of the Partieshereunder, which shall survive any such termination; provided, however, that this Agreement shall terminate as between any Service Provider and ServiceRecipient listed on an Exhibit upon the end of the Term specified in such Exhibit; provided, further, that Section 1.12, Section 4.2, Article V, Article VI, ArticleVII, Article IX, Article X and any provisions of a Services Agreement that are specified therein as surviving, shall survive the termination of this Agreement.Subject to the foregoing, expiration or termination of the Services for any reason shall not terminate any Parties’ obligation to pay any money owed hereunder upto or as a result of the termination of such Services or obligations and rights arising out of any willful misconduct or gross negligence of any Party occurring priorto such termination or expiration or, including the obligation to pay any money owed hereunder up to or as a result of the termination of such Services.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Force Majeure. None of the Parties shall be responsible for the delay in the performance of any obligation hereunder due to labor disturbances,pandemic, accidents, fires, storms, floods, earthquake, explosion, wars, acts of terrorism, riots, rebellions, insurrections, blockages, strike or labor disruption, actsof governments, governmental requirements and regulations, restrictions imposed by law or any other similar conditions, beyond the reasonable control andwithout the fault or negligence of such Party. Upon notice to an Service Recipient by such Service Provider of any of the foregoing events, the affected provisionsand obligations of this agreement shall be suspended during the period of such event and, unless otherwise set forth herein to the contrary, no Service Provider orthird party shall have any liability to any Service Recipient, its Affiliates or any other person in connection therewith. The time for performance by such ServiceProvider shall be extended by the period of such delay. If the Service Provider or relevant third party is unable to provide any of the Services due to an eventdescribed in this Section 9.1, the Parties hereto shall use commercially reasonable efforts to cooperatively seek a solution that is mutually satisfactory and at noincremental cost to the Parties. If the Service Provider or relevant third party is unable to provide any of the Services due to an even described in this Section 9.1,the Service Recipient shall be free to acquire such Services from an alternate source, at the Service Recipient’s sole cost and expense, and without liability to theService Provider or any relevant third party, for the period and to the extent reasonably necessitated by such non-performance and during the continuation of anyagreement entered into with the provider of such Service, and for that period that such Service is provided by an alternate source, the Service Provider or anyrelevant third party shall have no obligation to provide such Service to the Service Recipient. For the avoidance of doubt, the Service Recipient shall not beobligated to pay the Service Provider or any relevant third party for such Services during the period when the Service Provider or such third party is not providingsuch Services. Notwithstanding the foregoing, in no event shall any of the Service Recipients be relieved of their payment obligations to the relevant ServiceProvider for any Services delivered.
Section 9.2 Assignment. Except as otherwise provided in this Agreement, including under Section 1.1, neither this Agreement nor any of the rights,interests or obligations of any Party hereto under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the Partieswithout the prior written consent of the other Parties; provided, however, that each Party (a) may assign any of the foregoing to one or more of its Affiliates;provided that no assignment shall relieve the assigning Party of any of its obligations under this Agreement unless agreed to by the non-assigning Party and(b) may assign any of the foregoing to the surviving entity (if not the Party hereto) and/or the ultimate Parent following a Change of Control transaction;provided, that the party to whom this Agreement is assigned in connection with such Change of Control transaction shall agree in writing, reasonably satisfactoryto the other Parties, to be bound by the terms of this Agreement as if named as a “Party” hereto; provided, further, that no Service Provider or Service Recipientwill be obligated
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to materially change the nature, scope or volume of the Services it provides or receives, respectively, under any Services Agreement, as a result of any suchdisposition by any Party (or any disposition by any of such Party’s Affiliates). Any assignment or other disposition in violation of the preceding sentence shall bevoid. Nothing in this Section 9.2 affects the ability of any of the Parties to terminate any of the Services in accordance with the provisions of this Agreement.
Section 9.3 Relationship of the Parties. Each of Remainco and New News Corporation acknowledges that they are separate entities, each of which hasentered into this Agreement for independent business reasons. The Service Provider shall be an independent contractor in connection with the performance ofServices hereunder for any and all purposes (including federal or state tax purposes), and the employees performing Services in connection herewith shall not bedeemed to be employees or agents of the Service Recipient and nothing contained herein shall be deemed to create a joint venture or partnership. None of theParties is an agent of the other and has any authority to bind any other Party, transact any business in any other Party’s name or on its behalf, or make anypromises or representations on behalf of any other Party unless provided for in the Exhibits or agreed to in writing.
Section 9.4 Governing Law and Submission to Jurisdiction. This Agreement and any dispute arising out of, in connection with or relating to thisAgreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without giving effect to the conflicts of laws principlesthereof.
Section 9.5 Entire Agreement. This Agreement and the Exhibits referred to in this Agreement, as such Exhibits may be amended from time to time inaccordance with Section 9.13, and the Separation Agreement constitute the entire agreement among the Parties hereto relating to the Services and obligations tobe provided by the Parties, and there are no further agreements or understandings, written or oral, among the Parties with respect thereto.
Section 9.6 Notices. All notices, requests, claims, demands and other communications hereunder must be in writing and will be deemed to have been dulygiven only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the Parties at the following addresses or facsimilenumbers:
If to Remainco or any member of the Remainco Group, to:
News Corporation[Contact Information]
If to New News Corporation or any member of the New News Corporation Group, to:
New News Corporation[Contact Information]
All such notices, requests and other communications will (i) if delivered personally to the address as provided in this section, be deemed given upon delivery,(ii) if delivered by facsimile transmission to the facsimile number as provided in this section, be deemed given upon receipt
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and (iii) if delivered by mail in the manner described above to the address as provided in this section, be deemed given upon receipt (in each case regardless ofwhether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to bedelivered pursuant to this section). Any Party from time to time may change its address, facsimile number or other information for the purpose of notices to thatParty by giving notice specifying such change to the other Party.
Section 9.7 Negotiation and Dispute Resolution. Any disputes among the Parties hereto arising under this Agreement shall be resolved pursuant to thedispute resolution procedures contained Article IX of the Separation Agreement as if such provision applied to the Parties hereto. In the event of any such dispute,the Service Recipient shall continue to pay for the Services, in accordance with Section 1.8, and the Service Provider shall continue to provide the Services inaccordance with the terms and conditions of this Agreement (subject to applicable third party contract terms and conditions), pending resolution of such dispute.The obligations of the Parties pursuant to this Section 9.7 shall survive any termination of this Agreement or the Separation Agreement.
Section 9.8 Conflicting Provisions. In the event any provision of the Exhibits or the Separation Agreement conflicts or is inconsistent with the provisions ofthis Agreement, the provisions of this Agreement shall be controlling unless and to the extent such Exhibit specifically provides to the contrary.
Section 9.9 Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in anyrespect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. TheParties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of whichcomes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 9.10 Interpretation.
(a) When a reference is made in this Agreement to an Article, Section or Exhibit, such reference shall be to an Article or Section of, or an Exhibit to,this Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to befollowed by the words “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall referto this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings whenused in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement areapplicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Anyagreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument orstatute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case ofstatutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein.
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(b) The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to anypresumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
Section 9.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.
Section 9.12 Further Cooperation. Each Party agrees to cooperate with the other, at any other Party’s reasonable request, to execute any and all documentsor instruments, or to obtain any consents, in order to assign, transfer, perfect, record, maintain, enforce or otherwise carry out the intent of the terms of thisAgreement.
Section 9.13 Amendment and Waiver. This Agreement and the Services Agreements may not be amended or modified except by a writing signed by anauthorized signatory of each Party; provided, that the Exhibit to any Services Agreement and the Services and related terms described therein may be amended ormodified by a writing signed by an authorized signatory of each Party to such Services Agreement. No waiver by any Party or any breach or default hereunder orunder any Services Agreement shall be deemed to be a waiver of any preceding or subsequent breach or default.
Section 9.14 Duly Authorized Signatories. Each Party represents and warrants that its signatory whose signature appears below has been and is on the dateof this Agreement duly authorized by all necessary corporate or other appropriate action to execute this Agreement.
Section 9.15 Waiver of Trial By Jury. EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLELAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THEPARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOINGWAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONSCONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS INTHIS SECTION 9.15.
Section 9.16 Title and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a partof or to affect the meaning or interpretation of this Agreement.
Section 9.17 No Third Party Beneficiaries. This Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties anyremedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
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Section 9.18 Successors and Assigns. Subject to Section 9.2, the provisions of this Agreement and the obligations and rights hereunder shall be bindingupon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.
Section 9.19 Certain Definitions. For purposes of this Agreement:
(a) “404 Audit” has the meaning set forth in Section 7.1.
(b) “Action” means any claim, action, cause of action, dispute, suit, proceeding or investigation, whether civil, criminal, administrative, investigativeor other.
(c) “Additional Services” has the meaning set forth in Section 1.2.
(d) “Affiliate” means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls,is controlled by or is under common control with, such specified Person; provided, however, that for purposes of this Agreement, no member of either Groupshall be deemed to be an Affiliate of any member of the other Group, including by reason of having one or more directors or officers in common. As used herein,“control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether throughownership of voting securities or other interests, by contract or otherwise.
(e) “Agreement” has the meaning set forth in the preamble to this Agreement.
(f) “Business Day” or “business day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which bankinginstitutions in New York City are authorized or obligated by law or executive order to close.
(g) “Change of Control” shall mean, with respect to any Party, the occurrence of any of the following: (A) acquisition of a majority of the votingpower of such Party, directly or indirectly, in a single transaction or series of related transactions, by a person that was not an Affiliate of such Party prior to thedate of this Agreement; (B) the merger or consolidation of such Party into or with another entity that was not an Affiliate of such Party prior to the date of thisAgreement, with the effect that one or more persons acting in concert together, other than the equityholders of such Party prior to such merger or consolidation,will upon consummation of such merger or consolidation hold a majority of the total voting power of such Party; (C) the merger or consolidation of such Partyinto or with another entity that was not an Affiliate of such Party prior to the date of this Agreement, or other similar transaction, with the effect that theequityholders of such Party prior to such merger, consolidation or similar transaction, will upon consummation of such merger, consolidation or similartransaction, own, directly or indirectly, capital stock that represents less than 50% of the equity value of the surviving entity; or (D) the acquisition of all orsubstantially all of the assets of such Party, or a division or business of such Party, by another entity that was not an Affiliate of such Party prior to the date of thisAgreement.
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(h) “Code” means the Internal Revenue Code of 1986, as amended.
(i) “Confidential Information” means any information disclosed by a Party to any other Party whether obtained before or after the execution of thisAgreement relating to the business, finances, technology or operations of the providing Party relating to this Agreement or the provision or receipt of Serviceshereunder or under any Exhibit. Such information may include financial, technical, legal, marketing, network, and/or other business information, reports, records,or data (including, but not limited to, computer programs, code, systems, applications, analyses, passwords, procedures, output, information regarding Software,sales data, vendor lists, customer lists, and employee- or customer-related information, personally identifiable information, business strategies, advertising andpromotional plans, creative concepts, specifications, designs, and/or other material).
(j) “Contract” means any agreement, contract, obligation, indenture, instrument, lease, promise, arrangement, commitment or undertaking (whetherwritten or oral and whether express or implied).
(k) “Defaulting Party” has the meaning set forth in Section 8.1(a)(i).
(l) “Effective Date” has the meaning set forth in the preamble.
(m) “Exhibit” has the meaning set forth in Section 1.1(a).
(n) “Group” means the Remainco Group and/or the New News Corporation Group, as the context requires.
(o) “Intellectual Property” means all intellectual property and other similar proprietary rights of every kind and description throughout the world,whether registered or unregistered, including such rights in and to U.S. and foreign: (i) trademarks, trade dress, service marks, certification marks, logos, slogans,design rights, trade names and other similar designations of source or origin, together with the goodwill symbolized by any of the foregoing; (ii) patents andpatent applications, and any and all divisionals, continuations, continuations-in-part, reissues, reexaminations, and extensions thereof, any counterparts claimingpriority therefrom, utility models, certificates of invention, certificates of registration, design registrations or patents and similar rights; (iii) rights in inventions,invention disclosures, discoveries and improvements, whether or not patentable; (iv) Copyrights; (v) trade secrets (including, those trade secrets defined in theUniform Trade Secrets Act and under corresponding foreign statutory Law and common law), proprietary rights in Information, and rights to limit the use ordisclosure of any of the foregoing by any Person; (vi) rights in computer programs (whether in source code, object code, or other form), algorithms, databases,application programming interfaces, compilations and data, technology supporting the foregoing, and all documentation and specifications related to any of theforegoing (collectively, “Software”); (vii) domain names, uniform resource locators, and usernames, account names and identifiers (whether textual, graphic,pictorial or otherwise), and sub-domain names and personal URL’s
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used or acquired in connection with a third-party website; (viii) moral rights and rights of attribution and integrity; (ix) rights of publicity, privacy, and rights topersonal information; (x) all rights in the foregoing and in other similar intangible assets; (xi) all applications and registrations for the foregoing; and (xii) allrights and remedies against past, present, and future infringement, misappropriation, or other violation thereof.
(p) “Interest Rate” has the meaning set forth in Section 1.8(a).
(q) “Losses” means any and all damages, losses, deficiencies, liabilities, obligations, penalties, judgments, settlements, claims, payments, fines,interest, costs and expenses (including, without limitation, the costs and expenses of any and all Actions and demands, assessments, judgments, settlements andcompromises relating thereto and the reasonable costs and expenses of attorneys’, accountants’, consultants’ and other professionals’ fees and expenses incurredin the investigation or defense thereof or the enforcement of rights thereunder).
(r) “Mixed Contract” has the meaning set forth in the Separation Agreement.
(s) “New News Corporation Group” has the meaning set forth in the Separation Agreement.
(t) “Non-Defaulting Party” has the meaning set forth in Section 8.1(a).
(u) “Party” or “Parties” has the meaning set forth in the preamble.
(v) “Prime Rate” means the rate per annum publicly announced by JPMorgan Chase Bank (or any successor thereto) from time to time as its primerate in effect at its principal office in New York City. For purposes of this Agreement, any change in the Prime Rate shall be effective on the date such change inthe Prime Rate is publicly announced as effective.
(w) “Privilege” means any privilege, including privileges arising under or related to the attorney-client or attorney work product privileges.
(x) “Related Parties” means, with respect to a Party, its officers, directors and employees and any of its Affiliates or Subsidiaries, and their officers,directors or employees, as well as any agents and subcontractors of a Party or of any of the foregoing.
(y) “Remainco Group” has the meaning set forth in the Separation Agreement.
(z) “Separated Business” has the meaning set forth in the Separation Agreement.
(aa) “Separation” has the meaning set forth in the preamble.
(bb) “Separation Agreement” has the meaning set forth in the preamble.
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(cc) “Service Provider” means a Party providing the Services, as set forth in the relevant Exhibits.
(dd) “Service Provider Indemnitees” has the meaning set forth in Section 6.6.
(ee) “Service Provider Systems” has the meaning set forth in Section 5.2(a).
(ff) “Service Recipient” means a Party receiving the Services, as set forth in the relevant Exhibits.
(gg) “Service Recipient Indemnitees” has the meaning set forth in Section 6.7.
(hh) “Service Recipient Payables” has the meaning set forth in Section 1.7.
(ii) “Service Taxes” has the meaning set forth in Section 3.1.
(jj) “Services” has the meaning set forth in Section 1.1(a).
(kk) “Services Agreement” has the meaning set forth in Section 1.1(a).
(ll) “Software” has the meaning set forth in the definition of Intellectual Property.
(mm) “Subsidiary” means, with respect to any Person, any other Person of which a Person (either alone or through or together with any otherSubsidiary of such Person) owns, directly or indirectly, a majority of the stock or other equity interests the holders of which are generally entitled to vote for theelection of the board of directors or other governing body of such corporation or other legal entity.
(nn) “Taxes” means any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll,premium, withholding, alternative or added minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other likeassessment or charge or any kind whatsoever, together with any interest or penalty or addition thereto, whether disputed or not, imposed by any governmentalentity.
(oo) “Tax Return” means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules),including any information return, claim for refund, amended return or declaration of estimated Tax.
(pp) “Term” has the meaning set forth in Section 1.3.
(qq) “Third Party Provider” has the meaning set forth in Section 1.4.
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(rr) “Transition Costs” means the reasonable costs incurred by Service Provider in transitioning the performance of Services to Service Recipient inaccordance with this Agreement and any other costs, expenses, labor and materials that are proposed and reasonably incurred by Service Provider in windingdown the provision of such Service.
(ss) “Unrecovered Costs” means any reasonable costs and charges incurred by the Service Provider primarily relating to the termination of Service asof the termination date of this Agreement, any Services Agreement or of such individual Service, as applicable.
Other capitalized terms have the meaning set forth elsewhere in this Agreement. Any capitalized terms used but not defined in this Agreement have the meaninggiven to them in the Separation Agreement.
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf on the day and year first above written.
NEWS CORPORATION
By: Name: Title:
NEW NEWSCORP LLC
By: Name: Title:
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Exhibit 2.4
FORM OF EMPLOYEE MATTERS AGREEMENT
Between
NEWS CORPORATION
and
NEW NEWS CORPORATION
Dated as of , 2013
TABLE OF CONTENTS Page
ARTICLE I DEFINITIONS 2 Section 1.01 General 2
ARTICLE II GENERAL PRINCIPLES 7 Section 2.01 No Changes to Benefits Provided by Certain Entities as a Result of the Separation 7 Section 2.02 General Principles for Allocation of Liabilities 7 Section 2.03 Service Credit for Eligibility and Vesting Purposes 7 Section 2.04 Transition Services 8 Section 2.05 Participant Elections and Beneficiary Designations 8 Section 2.06 No Duplication or Acceleration of Benefits 8 Section 2.07 No Expansion of Participation 8
ARTICLE III EMPLOYEES 9 Section 3.01 Employees 9 Section 3.02 Employee Records 10 Section 3.03 Restrictive Covenants 11
ARTICLE IV HEALTH AND WELFARE BENEFITS 12 Section 4.01 Remainco 12 Section 4.02 New News Corporation 12 Section 4.03 Benefit Elections and Designations 12 Section 4.04 Deductibles and Other Cost-Sharing Provisions 12 Section 4.05 Flexible Spending Accounts 12 Section 4.06 Health Savings Accounts 13 Section 4.07 Workers Compensation 13 Section 4.08 Vacation and Sick Leave 13 Section 4.09 Group Term Life/Short-Term Disability/Long-Term Disability/ AD&D/ Business Travel/Long Term Care Insurance 13 Section 4.10 Expense Reimbursement Arrangements 13 Section 4.11 COBRA and HIPAA 13 Section 4.12 Insurance Contracts 14 Section 4.13 Third Party Vendors 14
ARTICLE V QUALIFIED DEFINED CONTRIBUTION PLANS 15 Section 5.01 Remainco 15 Section 5.02 New News Corporation 15 Section 5.03 Contributions 16
ARTICLE VI QUALIFIED DEFINED BENEFIT PLANS 17 Section 6.01 Remainco 17 Section 6.02 New News Corporation 17
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ARTICLE VII NONQUALIFIED DEFERRED COMPENSATION PLANS 20 Section 7.01 Remainco 20 Section 7.02 New News Corporation 20
ARTICLE VIII EQUITY PLANS 22 Section 8.01 General 22 Section 8.02 News Corporation 2005 Long Term Incentive Plan 22 Section 8.03 News Corporation 2004 Stock Option Plan 23 Section 8.04 News Corporation 2004 Replacement Stock Option Plan 24 Section 8.05 New News Corporation 24 Section 8.06 2001 Dow Jones LTIP 25 Section 8.07 2004 Market Watch Stock Incentive Plan 25 Section 8.08 Tax Reporting and Withholding 26 Section 8.09 Registration 26
ARTICLE IX GENERAL PROVISIONS 27 Section 9.01 Effectiveness 27 Section 9.02 Termination 27 Section 9.03 Subsidiaries 27 Section 9.04 Complete Agreement; Representations 27 Section 9.05 Governing Law 27 Section 9.06 Notices 27 Section 9.07 Amendment, Modification or Waiver 28 Section 9.08 No Assignment; Binding Effect; No Third-Party Beneficiaries 28 Section 9.09 Counterparts 29 Section 9.10 Dispute Resolution 29 Section 9.11 Specific Performance 29 Section 9.12 Interpretation; Conflict With SDA 29 Section 9.13 Severability 30 Section 9.14 Coordination with Separation Agreement 30
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EMPLOYEE MATTERS AGREEMENT
This EMPLOYEE MATTERS AGREEMENT (this “Agreement”), dated as of [·], 2013, is entered into by and between News Corporation, a Delawarecorporation (“Remainco”), and New Newscorp LLC, a Delaware limited liability company and a wholly owned subsidiary of Remainco (“New NewsCorporation” and, together with Remainco, each a “Party” and collectively the “Parties”).
RECITALS
WHEREAS, the Board of Directors of Remainco has determined that it is in the best interests of Remainco and its stockholders to separate the SeparatedBusiness (as defined in the Separation and Distribution Agreement by and between the Parties and News International Holdings, a U.K. unlimited company (the“SDA”)) and the Remainco Business (as defined in the SDA) into two independent publicly traded companies (the “Separation”), on the terms of the SDA andthe Ancillary Agreements (as defined in the SDA) and subject to the conditions set forth in the SDA, in order to, among other things, (i) allow each company tofocus on and pursue distinct strategic priorities and industry-specific opportunities that would maximize each company’s long-term potential; (ii) allow eachcompany to benefit from greater financial and operational flexibility and better positioning the companies to compete; (iii) allow the companies to each respondand react more quickly to rapidly-evolving technology and global market opportunities; (iv) provide investors in each company with a more targeted investmentopportunity, each with different inherent values, including different financial and operational structures; and (v) allow the companies to tailor their capitalstructures, allocate and deploy resources and implement compensation plans in a manner consistent with strategic objectives that best enhance value for theirrespective stockholder groups;
WHEREAS, to further effect the Separation, New News Corporation intends to obtain and retain ownership and possession of all Separated Assets (asdefined in the SDA) and Remainco intends to retain ownership and possession of all Remainco Assets (as defined in the SDA); and
WHEREAS, it is necessary to set out the assignment of certain benefit plans and arrangements to either the Remainco Group or the New News CorporationGroup.
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NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements set forth herein and for other goodand valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree asfollows:
ARTICLE IDEFINITIONS
Section 1.01 General. As used in this Agreement, capitalized terms shall have the following meanings:
“Affiliate” shall have the meaning set forth in the SDA.
“Agreement” shall have the meaning set forth in the preamble hereto.
“Ancillary Agreements” shall have the meaning set forth in the SDA.
“Asset” shall have the meaning set forth in the SDA.
“Award” shall mean any equity award or equity-based award over (i) shares of Remainco Common Stock or CDIs exchangeable for shares of RemaincoCommon Stock or (ii), as applicable based on the context, shares of New News Corporation Common Stock or CDIs exchangeable for shares of New NewsCorporation Common Stock.
“Benefit Plan” or “Benefit Plans” shall mean individually or collectively, as applicable, the Remainco Welfare Plans, the NAI DB Plan, the NAI DC Plan,the 2005 LTIP, the 2004 Stock Option Plan and the 2004 Replacement Stock Option Plan.
“CDIs” shall mean CHESS Depositary Interests.
“Claims Incurred” shall mean, except with respect to Workers’ Compensation Claims Incurred, those claims that are deemed incurred pursuant to thefollowing: (a) with respect to medical (including continuous hospitalization), dental, vision and/or prescription drug benefits, upon the rendering of healthservices giving rise to such claim or expense; (b) with respect to life, accidental death and dismemberment and business travel insurance, upon the occurrence ofthe event giving rise to such claim or expense; (c) with respect to long-term disability and long term care benefits, upon the date of an individual’s disability, asdetermined by the disability benefit insurance carrier or claim administrator, giving rise to such claim or expense; and (d) with respect to any other claim, uponthe date of the event giving rise to such claim.
“COBRA” shall mean the extension of medical coverage that must be offered in accordance with the Consolidated Omnibus Budget Reconciliation Act of1985.
“Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.
“DB Plan Covered Participants” shall have the meaning set forth in Section 6.02(a)(ii).
“DB Transferred Assets” shall have the meaning set forth in Section 6.02(c)(i).
“DB Transferred Liabilities” shall have the meaning set forth in Section 6.02(c)(i).
“DC Plan Covered Participants” shall have the meaning set forth in Section 5.02(a)(ii).
“Dispute” shall have the meaning set forth in Section 9.10.
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“Distribution” shall have the meaning set forth in the SDA.
“Distribution Date” shall have the meaning set forth in the SDA.
“Employee” shall mean a common law employee.
“Employee Matters” shall mean all of the employment, benefits and compensation matters that are addressed in this Employee Matters Agreement.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
“FMLA” shall mean the Family and Medical Leave Act of 1993.
“Group” shall mean the Remainco Group and/or the New News Corporation Group, as the context requires.
“HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as amended.
“Indemnified Party” shall have the meaning set forth in the SDA.
“Indemnifying Party” shall have the meaning set forth in the SDA.
“Information” shall have the meaning set forth in the SDA.
“Internal Reorganization” shall have the meaning set forth in the SDA.
“IRS” shall mean the United States Internal Revenue Service.
“Law” shall have the meaning set forth in the SDA.
“Liabilities” shall have the meaning set forth in the SDA.
“Loss” shall have the meaning set forth in the SDA.
“NAI DC Plan” shall have the meaning set forth in Section 5.01.
“NAI DB Plan” shall have the meaning set forth in Section 6.01.
“NAI SERP” shall have the meaning set forth in Section 7.01.
“NCTI” shall mean NC Transaction, Inc., which (a) prior to the Internal Reorganization, will be a subsidiary of Remainco and (b) after the InternalReorganization, will be a Subsidiary of New News Corporation.
“NCTI Benefit Plan” or “NCTI Benefit Plans” shall have the meaning set forth in Section 2.03.
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“NCTI DB Plan” shall have the meaning set forth in Section 6.02(a)(i).
“NCTI DB Trust” shall have the meaning set forth in Section 6.02(b).
“NCTI DC Plans” shall have the meaning set forth in Section 5.02(a)(i).
“NCTI DC Trusts” shall have the meaning set forth in Section 5.02(b).
“NCTI Employee” shall mean an individual who, as of the close of business on the Distribution Date, is an Employee of NCTI (including, withoutlimitation, any such individual who is on vacation or other approved leave of absence, including leave under FMLA or corresponding state Law, disability,military leave and other approved leave).
“NCTI SERP” shall have the meaning set forth in Section 7.02(a)(i).
“NCTI Welfare Plans” shall have the meaning set forth in Section 4.02(a).
“New LTIP” shall have the meaning set forth in Section 8.05(a).
“New LTIP Award” shall have the meaning set forth in Section 8.05(b)(i).
“New News Corporation” shall have the meaning set forth in the preamble hereto.
“New News Corporation Common Stock” shall mean Class A common stock, par value $0.01 per share, of New News Corporation.
“New News Corporation Conversion Formula” shall have the meaning set forth in Section 8.05(d).
“New News Corporation Group” shall mean New News Corporation and each of its Subsidiaries and Affiliates after giving effect to the InternalReorganization, including the entities listed in the applicable Schedule to the SDA, and any corporation or entity that may become part of such Group from timeto time, other than any member of the Remainco Group.
“New News Corporation Group Employee” shall mean an individual who is an Employee of a member of the New News Corporation Group (including,without limitation, any such individual who is on vacation or other approved leave of absence, including leave under FMLA or corresponding state Law,disability, military leave and other approved leave).
“Original Expiration Date” shall mean the expiration date provided in the applicable Award grant prior to the application of any acceleration eventapplicable to such Award.
“Parties” shall have the meaning set forth in the preamble hereto.
“Person” shall have the meaning set forth in the SDA.
“Remainco” shall have the meaning set forth in the preamble hereto.
“Remainco Assets” shall have the meaning set forth in the SDA.
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“Remainco Business” shall have the meaning set forth in the SDA.
“Remainco Common Stock” shall mean Class A common stock, par value $0.01 per share, of Remainco.
“Remainco Conversion Formula” shall have the meaning set forth in Section 8.02(a).
“Remainco Group” shall mean (a) prior to the Distribution, Remainco and each of its direct and indirect Subsidiaries and Affiliates before the Distributionand (b) after the Distribution, Remainco and each of its direct and indirect Subsidiaries and Affiliates immediately after the Distribution, and any corporation orentity that is or may become part of such Group from time to time after the Distribution, other than the New News Corporation Group.
“Remainco Group Employee” shall mean an individual who is an Employee of a member of the Remainco Group (including, without limitation, any suchindividual who is on vacation or other approved leave of absence, including leave under FMLA or corresponding state Law, disability, military leave and otherapproved leave).
“Remainco Welfare Plans” shall have the meaning set forth in Section 4.01.
“SDA” shall have the meaning set forth in the Recitals hereto.
“SEC” shall have the meaning set forth in the SDA.
“Separated Assets” shall have the meaning set forth in the SDA.
“Separated Business” shall have the meaning set forth in the SDA.
“Separation” shall have the meaning set forth in the Recitals hereto.
“SERP Covered Participants” shall have the meaning set forth in Section 7.02(a)(ii).
“SERP Plan” shall mean the NAI SERP or the NCTI SERP, as the context requires, and “SERP Plans” shall mean both the NAI SERP and the NCTISERP.
“SERP Transition Employee” shall have the meaning set forth in Section 7.02(b).
“Subsidiary” shall have the meaning set forth in the SDA.
“Transition Employee” shall have the meaning set forth in Section 6.02(c)(ii).
“Transition Services Agreement” shall have the meaning set forth in the SDA.
“2005 LTIP” shall have the meaning set forth in Section 8.02(a).
“2005 LTIP Award” shall have the meaning set forth in Section 8.02(b)(i).
“2004 Market Watch SIP” shall have the meaning set forth in Section 8.07(a).
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“2004 Market Watch SIP Award” shall have the meaning set forth in Section 8.07(b).
“2004 Replacement Stock Option Plan” shall have the meaning set forth in Section 8.04(a).
“2004 Replacement Stock Option Plan Award” shall have the meaning set forth in Section 8.04(b).
“2004 Stock Option Plan” shall have the meaning set forth in Section 8.03(a).
“2004 Stock Option Plan Award” shall have the meaning set forth in Section 8.03(b).
“2001 Dow Jones LTIP” shall have the meaning set forth in Section 8.06(a).
“2001 Dow Jones LTIP Award” shall have the meaning set forth in Section 8.06(b).
“Welfare Plan” shall mean a plan described in ERISA Section 3(1), maintained in the United States.
“Welfare Plan Covered Participants” shall have the meaning set forth in Section 4.02(b).
“Workers’ Compensation Claims Incurred” shall mean those claims that are deemed incurred upon an employee’s injury or disability in the course ofcarrying out such employee’s employment responsibilities and for which the employee is entitled by law to payments for medical expenses and lost wages.
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ARTICLE IIGENERAL PRINCIPLES
Section 2.01 No Changes to Benefits Provided by Certain Entities as a Result of the Separation. This Agreement addresses the employee benefit plans,programs and policies of the Remainco Group and the New News Corporation Group that will be impacted by the Separation. Any employee benefit plans,programs and policies of the Remainco Group and the New News Corporation Group not specifically addressed in this Agreement will not be impacted by theSeparation.
Section 2.02 General Principles for Allocation of Liabilities.
(a) Except as otherwise provided in this Agreement, effective as of the Distribution Date, the New News Corporation Group shall be solely Liable and nomember of the Remainco Group shall have any Liability or obligations whatsoever with respect to Claims Incurred on or after the Distribution Date by any NewNews Corporation Group Employee in connection with any such individual’s employment or any employee benefit plan, program, policy or compensationarrangement.
(b) Except as otherwise provided in this Agreement, effective as of the Distribution Date, the Remainco Group shall be solely Liable and no member of theNew News Corporation Group shall have any Liability or obligations whatsoever with respect to Claims Incurred on or after the Distribution Date by or withrespect to any Remainco Group Employee in connection with any such individual’s employment or any employee benefit plan, program, policy or compensationarrangement.
Section 2.03 Service Credit for Eligibility and Vesting Purposes. Except as otherwise provided in any other provision of this Agreement, the NCTI WelfarePlans, the NCTI DC Plans, the NCTI DB Plan and the NCTI SERP (each individually a “NCTI Benefit Plan” and together, the “NCTI Benefit Plans”) and theNew LTIP shall, and New News Corporation shall, recognize each NCTI Employee’s service with any member of the Remainco Group prior to the DistributionDate and during the twelve-month period following the Distribution Date for purposes of eligibility and vesting under any NCTI Benefit Plan or the New LTIP, tothe same extent such service would be credited if it had been performed for a member of the New News Corporation Group. Except as otherwise provided in anyother provision of this Agreement, the Benefit Plans shall, and Remainco shall, recognize each Remainco Group Employee’s service with any member of the NewNews Corporation Group during the twelve-month period following the Distribution Date for purposes of eligibility and vesting under any Benefit Plan, to thesame extent such service would be credited if it had been performed for the Remainco Group.
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Section 2.04 Transition Services. The Parties acknowledge that the Remainco Group or the New News Corporation Group may provide administrativeservices for certain of the other Party’s benefit programs for a transitional period under the terms of the Transition Services Agreement. The Parties agree to enterinto a business associate agreement (if required by HIPAA or other applicable health information privacy Laws) in connection with such Transition ServicesAgreement.
Section 2.05 Participant Elections and Beneficiary Designations. To the extent allowed by applicable Law and not otherwise addressed by this Agreement,effective as of the Distribution Date, the New News Corporation Group shall recognize and maintain all elections and designations (including, without limitation,deferral, investment and payment form elections, coverage options and levels, beneficiary designations and the rights of alternate payees under qualified domesticrelations orders) in effect under any Benefit Plan or other arrangement sponsored by a member of the Remainco Group prior to the Distribution Date with respectto the New News Corporation Group Employees who are participants in the NCTI Benefit Plans on the Distribution Date.
Section 2.06 No Duplication or Acceleration of Benefits. Notwithstanding anything to the contrary in this Agreement or the SDA, no participant in theNCTI Benefit Plans or the New LTIP or any other benefit plans or arrangements of a member of the New News Corporation Group shall receive benefits thatduplicate benefits provided to such individual by a corresponding benefit plan or arrangement of the Remainco Group and no participant in the Benefit Plans orany other benefit plans or arrangements of a member of the Remainco Group shall receive benefits that duplicate benefits provided to such individual by acorresponding benefit plan or arrangement of the New News Corporation Group. Furthermore, unless expressly provided for in this Agreement or the SDA orrequired by applicable Law, no provision in this Agreement shall be construed to create any right to accelerate vesting or entitlements to any compensation orbenefit plan on the part of any Employee of the Remainco Group or the New News Corporation Group.
Section 2.07 No Expansion of Participation. Unless otherwise expressly provided in this Agreement, as otherwise determined or agreed to by the Parties, asrequired by applicable Law, or as explicitly set forth in an NCTI Benefit Plan, on the Distribution Date, an NCTI Employee shall be entitled to participate in theNCTI Benefit Plans only to the extent that such Employee was entitled to participate in the corresponding Benefit Plan as in effect on the date immediately priorto the Distribution Date, with it being the intent of the Parties that this Agreement does not result in any expansion of the participation rights therein that they hadprior to the Distribution Date.
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ARTICLE IIIEMPLOYEES
Section 3.01 Employees.
(a) New News Corporation Group Employees. Except as otherwise provided in this Agreement or with respect to any individual who is simultaneouslyemployed by both Parties (or members of their Groups, as applicable) on and after the Distribution Date, effective as of the Distribution Date, one or moremembers of the New News Corporation Group shall be responsible for, and no member of the Remainco Group shall have any further Liability with respect to,any and all wages, salaries, incentive compensation, commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any NewNews Corporation Group Employees on or after the Distribution Date, without regard to when such wages, salaries, incentive compensation, commissions,bonuses or other employee compensation or benefits are or may have been earned.
(b) Remainco Group Employees. Except as otherwise provided in this Agreement or with respect to any individual that is simultaneously employed by bothParties (or members of their Groups, as applicable) on and after the Distribution Date, effective as of the Distribution Date, one or more members of theRemainco Group shall be responsible for, and no member of the New News Corporation Group shall have any Liability with respect to, any and all wages,salaries, incentive compensation, commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any Remainco GroupEmployees on or after the Distribution Date, without regard to when such wages, salaries, incentive compensation, commissions, bonuses or other employeecompensation or benefits are or may have been earned.
(c) Transferred Employees. The Parties acknowledge that during the twelve-month period following the Distribution Date, the employment of certainEmployees may be transferred between the Parties (or members of their Groups, as applicable) as agreed to between the Parties. It is further agreed that withrespect to any such transferred Employee, to the extent permitted by Law and the terms of the applicable benefit plans and arrangements and except with respectto Article VIII, the Parties will reasonably cooperate to apply the terms of this Agreement to such Employee and his or her employer at the time of such transferas if such employment were being transferred to the New News Corporation Group in connection with the Distribution Date, regardless of whether such transferis to the Remainco Group or the New News Corporation Group.
(d) At-Will Status. Nothing in this Agreement shall create any obligation on the part of any member of the Remainco Group or the New News CorporationGroup to (i) continue the employment of any Employee following the date of this Agreement or the Distribution Date (except as required by applicable Law) or(ii) change the employment status of any Employee from “at will,” to the extent such Employee is an “at will” employee under applicable Law.
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(e) Employees on Leave.
(i) Effective as of the Distribution Date, the Remainco Group shall retain and be responsible for all Liabilities (including Liabilities for salarycontinuation and benefits under the Remainco Welfare Plans) with respect to any Remainco Group Employee who, on the Distribution Date, is on vacation orother approved leave of absence (including leave under FMLA or corresponding state Law, disability, military leave and other approved leave) and is not a NewNews Group Employee on the Distribution Date.
(ii) Except as otherwise provided in this Agreement or pursuant to the terms of an applicable Welfare Plan, effective as of the Distribution Date, theNew News Group shall be responsible for all Liabilities (including Liabilities for salary continuation and benefits under the Welfare Plans) with respect to anyEmployee who, on the Distribution Date, is on vacation or other approved leave of absence (including leave under FMLA or corresponding state Law, disability,military leave and other approved leave) and is a New News Group Employee on the Distribution Date.
(f) Not a Severance of Employment/Separation from Service. The Parties acknowledge and agree that the consummation of the Separation and the transferor continuation of the employment of Employees with the Remainco Group or the New News Corporation Group as contemplated by this Agreement (including,without limitation, Section 3.01(c)) shall not be deemed a severance of employment or separation from service of any such Employee for purposes of thisAgreement, any Benefit Plan, any NCTI Benefit Plan, the New LTIP, Code Section 409A or any other purpose.
(g) Not a Change of Control/Change in Control. The Parties acknowledge and agree that neither the consummation of the Separation nor any transaction inconnection with the Separation shall be deemed a “change of control,” “change in control,” or term of similar import for purposes of any Benefit Plan, any NCTIBenefit Plan or the New LTIP.
Section 3.02 Employee Records.
(a) Sharing of Information. Subject to any limitations imposed by applicable Law, the SDA, or any agreement to which either Party or member of its Groupis a party, each Party and members of its Group shall provide to the other Party and members of its Group and its or their respective agents and vendors allInformation necessary for each Party to perform their respective duties under this Agreement. The Parties also hereby agree to enter into any business associatearrangements that may be required for the sharing of any Information pursuant to this Agreement to comply with the requirements of HIPAA.
(b) Access to Records. To the extent not inconsistent with any applicable Law or agreement to which either Party or member of its Group is a party,reasonable access to Employee-related records on and after the Distribution Date will be provided by each Party to the other Party and the members of its Grouppursuant to the terms and conditions of Article VI of the SDA.
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(c) Record Retention. All records and data relating to Employees shall, in each case, be subject to the record retention provisions of the SDA and any otherapplicable agreement and applicable Law.
(d) Confidentiality. All records and data relating to Employees shall, in each case, be subject to the confidentiality provisions of the SDA and any otherapplicable agreement and applicable Law.
(e) Cooperation. Each Party agrees to cooperate as long as is reasonably necessary to further the purposes of this Agreement. Except as expressly providedin the SDA or the Transition Services Agreement, no Party shall charge another Party a fee for such cooperation.
Section 3.03 Restrictive Covenants. To the fullest extent permitted by the agreements described in this Section 3.03 and applicable Law, at New NewsCorporation’s written request, Remainco shall assign to the New News Corporation Group, or cause an applicable member of the Remainco Group to assign tothe New News Corporation Group, all agreements containing restrictive covenants (including confidentiality, non-competition and non-solicitation provisions)that are in effect on the Distribution Date between Remainco or any member of the Remainco Group and a Remainco Group Employee who terminatedemployment with the Remainco Group before the Distribution Date, that pertain to the business operations of the New News Corporation Group; provided, that, ifsuch assignment is not permitted by any such agreement, then at New News Corporation’s written request, Remainco or a member of the Remainco Group shalltake reasonable actions at New News Corporation’s expense to seek permission to assign such agreement to New News Corporation Group.
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ARTICLE IVHEALTH AND WELFARE BENEFITS
Section 4.01 Remainco. As of the Distribution Date, Remainco, or a member of the Remainco Group, shall retain its Welfare Plans (the “RemaincoWelfare Plans”). Except as otherwise provided in this Agreement, on and after the Distribution Date, Remainco shall be responsible for all Claims Incurred byWelfare Plan Covered Participants before the Distribution Date and while participating in the Remainco Welfare Plans.
Section 4.02 New News Corporation.
(a) Effective as of the Distribution Date, NCTI or another member of the New News Corporation Group shall adopt new plans and arrangements which, onsuch date, will initially be substantially similar to those of the Remainco Welfare Plans (such plans, the “NCTI Welfare Plans”).
(b) The members of the New News Corporation Group that will participate in the NCTI Welfare Plans on the Distribution Date are NCTI, NYP Holdings,Inc. and News America Marketing and only those Employees employed in the United States by such entities on or after the Distribution Date shall be eligible toparticipate in the NCTI Welfare Plans (the “Welfare Plan Covered Participants”).
Section 4.03 Benefit Elections and Designations. Nothing in Section 2.05 will prohibit the New News Corporation Group from soliciting or causing thesolicitation of new election forms or beneficiary designations from Welfare Plan Covered Participants with respect to their participation in the NCTI WelfarePlans as of the Distribution Date.
Section 4.04 Deductibles and Other Cost-Sharing Provisions. Effective as of the Distribution Date, New News Corporation shall cause the NCTI WelfarePlans to recognize all amounts applied to deductibles, co-payments and out-of-pocket maximums with respect to Welfare Plan Covered Participants under theRemainco Welfare Plans during the plan year in which the Distribution Date occurs, and the NCTI Welfare Plans will not impose any limitations on coverage forpreexisting conditions other than such limitations as were applicable under the corresponding Remainco Welfare Plan prior to the Distribution Date.
Section 4.05 Flexible Spending Accounts. With respect to the portion of an NCTI Welfare Plan that consists of medical and/or dependent care flexiblespending accounts, Remainco shall be solely responsible with respect to all Claims Incurred under such accounts before the Distribution Date with respect tothose Welfare Plan Covered Participants who immediately prior to the Distribution Date were participating in, or entitled to benefits under, such accounts whilethey were under the Remainco Welfare Plans and who submit a valid request for reimbursement, whether the claim is submitted to the Remainco Group beforethe Distribution Date or to the New News Corporation Group on or after the Distribution Date; provided, however, that such accounts shall reflect reductions forthe amounts reimbursed for all submitted Claims Incurred for the calendar year in which the Distribution Date occurs, regardless of whether such amounts werereimbursed before, on or after the Distribution Date.
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Section 4.06 Health Savings Accounts. Effective as of the Distribution Date, the health savings accounts of the Welfare Plan Covered Participants shall betransferred from the Remainco Welfare Plans to the NCTI Welfare Plans pursuant to a trustee-to-trustee transfer and all activity under such accounts for thecalendar year in which the Distribution Date occurs shall be treated as activity under the NCTI Welfare Plans.
Section 4.07 Workers Compensation. On and after the Distribution Date, Remainco shall be solely responsible for all United States (including itsterritories) Workers’ Compensation Claims Incurred before the Distribution Date by New News Corporation Group Employees; provided, however, that, NewsAmerica Marketing shall be solely responsible with respect to all United States (including its territories) Workers’ Compensation Claims Incurred before theDistribution Date by its Employees.
Section 4.08 Vacation and Sick Leave. Effective no later than the Distribution Date, NCTI shall credit its Employees with all unused vacation and sick daysaccrued by NCTI Employees, in accordance with the policy of the Remainco Group applicable to such Employees before the Distribution Date.
Section 4.09 Group Term Life/Short-Term Disability/Long-Term Disability/ AD&D/ Business Travel/Long Term Care Insurance.
(a) Remainco. Effective as of the Distribution Date, Remainco, or a member of the Remainco Group, shall discontinue coverage of the Welfare PlanCovered Participants who are located in the United States under Remainco’s group term life, short-term disability, long-term disability, accidental death anddismemberment, business travel and long term care policies.
(b) New News Corporation. Effective as of the Distribution Date, NCTI, or another member of the New News Corporation Group, shall take all actionsnecessary and appropriate to establish, designate or administer group term life, long-term disability, short-term disability, accidental death and dismemberment,business travel and long term care policies under the NCTI Welfare Plans and to provide benefits thereunder for all eligible Welfare Plan Covered Participantswho were located in the United States and who were enrolled in such policies under the corresponding Remainco Welfare Plans immediately prior to theDistribution Date.
Section 4.10 Expense Reimbursement Arrangements. Remainco, or a member of the Remainco Group, shall be solely responsible under any reimbursementarrangements for business expenses incurred by eligible NCTI Employees who immediately prior to the Distribution Date were participating in, or entitled tobenefits under, such Remainco arrangements and who submit a valid request for reimbursement to Remainco or NCTI before, on or after the Distribution Date.To the extent such expenses are reimbursed by NCTI, Remainco shall reimburse NCTI.
Section 4.11 COBRA and HIPAA.
(a) Remainco shall be responsible for administering compliance with the health care continuation requirements of COBRA and the correspondingprovisions of the Remainco Welfare Plans with respect to each Welfare Plan Covered Participant and covered dependent who incurs a COBRA qualifying eventor loss of coverage under the Remainco Welfare Plans at any time before the Distribution Date.
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(b) Effective as of the Distribution Date, NCTI or another member of the New News Corporation Group shall be responsible for administering compliancewith the health care continuation requirements of COBRA, the certificate of creditable coverage requirements of HIPAA, and the corresponding provisions of theNCTI Welfare Plans with respect to Welfare Plan Covered Participants and their covered dependents who incur a COBRA qualifying event or loss of coverageunder the NCTI Welfare Plans at any time on or after the Distribution Date.
(c) Remainco and New News Corporation agree that the consummation of the transactions contemplated by the SDA shall not constitute a COBRAqualifying event for any purpose of COBRA.
Section 4.12 Insurance Contracts.
(a) Stop Loss Contract. It is the intention of the Parties that Remainco administer the stop loss coverage for both the Remainco Group and the New NewsCorporation Group up to and including December 31, 2013. The cost of such coverage will be allocated separately to each member of the Remainco Group andNew News Corporation Group on a per capita basis.
(b) Other Insurance Contracts. Except as otherwise provided herein, Remainco and New News Corporation have agreed to cooperate and use theircommercially reasonable efforts to replicate for the benefit of the New News Corporation Group any insurance contracts applicable to the Remainco WelfarePlans maintained in the United States and to maintain any pricing discounts or other preferential terms for both Remainco and New News Corporation for areasonable term. Neither Party shall be liable for failure to obtain such insurance contracts, pricing discounts, or other preferential terms for the other Party. EachParty shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 4.12(b).
Section 4.13 Third Party Vendors. Except as otherwise provided herein, to the extent any Remainco Welfare Plan maintained in the United States isadministered by a third-party vendor, Remainco and New News Corporation will cooperate and use their commercially reasonable efforts to replicate any contractwith such third-party vendor for the benefit of the New News Corporation Group and to maintain any pricing discounts or other preferential terms for bothRemainco and New News Corporation for a reasonable term. Neither Party shall be liable for failure to obtain such pricing discounts or other preferential termsfor the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to thisSection 4.13.
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ARTICLE VQUALIFIED DEFINED CONTRIBUTION PLANS
Section 5.01 Remainco. As of the Distribution Date, Remainco, or a member of the Remainco Group, shall retain, and remain the sponsor of, the NewsAmerica Consolidated Savings Plan (the “NAI DC Plan”).
Section 5.02 New News Corporation.
(a) Creation of Savings Plan.
(i) Effective June 28, 2013, NCTI or another member of the New News Corporation Group shall adopt a new plan or plans which, on such date, willinitially be substantially similar to the NAI DC Plan (such plans, the “NCTI DC Plans”).
(ii) The members of the New News Corporation Group that will participate in the NCTI DC Plans on June 28, 2013 are NCTI, NYP Holdings, Inc.,HarperCollins Publishers Inc. and News America Marketing and only those Employees employed by such entities on or after June 28, 2013 shall be eligible toparticipate in the NCTI DC Plans (the “DC Plan Covered Participants”).
(b) Establishment of Trust(s). A master trust or individual trusts (the “NCTI DC Trusts”) shall be established to hold the assets of the NCTI DC Plans.
(c) Transfer of Assets and Liabilities. As soon as reasonably practicable following June 28, 2013, Remainco, or a member of the Remainco Group, shallcause the accounts, and the Liabilities and assets associated with such accounts, in the NAI DC Plan attributable to the DC Plan Covered Participants (includingany outstanding loan balances) to be transferred in cash or in-kind (as determined by the transferor) in accordance with Code Section 414(l) and TreasuryRegulation Section 1.414(l)-1 and ERISA Section 208 to the applicable NCTI DC Plans. NCTI or another member of the New News Corporation Group shallcause the applicable NCTI DC Plans to accept such transfer of accounts and the Liabilities and assets associated with such accounts.
(d) Accrued Benefits.
(i) On and after June 28, 2013, NCTI or another member of the New News Corporation Group shall be solely and exclusively responsible for allaccounts and the Liabilities and assets associated with such accounts or in any way related to the NCTI DC Plans, whether accrued before, on or after June 28,2013. For the avoidance of doubt, the NCTI DC Plans shall have the sole and exclusive obligation for all benefits accrued or earned by Employees of NCTI, NYPHoldings, Inc., HarperCollins Publishers Inc. and News America Marketing who are employed by such entities on June 28, 2013 (whether or not vested andwhether accrued or earned while employed by the Remainco Group or the New News Corporation Group).
(ii) On and after June 28, 2013, Remainco or a member of the Remainco Group shall be solely and exclusively responsible for all accounts and theLiabilities and assets associated with such accounts or in any way related to the NAI DC Plans, whether accrued
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before, on or after June 28, 2013, that are not transferred to the NCTI DC Plans in accordance with Section 5.02(c). For the avoidance of doubt, the NAI DCPlans shall have the sole and exclusive obligation for all benefits accrued or earned by former Employees of NCTI, NYP Holdings, Inc., HarperCollins PublishersInc. and News America Marketing who are not employed by such entities on June 28, 2013.
(e) Tax Qualified Status. NCTI or another member of the New News Corporation Group shall be solely responsible for taking all necessary, reasonable, andappropriate actions (including the submission of the NCTI DC Plans to the Internal Revenue Service for a determination of tax-qualified status) to establish,maintain and administer the NCTI DC Plans so that they are qualified under Code Section 401(a) and the related trust(s) thereunder is exempt under CodeSection 501(a).
(f) Notice of Plan Spinoff to IRS. Remainco and New News Corporation (or members of their respective Groups) shall, to the extent necessary, file IRSForm 5310-A regarding the transfer of assets and Liabilities from the NAI DC Plan to the NCTI DC Plans as discussed in this Article V.
Section 5.03 Contributions. All contributions payable to the NAI DC Plan with respect to employee deferrals, matching contributions and employercontributions for NCTI Employees before June 28, 2013, determined in accordance with the terms and provisions of the NAI DC Plan, ERISA and the Code,shall be paid by Remainco, or a member of the Remainco Group, to the NAI DC Plan prior to the date of any asset transfer described in Section 5.02(c).
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ARTICLE VIQUALIFIED DEFINED BENEFIT PLANS
Section 6.01 Remainco. As of the Distribution Date, Remainco, or a member of the Remainco Group, shall retain, and remain the sponsor of, the NewsAmerica Incorporated Employees’ Pension and Retirement Plan (the “NAI DB Plan”).
Section 6.02 New News Corporation.
(a) Creation of Defined Benefit Plan.
(i) Effective June 1, 2013, NCTI or another member of the New News Corporation Group shall adopt a new plan or plans which, on such date, willinitially be substantially similar to the NAI DB Plan (the “NCTI DB Plan”).
(ii) The members of New News Corporation that will participate in the NCTI DB Plan are NCTI, Amplify Education Inc., News America Marketing,Inc. and NYP Holdings, Inc., and only those Employees employed by such entities on June 1, 2013 who participated in the NAI DB Plan on May 31, 2013 shallparticipate in the NCTI DB Plan as of June 1, 2013 (“DB Plan Covered Participants”). The NCTI DB Plan shall assume the obligations of the NAI DB Planwith respect to the DB Plan Covered Participants whether such benefits accrued before, on or after June 1, 2013.
(b) Establishment of Trust. A trust shall be established to hold the Assets of the NCTI DB Plan (the “NCTI DB Trust”).
(c) Transfer of Assets and Liabilities.
(i) Remainco shall cause the NAI DB Plan actuary to determine the Assets and Liabilities to be transferred to the NCTI DB Plan which shall be inaccordance with Code Section 414(l) and Treasury Regulations Section 1.414(l)-1 and ERISA Section 4044 using Pension Benefit Guaranty Corporationassumptions as of May 31, 2013 (the “DB Transferred Assets” and the “DB Transferred Liabilities,” respectively). Such DB Transferred Assets and DBTransferred Liabilities shall only be attributable to the DB Plan Covered Participants who were employed by the entities listed in Section 6.02(a)(ii) on June 1,2013 and were participants in the NAI DB Plan on May 31, 2013. Remainco shall transfer 90% of the DB Transferred Assets based on the projected allocation ofAssets between NAI DB Plan and NCTI DB Plan that reflects Pension Benefit Guaranty Corporation assumptions and NAI DB Plan Assets as of April 30, 2013,with such transfer to occur no earlier than June 3, 2013 but no later than five business days after the establishment of the NCTI DB Trust. The remaining DBTransferred Assets will be transferred to the NCTI DB Trust as soon as practicable following the initial transfer and such DB Transferred Assets will be adjustedfor the actual returns of NAI DB Trust between May 31, 2013 and the date on which the remaining DB Transferred Assets are transferred.
(ii) For each individual who (A) is an Employee of a member of either the Remainco Group or the New News Corporation Group who participates inthe NAI DB Plan or the NCTI DB Plan, as applicable, (B) participated in the NAI DB Plan on May 31, 2013 and
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(C) transfers to either Group between June 1, 2013 and June 30, 2014 (a “Transition Employee”), the transferee Group shall permit such Transition Employee toparticipate in its defined benefit plan (the NAI DB Plan or the NCTI DB Plan, as applicable), as in effect, with pre-participating benefit service granted for theperiod such Transition Employee was employed by the transferor Group to the extent provided in the transferor Group’s defined benefit plan. The benefit underthe transferee Group’s defined benefit plan will be reduced by the benefit payable under the transferor Group’s defined benefit plan. The transferor Group shallimpute eligibility and vesting service for the period that the Transition Employee remained employed with the transferee Group. As of June 30, 2014, Remaincoand New News Corporation shall cause the actuaries of the NAI DB Plan and the NCTI DB Plan to determine the extent to which it is necessary to furthertransfer Assets and Liabilities between these two defined benefit plans as of June 30, 2014, so that the transferee Group’s defined benefit plan shall thereafter besolely and exclusively responsible for all obligations and Liabilities under the NAI DB Plan and the NCTI DB Plan with respect to these Transition Employeesfor service through June 30, 2014. The amount of Assets and Liabilities transferred from the transferor Group’s defined benefit plan to the transferee Group’sdefined benefit plan would be transferred based on Code Section 414(l) and Treasury Regulations Section 1.414(l)-1 and ERISA Section 4044 using the PensionBenefit Guaranty Corporation assumptions as of the spin-off and merger dates of June 30, 2014; provided, that if the de minimus exception to TreasuryRegulations Section 1.414(l)-1 were to apply, the transfer of Assets and Liabilities would be in accordance to the de minimus exception using the Pension BenefitGuaranty Corporation assumptions as of the spin-off and merger dates of June 30, 2014.
(d) Obligations and Liabilities.
(i) On and after June 1, 2013, NCTI or another member of the New News Corporation Group shall be solely and exclusively responsible for allobligations and Liabilities with respect to, or in any way related to, the NCTI DB Plan, whether accrued before, on or after June 1, 2013. For the avoidance ofdoubt, and except as provided in Section 6.02(c)(ii), the NCTI DB Plan shall have the sole and exclusive obligation for all benefits accrued or earned byEmployees of NCTI, Amplify Education Inc., News America Marketing, Inc. and NYP Holdings, Inc., who are employed by such entities on June 1, 2013(whether or not vested and whether accrued or earned while employed by the Remainco Group or the New News Corporation Group).
(ii) On and after June 1, 2013, except as provided in Section 6.02(c)(ii), Remainco or a member of the Remainco Group shall be solely andexclusively responsible for all obligations and Liabilities with respect to, or in any way related to, the NAI DB Plan, whether accrued before, on or after June 1,2013, that are not transferred to the NCTI DB Plan in accordance with Section 6.02(c)(i). For the avoidance of doubt, the NAI DB Plan shall have the sole andexclusive obligation for all benefits accrued or earned by former Employees of NCTI, Amplify Education Inc., News America Marketing, Inc. and NYPHoldings, Inc., who are not employed with such entities on June 1, 2013.
(e) Tax Qualified Status. NCTI or another member of the New News Corporation Group shall be solely responsible for taking all necessary, reasonable, andappropriate actions (including the submission of the NCTI DB Plan to the Internal Revenue Service for a
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determination of tax-qualified status) to establish, maintain and administer the NCTI DB Plan so that it is qualified under Code Section 401(a) and that the relatedtrust thereunder is exempt under Code Section 501(a).
(f) Notice of Plan Spinoff to IRS. Remainco and New News Corporation (or members of their respective Groups) shall, to the extent necessary, file IRSForm 5310-A regarding the transfer of Assets and Liabilities from the NAI DB Plan to the NCTI DB Plan as discussed in this Article VI.
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ARTICLE VIINONQUALIFIED DEFERRED COMPENSATION PLANS
Section 7.01 Remainco. As of the Distribution Date, Remainco, or a member of the Remainco Group, shall retain, and remain the sponsor of, the NewsAmerica Incorporated Supplemental Executive Retirement Plan (the “NAI SERP”).
Section 7.02 New News Corporation.
(a) Creation of SERP.
(i) Effective June 1, 2013, NCTI or another member of the New News Corporation Group shall adopt a new plan or plans which, on such date, willinitially be substantially similar to the NAI SERP (the “NCTI SERP”).
(ii) The members of New News Corporation that will participate in the NCTI SERP are NCTI, Amplify Education Inc., News America Marketing,Inc. and NYP Holdings, Inc., and only those Employees employed by such entities on June 1, 2013 who participated in the NAI DB Plan on May 31, 2013 shallparticipate in the NCTI SERP as of June 1, 2013 (“SERP Covered Participants”). The NCTI SERP shall assume the obligations of the NAI SERP with respectto the SERP Covered Participants whether such benefits accrued before, on or after June 1, 2013.
(b) Transfer of Liabilities. For each individual who (A) is an Employee of a member of either the Remainco Group or the New News Corporation Groupwho participates in a SERP Plan, (B) participated in the NAI SERP on May 31, 2013 and (C) transfers to either Group between June 1, 2013 and June 30, 2014 (a“SERP Transition Employee”), the transferee Group shall permit such SERP Transition Employee to participate in its SERP Plan, as in effect, with pre-participating benefit service granted for the period such SERP Transition Employee was employed by the transferor Group to the extent provided in the transferorGroup’s SERP Plan. The benefit under the transferee Group’s SERP Plan will be reduced by the benefit payable under the transferor Group’s SERP Plan. Thetransferor Group shall impute eligibility and vesting service for the period that the SERP Transition Employee remained employed with the transferee Group. Asof June 30, 2014, the obligations of both the NAI SERP and the NCTI SERP shall be assumed by the transferee Group’s SERP Plan for each of its SERPTransition Employees on June 30, 2014, to the extent not previously assumed, so that a transferee Group’s SERP Plan shall thereafter be solely and exclusivelyresponsible for all obligations and Liabilities under both the NAI SERP and the NCTI SERP with respect to such SERP Transition Employees for service throughJune 30, 2014. Remainco and New News Corporation agree to make a payment as determined by the actuaries of the SERP Plans within a reasonable periodfollowing June 30, 2014, in consideration for and an amount equal to the Liabilities assumed by the transferee Group’s SERP Plan on June 30, 2014, calculatedusing assumptions and methods selected by Remainco in accordance with Accounting Standards Codification 715 for U.S. GAAP reporting as of June 30, 2014.
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(c) Obligations and Liabilities.
(i) On and after June 1, 2013, NCTI or another member of the New News Corporation Group shall be solely and exclusively responsible for allobligations and Liabilities with respect to, or in any way related to, the NCTI SERP, whether accrued before, on or after the June 1, 2013. For the avoidance ofdoubt, and except as provided in Section 7.02(b), the NCTI SERP shall have the sole and exclusive obligation for all benefits accrued or earned by Employees ofNCTI, Amplify Education Inc., News America Marketing, Inc. and NYP Holdings, Inc., who are employed by such entities on June 1, 2013 (whether or notvested and whether accrued or earned while employed by the Remainco Group or the New News Corporation Group).
(ii) On and after June 1, 2013, except as provided in Section 7.02(b), Remainco or a member of the Remainco Group shall be solely and exclusivelyresponsible for all obligations and Liabilities with respect to, or in any way related to, the NAI SERP, whether accrued before, on or after June 1, 2013, that arenot assumed by the NCTI SERP in accordance with Section 7.02(a)(ii). For the avoidance of doubt, the NAI SERP shall have the sole and exclusive obligationfor all benefits accrued or earned by former Employees of NCTI, Amplify Education Inc., News America Marketing, Inc. and NYP Holdings, Inc., who are notemployed with such entities on June 1, 2013.
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ARTICLE VIIIEQUITY PLANS
Section 8.01 General. The adjustment or conversion of any Award shall be effectuated in a manner that is intended to preserve the economic value of theAward on the Distribution Date and avoid the imposition of any penalty or other taxes on the holders thereof pursuant to Code Section 409A.
Section 8.02 News Corporation 2005 Long Term Incentive Plan.
(a) Continuation of Plan. Effective as of the Distribution Date, Remainco or a member of the Remainco Group, shall continue the News Corporation 2005Long Term Incentive Plan (the “2005 LTIP”), and the shares available for future Awards under the 2005 LTIP shall be adjusted based on a formula approved bythe Compensation Committee of the Board of Directors of Remainco (the “Remainco Conversion Formula”). On and after the Distribution Date, the RemaincoGroup shall retain, pay, perform, fulfill and discharge all Liabilities arising out of or relating to awards under the 2005 LTIP that are continued pursuant toSection 8.02(b) or Section 8.02(c).
(b) Continuation of Awards.
(i) Subject to the adjustment set forth in Section 8.02(d), each outstanding Award under the 2005 LTIP on the Distribution Date that is held by anEmployee or Former Employee of the Remainco Group or Former Employee of the New News Corp Group (the “2005 LTIP Award”), shall continue under the2005 LTIP in accordance with the terms of such Award.
(ii) Subject to the adjustment set forth in Section 8.02(d), each outstanding Award under the 2005 LTIP shall continue under the 2005 LTIP providedthat on the Distribution Date the Award is held by an Employee of New News Corporation Group and is
(A) an option with an Original Expiration Date on or before December 31, 2013;
(B) a restricted stock unit with a vesting date on or before December 31, 2013;
(C) a performance stock unit that will be paid on or before December 31, 2013; or
(D) a bridge award unit with a vesting date on or before December 31, 2013.
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(c) Non-Employee Directors’ Awards.
(i) Except as provided in Section 8.02(c)(ii), the continuing 2005 LTIP Awards under Section 8.02(b)(i) shall include each outstanding non-employeedirector’s Award under the 2005 LTIP on the Distribution Date that is:
(A) held by an individual who is a director or director emeritus of the Board of Directors of Remainco on the Distribution Date; or
(B) held by an individual who is a director or director emeritus of the Board of Directors of New News Corporation on the DistributionDate, and such Award has an Original Expiration Date or a vesting date on or before December 31, 2013.
(ii) Any non-employee director who holds an Award of deferred stock units under the 2005 LTIP on the Distribution Date and will be both a memberof the Board of Directors of Remainco and a member of the Board of Directors of New News Corporation on the Distribution Date shall (A) continue such Awardunder the 2005 LTIP in the same number of shares as the original Award under the 2005 LTIP and will not be subject to the adjustment of Section 8.02(d) and(B) receive a new Award under the New LTIP for a number of deferred stock units over New News Corporation Common Stock equivalent to the number ofshares a stockholder of Remainco would receive in connection with the Distribution if such stockholder held the same number of shares as the original Award.The new Award referred to in (A) and (B) herein shall be subject to the same terms and conditions as the original Award. The 2005 LTIP Award will be settled ina cash amount that takes into account the fair market value of Remainco Common Stock and the New LTIP Award will be settled in a cash amount that takes intoaccount the fair market value of New News Corporation Common Stock.
(d) Adjustment and Settlement of Awards. Effective as of the Distribution Date, each 2005 LTIP Award shall be equitably adjusted to reflect the RemaincoConversion Formula. Each 2005 LTIP Award settled on and after the Distribution Date shall be settled in Remainco Common Stock, CDIs over RemaincoCommon Stock or, if applicable, a cash amount that takes into account the fair market value of Remainco Common Stock.
Section 8.03 News Corporation 2004 Stock Option Plan.
(a) Continuation of Plan. Effective as of the Distribution Date, Remainco or a member of the Remainco Group shall continue the News Corporation 2004Stock Option Plan (the “2004 Stock Option Plan”). On and after the Distribution Date, the Remainco Group shall retain, pay, perform, fulfill and discharge allLiabilities arising out of or relating to Awards under the 2004 Stock Option Plan.
(b) Continuation of Awards. Subject to the adjustment set forth in Section 8.03(c), each outstanding Award under the 2004 Stock Option Plan on theDistribution Date (the “2004 Stock Option Plan Award”), will continue under the 2004 Stock Option Plan in accordance with the terms of such Award.
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(c) Adjustment and Settlement of Awards. Effective as of the Distribution Date, each 2004 Stock Option Plan Award shall be equitably adjusted to reflectthe Remainco Conversion Formula. Each 2004 Stock Option Plan Award settled on and after the Distribution Date shall be settled in Remainco Common Stock orCDIs over Remainco Common Stock.
Section 8.04 News Corporation 2004 Replacement Stock Option Plan.
(a) Continuation of Plan. Effective as of the Distribution Date, Remainco or a member of the Remainco Group, shall continue the News Corporation 2004Stock Option Plan (the “2004 Replacement Stock Option Plan”). On and after the Distribution Date, the Remainco Group shall retain, pay, perform, fulfill anddischarge all Liabilities arising out of or relating to Awards under the 2004 Replacement Stock Option Plan.
(b) Continuation of Awards. Subject to the adjustment set forth in Section 8.04(c), each outstanding Award under the 2004 Stock Option Plan on theDistribution Date (the “2004 Replacement Stock Option Plan Award”), will continue under the 2004 Replacement Stock Option Plan in accordance with theterms of such Award.
(c) Adjustment and Settlement of Awards. Effective as of the Distribution Date, each 2004 Replacement Stock Option Plan Award shall be equitablyadjusted to reflect the Remainco Conversion Formula. Each 2004 Replacement Stock Option Plan Award settled on and after the Distribution Date shall be settledin Remainco Common Stock or CDIs over Remainco Common Stock.
Section 8.05 New News Corporation.
(a) Creation of LTIP. Prior to the Distribution Date, New News Corporation, or a member of the New News Corporation Group, shall adopt a new long-term incentive plan (such plan, the “New LTIP”). Remainco, as New News Corporation’s sole stockholder, shall approve the New LTIP prior to the DistributionDate and the New LTIP shall be effective on the date of such approval. From and after the effective date of the New LTIP, the New News Corporation Group shallretain, pay, perform, fulfill and discharge all Liabilities arising out of or relating to awards under the New LTIP.
(b) Converted Award.
(i) Effective as the Distribution Date and subject to the conversion set forth in Section 8.05(d), an outstanding Award under the 2005 LTIP that isheld by an Employee of the New News Corporation Group shall be converted to an Award under the New LTIP (the “New LTIP Award”) if such Award is
(A) an option with an Original Expiration Date after December 31, 2013;
(B) a restricted stock unit with a vesting date after December 31, 2013; or
(C) a performance stock unit that will be paid after December 31, 2013.
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(ii) The New LTIP Award will contain terms and features that are substantially similar to the pre-conversion Award under the 2005 LTIP, except asdiscussed in Section 8.02(c)(ii) or Section 8.05(d), as applicable, and shall be subject to the terms of the New LTIP which terms may be modified by the terms ofany employment agreement to which the applicable holder is a party.
(c) Non-Employee Directors’ Awards. Except as provided under Section 8.02(c)(ii), the converted New LTIP Awards under Section 8.05(b)(i) shall includeeach outstanding non-employee director’s award under the 2005 LTIP on the Distribution Date that is held by an individual who is a member of the Board ofDirectors of New News Corporation on the Distribution Date and will be paid after December 31, 2013.
(d) Adjustment and Settlement of Awards. Effective as of the Distribution Date, each New LTIP Award shall be equitably adjusted based on a formulaapproved by the Compensation Committee of the Board of Directors of Remainco (the “New News Corporation Conversion Formula”). Each New LTIPAward shall be settled in New News Corporation Common Stock, CDIs over New News Corporation Common Stock or, if applicable, a cash amount that takesinto account the fair market value of New News Corporation Common Stock.
Section 8.06 2001 Dow Jones LTIP.
(a) Continuation of Plan. Effective as of the Distribution Date, New News Corporation, or a member of the New News Corporation Group, shall continuethe 2001 Dow Jones LTIP (the “2001 Dow Jones LTIP”). On and after the Distribution Date, the New News Corporation Group shall retain, pay, perform, fulfilland discharge all Liabilities arising out of or relating to awards under the 2001 Dow Jones LTIP.
(b) Continuation of Award. Subject to the adjustment set forth in Section 8.06(c), each outstanding Award under the 2001 Dow Jones LTIP on theDistribution Date (the “2001 Dow Jones LTIP Award”) shall continue under the 2001 Dow Jones LTIP in accordance with the terms of such Award.
(c) Adjustment and Settlement of Awards. Effective as of the Distribution Date, each 2001 Dow Jones LTIP Award shall be equitably adjusted to reflect theNew News Corporation Conversion Formula. Each 2001 Dow Jones LTIP Award settled on and after the Distribution Date shall be settled in New NewsCorporation Common Stock.
Section 8.07 2004 Market Watch Stock Incentive Plan.
(a) Continuation of Plan. Effective as of the Distribution Date, New News Corporation, or a member of the New News Corporation Group, shall continuethe 2004 Market Watch Stock Incentive Plan (the “2004 Market Watch SIP”). On and after the Distribution Date, the New News Corporation Group shall retain,pay, perform, fulfill and discharge all Liabilities arising out of or relating to awards under the 2004 Market Watch SIP.
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(b) Continuation of Award. Subject to the adjustment set forth in Section 8.07(c), each outstanding Award under the 2004 Market Watch SIP a theDistribution Date, (the “2004 Market Watch SIP Award”) shall continue under the 2004 Market Watch SIP in accordance with the terms of such Award.
(c) Adjustment and Settlement of Awards. Effective as of the Distribution Date, each 2004 Market Watch SIP Award shall be equitably adjusted to reflectthe New News Corporation Conversion Formula. Each 2004 Market Watch SIP Award settled on and after the Distribution Date shall be settled in New NewsCorporation Common Stock.
Section 8.08 Tax Reporting and Withholding.
(a) Remainco, or a member of the Remainco Group, shall be responsible for all income, payroll, or other tax reporting and remitting applicable taxwithholdings to each applicable taxing authority, as related to the awards under the 2005 LTIP, the 2004 Stock Option Plan and the 2004 Replacement StockOption Plan, regardless of whether the holder of such award is an Employee of the Remainco Group or not.
(b) On and after the Distribution Date, New News Corporation, or a member of the New News Corporation Group, shall be responsible for all income,payroll, or other tax reporting and remitting applicable tax withholdings to each applicable taxing authority, as related to the awards under the New LTIP, 2001Dow Jones LTIP and 2004 Market Watch SIP, regardless of whether the holder of such award is an Employee of the New News Corporation Group or not.
(c) Notwithstanding the foregoing provisions of this Section 8.08, either Remainco or New News Corporation may act as agent for the other Party byremitting amounts withheld in the form of shares or in conjunction with an exercise transaction to an appropriate taxing authority. Remainco and New NewsCorporation acknowledge and agree that the Parties will cooperate with each other and with third-party providers to effectuate withholding and remittance oftaxes, as well as required tax reporting, in a timely, efficient, and appropriate manner.
Section 8.09 Registration. Upon or as soon as reasonably practicable after the Distribution Date and subject to applicable Law, New News Corporationshall prepare and file with the SEC a registration statement on Form S-8 (or another appropriate form) registering under the Securities Act the offering of anumber of shares of New News Corporation Common Stock at a minimum equal to the number of shares subject to the New LTIP Awards. New NewsCorporation shall use commercially reasonable efforts to cause any such registration statement to be kept effective (and the current status of the prospectus orprospectuses required thereby to be maintained) as long as any New LTIP Awards remain outstanding.
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ARTICLE IXGENERAL PROVISIONS
Section 9.01 Effectiveness. The effectiveness of this Agreement and the obligations and rights created hereunder are subject to and conditioned upon thecompletion of the Distribution pursuant to the terms of the SDA.
Section 9.02 Termination. Except as provided in Article VIII of the SDA, obligations described in this Agreement shall remain in force and effect and shallsurvive the Distribution Date.
Section 9.03 Subsidiaries. Remainco and New News Corporation shall each cause to be performed, and hereby guarantees the performance of, all actions,agreements and obligations set forth herein to be performed by any member of each Party’s Group (including predecessors and successors) or by any entity thatbecomes a member of such Party’s Group on or after the Distribution Date.
Section 9.04 Complete Agreement; Representations.
(a) This Agreement, together with any exhibits and schedules hereto, constitutes the entire agreement between the Parties with respect to the subject matterhereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.
(b) Remainco represents on behalf of itself and each other member of the Remainco Group and New News Corporation represents on behalf of itself andeach other member of the New News Corporation Group as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute,deliver and perform this Agreement and to consummate the transactions contemplated by this Agreement; and
(ii) this Agreement has been duly executed and delivered by such Person (if such Person is a Party) and constitutes a valid and binding agreement ofit enforceable in accordance with the terms hereof (assuming the due execution and delivery thereof by the other Party), except as such enforceability may belimited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other Laws relating to creditors’ rights generally and by generalequitable principles.
Section 9.05 Governing Law. This Agreement and any dispute arising out of, in connection with or relating to this Agreement shall be governed by andconstrued in accordance with the Laws of the State of Delaware, without giving effect to the conflicts of laws principles thereof.
Section 9.06 Notices. All notices, requests, claims, demands and other communications hereunder must be in writing and will be deemed to have been dulygiven only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the Parties at the following addresses or facsimilenumbers:
If to Remainco or any member of the Remainco Group, to:
News Corporation[Contact Information]
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If to New News Corporation or any member of the New News Corporation Group, to:
New News Corporation[Contact Information]
All such notices, requests and other communications will (a) if delivered personally to the address as provided in this section, be deemed given upondelivery, (b) if delivered by facsimile transmission to the facsimile number as provided in this section, be deemed given upon receipt and (c) if delivered by mailin the manner described above to the address as provided in this section, be deemed given upon receipt (in each case regardless of whether such notice, request orother communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this section).Any Party from time to time may change its address, facsimile number or other information for the purpose of notices to that Party by giving notice specifyingsuch change to the other Party.
Section 9.07 Amendment, Modification or Waiver.
(a) Prior to the Distribution, this Agreement may be amended, modified, waived, supplemented or superseded, in whole or in part, by Remainco in its solediscretion by execution of a written document delivered to New News Corporation. Subsequent to the Distribution, this Agreement may be amended, modified,waived, supplemented or superseded, in whole or in part, only by a written agreement signed by duly authorized signatories of the Parties.
(b) Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof (except as otherwise set forth inSection 3.03 of the SDA), but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving suchterm or condition. No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed or construed as a waiver ofthe same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement, the SDA or by Law or otherwiseafforded, will be cumulative and not alternative.
Section 9.08 No Assignment; Binding Effect; No Third-Party Beneficiaries.
(a) Neither this Agreement nor any right, interest or obligation hereunder may be assigned by either Party hereto without the prior written consent of theother Party hereto and any attempt to do so will be void, except that each Party hereto may assign any or all of its rights, interests and obligations hereunder to anAffiliate, provided that any such Affiliate agrees in writing to be bound by all of the terms, conditions and provisions contained herein; provided
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further that no assignment shall relieve the assigning Party of any of its obligations under this Agreement unless agreed to by the non-assigning Party. Subject tothe preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the Parties hereto and their respective successors andpermitted assigns.
(b) Except for the provisions of Article IV of the SDA relating to rights and obligations of Indemnified Parties and Indemnifying Parties, as applicable, theterms and provisions of this Agreement are intended solely for the benefit of each Party hereto and its respective Affiliates, successors or permitted assigns, and itis not the intention of the Parties to confer third-party beneficiary rights upon any other Person.
Section 9.09 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.
Section 9.10 Dispute Resolution. Any claim, controversy or dispute between or among any of the Parties hereto arising out of or related to this Agreement,including with respect to the validity, intent, interpretation, performance, enforcement, breach or termination of this Agreement or any of the terms contained inthis Agreement (a “Dispute”) shall be finally settled pursuant to Section 9.08 of the SDA, which is incorporated herein by reference.
Section 9.11 Specific Performance. From and after the Distribution, in the event of any actual or threatened default in, or breach of, any of the terms,conditions and provisions of this Agreement, the Parties agree that the Party or Parties to this Agreement who are or are to be thereby aggrieved shall have theright to specific performance and injunctive or other equitable relief of its or their rights under this Agreement, in addition to any and all other rights and remediesat law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that, from and after the Distribution, the remedies at law for any breachor threatened breach of this Agreement, including monetary damages, are inadequate compensation for any Loss, that any defense in any action for specificperformance that a remedy at law would be adequate is hereby waived, and that any requirements for the securing or posting of any bond with such remedy arehereby waived.
Section 9.12 Interpretation; Conflict With SDA. When a reference is made in this Agreement to a Section or Article, such reference shall be to a Section orArticle of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for convenience of reference purposesonly and shall not affect in any way the meaning or interpretation of this Agreement. All words used in this Agreement will be construed to be of such gender ornumber as the circumstances require. The word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,”unless otherwise specified. Any reference to any federal, state, local or non-U.S. statute or Law shall be deemed to also refer to all rules and regulationspromulgated thereunder, unless the context otherwise requires. Unless the context requires otherwise, references in this Agreement to “Remainco” shall also bedeemed to refer to the applicable member of the Remainco Group, references to “New News Corporation” shall also be deemed to refer to the applicable memberof the New News Corporation Group and references to a “Party” shall also be deemed to refer to the applicable member of that Party’s Group (as applicable).Except as otherwise expressly
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provided in the SDA, in the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the SDA, the provisions of thisAgreement shall control over the inconsistent provisions of the SDA as to matters specifically addressed in this Agreement.
Section 9.13 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, the remainingprovisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severanceherefrom.
Section 9.14 Coordination with Separation Agreement. Except as explicitly set forth in the SDA, this Agreement shall be the exclusive agreement amongthe Parties with respect to all Employee Matters. The Parties agree that this Agreement shall take precedence over any and all agreements among the Parties withrespect to Employee Matters.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the date first above written.
NEWS CORPORATION
By: Name: Title:
NEW NEWSCORP LLC
By: Name: Title:
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Exhibit 99.1
Preliminary and Subject to Completion, dated March 8, 2013
INFORMATION STATEMENT
New News CorporationClass A Common Stock, Par Value $.01 Per Share
Class B Common Stock, Par Value $.01 Per Share
This information statement is being furnished in connection with the distribution by News Corporation (“Parent”) to its stockholders of all of theoutstanding shares of common stock of New News Corporation (“New News Corporation”), a wholly-owned subsidiary of Parent that will hold the followingbusinesses of Parent: newspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education andsports programming and pay-TV distribution in Australia. To implement the distribution, Parent will distribute the shares of New News Corporation commonstock on a pro rata basis to Parent’s stockholders in a manner that is intended to be tax-free to its stockholders for U.S. federal income tax purposes, except forcash that stockholders receive in lieu of fractional shares. For tax consequences to Australian holders, see “The Distribution—Material Australian TaxConsequences of the Distribution.”
New News Corporation was organized as New Newscorp LLC, a limited liability company under the laws of the State of Delaware, and, prior to thedistribution, will be converted to a Delaware corporation.
For every share of Parent Class A Common Stock held of record by you as of the close of business on ·, 2013, the record date for the distribution, you willreceive · share[s] of New News Corporation Class A Common Stock. For every share of Parent Class B Common Stock held of record by you as of the recorddate for the distribution, you will receive · share[s] of New News Corporation Class B Common Stock. You will receive cash in lieu of any fractional shares ofNew News Corporation Class A Common Stock or Class B Common Stock which you would have received after application of the above ratio, as applicable. Asdiscussed under “The Distribution—Trading Prior to the Distribution Date,” if you sell your Parent Class A Common Stock or Parent Class B Common Stock inthe “regular-way” market after the record date and before the distribution, you also will be selling your right to receive shares of New News Corporation Class ACommon Stock or shares of New News Corporation Class B Common Stock, as applicable, in connection with the distribution. However, if you sell your ParentClass A Common Stock or Parent Class B Common Stock in the ex-distribution market up to and including the distribution date, you will still receive the sharesof our common stock that you would otherwise be entitled to receive in the distribution. It is anticipated that trading of CHESS Depositary Interests (“CDIs”)representing our Class A Common Stock and Class B Common Stock on the Australian Securities Exchange will commence on or shortly before the record dateand continue up to and through to the distribution date, initially, on a “conditional and deferred,” and then on a “deferred” settlement basis. We expect theapplicable shares of New News Corporation common stock to be distributed by Parent to you on ·, 2013. We refer to the date of the distribution of New NewsCorporation common stock as the “distribution date.” Immediately after the distribution becomes effective, New News Corporation will be an independent,publicly traded company.
No approval of the distribution by Parent’s stockholders is required. However, in order to effectuate the distribution in the manner discussed inthis information statement, Parent intends to amend its Restated Certificate of Incorporation, and will hold a Special Meeting of its stockholders (the“Special Meeting”) in connection therewith. Parent is currently distributing a separate proxy statement to you, which will contain information regardingthe Special Meeting. The distribution contemplated by this information statement assumes that certain proposals contained in the separate proxystatement will be approved by Parent’s stockholders and completion of the distribution is conditioned upon such approval. You do not need to pay anyconsideration, exchange or surrender your existing common stock of Parent or take any other action to receive your applicable shares of New News Corporationcommon stock.
Parent currently owns all of the outstanding shares of New News Corporation. Accordingly, there is no current trading market for New News Corporationcommon stock, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record datefor the distribution, and we expect “regular-way” trading of New News Corporation common stock to begin on the first trading day following the completion ofthe distribution. New News Corporation intends to apply to have both its Class A Common Stock and Class B Common Stock authorized for listing on theNASDAQ Global Select Market (“NASDAQ”) under the symbols “[·]” and “[·],” respectively, and to have CDIs representing its Class A Common Stock andClass B Common Stock listed and traded on the Australian Securities Exchange under the symbols “[·]” and “[·],” respectively.
In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page19.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities ordetermined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is ·, 2013.
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TABLE OF CONTENTS Page INFORMATION STATEMENT SUMMARY 1 RISK FACTORS 19 CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS 33 THE DISTRIBUTION 34 DIVIDEND POLICY 45 CAPITALIZATION 46 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 47 BUSINESS 55 SELECTED HISTORICAL COMBINED FINANCIAL DATA 74 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 76 MANAGEMENT 112 EXECUTIVE COMPENSATION 116 COMPENSATION OF DIRECTORS 119 CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 120 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 121 OUR RELATIONSHIP WITH PARENT FOLLOWING THE DISTRIBUTION 123 DESCRIPTION OF OUR CAPITAL STOCK 130 WHERE YOU CAN FIND MORE INFORMATION 137 INDEX TO FINANCIAL STATEMENTS F-1
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INFORMATION STATEMENT SUMMARY
The following is a summary of material information discussed in this information statement. This summary may not contain all the details concerning thedistribution or other information that may be important to you. To better understand the distribution and New News Corporation’s business and financialposition, you should carefully review this entire information statement. Except as otherwise indicated or unless the context otherwise requires, the informationincluded in this information statement, including the combined financial statements of New News Corporation, which will consist of the entities associated withthe businesses comprising Parent’s newspapers, information services and integrated marketing services, digital real estate services, book publishing, digitaleducation and sports programming and pay-TV distribution in Australia, assumes the completion of all the transactions referred to in this information statementin connection with the distribution. Unless the context otherwise requires, references in this information statement to “New Newscorp LLC,” “New NewsCorporation,” “we,” “us,” “our” and “our company” refer to New News Corporation and its combined subsidiaries. References in this information statement to“Parent” refers to News Corporation, a Delaware corporation, and its consolidated subsidiaries (other than, after the distribution, New News Corporation andits combined subsidiaries), unless the context otherwise requires. We anticipate that, on or about the distribution date and subject to the approval of the holdersof a majority of Parent’s Class B Common Stock entitled to vote, Parent will change its name to Fox Group, Inc. and we will assume the name NewsCorporation. If such name changes are completed as anticipated, then from the time such name changes become effective, references to “New NewsCorporation” shall be deemed to refer to News Corporation and its combined subsidiaries and references to “Parent” shall be deemed to refer to Fox Group,Inc. and its combined subsidiaries.
New News Corporation was organized as a limited liability company under the laws of the State of Delaware. In accordance with the distribution, actionswill be taken so as at the time immediately prior to the distribution, New News Corporation will have been converted from a limited liability company to aDelaware corporation.
This information statement describes the businesses to be transferred to New News Corporation by Parent as if the transferred businesses were ourbusinesses for all historical periods described. References in this information statement to our historical assets, liabilities, products, businesses or activities aregenerally intended to refer to the historical assets, liabilities, products, businesses or activities of the transferred businesses as they were conducted as part ofParent and its subsidiaries prior to the distribution.
You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover.Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, exceptin the normal course of our public disclosure obligations. In particular, a number of matters contained in this information statement relate to agreements orarrangements which have not yet been finalized and expectations of what may occur. It is possible that prior to the distribution these agreements, arrangements,and expectations may change.
Why New News Corporation Sent This Document to You
New News Corporation sent this document to you because you were a holder of Parent’s Class A Common Stock or Class B Common Stock on the recorddate for the distribution of New News Corporation Class A Common Stock or Class B Common Stock, as applicable. Accordingly, you are entitled to receive [·]share[s] of New News Corporation Class A Common Stock or [·] share[s] of New News Corporation Class B Common Stock, as applicable, for every share ofParent’s Class A Common Stock or Class B Common Stock that you held as of the record date. No action is required on your part to participate in the distribution,and you do not have to surrender or exchange your shares of Parent or pay cash or any other consideration to receive your shares of New News Corporationcommon stock. The number of shares of Parent’s Class A Common Stock or Class B Common Stock that you currently own will not change as a result of thedistribution.
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This information statement describes New News Corporation’s business, its relationship with Parent, how this transaction affects Parent’s stockholders andprovides other information to assist you in evaluating the benefits and risks of holding or disposing of New News Corporation common stock that you willreceive in the distribution.
Parent
News Corporation, a Delaware corporation, is a diversified global media company currently with operations in the following six industry segments:(i) Cable Network Programming; (ii) Filmed Entertainment; (iii) Television; (iv) Direct Broadcast Satellite Television; (v) Publishing; and (vi) Other. Theactivities of News Corporation are conducted principally in the U.S., the U.K., Continental Europe, Australia, Asia and Latin America. Parent owns all of ourcommon stock issued and outstanding prior to the distribution. After the distribution, Parent will not own any of our common stock. It is anticipated that, on orabout the distribution date and subject to the approval of the holders of a majority of Parent’s Class B Common Stock entitled to vote, Parent will change its nameto Fox Group, Inc.
Our Company
We are a global diversified media and information services company focused on creating and distributing authoritative and engaging content to consumersand businesses throughout the English-speaking world, as well as increasingly in other countries across the globe. Our company is comprised of leadingbusinesses across a range of media, including: news and information services, sports programming in Australia, digital real estate services, book publishing, andpay-TV distribution in Australia, that are distributed under some of the world’s most recognizable and respected brands, including The Wall Street Journal, DowJones, Herald Sun, The Sun, The Times, HarperCollins Publishers, FOX SPORTS Australia, realestate.com.au, and many others. We are also a rapidly developingprovider of digital education content, assessment and delivery services. Our commitment to high-quality premium editorial content makes our media properties atrusted source of news and information among consumers; at the same time many of these properties deliver broad reach and high audience engagement levels intheir respective markets, making them attractive advertising vehicles for our advertising customers. Key components of our business include:
• News and Information Services: Our key brands include The Wall Street Journal, Dow Jones Newswires and Factiva, Herald Sun in Australia, The
Sun and The Times in the U.K. and News America Marketing Group.
• Cable Network Programming: FOX SPORTS Australia is the leading sports programming provider in Australia based on total subscribers.
• Digital Real Estate Services: We own 61.6% of REA Group Limited, which owns the leading digital portals for residential and commercial property in
Australia based on monthly site visits.
• Book Publishing: HarperCollins is one of the largest English-language consumer publishers in the world based on global revenue, with an active print
and digital catalog of over 50,000 publications and over 60 branded imprints.
• Amplify: Our innovative digital education business is focused on the digitization of K-12 education.
• Foxtel: We own 50% of Foxtel, the largest pay-TV provider in Australia based on total subscribers.
We deliver our premium content to consumers across numerous distribution platforms consisting not only of traditional print and television, but alsothrough an expanding array of digital platforms including websites, electronic readers and applications for tablets and mobile devices. We are focused on pursuingintegrated strategies across our businesses to continue to capitalize on the transition from print to digital consumption of high-quality content. We believe that theincreasing availability of high-speed Internet access, electronic readers
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and connected mobile devices will allow us to continue to deliver our content in a more engaging, timely and personalized manner; provide opportunities to moreeffectively monetize our content via strong customer relationships and more compelling and engaging advertising solutions; and reduce our physical productionand distribution costs as we continue to shift to digital platforms.
Our diversified revenue base consists of recurring subscriptions, circulation copies, licensing fees, affiliate fees and direct sales, as well as the sale ofadvertising and sponsorships. We manage our businesses to take advantage of opportunities to share technologies and practices across geographies and businessesand bundle selected offerings to provide greater value to consumers and advertising partners. Headquartered in New York, we operate primarily in NorthAmerica, Australia, and the U.K., and our content is distributed and consumed worldwide. Our North American, Australian and U.K. premium content andtrusted brands include:
North America Australia U.K.
For the fiscal year ended June 30, 2012, we recorded combined revenue of $8,654 million, loss before income tax benefit of $2,377 million and totalSegment EBITDA of $782 million. For the six months ended December 31, 2012, we recorded combined revenue of $4,454 million, income before income taxbenefit of $1,296 million and total Segment EBITDA of $389 million. For a reconciliation of total Segment EBITDA, a non-GAAP measure, to (loss) incomebefore income tax benefit (expense), reported in accordance with generally accepted accounting principles (“GAAP”), see “Management’s Discussion andAnalysis of Financial Condition and Results of Operations.” Our results of operations in recent periods have been negatively impacted by write-downs ofgoodwill and intangible assets in our News and Information Services segment, due largely to declines in advertising and circulation revenue, as well asrestructuring charges primarily resulting from closures of some of our newspapers and organizational restructurings at others. These charges reflect thechallenging environment faced by our News and Information Services segment as a result of, among other things, unfavorable economic conditions in some ofour markets and adverse trends in the newspaper industry generally.
It is anticipated that, on or about the distribution date and subject to the approval of the holders of a majority of Parent’s Class B Common Stock entitled tovote, Parent will change its name to Fox Group, Inc. and we will assume the name News Corporation.
Our operations are organized into five reporting segments: (i) News and Information Services; (ii) Cable Network Programming (a separate segment sinceNovember 2012—see “Cable Network Programming” below); (iii) Digital Real Estate Services; (iv) Book Publishing; and (v) Other, which primarily consists ofAmplify, our digital education business, and general corporate overhead expenses. We account for our 50% stake in Foxtel as an equity investment.
News and Information Services
The News and Information Services segment comprises different products and services targeting consumer and enterprise customers and includes theglobal product offerings of The Wall Street Journal and Barron’s publications, The Wall Street Journal Digital Network (“WSJDN”) and our suite of informationservices, including
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Dow Jones Newswires and Factiva. In addition to WSJ.com and Barrons.com, WSJDN includes MarketWatch, AllThingsD and related services. We also own,among other publications, The Australian, Herald Sun, The Daily Telegraph and The Courier Mail in Australia, The Times, The Sunday Times and The Sun in theU.K. and the New York Post in the U.S. Many of our newspapers are among the leading news brands by total circulation in their respective markets. For example,The Wall Street Journal is the leading circulation daily newspaper in the U.S., with total average print and digital circulation of 2.3 million for the six monthsended September 30, 2012 based on Alliance of Audited Media (“AAM”) data. In Australia, our daily, Sunday, weekly and bi-weekly newspapers account formore than 63% of the total circulation of newspapers in Australia, and in the U.K., The Sun, The Times and The Sunday Times account for approximately one-third of all national newspaper sales. This segment also includes News America Marketing Group (“NAMG”), a leading provider of free-standing coupon inserts,in-store marketing products and digital-savings marketing solutions. NAMG’s customers include many of the largest consumer packaged goods (“CPG”)advertisers in the U.S. and Canada. The News and Information Services segment generates revenue primarily through print and digital advertising sales andthrough circulation and subscriptions.
Cable Network Programming
Our Cable Network Programming segment consists of FOX SPORTS Australia, Australia’s leading sports programmer based on total subscribers. FOXSPORTS Australia is focused on live national and international sports events and is distributed via long-term carriage agreements with pay-TV providers (mainlyFoxtel) in Australia. FOX SPORTS Australia provides featured original and licensed premium sports content tailored to the Australian market, including livesports such as National Rugby League, the domestic football league, English Premier League, Australian and international cricket, as well as the NFL. FOXSPORTS Australia offers seven standard definition television channels, high definition versions of five of those channels, an interactive viewing application andone internet protocol (“IPTV”) channel. Its channels consist of FOX SPORTS 1, FOX SPORTS 2, FOX SPORTS 3, FOX FOOTY, FOX SPORTS NEWS, FUELTV and SPEED. FOX SPORTS Australia’s channels provide premium compelling live broadcasts, including almost every game of the highly popular AustralianFootball League. FOX SPORTS Australia also operates foxsports.com.au and offers a range of interactive mobile and tablet applications. Revenues compriseprimarily affiliate fees, as well as advertising sales.
Prior to November 2012, we owned a 50% interest in FOX SPORTS Australia, which we accounted for as an equity investment. In November 2012, weacquired Consolidated Media Holdings Limited (“CMH”), a media investment company that owned the remaining 50% interest in FOX SPORTS Australia. As aresult of the CMH acquisition, our ownership interest in FOX SPORTS Australia increased to 100% and, accordingly, the results of FOX SPORTS Australia areincluded within a new Cable Network Programming segment beginning in November 2012.
Digital Real Estate Services
We own 61.6% of REA Group Limited, a publicly traded company listed on the Australian Securities Exchange (ASX: REA) that is a leading digitaladvertising business specializing in real estate services. REA operates Australia’s largest residential property website, realestate.com.au, and Australia’s largestcommercial property site, realcommercial.com.au, which have approximately 19.4 million visits each month combined based on Nielsen average monthly totaltraffic ratings for the six months ended December 31, 2012. REA Group also operates a market-leading Italian property site, casa.it, and other property sites andapps across Europe and Hong Kong. REA’s portfolio of property sites is used by approximately 21,000 agents, with over 37 million visits per month based onNielsen average monthly total traffic ratings for the six months ended December 31, 2012. REA generates revenue primarily through the sale of basic andpremium advertising subscription packages and advertising listing upgrades to real estate agents. REA also provides unique digital advertising solutions to helpreal estate agents sell or rent properties and win new listings. REA increasingly generates revenue as a result of customers upgrading to premium listing services.
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Book Publishing
Our HarperCollins book publishing segment is one of the largest English-language consumer publishers in the world based on global revenue, withparticular strengths in general fiction, nonfiction, children’s and religious publishing, and an industry leader in digital publishing. HarperCollins includes over 60branded publishing imprints including Avon, Harper, HarperCollins Children’s Publishers, William Morrow and Christian publishers Zondervan and ThomasNelson, and publishes works by well-known authors such as J.R.R. Tolkien, Paulo Coelho, Rick Warren and Agatha Christie and popular titles such as TheHobbit, Goodnight Moon and To Kill a Mockingbird. HarperCollins’ active print and digital global catalog includes over 50,000 publications and approximately100,000 SKUs, including various print and digital editions of the same title. Nearly all of our titles published in the last four years, as well as the majority of ourentire catalog, are available in electronic reader and tablet formats. Our growing digital publishing business provides us opportunities to enhance our products andsecure new avenues to reach our consumers, including through Amazon, Apple, Google and Barnes & Noble, and to improve our operating results.
Other
Our Other segment primarily consists of Amplify, our digital education business focused on the K-12 learning market, and general corporate overheadexpenses. Amplify focuses on three areas of business: assessment and analytics; digital content and curriculum; and mobile distribution systems designed foreducation. Amplify Insight, Amplify’s assessment and analytics division, operates as Wireless Generation, Inc. (“Wireless Generation”), which commencedoperations in 2000 and was acquired by Parent in 2010. Wireless Generation provides premium assessment and analytics services to enable real-timepersonalization of educational content. Through its Amplify Learning division, Amplify is creating innovative digital curricula for K-12 education designed toenhance teaching and learning in English Language Arts, Science and Math. Through its Amplify Access division, Amplify is developing an open, tablet-basededucation platform that integrates its existing assessment and analytics tools and services with its digital curricula, as well as third-party content and interactiveapplications.
Equity Investments
Foxtel
We own 50% of Foxtel, Australia’s largest pay-TV provider, which has approximately 2.3 million subscribing households in Australia, or over 30% of thecountry’s population (as of December 31, 2012). Foxtel’s 200-plus channel selection (which includes standard definition channels, high definition versions ofsome of those channels, and audio and interactive channels) provides premium and exclusive content, and a wide array of digital and mobile features not availableto viewers via the three major commercial Free-To-Air (“FTA”) networks and two major government-funded broadcasters in Australia, which collectivelybroadcast approximately 17 main channels in most major metropolitan markets. Foxtel’s premium content includes FOX SPORTS Australia’s suite of sportschannels and TV shows from HBO, FOX and Universal, among others. Foxtel also owns and operates 26 channels, including general entertainment and moviechannels and sources an extensive range of movie programming through arrangements with major U.S. studios. Through innovative products such as highdefinition channels, the extension of pay-TV programming to mobile devices and tablets (including iPads and iPhones via FOXTEL Go), as well as IPTV, andadvanced DVR and Electronic Program Guide technology, we believe Foxtel offers subscribers a compelling alternative to FTA TV. The remaining 50% of Foxtelis owned by Telstra Corporation Limited (“Telstra”), one of Australia’s leading telecommunications companies. Foxtel generates revenue primarily throughsubscription revenue as well as advertising revenue.
Our Competitive Strengths
Extensive portfolio of premium content and trusted brands
We distribute high quality content through some of the world’s leading and most trusted brands. For example, our news and information products andservices, including The Wall Street Journal, Barron’s, WSJDN, Factiva,
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Dow Jones Newswires and other sources, provide timely, premium information for their respective customer bases. Likewise the sports content offered via FOXSPORTS Australia’s channels and the content offered by our HarperCollins titles are compelling and entertaining for our customers. We distribute content viatrusted brands such as The Wall Street Journal, The Australian and The Times that have cultural relevance, longevity and stature in their respective markets withaudiences and advertisers alike. The nature and quality of our content as well as the strength of our brands allow us to effectively monetize our content via acombination of subscriptions, circulation, licensing fees, affiliate fees and direct sales, as well as the sale of advertising and sponsorships.
Leadership positions across most of our key businesses
We enjoy strong leadership positions across most of our key businesses, allowing us to not only effectively monetize our content but also to innovate andtake advantage of opportunities to transform and grow our businesses in the digital era. The Wall Street Journal is the leading daily newspaper in the U.S. basedon average print and digital circulation for the six months ended September 30, 2012. We also own leading news brands by circulation in Australia, such asHerald Sun, and the U.K., such as The Sunday Times. This position has helped us to actively transition these products for effective digital consumption andmonetization through, for example, the successful implementation of digital subscriptions. NAMG is a leading provider of free-standing coupon inserts, in-storemarketing products and digital-savings marketing solutions for advertisers in the U.S. and Canada. Our HarperCollins book publishing segment is one of thelargest English-language consumer publishers in the world based on global revenue, with particular strengths in general fiction, nonfiction, children’s andreligious publishing, and an industry leader in digital publishing. REA owns the leading residential and commercial real estate websites in Australia based onmonthly site visits. Likewise, FOX SPORTS Australia and Foxtel are leaders based on total subscribers and each is leveraging digital technology to improve andexpand its product offerings.
Global reach and distribution of premium content across major English-speaking markets
We create and distribute our proprietary content through print, digital and pay-TV platforms to major English-speaking markets worldwide. Our expandingglobal presence, as well as our large multi-platform footprint in each of these markets, allows us to produce, distribute and monetize our content in a cost-effective manner, develop new offerings, engage new audiences, and share practices and models across geographies. Our size and breadth of platforms allow us tocross-market our products across many of our customers, as well as to create more compelling product offerings via cross-branded and bundled offerings.
Ownership in the leading Australian media and sports franchises across multiple media platforms
We have an advantageous position in Australia as a result of our leading national and local presence across each of our businesses. Through News Limited,we are the leader in print and digital news content in Australia based on total circulation. News Limited also owns a portfolio of leading digital properties in keycategories including business, lifestyle, food and health. Through FOX SPORTS Australia, we own the largest sports programmer in Australia based on totalsubscribers, with seven TV sports channels and, together with Foxtel, the rights to one of the most compelling suites of sports video programming in the country.Additionally we own foxsports.com.au, a leading general sports website in Australia, an IPTV sports channel, as well as an 89.5% equity stake in SportingPulse,one of the leading online community sports networks in the country. Combined with our Australian newspaper publications’ sports editorial content we havecreated one of the strongest multi-platform sports media franchises in Australia with further opportunities to increase subscription and advertising revenuesthrough continued investment in premium sports content, increased provision of enhanced services to our audience and advertisers and further integration acrossour properties. Foxtel, in which we own a 50% equity stake, is the leading pay-TV provider in Australia based on total subscribers. Foxtel delivers premiumnews, sports and entertainment programming to consumers through its popular content packages and provides integrated advertising and sponsorship options toits advertising partners. Through significant investments in
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proprietary technology, Foxtel has amassed a leading portfolio of programming and developed leading traditional and digital delivery capabilities. We believeFoxtel is uniquely positioned to deliver a compelling alternative to FTA TV, thus increasing penetration and driving significant growth in Australian pay-TV.However, we can offer no assurance that any increased penetration or growth will be achieved.
History of successful innovation in and expansion across digital media platforms
Our ongoing commitment to innovation and the development of new business models and sources of revenue have resulted in numerous new businessesand growth opportunities. The combination of our size, premium content and leading market positions has been instrumental in the development of businessessuch as WSJDN, REA Group and HarperCollins’ e-book business, among others. Other examples of our digital expansion include the launch of paid-for digitalplatforms across a number of our newspapers, including Herald Sun in Australia and The Times in the U.K., as well as the introduction of one of the earliest print-at-home coupon websites in the U.S. We have leveraged technology to enhance our ability to monetize our content through digital subscriptions, electronic readerproducts and mobile applications and to retain and attract advertisers seeking integrated digital advertising solutions. As the shift to digital consumptioncontinues, we believe we have the vision and the expertise to utilize current and emerging technologies to provide adaptive and transformative products andcreate future revenue opportunities, including in our digital education business.
Strong balance sheet and diversified revenue base
Our strong balance sheet provides us with the financial flexibility to continue our development of premium content, make investments across ourbusinesses to maintain our leadership position amidst the continuing digital evolution, allocate capital towards investments in higher growth initiatives, and takeadvantage of strategic opportunities, including potential acquisitions, across the range of the media categories in which we operate. In connection with thedistribution, Parent is expected to make a cash contribution to us such that at the distribution date, we expect to have approximately $2,600 million of cash onhand. As of December 31, 2012, on a pro forma basis taking into consideration Parent’s expected contribution, we had combined assets of approximately $18,600million. See “Summary Historical and Unaudited Pro Forma Combined Financial Information” and the “Unaudited Pro Forma Combined Financial Statements”for further details. We also expect to benefit from our diversified revenue base, which reduces our dependence on any one geography, business or customer, andfrom the cash flow generated by our portfolio of businesses. For the fiscal year ended June 30, 2012, we generated combined revenue of $8,654 million, of whichapproximately 41% was generated in the U.S., 20% was generated in the U.K. and 32% was generated in Australia. In the same period, we recorded a net loss of$2,040 million, primarily resulting from non-cash impairment charges.
Experienced management team with demonstrated industry expertise
We will be led by company founder and Executive Chairman, K. Rupert Murdoch, our CEO, Robert J. Thomson, and a management team withdemonstrated industry expertise. The team shares a vision to capitalize on our current strengths and strategically invest in new initiatives and businesses to growour platform and generate value for our stockholders. The management team is supported by experienced senior executives with significant tenure in ourcompany and the industries in which we operate.
Goals and Strategies
Continue to invest in high quality premium content
We intend to continue investing in compelling content and new and existing brands to build on our leadership positions and to continually improve thequality of the platforms, products and services we deliver to our audiences and advertisers. For example, we recently enhanced our online and mobile offerings inthe U.K. through the acquisition of the rights to show highlight clips for all Premier League soccer matches for three years
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on these platforms. We believe that these investments will allow us to grow and increase the engagement level of our audiences and improve the monetization ofour content through subscription revenues, as well as increase our advertising revenues through the provision of increasingly effective marketing solutions.
Leverage our brands to expand our content across digital products and platforms
We plan to continue to take advantage of emerging technologies and consumer preferences in order to expand the channels through which we distribute ourcontent and enhance our existing digital products, such as web sites, smartphone and tablet applications, video-on-demand services, online video, IPTV and otheremerging digital technology. We are transforming each of our businesses by leveraging their powerful brands through enabling investments in new technologies,platforms and partnerships with leading distributors to deliver an enhanced value proposition to our audiences and advertisers alike. Additionally, we expect tocontinue to build new business models and revenue streams through exploitation of our existing content and brands as well as product innovations and strategicrelationships.
Improve operating results through increased integration, focus on operational efficiencies and the continued expansion of our digital platforms
We are focused on implementing operational initiatives across all of our businesses and in each of our geographies to continue to improve our operatingresults. We intend to maintain cost discipline across the organization through tighter integration of technology and purchasing across our businesses, as well asenhanced sharing of new products, technology, business models and practices. For example, we have implemented a cross-platform editorial technology system,which will enable seamless content sharing across our global network of media channels (including print, digital media and video). We are also leveraging ourexisting paywall technology to increase content monetization across our digital businesses. We also intend to continue to simplify our organizational structure andprocesses while maintaining the high journalistic and content standards that our products are known for. Recent examples include: unifying our U.S. newsroomby combining Wall Street Journal and Dow Jones Newswires newsroom staff and improving our operations by consolidating newspaper warehouses andoutsourcing non-strategic functions such as printing (in the U.S.) and distribution. Separately, the expansion of our businesses across digital platforms presentsopportunities to continue to reduce our distribution and warehousing infrastructure and overall operational footprint.
Take advantage of our brands, content, shared technologies and expertise to continue to expand into new geographies
We see significant opportunities to expand our footprint into new geographies by taking advantage of our trusted brands, premium content and globalplatform. Much of our content, including business news and information as well as certain book and educational content, has a global audience outside ourcurrent core markets in the U.S., Australia and the U.K. For example, we now publish over 11 versions of The Wall Street Journal in 8 languages, includingversions in China, Japan and Korea. In addition, REA Group, which began as a leading digital real estate site in Australia, has since expanded to operate leadingsites in Hong Kong, Italy and Luxembourg. With the ongoing digitization of content creation and distribution as well as our focus on a fully integrated globalinfrastructure, we believe that we will be able to continue to efficiently expand into and operate our businesses in new markets across the globe.
Integrate our media offerings in Australia and strengthen our sports leadership position
We continue to focus on finding ways to integrate our diverse set of businesses and improve our organizational structure. In our Australian news businesswe have integrated our operations into a single, data-
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driven, customer-focused marketing organization and have built a collaborative, national editorial structure. At FOX SPORTS Australia, we will continue toinvest in compelling sports programming and extend distribution of our content across our multiple media platforms. We plan on integrating foxsports.com.auwith the digital properties of our existing Australian news sports brands and SportingPulse, a leading online community sports network, which provides uniquelocal sports content to incorporate into our community newspaper and other digital properties. As we expand our digital presence, we expect to cross-selladvertising across multiple platforms to create stronger integrated advertising offerings.
Increasingly supplement advertising revenue with recurring subscription revenue
Many of our businesses (including Dow Jones Newswires, Factiva and FOX SPORTS Australia) generate revenues largely via recurring subscriptions fortheir content and services. In these businesses, we strive to grow our revenues by expanding our subscriber base. Other businesses, including The Wall StreetJournal, The Times and other newspapers, generate revenues largely via the sale of advertising or a combination of subscriptions and advertising sales. Withinthese businesses, we are pursuing strategies to grow subscription revenues by, among other things, continuing to monetize our digital content by increasing digitalsubscriptions and expanding the size of our customer base through a focus on customer service, ongoing investments in subscriber management and customerinsight platforms and other initiatives. As we execute on these strategies across our businesses, we expect that the revenues we generate from the sale ofadvertising will increasingly be supplemented by stable and growing sources of recurring subscription revenues.
Establish Amplify as the leading digital education provider for improving outcomes in K-12 education
We believe that technological innovation coupled with the movement to Common Core Standards and a desire by educators and taxpayers to deliver world-class educational services in a scaled, cost-effective manner will drive fundamental changes in the nature and delivery of education services in the coming years.We plan to take advantage of these changes and grow our education business, Amplify, by building an innovative and compelling digital curriculum for K-12education to enhance teaching and learning in English Language Arts, Science and Math. We also aim to develop a 4G mobile tablet-based platform for studentsand teachers that will support our assessment tools, our digital curriculum as well as other third-party content and interactive applications. We believe Amplifywill be a transformative and effective solution for the challenges facing K-12 education, and are focused on creating content as immersive and entertaining as thebest films and games to drive the growth of this business. See “Risk Factors—No Assurance of Profitability of Amplify” for a discussion of risks associated withour Amplify business.
Risks Associated with the Proposed Transaction and Our Business
You should carefully consider the matters discussed under the heading “Risk Factors” of this information statement.
The Distribution
Internal Reorganization
The separation and distribution agreement will provide for the transfers of entities and related assets and liabilities so that as of the distribution Parent willretain the entities associated with Parent’s media and entertainment business and New News Corporation will retain the entities associated with the businessescomprising Parent’s newspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sportsprogramming and pay-TV distribution in Australia. We are currently a wholly-owned subsidiary of Parent. In connection with the distribution, Parent willundertake a
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series of internal reorganization transactions to facilitate the transfers of entities and the related assets and liabilities described above. See “Our Relationship WithParent Following the Distribution—The Separation and Distribution Agreement” for further discussion.
Reasons for the Distribution
The board of directors of Parent determined that pursuit of the distribution of the businesses comprising Parent’s newspapers, information services andintegrated marketing services, digital real estate services, book publishing, digital education and sports programming and pay-TV distribution in Australia is inthe best interest of Parent and Parent’s stockholders. The following benefits were considered by the board of directors of Parent in determining to pursue thedistribution:
• the opportunity to allow each company to focus on and pursue distinct strategic priorities and industry-specific opportunities that would maximize each
company’s long-term potential;
• the opportunity to allow each company to benefit from greater financial and operational flexibility and better position each company to compete;
• the opportunity to allow each company to respond and react more quickly to rapidly-evolving technology and global market opportunities;
• the opportunity to provide investors in each company with a more targeted investment opportunity, each with different inherent values, including
different financial and operational structures; and
• the opportunity to allow each company to tailor its capital structure, allocate and deploy resources and implement compensation plans in a manner
consistent with strategic objectives that best enhance value for its stockholder group.
On December 4, 2012, the board of directors of Parent authorized management to proceed with the proposed distribution, subject to the satisfaction orwaiver of certain conditions and the board of directors’ ongoing consideration of the transaction and its final approval, which may not be granted.
Regulatory Approval
Prior to completing the distribution, New News Corporation must complete the necessary registration under U.S. federal securities laws and relevantAustralian Corporations law requirements of New News Corporation Class A Common Stock and New News Corporation Class B Common Stock, as well as theapplicable NASDAQ and Australian Securities Exchange listing requirements for such shares. Parent will need to obtain approval under the Australian ForeignAcquisition and Takeovers Act of 1975 (“FATA”) and the Australian Government’s foreign investment policy to implement the steps necessary to effect theinternal reorganization and to make the distribution. Parent will apply for the relevant approvals prior to implementing the various transaction steps.
Other than the requirements discussed above, we do not believe that any other material governmental or regulatory filings or approvals will be necessary toconsummate the distribution.
Conditions
The distribution is subject to a number of conditions, including, among others:
• the approval by the board of directors of Parent of the distribution and all related transactions (and such approval not having been withdrawn);
• the affirmative vote of the stockholders of Parent approving certain amendments to Parent’s Restated Certificate of Incorporation;
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• Parent’s receipt of certain tax rulings and tax opinions;
• no pending, threatened or issued order, injunction or decree by any governmental entity of competent jurisdiction or other legal restraint that would
prevent the consummation of the distribution;
• no events or developments having occurred prior to the distribution that, in the judgment of the board of directors of Parent, would result in the
distribution having a material adverse effect on Parent or its stockholders;
• Parent’s and New News Corporation’s execution of the separation and distribution agreement and all other ancillary agreements relating to the
distribution;
• Parent’s receipt of the regulatory approvals described above; and
• no rating agency action having occurred that is likely to result in either Parent or us being downgraded below investment grade after giving effect to
the distribution.
We cannot assure you that any or all of the conditions will be satisfied or waived. See “The Distribution—Conditions to the Distribution” for additionaldetails.
No Appraisal Rights
Parent’s stockholders will not have any appraisal rights in connection with the distribution.
Corporate Information
New News Corporation was formed in Delaware on December 11, 2012. The address of New News Corporation’s principal executive offices is 1211Avenue of the Americas, New York, New York, 10036. New News Corporation’s telephone number is 212-852-7000. New News Corporation’s corporate websitewill be located at [·]. The information that will be contained on our website, or that can be accessed via our website, is not part of this information statement.
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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
What is New News Corporation and why is Parentseparating New News Corporation’s business anddistributing its stock?
New News Corporation is currently a wholly-owned subsidiary of Parent formed to hold thebusinesses comprising Parent’s newspapers, information services and integrated marketing services,digital real estate services, book publishing, digital education and sports programming and pay-TVdistribution in Australia. The separation of New News Corporation from Parent and the distributionof New News Corporation common stock are intended to provide you with equity investments intwo separate companies, each able to focus on its respective business. See “The Distribution—Background of the Distribution” and “The Distribution—Reasons for the Distribution.”
Why is the separation of New News Corporation structuredas a distribution?
Parent believes that the distribution of New News Corporation common stock to Parent’sstockholders in a manner that is intended to be tax-free for U.S. federal income tax purposes (exceptfor cash that stockholders receive in lieu of fractional shares) is an efficient way to separate thebusinesses to be held by New News Corporation and Parent’s media and entertainment businesses.
Is stockholder approval required for the distribution?Stockholder approval of the distribution is not required. The distribution of New News CorporationClass A Common Stock or Class B Common Stock, as applicable, will be accomplished bydistributing all such shares to holders of Parent’s Class A Common Stock or Class B CommonStock, as described herein. Accordingly, the distribution of shares of New News Corporationcommon stock will be approved by the board of directors of Parent pursuant to its authority underParent’s Restated Certificate of Incorporation and applicable Delaware law regarding the declarationand payment of dividends.
While you are not being asked to vote on the distribution, in order to effectuate thedistribution in the manner discussed in this information statement, Parent intends to amendits Restated Certificate of Incorporation, and will hold the Special Meeting in connectiontherewith. Parent is currently distributing a separate proxy statement to you, which willcontain information regarding the Special Meeting. The distribution contemplated by thisinformation statement assumes that certain proposals contained in the separate proxystatement will be approved by Parent’s stockholders and completion of the distribution isconditioned upon such approval.
What do stockholders need to do to participate in thedistribution?
No action is required on the part of stockholders, but you are encouraged to read this entireinformation statement carefully. Stockholders of Parent on the record date for the distribution arenot required to take any action, including making any payments in cash or exchanging or deliveringtheir shares of Parent, to receive shares of New News Corporation. Please do not deliver yourshares of Parent.
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What will I receive in the distribution? For every share of Parent’s Class A Common Stock that you own as of the record date, you willreceive [·] share[s] of New News Corporation Class A Common Stock. For every share of Parent’sClass B Common Stock that you own as of the record date, you will receive [·] share[s] of NewNews Corporation Class B Common Stock. If you would be entitled to a fractional share of eitherNew News Corporation Class A Common Stock or New News Corporation Class B Common Stock,as applicable, you will receive a check for the market value thereof. See “The Distribution” foradditional details.
What is the record date for the distribution? Record ownership will be determined as of 5:00 p.m. Eastern Time on [·], 2013, which we refer to
as the record date. When will the distribution occur? We expect that shares of New News Corporation Class A Common Stock or Class B Common
Stock, as applicable, will be distributed on or about [·], 2013, which we refer to as the distributiondate.
If I sell my Parent shares prior to the distribution, will Istill be entitled to receive shares of New News Corporationin the distribution?
If you hold shares of Parent Class A Common Stock or Parent Class B Common Stock on the recorddate and decide to sell the shares prior to the distribution date, you may choose to sell such shareswith or without your entitlement to receive New News Corporation Class A Common Stock or NewNews Corporation Class B Common Stock, as applicable. If you sell your Parent Class A CommonStock or Parent Class B Common Stock in the “regular-way” market after the record date and beforethe distribution, you also will be selling your right to receive shares of New News Corporation ClassA Common Stock or shares of New News Corporation Class B Common Stock, as applicable, inconnection with the distribution. However, if you sell your Parent Class A Common Stock or ParentClass B Common Stock in the ex-distribution market up to and including the distribution date, youwill still receive the shares of our common stock that you would otherwise be entitled to receive inthe distribution.
It is anticipated that trading of CDIs representing our Class A Common Stock and Class B CommonStock on the Australian Securities Exchange will commence on or shortly before the record date andcontinue up to and through to the distribution date, initially, on a “conditional and deferred,” andthen on a “deferred” settlement basis.
You should consult your bank, broker or nominee to discuss your options and alternatives. See “TheDistribution—Trading Prior to the Distribution Date” for additional details.
How will fractional shares be treated in the distribution? No fractional shares will be distributed in connection with the distribution. Instead, holders will
receive a cash payment equal to the value of such shares in lieu of the fractional shares.
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Can Parent decide to cancel the distribution even if all ofthe conditions have been satisfied?
Yes. Until the distribution has occurred, Parent has the right to terminate the distribution, even if allthe conditions have been satisfied, if the board of directors of Parent determines that the distributionis not in the best interest of Parent and its stockholders or that market conditions or othercircumstances are such that the separation of New News Corporation and Parent is no longeradvisable at that time.
What are the material U.S. federal income taxconsequences of the distribution?
Parent has applied for a ruling from the Internal Revenue Service (the “IRS”) to the effect that thedistribution will be a tax-free transaction for U.S. federal income tax purposes under the InternalRevenue Code of 1986, as amended (the “Code”), except with respect to cash paid in lieu offractional shares. With respect to certain requirements for tax-free treatment on which the IRS willnot rule, Parent expects to receive an opinion of Hogan Lovells US LLP to the effect that suchrequirements will be satisfied.
The tax consequences to you of the distribution depend on your individual situation. You shouldconsult with your own tax advisor as to the specific tax consequences of the distribution to you. See“The Distribution—Material U.S. Federal Income Tax Consequences of the Distribution” foradditional details.
What are the material Australian tax consequences of thedistribution?
Parent has applied for a Class Ruling from the Australian Taxation Office (“ATO”) confirming that,in the circumstances of the distribution (i) no part of the distribution of New News Corporationshares will be a dividend; and (ii) the Commissioner of Taxation will not make a determinationunder either section 45A or 45B to deem all or part of the distribution of New News Corporationshares to be an unfranked dividend.
The tax consequences to you of the distribution depend on your individual situation. You shouldconsult with your own tax advisor as to the specific tax consequences of the distribution to you. See“The Distribution—Material Australian Tax Consequences of the Distribution” for additionaldetails.
Will the number of Parent shares I own change as a resultof the distribution?
No, the number of shares of Parent Class A Common Stock or Parent Class B Common Stock thatyou own will not change as a result of the distribution.
Will my Parent shares continue to trade after thedistribution?
Yes. It is anticipated that, on or about the distribution date and subject to the approval of the holdersof a majority of Parent’s Class B Common Stock entitled to vote, Parent will change its name to FoxGroup, Inc., and its Class A Common Stock and Class B Common Stock will continue to be listedand traded on NASDAQ, its principal market, under the symbols “[·]” and “[·],” respectively. CDIsrepresenting Parent’s Class A Common Stock and Class B Common Stock will continue to be listedand traded on the Australian Securities Exchange under the symbols “[·]” and “[·],” respectively.See “The Distribution—Trading Prior to the Distribution Date” for additional details.
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What will the price be for my New News Corporationshares and when will I be able to trade my shares?
There is no current trading market for New News Corporation common stock, although we expectthat a limited market, commonly known as a “when-issued” trading market, will develop on orshortly before the record date for the distribution, and we expect “regular-way” trading of NewNews Corporation common stock to begin on the first trading day following the completion of thedistribution. We cannot predict our trading price for our common stock prior to, on or after thedistribution date. It is possible that some of Parent’s stockholders may sell our common stockreceived in the distribution because, among other things, our business profile or marketcapitalization does not fit their investment objectives or because our common stock is not includedin certain indices. Until the market has analyzed fully the operations and financial characteristics ofNew News Corporation separate from Parent, the price of New News Corporation’s shares mayfluctuate significantly. See “The Distribution—Listing and Trading of the Shares of New NewsCorporation” for additional details.
Are there risks associated with owning shares of New NewsCorporation?
Yes. New News Corporation’s business is subject to both general and specific risks and uncertaintiesrelating to its business, including risks specific to its industry and its operation, and risks associatedwith its ongoing contractual relationships with Parent and others, as well as its status as a separate,publicly traded company. See “Risk Factors” for additional information.
Does New News Corporation intend to pay cash dividends? Following the distribution, we expect to pay regular cash dividends, although the timing,
declaration, amount and payment of future dividends to stockholders will fall within the discretionof our board of directors. Our board of directors cannot provide any assurances that any dividendswill be declared or paid. See “Dividend Policy.”
What will be the relationship between Parent and NewNews Corporation following the distribution?
Parent will not own any shares of New News Corporation following the distribution. New NewsCorporation and Parent will enter into a separation and distribution agreement and other agreements,including with respect to matters such as transition services, employment arrangements, tax sharingand indemnification, intellectual property, and real estate, among others. Such agreements willprovide a framework for New News Corporation’s relationship with Parent after the distribution,certain transition services, allocations of assets and liabilities and indemnification arrangements forcertain liabilities. Following the distribution, there will be an overlap between certain seniormanagement of Parent and New News Corporation; K. Rupert Murdoch will serve as our ExecutiveChairman and the Chairman and Chief Executive Officer of Parent, and Gerson Zweifach will serveas our General Counsel and as Senior Executive Vice President and Group General Counsel ofParent. See “Risk Factors—Risks Related to the Distribution,” “Our Relationship With ParentFollowing the Distribution” and “Management” for additional details.
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What will be the voting rights of the New News Corporationstock I receive in the distribution?
The shares of New News Corporation Class A Common Stock or Class B Common Stock that youwill receive in the distribution will have the same voting rights as the respective shares of ParentClass A or Class B Common Stock that you currently hold.
As a general matter, holders of our Class B Common Stock are entitled to one vote per share on allmatters on which stockholders have the right to vote. Under a limited set of circumstances, theholders of our Class A Common Stock are entitled to vote together with the holders of our Class BCommon Stock. See “Description of Our Capital Stock” for a description of the circumstances inwhich the holders of our Class A Common Stock are entitled to vote. Other than in thosecircumstances described, holders of our Class A Common Stock have no right to vote.
Will there be any anti-takeover protections at New NewsCorporation following the distribution?
Certain provisions of our amended and restated certificate of incorporation and amended andrestated by-laws may have the effect of making the acquisition of control of our company in atransaction that is not approved by our board of directors more difficult. See “Description of OurCapital Stock—Anti-Takeover Effects of Various Provisions of Delaware Law, Our Amended andRestated Certificate of Incorporation and Amended and Restated By-laws.” Additionally, certainprovisions of the agreements entered into by us and Parent in connection with the distribution coulddiscourage potential acquisition proposals. See “Risk Factors—We Might Not Be Able to Engage inDesirable Strategic Transactions and Equity Issuances Following the Distribution Because ofCertain Restrictions Relating to Requirements for Tax-Free Distributions for U.S. Federal IncomeTax Purposes.”
What percentage of New News Corporation shares will K.Rupert Murdoch own following the distribution?
K. Rupert Murdoch may be deemed to beneficially own in the aggregate [·]% of our Class ACommon Stock and [·]% of our Class B Common Stock immediately following the distribution. See“Risk Factors—Certain Provisions of Our Certificate of Incorporation, By-laws, Tax Sharing andIndemnification Agreement, Separation and Distribution Agreement, Delaware Law and theOwnership of Our Common Stock by the Murdoch Family Trust May Discourage Takeovers and theConcentration of Ownership Will Affect the Voting Results of Matters Submitted for StockholderApproval” for additional details on K. Rupert Murdoch’s ownership and certain effects of hisownership.
Do I have appraisal rights in connection with thedistribution?
No. Holders of Parent common stock have no appraisal rights in connection with the distribution.See “The Distribution—No Appraisal Rights” for additional details.
Who is the transfer agent for New News Corporationshares?
Computershare Trust Company, N.A.
Where can I get more information? If you have any questions regarding the distribution, you should contact the transfer agent at thefollowing address and telephone number:
[·].
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SUMMARY HISTORICAL AND UNAUDITEDPRO FORMA COMBINED FINANCIAL INFORMATION
The following table presents the summary historical and unaudited pro forma combined financial data for New News Corporation. The combined operatingand balance sheet data included in the following table reflect our combined operations. We derived the combined operating data for the three years ended June 30,2012, and the combined balance sheet data as of June 30, 2012, as set forth below, from our audited combined financial statements, which are included elsewherein this information statement. We derived the combined operating data for the six months ended December 31, 2012 and 2011, and the combined balance sheetdata as of December 31, 2012, from our unaudited combined financial statements, which are included elsewhere in this information statement. The unauditedcombined financial statements have been prepared on the same basis as the audited combined financial statements and, in the opinion of our management, includeall adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth in this section.
The summary unaudited pro forma combined financial data as of and for the six months ended December 31, 2012 and the year ended June 30, 2012 havebeen prepared to reflect the expected impact of events directly attributable to the distribution and related transaction agreements that are factually supportable, andfor the purposes of the statement of operations, are expected to have a continuing impact on us. However, such adjustments are subject to change based onfinalization of the terms of the separation and distribution agreement and related agreements. The unaudited pro forma combined statement of operations data forthe six months ended December 31, 2012 and the fiscal year ended June 30, 2012 reflects our results as if the distribution and related transactions described belowhad occurred on July 1, 2011. The unaudited pro forma combined balance sheet data as of December 31, 2012 reflects our results as if the distribution-relatedevents described below had occurred as of such date. The assumptions used and pro forma adjustments derived from such assumptions are based on currentlyavailable information, and we believe such assumptions are reasonable under the circumstances.
The unaudited pro forma combined financial statement data presented below are not necessarily indicative of our results of operations or financialcondition had the distribution and our anticipated post-distribution capital structure been completed on the dates assumed. Also, they may not reflect the results ofoperations or financial condition that would have resulted had we been operating as an independent, publicly traded company during such periods. In addition,they are not necessarily indicative of our future results of operations or financial condition.
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You should read this summary financial data together with “Unaudited Pro Forma Combined Financial Statements,” “Capitalization,” “Selected HistoricalCombined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the combined financial statementsand accompanying notes included elsewhere in this information statement.
As of and for the six months ended
December 31, As of and for the year ended
June 30,
Pro Forma
2012 2012 2011 Pro Forma
2012 2012 2011 2010 (in millions, except per share amounts) Statement of Operations Data:
Revenues $ 4,646 $ 4,454 $4,390 $ 9,140 $ 8,654 $9,095 $8,752 Income (loss) before income tax benefit (expense) 159 1,296 190 (2,148) (2,377) 961 461 Net income (loss) attributable to New News Corporation 85 1,307 111 (1,888) (2,075) 678 243 Net income (loss) per share—basic [·] [·] Net income (loss) per share—diluted [·] [·] Total segment EBITDA 565 389 439 1,112 782 1,213 813
Balance Sheet Data: Cash and cash equivalents $ 2,560 $ 741 $ 1,133 Total assets 18,646 16,561 13,090
(1) Fiscal 2012 results included non-cash impairment charges of approximately $2.6 billion ($2.2 billion, net of tax).(2) Segment EBITDA is defined as revenues less operating expenses and selling, general, and administrative expenses. Management believes that Total
Segment EBITDA is an appropriate measure for evaluating the operating performance of New News Corporation’s business segments because it is theprimary measure used by New News Corporation’s chief operating decision maker to evaluate the performance of, and allocate resources within, NewNews Corporation’s businesses. Total Segment EBITDA provides management, investors and equity analysts a measure to analyze operating performanceof each of New News Corporation’s business segments and its enterprise value against historical data and competitors’ data, although historical results maynot be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences). For areconciliation of total Segment EBITDA to GAAP (loss) income before income tax benefit (expense), see “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.”
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RISK FACTORS
You should carefully consider the following risks and other information in this information statement in evaluating us and our common stock. If any of thefollowing risks develop into actual events, it could materially and adversely affect our business, results of operations or financial condition, and could, in turn,impact the trading price of our common stock. The risk factors generally have been separated into three groups: risks related to our business, risks related to thedistribution and risks related to our common stock and the securities market.
Risks Related to Our Business
A Decline in Customer Advertising Expenditures in Our Newspaper and Other Businesses Could Cause Our Revenues and Operating Results to DeclineSignificantly in any Given Period or in Specific Markets.
We derive substantial revenues from the sale of advertising on or in our newspapers, integrated marketing services and digital media properties. We alsoderive revenues from the sale of advertising on our cable channels and pay-TV programming. Expenditures by advertisers tend to be cyclical, reflecting overalleconomic conditions, as well as budgeting and buying patterns. National and local economic conditions, particularly in major metropolitan markets, affect thelevels of retail, national and classified newspaper advertising revenue. Changes in gross domestic product, consumer spending, auto sales, housing sales,unemployment rates, job creation and circulation levels and rates all impact demand for advertising. A decline in the economic prospects of advertisers or theeconomy in general could alter current or prospective advertisers’ spending priorities. Our advertising revenues in the fiscal year ended June 30, 2012 declined5% as compared to the prior year, due in large part to lower advertising revenues at our Australian newspapers as a result of the weakening Australian economy,particularly among consumers, as well as declines at our integrated marketing services business resulting from lower in-store advertising spend by CPGmanufacturers. These declines were offset, in part, by increased revenues in our Digital Real Estate Services segment. In addition to economic conditions, otherfactors such as consolidation across various industries may also reduce our overall advertising revenue.
Demand for our products is also a factor in determining advertising rates. For example, circulation levels for our newspapers and ratings points for ourcable channels are among the factors that are weighed when determining advertising rates. In addition, newer technologies, including new downloadingcapabilities via the Internet, digital distribution models for books and other devices and technologies are increasing the number of media choices available toaudiences. These technological developments may cause changes in consumer behavior that could affect the attractiveness of our offerings to advertisers.
In addition, the range of advertising choices across digital products and platforms and the large inventory of available digital advertising space havehistorically resulted in significantly lower rates for digital advertising than for print advertising. Consequently, our digital advertising revenue may not be able toreplace print advertising revenue lost as a result of the shift to digital consumption. A decrease in our customers’ advertising expenditures, reduced demand forour offerings or a surplus of advertising inventory could lead to a reduction in pricing and advertising spending, which could have an adverse effect on ourbusinesses and assets.
Advertising, Circulation and Audience Share May Continue to Decline as Consumers Migrate to Other Media Alternatives.
Our businesses face competition from other sources of news, information and entertainment content delivery, and we may be adversely affected ifconsumers migrate to other media alternatives. For example, advertising and circulation revenues in our News and Information Services segment have beendeclining, reflecting general trends in the newspaper industry, including declining newspaper buying by young people and consumers’ increasing reliance on theInternet for the delivery of news and information, often without charge. In recent years, Internet sites devoted to recruitment, automobile and real estate serviceshave become significant
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competitors of our newspapers and websites for classified advertising sales. As a result, in the fiscal year ended June 30, 2012, our advertising revenues decreased7% and our circulation and subscription revenues decreased 8% in the News and Information Services segment as compared to the prior year. In addition, due toinnovations in content distribution platforms, consumers are now more readily able to watch Internet-delivered content on television sets and mobile devices, insome cases also without charge, which could reduce consumer demand for our television programming and pay-TV services and adversely affect both oursubscription revenue and advertisers’ willingness to purchase television advertising from us.
We Must Respond to Changes in Consumer Behavior as a Result of New Technologies in Order to Remain Competitive.
Technology continues to evolve rapidly, leading to alternative methods for the delivery and storage of digital content. These technological advancementshave driven changes in consumer behavior and have empowered consumers to seek more control over when, where and how they consume digital content.Content owners are increasingly delivering their content directly to consumers over the Internet, often without charge, and innovations in distribution platformshave enabled consumers to view such Internet-delivered content on portable devices and televisions. There is a risk that our responses to these changes andstrategies to remain competitive, including distribution of our content on a “pay” basis, may not be adopted by consumers. In addition, enhanced Internetcapabilities and other new media may reduce the demand for newspapers and television viewership, which could negatively affect our revenues. The trendingtoward digital media may drive down the price consumers are willing to spend on our products disproportionately to the costs associated with generating content.Our failure to protect and exploit the value of our content, while responding to and developing new products and business models to take advantage ofadvancements in technology and the latest consumer preferences, could have a significant adverse effect on our businesses, asset values and results of operations.
The Inability to Renew Sports Programming Rights Could Cause the Revenue of Certain of Our Australian Operating Businesses to Decline Significantly inany Given Period.
The sports rights contracts between certain of our Australian operating businesses, on the one hand, and various professional sports leagues and teams, onthe other, have varying duration and renewal terms. As these contracts expire, renewals on favorable terms may be sought; however, third parties may outbid thecurrent rights holders for the rights contracts. In addition, professional sports leagues or teams may create their own networks or the renewal costs couldsubstantially exceed the original contract cost. The loss of rights could impact the extent of the sports coverage offered by us and could adversely affect ourrevenues. Upon renewal, our results could be adversely affected if escalations in sports programming rights costs are unmatched by increases in subscriber andcarriage fees and advertising rates.
No Assurance of Profitability of Amplify.
Many of Amplify’s newer lines of business are still under development. Accordingly, Amplify’s prospects must be considered in light of the risks, expensesand difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such asdigital education. These risks for Amplify include, but are not limited to, an evolving business model and the management of growth. Amplify must, among otherthings, develop a customer base for its full range of offerings, including by utilizing the existing customers associated with its assessment and analytics business,implement and successfully execute its business and marketing strategy, continue to develop and upgrade its software and content offerings, respond tocompetitive developments, and attract, retain and motivate qualified personnel. Since our 2010 acquisition of Wireless Generation, which comprises AmplifyInsight, Amplify’s assessment and analytics business, and the initiation of our development of the broader business initiatives of Amplify, our digital educationbusiness has recorded a cumulative loss before income taxes of approximately $160 million through December 31, 2012. The portion of this loss recognized inthe six months ended December 31, 2012 was approximately $60 million and we estimate a total loss before income taxes for the year ended June 30, 2013 ofapproximately $180 million. Significant expenses associated with Amplify’s businesses include
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salaries, employee benefits and other routine overhead associated with product development. There can be no assurance that Amplify will be successful inaddressing these risks or in achieving these goals, and the failure to do so could have a material adverse effect on Amplify’s business, prospects, financialcondition and results of operations.
We May Make Strategic Acquisitions That Could Introduce Significant Risks and Uncertainties.
In order to position our business to take advantage of growth opportunities, we may make strategic acquisitions that involve significant risks anduncertainties. These risks and uncertainties include, among others: (1) the difficulty in integrating newly acquired businesses and operations in an efficient andeffective manner, (2) the challenges in achieving strategic objectives, cost savings and other anticipated benefits, (3) the potential loss of key employees of theacquired businesses, (4) the risk of diverting the attention of our senior management from our operations, (5) the risks associated with integrating financialreporting and internal control systems, (6) the difficulties in expanding information technology systems and other business processes to accommodate theacquired businesses, (7) potential future impairments of goodwill associated with the acquired business and (8) in some cases, increased regulation. If an acquiredbusiness fails to operate as anticipated or cannot be successfully integrated with our existing business, our business, results of operations and financial conditioncould be adversely affected.
Global Economic Conditions May Have a Continuing Adverse Effect on Our Business.
The United States and global economies have undergone a period of economic uncertainty, which caused, among other things, a general tightening in thecredit markets, limited access to the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, lower consumer and businessspending and lower consumer net worth. The resulting pressure on the labor and retail markets and the downturn in consumer confidence weakened the economicclimate in certain markets in which we do business and has had and may continue to have an adverse effect on our business, results of operations, financialcondition and liquidity. A continued decline in these economic conditions could further impact our business, reduce our advertising and other revenues andnegatively impact the performance of our newspapers, books, television operations and other consumer products. These conditions could also impair the ability ofthose with whom we do business to satisfy their obligations to us. Additionally, we will have a greater proportional exposure to certain Australian business risks,including specific Australian legal and regulatory risks, consumer preferences and competition because we will hold substantially all of Parent’s formerAustralian assets and those Australian assets will represent a greater proportion of our total assets than of Parent’s former total assets. As a result, our results ofoperations may be adversely affected by negative developments in the Australian market. Although we believe that our post-distribution capitalization, operatingcash flow and current access to capital and credit markets will give us the ability to meet our financial needs for the foreseeable future, there can be no assurancethat continued or increased volatility and disruption in the global capital and credit markets will not impair our liquidity or increase our cost of borrowing.
We Do Not Have the Right to Manage Foxtel, Which Means We Are Not Able to Cause Foxtel to Operate or Make Corporate Decisions in a Manner that isFavorable to Us.
We do not have the right to manage the business or affairs of Foxtel. While our rights include the right to appoint one-half of the board of directors ofFoxtel, we are not able to cause management or the board of directors to take any specific actions on our behalf, including with regards to declaring and payingdividends.
We Face Investigations Regarding Allegations of Phone Hacking, Illegal Data Access, Inappropriate Payments to Public Officials and Other Related Mattersand Related Civil Lawsuits.
U.K. and U.S. regulators and governmental authorities are conducting investigations relating to phone hacking, illegal data access and inappropriatepayments to public officials at our former publication, The News of the World, and at The Sun, and related matters, which we refer to as the U.K. NewspaperMatters. We, together with Parent, are cooperating with these investigations.
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We have admitted liability in many civil cases related to the phone hacking allegations and have settled many cases. While additional civil lawsuits may befiled, we have also announced a private compensation scheme under which parties can pursue claims against us, and until April 8, 2013, additional civil claimsmay be brought under the compensation scheme.
We are not able to predict the ultimate outcome or cost of the civil claims or criminal matters. From July 1, 2010, through December 31, 2012, we incurredaggregate legal and professional fees related to the U.K. Newspaper Matters of $250 million and paid $25 million to claimants for civil settlements. In addition,as of December 31, 2012, we have provided for our best estimate of the liability for the claims that have been filed and costs incurred and have accruedapproximately $70 million. We and Parent will agree in the separation and distribution agreement that Parent will indemnify us for payments made after thedistribution date arising out of civil claims and investigations relating to the U.K. Newspaper Matters, subject to our compliance with certain agreementsregarding Parent’s control over the civil U.K. Newspaper Matters and our consenting to settlements proposed by Parent, as well as legal and professional fees andexpenses paid in connection with the criminal matters. The legal and professional fees and expenses and payments for settlements that we have incurred to datewere in connection with the civil claims and investigations and criminal matters, and we generally will be indemnified by Parent for such costs that are paid afterthe distribution date. However, violations of law may result in criminal fines or penalties for which we will not be indemnified by Parent. It is possible that theseproceedings and any adverse resolution thereof, including any fines or other penalties associated with any plea, judgment or similar result for which we will notbe indemnified, could damage our reputation, impair our ability to conduct our business and adversely affect our results of operations and financial condition. See“Business—Legal Proceedings” and “Our Relationship with Parent Following the Distribution—Mutual Releases and Indemnification” for additionalinformation.
Our Business Could Be Adversely Impacted by Changes in Governmental Policy and Regulation.
Various aspects of our activities are subject to regulation in numerous jurisdictions around the world, and the introduction of new laws and regulations incountries where our products and services are produced or distributed (and changes in the enforcement of existing laws and regulations in those countries) couldhave a negative impact on our interests.
For example, our Australian operating businesses may be adversely affected by changes in government policy, regulation or legislation, or the applicationor enforcement thereof, applying to companies in the Australian media industry or to Australian companies in general. This includes:
• anti-siphoning legislation which currently prevents pay-TV providers such as Foxtel from acquiring rights to televise certain listed events (for
example, the Olympic Games and certain Australian rules football and cricket matches) unless:
– national and commercial television broadcasters have not obtained these rights 12 weeks before the start of the event;
– the rights to televise are also held by commercial television licensees who have rights to televise the event to more than 50% of the Australian
population; or
– the rights to televise are also held by one of Australia’s two major government-funded broadcasters; and
• legislation such as the Broadcasting Services Act that regulates ownership interests and control of Australian media organizations. Such legislationmay have an impact on our ownership structure and operations and may restrict our ability to take advantage of acquisition or investmentopportunities. For example, current media diversity rules would prevent us from exercising control of a commercial television broadcasting license, acommercial radio license and a newspaper in the same license area.
On April 30, 2012, the Minister for Broadband, Communications and Digital Economy also released the Final Report of a comprehensive review ofAustralia’s communications and media regulation in light of
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increasing convergence in media platforms, also referred to as the Convergence Review. In November 2012, the Government announced an interim response tothe Convergence Review which included proposals to reduce certain restrictions on the FTA networks with whom our businesses compete. However, theGovernment has not yet passed legislation implementing this policy announcement or any other reforms arising out of the Convergence Review. There is a riskthat any change in regulation arising from the Convergence Review could adversely impact our Australian television business.
In addition, our newspaper businesses in the U.K. are likely to be subject to greater regulation and oversight following the implementation ofrecommendations of the Leveson inquiry into the U.K. press, which was established by Prime Minister David Cameron in mid-2011. The inquiry was triggeredby allegations of illegal voicemail interception at our former publication, The News of the World. Lord Justice Leveson, Chairman of the Inquiry, has concludedthe first part of the inquiry and published a report in late November 2012 containing various recommendations for greater regulation and oversight of the U.K.press. In response, the U.K. Government has proposed establishing a regulatory body to oversee the U.K. press, which would be comprised primarily of membersindependent of the industry. If adopted, a new regulatory regime may impose burdens on the print media in the U.K. that represent competitive disadvantagesversus other forms of media and may increase the costs of compliance.
Changes in Educational Funding.
Our U.S. educational businesses may be adversely affected by changes in state educational funding as a result of changes in legislation, both at the federaland state level, changes in the state procurement process and changes in the condition of the local, state or U.S. economy. Future changes in federal funding andthe state and local tax base could create an unfavorable environment, leading to budget issues resulting in a decrease in educational funding.
We Could Suffer Losses Due to Asset Impairment and Restructuring Charges.
As a result of adverse developments in our industry and challenging economic and market conditions, we may recognize impairment charges for write-downs of goodwill and intangible assets, as well as restructuring charges relating to the reorganization of our businesses, which negatively impact our financialresults. In accordance with GAAP, we perform an annual impairment assessment of our recorded goodwill and indefinite-lived intangible assets, includingnewspaper mastheads and distribution networks, during the fourth quarter of each fiscal year. As a result of the fiscal 2012 annual impairment review performed,we recorded non-cash impairment charges of approximately $2.6 billion ($2.2 billion, net of tax) during the fiscal year ended June 30, 2012. The chargesconsisted of a write-down of goodwill of $1.3 billion and a write-down of indefinite-lived intangible assets of $1.3 billion. These charges were due in large part toadverse trends affecting our News and Information Services segment, including secular declines in the economic environment in Australia. In response to thesechallenging conditions we are reorganizing our Australian newspaper businesses, and we recognized $177 million of restructuring charges in the six monthsended December 31, 2012, a significant portion of which resulted from our restructuring activities in Australia.
We continually evaluate whether current factors or indicators, such as the prevailing conditions in the capital markets or the economy generally, require theperformance of an interim impairment assessment of those assets, as well as other investments and other long-lived assets, or require us to engage in anyadditional business restructurings to address these conditions. Any significant shortfall, now or in the future, in advertising revenue and/or the expected popularityof the programming for which we have acquired rights could lead to a downward revision in the fair value of certain reporting units. The News and InformationServices and Other segments have reporting units with approximately $2.2 billion in goodwill as of June 30, 2012 that continues to be at risk for
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future impairment and with fair values that exceeded their carrying values by less than 10%. During the six months ended December 31, 2012, goodwill increasedby approximately $1 billion as a result of the acquisition of CMH. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” for an analysis of the sensitivity of the fair value of goodwill and intangible assets to changes in key assumptions. A downwardrevision in the fair value of a reporting unit, indefinite-lived intangible assets, investments or long-lived assets could result in an impairment and a non-cashcharge would be required. Any such charge could be material to our reported results of operations. We may also incur additional restructuring charges in thefuture if we are required to further realign our resources in response to significant shortfalls in revenue or other adverse trends.
Newsprint Prices May Continue to Be Volatile and Difficult to Predict and Control.
Newsprint is one of the largest expenses of our publishing units. During the six months ended December 31, 2012, our average cost per ton of newsprintwas approximately 5% higher than our historical average annual cost per ton over the past five fiscal years. The price of newsprint has historically been volatileand the consolidation of newsprint mills over the years has reduced the number of suppliers, which has led to increases in newsprint prices. Failure to maintainour current consumption levels, further supplier consolidation or the inability to maintain our existing relationships with our newsprint suppliers could adverselyimpact newsprint prices in the future.
We Rely on Network and Information Systems and Other Technology That May Be Subject to Disruption or Misuse, Which Could Result in ImproperDisclosure of Personal Data or Confidential Information as well as Increased Costs or Loss of Revenue.
Network and information systems and other technologies, including those related to our network management, are important to our business activities.Network and information systems-related events, such as computer hackings, computer viruses, worms or other destructive or disruptive software, processbreakdowns, denial of service attacks, malicious social engineering or other malicious activities, or any combination of the foregoing, could result in a disruptionof our services or improper disclosure of personal data or confidential information. Improper disclosure of such information could harm our reputation, require usto expend resources to remedy such a security breach or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.
Technological Developments May Increase the Threat of Content Piracy and Limit Our Ability to Protect Intellectual Property Rights.
We seek to limit the threat of content piracy; however, policing unauthorized use of our products and services and related intellectual property is oftendifficult and the steps taken by us may not in every case prevent the infringement by unauthorized third parties. Developments in technology increase the threat ofcontent piracy by making it easier to duplicate and widely distribute pirated material. We have taken, and will continue to take, a variety of actions to combatpiracy, both individually and, in some instances, together with industry associations. However, protection of our intellectual property rights is dependent on thescope and duration of our rights as defined by applicable laws in the U.S. and abroad and the manner in which those laws are construed. If those laws are draftedor interpreted in ways that limit the extent or duration of our rights, or if existing laws are changed, our ability to generate revenue from intellectual property maydecrease, or the cost of obtaining and maintaining rights may increase. There can be no assurance that our efforts to enforce our rights and protect our products,services and intellectual property will be successful in preventing content piracy.
Our Business Relies on Certain Intellectual Property and Brands.
Our businesses rely on a combination of trademarks, trade names, copyrights, and other proprietary rights, as well as contractual arrangements, includinglicenses, to establish and protect our intellectual property and
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brand names. We believe our proprietary trademarks and other intellectual property rights are important to our continued success and our competitive position.Any impairment of any such intellectual property or brands could adversely impact the results of our operations or financial condition.
Fluctuations in Foreign Exchange Rates Could Have an Adverse Effect on Our Results of Operations.
We have significant operations in a number of foreign jurisdictions and certain of our operations are conducted in foreign currencies. The value of thesecurrencies fluctuates relative to the U.S. dollar. As a result, we are exposed to exchange rate fluctuations, which could have an adverse effect on our results ofoperations in a given period or in specific markets.
Labor Disputes May Have an Adverse Effect on Our Business.
In a variety of our businesses, we engage the services of employees who are subject to collective bargaining agreements. If we are unable to renew expiringcollective bargaining agreements, it is possible that the affected unions could take action in the form of strikes or work stoppages. Such actions, as well as highercosts in connection with these collective bargaining agreements or a significant labor dispute, could have an adverse effect on our business by causing delays inproduction or by reducing profit margins.
Risks Related to the Distribution
If the Distribution, Together with Certain Related Transactions, Were Ultimately Determined to be Taxable Transactions for U.S. Federal Income TaxPurposes, then We, Parent and Our Stockholders Could Be Subject to Significant Tax Liability.
The distribution is conditioned upon a private letter ruling from the IRS substantially to the effect that, among other things, the distribution of our Class ACommon Stock and Class B Common Stock qualifies as tax-free under Sections 368 and 355 of the Code except for cash received in lieu of fractional shares ofour stock, as well as upon Parent receiving an opinion from the law firm of Hogan Lovells US LLP confirming the tax-free status of the distribution for U.S.federal income tax purposes, including confirming the satisfaction of the requirements under Section 368 and 355 of the Code not specifically addressed in theIRS private letter ruling. The opinion of Hogan Lovells US LLP will not be binding on the IRS or the courts, and there is no assurance that the IRS or a court willnot take a contrary position.
The private letter ruling and the opinion will rely on certain facts and assumptions, and certain representations from us and Parent regarding the past andfuture conduct of our respective businesses and other matters. Notwithstanding the receipt of the private letter ruling and the opinion, the IRS could determine onaudit that the distribution or the internal transactions should be treated as taxable transactions if it determines that any of these facts, assumptions, representationsor undertakings is not correct or has been violated, or that the distribution or the internal transactions should be taxable for other reasons, including as a result of asignificant change in stock or asset ownership after the distribution. If the distribution ultimately is determined to be taxable, the distribution could be treated as ataxable dividend or capital gain for U.S. federal income tax purposes, and U.S. stockholders and certain non-U.S. stockholders could incur significant U.S. federalincome tax liabilities as described under “Material U.S. Federal Income Tax Consequences of the Distribution.” In addition, if the internal reorganization and/orthe distribution is ultimately determined to be taxable, Parent would recognize gains on the internal reorganization and/or recognize gain in an amount equal tothe excess of the fair market value of shares of our common stock distributed to Parent’s stockholders on the distribution date over Parent’s tax basis in suchshares of our common stock.
In addition, under the terms of the tax sharing and indemnification agreement that we intend to enter into in connection with the distribution, we would, incertain circumstances, be responsible for all taxes, including interest and penalties, imposed on Parent as a result of actions taken by us or any of our subsidiariesafter the distribution.
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Specifically, in the event that the distribution or the internal transactions intended not to be subject to tax were determined to be subject to tax and suchdetermination was the result of certain actions taken, or omitted to be taken, after the distribution by us or any of our subsidiaries and such actions (1) wereinconsistent with any representation or covenant made in connection with the private letter ruling or opinion of Hogan Lovells US LLP, (2) violated anyrepresentation or covenant made in the tax sharing and indemnification agreement, or (3) we or any of our subsidiaries know or reasonably should expect, afterconsultation with our advisors, may result in any such determination, we will be responsible for any taxes imposed on Parent as a result of such determination.
If the ATO Forms the View that All or Part of the Distribution Should be Treated as an Unfranked Dividend Under Australian Taxation Law, Then Parentand the Australian Resident Stockholders Could be Subject to a Significant Tax Liability.
Parent has requested a Class Ruling from the ATO confirming that (1) no part of the distribution of our Class A Common Stock and Class B CommonStock will be a dividend, and (2) the Commissioner of Taxation will not make a determination to deem all or part of the distribution to be an unfranked dividend.
The Class Ruling will be based upon certain facts and assumptions regarding past and future conduct of our respective businesses. If the ATO considers thatthe information provided in the application for the Class Ruling was not correct, or omitted relevant information, in respect of a material fact or assumption, thenthe ATO may take the view that it is not bound by the view of the law expressed in the Class Ruling. In those circumstances, or if the ATO refuses to issue theClass Ruling, all or part of the distribution could be taken to be an unfranked dividend, the amount of which would be required to be included in the assessableincome of Australian resident holders of Parent common stock or CDIs.
We Could Be Liable for Income Taxes Owed by Parent.
Each member of the Parent consolidated group, which includes Parent, our company and Parent’s other subsidiaries, is jointly and severally liable for theU.S. federal income tax liability of each other member of the consolidated group. Consequently, we could be liable in the event any such liability is incurred, andnot discharged, by any other member of the Parent consolidated group. The tax sharing and indemnification agreement will require Parent to indemnify us for anysuch liability. Disputes or assessments could arise during future audits by the IRS in amounts that we cannot quantify.
We Might Not Be Able to Engage in Desirable Strategic Transactions and Equity Issuances Following the Distribution Because of Certain RestrictionsRelating to Requirements for Tax-Free Distributions for U.S. Federal Income Tax Purposes.
Our ability to engage in significant strategic transactions and equity issuances may be limited or restricted after the distribution in order to preserve, forU.S. federal income tax purposes, the tax-free nature of the distribution by Parent. Even if the distribution otherwise qualifies for tax-free treatment underSection 355 of the Code, it may result in corporate level taxable gain to Parent under Section 355(e) of the Code if 50% or more, by vote or value, of shares of ourstock or Parent’s stock are acquired or issued as part of a plan or series of related transactions that includes the distribution.
To preserve the tax-free treatment to Parent of the distribution and the internal transactions in connection with the distribution for U.S. federal income taxpurposes, under the tax sharing and indemnification agreement that we will enter into with Parent, we will be prohibited from taking or failing to take certainactions that may prevent the distribution and related transactions from being tax-free for U.S. federal income tax purposes. Further, for the two-year periodfollowing the distribution, without obtaining the consent of Parent, we may be prohibited from:
• approving or allowing any transaction that results in a change in ownership of more than a specified percentage of our common stock,
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• a merger,
• a redemption of equity securities,
• a sale or other disposition of certain businesses or a specified percentage of our assets,
• an acquisition of a business or assets with equity securities to the extent one or more persons would acquire in excess of a specified percentage of our
common stock, or
• amending our organizational documents or taking any other action through stockholder vote or otherwise that affects the relative economic or voting
rights of our outstanding stock.
These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of ourbusiness. Moreover, the tax sharing and indemnification agreement will also provide that we are responsible for any taxes imposed on Parent or any of itsaffiliates as a result of the failure of the distribution or the internal transactions to qualify for favorable treatment under the Code if such failure is attributable tocertain actions taken after the distribution by or in respect of us, any of our affiliates or our stockholders.
The Separation and Distribution Agreement May Restrict Us From Acquiring or Owning Certain Types of Assets in the U.S.
The Federal Communications Commission (“FCC”) has promulgated certain rules and regulations that limit the ownership of radio and televisionbroadcast stations, television broadcast networks and newspapers (the “Broadcast Ownership Rules”) and place commercial restrictions on a cable networkprogrammer in which a cable television operator holds an ownership interest (the “Program Access Rules”). Under the FCC’s rules for determining ownership ofthe media assets described above, the Murdoch Family Trust’s ownership interest in both Parent and us following the distribution would generally result in eachcompany’s businesses and assets being attributable to the Murdoch Family Trust for purposes of determining compliance with the Broadcast Ownership Rulesand the Program Access Rules. Consequently, our future conduct, including our acquisition of any newspapers in the same local markets in which Parent owns oroperates television stations or our acquisition of an ownership interest in a cable operator, may affect Parent’s ability to own and operate its television stations orotherwise comply with the Broadcast Ownership Rules, or may subject Parent to the Program Access Rules. Therefore, we and Parent will agree in the separationand distribution agreement that if we acquire, after the distribution date, newspapers, radio or television broadcast stations or television broadcast networks in theU.S. and such acquisition would impede or be reasonably likely to impede Parent’s business, then we will be required to take certain actions, including divestingassets, in order to permit Parent to hold its media interests and to comply with such rules. In addition, we will be prohibited from acquiring an interest in amultichannel video programming distributor, including a cable television operator, if such acquisition would subject Parent to the Program Access Rules to whichit is not then subject. This agreement will effectively limit the activities or strategic business alternatives available to us if such activities or strategic businessalternatives implicate the Broadcast Ownership Rules or Program Access Rules and would impede or be reasonably likely to impede Parent’s business.
The Indemnification Arrangements We Enter Into With Parent in Connection With the Distribution May Require Us to Divert Cash to SatisfyIndemnification Obligations to Parent.
Pursuant to the separation and distribution agreement and certain other related agreements, Parent will agree to indemnify us for certain liabilities and wewill agree to indemnify Parent for certain liabilities, as discussed further in the section entitled “Our Relationship With Parent Following the Distribution.” As aresult, we could be required, under certain circumstances, to indemnify Parent and its affiliates against certain liabilities to the extent such liabilities result from anaction we or our affiliates take or from any breach of our or our affiliates’ representations, covenants or obligations under the separation and distributionagreement, tax sharing and indemnification agreement or any other agreement we enter into in connection with the distribution.
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Certain Agreements That We Enter Into With Parent in Connection With the Distribution May Limit Our Ability to Take Certain Actions With Respect to theCivil U.K. Newspaper Matters.
Under the terms of the separation and distribution agreement, in consideration for Parent’s agreement to certain indemnification arrangements, we willagree that Parent will have the right to control our defense of civil claims relating to the U.K. Newspaper Matters. In exercising its rights to control the defense ofthe civil claims relating to the U.K. Newspaper Matters, Parent may be guided by interests that are different than or adverse to our interests and the interests ofour stockholders and advocate strategies that our management would not otherwise adopt. Furthermore, if we fail to comply with these control arrangements ordo not consent to settlements with respect to such matters proposed by Parent, we have agreed with Parent that we will, at Parent’s discretion, forego anyindemnification with regard to such or all of these matters. Our inability to take actions with respect to these civil matters without Parent’s consent or ouradoption of strategies advocated by Parent could damage our reputation or impair our ability to conduct our business while our taking any such action withoutParent’s consent in breach of our agreements could increase our liability exposure with regard to such matters and adversely affect our results of operations andfinancial condition. See “Business—Legal Proceedings” and “Our Relationship with Parent Following the Distribution—Mutual Releases and Indemnification”for additional information.
There Can Be No Assurance That We Will Have Access to the Capital Markets on Terms Acceptable to Us.
From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the sources of capitalin place at the time of the distribution will permit us to finance our operations for the foreseeable future on acceptable terms and conditions, our access to, and theavailability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including, but not limited to: (1) our financialperformance, (2) our credit ratings or absence of a credit rating, (3) the liquidity of the overall capital markets and (4) the state of the economy. There can be noassurance, particularly as a new company that currently has no credit rating, that we will have access to the capital markets on terms acceptable to us.
We May be Unable to Achieve Some or All of the Benefits That We Expect to Achieve as an Independent, Publicly-Traded Company.
By separating from Parent there is a risk that we may be more susceptible to market fluctuations and other adverse events than we would have otherwisebeen while we were still a part of Parent. As part of Parent, we were able to enjoy certain benefits from Parent’s operating diversity and access to capital forinvestments, which benefits will no longer be available to us after we separate from Parent.
As an independent, publicly-traded company, we believe that our businesses will benefit from, among other things, sharpened focus on the financial andoperational resources of our specific business, allowing our management to design and implement a capital structure, corporate strategies and policies that arebased primarily on the business characteristics and strategic opportunities of our businesses. We anticipate this will allow us to respond more effectively toindustry dynamics and to allow us to create effective incentives for our management and employees that are more closely tied to our business performance.However, we may not be able to achieve some or all of the expected benefits. Additionally, completion of the distribution will require a significant amount of ourmanagement’s time and effort, which may divert attention from operating and growing our business. If we fail to achieve some or all of the benefits in the timewe expect, our business, financial condition and results of operations could be materially and adversely affected.
We Have No Operating History as an Independent, Publicly-Traded Company, and Our Historical and Pro Forma Financial Statements Are Not NecessarilyRepresentative of the Results We Would Have Achieved as an Independent, Publicly-Traded Company and May Not Be Reliable Indicators of Our FutureResults.
The historical and pro forma financial statements included in this information statement do not necessarily reflect the results of operations, cash flows andfinancial condition that we would have achieved as an
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independent, publicly-traded company during the periods presented or those that we will achieve in the future, primarily as a result of the following factors:
• Historically, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, havebeen provided by Parent to the extent we did not generate sufficient cash flows to cover our cash requirements. Parent has historically managed andretained cash we have generated. Following completion of the distribution, Parent will not be providing us with funds to finance our working capital orother cash requirements. Without the opportunity to obtain capital from Parent, we may need to access capital markets and there is no guarantee thatcapital will be available to us or available on terms that are as favorable as those we could have obtained when we were part of Parent.
• Prior to the distribution, our business was operated by Parent as part of its broader corporate organization, rather than as an independent company.Parent has historically performed various corporate functions for us, including, but not limited to, tax administration, treasury activities, accounting,legal, ethics and compliance program administration, investor and public relations, certain governance functions (including internal audit) and externalreporting. Our historical and pro forma financial statements reflect allocations of corporate expenses from Parent for these and similar functions. Theseallocations may be more or less than the comparable expenses we would have incurred had we operated as an independent, publicly traded company.
• Other significant changes may occur in our cost structure, management, financing, business operations, personnel needs, tax and structure as a result of
our operation as a company separate from Parent. We benefited from Parent’s operating diversity, size and purchasing power, and we will lose suchbenefits as an independent company. Additionally, we will be entering into transactions with Parent that did not exist prior to the distribution.
Our Accounting and Other Management Systems and Resources May Not be Adequately Prepared to Meet the Financial Reporting and Other Requirementsto Which We Will Be Subject Following the Distribution. If We Are Unable to Achieve and Maintain Effective Internal Controls, Our Results of Operations,Cash Flows and Financial Condition Could Be Materially Adversely Affected.
Our financial results previously were included within the consolidated results of Parent, and we believe that our reporting and control systems wereappropriate for those of subsidiaries of a public company. However, we were not directly subject to the reporting and other requirements of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). As a result of the distribution, we will be directly subject to reporting and other obligations under theExchange Act. Beginning with our annual report on Form 10-K for the fiscal year ending June 30, 2014, we will be required to comply with Section 404 of theSarbanes Oxley Act of 2002, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a reportby our independent registered public accounting firm. These reporting and other obligations will place significant demands on our management andadministrative and operational resources, including accounting resources. To comply with these requirements, we may need to upgrade our systems, includinginformation technology, and implement additional financial and management controls, reporting systems and procedures. We expect to incur additional annualexpenses related to these steps, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems,information technology systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rulesthat apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a materialadverse effect on our business, financial condition, results of operations and cash flows.
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Until the Distribution Occurs, Parent Has the Sole Discretion to Change the Terms of the Distribution.
Until the distribution occurs, Parent will have the sole and absolute discretion to determine and change the terms of the distribution, including theestablishment of the record date and distribution date. These changes could be unfavorable to us. In addition, Parent may decide at any time not to proceed withthe distribution.
After the Distribution, Certain of Our Directors and Officers May Have Actual or Potential Conflicts of Interest Because of Their Equity Ownership inParent, and Certain of Our Officers and Directors May Have Actual or Potential Conflicts of Interest Because They Also Serve as Officers and/or on theBoard of Directors of Parent.
Following the distribution, certain of our directors and executive officers may own shares of Parent’s common stock or options to acquire shares of Parent’scommon stock, and the individual holdings may be significant for some of these individuals compared to their total assets. In addition, following the distribution,certain of our officers and directors will also serve as officers and/or as directors of Parent, including K. Rupert Murdoch, who will serve as our ExecutiveChairman and the Chairman and Chief Executive Officer of Parent, and Gerson Zweifach, who will serve as our General Counsel and as Senior Executive VicePresident and Group General Counsel of Parent. This ownership or service to both companies may create, or may create the appearance of, conflicts of interestwhen these directors and officers are faced with decisions that could have different implications for Parent and us.
For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between Parent and us regarding theterms of the agreements governing the internal reorganization, the distribution and the relationship thereafter between the companies, including with respect to theindemnification of certain matters. In addition to any other arrangements that we and Parent may agree to implement, we and Parent will agree that officers anddirectors who serve at both companies will recuse themselves from decisions where conflicts arise due to their positions at both companies.
Risks Related to Our Common Stock and the Securities Market
There Is No Existing Market for Our Common Stock, and a Trading Market That Will Provide You with Adequate Liquidity May Not Develop for OurCommon Stock. In Addition, Once Our Common Stock Begins Trading, the Market Price of Our Shares May Fluctuate Significantly.
There is currently no public market for our common stock. It is anticipated that on or prior to the record date for the distribution, trading of shares of ourcommon stock will begin on a “when-issued” basis and will continue up to and through the distribution date. However, there can be no assurance that an activetrading market for our common stock will develop as a result of the distribution or be sustained in the future. The lack of an active trading market may make itmore difficult for you to sell our shares and could lead to our share price being depressed or more volatile.
We cannot predict the prices at which our common stock may trade after the distribution. The market price of our common stock may fluctuatesignificantly, depending upon many factors, some of which may be beyond our control, including: (1) a shift in our investor base; (2) our quarterly or annualearnings, or those of other companies in our industry; (3) actual or anticipated fluctuations in our operating results; (4) success or failure of our business strategy;(5) our ability to obtain financing as needed; (6) changes in accounting standards, policies, guidance, interpretations or principles; (7) changes in laws andregulations affecting our business; (8) announcements by us or our competitors of significant new business developments or customers; (9) announcements by usor our competitors of significant acquisitions or dispositions; (10) the failure of securities analysts to cover our common stock after the distribution; (11) changesin earnings estimates by securities analysts or our ability to meet our earnings guidance; (12) the operating and stock price performance of other comparablecompanies; (13) results from material litigation or governmental investigations; (14) changes in
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capital gains taxes and taxes on dividends affecting stockholders; and (15) overall market fluctuations and general economic conditions.
Furthermore, our business profile and our market capitalization may not fit the investment objectives of many of Parent’s stockholders and, as a result,these stockholders may sell our shares after the distribution. See “—Substantial Sales of Common Stock May Occur in Connection with This Distribution, WhichCould Cause Our Stock Price to Decline.”
Substantial Sales of Common Stock May Occur in Connection with This Distribution, Which Could Cause Our Stock Price to Decline.
The shares of our common stock that Parent distributes to its stockholders generally may be sold immediately in the public market. Although we have noactual knowledge of any plan or intention on the part of any significant stockholders of Parent to sell our common stock on or after the record date, it is possiblethatsome of Parent’s stockholders will sell our common stock received in the distribution for reasons such as our business profile or market capitalization as anindependent company not fitting their investment objectives or because our common stock is not included in certain indices after the distribution. The sales ofsignificant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock.
Certain Provisions of Our Certificate of Incorporation, By-laws, Tax Sharing and Indemnification Agreement, Separation and Distribution Agreement,Delaware Law and the Ownership of Our Common Stock by the Murdoch Family Trust May Discourage Takeovers and the Concentration of Ownership WillAffect the Voting Results of Matters Submitted for Stockholder Approval.
Our amended and restated certificate of incorporation and amended and restated by-laws will contain certain anti-takeover provisions that may make moredifficult or expensive a tender offer, change in control, or takeover attempt that is opposed by our board of directors or certain stockholders holding a significantpercentage of the voting power of our outstanding voting stock. Our equity capital and governance structure is designed to mirror Parent’s existing capital andgovernance structure to the maximum extent applicable. In particular, our amended and restated certificate of incorporation and amended and restated by-lawsprovide for, among other things:
• a dual class common equity capital structure;
• stockholders to remove directors only for cause;
• a prohibition on stockholders taking any action by written consent without a meeting;
• special stockholders’ meeting to be called only by the chief executive officer, the board of directors, or the holders of not less than 20% of the voting
power of our outstanding voting stock;
• the requirement that stockholders give us advance notice to nominate candidates for election to the board of directors or to make stockholder proposals
at a stockholders’ meeting;
• the requirement of an affirmative vote of at least 65% of the voting power of our outstanding voting stock to amend or repeal our by-laws;
• certain restrictions on the transfer of our shares; and
• the board of directors to issue, without stockholder approval, Preferred Stock and Series Common Stock with such terms as the board of directors may
determine.
These provisions could discourage potential acquisition proposals and could delay or prevent a change in control of New News Corporation, even in thecase where a majority of the stockholders may consider such proposals, if effective, desirable. See “Description of Our Capital Stock.”
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Further, as a result of his ability to appoint certain members of the board of directors of the corporate trustee of the Murdoch Family Trust, which, based onits current ownership of Parent Common Stock, will beneficially own [·]% of our outstanding Class A Common Stock and [·]% of our Class B Common Stockimmediately following the distribution, K. Rupert Murdoch may be deemed to be a beneficial owner of the shares beneficially owned by the Murdoch FamilyTrust. K. Rupert Murdoch, however, disclaims any beneficial ownership of these shares. Also, K. Rupert Murdoch will, based on his current ownership of ParentCommon Stock, beneficially own or be deemed to beneficially own an additional [·]% of our Class A Common Stock and [·]% of our Class B Common Stockimmediately following the distribution. Thus, K. Rupert Murdoch may be deemed to beneficially own in the aggregate [·]% of our Class A Common Stock and[·]% of our Class B Common Stock immediately following the distribution. This concentration of voting power could discourage third parties from makingproposals involving an acquisition of New News Corporation. Additionally, the ownership concentration of Class B Common Stock by the Murdoch Family Trustincreases the likelihood that proposals submitted for stockholder approval that are supported by the Murdoch Family Trust will be adopted and proposals that theMurdoch Family Trust does not support will not be adopted, whether or not such proposals to stockholders are also supported by the other holders of Class BCommon Stock.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This information statement and other materials that we have filed or will file with the Securities Exchange Commission (the “SEC”) contain, or willcontain, “forward-looking statements.” Words such as “anticipates,” “estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,” “believes,” “may,” “will”and variations of such words and similar expressions are intended to identify our forward-looking statements. Where, in any forward-looking statements, weexpress an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management andexpressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved oraccomplished.
Examples of forward-looking statements include, but are not limited to, statements made regarding business strategies, market potential, future financialperformance and other events or developments that we expect or anticipate will occur in the future and statements expressing general views about futureoperating results. These forward-looking statements are subject to a number of important factors, including those factors discussed in detail under “Risk Factors”in this information statement that could cause our actual results to differ materially from those indicated in any such forward-looking statements. These factorsinclude, but are not limited to, increased competition; changes in advertising demand; increasing consolidation of advertising customers; changes in relationshipswith our significant customers and suppliers; changes in newsprint prices; newspaper circulation matters, including circulation trends; continued volatility ofcommodity and other input costs; pricing actions; increased costs of sales; regulatory or legal changes, restrictions or actions; unanticipated expenses such aslitigation or legal settlement expenses; unanticipated business disruptions; our ability to predict, identify and interpret changes in consumer preferences anddemand; our ability to realize the expected benefits of the distribution; our ability to complete proposed divestitures or acquisitions; our ability to realize theexpected benefits of acquisitions if they are completed; uncertainty regarding the availability of financing to us in the future and the terms of such financing;disruptions in our information technology networks and systems; our inability to protect our intellectual property rights; continued consumer weakness; weaknessin general global economic conditions; uncertainty in global political, business or regulatory conditions; changes in accounting standards and tax law changes.Additionally, there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact onNew News Corporation’s business.
We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this information statement, except as required byapplicable law or regulation.
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THE DISTRIBUTION
Background of the Distribution
On June 28, 2012, Parent announced its intent to pursue the separation of its business into two separate independent public companies, one of which willhold Parent’s global media and entertainment businesses and another which will hold the businesses comprising Parent’s newspapers, information services andintegrated marketing services, digital real estate services, book publishing, digital education and sports programming and pay-TV distribution in Australia. OnDecember 4, 2012, the board of directors of Parent authorized management to proceed with the proposed distribution, subject to the satisfaction or waiver ofcertain conditions and the board of directors’ ongoing consideration of the transaction and its final approval, which may not be granted.
In connection with the distribution, Parent will undertake the internal reorganization described under “Our Relationship with Parent Following theDistribution.” Following the internal reorganization, Parent will distribute all of the shares of New News Corporation common stock to its stockholders on a prorata basis. After the distribution, Parent will not own any equity interest in New News Corporation, and we will operate independently from Parent. Parent’sstockholders will not be required to vote to effectuate the distribution. However, in order to effectuate the distribution in the manner discussed in this informationstatement, Parent will be required to amend its Restated Certificate of Incorporation, and Parent will hold a Special Meeting in connection therewith. You will bemailed a separate proxy statement, which will contain the relevant information regarding the Special Meeting. The distribution contemplated by this informationstatement assumes that certain proposals contained in the separate proxy statement will be approved by Parent’s stockholders. Parent’s stockholders will not haveappraisal rights with regards to the distribution.
The internal reorganization and, in turn, the distribution, are subject to the satisfaction, or waiver by Parent, of a number of conditions. Additionally, Parentmay determine not to complete the internal reorganization or the distribution if, at any time, the board of directors of Parent determines, in its sole and absolutediscretion, that the distribution is not in the best interest of Parent or its stockholders or is otherwise not advisable.
Reasons for the Distribution
The board of directors of Parent regularly reviews Parent’s businesses to ensure that Parent’s resources are utilized in a manner that is in the best interest ofParent and its stockholders. In this process, the board of directors of Parent, with input and advice from Parent’s management, has evaluated distinct alternatives,including potential acquisitions, dispositions, business combinations and separations, with the objective of increasing stockholder value.
In 2012, the board of directors of Parent again reviewed potential strategic alternatives, including the proposed distribution. As a result of this evaluation,after considering a variety of factors in light of Parent’s businesses and their operations at that time, and with input from Parent’s management and financialadvisors, the board of directors determined that pursuing the separation of its business into two independent public companies holding the respective assetsdescribed above in “—Background of the Distribution” would be in the best interest of Parent and Parent’s stockholders and would enhance stockholder value.The determination of which businesses of Parent would comprise New News Corporation was driven by a variety of factors, including the historical structure ofParent’s reportable segments, the publishing nature of the business, the historical management of businesses and the regional nature of certain of our businesses’operations. In addition, management of our Australian newspaper operations has historically reviewed the financial results of the sports programming and pay-TVdistribution businesses in Australia which, until the end of last year, were both equity investments.
The board of directors of Parent believes that creating these two distinct publicly traded companies will present a number of opportunities, including:
• allowing each company to focus on and pursue distinct strategic priorities and industry-specific opportunities that would maximize each company’s
long-term potential;
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• allowing each company to benefit from greater financial and operational flexibility and better positioning the companies to compete;
• allowing the companies to each respond and react more quickly to rapidly-evolving technology and global market opportunities;
• providing investors in each company with a more targeted investment opportunity, each with different inherent values, including different financial and
operational structures; and
• allowing the companies to tailor their capital structures, allocate and deploy resources and implement compensation plans in a manner consistent with
strategic objectives that best enhance value for their respective stockholder groups.
In determining whether to pursue the distribution, Parent’s board of directors considered the costs and risks associated with the transaction, including thecost associated with preparing New News Corporation to become an independent publicly traded company, the risk of volatility in New News Corporation’s stockprice immediately following the distribution due to sales by Parent’s stockholders whose investment objectives may not be fulfilled by our common stock, thetime it may take for New News Corporation to attract its optimal stockholder base, any potential negative impact on Parent’s credit rating as a result of thedistribution, the time and effort required by this transaction from Parent’s and New News Corporation’s management and the potential distraction from theirrespective businesses and the loss of synergies and scale from operating as a single company. Notwithstanding these costs and risks, and taking into account thefactors discussed above, Parent’s board of directors determined that pursuing the distribution was the best alternative to achieve the above objectives and enhancestockholder value.
Manner of Effecting the Distribution
The general terms and conditions relating to the distribution will be set forth in the separation and distribution agreement between us and Parent. Under theseparation and distribution agreement, the distribution will be effective as of [·], 2013, the distribution date.
The distribution will be made on the basis of [·] share[s] of New News Corporation Class A Common Stock for every share of Parent’s Class A CommonStock and [·] share[s] of New News Corporation Class B Common Stock for every share of Parent’s Class B Common Stock outstanding on the record date. Theactual total number of shares of New News Corporation common stock to be distributed will depend on the number of Parent’s shares outstanding on the recorddate. Based upon the number of shares of Parent’s Class A and Class B Common Stock outstanding on [·], 2013, approximately [·] shares of New NewsCorporation Class A Common Stock and [·] shares of New News Corporation Class B Common Stock will be distributed to Parent’s stockholders, as applicable.The shares of New News Corporation common stock to be distributed will constitute 100% of the outstanding shares of New News Corporation common stock.
For most of Parent’s stockholders, the transfer agent will credit their shares of New News Corporation common stock to book-entry accounts established tohold their shares of New News Corporation common stock. The transfer agent will send such stockholders a statement reflecting their ownership of New NewsCorporation common stock. For stockholders who own Parent’s common stock through a broker or other nominee, their shares of our common stock will becredited to these stockholders’ accounts by the broker or other nominee. Book-entry refers to a method of recording stock ownership in New News Corporation’srecords in which no physical certificates are used.
Stockholders of Parent on the record date for the distribution are not required to take any action, including making any payments in cash or exchanging ordelivering their shares of Parent common stock, to receive shares of New News Corporation.
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Results of the Distribution
After the distribution, we will be an independent, publicly traded company owning and operating the businesses comprising Parent’s newspapers,information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programming and pay-TVdistribution in Australia. Immediately following the distribution, we expect to have approximately [·] holders of record of New News Corporation Class ACommon Stock and [·] holders of record of Class B Common Stock and approximately [·] shares of New News Corporation Class A Common Stock and [·]shares of Class B Common Stock outstanding, based on the number of holders of record and outstanding shares of Parent’s Class A Common Stock and Class BCommon Stock on [·], 2013. The actual number of shares of New News Corporation common stock to be distributed will be determined as of the record date andwill reflect any issuance of new shares or exercises of options pursuant to Parent’s equity plans on or prior to the record date. The distribution will not affect thenumber of outstanding shares of Parent’s common stock or any rights of Parent’s stockholders.
Prior to the distribution, we will enter into several agreements with Parent and certain of its subsidiaries and affiliates, including the separation anddistribution agreement. These agreements will govern the relationship between Parent and us up to and after completion of the distribution, including with regardsto various commercial, transition services and shared services arrangements, and will allocate between Parent and us various assets, liabilities, rights andobligations, including employee benefits, intellectual property and tax-related assets and liabilities. See “Our Relationship With Parent Following theDistribution.”
Treatment of Fractional Shares
The transfer agent will not distribute any fractional shares of New News Corporation common stock in connection with the distribution. Instead the transferagent will aggregate all fractional shares of New News Corporation common stock into whole shares and sell them on the open market at the prevailing marketprices on behalf of those registered holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur as soon aspracticable after the distribution date. The transfer agent will then distribute the aggregate cash proceeds of such sale, in an amount equal to their pro rata share ofthe total proceeds of those sales. Any applicable expenses, including brokerage fees, will be paid by us. We do not expect the amount of any such fees to bematerial to us.
If you physically hold stock certificates of Parent common stock, your check for any cash that you may be entitled to receive instead of fractional shares ofNew News Corporation common stock will be mailed to you separately. It is expected that all fractional shares held in street name will be aggregated and sold bybrokers or other nominees according to their standard procedures. You should contact your broker or other nominee for additional details.
None of Parent, New News Corporation, or the transfer agent will guarantee any minimum sale price for the fractional shares of New News Corporationcommon stock. Neither New News Corporation nor Parent will pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu offractional shares will generally be taxable to the recipient stockholders. Each stockholder entitled to receive cash proceeds from these fractional shares shouldconsult his, her or its own tax advisor as to the stockholder’s particular circumstances. See “The Distribution—Material U.S. Federal Income Tax Consequencesof the Distribution.”
Trading Prior to the Distribution Date
It is anticipated that a “when-issued” market in our common stock will develop on or shortly before the record date and continue up to and through thedistribution date. In the context of the distribution, when-issued trading refers to a securities transaction made conditionally on or before the distribution datebecause the securities of the distributed entity have not yet been distributed. When-issued trades generally settle within four trading days after the distributiondate. If you own shares of Parent’s common stock on the record date, you will
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be entitled to receive shares of our common stock in the distribution. You may trade this entitlement to receive shares of our common stock, without the shares ofParent’s common stock you own, on the when-issued market. On the first trading day following the distribution date, we expect that when-issued trading of ourcommon stock will end and “regular-way” trading will begin. Regular-way trading refers to trading after the security has been distributed and typically involves atrade that settles on the third full trading day following the date of the securities transaction. If the distribution does not occur, all when-issued trading will be nulland void.
We also anticipate that, on or shortly before the record date and continuing up to and through the distribution date, there will be two markets in Parent’scommon stock: a “regular-way” market and an “ex-distribution” market. Shares of Parent’s common stock that trade on the regular-way market will trade with anentitlement to receive shares of our common stock in the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to receiveshares of our common stock in the distribution. Therefore, if you sell shares of Parent’s common stock in the regular-way market up to and including thedistribution date, you will be selling your right to receive shares of our common stock in the distribution. However, if you own shares of Parent’s common stockon the record date and sell those shares in the ex-distribution market up to and including the distribution date, you will still receive the shares of our commonstock that you would otherwise be entitled to receive in the distribution. On the first trading day following the distribution date, shares of Parent’s common stockwill begin trading without any entitlement to receive shares of New News Corporation common stock.
It is anticipated that trading of CDIs representing our Class A Common Stock and Class B Common Stock on the Australian Securities Exchange willcommence on or shortly before the record date and continue up to and through to the distribution date, initially, on a “conditional and deferred”, and then on a“deferred” settlement basis. Conditional trading will continue until the Australian Securities Exchange agrees to quote the New News Corporation CDIs and thedistribution is made. It is expected that trading will then occur on an unconditional but deferred basis until New News Corporation has advised the AustralianSecurities Exchange that holding statements have been dispatched to CDI holders. If the distribution is not made, all trades occurring up to that point will becancelled and of no effect. Investors who choose to trade their New News Corporation CDIs on the Australian Securities Exchange before receipt of their holdingstatements do so at their own risk. These arrangements will be formally confirmed with the Australian Securities Exchange prior to the record date for thedistribution.
Following the distribution, Parent’s Class A Common Stock and Class B Common Stock will continue to be listed and traded on NASDAQ, its principalmarket, under the symbols “[·]” and “[·],” respectively. CDIs representing Parent’s Class A Common Stock and Class B Common Stock will continue to be listedand traded on the Australian Securities Exchange under the symbols “[·]” and “[·],” respectively.
Listing and Trading of the Shares of New News Corporation
As of the date of this information statement, we are a wholly-owned subsidiary of Parent and, accordingly, there is currently no public market for ourcommon stock, although a “when-issued” market in our common stock may develop prior to the distribution. See “—Trading Prior to the Distribution Date”above for an explanation of a “when-issued” market. We intend to list our shares of Class A Common Stock on NASDAQ under the symbol “[·],” and our sharesof Class B Common Stock on NASDAQ under the symbol “[·],” and intend for CDIs representing the Class A Common Stock and Class B Common Stock to belisted and traded on the Australian Securities Exchange under the symbols “[·]” and “[·],” respectively. If when-issued trading occurs, the listings for our Class ACommon Stock and Class B Common Stock are expected to be under trading symbols that are different from our regular-way trading symbols. We will announceour when-issued trading symbols when and if they become available.
We cannot assure you as to the price at which our Class A Common Stock or Class B Common Stock will trade before, on or after the distribution date andthe price at which such stock trades may fluctuate significantly.
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In addition, the combined trading prices of Parent’s Class A Common Stock and New News Corporation’s Class A Common Stock, and Parent’s Class BCommon Stock and New News Corporation’s Class B Common Stock following the distribution may be less than, equal to or greater than the current tradingprice of Parent’s Class A and Class B Common Stock, respectively. See “Risk Factors—There Is No Existing Market for Our Common Stock, and a TradingMarket That Will Provide You with Adequate Liquidity May Not Develop for Our Common Stock. In Addition, Once Our Common Stock Begins Trading, theMarket Price of Our Shares May Fluctuate Significantly.”
Shares of New News Corporation Class A Common Stock and Class B Common Stock distributed to Parent’s stockholders will be freely transferable,except for such shares that are distributed to persons who are considered our affiliates. Individuals or entities may be deemed to be affiliates of New NewsCorporation if they control, are controlled by, or are under common control with, New News Corporation, as those terms generally are interpreted for federalsecurities law purposes. These persons may include certain or all of our directors, officers, and significant stockholders. In addition, individuals who are affiliatesof Parent on the distribution date may be deemed to be affiliates of New News Corporation. Individuals who are our affiliates, or are deemed our affiliates, will bepermitted to sell their shares of New News Corporation common stock only pursuant to an effective registration statement under the Securities Act of 1933, asamended (the “Securities Act”), or an exemption from the registration requirements of the Securities Act, such as those afforded by Section 4(1) of the SecuritiesAct or Rule 144A thereunder.
Material U.S. Federal Income Tax Consequences of the Distribution
The following summary discusses the material U.S. federal income tax consequences of the distribution. This discussion is based upon the Code, Treasuryregulations, published positions of the IRS, judicial decisions and other applicable authorities, all as currently in effect, and all of which are subject to change ordiffering interpretations, possibly with retroactive effect. Any such change could affect the accuracy of this discussion. The discussion does not address the effectsof the distribution under any state, local, or foreign tax laws.
The discussion assumes that Parent stockholders hold their Parent common stock, and will hold New News Corporation common stock, as capital assetswithin the meaning of Section 1221 of the Code. Further, the discussion does not constitute tax advice and does not address all aspects of U.S. federal incometaxation that may be relevant to a particular stockholder in light of such stockholder’s personal investment circumstances or to stockholders subject to specialtreatment under the U.S. federal income tax laws such as: (i) insurance companies and other financial institutions; (ii) tax-exempt organizations; (iii) dealers instocks or securities; (iv) cooperatives; (v) stockholders who acquired their Parent common stock through the exercise of options or otherwise as compensation orthrough a tax-qualified retirement plan; (vi) stockholders that hold Parent common stock as part of a hedge, straddle, a constructive sale or conversion transactionor other risk reduction or integrated investment transaction; (vii) investors in pass-through entities; and (viii) individuals who are not citizens or residents of theU.S., foreign corporations and other foreign entities.
PARENT STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THEDISTRIBUTION TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND NON-U.S. INCOME ANDOTHER TAX LAWS, IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND THE EFFECT OF POSSIBLE CHANGES IN LAW THATMIGHT AFFECT THE TAX CONSEQUENCES DESCRIBED IN THIS INFORMATION STATEMENT.
In November 2012, Parent applied for a ruling from the IRS to the effect that the distribution will qualify as a tax-free transaction under Sections 368(a)(1)(D) and 355 of the Code. A favorable ruling under these sections will also provide that for U.S. federal income tax purposes:
• no gain or loss will be recognized by, or be included in the income of, a holder of Parent common stock solely as the result of the receipt of New News
Corporation common stock pursuant to the distribution,
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except as discussed below with respect to cash received in lieu of fractional shares of New News Corporation common stock;
• the aggregate tax basis of Parent common stock and New News Corporation common stock in the hands of Parent stockholders immediately after the
distribution will be the same as the tax basis of Parent common stock immediately before the distribution, allocated between Parent common stock andNew News Corporation common stock in proportion to their relative fair market values on the date of the distribution;
• the holding period of the New News Corporation common stock received by each Parent stockholder will include the holding period at the time of the
distribution for Parent common stock on which the distribution is made, provided that such Parent common stock is held as a capital asset on the dateof the distribution; and
• stockholders of Parent who receive cash from the distribution agent in lieu of fractional shares will recognize gain or loss on the sale of the fractional
share interest in an amount equal to the difference between the cash received and the stockholder’s tax basis in the fractional share interest. The gain orloss will be capital gain or loss to the stockholder provided the fractional share interest is a capital asset in the hands of the stockholder.
Although a ruling relating to the qualification of the distribution as a tax-free transaction for U.S. federal income tax purposes will be generally binding onthe IRS, the continuing validity of such ruling is subject to factual representations and assumptions. The IRS, however, will not rule on some requirementsnecessary for tax-free treatment under Section 355 of the Code. Therefore, in addition to conditioning the distribution on obtaining the ruling from the IRS, Parenthas also made it a condition to the distribution that it obtain an opinion from Hogan Lovells US LLP that the distribution will qualify as a tax-free transaction forU.S. federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code. The opinion will be dependent on, among other things, certain assumptionsand representations as to factual matters made by Parent and New News Corporation.
If the distribution does not qualify as a tax-free transaction, Parent would recognize taxable gain equal to the excess of the fair market value of New NewsCorporation common stock distributed to Parent stockholders over Parent’s tax basis in the New News Corporation common stock. In addition, each Parentstockholder who receives New News Corporation common stock in the distribution would generally be treated as receiving a taxable distribution in an amountequal to the fair market value of the New News Corporation common stock received, including any fractional share sold on behalf of the stockholder. Suchstockholder would be taxed on the full value of the New News Corporation common stock received in the distribution (without reduction for any portion of suchstockholder’s tax basis in its Parent shares) as a dividend for U.S. federal income tax purposes to the extent of such stockholder’s pro rata share of Parent’s currentand accumulated earnings and profits (including Parent’s taxable gain on the distribution).
Even if the distribution otherwise qualifies for tax-free treatment under Sections 368(a)(1)(D) and 355 of the Code, it may be disqualified as tax-free toParent under Section 355(e) of the Code if 50% or more of Parent’s stock or New News Corporation stock is acquired or issued as part of a plan or series ofrelated transactions that includes the distribution. For this purpose, any acquisitions or issuances of Parent’s stock within two years before the distribution, andany acquisitions or issuances of Parent’s stock or of New News Corporation stock within two years after the distribution, are presumed to be part of such a plan,although Parent or New News Corporation may be able to rebut that presumption. If an acquisition or issuance of Parent’s stock or New News Corporation stockwould cause Section 355(e) of the Code to apply, Parent would recognize taxable gain as described above, but the distribution would generally remain tax-free toeach Parent stockholder.
In connection with the distribution, Parent and New News Corporation will enter into a tax sharing and indemnification agreement pursuant to which NewNews Corporation will agree to be responsible for certain liabilities and obligations following the distribution. In general, under the terms of the tax sharing and
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indemnification agreement, New News Corporation is required to indemnify Parent against taxes on the distribution that arise as result of certain actions orfailures to act by New News Corporation, or a result of changes in ownership of the stock of New News Corporation after the distribution. In addition, we havefiled tax refund claims in a foreign jurisdiction which are currently in litigation. If we ultimately receive a refund, the tax sharing and indemnification agreementprovides that we will pay the amount of such refund, including any interest net of any tax cost, to Parent. If New News Corporation is required to indemnifyParent under the circumstances set forth in the tax sharing and indemnification agreement, New News Corporation may be subject to substantial liabilities.
Treasury regulations under Section 355 of the Code require that each Parent stockholder who receives shares of New News Corporation common stock inthe distribution attach to such stockholder’s U.S. federal income tax return for the year in which the distribution occurs a detailed statement setting forth such dataas may be appropriate to show the applicability of Section 355 of the Code to the distribution. Within a reasonable period of time after the distribution, Parent willprovide its stockholders who receive New News Corporation common stock pursuant to distribution with the information necessary to comply with suchrequirement.
Material Australian Tax Consequences of the Distribution
The following contains a general summary of the material Australian tax implications of the distribution, by Parent, of New News Corporation CDIs toholders of Parent CDIs who are residents of Australia for income tax purposes and who hold their Parent CDIs on capital account, but who are not members ofthe Parent company group (“CDI Holders”). This summary does not apply to CDI Holders who do not hold their Parent shares on capital account (for example,holders of Parent CDIs who hold their Parent CDIs as trading stock or revenue assets), holders of Parent CDIs who acquired their CDIs in connection with anemployee share plan, or holders of Parent CDIs who are members of the Parent company. The summary does not take account of the individual circumstances ofparticular Parent stockholders, including CDI Holders, and does not constitute tax advice. It is intended as a general guide only and Parent stockholders, includingCDI Holders, should seek independent professional advice on the tax implications of the distribution based on their own individual circumstances.
THIS SUMMARY DOES NOT TAKE INTO ACCOUNT THE TAX LAWS OF COUNTRIES OTHER THAN AUSTRALIA AND HAS BEENPREPARED ON THE BASIS OF AUSTRALIAN TAXATION LAW AS OF THE DATE OF THIS INFORMATION STATEMENT. THIS SUMMARYDOES NOT TAKE INTO ACCOUNT OR ANTICIPATE CHANGES IN LAW OR JUDICIAL INTERPRETATION AFTER THAT TIME.
Separation Transaction
The transactions which constitute the separation of the Parent businesses prior to the distribution will not have direct income tax consequences for the CDIholders.
Class Ruling
Parent has applied to the ATO for a Class Ruling confirming that, in the circumstances of the distribution (i) no part of the distribution of New NewsCorporation shares will be a dividend; and (ii) the Commissioner of Taxation will not make a determination under either section 45A or 45B to deem all or part ofthe distribution of New News Corporation shares to be an unfranked dividend.
If the Commissioner confirms the above statements, no part of the distribution of the New News Corporation shares to the CDI Holders will be anassessable dividend when received by the CDI Holders.
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Return of Share Capital
The distribution of New News Corporation shares will not qualify for demerger tax relief under Australian taxation law and will give rise to taxconsequences for Parent and may have tax consequences for CDI Holders.
Unless the Commissioner of Taxation makes a determination that any part of the distribution should be treated as an unfranked dividend (this is the subjectof the application for Class Ruling—see above), the distribution should be treated, for Australian tax purposes, as a return of share capital in respect of Parentshares held on the date of distribution. The return of capital will constitute a ‘CGT event’ which may give rise to a capital gain or a cost base adjustment for CDIHolders.
Capital Gains Tax (“CGT”)
Unless the Commissioner of Taxation makes a determination that any part of the capital return should be treated as an unfranked dividend (this is thesubject of the application for Class Ruling—see above), CDI Holders will derive capital gains if and to the extent that the values of the New News Corporationshares distributed exceed their original CGT cost bases for their Parent CDIs. Any such capital gains would be required to be included in the calculation of anynet capital gain, which in turn would be included in the assessable income of the CDI Holders.
CDI Holders who are individuals, trusts or complying superannuation entities may be entitled to reduce capital gains (after taking into account capitallosses) by half, in the case of individuals and trusts, or by one-third, in the case of complying superannuation entities, if they have held, or are deemed to haveheld, their Parent shares for at least 12 months prior to the time of the relevant CGT event. Companies are not entitled to claim the CGT discount.
CDI Holders should seek their own advice as to whether they are entitled to claim a CGT discount and, in particular, trustees should seek adviceas to whether the benefit of any discount capital gain derived by a trust will be taken to flow through to beneficiaries of the trust.
If the value of the New News Corporation shares distributed by Parent does not exceed a CDI Holder’s original CGT cost base for their Parent CDIs, nocapital gain should arise from the distribution for the CDI Holders and the cost base and reduced cost base of their Parent CDIs should be reduced to the extent ofthe value of the capital return, unless and to the extent that the ATO makes a determination that any part of the capital return should be treated as an unfrankeddividend (this is the subject of the application for Class Ruling—see above). If the Commissioner were to make a determination that any part of the capital returnshould be treated as an unfranked dividend, CDI Holders would, instead, be required to include the amount of the deemed unfranked dividend in their assessableincome or, in the circumstances described above where a CDI Holder would otherwise have made a capital gain from the distribution, the amount of the deemeddividend would effectively reduce the amount of that capital gain, or, if no capital gain arose, reduce the reduction in the cost base and reduced cost base of theirParent CDIs.
Disposals of New News Corporation CDIs
For CGT purposes, CDI Holders will be taken to have acquired their New News Corporation CDIs on the date of the distribution.
The first element of the New News Corporation CDI holders’ cost bases or reduced cost bases for their New News Corporation CDIs will be equal to themarket value of the New News Corporation CDIs when distributed.
Where New News Corporation CDI holders dispose of their New News Corporation CDIs after the distribution, they will make an assessable capital gain ifthe proceeds received on disposal exceed their cost bases
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(the first element of the cost base is determined as set out above) for their New News Corporation CDIs. Certain New News Corporation CDI holders may beentitled to reduce their capital gains (after taking into account any available capital losses) by the CGT discount (see above). However, the CGT discount willonly be available after the New News Corporation CDIs have been held for at least 12 months from the date that the New News Corporation CDIs were acquired(i.e. the date of the distribution).
Conversely, if the proceeds from the disposal of the New News Corporation CDIs are less than the reduced cost base of the New News Corporation CDIs(the first element of which is determined as set out above), New News Corporation CDI holders will make a capital loss. A capital loss can be offset against othercapital gains but cannot otherwise be deducted from assessable income.
CDI Holders who receive cash from the distribution agent in lieu of fractional shares of New News Corporation will be taken to have disposed of theirfractional shares in New News Corporation for an amount equal to the cash received for those interests.
Dividends Received From New News Corporation After Distribution of New News Corporation Shares
The tax rules applying to dividends received from New News Corporation are the same as the rules applying to dividends received from Parent.Accordingly, New News Corporation CDI holders will be taxed on any dividends they receive from New News Corporation in the same way as they are taxed onany dividends they receive currently from Parent.
Stamp Duty
CDI Holders will pay no Australian stamp duty on the distribution of the New News Corporation shares by Parent.
Goods and Services Tax (“GST”)
CDI Holders will not be liable for (or be required to pay) GST on the receipt of New News Corporation CDIs from Parent.
Conditions to the Distribution
We expect that the distribution will be effective on the distribution date, provided that the conditions described in this information statement under “OurRelationship with Parent Following the Distribution—Conditions to the Distribution” have been satisfied or waived by Parent:
• the approval by the board of directors of Parent of the distribution and all related transactions (and such approval not having been withdrawn);
• the affirmative vote of the holders of Parent’s Class A Common Stock and Class B Common Stock, each voting as a separate class, approving certain
amendments to Parent’s Restated Certificate of Incorporation, as described more fully in the Proxy Statement filed under Schedule 14A by Parent;
• the completion of the internal reorganization;
• Parent’s receipt of the private letter rulings from the IRS in a form satisfactory to Parent in its sole and absolute discretion, to the effect that, amongother things, subject to the accuracy of and compliance with certain representations, assumptions and covenants, the contribution of Parent’snewspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sportsprogramming and pay-TV distribution in Australia to us and the distribution will qualify for non-recognition of gain or loss to Parent and itsstockholders under Sections 368 and 355 of the Code except to the extent of cash received in lieu of fractional shares;
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• Parent’s receipt of the ATO Class Ruling or other evidence in a form satisfactory to Parent in its sole and absolute discretion, confirming that, in thecircumstances of the distribution and for Australian tax purposes (i) no part of the distribution of New News Corporation shares will be a dividend; and(ii) the Commissioner of Taxation will not make a determination under either section 45A or 45B to deem all or part of the distribution of New NewsCorporation shares to be an unfranked dividend;
• Parent’s receipt of an opinion from Hogan Lovells US LLP, in form and substance satisfactory to Parent in its sole and absolute discretion, that, subjectto the accuracy of and compliance with certain representations, assumptions and covenants, (i) the distribution will qualify for non-recognition of gainor loss to Parent and Parent’s stockholders pursuant to Section 355 of the Code, except to the extent of cash received in lieu of fractional shares and (ii)the relevant aspects of the internal reorganization described under “Our Relationship with Parent Following the Distribution—The Separation andDistribution Agreement” will qualify for non-recognition of gain or loss to Parent pursuant to Sections 368 and 355 of the Code;
• no order, injunction or decree that would prevent the consummation of the distribution will be threatened, pending or issued (and still in effect) by any
governmental entity of competent jurisdiction and no other legal restraint or prohibition preventing consummation of the distribution will be in effect;
• no events or developments having occurred prior to the distribution that, in the judgment of the board of directors of Parent, would result in the
distribution having a material adverse effect on Parent or its stockholders;
• Parent’s and New News Corporation’s execution of the separation and distribution agreement, the tax sharing and indemnification agreement, the
transition services agreement, the employee matters agreement and all other ancillary agreements relating to the distribution;
• Parent’s election of the individuals to be listed as members of our board of directors post-distribution, as described in this information statement,
immediately prior to the distribution date;
• the SEC having declared effective the Form 10, of which this information statement forms a part;
• no rating agency action having occurred that is likely to result in either Parent or us being downgraded below investment grade after giving effect to
the distribution;
• our Class A Common Stock and Class B Common Stock having been approved for listing on NASDAQ and our Class A Common Stock and Class B
Common Stock (trading as CDIs) having been approved for admission to the official list of the Australian Securities Exchange;
• the information statement having been mailed to Parent’s stockholders (including electronic delivery where permitted);
• all actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws and any other necessary and applicable
consents having been taken, obtained and, where applicable, having become effective or been accepted;
• Parent having established the record date for the distribution, given NASDAQ not less than ten days’ advance notice of such record date and given the
Australian Securities Exchange not less than seven Business Days’ (as defined under the Australian Securities Exchange Listing Rules) advance noticeof such record date; and
• our amended and restated certificate of incorporation and amended and restated by-laws, each in substantially the form filed with the Form 10, having
become effective at or prior to the distribution.
The fulfillment of the above conditions will not create any obligation on Parent’s part to effect the distribution. Parent, in its sole and absolute discretion,will determine the terms of, and whether to proceed with, the distribution and, to the extent it determines to proceed, determine the record date and distributiondate.
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Our Name
We anticipate that, on or about the distribution date and subject to the approval of the holders of a majority of Parent’s Class B Common Stock entitled tovote, Parent will change its name to Fox Group, Inc. and we will assume the name News Corporation.
Regulatory Approval
New News Corporation must complete the necessary registration under U.S. federal securities laws and relevant Australian Corporations law requirementsof New News Corporation Class A Common Stock and New News Corporation Class B Common Stock, as well as satisfy the applicable NASDAQ andAustralian Securities Exchange listing requirements for such shares.
Parent will need to obtain approval under FATA and the Australian Government’s foreign investment policy to implement the steps necessary to effect theseparation and to make the distribution. Parent will apply for the relevant approvals prior to implementing the various transaction steps.
Other than the requirements discussed above, we do not believe that any other material governmental or regulatory filings or approvals will be necessary toconsummate the distribution.
No Appraisal Rights
Parent’s stockholders will not have any appraisal rights in connection with the distribution.
Reasons for Furnishing this Information Statement
We are furnishing this information statement solely to provide information to Parent’s stockholders who will receive shares of our common stock in thedistribution. You should not construe this information statement as an inducement or encouragement to buy, hold or sell any of our securities or any securities ofParent. We believe that the information contained in this information statement is accurate as of the date set forth on the cover. Changes to the informationcontained in this information statement may occur after that date, and neither Parent nor we undertake any obligation to update the information except in thenormal course of Parent’s and our public disclosure obligations and practices.
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DIVIDEND POLICY
Following the distribution, we expect to pay regular cash dividends, though the timing, declaration, amount and payment of future dividends tostockholders will fall within the discretion of our board of directors. Our board of directors’ decisions regarding the payment of future dividends will depend onmany factors, including our financial condition, earnings, capital requirements and debt facility covenants (if any), other contractual restrictions, as well as legalrequirements, regulatory constraints, industry practice and other factors that our board of directors deems relevant. Our board of directors cannot provide anyassurances that any dividends will be declared or paid.
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CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2012, on a historical and on a pro forma basis to giveeffect to the separation and distribution and the transactions related to the separation and distribution as if they occurred on December 31, 2012. Explanation ofthe pro forma adjustments made to our historical combined financial statements can be found under “Unaudited Pro Forma Combined Financial Statements.” Thefollowing table should be reviewed in conjunction with “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and our historical combined financial statements and accompanying notes included elsewhere in this informationstatement. As of December 31, 2012 Historical Pro forma (in millions) Cash and cash equivalents $ 741 $ 2,560
Borrowings: Current borrowings $ — $ — Long-term borrowings — —
Total borrowings — —
Redeemable preferred stock — 20
Total borrowings and redeemable preferred stock — 20
Equity: Common stock, par value — [·] Additional paid-in capital — [·] Total parent company equity and noncontrolling interests 12,437 —
Total equity 12,437 [·]
Total capitalization $ 12,437 $ [·]
Additionally, we may enter into a credit facility prior to the distribution, which would be undrawn at the time of the distribution.
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined statements of operations for the six months ended December 31, 2012 and for the fiscal year ended June 30,2012, and the unaudited pro forma combined balance sheet as of December 31, 2012 were derived from our unaudited interim and audited combined financialstatements included elsewhere in this information statement.
The unaudited pro forma combined statements of operations for the six months ended December 31, 2012 and for the fiscal year ended June 30, 2012reflect our results as if the events had occurred on July 1, 2011. The unaudited pro forma combined balance sheet gives effect to these events as if they occurredas of December 31, 2012, our latest balance sheet date. The unaudited pro forma combined financial statements give effect to the following:
• the consolidation of Consolidated Media Holdings Limited (“CMH”) and related acquisition adjustments;
On November 19, 2012, we acquired CMH, a media investment company that operates in Australia. CMH had a 25% interest in Foxtel and a 50%interest in FOX SPORTS Australia. The acquisition doubled our stakes in FOX SPORTS Australia and Foxtel to 100% and 50%, respectively.Accordingly, the results of FOX SPORTS Australia are included in our results from November 19, 2012. Prior to November 2012, FOX SPORTSAustralia was accounted for under the equity method of accounting. Our investment in Foxtel continues to be accounted for under the equity methodof accounting.
• the contribution by Parent to us, pursuant to the distribution, of all the assets and liabilities that comprise our business with the exception of the
investment in Sky Network Television Ltd which is being retained by Parent and was sold in March 2013;
• the expected transfer to us, upon the distribution, of certain assets and liabilities that were not reflected in our historical combined financial statements;
• our anticipated post-distribution capital structure, including the issuance of up to approximately [·] million shares of our common stock to holders of
Parent common stock (this number of shares is based upon the number of shares of Parent common stock outstanding on December 31, 2012 and anassumed distribution ratio of one share of our common stock for every [·] shares of Parent common stock held on the record date); and
• the impact of, and transactions contemplated by, the separation and distribution agreement and the tax sharing and indemnification agreement between
us and Parent and the provisions contained therein.
The unaudited pro forma combined financial statements are subject to the assumptions and adjustments described in the accompanying notes. Ourmanagement believes that these assumptions and adjustments are reasonable under the circumstances and given the information available at this time. However,these adjustments are subject to change as we and Parent finalize the terms of the separation and distribution agreement and the other agreements related to thedistribution.
The unaudited pro forma combined financial statements are for illustrative and informational purposes only and are not intended to represent, or beindicative of, what our financial position or results of operations would have been had the transactions occurred on the dates indicated. The unaudited pro formacombined financial statements also should not be considered representative of our financial position. The financial information presented below should not berelied upon as a representation of our future performance.
We expect to experience changes in our ongoing cost structure when we become an independent, publicly-traded company. For example, Parent currentlyprovides many corporate functions on our behalf, including, but not limited to, finance, legal, insurance, information technology, compliance and human resourceactivities. Our historical combined financial statements include allocations of these expenses from Parent. However, these costs may not be representative of thefuture costs we will incur as an independent public company. Based on current
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assessments and assumptions, we anticipate that our recurring costs will approximate the expenses historically allocated to us from Parent, however, there can beno assurance of this.
Costs related to the distribution of approximately $28 million have been incurred by Parent for the six months ended December 31, 2012. These costsinclude accounting, legal, consulting and advisory fees. Parent has assumed all of these distribution costs incurred to date and Parent anticipates that it will beresponsible for all similar costs incurred prior to the distribution. Therefore, in the historical and the pro forma combined statements of operations for the sixmonths ended December 31, 2012, no transaction costs incurred by Parent were allocated to us or otherwise reflected in our financial results.
We currently estimate costs that we will incur during our transition to being a stand-alone public company will not be material. We have not adjusted theaccompanying unaudited pro forma combined statements of operations for these estimated costs as the costs are not expected to have an ongoing impact on ouroperating results; they are projected amounts based on subjective estimates and assumptions, and would not be factually supportable. We anticipate thatsubstantially all of these costs will be incurred within 18 months of the distribution. The transition-related costs include, but are not limited to, the following:
• incremental accounting, tax and other professional costs pertaining to establishing us as a stand-alone public company;
• recruiting and relocation costs associated with hiring additional key corporate senior management personnel new to our company; and
• costs to separate corporate information systems.
Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and the timing of incurrence couldchange.
The unaudited pro forma combined financial statements should be read in conjunction with our historical combined financial statements and accompanyingnotes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this information statement.
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NEW NEWS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONSFOR THE SIX MONTHS ENDED DECEMBER 31, 2012
(in millions, except per share amounts)
HistoricalNew News
Corporation HistoricalCMH
Pro FormaCMH
AcquisitionAdjustments
Pro FormaDistributionAdjustments
Pro Forma forCMH Acquisitionand Distribution
Revenues $ 4,454 $ — $ 192(c) $ — $ 4,646 Operating expenses (2,686) (20) (96)(c),(d) 110(j) (2,692) Selling, general and administrative (1,379) — (10)(c) — (1,389) Depreciation and amortization (254) — (4)(c) — (258) Impairment and restructuring charges (177) — — — (177) Equity earnings of affiliates 54 34 (67)(e) (22)(g) (1) Interest, net 29 1 — — 30 Other, net 1,255 — (1,255)(f) — —
Income (loss) before income tax benefit (expense) 1,296 15 (1,240) 88 159 Income tax benefit (expense) 32 (5) (59)(o) (21)(o) (53)
Net income (loss) 1,328 10 (1,299) 67 106 Less: Net income attributable to
noncontrolling interests (21) — — — (21)
Net income (loss) attributable to New NewsCorporation $ 1,307 $ 10 $ (1,299) $ 67 $ 85
Earnings Per Share Basic [·](m) Diluted [·](n)
Weighted-Average Shares outstanding Basic [·](m) Diluted [·](n)
See accompanying Notes to the Unaudited Pro Forma Combined Financial Statements
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NEW NEWS CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONSFOR THE YEAR ENDED JUNE 30, 2012
(in millions, except per share amounts)
HistoricalNew News
Corporation HistoricalCMH
Pro FormaCMH Acquisition
Adjustments
Pro FormaDistributionAdjustments
Pro Formafor CMH
Acquisition andDistribution
Revenues $ 8,654 $ 2 $ 484(c) $ — $ 9,140 Operating expenses (5,122) (11) (299)(c) 199(j) (5,233) Selling, general and administrative (2,750) — (45)(c) — (2,795) Depreciation and amortization (483) — (10)(c) — (493) Impairment and restructuring charges (2,763) — — — (2,763) Equity earnings of affiliates 90 83 (142)(e) (41)(g) (10) Interest, net 56 5 4(c) — 65 Other, net (59) — — — (59)
(Loss) income before income tax benefit(expense) (2,377) 79 (8) 158 (2,148)
Income tax benefit (expense) 337 9 (9)(o) (42)(o) 295
Net (loss) income (2,040) 88 (17) 116 (1,853) Less: Net income attributable to
noncontrolling interests (35) — — — (35)
Net (loss) income attributable to New NewsCorporation $ (2,075) $ 88 $ (17) $ 116 $ (1,888)
Earnings Per Share Basic [·](m) Diluted [·](n)
Weighted-Average Shares outstanding Basic [·](m) Diluted [·](n)
The change in our cost structure related to our company becoming an independent, publicly traded company is not reflected above.
See accompanying Notes to the Unaudited Pro Forma Combined Financial Statements
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NEW NEWS CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEETAS OF DECEMBER 31, 2012
(in millions)
HistoricalNew News
Corporation
Pro FormaDistributionAdjustments
Pro Forma forCMH
Acquisitionand Distribution
Assets: Current assets: Cash and cash equivalents $ 741 $ 1,819(h) $ 2,560 Accounts Receivables, net 1,656 — 1,656 Other 767 70(j) 837
Total current assets 3,164 1,889 5,053
Investments 3,172 (223)(g) 2,949 Property, plant and equipment, net 3,315 — 3,315 Intangible assets, net 2,637 — 2,637 Goodwill 3,710 — 3,710 Other non-current assets 563 419(i),(p) 982
Total assets $ 16,561 2,085 $ 18,646
Liabilities and Equity: Current liabilities: Accounts payable $ 244 $ — $ 244 Accrued expenses 990 — 990 Deferred revenue 417 — 417 Other current liabilities 661 — 661
Total current liabilities 2,312 — 2,312
Other liabilities 782 60(i) 842 Deferred income taxes 1,030 — 1,030
Total liabilities 4,124 60 4,184
Mezzanine equity: Redeemable preferred stock — 20(k) 20
Equity: Common stock — — [·] Additional paid-in capital — 14,442(g),(h),(i),(j),(l),(p) [·] Parent company investment and accumulated other comprehensive
income 12,437 (12,437)(l) —
Total equity 12,437 2,005 14,442
Total liabilities and equity $ 16,561 $ 2,085 $ 18,646
See accompanying Notes to the Unaudited Pro Forma Combined Financial Statements
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NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (a) Our historical combined financial statements reflect the historical financial position and results of operations of the following businesses of Parent:
newspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programmingand pay-TV distribution in Australia and may not reflect the impact of certain assets and liabilities that will be contributed to or assumed by us from Parentin the distribution and that are discussed separately. As the acquisition of CMH was completed November 19, 2012, CMH and FOX SPORTS Australia,which comprise the sports programming and pay-TV distribution business in Australia, are reflected in our historical Statement of Operations fromNovember 19, 2012 onwards and are included in our historical December 31, 2012 balance sheet.
(b) Reflects the historical results of operations of CMH through the date of acquisition, November 19, 2012. From November 19, 2012 onwards, CMH isincluded in the historical results of operations of New News Corporation. CMH is a holding company with no primary activities other than a 50% interestin FOX SPORTS Australia and a 25% interest in Foxtel whose results are reflected in equity earnings.
(c) The adjustments to the Statements of Operations reflect the consolidation of FOX SPORTS Australia as a subsidiary from July 1, 2011. As the acquisitionwas completed November 19, 2012, the assets and liabilities of CMH which include FOX SPORTS Australia are already included in the historical NewNews Corporation balances in the December 31, 2012 balance sheet. The table below summarizes the preliminary allocation of purchase price to the fairvalue of the identifiable assets and liabilities of the CMH business acquired:
($ in millions)
Fair value of Consideration: Cash 2,004 Fair value of previously held equity interest 1,626
3,630
Preliminary purchase price allocation: Current assets 220 Property, plant and equipment 35 Investments (Foxtel) 2,227 Deferred tax assets 136 Other assets 413 Intangible assets 110 Current liabilities (119) Deferred income taxes (193) Borrowings (234) Goodwill 1,035
3,630
(d) Reflects the reversal of $21 million of transaction expenses directly related to the CMH acquisition that are included in the historical Statement ofOperations for the period ended December 31, 2012 but are non-recurring in nature.
(e) Represents the removal of the equity earnings of FOX SPORTS Australia recorded in our historical results to give effect to the consolidation of FOXSPORTS Australia from July 1, 2011 and the incremental amortization expense due to the fair value uplift, resulting from acquisition accounting, of Foxtelsubscriber relationships, which are amortized on a straight line basis over 10 years.
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(f) Represents the removal of the $1.26 billion non-taxable gain relating to the revaluation of existing holdings in FOX SPORTS Australia included in ourhistorical Statement of Operations as it is a non-recurring item that is directly related to the aquisition.
(g) Reflects i) the removal of investment in Sky New Zealand Ltd of $361 million and the related equity earnings reflected in our historical combined financialstatements that will not be retained after the distribution and ii) the adjustment of $138 million principally related to certain cost-based investments in Asiathat are expected to be contributed to us by Parent prior to the distribution in connection with the internal reorganization.
(h) Reflects the net contribution from Parent based upon the anticipated post-distribution capital structure such that New News Corporation’s cash balance isapproximately $2.6 billion upon the distribution, of which the majority will be held domestically.
(i) Certain of our U.S. employees participate in defined benefit pension plans sponsored by Parent. When we become a standalone independent company, wewill assume these obligations and provide the benefits directly. Parent will transfer to us the plan liabilities in the amount of $117 million and assets in theamount of $57 million associated with our active employees. The obligations associated with such plans will result in us recording net benefit liabilities of$60 million and $19 million of additional deferred tax assets. The unrecognized loss on these plans is $53 million.
(j) The separation and distribution agreement provides that Parent will indemnify us for payments made after the distribution date arising out of civil claimsand investigations relating to the U.K. Newspaper Matters, subject to our compliance with certain agreements regarding Parent’s control over the civil U.K.Newspaper Matters and our consenting to settlements proposed by Parent, as well as legal and professional fees and expenses paid in connection with thecriminal matters. Adjustment reflects the removal of U.K. Newspaper Matters legal expenses included in our historical Statements of Operations andrecognition of an indemnification asset as an accrual for the estimate of the liability for claims that have been filed and costs incurred is reflected in ourhistorical balance sheet.
(k) Represents the sale of $20 million of cumulative redeemable preferred stock of a newly formed U.S. subsidiary of New News Corporation to an unrelatedparty. The preferred stock will pay dividends at a rate of 9.5% per annum, payable quarterly. The issuer may call the security at any time after the fifth year,and the holder may put the security to the issuer after 10 years, both at a price of $20 million, respectively, plus cumulative dividends, if any.
(l) Adjustment reflects the pro forma recapitalization of our equity. As of the distribution date, Parent’s net investment in our company will be exchanged toreflect the distribution of our common stock to Parent’s shareholders and to reflect the par value of approximately [·] million outstanding shares of commonstock having a par value of $[·] per share. We have assumed the number of outstanding shares of common stock based on the number of shares of Parentcommon stock outstanding at [·], which would result in approximately [·] million shares being distributed to holders of shares of Parent common stock, atan assumed distribution ratio of one share of New News Corporation common stock for every [·] shares of Parent common stock held on the record date.
(m) Pro forma basic earnings per share and pro forma weighted-average basic shares outstanding are based on the number of shares of Parent common stockoutstanding on [·], adjusted for an assumed distribution ratio of one share of New News Corporation common stock for every [·] shares of Parent commonstock held on the record date.
(n) Pro forma diluted earnings per share and pro forma weighted-average diluted shares outstanding reflect potential shares of common stock from Parentequity plans in which our employees participate based on the potential distribution ratio. While the actual future impact will depend on various factors,including employees who may change employment from one company to another, we believe the estimate yields an approximation of the future dilutiveimpact of our equity plans.
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(o) The provision for income taxes reflected in our historical combined financial statements was determined as if we filed separate, stand-alone income taxreturns in each relevant jurisdiction. Our effective tax rate reflects the historical assumption that we do not intend to repatriate non-United States earnings.The pro forma adjustments were determined generally, by using the statutory tax rate in effect in the respective tax jurisdictions during the periodspresented. Since the consolidation gain on CMH was not a taxable transaction, no corresponding tax adjustment was required. When the pro formaadjustment related to reversals of historic adjustments, the same tax treatment was applied to the pro forma adjustment.
(p) In the internal reorganization preceding the distribution, the Parent intends to contribute certain assets in a taxable transaction to a newly formed U.S.subsidiary (see footnote (k)) resulting in an increase in tax basis of these assets. As a result of the distribution, the increase in tax basis results in therecognition of a deferred tax asset of approximately $400 million.
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BUSINESS
Company Overview
We are a global diversified media and information services company focused on creating and distributing authoritative and engaging content to consumersand businesses throughout the English-speaking world, as well as increasingly in other countries across the globe. Our company is comprised of leadingbusinesses across a range of media, including: news and information services, sports programming in Australia, digital real estate services, book publishing, andpay-TV distribution in Australia, that are distributed under some of the world’s most recognizable and respected brands, including The Wall Street Journal, DowJones, Herald Sun, The Sun, The Times, HarperCollins Publishers, FOX SPORTS Australia, realestate.com.au, and many others. We are also a rapidly developingprovider of digital education content, assessment and delivery services. Our commitment to high-quality premium editorial content makes our media properties atrusted source of news and information among consumers; at the same time many of these properties deliver broad reach and high audience engagement levels intheir respective markets, making them attractive advertising vehicles for our advertising customers.
We deliver our premium content to consumers across numerous distribution platforms consisting not only of traditional print and television, but alsothrough an expanding array of digital platforms including websites, electronic readers and applications for tablets and mobile devices. We are focused on pursuingintegrated strategies across our businesses to continue to capitalize on the transition from print to digital consumption of high-quality content. We believe that theincreasing availability of high-speed Internet access, electronic readers and connected mobile devices will allow us to continue to deliver our content in a moreengaging, timely and personalized manner; provide opportunities to more effectively monetize our content via strong customer relationships and more compellingand engaging advertising solutions; and reduce our physical production and distribution costs as we continue to shift to digital platforms.
Our diversified revenue base consists of recurring subscriptions, circulation copies, licensing fees, affiliate fees and direct sales as well as the sale ofadvertising and sponsorships. We manage our businesses to take advantage of opportunities to share technologies and practices across geographies and businessesand bundle selected offerings to provide greater value to consumers and advertising partners. Headquartered in New York, we operate primarily in NorthAmerica, Australia, and the U.K., and our content is distributed and consumed worldwide.
It is anticipated that, on or about the distribution date and subject to the approval of the holders of a majority of Parent’s Class B Common Stock entitled tovote, Parent will change its name to Fox Group, Inc. and we will assume the name News Corporation.
Our operations are organized into five reporting segments: (i) News and Information Services; (ii) Cable Network Programming (a separate segment sinceNovember 2012—see “Cable Network Programming” below); (iii) Digital Real Estate Services; (iv) Book Publishing; and (v) Other, which primarily consists ofAmplify, our digital education business, and general corporate overhead expenses. We account for our 50% stake in Foxtel as an equity investment.
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Business Segments
For the year ended June 30, 2012
Revenues SegmentEBITDA
(in millions) News and Information Services $ 7,058 $ 939 Digital Real Estate Services 286 129 Book Publishing 1,189 86 Other (includes Amplify) 121 (372)
Total $ 8,654 $ 782
For the six months ended December 31, 2012
Revenues SegmentEBITDA
(in millions) News and Information Services $ 3,438 $ 418 Cable Network Programming 53 19 Digital Real Estate Services 168 81 Book Publishing 729 91 Other (includes Amplify) 66 (220)
Total $ 4,454 $ 389
As a result of the CMH acquisition, our ownership interest in FOX SPORTS Australia increased to 100% and accordingly, the results of FOX SPORTS
Australia are included within a new Cable Network Programming segment beginning in November 2012.
NEWS AND INFORMATION SERVICES
Our News and Information Services segment consists of Dow Jones, News Limited, News International, the New York Post and News America MarketingGroup.
Dow Jones
Dow Jones is a global provider of news and business information, which distributes its content and data through a variety of media channels includingnewspapers, newswires, websites, electronic readers, mobile applications, newsletters, magazines, proprietary databases, conferences, radio and video. Dow Jonesoffers products targeting individual consumer and enterprise customers, including The Wall Street Journal, Dow Jones Newswires, Factiva, Barron’s andMarketWatch, and its revenue is diversified across business-to-consumer and business-to-business subscriptions, advertising, and licensing fees for its print anddigital products.
Through its premier brands and authoritative journalism, Dow Jones products targeting individual consumers provide insights, research and understandingthat customers need in order to be informed and make educated financial decisions. With a focus on the financial markets, investing and other professionalservices, many of these products offer advertisers an attractive customer demographic. Products targeting consumers include the following:
• The Wall Street Journal (WSJ). The Wall Street Journal, the Dow Jones flagship product, is available in print, online at WSJ.com, and across multiplemobile, electronic reader and tablet devices, and covers business developments and trends, national and international news along with analysis,economics, financial markets, investing, opinion, lifestyle, culture and sports. The Wall Street Journal is the leading circulation daily newspaper in theU.S., with total average print and digital circulation of 2.3 million for the six months ended September 30, 2012 based on AAM data. WSJ is printed atplants located around
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the U.S., including 9 owned by us. WSJ sells regional advertising in 3 major U.S. regional editions (Eastern, Central and Western) and 21 smaller sub-regional editions. WSJ.com, which offers both free and premium content, averaged more than 65 million visits per month on average for the 12months ended December 31, 2012 according to Adobe Omniture, and includes local language editions in Chinese, Japanese, German, Spanish,Portuguese, Bahasa and Korean. Print and digital products under the WSJ brand include:
Print: The Wall Street Journal (including its Asia and Europe editions), The Wall Street Journal Sunday, and WSJ.Magazine.
Digital: WSJ.com (includes CIO Journal and CFO Journal), WSJ.com international sites (asia.WSJ.com, Europe.WSJ.com, WSJ.de(Germany), cn.WSJ.com (China), jp.WSJ.com (Japan), kr.wsj.com (Korea), indo.wsj.com (Indonesia), india.wsj.com and Latin Americanand Brazil local language sites available through WSJ.com).
Video: WSJ Live (live and on-demand news online through WSJ.com and other platforms including Internet-connected TV and set-topboxes).
• Barron’s. Barron’s is available in print, online at Barrons.com, and on electronic reader and mobile devices, and delivers news, analysis, investigative
reporting, company profiles and insightful statistics for investors and others interested in the investment world. Print and digital products under theBarron’s brand include:
Print: Barron’s (weekly magazine with an average paid weekly circulation of approximately 305,000 for the six months ended December 31,2012 based on AAM data).
Digital: Barrons.com (offers both free and premium content providing in-depth analysis and commentary on the markets, updated everybusiness day online, along with alerts and tools) and Barron’s iPad application (paid app which resembles the website). Barrons.com hadmore than 170,000 paid subscribers on average for the 12 months ended December 31, 2012.
• The Wall Street Journal Digital Network. WSJDN comprises business and financial news websites and mobile applications. WSJDN had nearly 1.4million paid subscribers on average for the 12 months ended December 31, 2012 and, during that same period, averaged more than 126 million visitsper month with more than 530 million page views per month according to Adobe Omniture. In addition to WSJ.com and Barrons.com, discussedabove, WSJDN includes MarketWatch, AllThingsD and related services.
- Marketwatch.com. Marketwatch.com is an investing and financial news website targeting active investors. It also provides real-timecommentary and investment tools and data. Products include an iPad application (paid application), MarketWatch Mobile (free iPhoneapplication and mobile site), MarketWatch Premium Newsletter (paid newsletters on a variety of investing topics), Big Charts (freeinvestment charting website) and Virtual Stock Exchange (free stock simulation game through the website). MarketWatch.comaveraged nearly 33 million visits per month for the 12 months ended December 31, 2012 according to Adobe Omniture.
- AllThingsD.com. AllThingsD.com is a personal technology site that features breaking technology news, in-depth coverage of Silicon
Valley and the media industry, and product reviews and analysis. Since 2003, the annual D: All Things Digital conference has broughttogether influential figures in the digital, technology and media industries.
• Dow Jones Local Media. The Dow Jones Local Media business publishes community-focused print publications–including eight general interest dailynewspapers – and related local web sites in California, Maine, Massachusetts, New Hampshire, New York, Oregon and Pennsylvania. The Dow JonesLocal Media business also publishes 13 weekly newspapers, performs commercial printing at its five printing locations and offers other products andservices.
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Dow Jones products targeting enterprise customers combine news and information with technology and tools designed to inform decisions and to aidawareness, research and understanding. As our solutions are increasingly integral to the success of these customers, we expect to sustain strong retention rates byproviding high levels of service and continued innovation through news, data and tools that meet their specific needs. These products include the following:
• Factiva. Factiva is a leading provider of global business content, built on an archive of important, original publishing sources. This combination ofbusiness news and information, plus sophisticated tools, helps professionals find, monitor, interpret and share essential information. As of February 28,2013, there were approximately 1.15 million activated Factiva users, including both institutional and individual accounts. Many of the institutionalaccounts have multiple individual users. Factiva offers content from over 35,000 global news and information sources from over 200 countries and in28 languages. Thousands of our sources are not available for free on the Internet and more than 3,700 sources make information available via Factivaon or before the date of publication by the source. Factiva leverages complex metadata extraction and text-mining to help our customers build precisesearches and alerts to access and monitor this data.
• Dow Jones Newswires. Dow Jones Newswires distributes real-time business news, information, analysis, commentary and statistical data to financialprofessionals and investors worldwide. It publishes over 19,000 news items in 13 languages each day via terminals and trading platforms reachinghundreds of thousands of financial professionals. This content also reaches millions of individual investors via customer portals and intranets ofbrokerage and trading firms, as well as digital media publishers.
• Dow Jones Sales & Trading. Dow Jones Sales & Trading products provide traders, analysts and risk managers with low latency, corporate and
economic news and data feeds for algorithmic trading models. We also make archives available for model back-testing. Products include Dow JonesElementized Newsfeed and Dow Jones News & Archives for Algorithmic Applications.
• Dow Jones Private Equity & Venture Capital. Dow Jones Private Equity & Venture Capital products provide news and comprehensive data on ventureand private-equity backed private companies, and their investors, to help venture capitalists, financial professionals and other service providers identifydeal and partnership opportunities, perform comprehensive due diligence and examine trends in venture capital investment, fund-raising and liquidity.Products include VentureSource, LP Source, VentureWire, Private Equity Analyst and LBO Wire.
• Risk and Compliance. Dow Jones Risk and Compliance products provide data solutions for customers focused on anti-corruption, anti-moneylaundering and monitoring embargo and sanction lists. Our solutions allow customers to filter their business transactions against our data to identifyregulatory, corporate and reputational risk, and request follow-up due diligence reports. Products include Dow Jones Watchlist, Dow Jones Anti-Corruption, Dow Jones Sanction Alert and Dow Jones Due Diligence.
News Limited
News Limited is the largest general news provider in Australia by readership and circulation, owning over 120 newspapers covering a national, regionaland suburban footprint. Its daily, Sunday, weekly and bi-weekly newspapers account for more than 63% of the total circulation of newspapers in Australia, and itsSunday newspaper network is read by approximately 4.7 million Australians every week. In addition, its digital mastheads and other websites are among theleading digital properties in Australia based on monthly site visits. News Limited’s news portfolio includes:
• The Australian (National). The Australian is published Monday through Saturday. Average paid circulation for the year ended December 31, 2012 was
approximately 152,000.
• The Daily Telegraph and The Sunday Telegraph (Sydney). The Daily Telegraph is published Monday through Saturday. Average paid circulation for
the year ended December 31, 2012 was approximately 337,000 for The Daily Telegraph and 605,000 for The Sunday Telegraph.
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• Herald Sun and Sunday Herald Sun (Melbourne). Herald Sun is published Monday through Saturday. Average paid circulation for the year ended
December 31, 2012 was approximately 460,000 for Herald Sun and 528,000 for Sunday Herald Sun.
• The Courier Mail and The Sunday Mail (Brisbane). The Courier Mail is published Monday through Saturday. Average paid circulation for the year
ended December 31, 2012 was approximately 199,000 for The Courier Mail and 451,000 for The Sunday Mail.
• The Advertiser and Sunday Mail (Adelaide). The Advertiser is published Monday through Saturday. Average paid circulation for the year ended
December 31, 2012 was approximately 181,000 for The Advertiser and 268,000 for Sunday Mail.
• A large number of community newspapers, including Manly Daily, the only daily community newspaper in Australia, Northern Times and Guardian
Messenger, as well as leading regional publications, including the Gold Coast Bulletin.
News Limited has launched paid-for digital platforms for The Australian and Herald Sun websites and plans to implement digital subscription models forother Australian mastheads in the upcoming year. News Limited’s broad portfolio of digital properties also comprises a number of other premier assets, includingleading general interest sites in Australia such as news.com.au, which provides business, entertainment, lifestyle, news and sports information, taste.com.au, aleading food and recipe site, and kidspot.com.au, a leading parenting website. Other digital media assets include a 50% stake in CareerOne.com.au (a jointventure with Monster.com), a 50% stake in carsguide.com.au (a joint venture with a consortium of leading car dealers), an 89.5% stake in the SportingPulse(which supplies a scheduling tool for sports organizations), and 100% of Business Spectator and Eureka Report (online business and investment news andcommentary services).
News International
News International (“NI”) publishes The Sun, The Times and The Sunday Times, which are leading newspapers in the U.K. Sales of these three titlesaccount for approximately one-third of all national newspaper sales in the U.K. NI also distributes content through thesun.co.uk, thetimes.co.uk andthesundaytimes.co.uk. Revenue is derived primarily from advertising and subscriptions to our print and digital products. NI’s newspapers (except some Saturdayand Sunday supplements) are printed at world-class printing facilities in England, Scotland and Ireland. NI also generates revenue by providing third partyprinting services through these facilities and is now the largest contract printer in the U.K. In addition, NI has developed a portfolio of highly complementaryancillary product offerings, including Sun Bingo, the U.K.’s largest online bingo platform, as well as newer products such as Sunday Times Driving, a digitalclassified offering, and The Times Whisky Club, which supplies premium products and accompanying editorial content.
• The Sun. The Sun newspaper is published Monday through Saturday and on Sunday as of February 2012. Based on National Readership Survey datafor the six months ended December 31, 2012, The Sun is the most read national newspaper in the U.K., with an average issue readership ofapproximately 6,700,000 Monday through Saturday for The Sun and 5,900,000 for The Sun on Sunday. Average paid circulation for the year endedDecember 31, 2012 was approximately 2,524,000 for The Sun and 2,243,000 for The Sun on Sunday. The Sun iPad edition is expected to launch inmid-2013.
• The Times. The Times newspaper is published Monday through Saturday with an average issue readership of approximately 1.3 million for the sixmonths ended December 31, 2012 based on National Readership Survey data. Average paid circulation for the year ended December 31, 2012 wasapproximately 404,000. The Times is also distributed through online and mobile applications. As of December 31, 2012 The Times had approximately140,000 paid print subscribers and 128,000 paid digital subscribers. NI also publishes The Times Literary Supplement, a weekly literary review.
• The Sunday Times. The Sunday Times is the largest broadsheet Sunday newspaper in the U.K. with an average issue readership of approximately
2.5 million for the six months ended December 31, 2012
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based on National Readership Survey data. Average paid circulation for the year ended December 31, 2012 was approximately 921,000. The SundayTimes is also distributed through online and mobile applications. As of December 31, 2012, The Sunday Times had approximately 169,000 paid printsubscribers and 115,000 paid digital subscribers.
New York Post
The New York Post (the “Post”) is the oldest continuously published daily newspaper in the U.S., with a focus on coverage of the New York metropolitanarea. The print version of the Post is primarily distributed in New York and throughout the Northeast, as well as Florida and California. The Post provides avariety of general interest content ranging from breaking news to business analysis, and is known in particular for its comprehensive sports coverage, famousheadlines and its iconic Page Six section, an authority on celebrity news. The Post’s digital platforms feature all the sections of the print version as well ascontinually updated breaking news and other content and extend the reach of the Post to a national audience. For the twelve month period ended December 31,2012, average weekday circulation, including digital editions, was approximately 525,000. The Post is printed in a printing facility in the Bronx, New York anduses third party printers in its other markets in the U.S. Our Community Newspaper Group also owns several local newspapers and other publications distributedin the New York metropolitan area.
News America Marketing Group
NAMG is a leading provider of coupon promotions, special offers and other direct consumer marketing solutions through a network of over 1,700publications, 50,000 retail stores and 300 partner sites including SmartSource.com as well as through the expanding app, SmartSource Xpress for iPad andiPhone. NAMG offers direct consumer marketing solutions for companies that include consumer packaged goods manufacturers, financial services,pharmaceutical manufacturers, quick-service and casual restaurants, retailers and other marketers in the U.S. and Canada. NAMG has developed broad, long-standing relationships with many well-known brands, including Procter & Gamble, General Mills, Kraft, GlaxoSmithKline, Walmart, Kroger, American Express,Target, Loblaws, Citibank and DirectTV.
NAMG’s marketing solutions are available via multiple distribution channels, including newspapers, in-store and digital, primarily under the SmartSourcebrand name. NAMG provides customers with “one-stop shopping” for their direct-to-consumer marketing needs through its three primary business areas:
• Free-Standing Inserts: Free-standing inserts are multiple-page marketing booklets containing coupons, rebates and other consumer offers, which aredistributed to consumers through insertion primarily into local Sunday newspapers. NAMG is one of the two largest publishers of free-standing insertsin the U.S. Advertisers, primarily packaged goods companies, pay NAMG to produce free-standing inserts, often on an exclusive basis within theirproduct category. NAMG contracts with and pays, newspaper publishers, among others, to include the free-standing inserts in their papers. NAMG’sfree-standing insert products are distributed 43 times a year to over 74 million households.
• In-Store Advertising and Merchandising: NAMG is a leading provider of in-store marketing products and services, primarily to consumer packagedgoods manufacturers. NAMG’s marketing products include: at-shelf advertising such as coupon, information and sample-dispensing machines as wellas container, floor and shopping-cart advertising, among others, and are found in more than 50,000 supermarkets, drug stores, dollar stores, officesupply stores and mass merchandisers across North America. NAMG also provides in-store merchandising, including instant-redeemable coupons, on-pack stockers, shipper assembly, display set-up and refilling, shelf management and new product cut-ins.
• SmartSource Digital: SmartSource Digital manages NAMG’s portfolio of database and electronic-marketing solutions. The database-marketing
business, branded SmartSource Direct, provides direct-mail solutions via access to a national network of retailer frequent-shopper card databasesoffering
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information on the purchase behavior of more than 100 million cardholders. The SmartSource Savings Network, which includes SmartSource.com andSmartSource Xpress, encompasses all of NAMG’s electronic couponing and sampling solutions accessed through the web, mobile and tablet-basedprogramming and reaches an audience of more than 85 million consumers.
NAMG’s programs have key advantages when compared to other marketing options available to packaged goods companies, retailers and other marketers.NAMG offers cost-effective programs that reach a national audience of engaged consumers who are actively seeking coupons or discounts and who are at acritical moment in their purchase decision. By delivering an immediate incentive or brand message to shoppers as they are making brand decisions, free-standinginserts and in-store advertising have an advantage over other mass media such as radio and television.
Competition
Our news and information services products compete with a wide range of media businesses, including both print publications and digital media andinformation services.
Our newspapers, magazines and digital publications compete for readership and advertising with local and national newspapers, web and application-basedmedia, social media sources and other traditional media such as television, magazines and radio. Competition for print and digital subscriptions is based on thenews and editorial content, subscription pricing, cover price and, from time to time, various promotions. Competition for advertising is based upon advertisers’judgments as to the most effective media for their advertising budgets, which is in turn based upon various factors including circulation volume, readership levels,audience demographics, advertising rates and advertising effectiveness results. In recent years, the newspaper industry has experienced difficulty increasing ormaintaining circulation volume and revenue due to, among other factors, increased competition from new media formats and sources and shifting preferencesamong some consumers to receive all or a portion of their news from sources other than a newspaper, including digital sources available free of charge toconsumers. We believe that these changes will continue to pose opportunities and challenges within the newspaper industry, and that we are well positioned tocontinue to benefit from the transition to digital consumption. We plan to leverage our global reach and brand recognition and our proprietary technology toexpand our digital offerings, many of which are in early stages and have significant potential for growth.
Dow Jones’ business targeting enterprise customers also competes with select information service providers across its various product offerings. Dow JonesNewswires competes with other global financial newswires, including Thomson Reuters and Bloomberg L.P., as well as many Internet-based providers offinancial news and information. Factiva competes with various business information service providers, such as LexisNexis, as well as various Internet-basedinformation search services.
NAMG competes against other providers of advertising, marketing and merchandising products and services, including those that provide promotional oradvertising inserts, direct mailers of promotional or advertising materials, providers of point-of-purchase and other in-store programs, other merchandisingservices companies and providers of savings and/or grocery-focused digital applications. Competition is based on, among other things, rates, availability ofmarkets, quality of products and services provided and their effectiveness, rate of coupon redemption, store coverage and other factors. We believe that NAMG’slarge reach of over 74 million households for its free-standing inserts and 55,000 retail outlets for its in-store advertising, provides significantly broader consumeraccess than many of its competitors.
CABLE NETWORK PROGRAMMING
Our Cable Network Programming segment consists of FOX SPORTS Australia, the leading sports programming provider in Australia based on totalsubscribers. FOX SPORTS Australia is focused on live national and international sports events and provides featured original and licensed premium sportscontent
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tailored to the Australian market, including live sports such as National Rugby League, the domestic football league, English Premier League, Australian andinternational cricket, as well as the NFL. FOX SPORTS Australia offers seven standard definition television channels, high definition versions of five of thosechannels, an interactive viewing application and one IPTV channel. Its channels consist of FOX SPORTS 1, FOX SPORTS 2, FOX SPORTS 3, FOX FOOTY,FOX SPORTS NEWS, FUEL TV and SPEED that broadcast an average of 23 hours of live sports per day reaching FOXTEL, Telstra and Optus subscriptiontelevision customers. FOX SPORTS Australia is distributed via longstanding carriage agreements with pay-TV providers (mainly Foxtel) in Australia andgenerates revenue primarily through affiliate fees payable under these carriage agreements, as well as advertising sales. FOX SPORTS Australia’s access tocompelling local and international sports programming, as well as its production of high-quality original sports content has made it the leading sportsprogramming provider in Australia.
FOX SPORTS Australia has made technological advances in recent years, becoming the first TV network ever to feature a live 3D sporting event inAustralia on May 24, 2010. FOX SPORTS Australia also operates foxsports.com.au, a leading general sports website in Australia, and offers an IPTV channeland several interactive mobile and tablet applications that extend the reach of our content across multiple new platforms.
Prior to November 2012, we owned a 50% interest in FOX SPORTS Australia, which we accounted for as an equity investment. In November 2012, weacquired CMH, a media investment company that owned the remaining 50% interest in FOX SPORTS Australia. As a result of the CMH acquisition, ourownership interest in FOX SPORTS Australia increased to 100% and accordingly, the results of FOX SPORTS Australia are included within a new CableNetwork Programming segment beginning in November 2012.
Competition
FOX SPORTS Australia competes primarily with ESPN, the FTA channels and certain telecommunications companies in Australia.
DIGITAL REAL ESTATE SERVICES
Our Digital Real Estate Services segment consists of our 61.6% interest in REA Group Limited, a publicly-traded company on the Australian SecuritiesExchange (ASX: REA) that is a leading digital advertising business specializing in real estate services. Established in Melbourne in 1995, REA owns andoperates Australia’s number one residential and commercial property websites, realestate.com.au and realcommerical.com.au, as well as the market-leadingItalian property site, casa.it, and other property sites and apps across Europe and Hong Kong. REA is used by approximately 21,000 agents, and REA’s flagshipsites realestate.com.au and realcommercial.com.au have approximately 19.4 million visits each month combined based on Nielsen average monthly total trafficratings for the six months ended December 31, 2012.
REA’s Australian operations include realestate.com.au, a residential real estate service, realcommercial.com.au, a commercial real estate service and REAMedia. Realestate.com.au derives the majority of its revenue via residential monthly advertising subscriptions and advertising listing upgrades from real estateoffices. Agents subscribing to the website may upload unlimited listings for sale or rent and purchase a selection of upgrade products to increase the prominenceof their listings on the site. Additionally, realestate.com.au offers a variety of targeted products, including brand-building services for real estate agents.Realcommercial.com.au generates revenue through three main sources, agent subscription revenue, agent branding revenue and listing revenue. REA Mediaoffers unique advertising opportunities on both realestate.com.au and realcommercial.com.au, as well as via mobile ad placements. Its revenue is generatedprimarily from commercial developers and banks / financial institutions which benefit from being able to target REA’s substantial audience base.
REA’s other operations include property sites in Italy, Luxembourg, France, Germany and Hong Kong. Casa.it, with approximately 7.1 million visits eachmonth based on Nielsen average monthly total traffic ratings for
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the six months ended December 31, 2012, is Italy’s leading residential property site. Casa.it’s award winning social media strategy saw it named one of the 10most popular brands in Italy. Squarefoot.com.hk is REA Group’s English and Chinese language property site in Hong Kong with approximately 269,000 uniquebrowsers monthly. The atHome business operates the number one property site in Greater Luxembourg as well as sites in France and Germany.
REA continuously invests in new technology and capabilities that enable it to offer its customers innovative solutions, such as its new Diamond premiumsubscription package which allows real estate agents to connect and streamline their marketing across a broad range of digital channels including the Internet,mobile applications and social media. REA has leveraged these value-added products to generate increased revenue per customer.
Competition
REA competes primarily with other real estate websites in its geographic markets, including domain.com.au in Australia.
BOOK PUBLISHING
Our Book Publishing segment consists of HarperCollins Publishers (“HarperCollins”), one of the largest English-language consumer publishers in theworld based on global revenue, with operations in the U.S., the U.K., Canada, Australia, New Zealand and India. HarperCollins publishes and distributesconsumer books globally through print, digital and audio formats. Our digital formats include electronic books for devices such as the Apple iPad, Amazon’sKindle, Google’s Nexus and Barnes & Noble’s NOOK as well as audio downloads for smartphones and MP3 players. HarperCollins owns over 60 brandedimprints and a catalog which comprises approximately 100,000 SKUs, approximately 30,000 of which are available in e-book formats. HarperCollins publishesfiction and nonfiction, with a focus on general, children’s and religious content. In July 2012, HarperCollins completed its acquisition of Thomas Nelson, Inc.(“Thomas Nelson”), a leading publisher in the Christian publishing market. Additionally, in the U.K., HarperCollins publishes titles for the equivalent of the K-12educational market.
HarperCollins is rapidly transitioning from print production to digital with leading e-book offerings. As of December 31, 2012, HarperCollins offeredapproximately 30,000 e-book titles, which accounted for approximately 14% of global revenues in the quarter (up from approximately 10% in the prior yearperiod). Nearly all of our titles published in the last four years, as well as the majority of our entire catalog, are available in electronic reader and tablet formats.With the rapid adoption of electronic formats by consumers, HarperCollins is publishing many titles in digital formats before, or instead of, publishing a printedition. For example, through its popular romance imprint, Avon, HarperCollins launched a “digital-first” series which releases one new title per week in theromance category. The series has already generated three New York Times electronic bestsellers since its launch.
During fiscal 2012, HarperCollins U.S. had 144 titles on the New York Times bestseller list, with 17 titles hitting number one, including American Sniper byChris Kyle with Scott McEwen and Jim DeFelice, The Pioneer Woman Cooks: Food from My Frontier by Ree Drummond, Act Like a Lady, Think Like a Man bySteve Harvey, The Capture of the Earl of Glencrae by Stephanie Laurens, Loving by Karen Kingsbury, Divergent by Veronica Roth, If You Give a Dog a Donutby Laura Numeroff, Pete the Cat and His Four Groovy Buttons by Eric Litwin, Insurgent by Veronica Roth, Pete the Cat: Rocking in My School Shoes by EricLitwin, The Night Before Christmas by Clement C. Moore, The Power of Six by Pittacus Lore, Every Thing On It by Shel Silverstein, Pinkalicious and the PinkPumpkin by Victoria Kann, Fancy Nancy and the Mermaid Ballet by Jane O’Connor, One Direction: Dare to Dream by One Direction and The Fame Game byLauren Conrad.
HarperCollins derives its revenue from the sale of print and digital books to a customer base that includes global technology companies, traditional brickand mortar booksellers, wholesale clubs and discount stores,
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including Amazon, Apple, Barnes & Noble and Tesco. As our digital products continue to account for more of our business, we expect to benefit from increasedprofit contribution and improved working capital dynamics due to diminishing physical plant requirements, inventory and returns related to our print business aswell as faster payments for e-books.
Competition
The book publishing business operates in a highly competitive market that is quickly changing and continues to see technological innovations, includingelectronic book devices sold by Amazon, Apple, Google and Barnes & Noble. HarperCollins competes with other large publishers, such as Random House,Penguin Group, Simon & Schuster and Hachette Livre, as well as with numerous smaller publishers, for the rights to works by well-known authors and publicpersonalities; competition could also come from new entrants, since barriers to entry in book publishing are low. In addition, HarperCollins competes forreadership with other media formats and sources. We believe HarperCollins is well positioned in the evolving book publishing market with significant size andbrand recognition across multiple categories and geographies and as an early adopter of the digital model, where it is an industry leader with approximately30,000 e-book titles. Furthermore, HarperCollins is a leader in children’s and religious books, categories which have been less impacted by the transition todigital consumption.
OTHER
The Other segment includes Amplify, our digital education business, and general corporate overhead expenses.
Amplify
In July 2012, we launched Amplify, the brand for our education business. Amplify is dedicated to improving K-12 education by creating digital productsand services that empower teachers, students and parents in new ways. Amplify is focused on transforming teaching and learning by creating and scaling digitalinnovations in three areas:
• Amplify Insight: Amplify’s successful analytics and assessment business, which operates under the brand Wireless Generation, commenced operationsin 2000 and was acquired by Parent in 2010. Wireless Generation’s offerings include student assessment tools and analytic technologies, interventionprograms, enterprise education information systems, and professional development and consulting services. Key products include mClass , a suite ofproducts that enable teachers to easily and quickly monitor individual and class progression through standards and access detailed analysis, customgrouping and instructional planning tools. Through Wireless Generation, Amplify products serve over 200,000 educators and 3 million students in all50 states, including approximately 40% of the top 200 school districts based on student enrollment.
• Amplify Learning: Amplify’s nascent digital curriculum business is developing new content in English Language Arts, Science and Math, includingsoftware that will combine interactive, game-like experiences with rigorous analytics, all driven by adaptive technologies that respond to individualstudents’ needs as they evolve. Amplify Learning’s digital curriculum will incorporate the new Common Core State Standards that will beimplemented in 45 states beginning with the 2014-2015 school year. Amplify launched pilots of its new digital English and Science curriculum forstudents in the middle grades during the 2013 fiscal year.
• Amplify Access: Amplify’s distribution platform business, which is developing new distribution and delivery mechanisms, consists of an open tablet-
based distribution platform that will offer curated third-party as well as proprietary curricular and extracurricular content, sophisticated analyticcapabilities, a tablet, and 4G connectivity through a subscription-based bundle optimized for the K-12 market to
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facilitate personalized instruction and enable anywhere, anytime learning. Amplify launched pilots of its new distribution platform for the classroomduring the 2013 fiscal year.
Amplify’s digital products are or will generally be available on a subscription basis. We also expect to market and sell some supplemental print-basedmaterials, as well as instructional and information technology-related services. In addition, while each of Amplify’s products will be available on a stand-alonebasis, we also anticipate that we will have the ability to cross-sell products between our three business areas and offer bundled solutions to our customers.
Competition
Amplify competes with existing K-12 education publishers and content providers such as Pearson plc and McGraw-Hill Education, large platformcompanies such as Google, Apple, and Amazon that market their tablet or e-reader products for educational use, as well as a number of smaller content, analyticsand distribution platform companies. We believe that Amplify’s capabilities across analytics and assessment, content and curriculum and distribution and deliverymake it well-positioned to offer schools a unique integrated learning solution.
EQUITY INVESTMENTS
Foxtel
We and Telstra, an Australian telecommunications company, each own 50% of Foxtel, the largest pay-TV provider in Australia. Foxtel has approximately2.3 million subscribing households throughout Australia, or over 30% of the country’s population, as of December 31, 2012 through cable, satellite and IPTVdistribution.
Foxtel delivers more than 200 channels (including standard definition channels, high definition versions of some of those channels, and audio andinteractive channels) covering news, sport, general entertainment, movies, documentaries, music and children’s programming. Foxtel’s premium content includesFOX SPORTS Australia’s suite of sports channels such as FOX SPORTS 1, FOX SPORTS 2 and FOX SPORTS 3 and TV shows from HBO, FOX and Universal,among others. Foxtel also owns and operates 26 channels, including general entertainment and movie channels and sources an extensive range of movieprogramming through arrangements with major U.S. studios. Foxtel’s channels are distributed to subscribers via both Telstra’s hybrid fibrecoaxial cable networkand a long-term contracted satellite platform provided by Optus. Foxtel offers limited versions of its services via broadband to the Xbox platform, Telstra’s T-Boxplatform, select Samsung televisions, a number of Virgin Australia aircraft, and mobile devices and tablets (including iPads and iPhones via FOXTEL Go), aswell as via the Internet to personal computers. Foxtel customers are also able to access their electronic programming guide via their tablet, mobile devices andpersonal computers to remotely record programming.
We and Telstra each have the right to appoint one-half of the board of directors of Foxtel. In addition, we have the right to appoint the Chief ExecutiveOfficer and Chief Financial Officer of Foxtel, while Telstra has the right to terminate these officers.
Competition
Foxtel competes primarily with the three major commercial FTA networks and two major government-funded broadcasters in Australia for subscribers, aswell as other pay-TV operators and IPTV providers. Foxtel provides a 200-plus channel selection with premium and exclusive content and a wide array of digitaland mobile features that are not available to viewers on the FTA networks. Through innovations such as digital HD channels, the extension of pay-TVprogramming to mobile devices and the use of DVR and Electronic Program Guide
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technology, we believe Foxtel offers subscribers a compelling alternative to FTA TV and Foxtel’s other competitors.
Governmental Regulation
General
Various aspects of New News Corporation’s activities are subject to regulation in numerous jurisdictions around the world. New News Corporationbelieves that it is in material compliance with the requirements imposed by those laws and regulations described herein. The introduction of new laws andregulations in countries where New News Corporation’s products and services are produced or distributed (and changes in the enforcement of existing laws andregulations in those countries) could have a negative impact on the interests of New News Corporation.
Australian Television
New News Corporation’s subscription television interests are subject to Australia’s regulatory framework for the broadcasting industry. The key regulatorybody for the Australian broadcasting industry is the Australian Communications and Media Authority (“ACMA”).
Key regulatory issues for subscription television providers include: (a) anti-siphoning restrictions—currently under the ‘anti-siphoning’ provisions of theAustralian Broadcasting Services Act 1992 (Cth), subscription television providers are prevented from acquiring rights to televise certain listed events (forexample, the Olympic Games and certain Australian rules football and cricket matches) unless national and commercial television broadcasters have not obtainedthese rights 12 weeks before the start of the event, the rights to televise are also held by commercial television licensees who have rights to televise the event tomore than 50% of the Australian population or the rights to televise are also held by one of Australia’s two major government-funded broadcasters; (b) theBroadcasting Services Act—this legislation may impact our ownership structure and operations and restrict our ability to take advantage of acquisition orinvestment opportunities including, for example, preventing us from exercising control of a commercial television broadcasting license, a commercial radiolicense and a newspaper in the same license area; and (c) Convergence Review—on April 30, 2012, the Minister for Broadband, Communications and the DigitalEconomy released the Final Report of a comprehensive review of Australia’s communications and media regulation in light of increasing convergence in mediaplatforms. The report covered a number of broad areas, including media ownership laws, media content standards, the ongoing production and distribution ofAustralian and local content and the allocation of radio communications spectrum. In November 2012, the Government announced an interim response to theConvergence Review which included proposals to reduce FTA license fees by 50%, impose additional Australian content obligations on the FTA networks andremove the prohibition on an FTA network’s signal reaching greater than 75% of the Australian population. However, the Government has not yet passedlegislation implementing this policy announcement or any other reforms arising out of the Convergence Review. The Government has indicated that it expects todevelop legislation during the first half of 2013, but the details of any new legislation are not yet clear. Any change in regulation from the Convergence Reviewcould adversely impact our Australian television businesses.
U.K. Press Regulation
On July 13, 2011, Prime Minister David Cameron announced a two-part inquiry into the U.K. press and appointed Lord Justice Leveson as Chairman of theInquiry. The inquiry was triggered by allegations of illegal voicemail interception at our former publication, The News of the World. Hearings opened onNovember 14, 2011 with respect to the first part of the inquiry, and Lord Justice Leveson published his report on November 29, 2012.
The report made recommendations on the future of press regulation and governance in the U.K., which have been the subject of debate in the U.K.parliament, as well as discussion both among newspaper groups (including NI) and the industry and the government.
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It is unclear at this time whether all of the report’s recommendations will be adopted in full. The U.K. Government has proposed establishing a regulatorybody to oversee the U.K. press, which would be comprised primarily of members independent of the industry. However, the form and function of any regulatorybody or other vehicle for implementing any recommendations of the Leveson Report is a subject of ongoing discussion among industry, private groups, politicalparties and the Government, and it is unclear how and when that process will be resolved. Any new regulatory regime is likely to, among other things, introduceand oversee a revised press code, require members to implement appropriate internal governance processes and require self- reporting of any failures, provide acomplaints handling service, have the ability to require publications to print corrections, have the power to investigate serious or systemic breaches of the presscode and be able to levy fines. The report also contemplates the establishment of an arbitration service to resolve claims against publications and changes to dataprotection legislation.
If adopted, a new regulatory regime may impose burdens on the print media that represent competitive disadvantages versus other forms of media and mayincrease the costs of compliance.
A date has yet to be set for the second part of the inquiry.
Internet
The Children’s Online Privacy Protection Act of 1998 (“COPPA”) prohibits websites from collecting personally identifiable information online fromchildren under age 13 without prior parental consent. The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (“CAN-SPAM”)regulates the distribution of unsolicited commercial emails, or “spam.” Online services provided by New News Corporation may be subject to COPPA and CAN-SPAM requirements.
Federal regulators’ interest in issues of privacy, cybersecurity and data security has been steadily increasing. On February 23, 2012, the Obamaadministration issued a white paper on consumer data privacy that includes a Consumer Privacy Bill of Rights. The Obama administration is convening a multi-stakeholder process to implement the Bill of Rights through industry codes of conduct that would be enforceable by the Federal Trade Commission (“FTC”) andState Attorneys General. The Obama administration also announced it would work with Congress to implement these rights through legislation. On March 26,2012, the FTC released a report on consumer privacy, which sets forth a detailed privacy framework and urges industry to accelerate the pace of adoption of self-regulatory measures, including more widespread adoption of a Do-Not-Track browser mechanism. The report also recommends that Congress consider baselineprivacy legislation incorporating the principles articulated in the framework. A number of privacy and data security bills have been introduced in both Houses ofCongress that address the collection, maintenance and use of personal information, web browsing and geolocation data, data security and breach notificationrequirements, and cybersecurity. Several Congressional hearings have examined privacy implications for online, offline and mobile data. Some state legislatureshave already adopted legislation that regulates how businesses operate on the Internet, including measures relating to privacy, data security and data breaches. Theindustry released a set of self-regulatory online behavioral advertising principles in 2009, which have been implemented by web publishers, online advertisers andonline advertising networks. In November 2011, these principles were extended to the use of online consumer data for purposes other than advertising. It isunclear whether these and other industry self-regulatory efforts alone will address the concerns expressed by some federal and state officials about the collectionof anonymous data online or via mobile applications to serve targeted content and advertising. It is not possible to predict whether proposed privacy and datasecurity legislation will be enacted or to determine what effect such legislation might have on New News Corporation’s business.
Foreign governments are raising similar privacy and data security concerns. In particular, the EU has proposed a new privacy regulation (the “EURegulation”) that would replace the current Data Protection Directive, would tighten regulation of the collection, use and security of online data and wouldcontinue to restrict the trans-border flow of data. European industry has implemented a self-regulatory regime for online
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behavioral advertising that is largely consistent with the U.S. self-regulatory framework. The proposed EU Regulation will not be effective for at least three orfour years and may undergo many changes before it is adopted. It is unclear how the final EU Regulation would affect New News Corporation’s business.
New News Corporation monitors pending legislation and regulatory initiatives to ascertain relevance, analyze impact and develop strategic directionsurrounding regulatory trends and developments.
Education
The availability of funding for K-12 education is affected by changes in legislation, both at the federal and state level, as well as changes in the stateprocurement process. Future changes in federal funding and the state and local tax base could create an unfavorable environment, leading to budget issuesresulting in a decrease in educational funding.
Intellectual Property
New News Corporation’s intellectual property assets include: copyrights in newspapers, books, television programming and other content and technologies;trademarks in names and logos; domain names; and licenses of intellectual property rights. In addition, its intellectual property assets include patents or patentapplications for inventions related to its products, business methods and/or services, none of which are material to its financial condition or results of operations.New News Corporation derives value and revenue from these assets through, among other things, print and digital newspaper and magazine subscriptions andsales, the sale, distribution and/or licensing of print and digital books, the sale of subscriptions to its content and information services, the operation of websitesand other digital properties and the distribution and/or licensing of its television programming to cable and satellite television services.
New News Corporation devotes significant resources to protecting its intellectual property in the U.S., the U.K., Australia and other foreign territories. Toprotect these assets, New News Corporation relies upon a combination of copyright, trademark, unfair competition, patent, trade secret and other laws andcontract provisions. However, there can be no assurance of the degree to which these measures will be successful in any given case. Policing unauthorized use ofNew News Corporation’s products, services and content and related intellectual property is often difficult and the steps taken may not in every case prevent theinfringement by unauthorized third parties of New News Corporation’s intellectual property. New News Corporation seeks to limit that threat through acombination of approaches, including pursuing legal sanctions for infringement, promoting appropriate legislative initiatives and international treaties andenhancing public awareness of the meaning and value of intellectual property and intellectual property laws. Piracy, including in the digital environment,continues to present a threat to revenues from products and services based on intellectual property.
Third parties may challenge the validity or scope of New News Corporation’s intellectual property from time to time, and such challenges could result inthe limitation or loss of intellectual property rights. Irrespective of their validity, such claims may result in substantial costs and diversion of resources that couldhave an adverse effect on New News Corporation’s operations. Moreover, effective intellectual property protection may be either unavailable or limited in certainforeign territories. Therefore, New News Corporation engages in efforts to strengthen and update intellectual property protection around the world, includingefforts to ensure the effective enforcement of intellectual property laws and remedies for infringement.
Raw Materials
As a major publisher of newspapers, magazines, free-standing inserts and books, New News Corporation utilizes substantial quantities of various types ofpaper. In order to obtain the best available prices, substantially all of New News Corporation’s paper purchasing is done on a regional, volume purchase basis, anddraws upon
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major paper manufacturing countries around the world. New News Corporation believes that under present market conditions, its sources of paper supply used inits publishing activities are adequate.
Employees
As of December 31, 2012, we had approximately 24,000 employees, of whom approximately 9,000 were located in the U.S., 4,000 were located in theU.K. and 9,000 were located in Australia. Of our employees, approximately 7,000 were represented by various employee unions. The contracts with such unionswill expire during various times over the next several years. We believe our current relationships with employees are generally good.
Properties
New News Corporation owns and leases various real properties in the U.S., Europe, Australia and Asia that are utilized in the conduct of its businesses.Each of these properties is considered to be in good condition, adequate for its purpose and suitably utilized according to the individual nature and requirementsof the relevant operations. New News Corporation’s policy is to improve and replace property as considered appropriate to meet the needs of the individualoperation.
United States
New News Corporation’s principal real properties in the U.S. are the following:
(a) The U.S. headquarters of New News Corporation, located at 1211 Avenue of the Americas, New York, New York and the offices of New NewsCorporation located at 1185 Avenue of the Americas, New York, New York, each of which will be subleased from Parent. These spaces include theexecutive and corporate offices of New News Corporation, the executive and editorial offices of Dow Jones, the editorial offices of the Post, theexecutive offices of NAMG and the corporate offices of Amplify;
(b) The leased offices of HarperCollins U.S. in New York, New York;
(c) The leased office and warehouse facilities of HarperCollins U.S. in Scranton, Pennsylvania;
(d) The owned office and warehouse facilities of Thomas Nelson in Nashville, Tennessee;
(e) The printing plant of the Post located in Bronx, New York owned by New News Corporation;
(f) The leased offices of Wireless Generation in Brooklyn, New York; and
(g) The office space campus owned by New News Corporation in South Brunswick, New Jersey.
Europe
New News Corporation’s principal real properties in Europe are the following:
(a) The newspaper production and printing facilities for its U.K. newspapers, which consist of:
1. The leased office space at each of Thomas More Square, London, England; Fleet House, Peterborough, England; Dublin, Ireland and
Glasgow City Centre, Scotland; and
2. The freehold interests in each of a publishing and printing facility in Broxbourne, England and printing facilities in Knowsley, England and
North Lanarkshire, Scotland.
(b) The leased headquarters and editorial offices of HarperCollins Publishers Limited in London, England;
(c) The leased executive and editorial offices of Dow Jones in London, England; and
(d) The leased warehouse and office facilities of HarperCollins Publishers Limited in Glasgow, Scotland.
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Australia and Asia
New News Corporation’s principal real properties in Australia and Asia are the following:
(a) The Australian newspaper production and printing facilities which consist of:
1. New News Corporation-owned print center and office building in Sydney, Australia at which The Australian, the Daily Telegraph and The
Sunday Telegraph are printed and published;
2. New News Corporation-owned print center and the leased office facility in Melbourne, Australia at which Herald-Sun and the Sunday
Herald-Sun are printed and published;
3. New News Corporation-owned print center and office building in Adelaide, Australia utilized in the printing and publishing of The
Advertiser and The Sunday Mail;
4. New News Corporation-owned print center and office building in Brisbane, Australia at which The Courier Mail and Sunday Mail are
printed and published;
5. The two New News Corporation-owned buildings in Perth, Australia used to print and publish The Sunday Times; and
(b) The leased office space of Dow Jones in Hong Kong.
Legal Proceedings
We routinely are involved in legal proceedings, claims and governmental inspections or investigations, or other legal matters, arising in the ordinary courseof our business.
U.K. Newspaper Matters
On July 19, 2011, a purported class action lawsuit captioned Wilder v. News Corp., et al. was filed on behalf of all purchasers of Parent’s common stockbetween March 3, 2011 and July 11, 2011, in the U.S. District Court for the Southern District of New York. The plaintiff brought claims under Section 10(b) andSection 20(a) of the Securities Exchange Act, alleging that false and misleading statements were issued regarding alleged acts of voicemail interception at TheNews of the World. The suit named as defendants Parent, Rupert Murdoch, James Murdoch and Rebekah Brooks, and sought compensatory damages, rescissionfor damages sustained, and costs.
This litigation and certain other Parent stockholder lawsuits are all now before the same judge. On June 5, 2012, the court issued an order appointing theAvon Pension Fund (“Avon”) as lead plaintiff in the litigation and Robbins Geller Rudman & Dowd as lead counsel. Thereafter, on July 3, 2012, the court issuedan order providing that an amended consolidated complaint was to be filed by July 31, 2012. Avon filed an amended consolidated complaint on July 31, 2012,which among other things, added as defendants our subsidiary, NI Group Limited, and Les Hinton, and expanded the class period to include February 15, 2011 toJuly 18, 2011. Defendants filed their motion to dismiss on September 25, 2012, and the parties have completed briefing on the motion. The motion is pending.
Parent and New News Corporation management believe these Parent stockholder claims are entirely without merit and intend to vigorously defend thisaction.
In addition, U.K. and U.S. regulators and governmental authorities continue to conduct investigations initiated in 2011 with respect to the U.K. NewspaperMatters. We, together with Parent, are cooperating with these investigations.
We have admitted liability in many civil cases related to the phone hacking allegations and have settled many cases. While additional civil lawsuits may befiled, we have also announced a private compensation scheme under which parties can pursue claims against us, and until April 8, 2013, additional civil claimsmay be brought under the compensation scheme.
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We are not able to predict the ultimate outcome or cost of the civil claims or criminal matters. We incurred legal and professional fees related to the U.K.Newspaper Matters and costs for civil settlements totaling approximately $110 million and $90 million during the six months ended December 31, 2012 and2011, respectively. As of December 31, 2012, we have provided for our best estimate of the liability for the claims that have been filed and costs incurred andhave accrued approximately $70 million. It is not possible to estimate the liability for any additional claims that may be filed given the information that iscurrently available to us. If more claims are filed and additional information becomes available, we will update the liability provision for such matters.
We and Parent will agree in the separation and distribution agreement that Parent will indemnify us for payments made after the distribution date arisingout of civil claims and investigations relating to the U.K. Newspaper Matters, subject to our compliance with certain agreements regarding Parent’s control overthe civil U.K. Newspaper Matters and our consenting to settlements proposed by Parent, as well as legal and professional fees and expenses paid in connectionwith the criminal matters. The legal and professional fees and expenses and payments for settlements that we have incurred to date were in connection with thecivil claims and investigations and criminal matters, and we generally will be indemnified by Parent for such costs that are paid after the distribution date.However, violations of law may result in criminal fines or penalties for which we will not be indemnified by Parent. It is possible that these proceedings and anyadverse resolution thereof, including any fines or other penalties associated with any plea, judgment or similar result for which we will not be indemnified, coulddamage our reputation, impair our ability to conduct our business and adversely affect our results of operations and financial condition.
HarperCollins
Commencing on August 9, 2011, twenty-nine purported consumer class actions have been filed in the U.S. District Courts for the Southern District of NewYork and for the Northern District of California, which relate to the decisions by certain publishers, including HarperCollins Publishers L.L.C. (“HarperCollins”),to begin selling their eBooks pursuant to an agency relationship. The Judicial Panel on Multidistrict Litigation has transferred the various class actions to theHonorable Denise L. Cote in the Southern District of New York. On January 20, 2012, plaintiffs filed a consolidated amended complaint, again alleging thatcertain named defendants, including HarperCollins, violated the antitrust and unfair competition laws by virtue of the switch to the agency model for eBooks. Theactions seek as relief treble damages, injunctive relief and attorney’s fees. On June 25, 2012, Judge Cote issued a scheduling order for the multi-district litigationgoing forward. Additional information about In re MDL Electronic Books Antitrust Litigation, Civil Action No. 11-md-02293 (DLC), can be found on PublicAccess to Court Electronic Records (PACER). While it is not possible to predict with any degree of certainty the ultimate outcome of these class actions,HarperCollins believes it was compliant with applicable antitrust and competition laws.
Following an investigation, on April 11, 2012, the Department of Justice (the “DOJ”) filed an action in the U.S. District Court for the Southern District ofNew York against certain publishers, including HarperCollins, and Apple, Inc. The DOJ’s complaint alleges antitrust violations relating to defendants’ decisionsto begin selling eBooks pursuant to an agency relationship. This case was assigned to Judge Cote. Simultaneously, the DOJ announced that it had reached aproposed settlement with three publishers, including HarperCollins, and filed a Proposed Final Judgment and related materials detailing that agreement. Amongother things, the Proposed Final Judgment requires that HarperCollins terminate its agreements with certain eBook retailers and places certain restrictions on anyagreements subsequently entered into with such retailers. On September 5, 2012, Judge Cote entered the Final Judgment. A third party has filed a motion tointervene in the case for the purpose of appealing Judge Cote’s decision entering the Final Judgment to the U.S. Court of Appeals for the Second Circuit.Additional information about the Final Judgment can be found on the DOJ’s website.
Following an investigation, on April 11, 2012, 16 State Attorneys General led by Texas and Connecticut (the “AGs”) filed a similar action against certainpublishers and Apple, Inc. in the Western District of Texas. On
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April 26, 2012, the AGs’ action was transferred to Judge Cote. On May 17, 2012, 33 AGs filed a second amended complaint. As a result of a memorandum ofunderstanding agreed upon with the AGs for Texas and Connecticut, HarperCollins was not named as a defendant in this action. Pursuant to the terms of thememorandum of understanding, HarperCollins entered into a settlement agreement with the AGs for Texas, Connecticut and Ohio on June 11, 2012. ByAugust 28, 2012, forty-nine states (all but Minnesota) and five U.S. territories had signed on to that settlement agreement. On August 29, 2012, the AGssimultaneously filed a complaint against HarperCollins and two other publishers, a motion for preliminary approval of that settlement agreement and a proposeddistribution plan. On September 14, 2012, Judge Cote granted the AGs’ motion for preliminary approval of the settlement agreement and approved the AGs’proposed distribution plan. Notice was subsequently sent to potential class members, and a fairness hearing took place on February 8, 2013 at which Judge Cotegave final approval to the settlement. The settlement will become effective once the March 11, 2013 deadline to appeal has passed and any potential appeal hasbeen finally resolved. Once the settlement becomes effective, the final judgment will bar consumers from states and territories covered by the settlement fromparticipating in the class actions.
While the settlement agreement with the AGs is still subject to final approval by the court, New News Corporation believes that the proposed settlement, ascurrently drafted, will not have a material impact on the results of operations or the financial position of New News Corporation. However, New NewsCorporation can make no assurances that the proposed settlement will receive final approval.
On October 12, 2012, HarperCollins received a Civil Investigative Demand from the Attorney General from the State of Minnesota. HarperCollinscomplied with the Demand on November 16, 2012 and is cooperating with that investigation. While it is not possible to predict with any degree of certainty theultimate outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust laws.
The European Commission conducted an investigation into whether certain companies in the book publishing and distribution industry, includingHarperCollins, violated the antitrust laws by virtue of the switch to the agency model for eBooks. HarperCollins settled the matter with the European Commissionon terms substantially similar to the settlement with the DOJ. On December 13, 2012, the European Commission formally adopted the settlement.
Commencing on February 24, 2012, five purported consumer class actions were filed in the Canadian provinces of British Columbia, Quebec and Ontario,which relate to the decisions by certain publishers, including HarperCollins, to begin selling their eBooks in Canada pursuant to an agency relationship. Theactions seek as relief special, general and punitive damages, injunctive relief and the costs of the litigations. While it is not possible to predict with any degree ofcertainty the ultimate outcome of these class actions, especially given their early stages, HarperCollins believes it was compliant with applicable antitrust andcompetition laws and intends to defend itself vigorously.
In July 2012, HarperCollins Canada, a wholly-owned subsidiary of HarperCollins, learned that the Canadian Competition Bureau (“CCB”) had commencedan inquiry regarding the sale of eBooks in Canada. HarperCollins currently is cooperating with the CCB with respect to its inquiry. While it is not possible topredict with any degree of certainty the ultimate outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust and competition laws.
On February 15, 2013, a purported class of independent bricks-and-mortar bookstores filed an action in the U.S. District Court for the Southern District ofNew York entitled The Book House of Stuyvesant Plaza, Inc, et. al. v. Amazon.com, Inc., et. al, which relates to the digital rights management protection(“DRM”) of certain publishers’, including HarperCollins’, e-books being sold by Amazon.com Inc. The case involves allegations that certain named defendantsin the book publishing and distribution industry, including HarperCollins, violated the antitrust laws by virtue of requiring DRM protection. The action seeksdeclaratory and injunctive relief, reasonable costs and attorneys’ fees. While it is not possible to predict with any degree of certainty the ultimate outcome of thisclass action, HarperCollins believes it was compliant with applicable antitrust laws.
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We are not able to predict the ultimate outcome or cost of the HarperCollins matters described above. During the six months ended December 31, 2012 and2011, the legal and professional fees and settlements incurred in connection with these matters were not material, and as of December 31, 2012, we did not have amaterial accrual related to these matters.
Other
Our operations are subject to tax in various domestic and international jurisdictions and as a matter of course, we are regularly audited by federal, state andforeign tax authorities. We believe we have appropriately accrued for the expected outcome of all pending tax matters and do not currently anticipate that theultimate resolution of pending tax matters will have a material adverse effect on our consolidated financial condition, future results of operations or liquidity.
Geographical Information
Our primary operations are located in North America, Australia and the U.K. For the fiscal years ended 2012, 2011, and 2010, we generated revenue ofapproximately $3.7 billion, $3.8 billion and $3.8 billion in North America, $2.8 billion, $2.9 billion and $2.5 billion in Australia and $1.7 billion, $2.0 billion and$2.0 billion in the U.K., respectively. For additional information about our geographical operations, see “Note 13 to the Combined Financial Statements of NewNews Corporation.”
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SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following table presents New News Corporation’s selected historical combined financial data as of December 31, 2012 and for the six months endedDecember 31, 2012 and 2011, and as of and for each of the fiscal years in the five-year period ended June 30, 2012. The selected historical combined financialdata as of December 31, 2012 and for the six months ended December 31, 2012 and 2011 was derived from New News Corporation’s unaudited combinedfinancial statements included elsewhere in this information statement. The selected historical combined financial data as of June 30, 2012 and 2011 and for eachof the fiscal years in the three-year period ended June 30, 2012 was derived from New News Corporation’s audited combined financial statements includedelsewhere in this information statement. The selected historical combined financial data as of June 30, 2010 and as of and for the fiscal years ended June 30, 2009and 2008 was derived from New News Corporation’s unaudited combined financial statements that are not included in this information statement. Inmanagement’s opinion, the unaudited combined financial statements have been prepared on the same basis as the audited combined financial statements andinclude all adjustments, consisting only of ordinary recurring adjustments, necessary for a fair presentation of the information for the periods presented.
New News Corporation’s historical combined financial statements include certain expenses of Parent that were allocated to New News Corporation forcertain functions, including general corporate expenses related to finance, legal, insurance, compliance, information technology and human resources activities.These costs may not be representative of the future costs New News Corporation will incur as an independent public company. In addition, New NewsCorporation’s historical financial information does not reflect changes that New News Corporation will experience in the future as a result of the distribution ofNew News Corporation by Parent, including changes in cost structure, personnel needs, tax structure, financing and business operations. Consequently, thefinancial information included here may not necessarily reflect New News Corporation’s financial position and results of operations in the future or what NewNews Corporation’s financial position and results of operations would have been had New News Corporation been an independent, publicly traded companyduring the periods presented.
For the six months
ended December 31, For the years ended June 30, 2012 2011 2012 2011 2010 2009 2008 (in millions) STATEMENT OF OPERATIONS DATA: Revenues $4,454 $4,390 $ 8,654 $9,095 $8,752 $ 8,338 $8,950 Net income (loss) attributable to New News Corporation 1,307 111 (2,075) 678 243 (2,365) 876 As of
December31, 2012
As of June 30,
2012 2011 2010 2009 2008 (in millions) BALANCE SHEET DATA: Cash and cash equivalents $ 741 $ 1,133 $ 2,022 $ 1,080 $ 844 $ 573 Total assets 16,561 13,090 17,008 14,326 14,776 18,962
See Notes 2 and 3 to the Unaudited Combined Financial Statements of New News Corporation for information with respect to significant acquisitions,restructuring charges and other transactions during the six months ended December 31, 2012 and 2011.
See Notes 3, 4, 5, 7 and 10 to the Combined Financial Statements of New News Corporation for information with respect to significant acquisitions,disposals, impairment charges, restructuring charges, legal settlements and other transactions during fiscal 2012, 2011 and 2010.
Fiscal 2009 results included non-cash impairment charges of approximately $3.1 billion ($2.8 billion, net of tax) consisting of a write-down of $2.4 billionof goodwill, a write-down of intangible assets of $0.5 billion and a write-down of fixed assets of $0.2 billion. In fiscal 2009, New News Corporationrecorded
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restructuring charges of approximately $111 million consisting of $78 million recorded at the newspaper businesses and $33 million recorded at the bookpublishing business.
Fiscal 2008 results included New News Corporation’s acquisition of Dow Jones for consideration of approximately $5.7 billion. The considerationconsisted of approximately $5.2 billion in cash, assumed net debt of $330 million and $200 million in equity instruments of Parent. In June 2008, NewNews Corporation sold a parcel of land it owned in the U.K., for total consideration of $163 million. The consideration at closing was comprised of $91million in cash and a $72 million note, secured by the land, payable in three equal annual installments. New News Corporation recorded a pre-tax gain of$126 million on the transaction.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis presented below refer to and should be read in conjunction with the audited combined financial statements and related notes,the unaudited interim combined financial statements and related notes and the unaudited pro forma combined financial statements, each included elsewhere inthis information statement. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. The words “believe,”“expect,” “anticipate,” “project,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date thestatements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actualresults to differ materially from those made, projected or implied in the forward-looking statements. Factors that could cause or contribute to these differencesinclude those discussed below and elsewhere in this information statement, particularly in “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements.” We believe the assumptions underlying the combined financial statements are reasonable. However, the combined financial statementsincluded herein may not necessarily reflect our results of operations, financial position and cash flows in the future or what they would have been had we been aseparate, stand-alone company during the periods presented.
INTRODUCTION
The Proposed Distribution
On June 28, 2012, Parent announced its intent to pursue the separation of its business into two separate independent public companies, one of which willhold Parent’s global media and entertainment businesses and another which will hold the businesses comprising Parent’s newspapers, information services andintegrated marketing services, digital real estate services, book publishing, digital education and sports programming and pay-TV distribution in Australia. OnDecember 4, 2012, the board of directors of Parent authorized management to proceed with the proposed distribution, subject to the satisfaction or waiver ofcertain conditions and the board of directors’ ongoing consideration of the transaction and its final approval, which may not be granted.
To effect the distribution, Parent will first undertake an internal reorganization. Following the internal reorganization, Parent will distribute all of the sharesof New News Corporation common stock to its stockholders on a pro rata basis. After the distribution, Parent will not own any equity interest in New NewsCorporation, and New News Corporation will operate independently from Parent. Parent’s stockholders will not be required to vote to effectuate the distribution.However, in order to effectuate the distribution in the manner discussed in this information statement, Parent will be required to amend its Restated Certificate ofIncorporation, and Parent will hold a Special Meeting in connection therewith.
The internal reorganization and, in turn, the distribution, are subject to the satisfaction, or waiver by Parent, of a number of conditions. Additionally, Parentmay determine not to complete the internal reorganization or the distribution if, at any time, the board of directors of Parent determines, in its sole and absolutediscretion, that the distribution is not in the best interest of Parent or its stockholders or is otherwise not advisable.
Costs related to the distribution of approximately $28 million have been incurred by Parent for the six months ended December 31, 2012. These costsinclude accounting, legal, consulting and advisory fees. Parent has assumed all of these distribution costs incurred to date and Parent anticipates that it will beresponsible for all similar costs incurred prior to the distribution.
Subsequent to the distribution, New News Corporation expects to incur expenditures consisting primarily of employee-related costs, costs to start upcertain stand-alone functions, information technology systems and other transaction-related costs. Additionally, New News Corporation will incur costs as a resultof becoming an independent, publicly-traded company, for transition services and from establishing or expanding the corporate
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support for its business, including information technology, human resources, treasury, tax, risk management, accounting and financial reporting, investorrelations, governance, legal, procurement and other services. New News Corporation believes its cash flows from operations, together with its access to capitalmarkets, will be sufficient to fund these corporate expenses.
Basis of presentation
These combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records ofParent. These statements reflect the combined historical results of operations, financial position and cash flows of Parent’s publishing businesses, its educationdivision and other Australian assets in accordance with U.S. generally accepted accounting principles (“GAAP”). For ease of reference, these combined financialstatements are collectively referred to as those of New News Corporation.
These financial statements are presented as if such businesses had been combined for all periods presented. All intercompany transactions and accountswithin New News Corporation have been eliminated. The assets and liabilities in the combined financial statements have been reflected on a historical cost basis,as immediately prior to the separation all of the assets and liabilities presented are wholly-owned by Parent and are being transferred to the New NewsCorporation combined group at carry-over basis, although, New News Corporation’s investment in Sky Network Television Ltd. will be retained by Parent post-distribution. However, the investment in Sky Network Television Ltd. was sold in March 2013. The combined statements of operations include allocations forcertain support functions that are provided on a centralized basis within Parent and not recorded at the business unit level, such as expenses related to finance,human resources, information technology, facilities, and legal, among others. Parent does not routinely allocate these costs to any of its business units. Theseexpenses have been allocated to New News Corporation on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis ofcombined revenues, operating income, headcount or other measures of New News Corporation. Management believes the assumptions underlying the combinedfinancial statements, including the assumptions regarding allocating general corporate expenses from Parent are reasonable. Nevertheless, the combined financialstatements may not include all of the actual expenses that would have been incurred by New News Corporation and may not reflect New News Corporation’scombined results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would havebeen incurred if New News Corporation had been a stand-alone company would depend on multiple factors, including organizational structure and strategicdecisions made in various areas, including information technology and infrastructure.
The income tax benefit (expense) in the combined statements of operations has been calculated as if New News Corporation filed a separate tax return andwas operating as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of New News Corporation’sactual tax balances prior to or subsequent to the distribution.
Management’s discussion and analysis of financial condition and results of operations is intended to help provide an understanding of New NewsCorporation’s financial condition, changes in financial condition and results of operations for the fiscal periods presented. This discussion is organized as follows:
• Overview of New News Corporation’s Business—This section provides a general description of New News Corporation’s businesses, as well as
developments that occurred during fiscal 2012 or fiscal 2013 that New News Corporation believes are important in understanding its results ofoperations and financial condition or to disclose known trends.
• Results of Operations—This section provides an analysis of New News Corporation’s results of operations for the six months ended December 31,
2012 and 2011 and for the three fiscal years ended June 30, 2012, respectively. This analysis is presented on both a combined and a segment basis. Inaddition, a brief description is provided of significant transactions and events that impact the comparability of the results being analyzed.
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• Liquidity and Capital Resources—This section provides an analysis of New News Corporation’s cash flows for the six months ended December 31,
2012 and 2011 and for the three fiscal years ended June 30, 2012, respectively, as well as a discussion of New News Corporation’s financialarrangements and outstanding commitments, both firm and contingent, that existed as of June 30, 2012.
• Critical Accounting Policies—This section discusses accounting policies considered important to New News Corporation’s financial condition andresults of operations, and which require significant judgment and estimates on the part of management in application. In addition, Note 2 to theaccompanying Combined Financial Statements of New News Corporation summarizes New News Corporation’s significant accounting policies,including the critical accounting policy discussion found in this section.
OVERVIEW OF NEW NEWS CORPORATION’S BUSINESSES
New News Corporation manages and reports its businesses in the following five segments:
• News and Information Services—The News and Information Services segment includes the global product offerings of The Wall Street Journal andBarron’s publications, The Wall Street Journal Digital Network (“WSJDN”) and New News Corporation’s suite of information services, includingDow Jones Newswires and Factiva. In addition to WSJ.com and Barrons.com, WSJDN includes MarketWatch, AllThingsD and related services. NewNews Corporation also owns, among other publications, The Australian, Herald Sun, The Daily Telegraph and The Courier Mail in Australia, TheTimes, The Sunday Times and The Sun in the U.K. and the New York Post in the U.S. This segment also includes the integrated marketing servicesbusiness, News America Marketing Group (“NAMG”), a leading provider of free-standing coupon inserts, in-store marketing products and digital-savings marketing solutions. NAMG’s customers include many of the largest consumer packaged goods advertisers in the U.S. and Canada.
• Cable Network Programming—The Cable Network Programming segment consists of FOX SPORTS Australia, the leading sports programmingprovider in Australia with seven standard definition television channels, high definition versions of five of these channels, an interactive viewingapplication and one IPTV channel and rights to live sporting events in Australia including: National Rugby League, the domestic football league,English Premier League, Australian and international cricket as well as the NFL. Prior to the November 2012 acquisition of the portion of FOXSPORTS Australia that it did not own, New News Corporation accounted for its investment in FOX SPORTS Australia under the equity method ofaccounting. New News Corporation now owns 100% of FOX SPORTS Australia and its results are included within this new segment.
• Digital Real Estate Services—New News Corporation owns 61.6% of REA Group Limited (“REA”), a publicly traded company listed on theAustralian Securities Exchange (ASX: REA) that is a leading digital advertising business specializing in real estate services. REA operates Australia’slargest residential property website, realestate.com.au, as well as Australia’s leading commercial property website, realcommercial.com.au. REA alsooperates a market-leading Italian property site, casa.it, and other property sites and apps across Europe and Hong Kong.
• Book Publishing—The HarperCollins book publishing segment is one of the largest English-language consumer publishers in the world, withparticular strengths in general fiction, nonfiction, children’s and religious publishing, and an industry leader in digital publishing. HarperCollinsincludes over 60 branded publishing imprints including Avon, Harper, HarperCollins Children’s Publishers, William Morrow and Christian publishersZondervan and Thomas Nelson, and publishes works by well-known authors such as J.R.R. Tolkien, Paulo Coelho, Rick Warren and Agatha Christieand popular titles such as The Hobbit, Goodnight Moon and To Kill a Mockingbird.
• Other—The Other segment primarily consists of Amplify, New News Corporation’s digital education business focused on the K-12 learning market,
and general corporate overhead expenses. Amplify
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focuses on three areas of business: assessment and analytics; digital content and curriculum; and mobile distribution systems designed for education.Amplify Insight, Amplify’s assessment and analytics division, operates as Wireless Generation, Inc. (“Wireless Generation”), which commencedoperations in 2000 and was acquired by Parent in fiscal 2011. Wireless Generation provides premium assessment and analytics services to enable real-time personalization of educational content. Through its Amplify Learning division, Amplify is creating innovative digital curricula for K-12education designed to enhance teaching and learning in English Language Arts, Science and Math. Through its Amplify Access division, Amplify isdeveloping an open, tablet-based education platform that integrates its existing assessment and analytics tools and services with its digital curricula aswell as third-party content and interactive applications.
News and Information Services
Revenue at the News and Information Services segment is derived from the sale of advertising space, circulation and subscriptions, as well as licensing.Adverse changes in general market conditions for advertising may affect revenues. Circulation and subscription revenues can be greatly affected by changes inthe prices of New News Corporation’s and/or competitors’ products, as well as by promotional activities.
Operating expenses include costs related to paper, production, distribution, editorial and commissions. Selling, general and administrative expenses includepromotional expenses, salaries, employee benefits, rent and other routine overhead.
The News and Information Services segment’s advertising volume, circulation and the price of paper are the key variables whose fluctuations can have amaterial effect on New News Corporation’s operating results and cash flow. New News Corporation has to anticipate the level of advertising volume, circulationand paper prices in managing its businesses to maximize operating profit during expanding and contracting economic cycles. New News Corporation continues tobe exposed to risks associated with paper used for printing. Paper is a basic commodity and its price is sensitive to the balance of supply and demand. New NewsCorporation’s expenses are affected by the cyclical increases and decreases in the price of paper. The News and Information Services segment’s products competefor readership and advertising with local and national competitors and also compete with other media alternatives in their respective markets. Competition forcirculation and subscriptions is based on the content of the products provided, pricing and, from time to time, various promotions. The success of these productsdepends upon advertisers’ judgments as to the most effective use of their advertising budgets. Competition for advertising is based upon the reach of the products,advertising rates and advertiser results. Such judgments are based on factors such as cost, availability of alternative media, distribution and quality of readershipdemographics.
Like other newspaper groups, New News Corporation faces challenges to its traditional print business model from new media formats and shiftingconsumer preferences. New News Corporation is also exposed to the impact of long-term structural movements in advertising spending, in particular, the move inclassified advertising from print to digital. These new media formats could impact New News Corporation’s overall performance, positively or negatively.
As a multi-platform news provider, New News Corporation recognizes the importance of maximizing revenues from new media, both in terms of paid-forcontent and in new advertising models, and continues to invest in its digital products. The development of technologies such as smartphones, tablets and similardevices and their related applications provides continued opportunities for New News Corporation to make its journalism available to a new audience of readers,introduce new or different pricing schemes, develop its products to continue to attract advertisers and/or affect the relationship between publisher and consumer.New News Corporation continues to develop and implement strategies to exploit its content in new media channels, including the introduction of digitalsubscriptions.
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Cable Network Programming
The Cable Network Programming segment consists of FOX SPORTS Australia which offers the following channels: FOX SPORTS1, FOX SPORTS2,FOX SPORTS3, FOX FOOTY, FOX SPORTS NEWS, FUEL TV and SPEED. Revenue is derived from monthly affiliate fees received from cable televisionsystems, direct broadcast satellite operators and other distribution systems based on the number of subscribers.
FOX SPORTS Australia competes primarily with ESPN, the FTA channels and certain telecommunications companies in Australia.
The most significant operating expenses of the Cable Network Programming segment are the acquisition and production expenses related to programmingand the expenses related to operating the technical facilities of the broadcaster or cable network. Other expenses include promotional expenses related toimproving the market visibility and awareness of the broadcaster or cable network and its programming. Additional expenses include sales commissions paid tothe in-house advertising sales force, as well as salaries, employee benefits, rent and other routine overhead expenses.
Digital Real Estate Services
The Digital Real Estate Services segment sells listing and subscription services on its residential real estate and commercial property advertising sites.Significant expenses associated with these sites include development costs, advertising and promotional expenses, salaries, employee benefits and other routineoverhead.
Consumers are increasingly turning to the Internet and mobile devices for real estate information. The Digital Real Estate Services segment’s successdepends on its continued innovation to provide products and services that make its websites and mobile applications useful for consumers and real estate andmortgage professionals and attractive to its advertisers.
Book Publishing
The Book Publishing segment derives revenues from the sale of general fiction, nonfiction, children’s and religious books in the U.S. and internationally.The revenues and operating results of the Book Publishing segment are significantly affected by the timing of releases and the number of its books in themarketplace. The book publishing marketplace is subject to increased periods of demand in the summer months and during the end-of-year holiday season. Thismarketplace continues to change due to technical innovations, electronic book devices and other factors. Each book is a separate and distinct product, and itsfinancial success depends upon many factors, including public acceptance.
Major new title releases represent a significant portion of the Book Publishing segment’s sales throughout the fiscal year. Print-based consumer books aregenerally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and international markets, the Book Publishing segment issubject to global trends and local economic conditions.
Operating expenses for the Book Publishing segment include costs related to paper, printing, authors’ royalties, editorial, art and design expenses. Selling,general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other routine overhead.
The book publishing business has been affected in recent years by new electronic distribution methods and models and New News Corporation expects thatelectronic books will represent an increasing portion of book publishing revenues in coming years.
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Other
The Other segment consists primarily of Amplify, New News Corporation’s digital education business and general corporate overhead expenses. Amplifyfocuses on three areas of business: assessment and analytics; digital content and curriculum; and mobile distribution systems designed for education. Significantexpenses associated with New News Corporation’s digital education business include salaries, employee benefits and other routine overhead.
Other Business Developments
In July 2011, Parent announced that it would close its publication, The News of the World, after allegations of phone hacking and payments to publicofficials. As a result of Parent’s approval of the shutdown of The News of the World, Parent reorganized portions of the U.K. newspaper business and recordedrestructuring charges in fiscal 2013 and 2012 primarily for termination benefits and certain organizational restructuring at the U.K. newspapers. (See Note 4 to theCombined Financial Statements of New News Corporation). Parent and New News Corporation are subject to several ongoing investigations by U.K. and U.S.regulators and governmental authorities relating to phone hacking, illegal data access and inappropriate payments to public officials at The News of the World andThe Sun and related matters (the “U.K. Newspaper Matters”). New News Corporation, together with Parent, is cooperating with these investigations. In addition,New News Corporation has admitted liability in many civil cases related to the phone hacking allegations and has settled many cases. Parent created anindependently-chaired Management & Standards Committee (the “MSC”) to ensure cooperation with all relevant investigations and inquiries into the U.K.Newspaper Matters and all other related issues. The MSC conducts its own internal investigation where appropriate. The MSC has an independent Chairman,Lord Grabiner QC, and reports directly to Gerson Zweifach, Senior Executive Vice President and Group General Counsel of Parent. Mr. Zweifach reports to theindependent members of the Board of Directors of Parent (the “Parent Board”) through their representative Viet Dinh, an independent director and Chairman ofParent’s Nominating and Corporate Governance Committee. The independent directors of the Parent Board have retained independent outside counsel and areactively engaged in these matters. The MSC conducted an internal investigation of the three other titles at NI Group Limited (“News International”) and engagedindependent outside counsel to advise it on these investigations and all other matters it handles. As a result of these matters, News International has institutedgovernance reforms and issued certain enhanced policies to its employees. (See Note 10 to the Combined Financial Statements of New News Corporation.)
In July 2011, New News Corporation acquired Kidspot.com.au Pty Limited, a pregnancy and parenting website, for approximately $50 million in cash.
In May 2012, New News Corporation sold its former U.K. newspaper division headquarters located in East London, which it relocated from in August2010, for consideration of approximately £150 million (approximately $235 million), of which £25 million (approximately $39 million) was received on closingof the sale. The remaining £125 million (approximately $196 million) is in the form of a secured note and New News Corporation will receive £25 million(approximately $39 million) on May 31, 2013, and annually thereafter until May 31, 2017.
In May 2012, Foxtel, in which New News Corporation at the time owned a 25% interest, purchased Austar United Communications Ltd (“Austar”) tocreate a national subscription television service in Australia. The transaction was funded by Foxtel bank debt and Foxtel’s shareholders made pro rata capitalcontributions in the form of subordinated shareholder notes based on their respective ownership interest. New News Corporation’s share of the fundingcontribution was approximately $230 million. The subordinated shareholder note has a maximum term of 15 years, with interest payable on June 30 each yearand at maturity. The subordinated shareholder note can be repaid in 10 years provided that Foxtel’s senior debt has been repaid. Upon maturity, the principaladvanced will be repayable.
In July 2012, New News Corporation acquired Thomas Nelson, Inc. (“Thomas Nelson”), one of the leading Christian book publishers in the U.S., forapproximately $200 million in cash.
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In July 2012, New News Corporation acquired Australian Independent Business Media Pty Limited (“AIBM”) for approximately $30 million incash. AIBM publishes a subscription-based online newsletter for investors and a business news and commentary website.
In November 2012, New News Corporation acquired Consolidated Media Holdings Ltd. (“CMH”), a media investment company that operates in Australia,for approximately $2 billion in cash and assumed debt of approximately $235 million. This acquisition supports New News Corporation’s strategic priority ofacquiring greater control of investments that complement its portfolio of businesses. CMH owned a 25% interest in Foxtel and a 50% interest in FOX SPORTSAustralia. FOX SPORTS Australia is the leading sports programming provider in Australia with seven standard definition television channels, high definitionversions of five of these channels, an interactive viewing application and one IPTV channel and rights to live sporting events in Australia including: NationalRugby League, the domestic football league, English Premier League, Australian and international cricket as well as the NFL. Foxtel is the largest pay-TVprovider in Australia, serving approximately 2.3 million subscribing households in Australia, or over 30% of the country’s population. Foxtel’s 200-plus channelselection (which includes standard definition channels, high definition versions of some of those channels, and audio and interactive channels) provides premiumand exclusive content and a wide array of digital and mobile features. The remaining 50% of Foxtel is owned by Telstra Corporation Limited, one of Australia’sleading telecommunications companies. The acquisition doubled New News Corporation’s stakes in FOX SPORTS Australia and Foxtel to 100% and 50%,respectively. Accordingly, the results of FOX SPORTS Australia are included within a new Cable Network Programming segment in New News Corporation’scombined results of operations beginning in November 2012. Prior to November 2012, New News Corporation accounted for its investment in FOX SPORTSAustralia under the equity method of accounting. New News Corporation’s investment in Foxtel is accounted for under the equity method of accounting.
In March 2013, New News Corporation sold its 44% equity interest in SKY Network Television Ltd. for approximately $675 million and expects to recorda gain on this transaction in the third quarter of fiscal 2013.
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RESULTS OF OPERATIONS
Results of Operations—For the six months ended December 31, 2012 versus the six months ended December 31, 2011
The following table sets forth New News Corporation’s operating results for the six months ended December 31, 2012 as compared to the six monthsended December 31, 2011. For the six months ended December 31, 2012 2011 Change % Change (in millions, except%) Revenues:
Advertising $ 2,204 $ 2,380 $ (176) (7)% Circulation and Subscription 1,262 1,189 73 6% Consumer 672 584 88 15% Other 316 237 79 33%
Total Revenues 4,454 4,390 64 1% Operating expenses (2,686) (2,585) (101) 4% Selling, general and administrative (1,379) (1,366) (13) 1% Depreciation and amortization (254) (239) (15) 6% Impairment and restructuring charges (177) (97) (80) 82% Equity earnings of affiliates 54 58 (4) (7)% Interest, net 29 30 (1) (3)% Other, net 1,255 (1) 1,256 **
Income before income tax benefit (expense) 1,296 190 1,106 ** Income tax benefit (expense) 32 (62) 94 **
Net income 1,328 128 1,200 ** Less: Net income attributable to noncontrolling interests (21) (17) (4) 24%
Net income attributable to New News Corporation $ 1,307 $ 111 $1,196 **
** not meaningful
Revenues—Revenues increased 1% for the six months ended December 31, 2012 as compared to the corresponding period of fiscal 2012, primarily due tothe inclusion of revenues resulting from the acquisition of Thomas Nelson and the consolidation of FOX SPORTS Australia (the “Acquisitions”), ofapproximately $100 million and $53 million respectively, and higher U.K. newspapers revenues of approximately $70 million principally due to the inclusion ofrevenues from the launch of the Sunday edition of The Sun in February 2012. Also contributing to the revenue increases were higher advertising revenues at theDigital Real Estate Services segment of $29 million. These revenue increases were partially offset by lower revenues at the Australian newspapers of $165million primarily reflecting lower newspaper advertising revenues principally due to the continued challenging economic environment in Australia.
Operating Expenses—Operating expenses increased 4% for the six months ended December 31, 2012 as compared to the corresponding period of fiscal2012, primarily due to the Acquisitions.
Selling, general and administrative expenses—Selling, general and administrative expenses increased 1% for the six months ended December 31, 2012 ascompared to the corresponding period of fiscal 2012, primarily due to a $60 million increase at the Other segment resulting from an approximately $40 millionincrease at Amplify and an approximate $20 million increase in legal and professional fees related to the U.K. Newspaper Matters. Also contributing to theincrease was the inclusion of approximately $15 million in expenses resulting from the Acquisitions and higher expenses of $9 million at the Digital Real EstateServices segment directly related to the revenue growth supporting innovation, development and the sale of real estate advertising products. These increases werepartially offset by lower expenses of $74 million at the News and Information Services segment principally resulting from the positive impact of cost savinginitiatives.
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Depreciation and amortization—Depreciation and amortization increased 6% for the six months ended December 31, 2012 as compared to thecorresponding period of fiscal 2012, primarily due to the inclusion of expenses resulting from the Acquisitions of approximately $5 million and higherdepreciation expense at the News and Information Services segment of approximately $5 million.
Impairment and restructuring charges—During the six months ended December 31, 2012, New News Corporation recorded restructuring charges of $177million, of which $174 million related to the newspaper businesses. The restructuring charges primarily related to the reorganization of the Australian newspaperbusinesses which was announced at the end of fiscal 2012 and the continued reorganization of the U.K. newspaper business. The restructuring charges recordedare primarily for termination benefits in Australia and contract termination payments in the U.K.
During the six months ended December 31, 2011, New News Corporation recorded restructuring charges of $97 million, of which $96 million related to thenewspaper businesses. New News Corporation reorganized portions of the U.K. newspaper businesses and recorded restructuring charges primarily fortermination benefits as a result of the U.K. Newspaper Matters and certain organizational restructuring at other newspapers.
Equity earnings of affiliates—Equity earnings of affiliates decreased $4 million for the six months ended December 31, 2012 as compared to thecorresponding period of fiscal 2012, primarily due to the amortization of excess cost over New News Corporation’s proportionate share of its investment in theunderlying net assets of Foxtel. For the six months ended December 31, 2012 2011 Change % Change (in millions, except %) Direct Broadcast Satellite and Cable Channel equity affiliates $ 55 $ 62 $ (7) (11)% Other equity affiliates (1) (4) 3 (75)%
Total Equity earnings of affiliates $ 54 $ 58 $ (4) (7)%
Other, net
For the six months ended
December 31, 2012 2011 (in millions) Gain on CMH transaction 1,258 — Other (3) (1)
Total Other, net $ 1,255 $ (1)
See Note 2 to the Unaudited Combined Financial Statements of New News Corporation.
Income tax benefit (expense)—New News Corporation’s effective income tax rate for the six months ended December 31, 2012 was lower than thestatutory rate of 35%, primarily due to a 39% rate reduction due to the non-taxable gain and reversal of the historic deferred tax liability related to theconsolidation of FOX SPORTS Australia, a 1% rate reduction due to our foreign operations which are subject to lower tax rates partially offset by a 1% rateincrease due to permanent differences.
The effective income tax rate for the six months ended December 31, 2011 was lower than the statutory rate of 35%, primarily due to a 12% rate reductiondue to our foreign operations which are subject to lower tax rates and a 9% rate reduction due to permanent differences.
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Net income—Net income increased $1.2 billion for the six months ended December 31, 2012 as compared to the corresponding period of fiscal 2012,primarily due to the gain on the CMH transaction.
Net income attributable to noncontrolling interests – Net income attributable to noncontrolling interests increased for the six months ended December 31,2012 as compared to the corresponding period of fiscal 2012, due to higher results at REA.
Segment Analysis
Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include:Depreciation and amortization, impairment and restructuring charges, equity earnings of affiliates, interest expense, interest income, other, net, income taxexpense and net income attributable to noncontrolling interests. Management believes that Total Segment EBITDA is an appropriate measure for evaluating theoperating performance of New News Corporation’s business segments because it is the primary measure used by New News Corporation’s chief operatingdecision maker to evaluate the performance and allocate resources within New News Corporation’s businesses. Total Segment EBITDA provides management,investors and equity analysts a measure to analyze operating performance of each of New News Corporation’s business segments and its enterprise value againsthistorical data and competitors’ data, although historical results may not be indicative of future results (as operating performance is highly contingent on manyfactors, including customer tastes and preferences).
Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and othermeasures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludesitems, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing New News Corporation’sfinancial performance. The following table reconciles Total Segment EBITDA to Income before income tax benefit (expense). For the six months ended December 31, 2012 2011 Change % Change (in millions, except %) Revenues $ 4,454 $ 4,390 $ 64 1% Operating expenses (2,686) (2,585) (101) 4% Selling, general and administrative expenses (1,379) (1,366) (13) 1%
Total Segment EBITDA 389 439 (50) (11)% Depreciation and amortization (254) (239) (15) 6% Impairment and restructuring charges (177) (97) (80) 82% Equity earnings of affiliates 54 58 (4) (7)% Interest, net 29 30 (1) (3)% Other, net 1,255 (1) 1,256 **
Income before income tax benefit (expense) $ 1,296 $ 190 $1,106 **
** not meaningful
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For the six months ended
December 31, 2012
Revenues SegmentEBITDA
(in millions) News and Information Services $ 3,438 $ 418 Cable Network Programming 53 19 Digital Real Estate Services 168 81 Book Publishing 729 91 Other 66 (220)
Total $ 4,454 $ 389
For the six months ended
December 31, 2011
Revenues SegmentEBITDA
(in millions) News and Information Services $ 3,579 $ 471 Digital Real Estate Services 139 61 Book Publishing 620 72 Other 52 (165)
Total $ 4,390 $ 439
News and Information Services (77% and 82% of New News Corporation’s combined revenues in the first six months of fiscal 2013 and 2012,respectively) For the six months ended December 31, 2012 2011 Change % Change (in millions, except %) Revenues:
Advertising $ 2,024 $ 2,231 $ (207) (9)% Circulation and Subscription 1,197 1,171 26 2% Other 217 177 40 23%
Total Revenues 3,438 3,579 (141) (4)% Operating expenses (2,098) (2,112) 14 (1)% Selling, general and administrative (922) (996) 74 (7)%
Segment EBITDA $ 418 $ 471 $ (53) (11)%
For the six months ended December 31, 2012, revenues at the News and Information Services segment decreased $141 million, or 4%, as compared to thecorresponding period of fiscal 2012, primarily due to lower advertising revenues of $207 million principally reflecting the continued challenging economicenvironment in Australia. The revenue decrease was partially offset by higher circulation and subscription revenues primarily due to the launch of the Sundayedition of The Sun in February 2012 and higher other revenues due to increased revenues from third party printing contracts. The weakening of the U.S. dollaragainst local currencies resulted in a revenue increase of approximately $5 million for the six months ended December 31, 2012, as compared to thecorresponding period of fiscal 2012.
For the six months ended December 31, 2012, Segment EBITDA at the News and Information Services segment decreased $53 million, or 11%, ascompared to the corresponding period of fiscal 2012, primarily due to the revenue decrease noted above, partially offset by the positive impact of cost savingsinitiatives.
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Cable Network Programming (1% and 0% of New News Corporation’s combined revenues in the first six months of fiscal 2013 and 2012, respectively) For the six months ended December 31, 2012 2011 Change (in millions) Revenues:
Advertising $ 6 $ — $ 6 Circulation and Subscription 45 — 45 Other 2 — 2
Total Revenues 53 — 53 Operating expenses (27) — (27) Selling, general and administrative (7) — (7)
Segment EBITDA $ 19 $ — $ 19
For the six months ended December 31, 2012, the Cable Network Programming segment revenue was $53 million and Segment EBITDA was $19 millionwhich reflects the consolidation of FOX SPORTS Australia in November 2012 due to the acquisition of CMH.
On a stand-alone basis, revenues at FOX SPORTS Australia increased 2%, for the six months ended December 31, 2012 as compared to the correspondingperiod of fiscal 2012, primarily due to higher subscriber revenues of approximately $3 million resulting from an increase in subscribers and prices and higheradvertising revenues of approximately $2 million resulting from a stronger television advertising market. On a stand-alone basis, Segment EBITDA at FOXSPORTS Australia increased 15% for the six months ended December 31, 2012 as compared to the corresponding period of fiscal 2012, primarily due to therevenue increases noted above and lower programming acquisition costs of approximately $13 million due to the timing of non-annual events, such as the RugbyWorld Cup, which were held in the first half of fiscal 2012.
Digital Real Estate Services (4% and 3% of New News Corporation’s combined revenues in the first six months of fiscal 2013 and 2012, respectively) For the six months ended December 31, 2012 2011 Change % Change (in millions, except %) Revenues:
Advertising $ 168 $ 139 $ 29 21%
Total Revenues 168 139 29 21% Selling, general and administrative (87) (78) (9) 12%
Segment EBITDA $ 81 $ 61 $ 20 33%
For the six months ended December 31, 2012, revenues at the Digital Real Estate Services segment increased $29 million, or 21%, as compared to thecorresponding period of fiscal 2012, primarily due to the take-up of new products in Australia.
For the six months ended December 31, 2012, Segment EBITDA at the Digital Real Estate Services Segment increased $20 million, or 33%, as comparedto the corresponding period of fiscal 2012, primarily due to the revenue increase noted above, partially offset by increased expenses directly related to the revenuegrowth supporting innovation, development and the sale of real estate advertising products.
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Book Publishing (16% and 14% of New News Corporation’s combined revenues in the first six months of fiscal 2013 and 2012, respectively) For the six months ended December 31, 2012 2011 Change % Change (in millions, except %) Revenues:
Consumer $ 672 $ 584 $ 88 15% Other 57 36 21 58%
Total Revenues 729 620 109 18% Operating expenses (534) (455) (79) 17% Selling, general and administrative (104) (93) (11) 12%
Segment EBITDA $ 91 $ 72 $ 19 26%
For the six months ended December 31, 2012, revenues at the Book Publishing segment increased $109 million, or 18%, as compared to the correspondingperiod of fiscal 2012, primarily due to the inclusion of revenues from Thomas Nelson which was acquired in fiscal 2013. During the six months ended December31, 2012, HarperCollins had 83 titles on The New York Times Bestseller List with 7 titles reaching the number one position.
For the six months ended December 31, 2012, Segment EBITDA at the Book Publishing segment increased $19 million, or 26%, respectively, as comparedto the corresponding period of fiscal 2012, primarily due to the inclusion of Segment EBITDA from Thomas Nelson in fiscal 2013.
Other (2% and 1% of New News Corporation’s combined revenues in the first six months of fiscal 2013 and 2012, respectively) For the six months ended December 31, 2012 2011 Change % Change (in millions, except%) Revenues:
Advertising $ 6 $ 10 $ (4) (40)% Circulation and Subscription 20 18 2 11% Other 40 24 16 67%
Total Revenues 66 52 14 27% Operating expenses (27) (18) (9) 50% Selling, general and administrative (259) (199) (60) 30%
Segment EBITDA $(220) $(165) $ (55) 33%
For the six months ended December 31, 2012, revenues at the Other segment increased $14 million, or 27%, as compared to the corresponding period offiscal 2012, primarily due to higher revenues at Amplify.
Segment EBITDA at the Other segment for the six months ended December 31, 2012 decreased $55 million, or 33%, as compared to the correspondingperiod of fiscal 2012, primarily relating to higher Selling, general and administrative expenses of $60 million principally due to a $40 million increase atAmplify primarily due to higher product development costs and an increase in legal and professional fees related to the U.K. Newspaper Matters ofapproximately $20 million.
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Results of Operations—Fiscal 2012 versus Fiscal 2011
The following table sets forth New News Corporation’s operating results for fiscal 2012 as compared to fiscal 2011. For the years ended June 30, 2012 2011 Change % Change (in millions, except %) Revenues:
Advertising $ 4,693 $ 4,945 $ (252) (5)% Circulation and Subscription 2,365 2,549 (184) (7)% Consumer 1,123 1,124 (1) — Other 473 477 (4) (1)%
Total Revenues 8,654 9,095 (441) (5)% Operating expenses (5,122) (5,234) 112 (2)% Selling, general and administrative (2,750) (2,648) (102) 4% Depreciation and amortization (483) (430) (53) 12% Impairment and restructuring charges (2,763) (25) (2,738) ** Equity earnings of affiliates 90 109 (19) (17)% Interest, net 56 47 9 19% Other, net (59) 47 (106) **
(Loss) income before income tax benefit (expense) (2,377) 961 (3,338) ** Income tax benefit (expense) 337 (257) 594 **
Net (loss) income (2,040) 704 (2,744) ** Less: Net income attributable to noncontrolling interests (35) (26) (9) 35%
Net (loss) income attributable to New News Corporation $(2,075) $ 678 $(2,753) **
** not meaningful
Revenues—Revenues decreased 5% for the fiscal year ended June 30, 2012 as compared to fiscal 2011, primarily due to lower revenues at the newspaperbusinesses in the U.K. of approximately $300 million, principally resulting from the absence of $226 million in revenues resulting from the closure of The Newsof the World in July 2011 and lower advertising and circulation revenues at the Australian newspapers of approximately $225 million partially offset by favorableforeign exchange rate fluctuations of approximately $120 million due to the weakening of the U.S. dollar against local currencies, primarily the Australian dollar.These decreases were partially offset by the inclusion of approximately $55 million in revenues from Wireless Generation, which was acquired in fiscal 2011.
Operating Expenses—Operating expenses decreased 2% for the fiscal year ended June 30, 2012 as compared to fiscal 2011, primarily due to a decrease atthe News and Information Services segment of $99 million principally resulting from the absence of operating expenses resulting from the closure of The News ofthe World. Paper costs were relatively consistent year-over-year as lower volume was offset by higher pricing.
Selling, general and administrative expenses—Selling, general and administrative expenses increased 4% for the fiscal year ended June 30, 2012 ascompared to fiscal 2011, primarily due to $199 million of legal and professional fees related to the U.K. Newspaper Matters and the inclusion of approximately$65 million in expenses related to Wireless Generation. These increases were partially offset by the positive impact from cost savings initiatives at Dow Jones ofapproximately $50 million. In addition, fiscal 2011 included a litigation settlement charge of $125 million at the News and Information Services segment whichdid not recur in fiscal 2012.
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Depreciation and amortization—Depreciation and amortization increased 12% for the fiscal year ended June 30, 2012 as compared to fiscal 2011,primarily due to an increase in depreciation expense at the News and Information Services segment of $37 million principally resulting from additional property,plant and equipment placed into service and additional depreciation and amortization of approximately $10 million from the acquisition of Wireless Generation atthe Other segment.
Impairment and restructuring charges—During the fourth quarter of fiscal 2012, New News Corporation completed its annual impairment review ofgoodwill and indefinite-lived intangible assets. As a result of the impairment review performed, New News Corporation recorded non-cash impairment charges ofapproximately $2.6 billion ($2.2 billion, net of tax) for the fiscal year ended June 30, 2012. The charges consisted of a write-down of New News Corporation’sgoodwill of approximately $1.3 billion and a write-down of the indefinite-lived intangible assets (primarily newspaper mastheads and distribution networks) ofapproximately $1.3 billion. These impairment charges were primarily the result of adverse trends affecting several businesses in New News Corporation’s Newsand Information Services segment, including secular declines in the economic environment in Australia, a decline in in-store advertising spend by consumerpackaged goods manufacturers in the U.S. and lower forecasted revenues from certain businesses utilizing various trade names owned by New NewsCorporation’s newspaper operations. The charges also reflected the expected sale of certain assets at a value below their carrying value.
In fiscal 2012, New News Corporation recorded restructuring charges of $156 million, of which $151 million related to the newspaper businesses. NewNews Corporation commenced the reorganization of portions of the newspaper businesses and recorded restructuring charges primarily for termination benefits asa result of the U.K. Newspaper Matters, certain organizational restructurings at other newspapers and the shutdown of a regional newspaper.
In fiscal 2011, New News Corporation recorded restructuring charges of approximately $25 million related to termination benefits recorded at thenewspaper businesses.
Equity earnings of affiliates—Equity earnings of affiliates decreased $19 million for the fiscal year ended June 30, 2012 as compared to fiscal 2011,primarily due to a $14 million impairment of New News Corporation’s investment in a newspaper business in fiscal 2012. For the years ended June 30, 2012 2011 Change % Change (in millions, except %) Direct Broadcast Satellite and Cable Channel equity affiliates $114 $114 $ — — Other equity affiliates (24) (5) (19) **
Total Equity earnings of affiliates $ 90 $109 $ (19) (17)%
** not meaningful
Interest, net—Interest, net for the fiscal year ended June 30, 2012 increased $9 million as compared to fiscal 2011, primarily due to interest from NewNews Corporation’s loan to Foxtel.
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Other, net—
For the years ended
June 30, 2012 2011 (in millions) Loss on sale of U.K. newspaper headquarters $ (22) $ — Gain on the financial indexes business transaction — 43 Investment write-offs (30) — Other (7) 4
Total Other, net $ (59) $ 47
See Note 3 to the Combined Financial Statements of New News Corporation. See Note 5 to the Combined Financial Statements of New News Corporation.
Income tax benefit (expense)— New News Corporation’s tax benefit and tax rate for the fiscal year ended June 30, 2012 were lower than the statutory rateof 35% primarily due to a 16% rate reduction due to the impact of non-deductible goodwill impairment charges and a 4% rate reduction as a result of our foreignoperations which are subject to lower tax rates.
New News Corporation’s tax provision and tax rate for the fiscal year ended June 30, 2011 were lower than the statutory rate of 35% primarily due to a 9%rate reduction as a result of our foreign operations which are subject to lower tax rates and a 2% rate increase due to permanent differences.
Net (loss) income— New News Corporation recorded a net loss for the fiscal year ended June 30, 2012 as compared to net income in fiscal 2011, primarilydue to the higher impairment and restructuring charges and the revenue decreases noted above.
Net income attributable to noncontrolling interests— Net income attributable to noncontrolling interests increased for the fiscal year ended June 30, 2012as compared to fiscal 2011, due to higher results at REA.
Segment Analysis
Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include:Depreciation and amortization, impairment and restructuring charges, equity earnings of affiliates, interest expense, interest income, other, net, income taxexpense and net income attributable to noncontrolling interests. Management believes that Total Segment EBITDA is an appropriate measure for evaluating theoperating performance of New News Corporation’s business segments because it is the primary measure used by New News Corporation’s chief operatingdecision maker to evaluate the performance and allocate resources within New News Corporation’s businesses. Total Segment EBITDA provides management,investors and equity analysts a measure to analyze operating performance of each of New News Corporation’s business segments and its enterprise value againsthistorical data and competitors’ data, although historical results may not be indicative of future results (as operating performance is highly contingent on manyfactors, including customer tastes and preferences).
Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and othermeasures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludesitems, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing New News Corporation’sfinancial performance. The following table reconciles Total Segment EBITDA to (Loss) income before income tax benefit (expense).
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For the years ended June 30, 2012 2011 Change % Change (in millions, except %) Revenues $ 8,654 $ 9,095 $ (441) (5)% Operating expenses (5,122) (5,234) 112 (2)% Selling, general and administrative expenses (2,750) (2,648) (102) 4%
Total Segment EBITDA 782 1,213 (431) (36)% Depreciation and amortization (483) (430) (53) 12% Impairment and restructuring charges (2,763) (25) (2,738) ** Equity earnings of affiliates 90 109 (19) (17)% Interest, net 56 47 9 19% Other, net (59) 47 (106) **
(Loss) income before income tax benefit (expense) $(2,377) $ 961 $ (3,338) **
** not meaningful
For the year ended
June 30, 2012 Segment
EBITDA Revenues (in millions) News and Information Services $ 7,058 $ 939 Digital Real Estate Services 286 129 Book Publishing 1,189 86 Other 121 (372)
Total $ 8,654 $ 782
For the year ended
June 30, 2011 Segment
EBITDA Revenues (in millions) News and Information Services $ 7,576 $ 1,153 Digital Real Estate Services 235 102 Book Publishing 1,195 93 Other 89 (135)
Total $ 9,095 $ 1,213
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News and Information Services (82% and 83% of New News Corporation’s combined revenues in fiscal 2012 and 2011, respectively) For the years ended June 30, 2012 2011 Change % Change (in millions, except %) Revenues:
Advertising $ 4,388 $ 4,694 $ (306) (7)% Circulation and Subscription 2,326 2,522 (196) (8)% Other 344 360 (16) (4)%
Total Revenues 7,058 7,576 (518) (7)% Operating expenses (4,195) (4,294) 99 (2)% Selling, general and administrative (1,924) (2,129) 205 (10)%
Segment EBITDA $ 939 $ 1,153 $ (214) (19)%
For the fiscal year ended June 30, 2012, revenues at the News and Information Services segment decreased $518 million, or 7%, as compared to fiscal2011, primarily due to lower circulation and advertising revenues in the U.K., principally resulting from the absence of $226 million in revenue resulting from theshutdown of The News of the World in July 2011 and lower advertising revenues of approximately $85 million at the U.K. newspapers, lower advertising andcirculation revenues at the Australian newspapers of approximately $225 million and lower advertising revenues at the integrated marketing services business ofapproximately $30 million resulting from lower volume of in-store marketing products. The weakening of the U.S. dollar against local currencies, primarily theAustralian dollar, resulted in a revenue increase of approximately $100 million for the fiscal year ended June 30, 2012 as compared to fiscal 2011.
For the fiscal year ended June 30, 2012, Segment EBITDA at the News and Information Services segment decreased $214 million, or 19%, as compared tofiscal 2011, primarily due to the advertising and circulation revenue decreases noted above and the absence of $122 million in Segment EBITDA resulting fromthe shutdown of The News of the World, partially offset by the positive impact of cost saving initiatives at Dow Jones. In addition, fiscal 2011 included a litigationsettlement charge of $125 million at the integrated marketing services business which did not recur in fiscal 2012. The weakening of the U.S. dollar against localcurrencies, primarily the Australian dollar, resulted in an increase in Segment EBITDA of approximately $15 million for the fiscal year ended June 30, 2012 ascompared to fiscal 2011.
Digital Real Estate Services (3% of New News Corporation’s combined revenues in fiscal 2012 and 2011, respectively) For the years ended June 30, 2012 2011 Change % Change (in millions, except %) Revenues:
Advertising $ 286 $ 235 $ 51 22 %
Total Revenues 286 235 51 22 % Selling, general and administrative (157) (133) (24) 18 %
Segment EBITDA $ 129 $ 102 $ 27 26 %
For the fiscal year ended June 30, 2012, revenues at the Digital Real Estate Services segment increased $51 million, or 22%, as compared to fiscal 2011,primarily due to increased take-up of value-added products and development of new products such as Diamond Subscription and Highlight. Media and developerrevenues increased 36%, primarily due to developer display advertising and an ongoing focus on innovation.
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For the fiscal year ended June 30, 2012, Segment EBITDA at the Digital Real Estate Services segment increased $27 million, or 26%, as compared to fiscal2011, primarily due to the revenue increases noted above, partially offset by an increase in expenses resulting from increased marketing costs, employee costs andthe continued expansion of the business.
Book Publishing (14% and 13% of New News Corporation’s combined revenues in fiscal 2012 and 2011, respectively) For the years ended June 30, 2012 2011 Change % Change (in millions, except %) Revenues:
Consumer $1,123 $1,124 $ (1) — Other 66 71 (5) (7)%
Total Revenues 1,189 1,195 (6) (1)% Operating expenses (886) (906) 20 (2)% Selling, general and administrative (217) (196) (21) 11%
Segment EBITDA $ 86 $ 93 $ (7) (8)%
For the fiscal year ended June 30, 2012, revenues at the Book Publishing segment decreased $6 million, or 1%, as compared to fiscal 2011, primarily due tolower print book sales of approximately $80 million, partially offset by strong growth in digital book sales of approximately $60 million and higher sales in theU.K. due to the success of The Game of Thrones series by George RR Martin of approximately $15 million. During the fiscal year ended June 30, 2012,HarperCollins had 144 titles on The New York Times Bestseller List with 17 titles reaching the number one position.
For the fiscal year ended June 30, 2012, Segment EBITDA at the Book Publishing segment decreased $7 million, or 8%, as compared to fiscal2011, primarily due to the revenue decreases noted above and a fiscal 2012 litigation settlement of approximately $25 million related to an e-books antitrustaction, partially offset by approximately $15 million in lower manufacturing costs reflecting the continued shift to digital book sales.
Other (1% of New News Corporation’s combined revenues in fiscal 2012 and 2011, respectively) For the years ended June 30, 2012 2011 Change % Change (in millions, except %) Revenues:
Advertising $ 19 $ 16 $ 3 19% Circulation and Subscription 39 27 12 44% Other 63 46 17 37%
Total Revenues 121 89 32 36% Operating expenses (41) (34) (7) 21% Selling, general and administrative (452) (190) (262) **
Segment EBITDA $(372) $(135) $ (237) **
** not meaningful
For the fiscal year ended June 30, 2012, revenues at the Other segment increased $32 million, or 36%, as compared to fiscal 2011, primarily due to theinclusion of revenues from Wireless Generation which was acquired in fiscal 2011.
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Segment EBITDA declined at the Other segment for the fiscal year ended June 30, 2012 by $237 million as compared to fiscal 2011, primarily due to $199million of legal and professional fees related to the U.K. Newspaper Matters and the inclusion of approximately $65 million in Selling, general and administrativeexpenses resulting from the Wireless Generation acquisition partially offset by the revenue increase noted above.
Results of Operations—Fiscal 2011 versus Fiscal 2010
The following table sets forth New News Corporation’s operating results for fiscal 2011 as compared to fiscal 2010. For the years ended June 30, 2011 2010 Change % Change (in millions, except %) Revenues:
Advertising $ 4,945 $ 4,639 $ 306 7% Circulation and Subscription 2,549 2,477 72 3% Consumer 1,124 1,153 (29) (3)% Other 477 483 (6) (1)%
Total Revenues 9,095 8,752 343 4% Operating expenses (5,234) (5,008) (226) 5% Selling, general and administrative (2,648) (2,931) 283 (10)% Depreciation and amortization (430) (414) (16) 4% Impairment and restructuring charges (25) (19) (6) 32% Equity earnings of affiliates 109 95 14 15% Interest, net 47 28 19 68% Other, net 47 (42) 89 **
Income before income tax expense 961 461 500 ** Income tax expense (257) (202) (55) 27%
Net income 704 259 445 ** Less: Net income attributable to noncontrolling interests (26) (16) (10) 63%
Net income attributable to New News Corporation $ 678 $ 243 $ 435 **
** not meaningful
Overview—Revenues increased 4% for the fiscal year ended June 30, 2011 as compared to fiscal 2010 primarily due to the weakening of the U.S. dollaragainst the Australian dollar and British pound sterling at the News and Information Services segment resulting in a revenue increase of approximately $290million and higher advertising and circulation revenues of approximately $130 million at Dow Jones. Also contributing to the increase in revenues was increasedadvertising revenues of $63 million at the Digital Real Estate Services segment and the inclusion of approximately $15 million in subscription revenues fromWireless Generation which was acquired in fiscal 2011. These revenue increases were partially offset by lower revenues of $74 million at the Book Publishingsegment, the absence of approximately $65 million in circulation revenues from the financial indexes business which was disposed of in fiscal 2010 and loweradvertising revenues at the integrated marketing services business of approximately $50 million resulting from lower volume of in-store marketing products.
Operating expenses—Operating expenses increased 5% for the fiscal year ended June 30, 2011 as compared to fiscal 2010 primarily due to unfavorableforeign exchange rate fluctuations of approximately $155 million.
Selling, general and administrative expenses—Selling, general and administrative expenses decreased 10% for the fiscal year ended June 30, 2011 ascompared to fiscal 2010 due to lower litigation settlement costs at the
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News and Information Services segment. In fiscal 2011, New News Corporation recognized litigation settlement costs of $125 million as compared to $500million in fiscal 2010. The selling, general and administrative expenses decrease was partially offset by unfavorable foreign exchange rate fluctuations ofapproximately $90 million.
Depreciation and amortization—Depreciation and amortization for the fiscal year ended June 30, 2011 increased $16 million as compared to fiscal 2010primarily due to additional property, plant and equipment placed into service.
Impairment and restructuring charges—In fiscal 2011, New News Corporation recorded restructuring charges of approximately $25 million related totermination benefits recorded at the newspaper businesses.
In fiscal 2010, New News Corporation recorded restructuring charges of approximately $19 million related to termination benefits recorded at thenewspaper businesses.
Equity earnings of affiliates—Equity earnings of affiliates for the fiscal year ended June 30, 2011 increased $14 million as compared to fiscal 2010,primarily due to improved results from Foxtel of approximately $10 million and Sky Network Television of approximately $10 million. The increase was partiallyoffset by the absence of approximately $10 million in equity earnings resulting from sale of New News Corporation’s investment in STOXX AG during fiscal2010. For the years ended June 30, 2011 2010 Change % Change (in millions, except %) Direct Broadcast Satellite and Cable Channel equity affiliates $114 $94 $ 20 21% Other equity affiliates (5) 1 (6) **
Total Equity earnings of affiliates $109 $95 $ 14 15%
** not meaningful
Interest, net—Interest, net for the fiscal year ended June 30, 2011 increased $19 million as compared to fiscal 2010, primarily due to higher cash balances.
Other, net—
For the years ended June 30, 2011 2010 (in millions) Gain (loss) on the financial indexes business transaction $ 43 $ (23) Investment write-offs — (3) Other 4 (16)
Total Other, net $ 47 $ (42)
See Note 3 to the Combined Financial Statements of New News Corporation. See Note 5 to the Combined Financial Statements of New News Corporation.
Income tax expense—New News Corporation’s tax provision and tax rate for the fiscal year ended June 30, 2011 were lower than the statutory rate of 35%primarily due to a 9% rate reduction as a result of our foreign operations which are subject to lower tax rates and a 2% rate increase due to permanent differences.
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New News Corporation’s tax provision and tax rate for the fiscal year ended June 30, 2010 were higher than the statutory rate of 35% primarily due to a23% rate increase as a result of the disposition of the financial indexes business, which included non-deductible goodwill offset in part by a 14% rate reduction asa result of our foreign operations which are subject to lower tax rates.
Net income—Net income increased for the fiscal year ended June 30, 2011 as compared to fiscal 2010, primarily due to the higher revenues and lowerlitigation settlement costs noted above.
Net income attributable to noncontrolling interests—Net income attributable to noncontrolling interests increased for the fiscal year ended June 30, 2011as compared to fiscal 2010, due to higher results at REA.
Segment Analysis
Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include:Depreciation and amortization, impairment and restructuring charges, equity earnings of affiliates, interest expense, interest income, other, net, income taxexpense and net income attributable to noncontrolling interests. Management believes that Total Segment EBITDA is an appropriate measure for evaluating theoperating performance of New News Corporation’s business segments because it is the primary measure used by New News Corporation’s chief operatingdecision maker to evaluate the performance and allocate resources within New News Corporation’s businesses. Total Segment EBITDA provides management,investors and equity analysts a measure to analyze operating performance of each of New News Corporation’s business segments and its enterprise value againsthistorical data and competitors’ data, although historical results may not be indicative of future results (as operating performance is highly contingent on manyfactors, including customer tastes and preferences).
Total Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net income (loss), cash flow and othermeasures of financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludesitems, such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing New News Corporation’sfinancial performance. The following table reconciles Total Segment EBITDA to Income before income tax expense. For the years ended June 30, 2011 2010 Change Change % (in millions, except %) Revenues $ 9,095 $ 8,752 $ 343 4% Operating expenses (5,234) (5,008) (226) 5% Selling, general and administrative expenses (2,648) (2,931) 283 (10)%
Total Segment EBITDA 1,213 813 400 49% Depreciation and amortization (430) (414) (16) 4% Impairment and restructuring charges (25) (19) (6) 32% Equity earnings of affiliates 109 95 14 15% Interest, net 47 28 19 68% Other, net 47 (42) 89 **
Income before income tax expense $ 961 $ 461 $ 500 **
** not meaningful
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For the year ended
June 30, 2011
Revenues SegmentEBITDA
(in millions) News and Information Services $ 7,576 $ 1,153 Digital Real Estate Services 235 102 Book Publishing 1,195 93 Other 89 (135)
Total $ 9,095 $ 1,213
For the year ended
June 30, 2010
Revenues SegmentEBITDA
(in millions) News and Information Services $ 7,242 $ 734 Digital Real Estate Services 172 67 Book Publishing 1,269 106 Other 69 (94)
Total $ 8,752 $ 813
News and Information Services (83% of New News Corporation’s combined revenues in fiscal 2011 and 2010, respectively) For the years ended June 30, 2011 2010 Change % Change (in millions, except %) Revenues:
Advertising $ 4,694 $ 4,452 $ 242 5% Circulation and Subscription 2,522 2,467 55 2% Other 360 323 37 11%
Total Revenues 7,576 7,242 334 5% Operating expenses (4,294) (4,003) (291) 7% Selling, general and administrative (2,129) (2,505) 376 (15)%
Segment EBITDA $ 1,153 $ 734 $ 419 57%
For the fiscal year ended June 30, 2011, revenues at the News and Information Services segment increased $334 million, or 5%, as compared to fiscal2010. The increase in revenues was primarily due to the weakening of the U.S. dollar against the Australian dollar and British pound sterling resulting in arevenue increase of approximately $290 million for the fiscal year ended June 30, 2011 as compared to fiscal 2010 and higher advertising and circulationrevenues of approximately $130 million at Dow Jones. These revenue increases were partially offset by the absence of approximately $65 million in circulationrevenues from the financial indexes business which was disposed of in fiscal 2010, and lower advertising revenues at the integrated marketing services businessof approximately $50 million resulting from lower volume of in-store marketing products.
For the fiscal year ended June 30, 2011, Segment EBITDA at the News and Information Services segment increased $419 million, or 57%, as compared tofiscal 2010 primarily due to $375 million of lower litigation settlement costs at the integrated marketing services business and favorable foreign exchange ratefluctuations at the Australian and U.K. newspapers. The weakening of the U.S. dollar against the Australian dollar and British pound sterling resulted in aSegment EBITDA increase of approximately $60 million for the fiscal year ended June 30, 2011 as compared to fiscal 2010.
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Digital Real Estate Services (3% and 2% of New News Corporation’s combined revenues in fiscal 2011 and 2010, respectively) For the years ended June 30, 2011 2010 Change % Change (in millions, except %) Revenues:
Advertising $ 235 $ 172 $ 63 37%
Total Revenues 235 172 63 37% Selling, general and administrative (133) (105) (28) 27%
Segment EBITDA $ 102 $ 67 $ 35 52%
For the fiscal year ended June 30, 2011, Digital Real Estate Services segment revenues increased $63 million, or 37%, as compared to fiscal 2010,primarily due to increased advertising revenues in Australia. Australian residential agent revenues increased 35% on an Average Revenue per Agent increase of29%. Commercial Agent revenues increased 33% while Media revenues increased 41%.
Segment EBITDA at the Digital Real Estate Services segment for the fiscal year ended June 30, 2011 increased $35 million, or 52% as compared to fiscal2010, primarily due to the revenue increases noted above, partially offset by increased expenses resulting from the expansion of the business and an increasedfocus on brand and consumer marketing activities.
Book Publishing (13% and 14% of New News Corporation’s combined revenues in fiscal 2011 and 2010, respectively) For the years ended June 30, 2011 2010 Change % Change (in millions, except %) Revenues:
Consumer $1,124 $1,153 $ (29) (3)% Other 71 116 (45) (39)%
Total Revenues 1,195 1,269 (74) (6)% Operating expenses (906) (968) 62 (6)% Selling, general and administrative (196) (195) (1) 1%
Segment EBITDA $ 93 $ 106 $ (13) (12)%
For the fiscal year ended June 30, 2011, revenues at the Book Publishing segment decreased $74 million, or 6%, as compared to fiscal 2010, primarily dueto lower other revenues resulting from the absence of approximately $35 million in revenues from licensing fees received from a settlement in fiscal 2010 andlower consumer revenues of $29 million. This decrease was principally due to the prior year success of Going Rogue by Sarah Palin which contributedapproximately $40 million in revenues in fiscal 2010, with no comparable titles released in fiscal 2011. Partially offsetting this decrease was higher digital booksales. During the fiscal year ended June 30, 2011, HarperCollins had 166 titles on The New York Times Bestseller List with 18 titles reaching the number oneposition.
For the fiscal year ended June 30, 2011, Segment EBITDA at the Book Publishing segment decreased $13 million, or 12%, as compared to fiscal 2010,primarily due to the revenue decreases noted above, partially offset by lower royalty costs of approximately $30 million and lower manufacturing costs ofapproximately $20 million reflecting the shift to digital book sales.
Other (1% of New News Corporation’s combined revenues in fiscal 2011 and 2010, respectively)
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For the years ended June 30, 2011 2010 Change % Change (in millions, except %) Revenues:
Advertising $ 16 $ 15 $ 1 7% Circulation and Subscription 27 10 17 ** Other 46 44 2 5%
Total Revenues 89 69 20 29% Operating expenses (34) (37) 3 (8)% Selling, general and administrative (190) (126) (64) 51%
Segment EBITDA $(135) $ (94) $ (41) 44%
** not meaningful
Revenues at the Other segment increased $20 million, or 29%, for the fiscal year ended June 30, 2011, as compared to fiscal 2010. The increases wereprimarily due to the inclusion of revenues from Wireless Generation which was acquired in fiscal 2011.
Segment EBITDA for the fiscal year ended June 30, 2011 decreased $41 million, or 44%, as compared to fiscal 2010, primarily due to the inclusion oflosses from Wireless Generation.
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
Historically, Parent has provided capital, cash management and other treasury services to New News Corporation. Parent will continue to provide theseservices to New News Corporation until the distribution is consummated. As part of these services, the majority of the domestic cash balances are swept to Parenton a daily basis and New News Corporation receives capital from Parent for New News Corporation’s domestic cash needs and Parent has transferred cash fromforeign subsidiaries to also meet cash needs. As a result, the cash and cash equivalents balances presented in New News Corporation’s combined financialstatements consist primarily of cash held at international subsidiaries for international cash needs. However, cash held at the Digital Real Estate Services segmentis not readily accessible to New News Corporation.
New News Corporation’s primary future cash needs will be centered on operating activities, working capital and strategic investments. Following thedistribution, New News Corporation’s capital structure and sources of liquidity will change significantly from its historical capital structure. New NewsCorporation will no longer participate in capital management with Parent, but rather New News Corporation’s ability to fund its cash needs will depend on itsongoing ability to generate and raise cash in the future. Although New News Corporation believes that its future cash from operations, together with its access tocapital markets, will provide adequate resources to fund its operating and financing needs, its access to, and the availability of, financing on acceptable terms inthe future will be affected by many factors, including: (i) its credit rating, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy.There can be no assurances that New News Corporation will continue to have access to the capital markets on acceptable terms. See “Risk Factors” for a furtherdiscussion.
As of June 30, 2012, New News Corporation’s combined assets included $1.1 billion in cash and cash equivalents that was held by its foreign subsidiaries.New News Corporation earns income outside the U.S., which is deemed to be permanently reinvested in certain foreign jurisdictions. New News Corporationdoes not currently intend to repatriate these funds. Should New News Corporation require more capital in the U.S. than is generated by and/or available to itsdomestic operations, New News Corporation could elect to transfer funds held in foreign jurisdictions. The transfer of funds from foreign jurisdictions may becumbersome due to local
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regulations, foreign exchange control and withholding taxes. Additionally, the transfer of funds from foreign jurisdictions may result in higher effective tax ratesand higher cash paid for income taxes for New News Corporation.
New News Corporation’s principal source of liquidity is internally generated funds and cash and cash equivalents on hand. In accordance with theseparation and distribution agreement, Parent is expected to make a cash contribution to New News Corporation such that at the distribution date, it expects tohave approximately $2.6 billion of cash on hand. In addition, New News Corporation expects to establish a revolving credit facility and have access to theworldwide capital markets, subject to market conditions, in order to issue debt to satisfy other liquidity needs. New News Corporation expects these elements ofliquidity will enable it to meet its liquidity needs in the foreseeable future.
The principal uses of cash that affect New News Corporation’s liquidity position include the following: operational expenditures including employee costs,paper purchases and capital expenditures; income tax payments; investments in associated entities and acquisitions.
In addition to the acquisitions, sales and possible acquisitions disclosed elsewhere, New News Corporation has evaluated, and expects to continue toevaluate, possible acquisitions and dispositions of certain businesses. Such transactions may be material and may involve cash, the issuance of New NewsCorporation securities or the assumption of indebtedness.
Sources and Uses of Cash—For the six months ended December 31, 2012 versus the six months ended December 31, 2011
Net cash provided by operating activities for the six months ended December 31, 2012 and 2011 was as follows (in millions):
For the six months ended December 31, 2012 2011 Net cash provided by operating activities $ 5 $279
The decrease in net cash provided by operating activities during the six months ended December 31, 2012 as compared to the corresponding period offiscal 2012 primarily reflects lower total Segment EBITDA, higher payments under restructuring programs, higher payments for legal settlements and transfer taxpayments in connection with the prior year sale of property.
Net cash used in investing activities for the six months ended December 31, 2012 and 2011 was as follows (in millions):
For the six months ended December 31, 2012 2011 Net cash used in investing activities $(2,272) $(284)
The increase in net cash used in investing activities during the six months ended December 31, 2012 as compared to the corresponding period of fiscal2012 was primarily due to cash utilized for the Acquisitions.
Net cash provided by (used in) financing activities for the six months ended December 31, 2012 and 2011 was as follows (in millions):
For the six months ended December 31, 2012 2011 Net cash provided by (used in) financing activities $1,861 $(883)
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The change in net cash provided by (used in) financing activities for the six months ended December 31, 2012 as compared to the corresponding period offiscal 2012 was primarily due to net transfers from Parent and affiliates of $2.1 billion during the six months ended December 31, 2012 as compared to nettransfers to Parent and affiliates of $876 million in the corresponding period of fiscal 2012, partially offset by payment of debt acquired in the acquisition of CMHof approximately $235 million.
Sources and Uses of Cash—Fiscal 2012 vs. Fiscal 2011
Net cash provided by operating activities for the fiscal years ended June 30, 2012 and 2011 was as follows (in millions):
For the years ended June 30, 2012 2011 Net cash provided by operating activities $851 $1,331
The decrease in net cash provided by operating activities during the fiscal year ended June 30, 2012 as compared to fiscal 2011 was primarily due to loweradvertising receipts, the absence of contributions from The News of the World of approximately $120 million and costs incurred for the U.K. Newspaper Mattersof approximately $200 million.
Net cash used in investing activities for the fiscal years ended June 30, 2012 and 2011 was as follows (in millions):
For the years ended June 30, 2012 2011 Net cash used in investing activities $(659) $(881)
The decrease in net cash used in investing activities during the fiscal year ended June 30, 2012 as compared to fiscal 2011 reflects lower capitalexpenditures of approximately $174 million and lower cash paid for acquisitions of approximately $305 million. This decrease was partially offset by New NewsCorporation’s loan to Foxtel in fiscal 2012 of approximately $230 million. In fiscal 2012, New News Corporation utilized $92 million of cash for acquisitionsprimarily due to the acquisition of Kidspot.com.au Pty Limited. In fiscal 2011, New News Corporation utilized $397 million of cash for acquisitions primarilydue to the acquisition of Wireless Generation.
Net cash (used in) provided by financing activities for the fiscal years ended June 30, 2012 and 2011 was as follows (in millions):
For the years ended June 30, 2012 2011 Net cash (used in) provided by financing activities $(1,006) $270
The change in net cash (used in) provided by financing activities for the fiscal year ended June 30, 2012 as compared to fiscal 2011 was primarily due tonet transfers to Parent and affiliates of $993 million in fiscal 2012 as compared to net transfers from Parent and affiliates of $293 million in fiscal 2011.
Sources and Uses of Cash—Fiscal 2011 vs. Fiscal 2010
Net cash provided by operating activities for the fiscal years ended June 30, 2011 and 2010 was as follows (in millions):
For the years ended June 30, 2011 2010 Net cash provided by operating activities $1,331 $1,047
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The increase in net cash provided by operating activities during the fiscal year ended June 30, 2011 as compared to fiscal 2010 was primarily due to lowerlitigation settlement payments at the News and Information Services segment.
Net cash (used in) provided by investing activities for the fiscal years ended June 30, 2011 and 2010 was as follows (in millions):
For the years ended June 30, 2011 2010 Net cash (used in) provided by investing activities $(881) $405
The change in net cash used in investing activities during the fiscal year ended June 30, 2011 as compared to net cash provided by investing activities infiscal 2010 was primarily due to lower proceeds from dispositions, higher cash paid for acquisitions and higher capital expenditures. In fiscal 2010, New NewsCorporation received $856 million in proceeds from dispositions primarily due to the sale of the financial indexes businesses. In fiscal 2011, New NewsCorporation utilized $397 million of cash for acquisitions primarily due to the acquisition of Wireless Generation. In fiscal 2011, New News Corporation utilized$549 million for capital expenditures primarily for facility and equipment purchases at the News and Information Services segment.
Net cash provided by (used in) financing activities for the fiscal years ended June 30, 2011 and 2010 was as follows (in millions):
For the years ended June 30, 2011 2010 Net cash provided by (used in) financing activities $270 $(1,230)
The change in net cash provided by (used in) financing activities for the fiscal year ended June 30, 2011 as compared to fiscal 2010 was primarily due tonet transfers from Parent and affiliates of $293 million in fiscal 2011 as compared to net transfers to Parent and affiliates of $1,226 million in fiscal 2010.
Commitments and Guarantees
New News Corporation has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These firmcommitments secure the future rights to various assets and services to be used in the normal course of operations. The following table summarizes New NewsCorporation’s material firm commitments as of June 30, 2012. As of June 30, 2012 Payments Due by Period
Total 1 year 2-3 years 4-5 years After 5years
(in millions) Purchase obligations $2,581 $627 $ 771 $ 356 $ 827 Operating leases
Land and buildings 747 116 182 134 315 Plant and machinery 22 11 10 1 —
Total commitments and contractual obligations $3,350 $754 $ 963 $ 491 $1,142
New News Corporation has commitments under purchase obligations related to printing contracts, capital projects, marketing agreements, and other legally
binding commitments. New News Corporation leases office facilities, warehouse facilities, printing plants and equipment. These leases, which are classified as operating leases,
are expected to be paid at certain dates through fiscal 2062.
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In connection with the transaction related to the Dow Jones Indexes business, New News Corporation agreed to indemnify CME Group Inc. (“CME”) withrespect to any payments of principal, premium and interest CME makes under its guarantee of the venture financing. (See Note 3 to the Combined FinancialStatements of New News Corporation for further discussion of this transaction.) New News Corporation does not expect that this contingent guarantee will resultin any material amounts being paid by New News Corporation in the foreseeable future. The timing of the amounts presented in the table below reflect when themaximum contingent guarantee will expire and does not indicate that New News Corporation expects to incur an obligation to make payments during that timeframe. As of June 30, 2012 Total
AmountsCommitted
Amount of Guarantees Expiration Per Period
Contingent guarantees: 1 year 2-3 years 4-5 years After 5years
(in millions) Indemnity $ 774 $ 27 $ 54 $ 54 $ 639
The table excludes New News Corporation’s direct pension, other postretirement benefits (“OPEB”) obligations and the gross unrecognized tax benefits foruncertain tax positions as New News Corporation is unable to reasonably predict the ultimate amount and timing. New News Corporation made contributions of$48 million and $45 million to its direct pension plans in fiscal 2012 and fiscal 2011, respectively. These contributions were a combination of required andvoluntary contributions made to improve the funding status of the direct plans. Future direct plan contributions are dependent upon actual direct plan asset returnsand interest rates and statutory requirements. Assuming that actual direct plan asset returns are consistent with New News Corporation’s expected plan returns infiscal 2012 and beyond, and that interest rates remain constant, New News Corporation anticipates that it would make contributions similar to fiscal 2012. NewNews Corporation expects to make a required contribution of approximately $35 million to its direct pension plans and may make a voluntary contribution infiscal 2013. Payments due to participants under New News Corporation’s direct pension plans are primarily paid out of underlying trusts. Payments due underNew News Corporation’s direct OPEB plans are not required to be funded in advance, but are paid as medical costs are incurred by covered retiree populations,and are principally dependent upon the future cost of retiree medical benefits under New News Corporation’s direct OPEB plans. New News Corporation expectsits net direct OPEB payments to approximate $13 million in fiscal 2013 (See Note 11 to the Combined Financial Statements of New News Corporation for furtherdiscussion of New News Corporation’s pension and OPEB plans.)
The total firm commitments as of December 31, 2012 were $4,070 million. The increase from June 30, 2012 was primarily due to the consolidation of FOXSPORTS Australia in fiscal 2013.
Contingencies
As disclosed in the notes to the Combined Financial Statements of New News Corporation, U.K. and U.S. regulators and governmental authorities areconducting investigations relating to the U.K. Newspaper Matters. New News Corporation, together with Parent, is cooperating with these investigations.
New News Corporation has admitted liability in many civil cases related to the phone hacking allegations and has settled many cases. While additionalcivil lawsuits may be filed, New News Corporation has also announced a private compensation scheme under which parties can pursue claims against it, and untilApril 8, 2013, additional civil claims may be brought under the compensation scheme.
New News Corporation is not able to predict the ultimate outcome or cost of the civil claims or criminal matters. As of June 30, 2012 and December 31,2012, New News Corporation has provided for its best estimate of the liability for the claims that have been filed. It is not possible to estimate the liability for anyadditional claims that may be filed given the information that is currently available to New News Corporation. If more claims are filed and additional informationbecomes available, New News Corporation will update the liability provision for such matters.
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New News Corporation and Parent will agree in the separation and distribution agreement that Parent will indemnify New News Corporation for paymentsmade after the distribution date arising out of civil claims and investigations relating to the U.K. Newspaper Matters, subject to New News Corporation’scompliance with certain agreements regarding Parent’s control over the civil U.K. Newspaper Matters and its consenting to settlements proposed by Parent, aswell as legal and professional fees and expenses paid in connection with the criminal matters. However, violations of law may result in criminal fines or penaltiesfor which New News Corporation will not be indemnified by Parent. It is possible that these proceedings and any adverse resolution thereof, including any finesor other penalties associated with any plea, judgment or similar result for which New News Corporation will not be indemnified, could damage its reputation,impair its ability to conduct its business and adversely affect its results of operations and financial condition.
New News Corporation’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, New News Corporationis regularly audited by federal, state and foreign tax authorities. New News Corporation believes it has appropriately accrued for the expected outcome of allpending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its combinedfinancial condition, future results of operations or liquidity. Each member of the Parent consolidated group, which includes Parent, New News Corporation andParent’s other subsidiaries, is jointly and severally liable for the U.S. federal income tax liability of each other member of the consolidated group. Consequently,New News Corporation could be liable in the event any such liability is incurred, and not discharged, by any other member of the Parent consolidated group. Thetax sharing and indemnification agreement will require Parent to indemnify New News Corporation for any such liability. Disputes or assessments could ariseduring future audits by taxing authorities in amounts that New News Corporation cannot quantify. In addition, we have filed tax refund claims in a foreignjurisdiction which are currently in litigation. If we ultimately receive a refund, the tax sharing and indemnification agreement provides that we will pay theamount of such refund, including any interest net of any tax cost, to Parent.
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered to be critical if it is important to New News Corporation’s financial condition and results and if it requires significantjudgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined bymanagement of New News Corporation. For New News Corporation’s summary of significant accounting policies, see Note 2 to the Combined FinancialStatements of New News Corporation.
Principles of Combination
The combined financial statements include New News Corporation’s net assets and results of its operations. All significant intracompany transactions andaccounts within New News Corporation’s combined businesses have been eliminated.
Intercompany transactions with Parent or its affiliates and New News Corporation are reflected in the historical combined financial statements. The Parentcompany equity balance represents Parent’s historical investment in New News Corporation and the net effect of transactions with and allocations from Parent.
Use of Estimates
The preparation of New News Corporation’s combined financial statements in conformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the amounts that are reported in the combined financial statements and accompanying disclosures.Although these
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estimates are based on management’s best knowledge of current events and actions that New News Corporation may undertake in the future, actual results maydiffer from the estimates.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated on a straight-line method over the estimated useful lives of such assets. Changes incircumstances, such as technological advances, changes to New News Corporation’s business model or capital strategy, could result in the actual useful livesdiffering from New News Corporation’s estimates. In those cases, where New News Corporation determines that the useful life of buildings and equipmentshould be shortened, New News Corporation would depreciate the asset over its revised remaining useful life thereby increasing depreciation expense.
Intangible Assets
New News Corporation has a significant amount of intangible assets, including goodwill, newspaper mastheads, distribution networks, publishing rightsand other copyright products and trademarks. Intangible assets acquired in business combinations are recorded at their estimated fair value at the date ofacquisition. Goodwill is recorded as the difference between the cost of acquiring an entity and the estimated fair values assigned to its tangible and identifiableintangible net assets and is assigned to one or more reporting units for purposes of testing for impairment. The judgments made in determining the estimated fairvalue assigned to each class of intangible assets acquired, their reporting unit, as well as their useful lives can significantly impact net income.
New News Corporation accounts for its business acquisitions under the purchase method of accounting. The total cost of acquisitions is allocated to theunderlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the tangible net assetsacquired is recorded as intangibles. Amounts recorded as goodwill are assigned to one or more reporting units. Determining the fair value of assets acquired andliabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect tofuture cash inflows and outflows, discount rates, asset lives and market multiples, among other items. Identifying reporting units and assigning goodwill to themrequires judgment involving the aggregation of business units with similar economic characteristics and the identification of existing business units that benefitfrom the acquired goodwill. New News Corporation allocates goodwill to disposed businesses using the relative fair value method.
Carrying values of goodwill and intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with ASC 350,“Intangibles—Goodwill and Other.” New News Corporation’s impairment review is based on, among other methods, a discounted cash flow approach thatrequires significant management judgments. New News Corporation uses its judgment in assessing whether assets may have become impaired between annualimpairment assessments. Indicators such as unexpected adverse economic factors, unanticipated technological change or competitive activities, loss of keypersonnel and acts by governments and courts, may signal that an asset has become impaired.
New News Corporation’s goodwill impairment reviews are performed using a two-step process. The first step of the process is to compare the fair value ofa reporting unit with its carrying amount, including goodwill. In performing the first step, New News Corporation determines the fair value of a reporting unit byprimarily using a discounted cash flow analysis and market-based valuation approach methodologies. Determining fair value requires the exercise of significantjudgments, including judgments about appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples and the amount andtiming of expected future cash flows. The cash flows employed in the analyses are based on New News Corporation’s estimated outlook and various growth rateshave been assumed for years beyond the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the futurecash flows of the respective reporting units. In assessing the reasonableness of its determined fair values, New News Corporation
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evaluates its results against other value indicators, such as comparable public company trading values. If the fair value of a reporting unit exceeds its carryingamount, goodwill of the reporting unit is not impaired and the second step of the impairment review is not necessary. If the carrying amount of a reporting unitexceeds its fair value, the second step of the goodwill impairment review is required to be performed to estimate the implied fair value of the reporting unit’sgoodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, theestimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reportingunit had been acquired in a business combination and the estimated fair value of the reporting unit was the purchase price paid. The implied fair value of thereporting unit’s goodwill is compared with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fairvalue of that goodwill, an impairment loss is recognized in an amount equal to that excess.
The methods used to estimate the fair value measurements of impaired goodwill and indefinite-lived intangible assets included those based on the incomeapproach (including the discounted cash flow and relief-from-royalty methods) and those based on the market approach (primarily the guideline public companymethod). Significant unobservable inputs utilized in the income approach valuation methods were discount rates (ranging from 9.5%-12.5%), long-term growthrates (ranging from 0.5%-3.0%) and royalty rates (ranging from 2.0%-3.5%). Significant unobservable inputs utilized in the market approach valuation methodswere EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%. Significant increases (decreases) inroyalty rates, growth rates, control premium and multiples, assuming no change in discount rates, would result in a significantly higher (lower) fair valuemeasurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premium and multiples, would resultin a significantly higher (lower) fair value measurement. For instance, a hypothetical 10% decrease in the fair value of reporting units with goodwill impairmentsresulting from changes in the aforementioned assumptions, would result in an additional write-down of goodwill of approximately $220 million. Additionally, ahypothetical 10% decrease in the fair value of reporting units that were not impaired resulting from changes in the aforementioned assumptions, would result inthe book values of two reporting units exceeding their fair values by an aggregate of approximately $200 million. If this were to occur, the second step of thegoodwill impairment test would need to be performed for those reporting units to determine the ultimate amount of impairment loss to record. Had the fair valuesof indefinite-lived intangible assets been hypothetically lower by 10%, resulting from changes in the aforementioned assumptions, it would result in an additionalwrite-down of indefinite-lived intangible assets of approximately $150 million.
As a result of the fiscal 2012 annual impairment review performed, New News Corporation recorded non-cash impairment charges of approximately $2.6billion ($2.2 billion, net of tax) during the fiscal year ended June 30, 2012. The charges consisted of a write-down of goodwill of $1.3 billion and a write-down ofindefinite-lived intangible assets of $1.3 billion. The News and Information Services and Other segments have reporting units with approximately $2.2 billion ingoodwill as of June 30, 2012 that continues to be at risk for future impairment and with fair values that exceeded their carrying values by less than 10%. NewNews Corporation will continue to monitor its goodwill and intangible assets for possible future impairment.
Income Taxes
New News Corporation is subject to income taxes in the U.S. and foreign jurisdictions in which it operates. Tax laws are complex and subject to differentinterpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining New News Corporation’s taxexpense and in evaluating its tax positions including evaluating uncertainties under ASC 740, “Income Taxes.”
New News Corporation records valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. In making thisassessment, management analyzes future taxable income, reversing temporary differences and ongoing tax planning strategies. Should a change in circumstanceslead to a change in judgment about the realizability of deferred tax assets in future years, New News Corporation would
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adjust related valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
Employee Costs
New News Corporation provides defined benefit pension, postretirement health care, defined contribution and medical benefits to New News Corporation’seligible employees and retirees. Certain of New News Corporation’s employees participate in defined benefit pension plans sponsored by Parent. The combinedstatements of operations includes expenses related to these shared plans including direct expenses related to New News Corporation employees as well asallocations of expenses related to corporate employees through the corporate expense allocations (see Note 1 to the Combined Financial Statements of New NewsCorporation).
Certain employee benefit plans are the direct obligations of New News Corporation and have been recorded within New News Corporation’s historicalcombined financial statements. New News Corporation records amounts relating to these direct plans based on calculations specified by GAAP. The measurementand recognition of costs of New News Corporation’s direct pension and other postretirement benefit plans require the use of significant management judgments,including discount rates, expected return on plan assets, future compensation and other actuarial assumptions. For financial reporting purposes, direct net periodicpension expense (income) is calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations and an expected rate ofreturn on plan assets. Current market conditions, including changes in investment returns and interest rates, were considered in making these assumptions. Indeveloping the expected long-term rate of return, the direct pension portfolio’s past average rate of returns, and future return expectations of the various assetclasses were considered. The expected long-term rate of return is based on a direct asset allocation assumption of 38% equities, 46% fixed-income securities and16% in cash and other investments. Total direct benefit plan net expenses recorded for these direct plans by New News Corporation were $31 million, $38 millionand $53 million, for the years ended June 30, 2012, 2011 and 2010, respectively.
The discount rate reflects the market rate for high-quality fixed-income investments on New News Corporation’s annual measurement date of June 30 andis subject to change each fiscal year. The discount rate assumptions used to account for direct pension and other postretirement benefit plans reflect the rates atwhich the benefit obligations could be effectively settled. The rate was determined by matching New News Corporation’s expected benefit payments for the directplans to a hypothetical yield curve developed using a portfolio of several hundred high-quality non-callable corporate bonds.
The key assumptions used in developing New News Corporation’s fiscal 2012, 2011 and 2010 net periodic pension expense for its direct plans consist ofthe following: 2012 2011 2010 ($ in millions, except %) Discount rate used to determine net periodic benefit cost 5.7% 5.8% 7.0% Assets:
Expected rate of return 7.0% 7.0% 7.0% Expected return $ 82 $ 74 $ 66 Actual return $ 39 $ 157 $ 132
(Loss)/Gain $(43) $ 83 $ 66
One year actual return 2.7% 13.8% 15.3% Five year actual return 1.6% 3.5% 3.4%
The weighted average discount rate is volatile from year to year because it is determined based upon the prevailing rates in the U.S., the U.K. and Australiaas of the measurement date. New News Corporation will utilize a weighted average discount rate of 4.5% in calculating the direct fiscal 2013 net periodic pension
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expense. New News Corporation will use a weighted average long-term rate of return of 6.75% for fiscal 2013 based principally on a combination of direct assetmix and historical experience of direct actual plan returns. The accumulated net pre-tax losses on New News Corporation’s direct pension plans as of June 30,2012 were approximately $455 million which increased from approximately $313 million as of June 30, 2011. This increase of approximately $142 million wasdue primarily to a decrease in the discount rate used to measure the benefit obligation as of June 30, 2012. The accumulated pre-tax net losses as of June 30, 2012were primarily the result of changes in discount rates and deferred asset losses. Lower discount rates increase present values of benefit obligations and increaseNew News Corporation’s deferred losses and also increase subsequent-year pension expense. Higher discount rates decrease the present values of benefitobligations and reduce New News Corporation’s accumulated net loss and also decrease subsequent-year pension expense. These deferred losses are beingsystematically recognized in future net periodic pension expense in accordance with ASC 715, “Compensation—Retirement Benefits.” Unrecognized losses inexcess of 10% of the greater of the market-related value of plan assets or the plans projected benefit obligation are recognized over the average future service ofthe plan participants or average life expectancy for plan participants for plans where majority of plan participants aren’t accruing additional benefits.
New News Corporation made contributions of $48 million, $45 million and $51 million to its direct pension plans in fiscal 2012, 2011 and 2010,respectively. The majority of these contributions were voluntarily made to improve the funding status of the plans which were impacted by the economicconditions noted above. Future plan contributions are dependent upon actual plan asset returns, statutory requirements and interest rate movements. Assumingthat actual plan returns are consistent with New News Corporation’s expected plan returns in fiscal 2012 and beyond, and that interest rates remain constant, NewNews Corporation anticipates that it would make contributions similar to fiscal 2012. New News Corporation will continue to make voluntary contributions asnecessary to improve funded status (See Note 11 to the Combined Financial Statements of New News Corporation for further discussion of New NewsCorporation’s pension plans).
Changes in net periodic pension expense may occur in the future due to changes in New News Corporation’s expected rate of return on plan assets anddiscount rate resulting from economic events. The following table highlights the sensitivity of New News Corporation’s pension obligations and expense tochanges in these assumptions, assuming all other assumptions remain constant:
Changes in Assumption Impact on AnnualPension Expense Impact on PBO
0.25 percentage point decrease indiscount rate Increase $1 million Increase $41 million
0.25 percentage point increase indiscount rate Decrease $1 million Decrease $39 million
0.25 percentage point decrease inexpected rate of return on assets Increase $3 million —
0.25 percentage point increase inexpected rate of return on assets Decrease $3 million —
Recent Accounting Pronouncements
See Note 2 to the Combined Financial Statements of New News Corporation for discussion of recent accounting pronouncements.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
New News Corporation has exposure to different types of market risk including changes in foreign currency exchange rates and stock prices. New NewsCorporation neither holds nor issues financial instruments for trading purposes.
The following sections provide quantitative information on New News Corporation’s exposure to foreign currency exchange rate risk and stock price risk.New News Corporation makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in marketconditions.
Foreign Currency Exchange Rates
New News Corporation conducts operations in three principal currencies: the U.S. dollar; the Australian dollar; and the British pound sterling. Thesecurrencies operate primarily as the functional currency for New News Corporation’s U.S., Australian and U.K. operations, respectively. Cash is managed centrallywithin each of the three regions with net earnings reinvested locally and working capital requirements met from existing liquid funds. To the extent such funds arenot sufficient to meet working capital requirements, funding in the appropriate local currencies is made available from intercompany capital. New NewsCorporation does not hedge its investments in the net assets of its Australian and U.K. foreign operations.
Because of fluctuations in currency exchange rates, New News Corporation is subject to currency translation exposure on the results of its operations.Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheetsfrom functional currency to New News Corporation’s reporting currency (the U.S. Dollar) for consolidation purposes. New News Corporation does not hedgetranslation risk because it generally generates positive cash flows from its international operations that are typically reinvested locally. Currency exchange rateswith the most significant impact to its translation include the Australian dollar and British pound sterling. As currency exchange rates fluctuate, translation of itsStatements of Operations into U.S. dollars affects the comparability of revenues and operating expenses between years.
The table below details the percentage of revenues and expenses by the three principal currencies for the years ended June 30, 2012 and 2011:
U.S.
Dollars Australian
Dollars British Pound
Sterling Year ended June 30, 2012 Revenues 52% 32% 16% Operating expenses 53% 28% 19% Year ended June 30, 2011 Revenues 50% 31% 19% Operating expenses 54% 28% 18%
Based on the year ended June 30, 2012, a one cent change in both the U.S. dollar/Australian dollar and the U.S. dollar/British pound sterling rates willimpact revenues by approximately $50 million annually, with an immaterial impact on total Segment EBITDA.
Stock Prices
New News Corporation has two common stock investments in publicly traded companies that are subject to market price volatility. One of theseinvestments is an equity method investment and one is a cost method investment. These investments had an aggregate fair value of approximately $689 millionand $662 million as of December 31, 2012 and June 30, 2012, respectively. A hypothetical decrease in the market price of these investments of 10% would resultin a fair value of approximately $620 million and $596 million as of December 31, 2012 and June 30, 2012, respectively. Such a hypothetical decrease would beimmaterial as any changes in fair value of New News Corporation’s equity method affiliates are not recognized unless deemed other-than-temporary.
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Credit Risk
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided onsuch deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and, therefore, bearminimal credit risk.
New News Corporation’s receivables did not represent significant concentrations of credit risk as of December 31, 2012, June 30, 2012 or June 30, 2011due to the wide variety of customers, markets and geographic areas to which New News Corporation’s products and services are sold.
New News Corporation monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments.New News Corporation is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. As of December 31, 2012 and June 30,2012, New News Corporation did not anticipate nonperformance by any of the counterparties.
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MANAGEMENT
Directors and Executive Officers Following the Distribution
The following table sets forth information as of March 5, 2013 regarding individuals who are expected to serve as our executive officers and/or directors.We are in the process of identifying individuals who will serve on our board of directors following the distribution, and we expect to provide informationregarding these individuals in an amendment to this information statement. After the completion of the distribution, we expect to have a board of directorsinitially consisting of [·] directors. Our amended and restated certificate of incorporation will provide that there be no fewer than [·] nor more than [·] directors. Amajority of our directors will be independent directors who meet the criteria for independence set forth in the NASDAQ Listing Rules. In addition, we arecommitted to achieving a supermajority of independent directors as our company evolves after the distribution. Name Age PositionK. Rupert Murdoch 81 Executive ChairmanRobert J. Thomson 51 Chief Executive OfficerBedi Ajay Singh 53 Chief Financial OfficerGerson Zweifach 59 General Counsel
Biographies of Executive Officers and Directors
K. Rupert Murdoch AC—K. Rupert Murdoch AC will serve as our Executive Chairman. He has been Chief Executive Officer of Parent since 1979 and itsChairman since 1991. Mr. Murdoch served as a Director of British Sky Broadcasting plc (“BSkyB”) from 1990 to 2007, as a Director of Gemstar-TV GuideInternational Inc. (“Gemstar-TV Guide”) from 2001 to 2008 and as a Director of The DIRECTV Group, Inc. (“DIRECTV”) from 2003 to 2008.
Robert J. Thomson—Robert J. Thomson will serve as our Chief Executive Officer. He has served as Editor-in-Chief of Dow Jones and Managing Editor ofThe Wall Street Journal since 2008. Mr. Thomson previously served as Publisher of Dow Jones from 2007 to 2008, after serving as Editor of The Times ofLondon from 2002 to 2007. Prior to that role, he was Managing Editor of the U.S. edition of the Financial Times.
Bedi Ajay Singh—Bedi Ajay Singh will serve as our Chief Financial Officer. He most recently served as President, Finance and Administration & CFO forMGM Studios from 2008 to 2010. Previously, Mr. Singh served as Chief Financial Officer at Gemstar-TV Guide from 2006 to 2008, as Chief Finance andAdministration Officer at Novartis Pharma A.G. from 2004 to 2006 and as Executive Vice President and Chief Financial Officer of Sony Pictures Entertainmentfrom 1999 to 2003. Before joining Sony Pictures Entertainment, he held a number of positions at Parent, including senior finance roles at News International asFinancial Controller and Fox Filmed Entertainment as Deputy Chief Financial Officer. Mr. Singh is a Fellow of the UK Institute of Chartered Accountants andstarted his business career with Arthur Andersen in London.
Gerson Zweifach—Gerson Zweifach will serve as our General Counsel. Gerson Zweifach has been a Senior Executive Vice President and Group GeneralCounsel of Parent since February 2012. He also serves as Chief Compliance Officer of Parent. Mr. Zweifach served as an attorney at Williams & Connolly LLPwhere he was a partner from 1988 to February 2012 and currently serves as Of Counsel. Mr. Zweifach has been a member of the Bar of the District of Columbiasince 1981 and the Bar of the State of New York since 1980.
Committees of Our Board of Directors
Effective upon the completion of the distribution, our board of directors will have the following committees, each of which will operate under a writtencharter that will be posted to our website prior to the distribution.
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Audit Committee
The Audit Committee will be established in accordance with Section 3(a)(58)(A) and Rule 10A-3 under the Exchange Act. The Audit Committee willassist the board of directors in its oversight of (i) the integrity of our financial statements and our financial reporting processes and systems of internal control,(ii) the qualifications, independence and performance of our independent registered public accounting firm and the performance of our corporate auditors andcorporate audit function, (iii) our compliance with legal and regulatory requirements involving financial, accounting and internal control matters,(iv) investigations into complaints concerning financial matters, (v) risks that may have a significant impact on our financial statements and (vi) the review,approval and ratification of transactions with related parties. The Audit Committee will provide an avenue of communication among management, theindependent registered public accounting firm, the corporate auditors and the board of directors.
The Audit Committee will be comprised of members that meet the independence requirements set forth in the NASDAQ Listing Rules and in accordancewith the Audit Committee charter. Each of the members of the Audit Committee will be financially literate in accordance with NASDAQ Listing Rules. TheAudit Committee will also have at least one member who meets the definition of audit committee financial expert under SEC rules. None of our Audit Committeemembers will simultaneously serve on more than two other public company audit committees unless the board of directors specifically determines that it wouldnot impair the ability of an existing or prospective member to serve effectively on the Audit Committee. The members of the Audit Committee will be identifiedby amendment to this information statement.
Compensation Committee
The primary responsibilities of the Compensation Committee will be: (i) to review and approve goals and objectives relevant to the compensation of ourchief executive officer, to evaluate the performance of our chief executive officer in light of these goals and objectives and other factors the CompensationCommittee deems appropriate, and, based on this review and evaluation, to recommend to our board of directors the compensation of our chief executive officer;(ii) to consider, authorize and oversee our incentive compensation plans and equity-based plans and recommend changes in such plans to our board of directors asneeded, and to exercise all authority of our board of directors with respect to the administration of such plans, including the granting of awards under ourincentive compensation plans and equity-based plans; (iii) to review and approve fixed and performance based compensation (including the measures and factorsthat the Compensation Committee deems appropriate for incentive awards including, without limitation, our financial and operating performance and individualcontributions to financial and non-financial objectives, and the implementation and enforcement of effective compliance programs), benefits and terms ofemployment of our executive officers (as defined by the NASDAQ Listing Rules) and such other senior executives identified by the Compensation Committeeafter consultation with our chief executive officer and other members of management; (iv) to review and approve or ratify the principal employment terms foreach employment arrangement (excluding arrangements for talent) where the sum of the base salary, bonus target and long-term incentive target for the contractperiod is equal to or greater than a threshold amount set by the Compensation Committee; (v) to review and approve separation obligations that exceed by morethan a certain amount set by the Compensation Committee (excluding consideration for outstanding equity awards) those contractually provided for in anemployment agreement approved or ratified by the Compensation Committee pursuant to (iv) above; (vi) to review our recruitment, retention, compensation,termination and severance policies for certain senior executives; (vii) to review and assist with the development of executive succession plans and to consult withour chief executive officer regarding the selection of senior executives; (viii) to review the compensation of non-executive directors for service on our board ofdirectors and its committees and recommend changes in compensation to the board of directors; and (ix) to review our compensation policies and practices todetermine whether they create risk-taking incentives that are reasonably likely to have a material adverse impact on us.
The Compensation Committee will be comprised of members that meet the independence requirements set forth by the SEC and in the NASDAQ ListingRules. The members of the Compensation Committee will be
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“non-employee directors” (within the meaning of Rule 16b-3 of the Exchange Act) and “outside directors” (within the meaning of Section 162(m) of the Code).None of our directors will have interlocking or other relationships with other boards, compensation committees or our executive officers that would requiredisclosure under Item 407(e)(4) of Regulation S-K. The initial members of the Compensation Committee will be identified by amendment to this informationstatement.
Nominating and Corporate Governance Committee
The primary responsibilities of the Nominating and Corporate Governance Committee will be: (i) to review the qualifications of candidates for directorsuggested by board of director members, stockholders, management and others in accordance with criteria recommended by the Nominating and CorporateGovernance Committee and approved by our board of directors; (ii) to consider the performance of incumbent directors in determining whether to nominate themfor re-election; (iii) to recommend to our board of directors a slate of nominees for election or re-election to our board of directors at each annual meeting ofstockholders; (iv) to recommend to our board of directors candidates to be elected to our board of directors as necessary to fill vacancies and newly createddirectorships; and (v) to advise and make recommendations to our board of directors on corporate governance matters. The Nominating and CorporateGovernance Committee will also make recommendations to our board of directors as to determinations of director independence and conduct an annual self-evaluation for our board of directors.
The Nominating and Corporate Governance Committee will be comprised of members that meet the independence requirements set forth by the SEC andin the NASDAQ Listing Rules and in accordance with the Nominating and Corporate Governance Committee charter. The initial members of the Nominating andCorporate Governance Committee will be identified by amendment to this information statement.
Standards of Business Conduct and Code of Ethics
Prior to the completion of the distribution, we intend to adopt Standards of Business Conduct. These Standards of Business Conduct will confirm ourcommitment to conduct our affairs in compliance with all applicable laws and regulations and observe the highest standards of business ethics. The Standards ofBusiness Conduct will also apply to ensure compliance with stock exchange requirements and to ensure accountability at a senior management level for thatcompliance. We intend that the spirit, as well as the letter, of the Standards of Business Conduct be followed by all directors, officers and employees of us and oursubsidiaries and divisions. This will be communicated to each new director, officer and employee.
To promote further ethical and responsible decision-making, our board of directors intends to establish a Code of Ethics for the chief executive officer andsenior financial officers that will be incorporated by reference into the Standards of Business Conduct.
A copy of our Standards of Business Conduct and Code of Ethics will be available on our website immediately prior to the distribution.
Director Nomination Process
Our initial board of directors will be selected by the Parent’s board of directors. We intend to establish a Nominating and Corporate Governance Committeewhich will develop criteria for filling vacant board of director positions, taking into consideration such factors as it deems appropriate, including the candidate’seducation and background; his or her leadership and ability to exercise sound judgment; his or her general business experience and familiarity with ourbusinesses; and whether he or she possesses unique expertise or perspective that will be of value to us. We believe candidates should not have any interests thatwould materially impair their ability to exercise independent judgment or otherwise discharge the fiduciary duties owed as a director to us and our stockholders.Directors must demonstrate personal integrity and ethical character, and value and appreciate these qualities in others. It is expected that each director will devotethe necessary time to the fulfillment of his or her
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duties as a director. In this regard, the Nominating and Corporate Governance Committee will consider the number and nature of each director’s othercommitments, including other directorships. Although we do not anticipate the board of directors will have a formal policy with respect to diversity in identifyingdirector nominees, the Nominating and Corporate Governance Committee will seek to promote through the nomination process an appropriate diversity on theboard of directors of professional background, experience, expertise, perspective, age, gender, ethnicity and country of citizenship.
After completing this evaluation, the Nominating and Corporate Governance Committee will make recommendations to the full board of directors which inturn will make the final determination whether to nominate or appoint the new director after considering the Nominating and Corporate Governance Committee’srecommendation.
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EXECUTIVE COMPENSATION
Introduction
Prior to the distribution, we have been a wholly-owned subsidiary of Parent. Until the distribution, our compensation decisions will be made by Parent’ssenior management and the compensation committee of Parent’s board of directors. We expect that our executive compensation program following thedistribution will generally include the same elements as Parent’s executive compensation program. Our Compensation Committee will review all aspects ofcompensation and may make adjustments that it believes are appropriate in structuring our executive compensation arrangements. We have presented informationbelow under “—Key Elements of Expected Compensation from New News Corporation” concerning future compensation from New News Corporation for eachof our executive officers other than Mr. Zweifach, our General Counsel, whose services will be provided to us under a transition services agreement with Parentand who will receive no compensation directly from us.
Compensation Philosophy
The compensation philosophy of Parent and its compensation committee for our company is described below. Following the distribution, ourCompensation Committee will review and consider this philosophy and may make adjustments as appropriate. The current compensation philosophy for ourcompany aims to achieve the following:
• Provide a compensation program that drives performance;
• Ensure our compensation policies and practices support both annual and long-term growth for stockholders; and
• Structure compensation packages to attract, retain and motivate the top executive talent necessary for our success.
In designing compensation for our executive officers, Parent and its compensation committee are guided by the following objectives:
• Our compensation programs should incorporate a mix of fixed and performance-based compensation in the form of base salary, performance-basedannual bonus compensation, performance-based long-term incentives and retirement and other benefit programs to enable us to attract the highestquality talent. Performance-related compensation is awarded at the sole discretion of the Compensation Committee and earned based on the company’sand the individual’s performance.
• Our individual pay decisions should consider trends in the industry in which we operate and compete and the executive’s performance, contributions,
breadth and complexity of the role, and individual skills.
• Our compensation programs should be communicated and implemented as clearly, specifically and transparently as possible.
• Our equity programs should align our executive officers’ compensation with our long-term performance and link our executive officers’ interests
directly with our stockholders’ interests, and also provide a strong link between pay and performance.
Primary Elements of Compensation
Base Salary: One element of compensation needed to attract and retain an employee in any organization is base salary. Base salary is the fixed element ofan executive officer’s annual cash compensation and does not vary with performance. We expect that the base salaries for our executive officers will beestablished in the context of the nature of the executive officer’s particular position, the responsibilities associated with that position, length of service with thecompany, experience, expertise, knowledge and qualifications, market
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factors, the industry in which we operate and compete, recruitment and retention factors, our Executive Chairman’s and Chief Executive Officer’srecommendations (with the exception of their own base salaries) and our overall compensation philosophy. As further described below, the respectiveemployment arrangements of our executive officers provide for a specified or minimum base salary determined in accordance with these criteria.
Annual Bonus Compensation: Our executive officers also are expected to be eligible for annual bonus compensation. The executive officers have a directinfluence on our operations and strategy. We expect that our Compensation Committee will adopt an annual bonus framework which fosters a performance-driven, pay-for-performance culture that aligns our executive officers’ interests with those of our stockholders while also rewarding the executive officers forsuperior individual achievements. As further described below, the respective employment arrangements of our executive officers provide for an annual bonuswith performance criteria to be determined in accordance with this framework.
Performance-Based Long-Term Equity-Based Incentive Awards: We anticipate having our executive officers participate in performance-based long-termequity incentive compensation programs, including a performance stock unit (“PSU”) program. We are still evaluating and determining the design of our long-term equity incentive plans, and we expect these plans to be similar to the program presently maintained by Parent. As further described below, the respectiveemployment arrangements of our executive officers provide for long-term incentive awards.
Executive Officers of New News Corporation
Our initial executive officers will consist of our Executive Chairman, Mr. K. Rupert Murdoch, our Chief Executive Officer, Mr. Robert J. Thomson, ourChief Financial Officer, Mr. Bedi Ajay Singh, and our General Counsel, Mr. Gerson Zweifach. Our company was formed in connection with this transaction, andwe paid no compensation to our executive officers for the fiscal year ended June 30, 2012.
Key Elements of Expected Compensation from New News Corporation
Mr. K. Rupert Murdoch, our Executive Chairman, will retain his role as Chairman and Chief Executive Officer of Parent. Prior to the distribution, Parent’scompensation committee will determine his compensation for his role as our Executive Chairman and his compensation for his role as Chief Executive Officer ofParent. We expect that his overall compensation for both roles will increase modestly compared to his current total compensation as Chairman and ChiefExecutive Officer of Parent for the fiscal year ended 2012.
Mr. Thomson, our Chief Executive Officer, will be entitled to a base salary at an annual rate of $2,000,000, a performance-based annual bonus with a targetof $2,000,000 and, beginning with the 2014-2016 performance period, annual grants of a performance-based long-term PSU incentive award that vest after athree-year performance period with a target amount to be determined by the Compensation Committee. The annual bonus and the PSU performance targets forour executive officers are determined at the sole discretion of the Compensation Committee (subject to any employment agreements) and are earned based on ourexecutive officers’ achievement of company and individual performance metrics. Parent is continuing to negotiate with Mr. Thomson the remaining terms of hisemployment agreement governing his compensation at and after the distribution, which will be further described by amendment to this information statement.
On November 26, 2012, a subsidiary of Parent entered into an employment agreement with Mr. Singh (the “Singh Agreement”), which will be assigned tous at the distribution. The term of the Singh Agreement, under which, as of the distribution, Mr. Singh serves as our Chief Financial Officer, extends through June30, 2016. Pursuant to the Singh Agreement, Mr. Singh receives a base salary at an annual rate of not less than $1,100,000.
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He will be entitled to receive a performance-based annual bonus with a target of no less than $1,000,000, which for the fiscal year ending June 30, 2013 will beprorated based on the number of days Mr. Singh was employed by us or our affiliates in the fiscal year compared to the total number of days in the fiscal year (the“Proration Formula”). The criteria for the achievement of the performance-based bonus amount shall be based on metrics to be agreed upon in good faith.
Beginning with the fiscal 2014-2016 performance period, Mr. Singh is entitled to receive annual grants of performance-based PSUs (the “PSU Bonus”) thatvest after a three-year performance period with a target amount of no less than $1,000,000. If after the expiration date of the Singh Agreement Mr. Singh is notoffered an extension or renewal on similar or better terms, he will be entitled to receive the full value of any PSU Bonus awarded during the term of hisemployment. Mr. Singh received a one-time inducement equity grant equivalent in value to $500,000 in Parent Class A Common Stock. This grant will beconverted to the number of shares of our Class A Common Stock based on a ratio used to convert other Parent equity awards to our equity awards, and will vestover three years.
Mr. Singh is entitled to participate in incentive or benefit plans or arrangements in effect or to be adopted by us or our affiliates and to such otherperquisites as are applicable to our other senior executives of equal rank, including any stock option or purchase plan, stock appreciation rights plan or any bonusor other incentive compensation plan and any profit sharing, pension, group medical, dental, disability, life insurance or other similar benefit plans. Mr. Singh alsoreceives a car allowance in the amount of $1,200 per month. Additionally, the Singh Agreement provides for certain payments and benefits to Mr. Singh upon hisseparation from us, and provides Mr. Singh with reimbursement for reasonable legal expenses up to $20,000 incurred by him in connection with the negotiationand preparation of the Singh Agreement.
In connection with the distribution, we entered into a transition services agreement with Parent pursuant to which we compensate Parent for the servicesthat it provides to us. See “Certain Relationships and Related Person Transactions.” As part of that agreement, Parent will provide to us the services of its GroupGeneral Counsel, Mr. Zweifach. Mr. Zweifach will receive no compensation from us for those services.
The amount and timing of any additional equity-based compensation to be paid to our executive officers at or following the distribution will be determinedby the compensation committee of our board of directors. Any equity incentive awards granted to our executive officers following the distribution will generallybe granted pursuant to the new equity incentive plan, which is described under “—New Equity Incentive Plan” below.
New Equity Incentive Plan
Information regarding our new equity incentive plan will be provided by amendment to this information statement.
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COMPENSATION OF DIRECTORS
Following the distribution, director compensation will be reviewed and recommended by the Compensation Committee of the board of directors and set bythe board of directors.
It is anticipated that directors’ fees will not be paid to directors who are our executives or employees (the “executive directors”) because the responsibilitiesof board of directors membership are considered in determining compensation paid as part of the executives’ normal employment conditions.
However, we expect the Compensation Committee will periodically review the basic fees payable to the directors who are not our executives (collectively,the “non-executive directors”). Non-executive directors’ compensation will be evaluated against our peers and the Compensation Committee will consider theappropriateness of the form and amount of director compensation and make recommendations to the board of directors concerning director compensation with aview toward attracting and retaining qualified directors.
It is anticipated that such compensation will consist of an annual cash retainer in the amount of $[·] and an annual deferred stock unit (“DSU”) retainer ofapproximately $[·] and a [·]-year vesting term. In addition, we anticipate that the chair of the audit committee will receive an additional cash retainer in theamount of $[·] per year, the chairs of the Compensation Committee, Nominating and Corporate Governance and the members of the Audit Committee will receivean additional cash retainer in the amount of $[·] per year and that the members of the Compensation Committee and of the Nominating and Corporate GovernanceCommittee will receive an additional cash retainer in the amount of $[·] per year. As described above, we will not provide directors who are also our employeesany additional compensation for serving as a director.
We anticipate that the value of the Class A Common Stock underlying each DSU will be paid to the respective non-executive director in cash at the marketvalue of the Class A Common Stock on the fifth anniversary date of when it was credited to that director’s account, unless that director leaves the board ofdirectors before that date. Upon a non-executive director’s end of service on the board of directors, such director will be paid in cash the value of the shares ofClass A Common Stock credited to his or her account at the market value of those shares of Class A Common Stock as of the date of the director’s end of service.
In addition, we expect all non-executive directors will be reimbursed for reasonable travel and other out-of-pocket business expenses incurred inconnection with attendance at meetings of the board of directors and its committees.
The following table sets forth information concerning the fiscal year 2012 compensation paid by Parent to non-employee directors of Parent who areexpected to be our non-employee directors after the distribution.
Director Compensation Table
Name
Feesearnedor paidin cash
($)
Stockawards
($)
Optionawards
($)
Non-equityincentive plancompensation
($)
Change inpension value
andnonqualified
deferredcompensation
earnings
All othercompensation
($) Total
($) (a) (b) (c) (d) (e) (f) (g) (h)
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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Procedures for Approval of Related Person Transactions
We are currently in the process of developing our procedures for the approval of related person transactions and will be providing such policy in anamendment to this information statement.
Related Person Transactions
Mrs. Prudence MacLeod is the daughter of K. Rupert Murdoch and is a member of the board of directors of Times Newspapers Holding Limited, asubsidiary of New News Corporation. She receives customary director fees for such services.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Before the distribution, all of the outstanding shares of our common stock will be owned beneficially and of record by Parent. The following table sets forthinformation regarding the anticipated beneficial ownership of our Class A Common Stock and Class B Common Stock immediately following the completion ofthe distribution for each person who is known by us to beneficially own more than 5% of Parent Class B Common Stock. The beneficial ownership of ourcommon stock presented in the table is based on beneficial ownership of Parent Class A Common Stock and Class B Common Stock, calculated as of March 5,2013, and the distribution of [·] share[s] of our Class A Common Stock and Class B Common Stock for each share of Parent Class A Common Stock and Class BCommon Stock, respectively.
Security Ownership of Certain Beneficial Owners Common Stock Beneficially Owned
Number ofShares Beneficially
Owned OptionShares
Percentof Class
Name
Non-VotingClass A
CommonStock
VotingClass B
CommonStock
Non-VotingClass A
CommonStock
Non-VotingClass A
CommonStock
VotingClass B
CommonStock
Murdoch Family Trustc/o McDonald Carano Wilson LLP100 W. Liberty Street10th FloorReno, NV 89501
[·]
[·]
0
*
38.4%
HRH Prince Alwaleed Bin Talal Bin Abdulaziz Alsaudc/o Kingdom Holding CompanyKingdom Centre—Floor 66P.O. Box Riyadh, 11321Kingdom of Saudi Arabia
0
[·]
0
0
7.0%
K. Rupert Murdoch [·] [·] 0 * 39.4% * Represents beneficial ownership of less than one percent of the issued and outstanding Class A Common Stock or Class B Common Stock, as applicable, on
March 5, 2013.(1) This table does not include, unless otherwise indicated, any shares of Class A Common Stock or any shares of Class B Common Stock or other equity
securities that may be held by pension and profit-sharing plans of other corporations or endowment funds of educational and charitable institutions for whichvarious directors and officers serve as directors or trustees.
(2) The address for Mr. K.R. Murdoch is c/o New News Corporation, 1211 Avenue of the Americas, New York, New York 10036.(3) Applicable percentage of ownership is based on 1,523,036,237 shares of Parent Class A Common Stock and 798,520,953 shares of Parent Class B Common
Stock outstanding as of March 5, 2013, together with the exercisable stock options, for such stockholder or group of stockholders, as applicable. Incomputing the number of shares of Parent common stock beneficially owned by a person and the percentage ownership of that person, shares issuable uponthe exercise of options that are exercisable within 60 days of March 5, 2013 are not deemed outstanding for purposes of computing the percentage ownershipof any other person.
(4) Beneficial ownership of our Class B Common Stock as reported in the above table has been determined in accordance with Rule 13d-3 of the Exchange Act.Unless otherwise indicated, beneficial ownership of our Class B Common Stock represents both sole voting and sole investment power.
(5) Beneficial ownership of 57,000 shares of Parent Class A Common Stock is as of November 10, 2008 as reported on Form 4 filed with the SEC onNovember 13, 2008. Beneficial Ownership of 306,623,480 shares of Parent Class B Common Stock is as of December 31, 2008, as reported on Schedule13G/A filed with the SEC on February 17, 2009. Cruden Financial Services LLC, a Delaware limited liability company (“Cruden Financial Services”), thecorporate trustee of the Murdoch Family Trust, has the power to vote and to dispose or direct the vote and disposition
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(1)
(3)
(2) (4) (4)
(5)
(6)
(7)
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of the reported Parent Class B Common Stock. In addition, Cruden Financial Services has the power to exercise the limited vote and to dispose or direct thelimited vote and disposition of the reported Parent Class A Common Stock. As a result of Mr. K.R. Murdoch’s ability to appoint certain members of theboard of directors of Cruden Financial Services, Mr. K.R. Murdoch may be deemed to be a beneficial owner of the shares beneficially owned by theMurdoch Family Trust. Mr. K.R. Murdoch, however, disclaims any beneficial ownership of such shares.
(6) Beneficial ownership of 56,237,915 shares of Parent Class B Common Stock is as of December 31, 2012 as reported on Schedule 13G/A filed by HRHPrince Alwaleed Bin Talal Bin Abdulaziz Alsaud (“HRH”) on January 31, 2013. Based on the Schedule 13G/A, 9,780,557 shares of Parent Class BCommon Stock are owned by Kingdom 5-KR-134, Ltd. (“KR-134”), 1,250,000 shares of Parent Class B Common Stock are owned by Kingdom 5-KR-137, Ltd. (“KR-137”), 3,300,000 shares of Parent Class B Common Stock are owned by Kingdom 5-KR-138, Ltd. (“KR-138”), 8,400,000 shares of ParentClass B Common Stock are owned by Kingdom 5-KR-146, Ltd. (“KR-146”), 21,659,246 shares of Parent Class B Common Stock are owned by Kingdom5-KR-222, Ltd. (“KR-222”), and 11,848,112 shares of Parent Class B Common Stock are owned by Kingdom Holding Company (“KHC”). KR-134, KR-137 and KR-138 are wholly-owned subsidiaries of Kingdom 5-KR-11, Ltd. (“KR-11”). KR-11, KR-146 and KR-222 are wholly-owned subsidiaries ofKHC. HRH, as the majority stockholder of KHC, has the power to elect a majority of the directors of KHC and, through this power, has the power toappoint a majority of the directors of KR-11, KR-146 and KR-222, and in turn, KR-11, as sole stockholder of KR-134, KR-137 and KR-138 has the powerto appoint a majority of the directors of KR-134, KR-137 and KR-138. Accordingly, for purposes of Regulations 13D-G under the Exchange Act, HRH canindirectly control the disposition and voting of the shares of Parent Class B Common Stock held by KR-11, KR-134, KR-137, KR-138, KR-146, KR-222and KHC.
(7) Beneficial ownership of 8,791,232 shares of Parent Class A Common Stock and 314,894,138 shares of Parent Class B Common Stock includes 57,000shares of Parent Class A Common Stock and 306,623,480 shares of Parent Class B Common Stock beneficially owned by the Murdoch Family Trust. Mr.K.R. Murdoch may be deemed to be a beneficial owner of the shares beneficially owned by the Murdoch Family Trust. Mr. K.R. Murdoch, however,disclaims any beneficial ownership of such shares. Beneficial ownership also includes 8,250,000 shares of Parent Class B Common Stock held by the K.Rupert Murdoch 2004 Revocable Trust of which Mr. K.R. Murdoch holds a beneficial and trustee interest. Beneficial ownership also includes 4,800 sharesof Parent Class A Common Stock and 4,540 shares of Parent Class B Common Stock held by certain members of Mr. K.R. Murdoch’s family. Beneficialownership also includes 8,729,432 shares of Parent Class A Common Stock held by the GCM Trust that is administered by independent trustees for thebenefit of Mr. K.R. Murdoch’s minor children. Mr. K.R. Murdoch, however, disclaims beneficial ownership of such shares. A portion of the shares held byMr. K.R. Murdoch may be pledged from time to time to secure a line of credit.
Security Ownership of Directors and Named Executive Officers
The following table sets forth the expected beneficial ownership of our common stock immediately following the completion of the distribution by each of(1) our directors, (2) our named executive officers, and (3) our directors and named executive officers as a group, calculated as of [·], 2013, based upon thedistribution of [·] share[s] of our Class A Common Stock and Class B Common Stock for each share of Parent’s Class A Common Stock and Class B CommonStock, respectively. The address of each director, director nominee and executive officer shown in the table below is c/o ·. Common Stock Beneficially Owned
Number of
Shares Beneficially Owned OptionShares
Percentof Class
Name
Non-VotingClass A
CommonStock
VotingClass B
CommonStock
Non-VotingClass A
CommonStock
Non-VotingClass A
CommonStock
VotingClass B
CommonStock
[·] [·] [·] [·] [·] [·]
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OUR RELATIONSHIP WITH PARENT FOLLOWING THE DISTRIBUTION
Following the distribution, we and Parent will operate separately, each as an independent public company. Prior to the distribution, we and Parent will enterinto certain agreements that will effect the separation, provide a framework for our relationship with Parent after the distribution and provide for the allocationbetween us and Parent of Parent’s assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assetsand liabilities) attributable to periods prior to, at and after the distribution. The following is a summary of the terms of the material agreements that we intend toenter into with Parent prior to the distribution. When used in this section, “distribution date” refers to the date on which Parent distributes our common stock tothe holders of Parent’s common stock.
The material agreements described below have been, or will be, filed as exhibits to the registration statement on Form 10 of which this informationstatement is a part, and the summaries of each of these agreements set forth the terms of the agreements that we believe are material. These summaries arequalified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement. Theterms of the agreements described below that will be in effect following the distribution have not yet been finalized; changes to these agreements, some of whichmay be material, may be made prior to our distribution from Parent.
The Separation and Distribution Agreement
The following discussion summarizes the material provisions of the separation and distribution agreement. The separation and distribution agreement setsforth, among other things, our agreements with Parent regarding the principal transactions necessary to separate us from Parent. It also sets forth other agreementsthat govern certain aspects of our relationship with Parent after the distribution date, including with respect to transition services, employee benefits, tax matters,intellectual property, commercial and financing arrangements. We and Parent will enter into the separation and distribution agreement prior to the distribution.
Internal Reorganization
The separation and distribution agreement will provide for the transfers of the entities and their related assets and liabilities that are necessary in advance ofthe distribution so that Parent retains the entities associated with Parent’s entertainment and media business and we retain the entities associated with Parent’snewspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programming andpay-TV distribution in Australia. We are currently a wholly-owned subsidiary of Parent. In connection with the distribution, Parent will undertake a series ofinternal reorganization transactions so that we will hold only the entities associated with Parent’s newspapers, information services and integrated marketingservices, digital real estate services, book publishing, digital education and sports programming and pay-TV distribution in Australia and certain specifiedliabilities that we will assume and Parent will hold only the media and entertainment business entities and certain specified legacy liabilities.
Allocation of Liabilities
The separation and distribution agreement will provide that the liabilities assumed by us will generally include, without duplication, liabilities associatedwith the pre- and post-distribution operation and conduct of the businesses that comprise our company. However, Parent will, subject to our compliance with theterms of the separation and distribution agreement, indemnify us for payments made in connection with liabilities arising out of civil claims or investigationsrelating to the U.K. Newspaper Matters, as well as costs and expenses related to the criminal matters, in each case for amounts paid after the distribution date. See“—U.K. Newspaper and Related Matters” below. In addition, as described under “Employee Matters Agreement” below, Parent will also retain certain employee-related legacy liabilities. We will not be responsible for any liabilities of Parent or any of its businesses that do not comprise our company, or for any liabilityrelating to any indebtedness of Parent, which will be retained entirely by Parent.
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Conditions to the Distribution
The separation and distribution agreement provides that the distribution is subject to the satisfaction (or waiver by Parent) of the following conditions:
• the approval by the board of directors of Parent of the distribution and all related transactions (and such approval not having been withdrawn);
• the affirmative vote of the holders of Parent’s Class A Common Stock and Class B Common Stock, each voting as a separate class, approving certain
amendments to Parent’s Restated Certificate of Incorporation, as described more fully in the Proxy Statement filed under Schedule 14A by Parent;
• the completion of the internal reorganization;
• Parent’s receipt of the private letter rulings from the IRS in a form satisfactory to Parent in its sole and absolute discretion, to the effect that, amongother things, subject to the accuracy of and compliance with certain representations, assumptions and covenants, the contribution of Parent’snewspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sportsprogramming and pay-TV distribution in Australia to us and the distribution will qualify for non-recognition of gain or loss to Parent and itsstockholders under Sections 368 and 355 of the Code, except to the extent of cash received in lieu of fractional shares;
• Parent’s receipt of the ATO Class Ruling or other evidence in a form satisfactory to Parent in its sole and absolute discretion, confirming that, in thecircumstances of the distribution and for Australian tax purposes (i) no part of the distribution of New News Corporation shares will be a dividend; and(ii) the Commissioner of Taxation will not make a determination under either section 45A or 45B to deem all or part of the distribution of New NewsCorporation shares to be an unfranked dividend;
• Parent’s receipt of an opinion from Hogan Lovells US LLP, in form and substance satisfactory to Parent in its sole and absolute discretion, that, subjectto the accuracy of and compliance with certain representations, assumptions and covenants, (i) the distribution will qualify for non-recognition of gainor loss to Parent and Parent’s stockholders pursuant to Section 355 of the Code, except to the extent of cash received in lieu of fractional shares and(ii) the relevant aspects of the internal reorganization described under “Our Relationship with Parent Following the Distribution–The Separation andDistribution Agreement” will qualify for non-recognition of gain or loss to Parent pursuant to Sections 368 and 355 of the Code;
• no order, injunction or decree that would prevent the consummation of the distribution will be threatened, pending or issued (and still in effect) by any
governmental entity of competent jurisdiction and no other legal restraint or prohibition preventing consummation of the distribution will be in effect;
• no events or developments having occurred prior to the distribution that, in the judgment of the board of directors of Parent, would result in the
distribution having a material adverse effect on Parent or its stockholders;
• Parent’s and New News Corporation’s execution of the separation and distribution agreement, the tax sharing and indemnification agreement, the
transition services agreement, the employee matters agreement and all other ancillary agreements relating to the distribution;
• Parent’s election of the individuals to be listed as members of our board of directors post-distribution, as described in this information statement,
immediately prior to the distribution date;
• the SEC having declared effective the Form 10, of which this information statement forms a part;
• no rating agency action having occurred that is likely to result in either Parent or us being downgraded below investment grade after giving effect to
the distribution;
• our Class A Common Stock and Class B Common Stock having been approved for listing on NASDAQ and our Class A Common Stock and Class B
Common Stock (trading as CDIs) having been approved for admission to the official list of the Australian Securities Exchange;
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• the information statement having been mailed to Parent’s stockholders (including electronic delivery where permitted);
• all actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities laws and any other necessary and applicable
consents having been taken, obtained and, where applicable, having become effective or been accepted;
• Parent having established the record date for the distribution, given NASDAQ not less than ten days’ advance notice of such record date and given the
Australian Securities Exchange not less than seven Business Days’ (as defined under the Australian Securities Exchange Listing Rules) advance noticeof such record date; and
• our amended and restated certificate of incorporation and amended and restated by-laws, each in substantially the form filed with the Form 10, having
become effective at or prior to the distribution.
There can be no assurance that any or all of these conditions that are outstanding will be met. For further information about these conditions, see “TheDistribution—Conditions to the Distribution.”
Representations and Warranties
In general, neither we nor Parent will make any representations or warranties regarding any assets or liabilities transferred or assumed, any consents orapprovals that may be required in connection with these transfers or assumptions, the value or freedom from any lien or other security interest of any assetstransferred, the absence of any defenses relating to any claim of either party or the legal sufficiency of any conveyance documents. Except as expressly set forthin the separation and distribution agreement, all assets will be transferred on an “as is,” “where is” basis.
Intercompany Accounts
All intercompany accounts payable or accounts receivable and intercompany borrowings, between us, on the one hand, and Parent and its affiliates, on theother hand, will be settled as of the distribution. All other agreements, arrangements, commitments and understanding between us, on one hand, and Parent and itsaffiliates, on the other hand, will continue after the distribution through the entry into the separation and distribution agreement, the transition services agreement,the tax sharing and indemnification agreement, and all other ancillary agreements entered into in connection with the separation and distribution agreement,except as specified in such agreements and arrangements.
Limitations on Acquiring or Owning Certain Types of Assets in the U.S.
The separation and distribution agreement will govern Parent’s and our agreements with regard to each party’s ability to comply with certain statutes orrules and regulations promulgated by the FCC. The FCC’s Broadcast Ownership Rules limit the ownership of radio and television broadcast stations, televisionbroadcast networks and newspapers, including, among other things, prohibiting common ownership of a daily newspaper and television or radio broadcaststations operating in the same local market. In addition, the FCC’s Program Access Rules limit, among other things, the ability of a cable network programmer inwhich a cable television operator holds an ownership interest to offer different commercial terms and conditions for its programming to competing distributors. Ingeneral, the FCC’s rules provide that for purposes of determining ownership of the media assets described above, any voting stock interest of 5% or greater in acorporation that holds media assets results in ownership of those assets being “attributed” to the stockholder. As a result of the Murdoch Family Trust’s ownershipinterest in both Parent and us following the distribution, each company’s businesses and assets will be attributable to the Murdoch Family Trust for purposes ofdetermining compliance with the Broadcast Ownership Rules and the Program Access Rules. Consequently, our future conduct, including our acquisition of anynewspapers in the same local markets in which Parent owns or operates television stations or our acquisition of an ownership interest in a cable operator, mayaffect Parent’s ability to own and operate its television stations or otherwise comply with the Broadcast Ownership Rules, or may subject Parent to the ProgramAccess Rules.
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Therefore, we and Parent will agree in the separation and distribution agreement that if we acquire, after the distribution date, newspapers, radio ortelevision broadcast stations or television broadcast networks in the U.S. and such acquisition would impede or be reasonably likely to impede Parent’s business,then we will be required to take certain actions, including divesting assets, in order to permit Parent to hold its media interests and to comply with such rules. Inaddition, we will be prohibited from acquiring an interest in a multichannel video programming distributor, including a cable television operator, if suchacquisition would subject Parent to the Program Access Rules to which it is not then subject. This agreement will effectively limit the activities or strategicbusiness alternatives available to us if such activities or strategic business alternatives implicate the Broadcast Ownership Rules or Program Access Rules andwould impede or be reasonably likely to impede Parent’s business. The restrictions described above will terminate when no person or entity is deemed to have aninterest in both Parent and us that is attributable for purposes of the Broadcast Ownership Rules or Program Access Rules, as applicable.
Mutual Releases and Indemnification
General
In the separation and distribution agreement, effective as of the distribution date, we will generally release and discharge Parent from all liabilities relatingto our businesses existing or arising from acts and events occurring, or failing to occur (or alleged to have occurred or to have failed to occur), and all conditionsexisting (or alleged to have existed) before, on or after the distribution date, and Parent will similarly release and discharge us from liabilities relating to itsretained businesses, in each case, other than, among other things, liabilities provided in or resulting from continuing agreements between us and Parent, includingthe separation and distribution agreement.
We and Parent will each generally agree to indemnify the other against these liabilities, liabilities arising out of any breach of the separation anddistribution agreement or any ancillary agreement, including any breach of the restrictions described in “—Limitations on Certain Acquisitions” above, andcertain other liabilities incurred in connection with the distribution and our and Parent’s respective businesses. The amount of either Parent’s or ourindemnification obligations will be reduced by any insurance proceeds the party being indemnified receives. The separation and distribution agreement will alsospecify procedures regarding claims subject to indemnification.
U.K. Newspaper & Related Matters
In addition to our general agreements regarding assumption of liabilities and indemnification, in the separation and distribution agreement, we and Parentwill agree to specific arrangements regarding the U.K. Newspaper Matters. Under these arrangements, Parent will have the right to control the defense of anycivil U.K. Newspaper Matters and will indemnify us for payments made in connection with any liabilities (including attorneys’ fees and other expenses) arisingout of civil claims relating to the U.K. Newspaper Matters, subject to our compliance with certain agreements regarding Parent’s control over the civil U.K.Newspaper Matters and our consenting to settlements proposed by Parent.
With regard to any criminal matters relating to the U.K. Newspaper Matters, Parent has agreed to reimburse us for our legal and professional fees withregard to such matters, but we will retain all liability with regard to criminal fines or other penalties.
Further Assurances
On and after the distribution date, Parent and we shall cooperate to consummate the transactions contemplated by the separation and distribution agreementand the ancillary agreements.
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Access to Information
We and Parent will agree to provide each other with reasonable access to information relating to the party requesting information. We and Parent will alsoagree to use reasonable best efforts to retain such information in accordance with our respective record retention policies as in effect on the distribution date or asamended after the distribution date in accordance with the separation and distribution agreement.
The Distribution
The separation and distribution agreement will govern Parent’s and our respective rights and obligations regarding the proposed distribution. Prior to thedistribution, Parent will deliver all of the issued and outstanding shares of our common stock to the distribution agent. Following the distribution date, thedistribution agent will electronically deliver the shares of our common stock to Parent’s stockholders based on the distribution ratio. Parent’s board of directorswill have the sole and absolute discretion to determine the terms of, and whether to proceed with, the distribution.
Termination
At any time prior to the distribution, Parent may terminate the separation and distribution agreement without the prior approval of any person, includingNew News Corporation.
Transition Services Agreement
Prior to the distribution, we and Parent will enter into a transition services agreement pursuant to which Parent and we will provide to each other certainspecified services on a transitional basis, including, among others, payroll, employee benefits and pension administration, information systems, insurance, legaland other corporate services, as well as procurement and sourcing support. The charges for the transition services are generally intended to allow the providingcompany to fully recover the allocated direct costs of providing the services, plus all out-of-pocket costs and expenses, generally without profit.
We have been preparing for the transition of the services to be provided by Parent under the transition services agreement from Parent, or third-partyproviders on behalf of Parent, to us. We anticipate that we will generally be in a position to complete the transition of most services (excluding certain insurance,sourcing and other services) on or before 24 months following the distribution date.
The services provided under the transition services agreement will terminate at various times specified in the agreement, but the receiving party mayterminate certain specified services by giving prior written notice to the provider of such services.
Tax Sharing and Indemnification Agreement
Before the distribution, we will enter into a tax sharing and indemnification agreement with Parent that will govern our and Parent’s respective rights,responsibilities and obligations with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxesand related tax returns.
Among other matters, as subsidiaries of Parent, we and each of our domestic subsidiaries have joint and several liability with Parent for the consolidatedU.S. federal income taxes of the Parent consolidated group relating to any taxable periods during which we or any of such subsidiaries are or were a member ofthe Parent consolidated group. Under the tax sharing and indemnification agreement, Parent will indemnify us for any such liability.
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The tax sharing and indemnification agreement will provide that we will generally indemnify Parent against taxes attributable to our assets or operationsfor all tax periods or portions thereof after the distribution. In addition, we have filed tax refund claims in a foreign jurisdiction which are currently in litigation. Ifwe ultimately receive a refund, the tax sharing and indemnification agreement provides that we will pay the amount of such refund, including any interest net ofany tax cost, to Parent. For taxable periods or portions thereof prior to the distribution, Parent will generally indemnify us against U.S. consolidated and combinedtaxes attributable to such periods, and we will indemnify Parent against our separately filed U.S. state and foreign taxes and foreign consolidated and combinedtaxes for such periods.
The tax sharing and indemnification agreement will also contain restrictions on our ability to take actions that could cause the distribution or certaininternal transactions undertaken in anticipation of the distribution to fail to qualify for tax free treatment for U.S. federal income tax purposes. These restrictionswill apply for the two year period after the distribution, unless we obtain the consent of Parent to take such an action.
Moreover, the tax sharing and indemnification agreement generally will provide that if the distribution or the internal transactions that were intended not tobe subject to U.S. federal income tax are determined to be subject to U.S. federal income tax and such determination was the result of certain actions taken, oromitted to be taken, after the distribution by us or any of our subsidiaries that (1) were inconsistent with any representation or covenant made in connection withthe private letter ruling or opinion of Hogan Lovells US LLP, (2) violated any representation or covenant in the tax sharing and indemnification agreement, or(3) we or any of our subsidiaries know or reasonably should expect may result in any such determination, we will be responsible for any taxes imposed on Parentas a result of such determination.
Employee Matters Agreement
Prior to the distribution, we and Parent will enter into an employee matters agreement that will govern our and Parent’s obligations with respect toemployment, compensation, benefits and other related matters for employees of certain of our U.S.-based businesses. In general, the agreement addresses mattersrelating to employees transferring to our U.S. businesses and former employees of those businesses that participated in benefit plans and programs that will beretained by Parent following the distribution (the “Parent Plans”). “Parent Plans” include the News America Incorporated Employees’ Pension and RetirementPlan (the “Parent Pension Plan”), the News America Incorporated Supplemental Executive Retirement Plan (the “Parent Non-Qualified DB Plan”), the NewsAmerica Consolidated Savings Plan (the “Parent 401(k) Plan”) and the health and welfare benefits plans retained by Parent following the distribution (the “ParentHealth and Welfare Plans”). The employee matters agreement will also address equity compensation matters relating to employees of all of our businesses, bothU.S. and non-U.S. See “–Other Employee Matters” below for a discussion of the other employment, compensation, benefits and related matters for employees notcovered under the employee matters agreement.
Our employees who previously participated in the Parent Plans generally will become eligible to participate in New News Corporation benefit plans on oraround the distribution date. We will credit each of these employees with his or her service with Parent prior to the distribution for purposes of eligibility andvesting under the New News Corporation benefit plans, so long as such crediting does not result in a duplication of benefits.
Retirement and Deferred Compensation Programs
We will establish a qualified defined benefit pension plan (the “New News Corporation Pension Plan”), which will be substantially similar to the ParentPension Plan as of the distribution date. The New News Corporation Pension Plan will provide benefits to our eligible employees transferred in connection withthe distribution who had participated in the Parent Pension Plan. The New News Corporation Pension Plan will accept assets and assume liabilities from theParent Pension Plan which relate to the transferred employees.
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Transferred employees will be eligible to participate in the New News Corporation Pension Plan to the extent they were eligible to participate in the ParentPension Plan immediately prior to establishment of the New News Corporation Pension Plan, and they will receive credit for Parent service to the extent creditedunder the Parent Pension Plan and recognition for compensation paid by Parent as though it were compensation paid by us. Accrued benefits for transferredemployees under the Parent Pension Plan will be payable under the New News Corporation Pension Plan. We will also establish a non-qualified defined benefitpension plan, which will assume liabilities from the Parent Non-Qualified DB Plan for benefits payable to our employees transferred in connection with thedistribution who are eligible to participate in our non-qualified defined benefit pension plan and had previously participated in the Parent Non-Qualified DB Plan.Parent will retain all liability for benefits payable to former employees under the Parent Pension Plan and the Parent Non-Qualified DB Plan, regardless ofwhether such employee’s last employment was with our or Parent’s businesses. Defined contribution accounts of our U.S. employees (including loans) will betransferred from the Parent 401(k) Plan to the corresponding New News Corporation plan for those transferred employees eligible to participate in our qualifieddefined contribution plan who had participated in the Parent 401(k) Plan.
Welfare Plans
Parent will retain all liability for claims incurred under the Parent Health and Welfare Plans prior to the distribution date. Following the distribution date,our U.S. employees that previously participated in the Parent Health and Welfare Plans will commence participation in New News Corporation health and welfareplans. Parent will generally retain all liability for U.S. workers’ compensation claims incurred by our employees prior to the distribution date.
Equity Compensation Awards
We will adopt a new long-term incentive plan (the “New News Corporation LTIP”) prior to the distribution date. Parent, as our sole stockholder, willapprove the New News Corporation LTIP prior to the distribution date, and the New News Corporation LTIP will become effective on the date of such approval.Except as described in the following sentence, outstanding equity awards held by our employees that were issued under the News Corporation 2005 Long-TermIncentive Plan (the “Parent 2005 LTIP”) will convert into an award under the New News Corporation LTIP having terms and features substantially similar to theoriginal award and will be settled in, or by reference to, our Class A Common Stock or CDIs representing our Class A Common Stock, as equitably adjusted toreflect the distribution. Any option, restricted stock or bridge award unit or performance stock unit issued under the Parent 2005 LTIP and held by our employeesthat has an expiration, vesting or payment date, as applicable, on or prior to December 31, 2013, will continue under the Parent 2005 LTIP and will be settled in,or by reference to, Parent Class A Common Stock or CDIs representing Parent Class A Common Stock, as equitably adjusted to reflect the distribution.
Miscellaneous
The employee matters agreement will address other employee-related issues and certain special circumstances, including the treatment of equity awards fornon-employee directors.
Other Employee Matters
Unless otherwise specified in the employee matters agreement, Parent will be responsible for liabilities associated with employees who continue servicewith Parent following the distribution date and liabilities associated with former employees whose last employment was not with our businesses, and we will beresponsible for liabilities associated with our current and former employees, whether such liability arose before or after the distribution date.
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DESCRIPTION OF OUR CAPITAL STOCK
Our certificate of incorporation and by-laws will be amended and restated prior to the distribution. The following is a summary of the material terms ofour capital stock that will be contained in the amended and restated certificate of incorporation and amended and restated by-laws, and is qualified in its entiretyby reference to these documents. You should refer to our amended and restated certificate of incorporation and amended and restated by-laws, which are includedas exhibits to the registration statement of which this information statement is a part.
Authorized Capital Stock
Prior to the distribution date, Parent, as our sole stockholder, will approve and adopt our amended and restated certificate of incorporation, and our board ofdirectors will approve and adopt our amended and restated by-laws. Under our amended and restated certificate of incorporation, our authorized share capital willconsist of [·] shares of Class A common stock, par value $0.01 per share (“Class A Common Stock”), [·] shares of Class B common stock, par value $0.01 pershare (“Class B Common Stock”), [·] shares of Series Common Stock, par value $0.01 per share (“Series Common Stock”) and [·] shares of Preferred Stock, parvalue $0.01 per share (“Preferred Stock”).
Description of Class A Common Stock and Class B Common Stock
Class A Common Stock Voting Rights
A holder of Class A Common Stock may only vote under the following circumstances:
• on a proposal to dissolve New News Corporation or to adopt a plan of liquidation of New News Corporation, and with respect to any matter to be
voted on by our stockholders following adoption of a proposal to dissolve New News Corporation or to adopt a plan of liquidation of New NewsCorporation;
• on a proposal to sell, lease or exchange all or substantially all of New News Corporation’s property and assets;
• on a proposal to adopt an agreement of merger or consolidation in which New News Corporation is a constituent corporation, as a result of which our
stockholders prior to the merger or consolidation would own less than 60% of the voting power or capital stock of the surviving corporation orconsolidated entity (or the direct or indirect parent of the surviving corporation or consolidated entity) following the merger or consolidation; and
• with respect to any matter to be voted on by our stockholders during a period during which a dividend (or part of a dividend) in respect of the Class A
Common Stock has been declared and remains unpaid following the payment date with respect to such dividend (or part thereof).
Other than as set forth in the preceding paragraph and as provided by law, a holder of a share of Class A Common Stock has no right to vote.
The holders of the Class A Common Stock entitled to vote on a particular matter shall vote in the same manner and subject to the same conditions as theholders of our Class B Common Stock, Preferred Stock or Series Common Stock.
At annual and extraordinary general meetings of stockholders:
• a majority in voting power of all of the outstanding shares of the stock entitled to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for all purposes; and
• each holder of Class A Common Stock represented at a meeting of stockholders shall be entitled to cast one vote for each share of Class A Common
Stock entitled to vote at the meeting.
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All voting, except as may be required by law, including voting for the election of directors may be by a voice vote; provided, however, that upon demandby a stockholder entitled to vote or by his or her proxy, or upon resolution by our board of directors in its discretion or by action of the chairman of the meeting,in his or her discretion, a stock vote may be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder orproxy voting and such other information as may be required under the procedure established for the meeting.
Unless otherwise provided by our amended and restated certificate of incorporation, our amended and restated by-laws, the rules or regulations of any stockexchange applicable to us or applicable law or pursuant to any regulation applicable to us or our securities, (a) at all meetings of stockholders for the election ofdirectors, a plurality of the votes cast shall be sufficient to elect directors and (b) any other question brought before any meeting of stockholders shall bedetermined by the affirmative vote of a majority of the votes cast thereon by the holders represented and entitled to vote at the meeting.
Class B Common Stock Voting Rights
As a general matter, holders of Class B Common Stock are entitled to one vote per share on all matters on which stockholders have the right to vote.
All voting, except as may be required by law, including voting for the election of directors may be by a voice vote; provided, however, that upon demandby a stockholder entitled to vote or by his or her proxy, or upon resolution by our board of directors in its discretion or by action of the chairman of the meeting,in his or her discretion, a stock vote may be taken. Every stock vote shall be taken by written ballots, each of which shall state the name of the stockholder orproxy voting and such other information as may be required under the procedure established for the meeting.
Unless otherwise provided by our amended and restated certificate of incorporation, our amended and restated by-laws, the rules or regulations of any stockexchange applicable to us, applicable law or pursuant to any regulation applicable to us or our securities, (a) at all meetings of stockholders for the election ofdirectors, a plurality of the votes cast shall be sufficient to elect directors, and (b) any other question brought before any meeting of stockholders shall bedetermined by the affirmative vote of a majority of the votes cast thereon by the holders represented and entitled to vote at the meeting.
Dividends
Holders of Class A Common Stock and Class B Common Stock are, generally, entitled to such dividends, if any, as may be declared by our board ofdirectors from time to time in its sole discretion out of our assets or legally available funds, subject to the following provisions:
• if dividends are declared on the Class A Common Stock or Class B Common Stock that are payable in shares of common stock, or securitiesconvertible into, or exercisable or exchangeable for common stock (as defined in our amended and restated certificate of incorporation), the dividendspayable to the holders of Class A Common Stock shall be paid only in shares of Class A Common Stock (or securities convertible into, or exercisableor exchangeable for Class A Common Stock), the dividends payable to holders of Class B Common Stock shall be paid only in shares of Class BCommon Stock (or securities convertible into, or exercisable or exchangeable for Class B Common Stock), and such dividends shall be paid in thesame number of shares (or fraction thereof) on a per share basis of the Class A Common Stock and Class B Common Stock (or securities convertibleinto, or exercisable or exchangeable for the same number of shares (or fraction thereof) on a per share basis of such class of common stock),respectively; and
• in no event shall the shares of the Class A Common Stock or Class B Common Stock be split, divided, or combined unless the outstanding shares of
the other class shall be proportionately split, divided or combined.
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Any dividends declared by our board of directors on a share of common stock shall be declared in equal amounts with respect to each share of Class ACommon Stock and Class B Common Stock (as determined in good faith by our board of directors in its sole discretion), provided that in the case of dividendspayable in shares of our common stock, or securities convertible into, or exercisable or exchangeable for, our common stock, or dividends or other distributions(including, without limitation, any distribution pursuant to a stock dividend or a “spin-off,” “split-off” or “split-up” reorganization or similar transaction) payablein shares or other equity interests of any corporation or other entity which immediately prior to the time of the distribution is a subsidiary of New NewsCorporation and which possesses authority to issue class A common stock or equity interests and class B common stock or equity interests (or securitiesconvertible into, or exercisable or exchangeable for, such shares or equity interests) with voting characteristics identical or comparable to those of New NewsCorporation Class A Common Stock and New News Corporation Class B Common Stock, respectively, such dividends shall be paid as provided for in ouramended and restated certificate of incorporation.
Anti-Takeover Effects of Various Provisions of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws
Size of Board and Vacancies; Removal
Subject to the rights of the holders of any series of Preferred Stock or Series Common Stock, our amended and restated certificate of incorporation andamended and restated by-laws provide that the total number of directors constituting the entire board of directors shall be not less than three (3), with the then-authorized number of directors being fixed from time to time exclusively by the board of directors. Subject to the rights of the holders of any series of PreferredStock or Series Common Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacanciesin the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the affirmativevote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any director so chosen shall hold office untilthe next election of directors and until his or her successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of anyincumbent director.
Stockholder Action by Written Consent
Subject to the rights of the holders of any series of Preferred Stock or Series Common Stock, our amended and restated certificate of incorporation andamended and restated by-laws provide that our stockholders may act only at an annual or special meeting of stockholders and may not act by written consent.
Amendment of By-laws
Our amended and restated certificate of incorporation provides that the board of directors is authorized to adopt, repeal, alter or amend our by-laws by avote of a majority of the entire board of directors. In addition to any requirements of law and any other provision of our amended and restated certificate ofincorporation, our stockholders may, with the affirmative vote of holders of 65% or more of the combined voting power of the then outstanding shares of capitalstock entitled to vote generally in the election of directors, voting together as a single class, adopt, amend or repeal any provision of our by-laws.
Transfer Restrictions
Our amended and restated certificate of incorporation will provide that an Owner (as defined in our amended and restated certificate of incorporation) ofshares of Class A Common Stock or Class B Common Stock may not sell, exchange or otherwise transfer Ownership (as defined in our amended and restatedcertificate of incorporation) of such shares to any person who has made an Offer (as defined in our amended and restated certificate of incorporation) pursuant tosuch Offer unless such Offer relates to both Class A Common Stock and
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Class B Common Stock, or another Offer or Offers are contemporaneously made with such Offer by such person such that, between all the Offers, they relate toboth Class A Common Stock and Class B Common Stock, and the terms and conditions of such Offer or Offers as they relate to each of the shares of Class ACommon Stock and the Class B Common Stock are Comparable (as defined in our amended and restated certificate of incorporation). We shall, to the extentrequired by law, note on the certificates of our common stock that shares represented by such certificates are subject to the restrictions set forth in this paragraph.
Additionally, it should be noted that based on existing shareholdings of Parent, we anticipate that New News Corporation will be subject to FATAfollowing the distribution. As a result, an acquisition by a foreign person of the stock of New News Corporation may trigger section 18 of FATA. Failure tocomply with the Australian legislation or policy may entitle the Australian Treasurer, upon a determination that the acquisition is against Australia’s nationalinterest, to make a number of orders, including divestment of shares and the seeking of various other orders from an Australian court. An Australian court isspecifically empowered under the legislation to make an order requiring New News Corporation to divest itself of its Australian businesses if such an order isconsidered the most appropriate means of protecting Australia’s national interest from excessive foreign control of Australian businesses. Our amended andrestated certificate of incorporation will grant our board of directors the power to refuse to permit or honor transfers of our shares, or to redeem shares, wheresuch transfers could result in any regulatory violation or certain other adverse consequences to our company.
The Australian Government has adopted a foreign investment policy in relation to investments in media (which includes daily newspapers, television andradio). Under this policy all foreign persons need to notify the Australian Government and get prior approval to make investments of 5% or more in the mediasector, regardless of the value of the investment. There are also certain compulsory notification requirements under FATA where a person acquires a substantialinterest in an Australian company, which may through the tracing provisions in FATA be triggered upon an acquisition of 15% or more of New NewsCorporation.
Stockholder Meetings
Subject to the rights of the holders of any series of Preferred Stock or Series Common Stock, our amended and restated certificate of incorporation andamended and restated by-laws provide that special meetings of stockholders (i) may be called by the board of directors pursuant to a resolution approved by amajority of the total number of directors then constituting the entire board of directors, (ii) may be called by the chairman or a vice or deputy chairman of ourboard of directors or (iii) shall be called by the secretary of New News Corporation upon the written request of holders of record of not less than 20% of theoutstanding shares of Class B Common Stock, proposing a proper matter for stockholder action under the DGCL at such special meeting, provided that (a) nosuch special meeting of stockholders shall be called pursuant to clause (iii) if the written request by such holders is received less than 135 days prior to the firstanniversary of the date of the preceding annual meeting of stockholders of New News Corporation and (b) any special meeting called pursuant to clause (iii) shallbe held not later than 100 days following receipt of the written request by such holders, on such date and at such time and place as determined by the board ofdirectors.
Requirements for Advance Notice of Stockholder Nominations and Proposals
Subject to the rights of the holders of any series of Preferred Stock or Series Common Stock, our amended and restated by-laws contain advance-notice andother procedural requirements that apply to stockholder nominations of persons for election to our board of directors at any annual meeting of stockholders and tostockholder proposals that stockholders take any other action at any annual meeting. In the case of any annual meeting, a stockholder proposing to nominate aperson for election to our board of directors or proposing other business must give our secretary written notice of the proposal at our principal executive officesnot later than the close of business on the 90 day, nor earlier than the close of business on the 120 day, prior to the first anniversary of the preceding year’sannual meeting. These stockholder proposal deadlines are subject to exceptions if the annual meeting date is set more than 30 days before or 70 days after suchanniversary date, in
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which case notice by such stockholder, to be timely, must be so delivered not earlier than the close of business on the 120 day prior to the date of the currentyear’s annual meeting and not later than the close of business on the later of the 90 day prior to the date of the current year’s annual meeting, or the 10 dayfollowing the day on which public announcement of the date of the current year’s annual meeting is first made. If a special meeting of stockholders is called forthe election of directors, a stockholder proposing to nominate a person for that election must give our secretary written notice of the proposal at our principalexecutive offices not later than the close of business on the later of the 90 day prior to such special meeting or the 10 day following the day on which publicannouncement is first made of the date of the special meeting. Our amended and restated by-laws prescribe specific information that any such stockholder noticemust contain, including, without limitation, a description of the proposal, the reasons for the proposal, and other specified matters.
These advance-notice provisions may have the effect of precluding a contest for the election of our directors or the consideration of stockholder proposalsif the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directorsor to approve its own proposal, without regard to whether consideration of those nominees or proposals might be harmful or beneficial to us and our stockholders.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and Preferred Stock will be available for future issuance without your approval. We may useadditional shares for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions and as employee compensation. Theexistence of authorized but unissued shares of common stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us bymeans of a proxy contest, tender offer, merger or otherwise.
Liquidation
In the event of any voluntary or involuntary liquidation, dissolution or winding up of New News Corporation, after distribution in full of the preferentialand/or other amounts to be distributed to the holders of shares of any outstanding series of Preferred Stock or Series Common Stock, the holders of shares ofClass A Common Stock, Class B Common Stock and, to the extent fixed by our board of directors with respect thereto, the Series Common Stock and PreferredStock shall be entitled to receive all of our remaining assets available for distribution to our stockholders, ratably in proportion to the number of shares held bythem (or, with respect to any series of the Series Common Stock or Preferred Stock, as so fixed by our board of directors).
Preferred Stock and Series Common Stock
Our amended and restated certificate of incorporation will authorize our board of directors to designate and issue from time to time one or more series ofPreferred Stock or Series Common Stock without stockholder approval, provided that our board of directors shall not issue any shares of Preferred Stock or SeriesCommon Stock which entitle the holders thereof to more than one vote per share without an affirmative vote of the majority of the holders capital stock of NewNews Corporation entitled to vote generally in the election of directors. Under the terms of our amended and restated certificate of incorporation, our board ofdirectors will be authorized, subject to limitations prescribed by the DGCL and by our amended and restated certificate of incorporation, to issue up to [·] sharesof Preferred Stock and up to [·] shares of Series Common Stock, each in one or more series, without further action by the holders of our common stock. Our boardof directors is vested with the authority to fix by resolution the designations, preferences and relative, participating, optional or other special rights, and suchqualifications, limitations or restrictions thereof, including, without limitation, redemption rights, dividend rights, liquidation preferences and conversion orexchange rights of any class or series of preferred stock, and to fix the number of classes or series of Preferred Stock or Series Common Stock, the number ofshares constituting any such class or series and the voting powers for each class or series.
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Our board of director’s authority to issue Preferred Stock or Series Common Stock could potentially be used to discourage attempts by third parties toobtain control of us through a merger, tender offer, proxy contest or otherwise by making such attempts more difficult or more costly. See “Description of OurCapital Stock—Anti-Takeover Effects of Various Provisions of Delaware Law, our Amended and Restated Certificate of Incorporation and Amended andRestated By-laws.” Our board of directors may issue Preferred Stock or Series Common Stock with voting rights or conversion rights that, if exercised, couldadversely affect the voting power of the holders of common stock. There are no current agreements or understandings with respect to the issuance of PreferredStock and our board of directors has no present intention to issue any shares of Preferred Stock or Series Common Stock.
No Preemptive Rights
No holder of any New News Corporation common stock or any class authorized at the distribution date will have any preemptive rights to subscribe to anyNew News Corporation securities of any kind or class.
Listing
We intend to apply to list our shares of Class A Common Stock and Class B Common Stock on NASDAQ under the symbols “[·]” and “[·],” respectivelyand intend that CDIs representing an interest in underlying Class A Common Stock and Class B Common Stock will be listed on the Australian SecuritiesExchange under the symbols “[·]” and “[·],” respectively.
Sale of Unregistered Securities
In connection with the internal reorganization, we issued [·] shares of our Class A Common Stock and [·] shares of our Class B Common Stock to Parent.We did not register the issuances of these shares under the Securities Act because such issuances did not constitute public offerings.
Limitation of Liability for Officers and Directors and Insurance
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages forbreaches of directors’ fiduciary duties as directors. Our amended and restated certificate of incorporation and amended and restated by-laws include provisionsthat indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages by reason of the fact that he orshe is or was a director or officer of New News Corporation or any of its direct or indirect subsidiaries or is or was serving at the request of New NewsCorporation as a director or officer of any other corporation, partnership, joint venture, trust or other enterprise against any expense, as the case may be. Ouramended and restated by-laws also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of anundertaking from the indemnified party as may be required under such by-laws or the DGCL. We are also expressly authorized to carry directors’ and officers’insurance, at our own expense, to protect us, our directors, officers and certain employees for some liabilities, whether we would have the power to indemnify ourdirectors, officers or employees from such liabilities under the DGCL or not. The limitation of liability and indemnification provisions in our amended andrestated certificate of incorporation and amended and restated by-laws may discourage stockholders from bringing a lawsuit against directors for breach of theirfiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such anaction, if successful, might otherwise benefit us and our stockholders. However, this provision does not limit or eliminate our rights, or those of any stockholder,to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s duty of care. The provisions will not alter the liability ofdirectors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay thecosts of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
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We intend to obtain insurance policies that insure our directors and officers and those of our subsidiaries against certain liabilities they may incur in theircapacity as directors and officers. The insurance will provide coverage, subject to its terms and conditions, if New News Corporation is unable to (e.g., due tobankruptcy) or unwilling to indemnify the directors and officers for a covered wrongful act.
Transfer Agent and Registrar
After the distribution, the transfer agent and registrar for our common stock will be Computershare Trust Company, N.A.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by thisinformation statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibitsand schedules to the registration statement. For further information with respect to us and our common stock, please refer to the registration statement, includingits exhibits and schedules. Statements made in this information statement relating to any contract or other document are not necessarily complete, and you shouldrefer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement,including its exhibits and schedules, at the SEC’s public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, by calling the SEC at 1-800-SEC-0330 as well as on the Internet website maintained by the SEC at www.sec.gov. Information contained on any website referenced in this informationstatement is not incorporated by reference in this information statement or the registration statement filed on Form 10.
As a result of the distribution, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with theExchange Act, we will file periodic reports, proxy statements and other information with the SEC, which will be available on the Internet website maintained bythe SEC at www.sec.gov.
We intend to furnish holders of our common stock with annual reports containing consolidated financial statements prepared in accordance withU.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.
You should rely only on the information contained in this information statement or to which we have referred you. We have not authorized any person toprovide you with different information or to make any representation not contained in this information statement.
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NEW NEWS CORPORATION
INDEX TO FINANCIAL STATEMENTS Page Audited Annual Combined Financial Statements: Report of Independent Registered Public Accounting Firm F-2 Combined Statements of Operations for the fiscal years ended June 30, 2012, 2011 and 2010 F-3 Combined Statements of Comprehensive (Loss) Income for the fiscal years ended June 30, 2012, 2011 and 2010 F-4 Combined Balance Sheets as of June 30, 2012 and 2011 F-5 Combined Statements of Cash Flows for the fiscal years ended June 30, 2012, 2011 and 2010 F-6 Combined Statements of Equity for the fiscal years ended June 30, 2012, 2011 and 2010 F-7 Notes to the Combined Financial Statements F-8
Page Unaudited Interim Combined Financial Statements: Unaudited Combined Statements of Operations for the six months ended December 31, 2012 and 2011 F-56 Unaudited Combined Statements of Comprehensive Income (Loss) for the six months ended December 31, 2012 and 2011 F-57 Combined Balance Sheets as of December 31, 2012 (Unaudited) and June 30, 2012 (Audited) F-58 Unaudited Combined Statements of Cash Flows for the six months ended December 31, 2012 and 2011 F-59 Notes to the Unaudited Combined Financial Statements F-60
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of News Corporation:
We have audited the accompanying combined balance sheets of New News Corporation (the Company) as of June 30, 2012 and 2011, and the relatedcombined statements of operations, comprehensive (loss) income, cash flows, and equity for each of the three years in the period ended June 30, 2012. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on ouraudits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engagedto perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of New News Corporationat June 30, 2012 and 2011, and the combined results of its operations and its cash flows for each of the three years in the period ended June 30, 2012, inconformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New YorkDecember 20, 2012
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NEW NEWS CORPORATION
COMBINED STATEMENTS OF OPERATIONS(IN MILLIONS)
For the years ended June 30, 2012 2011 2010 Revenues $ 8,654 $ 9,095 $ 8,752 Operating expenses (5,122) (5,234) (5,008) Selling, general and administrative (2,750) (2,648) (2,931) Depreciation and amortization (483) (430) (414) Impairment and restructuring charges (2,763) (25) (19) Equity earnings of affiliates 90 109 95 Interest, net 56 47 28 Other, net (59) 47 (42)
(Loss) income before income tax benefit (expense) (2,377) 961 461 Income tax benefit (expense) 337 (257) (202)
Net (loss) income (2,040) 704 259 Less: Net income attributable to noncontrolling interests (35) (26) (16)
Net (loss) income attributable to New News Corporation $(2,075) $ 678 $ 243
The accompanying notes are an integral part of these audited combined financial statements.
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NEW NEWS CORPORATION
COMBINED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(IN MILLIONS)
For the years ended June 30, 2012 2011 2010 Net (loss) income $(2,040) $ 704 $259 Other comprehensive (loss) income:
Foreign currency translation adjustments (345) 1,356 254 Unrealized holding gains on securities — 2 1 Benefit plan adjustments (144) (10) (10)
Other comprehensive (loss) income (489) 1,348 245
Comprehensive (loss) income (2,529) 2,052 504
Less: Net income attributable to noncontrolling interests (35) (26) (16) Less: Other comprehensive loss (income) attributable to noncontrolling interests 5 (14) (1)
Comprehensive (loss) income attributable to New News Corporation $(2,559) $2,012 $487
The accompanying notes are an integral part of these audited combined financial statements.
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NEW NEWS CORPORATION
COMBINED BALANCE SHEETS(IN MILLIONS)
As of June 30, 2012 2011 Assets: Current assets: Cash and cash equivalents $ 1,133 $ 2,022 Receivables, net 1,369 1,503 Other 613 469
Total current assets 3,115 3,994
Non-current assets: Investments 1,126 1,035 Property, plant and equipment, net 3,274 3,725 Intangible assets, net 2,461 3,925 Goodwill 2,588 3,966 Other non-current assets 526 363
Total assets $13,090 $17,008
Liabilities and Equity: Current liabilities: Accounts payable $ 284 $ 314 Accrued expenses 996 1,006 Deferred revenue 386 447 Other current liabilities 801 801
Total current liabilities 2,467 2,568
Non-current liabilities: Other liabilities 778 632 Deferred income taxes 926 1,379
Commitments and contingencies
Total equity 8,919 12,429
Total liabilities and equity $13,090 $17,008
The accompanying notes are an integral part of these audited combined financial statements.
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NEW NEWS CORPORATION
COMBINED STATEMENTS OF CASH FLOWS(IN MILLIONS)
For the years ended June 30, 2012 2011 2010 Operating activities: Net (loss) income $(2,040) $ 704 $ 259 Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization 483 430 414 Equity earnings of affiliates (90) (109) (95) Cash distributions received from affiliates 185 159 90 Impairment charges (net of tax of $454 million for the year ended June 30, 2012) 2,153 — — Other, net 59 (47) 42 Change in operating assets and liabilities, net of acquisitions:
Receivables and other assets 96 132 (67) Inventories, net (6) (13) 25 Accounts payable and other liabilities 11 75 379
Net cash provided by operating activities 851 1,331 1,047
Investing activities: Property, plant and equipment, net of acquisitions (375) (549) (328) Acquisitions, net of cash acquired (92) (397) (77) Investments in equity affiliates (33) (10) (45) Other investments (230) 1 (1) Proceeds from dispositions 71 74 856
Net cash (used in) provided by investing activities (659) (881) 405
Financing activities: Net transfers (to) from Parent and affiliates (993) 293 (1,226) Borrowings — 16 — Repayment of borrowings — (16) (1) Dividends paid (13) (10) (5) Purchase of subsidiary shares from noncontrolling interests — (13) — Other, net — — 2
Net cash (used in) provided by financing activities (1,006) 270 (1,230)
Net (decrease) increase in cash and cash equivalents (814) 720 222 Cash and cash equivalents, beginning of year 2,022 1,080 844 Exchange movement on opening cash balance (75) 222 14
Cash and cash equivalents, end of year $ 1,133 $2,022 $ 1,080
The accompanying notes are an integral part of these audited combined financial statements.
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NEW NEWS CORPORATION
COMBINED STATEMENTS OF EQUITY(IN MILLIONS)
ParentCompany
Investment
AccumulatedOther
Comprehensive(Loss) Income
TotalNew News
CorporationEquity
NoncontrollingInterests
TotalEquity
Balance, June 30, 2009 $ 10,800 $ (47) $ 10,753 $ 56 $10,809 Net income 243 — 243 16 259 Other comprehensive income — 244 244 1 245 Other — — — (14) (14) Net decrease in Parent company investment (1,207) — (1,207) — (1,207)
Balance, June 30, 2010 9,836 197 10,033 59 10,092 Net income 678 — 678 26 704 Other comprehensive income — 1,334 1,334 14 1,348 Other — — — (4) (4) Net increase in Parent company investment 289 — 289 — 289
Balance, June 30, 2011 10,803 1,531 12,334 95 12,429 Net (loss) income (2,075) — (2,075) 35 (2,040) Other comprehensive loss — (484) (484) (5) (489) Other — — — (15) (15) Net decrease in Parent company investment (966) — (966) — (966)
Balance, June 30, 2012 $ 7,762 $ 1,047 $ 8,809 $ 110 $ 8,919
The accompanying notes are an integral part of these audited combined financial statements.
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NEW NEWS CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Proposed Distribution
On June 28, 2012, News Corporation (“Parent”) announced its intent to pursue the separation of its business into two separate independent publiccompanies, one of which will hold Parent’s global media and entertainment businesses and another which will hold the businesses comprising Parent’snewspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programming andpay-TV distribution in Australia. On December 4, 2012, the board of directors of Parent authorized management to proceed with the proposed distribution,subject to the satisfaction or waiver of certain conditions and the board of directors’ ongoing consideration of the transaction and its final approval, which maynot be granted.
To effect the distribution, Parent will first undertake an internal reorganization. Following the internal reorganization, Parent will distribute all of the sharesof New News Corporation common stock to its stockholders on a pro rata basis. After the distribution, Parent will not own any equity interest in New NewsCorporation, and New News Corporation will operate independently from Parent. Parent’s stockholders will not be required to vote to effectuate the distribution.However, in order to effectuate the distribution in the manner discussed in this information statement, Parent will be required to amend its Restated Certificate ofIncorporation, and Parent will hold a Special Meeting in connection therewith.
The internal reorganization and, in turn, the distribution, are subject to the satisfaction, or waiver by Parent, of a number of conditions. Additionally, Parentmay determine not to complete the internal reorganization or the distribution if, at any time, the board of directors of Parent determines, in its sole and absolutediscretion, that the distribution is not in the best interest of Parent or its stockholders or is otherwise not advisable.
Unless the context otherwise requires, references in these Notes to the Combined Financial Statements to New News Corporation, “we”, “us” and “our”refer to New News Corporation and its combined subsidiaries. References in these Notes to “Parent” refers to News Corporation, a Delaware corporation and itsconsolidated subsidiaries (other than, after the distribution, New News Corporation and its combined subsidiaries), unless the context requires.
Basis of presentation
These combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records ofParent. These statements reflect the combined historical results of operations, financial position and cash flows of Parent’s publishing businesses, its educationdivision and other Australian assets in accordance with U.S. generally accepted accounting principles (“GAAP”). For ease of reference, these combined financialstatements are collectively referred to as those of New News Corporation.
These financial statements are presented as if such businesses had been combined for all periods presented. All intercompany transactions and accountswithin New News Corporation have been eliminated. The assets and liabilities in the combined financial statements have been reflected on a historical cost basis,as immediately prior to the distribution all of the assets and liabilities presented are wholly-owned by Parent and are being transferred to the New NewsCorporation combined group at carry-over basis, although, New News Corporation’s investment in Sky Network Television Ltd. will be retained by Parent post-distribution. The combined statements of operations include allocations for certain support functions that are provided on a centralized basis within Parent and notrecorded at the business unit level, such as expenses related to finance, human resources, information technology, facilities, and legal, among others. Parent doesnot routinely allocate these costs to any of its business units. These expenses have been allocated to New News Corporation on the basis of direct usage whenidentifiable, with the remainder allocated on a pro rata basis of combined revenues, operating income, headcount or other measures of New News Corporation.Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expensesfrom
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NEW NEWS CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) Parent are reasonable. Nevertheless, the combined financial statements may not include all of the actual expenses that would have been incurred by New NewsCorporation and may not reflect our combined results of operations, financial position and cash flows had we been a stand-alone company during the periodspresented. Actual costs that would have been incurred if New News Corporation had been a stand-alone company would depend on multiple factors, includingorganizational structure and strategic decisions made in various areas, including information technology and infrastructure.
Cash is managed centrally with net earnings reinvested locally and working capital requirements met from existing liquid funds. Accordingly, the cash andcash equivalents held by Parent at the corporate level were not attributed to New News Corporation for any of the periods presented. New News Corporationreflects transfers of cash to and from Parent’s cash management system as a component of Net parent company investment.
The income tax (benefit) provision in the combined statements of operations has been calculated as if New News Corporation filed a separate tax returnand was operating as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of New NewsCorporation’s actual tax balances prior to or subsequent to the distribution.
New News Corporation manages and reports its businesses in the following four segments (News and Information Services, Digital Real Estate Services,Book Publishing and Other). (See Note 13—Segment Information for further discussion of each of the segments).
New News Corporation doubled its stake in FOX SPORTS Australia to 100% as part of its acquisition of Consolidated Media Holdings Ltd. (“CMH”), inNovember 2012. Accordingly, the results of FOX SPORTS Australia will be included within a new Cable Network Programming segment beginning inNovember 2012. (See Note 16 – Subsequent Events for further discussion of the CMH acquisition).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The combined financial statements include certain assets and liabilities that have historically been held at Parent’s corporate level but are specificallyidentifiable or otherwise attributable to New News Corporation. All significant intracompany transactions and accounts within New News Corporation’scombined businesses have been eliminated. All significant intercompany transactions between Parent and New News Corporation have been included withinParent company investment in these combined financial statements.
Changes in New News Corporation’s ownership interest in a consolidated subsidiary where a controlling financial interest is retained are accounted for as acapital transaction. When New News Corporation ceases to have a controlling interest in a consolidated subsidiary New News Corporation will recognize a gainor loss in the combined statements of operations upon deconsolidation.
New News Corporation’s fiscal year ends on the Sunday closest to June 30. Fiscal 2012 and fiscal 2010 included 52 weeks, while fiscal 2011 included 53weeks with the 53 week falling in the fourth fiscal quarter. All references to June 30, 2012, June 30, 2011 and June 30, 2010 relate to the twelve month periodsended July 1, 2012, July 3, 2011 and June 27, 2010, respectively. For convenience purposes, New News Corporation continues to date its financial statements asof June 30.
Use of estimates
The preparation of New News Corporation’s combined financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the amounts that are reported in the combined financial statements and accompanying disclosures. Actual results could differ from thoseestimates.
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NEW NEWS CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less.
Concentration of credit risk
Cash and cash equivalents are maintained with several financial institutions. New News Corporation has deposits held with banks that exceed the amountof insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable creditand, therefore, bear minimal credit risk.
Receivables, net
Receivables are presented net of an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be collectible. Indetermining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and acceptance of NewNews Corporation’s products. Based on this information, management reserves a percentage of each dollar of product sales that provide the customer with theright of return. The allowance for doubtful accounts is estimated based on historical experience, receivable aging, current economic trends and specificidentification of certain receivables that are at risk of not being paid.
Receivables, net consist of:
As of June 30, 2012 2011 (in millions) Receivables $1,555 $1,730 Allowances for returns and doubtful accounts (186) (227)
Receivables, net $1,369 $1,503
New News Corporation’s receivables did not represent significant concentrations of credit risk as of June 30, 2012 or June 30, 2011 due to the wide varietyof customers, markets and geographic areas to which New News Corporation’s products and services are sold.
Inventories
Inventories are valued at the lower of cost or market. Cost is primarily determined by the weighted average cost method or by specific identification. NewNews Corporation records a reserve for excess and obsolete inventory based upon a calculation using the historical usage rates, sales patterns of its products andspecifically identified obsolete inventory.
Prepublication costs
New News Corporation capitalizes the art, prepress, outside editorial, digital conversion and other costs incurred in the creation of the master copy of abook or other media (the “prepublication costs”). Prepublication costs are amortized from the year of publication over their estimated useful lives, using thestraight-line method. New News Corporation regularly reviews the recoverability of the capitalized costs based on expected future
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) revenues. Prepublications costs capitalized as of June 30, 2012 and 2011 were $32 million and $36 million, respectively. Amortization of prepublication costs forthe fiscal years ended June 30, 2012, 2011 and 2010 was $37 million, $36 million and $39 million, respectively.
Investments
Investments in and advances to equity or joint ventures in which New News Corporation has significant influence, but less than a controlling votinginterest, are accounted for using the equity method. Significant influence is generally presumed to exist when New News Corporation owns an interest between20% and 50% and exercises significant influence.
Under the equity method of accounting New News Corporation includes its investment and amounts due to and from its equity method investments in itscombined balance sheets. New News Corporation’s combined statements of operations include New News Corporation’s share of the investees’ earnings (losses)and New News Corporation’s combined statements of cash flows include all cash received from or paid to the investee.
The difference between New News Corporation’s investment and its share of the fair value of the underlying net assets of the investee is first allocated toeither finite-lived intangibles or indefinite-lived intangibles and the balance is attributed to goodwill. New News Corporation follows ASC 350, “Intangibles—Goodwill and Other” (“ASC 350”), which requires that equity method finite-lived intangibles be amortized over their estimated useful life while indefinite-livedintangibles and goodwill are not amortized.
Investments in which New News Corporation has no significant influence (generally less than a 20% ownership interest) or does not exert significantinfluence are designated as available-for-sale investments if readily determinable market values are available. If an investment’s fair value is not readilydeterminable, New News Corporation accounts for its investment at cost. New News Corporation reports available-for-sale investments at fair value based onquoted market prices. Unrealized gains and losses on available-for-sale investments are included in accumulated other comprehensive income, net of applicabletaxes and other adjustments until the investment is sold or considered impaired. Dividends and other distributions of earnings from available-for-sale investmentsand cost investments are included in Interest, net in the combined statements of operations when declared.
Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over an estimated useful life of 3 to 50 years.Leasehold improvements are amortized using the straight-line method over the shorter of their useful lives or the life of the lease. Costs associated with the repairand maintenance of property are expensed as incurred. Changes in circumstances, such as technological advances or changes to New News Corporation’sbusiness model or capital strategy could result in the actual useful lives differing from New News Corporation’s estimates. In those cases where New NewsCorporation determines that the useful life of buildings and equipment should be shortened, New News Corporation would depreciate the asset over its revisedremaining useful life, thereby increasing depreciation expense.
Capitalized Software
In accordance with ASC 350-40 “Internal-use Software”, New News Corporation capitalizes certain costs incurred in connection with developing orobtaining internal use software. Costs incurred in the preliminary project stage are expensed. All direct external costs incurred to develop internal use softwareduring the
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NEW NEWS CORPORATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) development stage are capitalized and amortized using the straight-line method over the remaining useful lives. Costs such as maintenance and training areexpensed as incurred.
New News Corporation also capitalized certain costs in accordance with ASC 985-20 “Costs of Software to Be Sold, Leased, or Marketed.” The costsincurred for the development of computer software are capitalized when technological feasibility has been established. These capitalized costs are subject to anongoing assessment of recoverability based on anticipated future revenues and changes in hardware and software technologies. Amortization of capitalizedsoftware development costs begins when the product is available for general release to customers and is computed on a product-by-product basis at a rate not lessthan the straight-line method over the remaining estimated useful life of the product, generally five years. Research and development costs are charged to expenseas incurred.
Royalty Advances to Authors
Royalty advances are initially capitalized and subsequently expensed as related revenues are earned or when New News Corporation determines futurerecovery is not probable, usually within 6 to 12 months of publication. New News Corporation has a long history of providing authors with royalty advances, andit tracks each advance earned with respect to the sale of the related publication. Historically, the longer the unearned portion of the advance remains outstanding,the less likely it is that New News Corporation will recover the advance through the sale of the publication. New News Corporation applies this historicalexperience to its existing outstanding royalty advances to estimate the likelihood of recovery and a provision is established to write-off the unearned advancebetween 6 and 12 months after publication. Additionally, New News Corporation reviews its portfolio of unpublished royalty advances to determine if individualroyalty advances are not recoverable for discrete reasons, such as the death of an author prior to completion of a title or titles, a company decision to not publish atitle, poor market demand or other relevant factors that could impact recoverability. Based on this information, the portion of any advance that New NewsCorporation believes is not recoverable is expensed.
Goodwill and intangible assets
New News Corporation has a significant amount of intangible assets, including goodwill, newspaper mastheads, distribution networks, publishing rightsand other copyright products and trademarks. Goodwill is recorded as the difference between the cost of acquiring entities and amounts assigned to their tangibleand identifiable intangible net assets. In accordance with ASC 350, New News Corporation’s goodwill and indefinite-lived intangible assets are tested annuallyfor impairment or earlier if events occur or circumstances change that would more likely than not reduce the fair value below its carrying amount. Intangibleassets with finite lives are generally amortized over their estimated useful lives. The impairment assessment of indefinite-lived intangibles compares the fair valueof these intangible assets to their carrying value.
New News Corporation’s goodwill impairment reviews are performed using a two-step process. The first step of the process is to compare the fair value ofa reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit isnot impaired and the second step of the impairment review is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of thegoodwill impairment review is required to be performed to estimate the implied fair value of the reporting unit’s goodwill. The implied fair value of the reportingunit’s goodwill is compared with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value ofthat goodwill, an impairment loss is recognized in an amount equal to that excess.
When a business within a reporting unit is disposed of, goodwill is allocated to the disposed business using the relative fair value method.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Asset impairments
Investments
Equity method investments are regularly reviewed for impairment by initially comparing their fair value to their respective carrying amounts each quarter.New News Corporation determines the fair value of its public company investments by reference to their publicly traded stock price. With respect to privatecompany investments, New News Corporation makes its estimate of fair value by considering other available information, including recent investee equitytransactions, discounted cash flow analyses, estimates based on comparable public company operating multiples and, in certain situations, balance sheetliquidation values. If the fair value of the investment has dropped below the carrying amount, management considers several factors when determining whether another-than-temporary decline in market value has occurred, including the length of the time and extent to which the market value has been below cost, thefinancial condition and near-term prospects of the issuer, the intent and ability of New News Corporation to retain its investment in the issuer for a period of timesufficient to allow for any anticipated recovery in market value and other factors influencing the fair market value, such as general market conditions.
New News Corporation regularly reviews available-for-sale investment securities for other-than-temporary impairment based on criteria that include theextent to which the investment’s carrying value exceeds its related market value, the duration of the market decline, New News Corporation’s ability to hold untilrecovery and the financial strength and specific prospects of the issuer of the security.
New News Corporation regularly reviews investments accounted for at cost for other-than-temporary impairment based on criteria that include the extent towhich the investment’s carrying value exceeds its related estimated fair value, the duration of the estimated fair value decline, New News Corporation’s ability tohold until recovery and the financial strength and specific prospects of the issuer of the security.
Long-lived assets
ASC 360, “Property, Plant, and Equipment,” (“ASC 360”) and ASC 350 require that New News Corporation periodically reviews the carrying amounts ofits long-lived assets, including property, plant and equipment and finite-lived intangible assets, to determine whether current events or circumstances indicate thatsuch carrying amounts may not be recoverable. If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by suchasset, an impairment adjustment is recognized if the carrying value of such asset exceeds its fair value. New News Corporation generally measures fair value byconsidering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate. Considerable management judgment isnecessary to estimate the fair value of assets, accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at thelower of their financial statement carrying amount or fair value less their costs to sell.
Revenue recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable, the product or service has been delivered andcollectability is reasonably assured. New News Corporation considers the terms of each arrangement to determine the appropriate accounting treatment.
News and Information Services
Advertising revenues from the publication of newspapers are recognized when advertisements are published in newspapers or placed on digital platformsor, with respect to certain digital advertising, each time a user either
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) clicks on or views certain ads, net of commissions and provisions for estimated sales incentives including rebates, rate adjustments and discounts. Advertisingrevenues from integrated marketing services are recognized when free standing inserts are published or over the time period in which in-store marketing servicesare performed. Billings to clients and payments received in advance of the performance of services or delivery of products, are recorded as deferred revenue untilthe services are performed or the product is delivered.
Circulation and information services revenues include single-copy and subscription revenues. Circulation revenues are based on the number of copies ofthe printed newspaper (through home-delivery subscriptions and single-copy sales) and digital subscriptions sold and the rates charged to the respectivecustomers. Single-copy revenue is recognized based on date of publication, net of provisions for related returns. Proceeds from print, digital and electronicinformation service subscription revenues are deferred at the time of sale and are recognized in earnings on a pro rata basis over the terms of the subscriptions.
Other revenues are recognized when the related services are performed or the product has been delivered.
Book Publishing
Revenue from the sale of books for distribution in the retail channel is primarily recognized when risks and benefits transfer to the customer, or when theproduct is on sale and available to the public. Revenue for e-books, which is the net amount received from the retailer, is generally recognized upon electronicdelivery to the customer by the retailer. Revenue is also reported net of any amounts billed to customers for taxes which are remitted to government authorities.
Digital Real Estate Services
Advertising revenues from providing real estate online advertising and related services are recognized when the service is delivered.
Sales returns
Consistent with industry practice, certain of New News Corporation’s products, such as books and newspapers, are sold with the right of return. New NewsCorporation records, as a reduction of revenue, the estimated impact of such returns. In determining the estimate of product sales that will be returned,management analyzes historical returns, current economic trends and changes in customer demand and acceptance of New News Corporation’s product. Based onthis information, management reserves a percentage of each dollar of product sales that provide the customer with the right of return.
Barter transactions
New News Corporation also enters into transactions that exchange advertising space in our publications for advertising within other media publicationswhich are recorded at the lesser of estimated fair value of the advertising received or given in accordance with the provisions of ASC 605-20-25, “AdvertisingBarter Transactions.” Revenue from barter transactions is recognized when advertising is provided, and expenses are recognized when services are received.Revenue from barter transactions included in the combined statements of operations was $36 million in fiscal 2012, $33 million in fiscal 2011 and $32 million infiscal 2010. Expense from barter transactions included in the combined statements of operations was $36 million in fiscal 2012 and fiscal 2011 and $32 million infiscal 2010.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Advertising expenses
New News Corporation expenses advertising costs as incurred in accordance with ASC 720-35, “Other Expenses—Advertising Cost.” Advertising andpromotional expenses recognized totaled $388 million, $390 million and $339 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.
Shipping and Handling
Costs incurred for shipping and handling are reflected in Operating expenses in the combined statements of operations.
Translation of foreign currencies
Foreign subsidiaries and affiliates are translated into U.S. dollars using the current rate method, whereby trading results are converted at the average rate ofexchange for the period and assets and liabilities are converted at the closing rates on the period end date. The resulting translation adjustments are accumulatedas a component of accumulated other comprehensive income. Gains and losses from foreign currency transactions are included in income for the period.
Income taxes
New News Corporation accounts for income taxes in accordance with ASC 740, “Income Taxes” (“ASC 740”). ASC 740 requires an asset and liabilityapproach for financial accounting and reporting for income taxes. Under the asset and liability approach, deferred taxes are provided for the net tax effects oftemporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.Valuation allowances are established where management determines that it is more likely than not that some portion or all of a deferred tax asset will not berealized. Deferred taxes have not been provided on the cumulative undistributed earnings of foreign subsidiaries to the extent amounts are expected to bereinvested indefinitely.
Equity based compensation
New News Corporation employees have historically participated in Parent’s equity-based compensation plans. Equity-based compensation expense hasbeen allocated to New News Corporation based on the awards and terms previously granted to New News Corporation employees. Until consummation of thedistribution, New News Corporation will continue to participate in Parent’s equity-based compensation plans and record equity-based compensation expensebased on the equity-based awards granted to New News Corporation’s employees. Equity-based awards are accounted for in accordance with ASC 718,“Compensation—Stock Compensation” (“ASC 718”). ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in thefinancial statements. ASC 718 establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires allcompanies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees. (See Note 8—Equity Based Compensation).
Fair Value Measurements
New News Corporation has various financial instruments that are measured at fair value on a recurring basis, including certain marketable securities andderivatives. New News Corporation also applies the provisions
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) of fair value measurement to various non-recurring measurements for New News Corporation’s non-financial assets and liabilities. In accordance with ASC 820“Fair Value Measurements,” New News Corporation measures assets and liabilities using inputs from the following three levels of the fair value hierarchy:(i) inputs that are quoted prices in active markets (“Level 1”); (ii) inputs other than quoted prices included within Level 1 that are observable, including quotedprices for similar assets or liabilities (“Level 2”); and (iii) inputs that require the entity to use its own assumptions about market participant assumptions (“Level3”).
New News Corporation’s assets measured at fair value on a nonrecurring basis include investments, long-lived assets, indefinite-lived intangible assets andgoodwill. New News Corporation reviews the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amountsmay not be recoverable or at least annually as of June 30 for indefinite-lived intangible assets and goodwill. Any resulting asset impairment would require that theasset be recorded at its fair value. The resulting fair value measurements of the assets are considered to be Level 3 measurements.
Financial Instruments and Derivatives
The carrying value of New News Corporation’s financial instruments, including cash and cash equivalents and cost investments, approximate fair value.The fair value of financial instruments is generally determined by reference to market values resulting from trading on a national securities exchange or in anover-the-counter market which are considered to be Level 2 measurements. New News Corporation monitors its positions with, and the credit quality of, thefinancial institutions which are counterparties to its financial instruments. New News Corporation is exposed to credit loss in the event of nonperformance by thecounterparties to the agreements. As of June 30, 2012, New News Corporation did not anticipate nonperformance by any of the counterparties.
ASC 815, “Derivatives and Hedging” (“ASC 815”), requires every derivative instrument (including certain derivative instruments embedded in othercontracts) to be recorded on the balance sheet at fair value as either an asset or a liability. ASC 815 also requires that changes in the fair value of recordedderivatives be recognized currently in earnings unless specific hedge accounting criteria are met. New News Corporation uses financial instruments to hedge itslimited exposures to foreign currency exchange risks primarily associated with payments made to manufacturers and author royalty payments. These derivativecontracts are economic hedges and are not designated as cash flow hedges. New News Corporation records the changes in the fair value of these items in currentearnings. The notional amount of foreign exchange forward contracts with foreign currency risk outstanding as of June 30, 2012 and June 30, 2011 was notmaterial. Foreign exchange forward contracts recorded in the underlying hedged balances as of June 30, 2012 and June 30, 2011 were not material.
Recently Issued Accounting Guidance
In September 2011, the FASB issued ASU 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”),which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value beforeapplying the two-step goodwill impairment model that is currently in place. If it is determined through the qualitative assessment that a reporting unit’s fair valueis more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowingcompanies to go directly to the quantitative assessment. ASU 2011-08 is effective for New News Corporation for annual and interim goodwill impairment testsperformed beginning July 1, 2012. The adoption of ASU 2011-08 did not have a significant impact on New News Corporation’s combined financial statements.
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In July 2012, the FASB issued ASU 2012-02, “Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment”(“ASU 2012-02”), which permits an entity to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit’s indefinite-lived intangible asset is less than the asset’s carrying value before applying a quantitative impairment assessment. If it is determined through the qualitativeassessment that the fair value of a reporting unit’s indefinite-lived intangible asset is more likely than not greater than the asset’s carrying value, the remainingimpairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. ASU 2012-02 iseffective for New News Corporation for annual and interim indefinite-lived intangible asset impairment tests performed beginning July 1, 2013, however, earlyadoption is permitted. New News Corporation does not expect the adoption of ASU 2012-02 will have a significant impact on its combined financial statements.
NOTE 3. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
Fiscal 2012
Acquisitions
In July 2011, New News Corporation acquired Kidspot.com.au Limited, a pregnancy and parenting website, for approximately $50 million in cash.
Dispositions
In May 2012, New News Corporation sold its former U.K. newspaper division headquarters located in East London, which it relocated from in August2010, for consideration of approximately £150 million (approximately $235 million), of which £25 million (approximately $39 million) was received on closingof the sale. The remaining £125 million (approximately $196 million) is in the form of a secured note and New News Corporation will receive £25 million(approximately $39 million) on May 31, 2013, and annually thereafter until May 31, 2017. New News Corporation recorded a loss of approximately $22 millionon this transaction, which was included in Other, net in the combined statements of operations for the fiscal year ended June 30, 2012.
Other
In July 2011, Parent announced that it would close its publication, The News of the World, after allegations of phone hacking and payments to publicofficials. As a result of Parent’s approval of the shutdown of The News of the World, Parent reorganized portions of the U.K. newspaper business and recordedrestructuring charges in fiscal 2012 primarily for termination benefits and certain organizational restructuring at the U.K. newspapers. (See Note 4—RestructuringPrograms). Parent and New News Corporation are subject to several ongoing investigations by U.K. and U.S. regulators and governmental authorities relating tophone hacking, illegal data access, inappropriate payments to public officials and related matters at The News of the World and The Sun. New News Corporation,together with Parent, is cooperating with these investigations. In addition, New News Corporation has admitted liability in a number of civil cases related to thephone hacking allegations and has settled a number of cases. Parent created an independently-chaired Management & Standards Committee (the “MSC”) toensure cooperation with all relevant investigations and inquiries into The News of the World matters and all other related issues. The MSC conducts its owninternal investigation where appropriate. The MSC has an independent Chairman, Lord Grabiner QC, and reports directly to Gerson Zweifach, Senior ExecutiveVice President and Group General Counsel of Parent. Mr. Zweifach reports to the independent members of the Board of Directors of Parent (the “Parent Board”)through their representative Viet Dinh, an independent director and Chairman of Parent’s Nominating and Corporate Governance Committee. The independentdirectors of the
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) Parent Board have retained independent outside counsel and are actively engaged in these matters. The MSC conducted an internal investigation of the three othertitles at NI Group Limited (“News International”) and engaged independent outside counsel to advise it on these investigations and all other matters it handles. Asa result of these matters, News International has instituted governance reforms and issued certain enhanced policies to its employees. (See Note 10—Commitments and Contingencies)
Fiscal 2011
In fiscal 2011, New News Corporation acquired Wireless Generation, a digital education company, for cash. Total consideration was approximately $390million, which included the equity purchase and the repayment of Wireless Generation’s outstanding debt.
Fiscal 2010
During fiscal year 2010, New News Corporation completed two transactions related to its financial indexes businesses:
New News Corporation sold its 33% interest in STOXX AG (“STOXX”), a European market index provider, to its partners, Deutsche Börse AG and SIXGroup AG, for approximately $295.8 million in cash. New News Corporation was entitled to receive additional consideration if STOXX achieved certain revenuetargets in calendar year 2010. These revenue targets were met and in June 2011, New News Corporation received additional consideration of approximately $43million which was included in Other, net in the combined statements of operations for the fiscal year ended June 30, 2011.
New News Corporation and CME Group Inc. (“CME”) formed a joint venture to operate a global financial index service business (the “Venture”), to whichNew News Corporation contributed its Dow Jones Indexes business valued at $675 million. This represents the estimated exit price to sell the asset group basedupon a third party valuation considering offers received from market participants interested in purchasing the business at $675 million (which included NewNews Corporation’s agreement to provide to the Venture an annual media credit for advertising on New News Corporation’s Dow Jones media propertiesaveraging approximately $3.5 million a year for a ten year term). CME contributed a business to the Venture which provides certain market data services valuedat $608 million. New News Corporation and CME own 10% and 90% of the Venture, respectively. The Venture issued approximately $613 million in third-partydebt due in March 2018 that has been guaranteed by CME (the “Venture Financing”). The Venture used the proceeds from the debt issuance to make a specialdistribution at the time of the closing of approximately $600 million solely to New News Corporation. New News Corporation agreed to indemnify CME withrespect to any payments of principal, premium and interest that CME makes under its guarantee of the Venture Financing and certain refinancing of such debt. Inthe event New News Corporation is required to perform under this indemnity, New News Corporation will be subrogated to and acquire all rights of CME. Themaximum potential amount of undiscounted future payments related to this indemnity was approximately $775 million as of June 30, 2012. New NewsCorporation has made a determination that there is no recognition of this potential future payment in the accompanying financial statements as the likelihood ofNew News Corporation having to perform under this indemnity is not probable.
New News Corporation has the right to cause the Venture to purchase its 10% interest at fair market value in 2016 and the Venture has the right to call NewNews Corporation’s 10% interest at fair market value in 2017.
New News Corporation’s interest in the Venture was recorded at fair value of $67.5 million, which was determined using an earnings before interest, taxes,depreciation and amortization (“EBITDA”) multiple and
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) market-based valuation approach methodologies, and is now accounted for under the cost method of accounting. The net income, assets, liabilities, and cash flowattributable to the Dow Jones Indexes business are not material to New News Corporation in any of the periods presented and, accordingly, have not beenpresented separately.
New News Corporation recorded a combined loss of approximately $23 million on both of these transactions, which was included in Other, net in thecombined statements of operations for the fiscal year ended June 30, 2010. The combined loss of $23 million was comprised of the loss on the disposition of theDow Jones Indexes business and a gain on the sale of New News Corporation’s STOXX investment. The disposition of the Dow Jones Indexes business resultedin a loss of $76.7 million. New News Corporation calculated the loss in accordance with ASC 810 “Consolidation” as the fair value of the consideration received,which included cash and New News Corporation’s 10% interest retained in the joint venture less a) the aggregate carrying amount of Dow Jones Indexes’ assetsand liabilities and b) the 10-year annual media credit for advertising on New News Corporation’s Dow Jones media properties.
For the year ended June 30, 2010 Dow Jones Indexes STOXX Combined (in millions) Cash received $ 607.5 $ 295.8 $ 903.3 Fair value of 10% interest retained in joint venture 67.5 — 67.5 Less: aggregate carrying amount (717.0) (242.2) (959.2) Less: 10-year annual media credit for advertising (34.7) — (34.7)
(Loss) gain on disposition $(76.7) $ 53.6 $ (23.1)
As noted above, New News Corporation received additional consideration of approximately $43 million relating to the STOXX transaction which was
included in Other, net in the combined statements of operations for the fiscal year ended June 30, 2011.
In fiscal 2012, CME and The McGraw-Hill Companies Inc. (“McGraw-Hill”) entered into an agreement to form a new index business joint venture (the“new Venture”). Under this agreement, CME contributed the Dow Jones Indexes business and McGraw-Hill contributed the S&P Indexes business. New NewsCorporation, CME and McGraw-Hill own approximately 3%, 24% and 73% of the new Venture, respectively.
NOTE 4. RESTRUCTURING PROGRAMS
Fiscal 2012
In fiscal 2012, New News Corporation recorded restructuring charges of $156 million, of which $151 million related to the newspaper businesses. NewNews Corporation commenced the reorganization of portions of the newspaper businesses and recorded restructuring charges primarily for termination benefits asa result of the shutdown of The News of the World, certain organizational restructurings at other newspapers and the shutdown of a regional newspaper.
Fiscal 2011
In fiscal 2011, New News Corporation recorded restructuring charges of approximately $25 million related to termination benefits recorded at thenewspaper businesses.
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Fiscal 2010
In fiscal 2010, New News Corporation recorded restructuring charges of approximately $19 million related to termination benefits recorded at thenewspaper businesses.
Changes in the program liabilities were as follows:
One timetermination
benefits Facility
related costs Other costs Total (in millions) Balance, June 30, 2009 $ 32 $ 14 $ 2 $ 48 Additions 19 — — 19 Payments (29) (2) (2) (33) Other (2) — — (2)
Balance, June 30, 2010 $ 20 $ 12 $ — $ 32 Additions 25 — — 25 Payments (23) (2) — (25) Other 1 — — 1
Balance, June 30, 2011 $ 23 $ 10 $ — $ 33 Additions 126 2 28 156 Payments (98) (4) (15) (117) Other — — (13) (13)
Balance, June 30, 2012 $ 51 $ 8 $ — $ 59
New News Corporation expects to record an additional $16 million of restructuring charges, principally related to additional termination benefits at thenewspaper businesses. As of June 30, 2012, restructuring liabilities of approximately $53 million and $6 million were included in the combined balance sheets inother current liabilities and other liabilities, respectively.
Dow Jones
As a result of the Dow Jones acquisition, in fiscal 2008, New News Corporation established and approved plans to integrate the acquired operations intoNew News Corporation’s News and Information Services segment. The cost to implement these plans consisted of separation payments for certain Dow Jonesexecutives under the change in control plan Dow Jones had established prior to the acquisition, non-cancelable lease commitments and lease termination chargesfor leased facilities and other contract termination costs associated with the restructuring activities. As of June 30, 2012, all of the material aspects of the planshave been completed and the substantial remaining obligation pertains to the lease termination charges for leased facilities of approximately $40 million.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. INVESTMENTS
New News Corporation’s investments were comprised of the following: Ownership
Percentage As of June 30,
2012 2011 (in millions) Equity method investments:
Sky Network Television Ltd. New Zealand media company 44% $ 390 $ 424 Foxtel Australia pay television 25% 198 176 FOX SPORTS Australia Australia sports cable network programming 50% 171 200 Other equity method investments various 35 129
Other investments various 332 106
Total Investments $1,126 $1,035
The market value of New News Corporation’s investment in Sky Network Television Ltd. was $657 million and was valued using quoted market prices as
of June 30, 2012. For the fiscal years ended June 30, 2012 and 2011, New News Corporation received dividends from Sky Network Television Ltd. of $64million and $19 million, respectively.
Equity Earnings of Affiliates
New News Corporation’s share of the earnings of its equity affiliates was as follows: For the years ended June 30, 2012 2011 2010 (in millions) Direct Broadcast Satellite and Cable Channel equity affiliates $114 $ 114 $ 94 Other equity affiliates (24) (5) 1
Total Equity earnings of affiliates $ 90 $ 109 $ 95
New News Corporation’s investment in one of its affiliates exceeded its equity in the underlying net assets by approximately $203 million and $215 million
as of June 30, 2012 and 2011, respectively, which represented the excess cost over New News Corporation’s proportionate share of its investment’sunderlying net assets. This has been allocated between finite-lived intangible assets, indefinite-lived intangible assets and goodwill. The finite-livedintangible assets primarily represent trade names and subscriber lists with a weighted average useful life as of June 30, 2012 and 2011 of 17 years.
In accordance with ASC 350, New News Corporation amortized $2 million in both fiscal 2012 and fiscal 2011, related to amounts allocated to finite-livedintangible assets. Such amortization is reflected in Equity earnings of affiliates in the combined statements of operations.
In May 2012, Foxtel, a cable and satellite television service in Australia, in which New News Corporation at the time owned a 25% interest, purchasedAustar United Communications Ltd. (“Austar”) to create a national subscription television service in Australia. The transaction was funded by Foxtel bank debtand Foxtel’s shareholders made pro rata capital contributions in the form of subordinated shareholder notes based on their respective ownership interest. NewNews Corporation’s share of the funding contribution was approximately $230 million and is reflected as other investments. The subordinated shareholder notehas a maximum term of 15 years, with interest payable on June 30 each year and at maturity. The subordinated shareholder note can be repaid in 10 yearsprovided that Foxtel’s senior debt has been repaid. Upon maturity, the principal advanced will be repayable.
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Impairments of investments
New News Corporation regularly reviews its investments for impairments based on criteria that include the extent to which the investment’s carrying valueexceeds its related market value, the duration of the market decline, New News Corporation’s ability to hold its investment until recovery and the investment’sfinancial strength and specific prospects. New News Corporation recorded write-offs of its investments in the fiscal years ended June 30, 2012, 2011 and 2010 of$30 million, nil and $3 million, respectively. These write-offs were reflected in Other, net in the combined statements of operations. In addition, New NewsCorporation recorded an impairment charge of $14 million related to one of its equity method investments during the fiscal year ended June 30, 2012 which wasreflected in Equity earnings of affiliates in the combined statements of operations. These write-offs and impairment were taken as a result of either thedeteriorating financial position of the investee or due to a permanent impairment resulting from sustained losses and limited prospects for recovery.
Summarized financial information
Summarized financial information for the significant equity affiliates, including FOX SPORTS Australia, Foxtel and Sky Network Television Ltd.,accounted for under the equity method was as follows: For the years ended June 30, 2012 2011 2010 (in millions) Revenues $3,610 $3,226 $2,731 Operating income 470 468 367 Net income 352 357 273 As of June 30, 2012 2011 (in millions) Current assets $ 789 $ 550 Non-current assets 5,064 2,636 Current liabilities 958 720 Non-current liabilities 4,153 1,676
Summarized financial information for FOX SPORTS Australia was as follows: For the years ended June 30, 2012 2011 2010 (in millions) Revenues $484 $ 444 $ 373 Operating income 137 135 126 Net income 79 82 82
As of June 30, 2012 2011 (in millions) Current assets $176 $189 Non-current assets 495 438 Current liabilities 120 116 Non-current liabilities 395 421
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Includes Depreciation and amortization of $9 million, $9 million and $7 million for the fiscal years ended June 30, 2012, 2011 and 2010,respectively. Operating income less depreciation and amortization was $146 million, $144 million and $133 million for the fiscal years ended June 30,2012, 2011 and 2010, respectively.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT Useful
Lives As of June 30,
2012 2011 (in millions) Land $190 $ 229 Buildings and leaseholds 3 to 50 years 2,029 2,412 Machinery and equipment 3 to 30 years 3,186 3,149
5,405 5,790 Less: accumulated depreciation and amortization (2,310) (2,350)
3,095 3,440 Construction in progress 179 285
Total Property, plant and equipment, net $3,274 $ 3,725
Includes capitalized software of approximately $521 million and $426 million as of June 30, 2012 and 2011, respectively. Includes accumulated amortization of capitalized software of approximately $176 million and $116 million as of June 30, 2012 and 2011, respectively.
Depreciation and amortization related to property, plant and equipment was $406 million, $356 million and $337 million for the fiscal years ended June 30,2012, 2011 and 2010, respectively. This includes amortization of capitalized software of $122 million, $84 million and $77 million for the fiscal years endedJune 30, 2012, 2011 and 2010, respectively.
Total operating lease expense was approximately $147 million, $155 million and $154 million for the fiscal years ended June 30, 2012, 2011 and 2010,respectively.
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NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying values of New News Corporation’s intangible assets and related accumulated amortization for the fiscal years ended June 30,2012 and 2011 were as follows: Intangible Assets Not Subject to Amortization Amortizable Intangible Assets, Net
NewspaperMastheads
DistributionNetworks Imprints Other Total
PublishingRights
OtherIntangible
Assets, Net Total
TotalIntangible
Assets,Net
(in millions) Balance, June 30, 2010 $2,010 $ 751 $ 162 $ 13 $ 2,936 $ 315 $ 432 $747 $ 3,683 Acquisitions — — — — — — 85 85 85 Foreign exchange 224 3 1 3 231 — 8 8 239 Amortization — — — — — (13) (61) (74) (74) Dispositions (5) — — — (5) — (3) (3) (8)
Balance, June 30, 2011 $ 2,229 $ 754 $ 163 $ 16 $ 3,162 $ 302 $ 461 $763 $ 3,925
Acquisitions — — — — — — 31 31 31 Foreign exchange (65) (3) — (1) (69) — (2) (2) (71) Amortization — — — — — (13) (64) (77) (77) Impairments (947) (353) — — (1,300) — — — (1,300) Adjustments (47) — — — (47) — — — (47)
Balance, June 30, 2012 $ 1,170 $ 398 $ 163 $ 15 $ 1,746 $ 289 $ 426 $ 715 $ 2,461
Net of accumulated amortization of $62 million and $49 million as of June 30, 2012 and 2011, respectively. The average useful life of publishing rights is
30 years primarily based on the weighted-average remaining contractual terms of the underlying publishing contracts and our estimates of the period withinthose terms that the asset is expected to generate a majority of its future cash flows.
Net of accumulated amortization of $303 million and $239 million as of June 30, 2012 and 2011, respectively. The average useful lives of other intangibleassets range from 3 to 25 years and primarily include customer relationships. The useful lives of these assets are estimated by applying historical attritionrates and determining the resulting period over which a majority of the accumulated undiscounted cash flows related to the customer relationships areexpected to be generated. The useful lives represent the periods over which these intangible assets are expected to contribute directly or indirectly to NewNews Corporation’s future cash flows.
Related to assets held for sale.
Amortization related to amortizable intangible assets, net was $77 million, $74 million and $77 million for the fiscal years ended June 30, 2012, 2011 and2010, respectively.
Based on the current amount of amortizable intangible assets, net, the estimated amortization expense for each of the succeeding five fiscal years is asfollows: 2013—$77 million; 2014—$71 million; 2015—$66 million; 2016—$58 million; and 2017—$54 million. These amounts may vary as acquisitions anddisposals occur in the future and as purchase price allocations are finalized.
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The changes in the carrying value of goodwill, by segment, are as follows:
News andInformation
Services Digital Real
Estate Services Book
Publishing Other Total
Goodwill (in millions) Balance, June 30, 2010 $ 3,166 $ 67 $ 3 $ 47 $ 3,283 Acquisitions — — — 333 333 Foreign exchange movements 330 15 — 11 356 Adjustments (6) — — — (6)
Balance, June 30, 2011 $ 3,490 $ 82 $ 3 $391 $ 3,966
Acquisitions 41 — — 7 48 Foreign exchange movements (100) (6) — (4) (110) Impairments (1,282) — — (25) (1,307) Adjustments — — — (9) (9)
Balance, June 30, 2012 $ 2,149 $ 76 $ 3 $360 $ 2,588
The carrying amount of goodwill as of June 30, 2012 and 2011 included accumulated impairments, principally relating to the News and InformationServices segment, of $3.1 billion and $2.0 billion, respectively.
Annual Impairment Review
Goodwill is reviewed for impairment at a reporting unit level. Reporting units are determined based on an evaluation of New News Corporation’s operatingsegments and the components making up those operating segments. For purposes of goodwill impairment review, New News Corporation has identified DowJones, Australian Newspapers, U.K. Newspapers, News America Marketing Group, REA Group and the Digital Education business, as its reporting units. NewNews Corporation’s goodwill impairment reviews are performed using a two-step process. The first step of the process is to compare the fair value of a reportingunit with its carrying amount, including goodwill. In performing the first step, New News Corporation determines the fair value of a reporting unit by primarilyusing a discounted cash flow analysis and market-based valuation approach methodologies. Determining fair value requires the exercise of significant judgments,including judgments about appropriate discount rates, long-term growth rates, relevant comparable company earnings multiples and the amount and timing ofexpected future cash flows. The cash flows employed in the analyses are based on New News Corporation’s estimated outlook and various growth rates havebeen assumed for years beyond the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cashflows of the respective reporting units. In assessing the reasonableness of its determined fair values, New News Corporation evaluates its results against othervalue indicators, such as comparable public company trading values. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reportingunit is not impaired and the second step of the impairment review is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second stepof the goodwill impairment review is required to be performed to estimate the implied fair value of the reporting unit’s goodwill. The implied fair value ofgoodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the estimated fair value of the reporting unitis allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a businesscombination and the estimated fair value of the reporting unit was the purchase price paid. The implied fair value of the reporting unit’s goodwill is comparedwith the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairmentloss is recognized in an amount equal to that excess.
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New News Corporation also performs impairment reviews on its indefinite-lived intangibles assets, including newspaper mastheads, distribution networksand imprints. Newspaper mastheads and book publishing imprints are reviewed at a reporting unit level. Distribution networks are reviewed individually.
During the fourth quarter of fiscal 2012, New News Corporation completed its annual impairment review of goodwill and indefinite-lived intangible assets.As a result of the impairment review performed, New News Corporation recorded non-cash impairment charges of approximately $2.6 billion ($2.2 billion, net oftax) for the fiscal year ended June 30, 2012. The charges consisted of a write-down of New News Corporation’s goodwill of approximately $1.3 billion and awrite-down of the indefinite-lived intangible assets (primarily newspaper mastheads and distribution networks) of approximately $1.3 billion. These impairmentcharges were primarily the result of adverse trends affecting several businesses in New News Corporation’s News and Information Services segment, includingsecular declines in the economic environment in Australia, a decline in in-store advertising spend by consumer packaged goods manufacturers in the U.S. andlower forecasted revenues from certain businesses utilizing various trade names owned by New News Corporation’s newspaper operations. Australia, inparticular, has experienced weakness in newspaper advertising reflecting a combination of a softening economy and declines in paid circulation. During the fourthquarter, the business announced a number of major new initiatives to extend the business into multi-platforms and to address these challenges. As part of theannual review process, New News Corporation determined that it was more likely than not that certain assets would be sold. The impairment charges also reflectthe potential sale of these assets at a value below their carrying value. As of June 30, 2012, these net assets of approximately $126 million were classified as heldfor sale and included in other current assets in the combined balance sheets. The methods used to estimate the fair value measurements of impaired goodwill andindefinite-lived intangible assets included those based on the income approach (including the discounted cash flow and relief-from-royalty methods) and thosebased on the market approach (primarily the guideline public company method). The resulting fair value measurements of the assets are considered to be Level 3measurements. Significant unobservable inputs utilized in the income approach valuation methods were discount rates (ranging from 9.5%-12.5%), long-termgrowth rates (ranging from 0.5%-3.0%) and royalty rates (ranging from 2.0%-3.5%). Significant unobservable inputs utilized in the market approach valuationmethods were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%. Significant increases(decreases) in royalty rates, growth rates, control premium and multiples, assuming no change in discount rates, would result in a significantly higher (lower) fairvalue measurement. Significant decreases (increases) in discount rates, assuming no changes in royalty rates, growth rates, control premium and multiples, wouldresult in a significantly higher (lower) fair value measurement.
Other than the impairments noted above, New News Corporation determined that the goodwill and indefinite-lived intangible assets included in thecombined balance sheets were not impaired. The News and Information Services and Other segments have reporting units with approximately $2.2 billion ingoodwill as of June 30, 2012 that continues to be at risk for future impairment and with fair values that exceeded their carrying values by less than 10%.
NOTE 8. EQUITY BASED COMPENSATION
Until consummation of the distribution from Parent, New News Corporation’s employees participate in Parent’s equity plans. Parent has plans authorized togrant equity awards of Parent stock to New News Corporation’s employees. The share-based payment expense recorded by New News Corporation, in the periodspresented, includes the expense associated with the employees historically attributable to New News Corporation’s operations, as well as the expense associatedwith the allocation of stock compensation expense for corporate employees.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
News Corporation Incentive Plans
New News Corporation participates in Parent’s plans, (the “Plans”) under which equity-based compensation, including stock options, performance stockunits (“PSUs”), restricted stock, restricted stock units (“RSUs”) and other types of awards, may be granted. New News Corporation’s employees are eligible toparticipate in the Plans. The Compensation Committee of Parent’s Board (“Parent’s Compensation Committee”) determines the recipients, type of award to begranted and amounts of awards to be granted under the Plans. Stock options awarded under the Plans will be granted at exercise prices which are equal to orexceed the market price at the date of grant.
The fair value of equity-based compensation under the Plan will be 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 performanceperiod. Parent also estimates the number of shares expected to vest which is based on Parent management’s determination of the probable outcome of theperformance condition, which requires considerable judgment. Parent records a cumulative adjustment in periods that its estimate of the number of sharesexpected to vest changes. Additionally, Parent ultimately adjusts the expense recognized to reflect the actual vested shares following the resolution of theperformance conditions. The number of shares that will be issued upon vesting of PSUs can range from 0% to 200% (certain executives are limited to 150%) ofthe target award, based on Parent’s three-year total shareholder return (“TSR”) as measured against the three-year TSR of the companies that comprise theStandard and Poor’s 500 Index (excluding financial and energy sector companies) and other company specific performance measures. The fair value of the PSUsis determined using a Monte Carlo simulation model.
In the first quarter of fiscal 2012, certain executives of New News Corporation responsible for various business units each received a grant of PSUs that hasa three year performance measurement period beginning in July 2011. The awards are subject to the achievement of pre-defined goals for operating profit, cashflow and key divisional performance indicators for the applicable performance period. The majority of these awards will be settled in shares of Parent’s ClassA Common Stock.
In fiscal 2012 and 2011, a total of 1.8 million and 0.4 million target PSUs were granted to New News Corporation’s employees, respectively, of which1.2 million and 0.4 million, respectively, will be settled in shares of Parent’s Class A Common Stock.
Restricted Stock Units
RSU awards are grants that entitle the holder to shares of Parent’s Class A Common Stock or the value of shares of Parent’s Class A Common Stock as theaward vests, subject to the Plans and such other terms and conditions as Parent’s Compensation Committee may establish. RSUs issued under the Plans are fairvalued based upon the fair market value of Parent’s Class A Common Stock on the grant date. Any person who holds RSUs shall have no ownership interest inthe shares of Parent’s Class A Common Stock to which such RSUs relate until and unless shares of Parent’s Class A Common Stock are delivered to theholder. All shares of Parent’s Class A Common Stock reserved for cancelled or forfeited equity-based compensation awards become available for futuregrants. Certain RSU awards are settled in cash and are subject to terms and conditions of the Plans and such other terms and conditions as Parent’s CompensationCommittee may establish.
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Certain executives responsible for various business units within New News Corporation had the opportunity to earn a grant of RSUs under the Plans infiscal 2012, 2011 and 2010. These awards (the “Performance Awards”) were conditioned upon the attainment of pre-determined operating profit goals for fiscal2012, 2011 and 2010 by the executive’s particular business unit. If the actual fiscal 2012, 2011 and 2010 operating profit of the executive’s business unit ascompared 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 grantof RSUs pursuant to a Performance Award. To the extent that it was determined that the business unit’s actual fiscal 2012, 2011 and 2010 operating profit fellwithin 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 Parent’s Class A Common Stock. The RSUs are generally payable in shares of Parent’s Class A Common Stock upon vestingand are subject to the participants’ continued employment with Parent.
During the fiscal years ended June 30, 2012, 2011 and 2010, 1.0 million, 3.1 million and 0.4 million RSUs were granted to New News Corporation’semployees, respectively, which primarily vest over four years. Outstanding RSUs held by New News Corporation’s employees as of June 30, 2012 are payable inshares of the Parent’s Class A Common Stock, upon vesting, except for approximately 0.6 million RSUs outstanding that will be settled in cash. During the fiscalyears ended June 30, 2012, 2011 and 2010, approximately 395,000, 449,000 and 313,000 of cash-settled RSUs held by New News Corporation’s employeesvested, respectively. Cash paid to New News Corporation’s employees for vested cash-settled RSUs was approximately $6 million in the fiscal years endedJune 30, 2012 and 2011 and $3 million in the fiscal year ended June 30, 2010.
The following table summarizes the activity related to the RSUs and target PSUs granted to New News Corporation’s employees to be settled in Parent’sClass A Common Stock (RSUs and PSUs in thousands): Fiscal 2012 Fiscal 2011 Fiscal 2010
Numberof
shares
Weightedaveragegrant-
date fairvalue
Numberof
shares
Weightedaveragegrant-
date fairvalue
Numberof
shares
Weightedaveragegrant-
date fairvalue
RSUs and PSUs Unvested units at beginning of the year 2,204 $ 13.52 1,645 $ 16.73 2,530 $ 17.80 Granted 2,189 15.14 2,344 13.85 386 9.64 Vested (991) 13.14 (1,656) 16.68 (1,198) 16.56 Cancelled (326) 14.61 (129) 16.89 (73) 19.08
Unvested units at the end of the year 3,076 $ 14.81 2,204 $ 13.52 1,645 $ 16.73
The fair value of RSUs held by New News Corporation’s employees that vested during the fiscal years ended June 30, 2012, 2011 and 2010 wasapproximately $16 million, $24 million and $14 million, respectively.
The intrinsic value of unvested RSUs and target PSUs held by New News Corporation’s employees as of June 30, 2012 was approximately $69 million.
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Other
New News Corporation operates employee share ownership schemes in the U.K. and Ireland. These plans enable employees to enter into fixed-termsavings contracts with independent financial institutions linked to Parent’s Class A Common Stock. The savings contracts can range from three to seven yearswith an average expected life of four years. New News Corporation has not granted any stock options under this scheme since fiscal 2009.
The following table summarizes information about stock option transactions for New News Corporation’s employees stock option plans (options inthousands): Fiscal 2012 Fiscal 2011 Fiscal 2010
Options Weighted average
exercise price Options Weighted average
exercise price Options Weighted average
exercise price (in US$) (in A$) (in US$) (in A$) (in US$) (in A$) Outstanding at the beginning of the year 9,094 $12.36 $18.98 13,145 $14.34 $21.58 17,803 $15.33 $21.99 Exercised (2,303) 9.28 15.40 (357) 12.29 15.90 (237) 13.23 16.64 Cancelled (2,705) 14.92 23.09 (3,694) 19.39 28.51 (4,421) 18.41 23.52
Outstanding at the end of the year 4,086 $12.40 $18.27 9,094 $12.36 $18.98 13,145 $14.34 $21.58
Vested and unvested expected to vest at June 30, 2012 4,086 Exercisable at the end of the year 3,722 8,094 11,787
The intrinsic value of options outstanding held by New News Corporation’s employees as of June 30, 2012, 2011 and 2010 was $18.4 million, $13.4million, and $4.8 million, respectively. As of June 30, 2012, the weighted average grant date fair value of unvested awards was $2.78.
The fair value of each outstanding stock option award was estimated on the date of grant using the Black-Scholes option valuation model that uses thefollowing assumptions: expected volatility was based on historical volatility of Parent’s Class A Common Stock; expected term of stock options granted wasderived from the historical activity of Parent’s stock options and represented the period of time that stock options granted were expected to be outstanding;weighted average risk-free interest rate was an average of the interest rates of U.S. government bonds with similar lives on the dates of the stock option grants;and dividend yield was calculated as an average of a ten year history of Parent’s yearly dividend divided by the fiscal year’s closing stock price.
The exercise prices for the stock options issued prior to Parent’s reorganization in November 2004 are in Australian dollars. The U.S. dollar equivalentspresented above have been converted at historical exchange rates; therefore, the proceeds from the exercise of these stock options may differ due to fluctuations inexchange rates in periods subsequent to the date of the grant.
The following table summarizes information about stock option transactions for New News Corporation’s employees (options in thousands):
Tranches Options
Outstanding
WeightedAverageExercise
Price
WeightedAverage
RemainingContractual Life
ExercisableOptions
WeightedAverage
Exercise Price (in US$) (in US$) (in US$) $3.72 2 $ 3.72 0.46 2 $ 3.72
$6.83 to $8.83 988 8.39 0.87 690 8.79 $10.43 to $15.58 2,801 13.21 1.42 2,738 13.18 $16.91 to $18.36 295 18.20 1.57 292 18.20
4,086 $ 12.40 3,722 $ 12.76
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The following table summarizes New News Corporation’s equity-based compensation: For the years ended June 30, 2012 2011 2010 (in millions) Equity-based compensation—New News Corporation’s employees $ 30 $ 28 $ 32 Equity-based compensation—Allocated 14 11 6
Equity-based compensation—Total $ 44 $ 39 $ 38
Total intrinsic value of stock options exercised $ 12 $ 1 $ 1
The allocated expense includes both executive directors and corporate executives of Parent, allocated using a proportional allocation driver, which
management has deemed to be reasonable.
As of June 30, 2012, total compensation cost not yet recognized for all plans presented related to unvested awards held by New News Corporation’semployees was approximately $37 million and is expected to be recognized over a weighted average period between one and two years.
The tax benefit recognized on vested RSUs for New News Corporation’s employees and stock options exercised by New News Corporation’s employeeswas $3 million, $8 million and $12 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.
NOTE 9. RELATED PARTY TRANSACTIONS AND PARENT COMPANY INVESTMENT
Related Party Transactions
In the ordinary course of business, New News Corporation enters into transactions with related parties, such as equity affiliates, to purchase and/or selladvertising and administrative services. The following table sets forth the net revenue from related parties included in the combined statements of operations: For the years ended June 30, 2012 2011 2010 (in millions) Related party revenue, net of expense $ 61 $ 72 $ 75
The following table sets forth the amount of accounts receivable due from and payable to related parties outstanding on the combined balance sheets:
As of June 30, 2012 2011 (in millions) Accounts receivable from related parties $ 13 $ 13 Accounts payable to related parties 165 130
Corporate Allocations and Parent Company Investment
Historically, Parent has provided services to and funded certain expenses for New News Corporation that have been included as a component of Parentcompany equity such as: global real estate and occupancy and employee benefits. In addition, New News Corporation’s combined financial statements includegeneral
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) corporate expenses of Parent which were not historically allocated to New News Corporation for certain support functions that are provided on a centralized basiswithin Parent and not recorded at the business unit level, such as expenses related to finance, human resources, information technology, facilities, and legal,among others (“General Corporate Expenses”). For purposes of these stand-alone financial statements, the General Corporate Expenses have been allocated toNew News Corporation. The General Corporate Expenses are included in the combined statements of operations in selling, general and administrative expensesand accordingly as a component of Parent company equity. These expenses have been allocated to New News Corporation on the basis of direct usage whenidentifiable, with the remainder allocated on a pro rata basis of combined revenues, operating income, headcount or other measures of New News Corporation.Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating General Corporate Expensesfrom Parent are reasonable. Nevertheless, the combined financial statements may not include all of the actual expenses that would have been incurred and maynot reflect New News Corporation’s combined results of operations, financial position and cash flows had it been a stand-alone company during the periodspresented. Actual costs that would have been incurred if New News Corporation had been a stand-alone company would depend on multiple factors, includingorganizational structure and strategic decisions made in various areas, including information technology and infrastructure. The corporate allocations made duringthe fiscal years ended June 30, 2012, 2011 and 2010 of $212 million, $191 million and $173 million, respectively, included both general corporate expenses ofParent which were not historically allocated to New News Corporation of $102 million, $97 million and $83 million, respectively, and historical direct allocationsprimarily consisting of rent, insurance and stock compensation expense of approximately $110 million, $94 million, and $90 million, respectively.
All significant intercompany transactions between New News Corporation and Parent have been included in these combined financial statements and areconsidered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions isreflected in the combined statements of cash flows as a financing activity and in the combined balance sheets as Parent company investment.
The following table summarizes the components of the net (decrease) increase in Parent company investment for the years ended June 30, 2012, 2011 and2010: For the years ended June 30, 2012 2011 2010 (in millions) Cash pooling and general financing activites $(1,178) $(293) $ (477) Corporate allocations 212 191 173 Cash transfer from (to) Parent for acquisitions and dispositions — 391 (903)
Net (decrease) increase in Parent company investment $ (966) $ 289 $(1,207)
The nature of activities included in the line item ‘Cash pooling and general financing activities’ includes financing activities for capital transfers, cashsweeps, and other treasury services.
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NOTE 10. COMMITMENTS AND CONTINGENCIES
New News Corporation has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These firmcommitments secure the future rights to various assets and services to be used in the normal course of operations. The following table summarizes New NewsCorporation’s material firm commitments as of June 30, 2012: As of June 30, 2012 Payments Due by Period
Total 1 year 2-3
years 4-5
years After 5years
(in millions) Purchase obligations $2,581 $627 $771 $356 $ 827 Operating leases
Land and buildings 747 116 182 134 315 Plant and machinery 22 11 10 1 —
Total commitments and contractual obligations $3,350 $754 $963 $491 $1,142
New News Corporation has commitments under purchase obligations related to printing contracts, capital projects, marketing agreements and other legally
binding commitments. New News Corporation leases office facilities, warehouse facilities, printing plants and equipment. These leases, which are classified as operating leases,
are expected to be paid at certain dates through fiscal 2062.
In connection with the Dow Jones Indexes business transaction, New News Corporation agreed to indemnify CME with respect to any payments ofprincipal, premium and interest CME makes under its guarantee of the venture financing. (See Note 3—Acquisitions, Disposals and Other Transactions forfurther discussion of this transaction). New News Corporation does not expect that this contingent guarantee will result in any material amounts being paid byNew News Corporation in the foreseeable future. The timing of the amounts presented in the table below reflect when the maximum contingent guarantee willexpire and does not indicate that New News Corporation expects to incur an obligation to make payments during that time frame. As of June 30, 2012
Amount of GuaranteesExpiration Per Period
Contingent guarantees: Total Amounts
Committed 1 year 2-3
years 4-5
years After 5years
(in millions) Indemnity $ 774 $ 27 $ 54 $ 54 $ 639
In accordance with ASC 715 “Compensation—Retirement Benefits” (“ASC 715”), the total accrued benefit liability for pension and other postretirementbenefit plans recognized as of June 30, 2012 was approximately $497 million. (See Note 11—Pensions and Other Postretirement Benefits) This amount isaffected by, among other items, statutory funding levels, changes in plan demographics and assumptions and investment returns on plan assets. Because of thecurrent overall funded status of New News Corporation’s material plans, the accrued liability does not represent expected near-term liquidity needs and,accordingly, this amount is not included in the contractual obligations table.
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Contingencies
U.K. Newspapers Matters
On July 19, 2011, a purported class action lawsuit captioned Wilder v. News Corp., et al. was filed on behalf of all purchasers of Parent’s common stockbetween March 3, 2011 and July 11, 2011, in the U.S. District Court for the Southern District of New York. The plaintiff brought claims under Section 10(b) andSection 20(a) of the Securities Exchange Act, alleging that false and misleading statements were issued regarding alleged acts of voicemail interception at TheNews of the World. The suit names as defendants Parent, Rupert Murdoch, James Murdoch and Rebekah Brooks, and seeks compensatory damages, rescission fordamages sustained, and costs.
This litigation and certain other Parent stockholder lawsuits are all now before the same judge. On June 5, 2012, the court issued an order appointing theAvon Pension Fund (“Avon”) as lead plaintiff in the litigation and Robbins Geller Rudman & Dowd as lead counsel. Thereafter, on July 3, 2012, the court issuedan order providing that an amended consolidated complaint was to be filed by July 31, 2012. Avon filed an amended consolidated complaint on July 31, 2012,which among other things, added as defendants New News Corporation’s subsidiary, NI Group Limited, and Les Hinton, and expanded the class period to includeFebruary 15, 2011 to July 18, 2011. Defendants filed their motion to dismiss on September 25, 2012, and the parties have completed briefing on the motion. Thecourt has not yet set a date for oral argument.
Parent and New News Corporation’s management believe these Parent stockholder claims are entirely without merit, and New News Corporation intends tovigorously defend this action.
In addition, U.K. and U.S. regulators and governmental authorities continue to conduct investigations initiated in 2011 with respect to phone hacking,illegal data access, inappropriate payments to public officials and related matters at New News Corporation’s former publication, The News of the World, and atThe Sun (the “U.K. Newspaper Matters”). New News Corporation, together with Parent, is cooperating with these investigations. It is possible that theseproceedings could damage New News Corporation’s reputation and might impair its ability to conduct its business.
New News Corporation is not able to predict the ultimate outcome or cost associated with these investigations. Violations of law may result in civil,administrative or criminal fines or penalties. New News Corporation has admitted liability in a number of civil cases related to the phone hacking allegations andhas settled a number of cases. As of September 30, 2012, New News Corporation has provided for its best estimate of the liability for the claims that have beenfiled. New News Corporation has announced a process under which parties can pursue claims against it, and management believes that it is probable thatadditional claims will be filed. It is not possible to estimate the liability for such additional claims given the information that is currently available to New NewsCorporation. If more claims are filed and additional information becomes available, New News Corporation will update the liability provision for such matters.Any fees, expenses, fines, penalties, judgments or settlements which might be incurred by New News Corporation in connection with the various proceedingscould affect its results of operations and financial condition.
HarperCollins
Commencing on August 9, 2011, twenty-nine purported consumer class actions have been filed in the U.S. District Courts for the Southern District of NewYork and for the Northern District of California, which relate to the decisions by certain publishers, including HarperCollins Publishers L.L.C. (“HarperCollins”),to begin selling their eBooks pursuant to an agency relationship. The Judicial Panel on Multidistrict Litigation has
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) transferred the various class actions to the Honorable Denise L. Cote in the Southern District of New York. On January 20, 2012, plaintiffs filed a consolidatedamended complaint, again alleging that certain named defendants, including HarperCollins, violated the antitrust and unfair competition laws by virtue of theswitch to the agency model for eBooks. The actions seek as relief treble damages, injunctive relief and attorneys’ fees. On June 25, 2012, Judge Cote issued ascheduling order for the multi-district litigation going forward. Additional information about In re MDL Electronic Books Antitrust Litigation, Civil ActionNo. 11-md-02293 (DLC), can be found on Public Access to Court Electronic Records (PACER). While it is not possible to predict with any degree of certaintythe ultimate outcome of these class actions, HarperCollins believes it was compliant with applicable antitrust and competition laws.
Following an investigation, on April 11, 2012, the Department of Justice (the “DOJ”) filed an action in the U.S. District Court for the Southern District ofNew York against certain publishers, including HarperCollins, and Apple, Inc. The DOJ’s complaint alleges antitrust violations relating to defendants’ decisionsto begin selling eBooks pursuant to an agency relationship. This case was assigned to Judge Cote. Simultaneously, the DOJ announced that it had reached aproposed settlement with three publishers, including HarperCollins, and filed a Proposed Final Judgment and related materials detailing that agreement. Amongother things, the Proposed Final Judgment requires that HarperCollins terminate its agreements with certain eBook retailers and places certain restrictions on anyagreements subsequently entered into with such retailers. On September 5, 2012, Judge Cote entered the Final Judgment. A third party has filed a motion tointervene in the case for the purpose of appealing Judge Cote’s decision entering the Final Judgment to the U.S. Court of Appeals for the Second Circuit.Additional information about the Final Judgment can be found on the DOJ’s website.
Following an investigation, on April 11, 2012, 16 state Attorneys General led by Texas and Connecticut (the “AGs”) filed a similar action against certainpublishers and Apple, Inc. in the Western District of Texas. On April 26, 2012, the AGs’ action was transferred to Judge Cote. On May 17, 2012, 33 AGs filed asecond amended complaint. As a result of a memorandum of understanding agreed upon with the AGs for Texas and Connecticut, HarperCollins was not namedas a defendant in this action. Pursuant to the terms of the memorandum of understanding, HarperCollins entered into a settlement agreement with the AGs forTexas, Connecticut and Ohio on June 11, 2012. By August 28, 2012, forty-nine states (all but Minnesota) and five U.S. territories had signed on to that settlementagreement. On August 29, 2012, the AGs simultaneously filed a complaint against HarperCollins and two other publishers, a motion for preliminary approval ofthat settlement agreement and a proposed distribution plan. On September 14, 2012, Judge Cote granted the AGs’ motion for preliminary approval of thesettlement agreement and approved the AGs’ proposed distribution plan. Notice was subsequently sent to potential class members, and a fairness hearingscheduled for February 8, 2013. If the settlement agreement receives final approval, it would resolve all damage claims of individual citizens from those statesand territories, including those represented in the purported class actions.
While the settlement agreement with the AGs is still subject to final approval by the court, New News Corporation believes that the proposed settlement, ascurrently drafted, will not have a material impact on the results of operations or the financial position of New News Corporation. However, New NewsCorporation can make no assurances that the proposed settlement will receive final approval.
On October 12, 2012, HarperCollins received a Civil Investigative Demand from the Attorney General from the State of Minnesota. HarperCollinscomplied with the Demand on November 16, 2012 and is cooperating with that investigation. While it is not possible to predict with any degree of certainty theultimate outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust laws.
The European Commission conducted an investigation into whether certain companies in the book publishing and distribution industry, includingHarperCollins, violated the antitrust laws by virtue of the switch
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) to the agency model for eBooks. HarperCollins settled the matter with the European Commission on terms substantially similar to the settlement with the DOJ.On December 13, 2012, the European Commission formally adopted the settlement.
Commencing on February 24, 2012, five purported consumer class actions were filed in the Canadian provinces of British Columbia, Quebec and Ontario,which relate to the decisions by certain publishers, including HarperCollins, to begin selling their eBooks in Canada pursuant to an agency relationship. Theactions seek as relief special, general and punitive damages, injunctive relief and the costs of the litigations. While it is not possible to predict with any degree ofcertainty the ultimate outcome of these class actions, especially given their early stages, HarperCollins believes it was compliant with applicable antitrust andcompetition laws and intends to defend itself vigorously.
In early July 2012, HarperCollins Canada, a wholly-owned subsidiary of HarperCollins, learned that the Canadian Competition Bureau (“CCB”) hadcommenced an inquiry regarding the sale of eBooks in Canada. HarperCollins currently is cooperating with the CCB with respect to its inquiry. While it is notpossible to predict with any degree of certainty the ultimate outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust andcompetition laws.
News America Marketing
Valassis Communication, Inc.
On January 18, 2006, Valassis Communication, Inc. (“Valassis”) sued News America Incorporated, News America Marketing FSI, LLC and News AmericaMarketing Services, In-Store, LLC (collectively “News America”), in the U.S. District Court for the Eastern District of Michigan (the “Valassis Federal Action”).Valassis’ operative complaint alleged that News America possesses monopoly power in a claimed in-store advertising and promotions market (the “in-storemarket”) and has used that power to gain an unfair advantage over Valassis in a purported market for coupons distributed by free-standing inserts (“FSIs”).Valassis alleged that News America is attempting to monopolize the purported FSI market by leveraging its alleged monopoly power in the purported in-storemarket, thereby allegedly violating Section 2 of the Sherman Antitrust Act of 1890, as amended (the “Sherman Act”). Valassis further alleged that News Americahas unlawfully bundled the sale of in-store marketing products with the sale of FSIs and that such bundling constitutes unlawful tying in violation of Sections 1and 3 of the Sherman Act. Additionally, Valassis alleged that News America is predatorily pricing its FSI products in violation of Section 2 of the Sherman Act.Valassis also asserted that News America violated various state antitrust statutes and has tortuously interfered with Valassis’ actual or expected businessrelationships. Valassis’ complaint sought injunctive relief, damages, fees and costs.
On March 9, 2007, Valassis filed a two-count complaint in Michigan state court against News America (the “Valassis Michigan Action”). That lawsuit,which was based on the same factual allegations as the Valassis Federal Action, alleged that News America tortuously interfered with Valassis’ businessrelationships and that News America unfairly competed with Valassis. The complaint sought injunctive relief, damages, fees and costs.
On March 12, 2007, Valassis filed a three-count complaint in California state court against News America (the “Valassis California Action”). That lawsuit,which is based on the same factual allegations as the Valassis Federal and Michigan Actions, alleged that News America violated the Cartwright Act (California’sstate antitrust law) by unlawfully tying its FSI products to its in-store products, violated California’s Unfair Practices Act by predatorily pricing its FSI products,and unfairly competed with Valassis. The Valassis California Action sought injunctive relief, damages, fees and costs. On May 4, 2007, News America filed amotion to dismiss or, in the alternative stay, that complaint. On June 28, 2007, the court issued a tentative ruling denying the motion and reassigned the case to theComplex Litigation Program. On July 19, 2007, the court denied the motion. The Valassis California Action was stayed until March 2010.
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Trial in the Valassis Michigan Action commenced on May 27, 2009. On July 23, 2009, a jury returned a verdict in the amount of $300 million for Valassis.News America filed a motion for new trial, which was denied. News America filed an appeal and posted a bond for $25 million, the maximum bond requiredunder Michigan law.
Trial in the Valassis Federal Action was set to commence on February 2, 2010. As a result of pretrial proceedings and negotiations that occurred in lateJanuary 2010 related to the Valassis Federal Action, on January 30, 2010, Parent announced that News America had reached a settlement agreement with Valassispursuant to which all claims filed by Valassis in all matters have been dismissed with prejudice. The U.S. District Court for the Eastern District of Michiganoversaw the settlement discussions and approved the terms of the settlement. As part of the settlement, News America paid Valassis $500 million and entered intoa ten-year shared mail distribution agreement with Valassis Direct Mail, a Valassis subsidiary. Additionally, the parties also have agreed to a process by which theU.S. District Court for the Eastern District of Michigan may assess certain future business practices of News America and Valassis. In connection with thesettlement, the Valassis Federal Action has been dismissed with prejudice. In addition, the judgment in the Valassis Michigan Action from July 2009 has beensatisfied with all related appeals dismissed, and the Valassis California Action has been dismissed with prejudice.
As a result of the settlement, New News Corporation recorded a charge of $500 million in Selling, general and administrative expenses during the fiscalyear ended June 30, 2010. The cost of the new distribution agreement, which was entered into on a fair value basis, will be accounted for prospectively, consistentwith the accounting for other similar agreements.
Insignia Systems, Inc.
On September 23, 2004, Insignia Systems, Inc. (“Insignia”) filed an action against News America Marketing In-Store Inc. (“News America”) in the U.S.District Court for the District of Minnesota. The operative complaint alleges, among other things, disparagement of Insignia by News America in violation of theLanham Act and Minnesota state law and various federal and state antitrust violations arising out of Insignia’s and News America’s competition in the domesticin-store advertising market. The trial began on February 8, 2011. On February 9, 2011, the parties settled the lawsuit. Under the terms of the settlement, whichincluded no admission of liability, News America paid Insignia $125 million, which was recorded in Selling, general and administrative expenses during thefiscal year ended June 30, 2011. In addition, Insignia paid News America $4 million in relation to a 10-year exclusive business arrangement between thecompanies.
Other
New News Corporation’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, it is regularly audited byfederal, state and foreign tax authorities. New News Corporation believes it has appropriately accrued for the expected outcome of all pending tax matters anddoes not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its combined financial condition, futureresults of operations or liquidity. Each member of the Parent consolidated group, which includes Parent, New News Corporation and Parent’s other subsidiaries, isjointly and severally liable for the U.S. federal income tax liability of each other member of the consolidated group. Consequently, New News Corporation couldbe liable in the event any such liability is incurred, and not discharged, by any other member of the Parent consolidated group. The tax sharing andindemnification agreement will require Parent to indemnify New News Corporation for any such liability. Disputes or assessments could arise during future auditsby the IRS in amounts that New News Corporation cannot quantify.
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New News Corporation establishes an accrued liability for legal claims when it determines that a loss is both probable and the amount of the loss can bereasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any lossultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Legal feesassociated with litigation and similar proceedings that are not expected to provide a benefit in future periods are expensed as incurred. Any fees, expenses, fines,penalties, judgments or settlements which might be incurred by New News Corporation in connection with the various proceedings could affect its results ofoperations and financial condition. For the contingencies disclosed above for which there is at least a reasonable possibility that a loss may be incurred, NewNews Corporation was unable to estimate the amount of loss or range of loss.
NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS
Certain of our U.S. employees participate in defined benefit pension plans (“Shared Plans”) sponsored by Parent, which include participants of other Parentsubsidiaries. New News Corporation accounts for the Shared Plans as multiemployer benefit plans. Accordingly, New News Corporation does not record an assetor liability to recognize the funded status of the Shared Plans. New News Corporation recognizes a liability only for any required contributions to the SharedPlans that are accrued and unpaid at the balance sheet date. The related pension expenses allocated to New News Corporation are based primarily on pensionablecompensation of active participants.
Plans in the U.S., U.K. and Australia that are sponsored by entities included in New News Corporation (“Direct Plans”) are accounted for as defined benefitpension plans. Accordingly, the funded and unfunded position of each Direct Plan is recorded in our combined balance sheet. Actuarial gains and losses that havenot yet been recognized through income are recorded in accumulated other comprehensive income net of taxes, until they are amortized as a component of netperiodic benefit cost. The determination of benefit obligations and the recognition of expenses related to Direct Plans are dependent on various assumptions. Themajor assumptions primarily relate to discount rates, long-term expected rates of return on plan assets, and future compensation increases. Management developseach assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist. The fundedstatus of the Direct Plans can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal2012, 2011 and 2010.
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New News Corporation uses a June 30 measurement date for all direct pension and postretirement benefit plans. The following table sets forth the changein the projected benefit obligation, change in the fair value of Direct Plans plan assets and funded status:
Pension benefits Postretirement
benefits As of June 30, 2012 2011 2012 2011 (in millions) Projected benefit obligation, beginning of the year $1,366 $1,177 $ 190 $ 194 Service cost 19 21 2 2 Interest cost 73 70 10 10 Benefits paid (68) (52) (13) (13) Settlements (72) (43) — — Actuarial loss 129 72 41 7 Foreign exchange rate changes (36) 116 — 1 Amendments, transfers and other 5 5 — (11)
Projected benefit obligation, end of the year 1,416 1,366 230 190
Change in the fair value of plan assets for New News Corporation’s benefit plans: Fair value of plan assets, beginning of the year 1,229 1,012 — — Actual return on plan assets 39 157 — — Employer contributions 48 45 — — Benefits paid (68) (52) — — Settlements (72) (43) — — Foreign exchange rate changes (32) 107 — — Amendments, transfers and other 5 3 — —
Fair value of plan assets, end of the year 1,149 1,229 — —
Funded status $ (267) $ (137) $(230) $(190)
Amounts related to payments made to former employees of New News Corporation in full settlement of their deferred pension benefits. Actuarial losses primarily related to changes in the discount rate and the strengthening of the mortality tables utilized in measuring plan obligations as of
June 30, 2012 and 2011, respectively.
Amounts recognized in the combined balance sheets consist of:
Pension benefits Postretirement
benefits As of June 30, 2012 2011 2012 2011 (in millions) Accrued pension/postretirement liabilities $ (267) $ (137) $ (230) $ (190)
Net amount recognized $ (267) $ (137) $ (230) $ (190)
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Amounts recognized in accumulated other comprehensive income consist of:
Pension benefits Postretirement
benefits As of June 30, 2012 2011 2012 2011 (in millions) Actuarial losses $ 455 $ 313 $ 56 $ 16 Prior service cost (benefit) — — (40) (55)
Net amounts recognized $ 455 $ 313 $ 16 $ (39)
Amounts in accumulated other comprehensive income expected to be recognized as a component of net periodic pension cost in fiscal 2013:
Pension benefits Postretirement
benefits As of June 30, 2012 2012 (in millions) Actuarial losses $ 20 $ 4 Prior service cost (benefit) — (13)
Net amounts recognized $ 20 $ (9)
Accumulated pension benefit obligations as of June 30, 2012 and 2011 were $1,406 million and $1,360 million, respectively. Below is information aboutfunded and unfunded pension plans. Funded Plans Unfunded Plans As of June 30, 2012 2011 2012 2011 (in millions) Projected benefit obligation $ 1,352 $ 1,307 $ 64 $ 59 Accumulated benefit obligation 1,343 1,301 63 59 Fair value of plan assets 1,149 1,229 — —
Below is information about pension plans in which the accumulated benefit obligation exceeds fair value of the plan assets. Funded Plans Unfunded Plans As of June 30, 2012 2011 2012 2011 (in millions) Projected benefit obligation $ 1,352 $ 960 $ 64 $ 59 Accumulated benefit obligation 1,343 954 63 59 Fair value of plan assets 1,149 881 — —
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The components of net periodic benefits costs were as follows: Pension benefits Postretirement benefits For the years ended June 30, 2012 2011 2010 2012 2011 2010 (in millions) Service cost benefits earned during the period $ 19 $ 21 $ 15 $ 2 $ 2 $ 2 Interest costs on projected benefit obligations 73 70 76 10 10 12 Expected return on plan assets (82) (74) (66) — — — Amortization of deferred losses 16 20 19 — — — Other 8 4 6 (15) (15) (11)
Net periodic benefits costs- Direct 34 41 50 (3) (3) 3 Employees participation in Parent plans 10 12 10 N/A N/A N/A Corporate allocations 4 5 5 N/A N/A N/A
Net periodic benefits costs- Total $ 48 $ 58 $ 65 $ (3) $ (3) $ 3
Pension benefits Postretirement benefits For the years ended June 30, 2012 2011 2010 2012 2011 2010 Additional information: Weighted-average assumptions used to determine benefit obligations Discount rate 4.5% 5.7% 5.8% 3.8% 5.3% 5.5% Rate of increase in future compensation 3.5% 3.6% 3.9% N/A N/A N/A Weighted-average assumptions used to determine net periodic benefit cost Discount rate 5.7% 5.8% 7.0% 5.3% 5.5% 6.7% Expected return on plan assets 7.0% 7.0% 7.0% N/A N/A N/A Rate of increase in future compensation 3.6% 3.9% 4.4% N/A N/A N/A N/A – not applicable
The following assumed health care cost trend rates as of June 30 were also used in accounting for postretirement benefits:
Postretirement benefits Fiscal 2012 Fiscal 2011 Health care cost trend rate 7.0% 7.4% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.0% 5.2% Year that the rate reaches the ultimate trend rate 2019 2019
Assumed health care cost trend rates could have a significant effect on the amounts reported for the postretirement health care plan. The effect of a onepercentage point increase and one percentage point decrease in the assumed health care cost trend rate would have the following effects on the results for fiscal2012:
Service and interest
costs Benefit
obligation (in millions) One percentage point increase $ 2 $ 29 One percentage point decrease $ (1) $ (24)
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The following table sets forth the estimated benefit payments for the next five fiscal years, and in aggregate for the five fiscal years thereafter. The expectedbenefits are estimated based on the same assumptions used to measure New News Corporation’s benefit obligation at the end of the fiscal year and includebenefits attributable to estimated future employee service:
Expected benefit payments
Pensionbenefits
Postretirementbenefits
(in millions) Fiscal year:
2013 $ 91 $ 11 2014 86 11 2015 85 12 2016 85 12 2017 89 12 2018-2022 478 61
The above table shows expected benefits payments for the postretirement benefits after adjusting for U.S. Medicare subsidy receipts. The annual receiptsare expected to range from $1 million to $2 million.
Shared Pension Plans
Certain of New News Corporation’s employees participate in defined benefit pension plans sponsored by Parent. The combined statements of operationsinclude expenses related to these Shared Plans including direct expenses related to New News Corporation employees as well as allocations of expenses related tocorporate employees. Direct expenses related to these plans were $10 million, $12 million and $10 million, for the years ended June 30, 2012, 2011 and 2010,respectively. Total defined benefit plan expenses allocated to New News Corporation were $4 million for the year ended June 30, 2012 and $5 million for theyears ended June 30, 2011 and 2010, respectively.
Plan Assets
New News Corporation applies the provisions of ASC 715, which required disclosures include: (i) investment policies and strategies; (ii) the majorcategories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significantunobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.
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The table below presents New News Corporation’s Direct Plan assets by level within the fair value hierarchy, as described in Note 2—Summary ofAccounting Policies, as of June 30, 2012 and 2011: As of June 30, 2012 As of June 30, 2011
Fair Value Measurements at
Reporting Date Using Fair Value Measurements at
Reporting Date Using Description Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 (in millions) Assets Short-term investments $ — $ — $ — $ — $ — $ — $ — $ — Pooled funds:
Money market funds 24 — 24 — 17 — 17 — Domestic equity funds 13 13 — — 14 14 — — International equity funds 318 118 200 — 381 257 124 — Domestic fixed income funds 34 34 — — 49 49 — — International fixed income funds 302 — 302 — 309 — 309 — Balanced funds 379 16 363 — 380 32 348 —
Common stocks U.S. common stocks 28 28 — — 26 25 1 —
Government and agency obligations Domestic government obligations 3 — 3 — 2 — 2 — Domestic agency obligations 12 — 12 — 11 — 11 — International government obligations 8 — 8 — 10 — 10 —
Corporate obligations 3 — 3 — 3 — 3 — Partnership interests 4 — — 4 3 — — 3 Other 21 6 3 12 24 12 2 10
Total $1,149 $ 215 $ 918 $ 16 $1,229 $ 389 $ 827 $ 13
Open-ended pooled funds that are registered and/or available to the general public are valued at the daily published net asset value (“NAV”). Other pooled
funds are valued at the NAV provided by the fund issuer. Common stocks that are publicly traded are valued at the closing price reported on active markets in which the individual securities are traded. The fair value of corporate, government and agency obligations are valued based on a compilation of primary observable market information or a broker
quote in a non-active market. The fair values of partnerships that are not publicly traded are based on fair value obtained from the general partner.
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The table below sets forth a summary of changes in the fair value of investments reflected as Level 3 assets as of June 30, 2012 and 2011:
Partnership
Interests Other Total (in millions) Balance, June 30, 2010 $ 3 $ 10 $ 13 Actual return on plan assets:
Relating to assets still held at end of period — 1 1 Relating to assets sold during the period — — —
Purchases, sales, settlements and issuances — — — Transfers in and out of Level 3 — (1) (1)
Balance, June 30, 2011 $ 3 $ 10 $ 13 Actual return on plan assets:
Relating to assets still held at end of period — 3 3 Relating to assets sold during the period — — —
Purchases, sales, settlements and issuances 1 — 1 Transfers in and out of Level 3 — (1) (1)
Balance, June 30, 2012 $ 4 $ 12 $ 16
New News Corporation’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within an acceptable level ofrisk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. New News Corporation’s practice is to conduct aperiodic strategic review of its asset allocation. New News Corporation’s current broad strategic targets are to have a pension asset portfolio comprising of 38%equity securities, 46% fixed income securities and 16% in cash and other investments. In developing the expected long-term rate of return, New NewsCorporation considered the pension asset portfolio’s past average rate of returns and future return expectations of the various asset classes. A portion of the otherallocation is reserved in short-term cash to provide for expected benefits to be paid in short term. New News Corporation’s equity portfolios are managed in sucha way as to achieve optimal diversity. New News Corporation’s fixed income portfolio is investment grade in the aggregate. New News Corporation does notmanage any assets internally.
New News Corporation’s benefit plan weighted-average asset allocations, by asset category, are as follows:
Pension benefits As of June 30, 2012 2011 Asset Category:
Equity securities 37% 51% Debt securities 44% 39% Real estate 1% 1% Cash and other 18% 9%
Total 100% 100%
Required pension plan contributions for the next fiscal year are expected to be approximately $35 million; however, actual contributions may be affected bypension asset and liability valuation changes during the year. New News Corporation will continue to make voluntary contributions as necessary to improvefunded status.
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Multi-employer Pension and Postretirement Plans
New News Corporation contributes to various multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that covercertain of its union-represented employees, primarily at the Newspaper businesses. The risks of participating in these multiemployer pension plans are differentfrom single-employer pension plans such that (i) contributions made by New News Corporation to the multiemployer pension plans may be used to providebenefits to employees of other participating employers; (ii) if New News Corporation chooses to stop participating in certain of these multiemployer pensionplans, it may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability; and (iii) actionstaken by a participating employer that lead to a deterioration of the financial health of a multiemployer pension plan may result in the unfunded obligations of themultiemployer pension plan being borne by its remaining participating employers. While no multiemployer pension plan that New News Corporation contributedto is individually significant to New News Corporation, New News Corporation was listed on certain Form 5500s as providing more than 5% of totalcontributions based on the current information available. The financial health of a multiemployer plan is indicated by the zone status, as defined by the PensionProtection Act of 2006, which represents the funded status of the plan as certified by the plan’s actuary. Plans in the red zone are less than 65% funded, the yellowzone are between 65% and 80% funded, and green zone are at least 80% funded. The funded status of one of the plans which New News Corporation was listedas providing more than 5% of total contributions reported yellow zone status for the plan year beginning June 1, 2012 to the Department of Labor and isimplementing a funding improvement plan. Total contributions made by New News Corporation to multiemployer pension plans for the fiscal years endedJune 30, 2012, 2011 and 2010 were approximately $5 million, respectively.
Defined Contribution Plans
New News Corporation has defined contribution plans for the benefit of substantially all employees meeting certain eligibility requirements. Employercontributions to such plans were $141 million, $148 million and $146 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.
Deferred Compensation Plan
New News Corporation has non-qualified deferred compensation plans for the benefit of certain management employees. The investment funds offered tothe participants generally correspond to the funds offered in New News Corporation’s 401(k) plan, and the account balance fluctuates with the investment returnson those funds. The unfunded obligation of the plan as of June 30, 2012 and 2011 was $31 million and $30 million, respectively and the majority of these plansare closed to new employees.
NOTE 12. INCOME TAXES
The income tax provision/(benefit) in the combined statements of operations has been calculated as if New News Corporation filed separate tax returns andwas operating as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of New News Corporation’sactual tax balances prior to or subsequent to the distribution.
(Loss) income before income tax benefit (expense) was attributable to the following jurisdictions: For the years ended June 30, 2012 2011 2010 (in millions) U.S. (including exports) $ (829) $ 41 $ (275) Foreign (1,548) 920 736
(Loss) income before income tax benefit (expense) $(2,377) $ 961 $ 461
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Significant components of New News Corporation’s (benefit) provision for income taxes were as follows: For the years ended June 30, 2012 2011 2010 (in millions)
Current: U.S.
Federal $ 29 $ 10 $ 30 State & local 11 5 6
Foreign 104 191 177
Total current 144 206 213
Deferred (481) 51 (11)
Total (benefit) provision for income taxes $ (337) $ 257 $ 202
The reconciliation between the effective tax rate and the U.S. statutory rate was: For the years ended June 30, 2012 2011 2010 U.S. federal income tax rate 35% 35% 35% Disposition of financial indexes business — — 23 State and local taxes 1 (1) (4) Effect of foreign operations (4) (9) (14) Non-deductible goodwill on asset impairment (16) — — Permanent differences and other (2) 2 4
Effective tax rate 14% 27% 44%
See Note 3—Acquisitions, Disposals and Other Transactions See Note 7—Goodwill and Other Intangible Assets
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The following is a summary of the components of the deferred tax accounts:
As of June 30, 2012 2011 (in millions) Deferred tax assets: Net operating loss carryforwards $ 61 $ 54 Capital loss carryforwards 1,170 1,252 Accrued liabilities 140 122 Other 211 202
Total deferred tax assets 1,582 1,630
Deferred tax liabilities: Basis difference and amortization (1,170) (1,699) Other (5) (22)
Total deferred tax liabilities (1,175) (1,721)
Net deferred tax asset (liability) before valuation allowance 407 (91) Less: valuation allowance (1,261) (1,312)
Net deferred tax liabilities $ (854) $(1,403)
New News Corporation had net current deferred tax assets of $86 million and $87 million as of June 30, 2012 and 2011, respectively, and noncurrentdeferred tax assets of $56 million and $27 million as of June 30, 2012 and 2011, respectively. New News Corporation also had current deferred tax liabilities of$70 million and $138 million as of June 30, 2012 and 2011, respectively, and non-current deferred tax liabilities of $926 million and $1,379 million as of June 30,2012 and 2011, respectively.
As of June 30, 2012, New News Corporation had approximately $273 million of net operating loss carryforwards ($61 million tax-effected) available tooffset future taxable income. In accordance with New News Corporation’s accounting policy, valuation allowances of $47 million and $40 million have beenestablished to reflect the expected realization of these net operating loss carryforwards as of June 30, 2012 and 2011, respectively.
As of June 30, 2012, New News Corporation had approximately $4.3 billion of capital loss carryforwards ($1.2 billion tax-effected) available to offsetfuture taxable income having no expiration. Realization of such capital losses is dependent on the generation of capital gain income in order to utilize such losses.It is not more likely than not that we will generate capital gain income in the normal course of business in these jurisdictions. Therefore, valuation allowances of$1.2 billion and $1.3 billion have been established to reflect the expected realization of these capital loss carryforwards as of June 30, 2012 and 2011,respectively, in accordance with New News Corporation’s accounting policy.
The following table sets forth the change in the accrual for uncertain tax positions, excluding interest and penalties: For the years ended June 30, 2012 2011 2010 (in millions) Balance, beginning of period $ 14 $ 14 $ 19 Reduction for prior year tax positions — — (5)
Balance, end of period $ 14 $ 14 $ 14
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New News Corporation recognizes interest and penalty charges related to unrecognized tax benefits as income tax expense, which is consistent with therecognition in prior reporting periods. New News Corporation recognized interest charges of $1 million during the fiscal year ended June 30, 2012 and nil duringthe fiscal years ended 2011 and 2010, respectively. New News Corporation recorded liabilities for accrued interest of approximately $5 million and $4 million asof June 30, 2012 and 2011, respectively.
New News Corporation is subject to tax in various domestic and international jurisdictions and, as a matter of ordinary course, New News Corporation isregularly audited by federal, state and foreign tax authorities. New News Corporation believes it has appropriately accrued for the expected outcome of all otherpending tax matters and does not currently anticipate that the ultimate resolution of other pending tax matters will have a material adverse effect on its combinedfinancial condition, future results of operations or liquidity. The U.S. Internal Revenue Service is currently examining Parent’s returns for fiscal years 2008 and2009. Additionally, New News Corporation’s income tax returns for the years 2000 through 2010 are subject to examination in various foreign jurisdictions.Consequently, it is reasonably possible that uncertain tax positions may decrease in the next twelve months. However, actual developments in this area coulddiffer from those currently expected. As of June 30, 2012 and 2011, approximately $14 million would affect New News Corporation’s effective income tax rate, ifand when recognized in future fiscal years. New News Corporation has filed refunds to claim certain losses in a foreign jurisdiction. The foreign tax authority hasdisputed our claim, and the matter is currently pending. New News Corporation is not certain when this claim will be resolved. Depending upon the final outcomeof this uncertainty, New News Corporation may receive a refund of taxes of nil to $600 million plus interest. It is reasonably possible that this matter will beresolved within the next twelve months.
During the fourth quarter of fiscal 2011, New News Corporation paid one-time dividends of $84 million back to the U.S. related to foreign earnings. Asthese dividends were one-time dividends, they did not change New News Corporation’s assertion related to the remaining amount of undistributedearnings. Therefore, New News Corporation has not provided for U.S. taxes on the remaining undistributed earnings of foreign subsidiaries as they are consideredto be reinvested indefinitely. Calculation of the unrecognized deferred tax liability for temporary differences related to these earnings is not practicable.Undistributed earnings of foreign subsidiaries considered to be indefinitely reinvested amounted to approximately $7.7 billion as of June 30, 2012.
New News Corporation paid $88 million, $169 million and $80 million for income taxes in fiscal 2012, 2011 and 2010, respectively.
NOTE 13. SEGMENT INFORMATION
New News Corporation manages and reports its businesses in the following four segments:
• News and Information Services—The News and Information Services segment includes the global product offerings of The Wall Street Journal andBarron’s publications, The Wall Street Journal Digital Network (“WSJDN”) and New News Corporation’s suite of information services including DowJones Newswires and Factiva. In addition to WSJ.com and Barrons.com, WSJDN includes MarketWatch, AllThingsD, and related services. New NewsCorporation also owns, among other publications, The Australian, Herald Sun, The Daily Telegraph and The Courier Mail in Australia, The Times, TheSunday Times and The Sun in the U.K. and the New York Post in the U.S. This segment also includes the integrated marketing services business, NewsAmerica Marketing Group (“NAMG”), a leading provider of free-standing coupon inserts, in-store marketing products and digital-savings marketingsolutions. NAMG’s customers include many of the largest consumer packaged goods advertisers in the U.S. and Canada.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
• Digital Real Estate Services—New News Corporation owns 61.6% of REA Group Limited (“REA”), a publicly traded company listed on theAustralian Securities Exchange (ASX: REA) that is a leading digital advertising business specializing in real estate services. REA operates Australia’slargest residential property website, realestate.com.au, as well as Australia’s leading commercial property website, realcommercial.com.au. REA alsooperates a market-leading Italian property site, casa.it, and other property sites and apps across Europe and Hong Kong.
• Book Publishing—The HarperCollins book publishing segment is one of the largest English-language consumer publishers in the world, withparticular strengths in general fiction, nonfiction, children’s and religious publishing, and an industry leader in digital publishing. HarperCollinsincludes over 60 branded publishing imprints including Avon, Harper, HarperCollins Children’s Publishers, William Morrow and Christian publishersZondervan and Thomas Nelson, and publishes works by well-known authors such as J.R.R. Tolkien, Paulo Coelho, Rick Warren and Agatha Christieand popular titles such as The Hobbit, Goodnight Moon and To Kill a Mockingbird.
• Other—The Other segment primarily consists of Amplify, New News Corporation’s digital education business focused on the K-12 learning market,and general corporate overhead expenses. Amplify focuses on three areas of business: assessment and analytics; digital content and curriculum; andmobile distribution systems designed for education. Amplify’s assessment and analytics division operates as Wireless Generation, Inc. (“WirelessGeneration”), which commenced operations in 2000 and was acquired by Parent in fiscal 2011. Wireless Generation provides premium assessment andanalytics services to enable real-time personalization of educational content. Through its Amplify Learning division, Amplify is creating innovativedigital curricula for K-12 education designed to enhance teaching and learning in English Language Arts, Science and Math. Through its AmplifyAccess division, Amplify is developing an open, tablet-based education platform that integrates its existing assessment and analytics tools and serviceswith its digital curricula as well as third-party content and interactive applications.
New News Corporation doubled its stake in FOX SPORTS Australia to 100% as part of its acquisition of CMH in November 2012. Accordingly, the resultsof FOX SPORTS Australia will be included within a new Cable Network Programming segment beginning in November 2012. (See Note 16 – Subsequent Eventsfor further discussion of the CMH acquisition).
New News Corporation’s operating segments have been determined in accordance with its internal management structure, which is organized based onoperating activities and has aggregated its newspaper and information services business with its integrated marketing services business into one reportablesegment due to their similarities. New News Corporation evaluates performance based upon several factors, of which the primary financial measure is SegmentEBITDA.
Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include:Depreciation and amortization, impairment and restructuring charges, equity earnings of affiliates, interest, net, other, net, income tax expense and net incomeattributable to noncontrolling interests. New News Corporation believes that information about Segment EBITDA assists all users of New News Corporation’scombined financial statements by allowing them to evaluate changes in the operating results of New News Corporation’s portfolio of businesses separate fromnon-operational factors that affect net (loss) income, thus providing insight into both operations and the other factors that affect reported results.
Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net (loss) income, cash flow and other measuresof financial performance reported in accordance with GAAP. In
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment andrestructuring charges, which are significant components in assessing New News Corporation’s financial performance.
Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of New News Corporation’s business.Segment EBITDA provides management, investors and equity analysts measures to analyze operating performance of New News Corporation’s business and itsenterprise value against historical data and competitors’ data, although historical results, including Segment EBITDA, may not be indicative of future results (asoperating performance is highly contingent on many factors, including customer tastes and preferences). For the years ended June 30, 2012 2011 2010 (in millions) Revenues:
News and Information Services $ 7,058 $7,576 $7,242 Digital Real Estate Services 286 235 172 Book Publishing 1,189 1,195 1,269 Other 121 89 69
Total Revenues 8,654 9,095 8,752
Segment EBITDA: News and Information Services $ 939 $1,153 $ 734 Digital Real Estate Services 129 102 67 Book Publishing 86 93 106 Other (372) (135) (94)
Total Segment EBITDA 782 1,213 813
Depreciation and amortization (483) (430) (414) Impairment and restructuring charges (2,763) (25) (19) Equity earnings of affiliates 90 109 95 Interest, net 56 47 28 Other, net (59) 47 (42)
(Loss) income before income tax benefit (expense) (2,377) 961 461 Income tax benefit (expense) 337 (257) (202)
Net (loss) income (2,040) 704 259 Less: Net income attributable to noncontrolling interests (35) (26) (16)
Net (loss) income attributable to New News Corporation $(2,075) $ 678 $ 243
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED) For the years ended June 30, 2012 2011 2010 (in millions) Depreciation and amortization:
News and Information Services $ 416 $ 379 $ 374 Digital Real Estate Services 16 11 7 Book Publishing 27 29 29 Other 24 11 4
Total depreciation and amortization $ 483 $ 430 $ 414
Capital expenditures: News and Information Services $ 301 $ 501 $ 294 Digital Real Estate Services 21 21 13 Book Publishing 13 7 18 Other 40 20 3
Total capital expenditures $ 375 $ 549 $ 328
As of June 30, 2012 2011 (in millions) Total assets:
News and Information Services $ 9,662 $13,564 Digital Real Estate Services 346 310 Book Publishing 1,290 1,380 Other 666 719 Investments 1,126 1,035
Total assets $13,090 $17,008
Goodwill and intangible assets, net: News and Information Services $ 4,060 $ 6,851 Digital Real Estate Services 85 93 Book Publishing 454 467 Other 450 480
Total goodwill and intangible assets, net $ 5,049 $ 7,891
Revenues by Component For the years ended June 30, 2012 2011 2010 (in millions) Revenues:
Advertising $ 4,693 $ 4,945 $ 4,639 Circulation and Subscription 2,365 2,549 2,477 Consumer 1,123 1,124 1,153 Other 473 477 483
Total Revenues $ 8,654 $ 9,095 $ 8,752
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
Geographic Segments For the years ended June 30, 2012 2011 2010 (in millions) Revenues:
U.S. and Canada $ 3,727 $ 3,805 $ 3,835 Europe 1,960 2,243 2,208 Australasia and Other 2,967 3,047 2,709
Total revenues $ 8,654 $ 9,095 $ 8,752
Revenues include approximately $3.6 billion for both fiscal 2012 and 2011 and $3.7 billion for fiscal 2010 from customers in the U.S. Revenues include approximately $1.7 billion for fiscal 2012 and $2.0 billion for both fiscal 2011 and 2010 from customers in the U.K. Revenues include approximately $2.8 billion, $2.9 billion and $2.5 billion from customers in Australia in fiscal 2012, 2011, and 2010, respectively.
As of June 30, 2012 2011 (in millions) Long-lived assets:
U.S. and Canada $1,176 $1,230 Europe 1,292 1,455 Australasia and Other 1,276 1,376
Total long-lived assets $3,744 $4,061
Reflects total assets less current assets, goodwill, intangible assets, investments and non-current deferred tax assets.
There is no material reliance on any single customer. Revenues are attributed to countries based on location of customers.
Australasia comprises Australia, Asia, Fiji, Papua New Guinea and New Zealand.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. VALUATION AND QUALIFYING ACCOUNTS
Balance atbeginning of
year Additions Acquisitionsand disposals Utilization
Foreignexchange
Balance atend of year
(in millions) Fiscal 2012 Allowances for returns and doubtful accounts $ (227) $ (159) $ — $ 196 $ 4 $ (186) Deferred tax valuation allowance (1,312) (34) — 35 50 (1,261)
Fiscal 2011 Allowances for returns and doubtful accounts (223) (202) — 214 (16) (227) Deferred tax valuation allowance (1,102) (71) — 41 (180) (1,312)
Fiscal 2010 Allowances for returns and doubtful accounts (220) (170) 1 167 (1) (223) Deferred tax valuation allowance (1,121) (6) — 11 14 (1,102)
NOTE 15. ADDITIONAL FINANCIAL INFORMATION
Other Current Assets
The following table sets forth the components of Other current assets included in the combined balance sheets:
As of June 30, 2012 2011 (in millions) Inventory $246 $242 Assets held for sale 126 — Deferred tax assets 86 87 Other 155 140
Total Other current assets $613 $469
Inventory as of June 30, 2012 and 2011 was primarily comprised of books, newsprint, printing ink and plate material for New News Corporation’s
publishing operations.
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Other Non-Current Assets
The following table sets forth the components of Other non-current assets included in the combined balance sheets:
As of June 30, 2012 2011 (in millions) Royalty advances $218 $223 Notes receivable 146 — Deferred tax assets 56 27 Other 106 113
Total Other non-current assets $526 $363
Notes receivable relates to New News Corporation’s sale of its former U.K. newspaper division headquarters. (See Note—3 Acquisitions, Disposals and
Other Transactions)
Other Current Liabilities
The following table sets forth the components of Other current liabilities included in the combined balance sheets:
As of June 30, 2012 2011 (in millions) Current tax payable $316 $295 Associated creditors 165 130 Current deferred income tax 70 138 Royalties and commissions payable 135 144 Other 115 94
Total Other current liabilities $801 $801
As discussed in Note 1—Description of Business and Basis of Presentation, income tax items have been calculated as if New News Corporation filed aseparate return and was operating as a stand-alone business. Therefore, tax balances reflected in the combined financial statements may not be reflective ofNew News Corporation’s actual tax balances prior to or subsequent to the distribution.
Other Non-Current Liabilities
The following table sets forth the components of Other non-current liabilities included in the combined balance sheets:
As of June 30, 2012 2011 (in millions) Retirement benefit obligations $490 $322 Other non-current liabilities 288 310
Total Other non-current liabilities $778 $632
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Other, net
The following table sets forth the components of Other, net included in the combined statements of operations: For the years ended June 30, 2012 2011 2010 (in millions) Loss on sale of U.K. newspaper division headquarters $ (22) $ — $ — Gain (loss) on the financial indexes business transaction — 43 (23) Investment write-offs (30) — (3) Other (7) 4 (16)
Total Other, net $ (59) $ 47 $ (42)
See Note 3—Acquisitions, Disposals and Other Transactions See Note 5—Investments
Accumulated Other Comprehensive Income (Loss)
The components of accumulated comprehensive income (loss) were as follows: For the years ended June 30, 2012 2011 2010 (in millions) Accumulated other comprehensive income (loss), net of tax: Unrealized holding gains (losses) on securities:
Balance, beginning of year $ 1 $ (1) $ (2) Fiscal year activity — 2 1
Balance, end of year 1 1 (1)
Pension plans: Balance, beginning of year (214) (204) (194) Fiscal year activity (144) (10) (10)
Balance, end of year (358) (214) (204)
Foreign currency translation: Balance, beginning of year 1,744 402 149 Fiscal year activity (340) 1,342 253
Balance, end of year 1,404 1,744 402
Total accumulated other comprehensive income (loss), net of tax: Balance, beginning of year 1,531 197 (47) Fiscal year activity, net of income tax benefit (expense) of $49 million, $(5) million and $17 million (484) 1,334 244
Balance, end of year $1,047 $1,531 $ 197
Excludes $(5) million, $14 million and $1 million relating to noncontrolling interests for the fiscal years ended June 30, 2012, 2011 and 2010, respectively.
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NOTE 16. SUBSEQUENT EVENTS
In July 2012, New News Corporation acquired Thomas Nelson, Inc., one of the leading Christian book publishers in the U.S., for approximately $200million in cash.
In July 2012, New News Corporation acquired Australian Independent Business Media Pty Limited (“AIBM”) for approximately $30 million incash. AIBM publishes a subscription-based online newsletter for investors and a business news and commentary website.
In November 2012, New News Corporation acquired Consolidated Media Holdings Ltd. (“CMH”), a media investment company that operates in Australia,for approximately $2 billion. CMH had a 25% interest in Foxtel and a 50% interest in FOX SPORTS Australia. Foxtel is the largest pay-TV provider in Australia,serving approximately 2.2 million subscribing households in Australia, or over 30% of the country’s population. Foxtel’s 200-plus channel selection (whichincludes standard definition channels, high definition versions of some of those channels, and audio and interactive channels) provides premium and exclusivecontent and a wide array of digital and mobile features. The remaining 50% of Foxtel is owned by Telstra Corporation Limited, one of Australia’s leadingtelecommunications companies. FOX SPORTS Australia is the leading sports programming provider in Australia with seven standard definition televisionchannels, high definition versions of five of these channels, an interactive viewing application and one IPTV channel and rights to live sporting events inAustralia including: National Rugby League, the domestic football league, English Premier League, Australian and international cricket as well as the NFL andNBA. The acquisition doubled New News Corporation’s stakes in FOX SPORTS Australia and Foxtel to 100% and 50%, respectively. Accordingly, the results ofFOX SPORTS Australia will be included within a new Cable Network Programming segment beginning in November 2012. Prior to November 2012, New NewsCorporation accounted for its investment in FOX SPORTS Australia under the equity method of accounting. New News Corporation’s investment in Foxtel wasand continues to be accounted for under the equity method of accounting. Due to the limited time since the acquisition date the initial accounting for the businesscombination is incomplete at this time. As a result, we are unable to provide amounts recognized as of the acquisition date for major classes of assets andliabilities acquired and resulting from the transaction. Also, because the initial accounting for the transaction is incomplete, we are unable to provide thesupplemental pro forma revenue and earnings of the combined entity.
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UNAUDITED COMBINED STATEMENTS OF OPERATIONS(IN MILLIONS)
For the six months ended
December 31, 2012 2011 Revenues $ 4,454 4,390
Operating expenses (2,686) (2,585) Selling, general and administrative (1,379) (1,366) Depreciation and amortization (254) (239) Impairment and restructuring charges (177) (97) Equity earnings of affiliates 54 58 Interest, net 29 30 Other, net 1,255 (1)
Income before income tax benefit (expense) 1,296 190 Income tax benefit (expense) 32 (62)
Net income 1,328 128 Less: Net income attributable to noncontrolling interests (21) (17)
Net income attributable to New News Corporation $ 1,307 $ 111
The accompanying notes are an integral part of these unaudited combined financial statements.
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UNAUDITED COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(IN MILLIONS)
For the six months ended
December 31, 2012 2011 Net income $ 1,328 $ 128 Other comprehensive income (loss):
Foreign currency translation adjustments 77 (396) Unrealized holding gains (losses) on securities 1 (1) Benefit plan adjustments (3) 8
Other comprehensive income (loss) 75 (389)
Comprehensive income (loss) 1,403 (261)
Less: Net income attributable to noncontrolling interests (21) (17) Less: Other comprehensive (income) loss attributable to noncontrolling interests (2) 5
Comprehensive income (loss) attributable to New News Corporation $ 1,380 $ (273)
The accompanying notes are an integral part of these unaudited combined financial statements.
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COMBINED BALANCE SHEETS(IN MILLIONS)
As of December 31,
2012 As of June 30,
2012 (unaudited) (audited) Assets: Current assets: Cash and cash equivalents $ 741 $ 1,133 Receivables, net 1,656 1,369 Other 767 613
Total current assets 3,164 3,115
Non-current assets: Investments 3,172 1,126 Property, plant and equipment, net 3,315 3,274 Intangible assets, net 2,637 2,461 Goodwill 3,710 2,588 Other non-current assets 563 526
Total assets $ 16,561 $ 13,090
Liabilities and Equity: Current liabilities: Accounts payable $ 244 $ 284 Accrued expenses 990 996 Deferred revenue 417 386 Other current liabilities 661 801
Total current liabilities 2,312 2,467
Non-current liabilities: Other liabilities 782 778 Deferred income taxes 1,030 926 Commitments and contingencies
Total equity 12,437 8,919
Total liabilities and equity $ 16,561 $ 13,090
The accompanying notes are an integral part of these unaudited combined financial statements.
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UNAUDITED COMBINED STATEMENTS OF CASH FLOWS(IN MILLIONS)
For the six months ended
December 31, 2012 2011 Operating activities: Net income $ 1,328 $ 128 Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 254 239 Equity earnings of affiliates (54) (58) Cash distributions received from affiliates 118 83 Other, net (1,255) 1 Change in operating assets and liabilities, net of acquisitions:
Receivables and other assets (188) (71) Inventories, net 11 (28) Accounts payable and other liabilities (209) (15)
Net cash provided by operating activities 5 279
Investing activities: Property, plant and equipment, net of acquisitions (141) (201) Acquisitions, net of cash acquired (2,154) (57) Investments in equity affiliates (3) (28) Proceeds from dispositions 26 2
Net cash used in investing activities (2,272) (284)
Financing activities: Net transfers from (to) Parent and affiliates 2,115 (876) Repayment of borrowings (235) — Dividends paid (11) (7) Purchase of Subsidiary shares from noncontrolling interest (8) —
Net cash provided by (used in) financing activities 1,861 (883)
Net decrease in cash and cash equivalents (406) (888) Cash and cash equivalents, beginning of period 1,133 2,022 Exchange movement on opening cash balance 14 (78)
Cash and cash equivalents, end of period $ 741 $ 1,056
The accompanying notes are an integral part of these unaudited combined financial statements.
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NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The Proposed Distribution
On June 28, 2012, News Corporation (“Parent”) announced its intent to pursue the separation of its business into two separate independent publiccompanies, one of which will hold Parent’s global media and entertainment businesses and another which will hold the businesses comprising Parent’snewspapers, information services and integrated marketing services, digital real estate services, book publishing, digital education and sports programming andpay-TV distribution in Australia. On December 4, 2012, the board of directors of Parent authorized management to proceed with the proposed distribution,subject to the satisfaction or waiver of certain conditions and the board of directors’ ongoing consideration of the transaction and its final approval, which maynot be granted.
To effect the distribution, Parent will first undertake an internal reorganization. Following the internal reorganization, Parent will distribute all of the sharesof New News Corporation common stock to its stockholders on a pro rata basis. After the distribution, Parent will not own any equity interest in New NewsCorporation, and New News Corporation will operate independently from Parent. Parent’s stockholders will not be required to vote to effectuate thedistribution. However, in order to effectuate the distribution in the manner discussed in this information statement, Parent will be required to amend its RestatedCertificate of Incorporation, and Parent will hold a Special Meeting in connection therewith.
The internal reorganization and, in turn, the distribution, are subject to the satisfaction, or waiver by Parent, of a number of conditions. Additionally, Parentmay determine not to complete the internal reorganization or the distribution if, at any time, the board of directors of Parent determines, in its sole and absolutediscretion, that the distribution is not in the best interest of Parent or its stockholders or is otherwise not advisable.
Costs related to the distribution of approximately $28 million have been incurred by Parent for the six months ended December 31, 2012. These costsinclude accounting, legal, consulting and advisory fees. Parent has assumed all of these distribution costs incurred to date and Parent anticipates that it will beresponsible for all similar costs incurred prior to the distribution.
Unless the context otherwise requires, references in these Notes to the Combined Financial Statements to New News Corporation, “we”, “us” and “our”refer to New News Corporation and its combined subsidiaries. References in these Notes to “Parent” refers to News Corporation, a Delaware corporation and itsconsolidated subsidiaries (other than, after the distribution, New News Corporation and its combined subsidiaries), unless the context requires.
These combined financial statements were prepared on a stand-alone basis derived from the consolidated financial statements and accounting records ofParent. These statements reflect the combined historical results of operations, financial position and cash flows of Parent’s publishing businesses, its educationdivision and other Australian assets in accordance with U.S. generally accepted accounting principles (“GAAP”). For ease of reference, these combined financialstatements are collectively referred to as those of New News Corporation.
These financial statements are presented as if such businesses had been combined for all periods presented. All intercompany transactions and accountswithin New News Corporation have been eliminated. The assets and liabilities in the combined financial statements have been reflected on a historical cost basis,as immediately prior to the distribution all of the assets and liabilities presented are wholly-owned by Parent and are being transferred to the New NewsCorporation combined group at carry-over basis, although, New News Corporation’s investment in Sky Network Television Ltd. will be retained by Parent post-distribution. The combined statements
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NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED) of operations include allocations for certain support functions that are provided on a centralized basis within Parent and not recorded at the business unit level,such as expenses related to finance, human resources, information technology, facilities, and legal, among others. Parent does not routinely allocate these costs toany of its business units. These expenses have been allocated to New News Corporation on the basis of direct usage when identifiable, with the remainderallocated on a pro rata basis of combined revenues, operating income, headcount or other measures of New News Corporation. Management believes theassumptions underlying the combined financial statements, including the assumptions regarding allocating general corporate expenses from Parent are reasonable.Nevertheless, the combined financial statements may not include all of the actual expenses that would have been incurred by New News Corporation and may notreflect our combined results of operations, financial position and cash flows had we been a stand-alone company during the periods presented. Actual costs thatwould have been incurred if New News Corporation had been a stand-alone company would depend on multiple factors, including organizational structure andstrategic decisions made in various areas, including information technology and infrastructure.
The combined financial statements include certain assets and liabilities that have historically been held at Parent’s corporate level but are specificallyidentifiable or otherwise attributable to New News Corporation. All significant intracompany transactions and accounts within New News Corporation’scombined businesses have been eliminated. All significant intercompany transactions between Parent and New News Corporation have been included withinParent company investment in these combined financial statements.
Changes in New News Corporation’s ownership interest in a consolidated subsidiary where a controlling financial interest is retained are accounted for as acapital transaction. When New News Corporation ceases to have a controlling interest in a consolidated subsidiary New News Corporation will recognize a gainor loss in the combined statements of operations upon deconsolidation.
The preparation of combined financial statements in conformity with GAAP requires that management make estimates and assumptions that affect thereported amounts of assets and liabilities as of the date of the combined financial statements and the reported amounts of revenues and expenses during thereporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. Our criticalaccounting estimates are disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this information statement.Since the year ended June 30, 2012, there have been no material changes to our critical accounting policies and estimates.
New News Corporation’s fiscal year ends on the Sunday closest to June 30. Fiscal 2013 and fiscal 2012 include 52 weeks. All references to December 31,2012 and December 31, 2011 relate to the six months ended December 30, 2012 and January 1, 2012, respectively. For convenience purposes, New NewsCorporation continues to date its financial statements as of December 31.
NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
Acquisitions
In July 2011, New News Corporation acquired Kidspot.com.au Pty Limited, a pregnancy and parenting website, for approximately $50 million in cash.
In July 2012, New News Corporation acquired Australian Independent Business Media Pty Limited (“AIBM”) for approximately $30 million in cash.AIBM publishes a subscription-based online newsletter for investors and a business news and commentary website.
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NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
In July 2012, New News Corporation acquired Thomas Nelson, Inc. (“Thomas Nelson”), one of the leading Christian book publishers in the U.S., forapproximately $200 million in cash. The acquisition of Thomas Nelson increased New News Corporation’s presence and reach in the Christian publishingmarket. In accordance with Accounting Standards Codification (“ASC”) 350, “Intangibles—Goodwill and Other,” (“ASC 350”) the excess purchase price ofapproximately $160 million has been preliminarily allocated as follows: $65 million to publishing rights with a useful life of 20 years, $25 million to imprintswhich have an indefinite life and approximately $70 million representing the goodwill on the transaction. The amount allocated to intangibles, determination ofuseful lives and the related amortization expense is subject to change pending the completion of final valuations of certain assets and liabilities. A change in thepurchase price allocation and any estimates of useful lives could result in a change in the value allocated to the intangible assets that could impact futureamortization expense.
In November 2012, New News Corporation acquired Consolidated Media Holdings Ltd. (“CMH”), a media investment company that operates in Australia,for approximately $2 billion in cash and assumed debt of approximately $235 million. This acquisition supports New News Corporation’s strategic priority ofacquiring greater control of investments that complement its portfolio of businesses. CMH owned a 25% interest in Foxtel and a 50% interest in FOX SPORTSAustralia. FOX SPORTS Australia is the leading sports programming provider in Australia with seven standard definition television channels, high definitionversions of five of these channels, an interactive viewing application and one IPTV channel and rights to live sporting events in Australia including: NationalRugby League, the domestic football league, English Premier League, Australian and international cricket as well as the NFL. Foxtel is the largest pay-TVprovider in Australia, serving approximately 2.3 million subscribing households in Australia, or over 30% of the country’s population. Foxtel’s 200-plus channelselection (which includes standard definition channels, high definition versions of some of those channels, and audio and interactive channels) provides premiumand exclusive content and a wide array of digital and mobile features. The remaining 50% of Foxtel is owned by Telstra Corporation Limited, one of Australia’sleading telecommunications companies. The acquisition doubled New News Corporation’s stakes in FOX SPORTS Australia and Foxtel to 100% and 50%,respectively. Accordingly, the results of FOX SPORTS Australia are included within a new Cable Network Programming segment in New News Corporation’scombined results of operations beginning in November 2012. Prior to November 2012, New News Corporation accounted for its investment in FOX SPORTSAustralia under the equity method of accounting. New News Corporation’s investment in Foxtel is accounted for under the equity method of accounting.
The CMH acquisition was accounted for in accordance with ASC 805 “Business Combinations” which requires an acquirer to remeasure its previouslyheld equity interest in an acquiree at its acquisition date fair value and recognize the resulting gain or loss in earnings. The carrying amounts of New NewsCorporation’s previously held equity interest in FOX SPORTS Australia and Foxtel were revalued to fair value as of the acquisition date, resulting in a non-taxable gain of approximately $1.3 billion which was included in Other, net in the unaudited combined statements of operations for the six months endedDecember 31, 2012. The fair value of our previously held equity interest was determined using an income approach (discounted cash flow analysis).
The CMH acquisition was accounted for in accordance with ASC 350 and the aggregate excess purchase price has been primarily allocated to goodwill ona preliminary basis and is not being amortized. Since the allocation of the excess purchase price is not final, the amount allocated to goodwill is subject to changeupon completion of final valuations of certain assets and liabilities. A future reduction in goodwill for additional value to be assigned to identifiable finite-livedintangible assets or tangible assets could reduce future earnings as a result of additional amortization.
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NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited pro forma combined statements of operations give effect to New News Corporation’s acquisition of CMH, as if the acquisitionhad occurred on July 1, 2011.
For the six months ended
December 31, 2012 2011 (in millions) Revenues $ 4,646 $ 4,630 Net income 4 1,387
The unaudited pro forma data is provided for informational purposes only. The pro forma information is not necessarily indicative of the results that wouldhave been obtained had the acquisition been completed at the date indicated. In addition, the unaudited pro forma data does not purport to project the futurefinancial position or operating results of New News Corporation and CMH.
Under the purchase method of accounting, the total purchase price is allocated to CMH net tangible and intangible assets based upon CMH’s estimated fairvalue as of the date of completion of the acquisition. Based upon the purchase price and the valuation performed, the preliminary purchase price allocation, whichis subject to change based on New News Corporation’s final analysis, is as follows (in millions): Assets acquired: Current assets $ 220 Property, plant and equipment 35 Investments (Foxtel) 2,227 Deferred tax assets 136 Other assets 413 Intangibles 110 Goodwill 1,035
Total assets acquired $4,176
Liabilities assumed: Current liabilities $ 119 Deferred income taxes 193 Borrowings 234
Total liabilities assumed 546 Less investments held before acquisition 374
Net assets acquired $3,256
For the six months ended December 31, 2012, the acquisitions of Thomas Nelson and FOX SPORTS Australia contributed $152 million in revenues and$37 million of Segment EBITDA to New News Corporation’s unaudited combined results of operations.
Other
In July 2011, Parent announced that it would close its publication, The News of the World, after allegations of phone hacking and payments to publicofficials. As a result of Parent’s approval of the shutdown of The News of the World, Parent reorganized portions of the U.K. newspaper business and recordedrestructuring charges in fiscal 2013 and 2012 primarily for termination benefits and certain organizational restructuring at the U.K. newspapers. (See Note 3—Restructuring Programs). Parent and New News Corporation are subject to several
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NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED) ongoing investigations by U.K. and U.S. regulators and governmental authorities relating to phone hacking, illegal data access and inappropriate payments topublic officials at The News of the World and The Sun and related matters (the “U.K. Newspaper Matters”). New News Corporation, together with Parent, iscooperating with these investigations. In addition, New News Corporation has admitted liability in many civil cases related to the phone hacking allegations andhas settled many cases. Parent created an independently-chaired Management & Standards Committee (the “MSC”) to ensure cooperation with all relevantinvestigations and inquiries into the U.K. Newspaper Matters and all other related issues. The MSC conducts its own internal investigation where appropriate.The MSC has an independent Chairman, Lord Grabiner QC, and reports directly to Gerson Zweifach, Senior Executive Vice President and Group GeneralCounsel of Parent. Mr. Zweifach reports to the independent members of the Board of Directors of Parent (the “Parent Board”) through their representative VietDinh, an independent director and Chairman of Parent’s Nominating and Corporate Governance Committee. The independent directors of the Parent Board haveretained independent outside counsel and are actively engaged in these matters. The MSC conducted an internal investigation of the three other titles at NI GroupLimited (“News International”) and engaged independent outside counsel to advise it on these investigations and all other matters it handles. As a result of thesematters, News International has instituted governance reforms and issued certain enhanced policies to its employees. (See Note 9—Commitments andContingencies.)
NOTE 3. RESTRUCTURING PROGRAMS
Fiscal 2013
During the six months ended December 31, 2012, New News Corporation recorded restructuring charges of $177 million, of which $174 million related tothe newspaper businesses. The restructuring charges primarily related to the reorganization of the Australian newspaper businesses which was announced at theend of fiscal 2012 and the continued reorganization of the U.K. newspaper businesses. The restructuring charges recorded are primarily for termination benefits inAustralia and contract termination payments in the U.K.
Fiscal 2012
During the six months ended December 31, 2011, New News Corporation recorded restructuring charges of $97 million, of which $96 million related to thenewspaper businesses. New News Corporation reorganized portions of the U.K. newspaper businesses and recorded restructuring charges primarily fortermination benefits as a result of the U.K. Newspaper Matters and certain organizational restructuring at other newspapers.
Changes in program liabilities were as follows: For the six months ended December 31, 2012 2011
One timetermination
benefits
Facilityrelatedcosts
Othercosts Total
One timetermination
benefits
Facilityrelatedcosts
Othercosts Total
(in millions) Balance, beginning of period $ 51 $ 8 $— $ 59 $ 23 $ 10 $— $ 33 Additions 119 — 58 177 78 — 19 97 Payments (136) (1) (51) (188) (54) (2) (12) (68) Other — — (4) (4) (2) — (7) (9)
Balance, end of period $ 34 $ 7 $ 3 $ 44 $ 45 $ 8 $— $ 53
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New News Corporation expects to record an additional $25 million of restructuring charges, principally related to additional termination benefits at thenewspaper businesses. As of December 31, 2012, restructuring liabilities of approximately $39 million and $5 million were included in the combined balancesheets in other current liabilities and other liabilities, respectively.
NOTE 4. INVESTMENTS
New News Corporation’s investments were comprised of the following:
OwnershipPercentage
As ofDecember 31,
2012
As ofJune 30,
2012 (in millions) Equity method investments:
Foxtel Australia pay television 50% $ 2,179 $ 198 Sky Network Television Ltd. New Zealand media company 44% 361 390 FOX SPORTS Australia Australia sports cable network programming 100% — 171 Other equity method investments various 29 35
Loan receivable from Foxtel N/A 460 227 Other investments various 143 105
Total investments $ 3,172 $1,126
In May 2012, Foxtel, a cable and satellite television service in Australia, in which New News Corporation at the time indirectly owned a 25% interest,
purchased Austar United Communications Ltd to create a national subscription television service in Australia. The transaction was funded by Foxtel bankdebt and Foxtel’s shareholders made pro-rata capital contributions in the form of subordinated shareholder notes based on their respective ownershipinterest. New News Corporation’s share of the funding contribution was approximately $230 million. The subordinated shareholder note has a maximumterm of 15 years, with interest payable on June 30th each year and at maturity. The subordinated shareholder note can be repaid in 10 years provided thatFoxtel’s senior debt has been repaid. Upon maturity, the principal advanced will be repayable. In November 2012, New News Corporation increased itsinvestment in Foxtel to 50% from 25% through the acquisition of CMH which also held the same subordinated shareholder note. Accordingly, the carryingvalue of the shareholder note receivable from Foxtel doubled to $460 million. (See Note 2—Acquisitions, Disposals and Other Transactions)
For the six months ended December 31, 2012 New News Corporation received dividends of $60 million from Sky Network Television Ltd. and $57 millionfrom Foxtel.
The market value of New News Corporation’s investment in Sky Network Television Ltd. was $682 million and was valued using quoted market prices asof December 31, 2012. This investment was sold in March 2013. (See Note 13—Subsequent Events)
In November 2012, New News Corporation acquired the remaining 50% interest in FOX SPORTS Australia through the CMH transaction. (See Note 2—Acquisitions, Disposals and Other Transactions)
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Summarized financial information for FOX SPORTS Australia was as follows: For the six months ended December 31, 2012 2011 (in millions) Revenues $ 245 $ 237 Operating income 81 72 Net income 59 54
Includes Depreciation and amortization of $5 million in both the six months ended December 31, 2012 and 2011. Operating income less depreciation andamortization was $86 million and $77 million for the six months ended December 31, 2012 and 2011.
NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying value of goodwill, by segment, are as follows:
News andInformation
Services
CableNetwork
Programming
DigitalReal
EstateServices
BookPublishing Other
TotalGoodwill
(in millions) Balance, June 30, 2012 $ 2,149 $ — $ 76 $ 3 $360 $ 2,588 Acquisitions 32 1,035 — 67 — 1,134 Dispositions — — — — (25) (25) Foreign exchange movements 7 4 1 — 1 13 Adjustments — 7 — — (7) —
Balance, December 31, 2012 $ 2,188 $ 1,046 $ 77 $ 70 $329 $ 3,710
The increase in the carrying value of Goodwill of $1.1 billion during the six months ended December 31, 2012, was primarily due to the consolidation ofFOX SPORTS Australia at the Cable Network Programming segment, the acquisition of Thomas Nelson at the Book Publishing segment and the acquisition ofAIBM at the News and Information Services segment.
The carrying value of Intangible assets, net increased by $176 million during the six months ended December 31, 2012, primarily due to the consolidationof FOX SPORTS Australia at the Cable Network Programming segment and the acquisition of Thomas Nelson at the Book Publishing segment.
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NOTE 6. EQUITY
The following table summarizes changes in equity: For the six months ended December 31, 2012 2011
TotalNew News
CorporationEquity
NoncontrollingInterests
TotalEquity
TotalNew News
CorporationEquity
NoncontrollingInterests
TotalEquity
(in millions) Balance, beginning of period $ 8,809 $ 110 $ 8,919 $ 12,334 $ 95 $12,429 Net income 1,307 21 1,328 111 17 128 Other comprehensive income (loss) 73 2 75 (384) (5) (389) Other — (14) (14) — (8) (8) Net increase (decrease) in Parent company
investment 2,129 — 2,129 (864) — (864)
Balance, end of period $ 12,318 $ 119 $12,437 $ 11,197 $ 99 $11,296
NOTE 7. EQUITY BASED COMPENSATION
Until consummation of the distribution from Parent, New News Corporation’s employees participate in Parent’s equity plans. Parent has plans authorized togrant equity awards of Parent stock to New News Corporation’s employees. The share-based payment expense recorded by New News Corporation, in the periodspresented, includes the expense associated with the employees historically attributable to New News Corporation’s operations, as well as the expense associatedwith the allocation of stock compensation expense for corporate employees.
The following table summarizes New News Corporation’s equity-based compensation transactions:
For the six months
ended December 31, 2012 2011 (in millions) Equity-based compensation—New News Corporation’s Employees $ 21 $ 16 Equity-based compensation—Allocated 6 5
Equity-based compensation—Total $ 27 $ 21
The intrinsic value of stock options exercised during the six months ended December 31, 2012 and 2011 was $10 million and nil, respectively. The intrinsicvalue of the stock options outstanding as of December 31, 2012 and June 30, 2012 was $15 million and $18 million, respectively.
New News Corporation recognized a tax benefit on vested RSUs and stock options exercised of approximately $1 million and $2 million for the six monthsended December 31, 2012 and 2011, respectively.
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NOTE 8. RELATED PARTY TRANSACTIONS AND PARENT COMPANY INVESTMENT
Corporate Allocations and Parent Company Investment
Historically, Parent has provided services to and funded certain expenses for New News Corporation that have been included as a component of Parentcompany equity such as: global real estate and occupancy and employee benefits. In addition, New News Corporation’s combined financial statements includegeneral corporate expenses of Parent which were not historically allocated to New News Corporation for certain support functions that are provided on acentralized basis within Parent and not recorded at the business unit level, such as expenses related to finance, human resources, information technology,facilities, and legal, among others (“General Corporate Expenses”). For purposes of these stand-alone financial statements, the General Corporate Expenses havebeen allocated to New News Corporation. The General Corporate Expenses are included in the combined statements of operations in Selling, general andadministrative expenses and accordingly as a component of Parent company equity. These expenses have been allocated to New News Corporation on the basis ofdirect usage when identifiable, with the remainder allocated on a pro rata basis of combined revenues, operating income, headcount or other measures of NewNews Corporation. Management believes the assumptions underlying the combined financial statements, including the assumptions regarding allocating GeneralCorporate Expenses from Parent are reasonable. Nevertheless, the combined financial statements may not include all of the actual expenses that would have beenincurred and may not reflect New News Corporation’s combined results of operations, financial position and cash flows had it been a stand-alone company duringthe periods presented. Actual costs that would have been incurred if it had been a stand-alone company would depend on multiple factors, includingorganizational structure and strategic decisions made in various areas, including information technology and infrastructure. The corporate allocations made duringthe six months ended December 31, 2012 and 2011 of $111 million and $103 million, respectively, included both general corporate expenses of Parent whichwere not historically allocated to New News Corporation of $47 million in both periods and historical direct allocations primarily consisting of rent, insuranceand stock compensation expense of approximately $64 million and $56 million, respectively.
All significant intercompany transactions between New News Corporation and Parent have been included in these combined financial statements and areconsidered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions isreflected in the combined statements of cash flow as a financing activity and in the combined balance sheets as Parent company investment.
The following table summarizes the components of the net increase (decrease) in Parent company investment for the six months ended December 31, 2012and 2011: For the six months ended December 31, 2012 2011 (in millions) Cash pooling and general financing activities $ 5 $ (967) Corporate allocations 111 103 Cash transfer from parent for acquisitions and dispositions 2,013 —
Net increase (decrease) in Parent company investment $ 2,129 $ (864)
The nature of activities included in the line item ‘Cash pooling and general financing activities’ includes financing activities for capital transfers, cash
sweeps, and other treasury services.
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NOTE 9. COMMITMENTS AND CONTINGENCIES
Commitments
New News Corporation has commitments under certain firm contractual arrangements (“firm commitments”) to make future payments. These firmcommitments secure the future rights to various assets and services to be used in the normal course of operations. The total firm commitments as of December 31,2012 and June 30, 2012 were $4,070 million and $3,350 million, respectively. The increase from June 30, 2012 was primarily due to the consolidation of FOXSPORTS Australia in fiscal 2013.
Guarantees
New News Corporation’s guarantees as of December 31, 2012 have not changed significantly from disclosures included in the June 30, 2012 auditedcombined financial statements.
Contingencies
U.K. Newspaper Matters
On July 19, 2011, a purported class action lawsuit captioned Wilder v. News Corp., et al. was filed on behalf of all purchasers of Parent’s common stockbetween March 3, 2011 and July 11, 2011, in the U.S. District Court for the Southern District of New York. The plaintiff brought claims under Section 10(b) andSection 20(a) of the Securities Exchange Act, alleging that false and misleading statements were issued regarding alleged acts of voicemail interception at TheNews of the World. The suit named as defendants Parent, Rupert Murdoch, James Murdoch and Rebekah Brooks, and sought compensatory damages, rescissionfor damages sustained, and costs.
This litigation and certain other Parent stockholder lawsuits are all now before the same judge. On June 5, 2012, the court issued an order appointing theAvon Pension Fund (“Avon”) as lead plaintiff in the litigation and Robbins Geller Rudman & Dowd as lead counsel. Thereafter, on July 3, 2012, the court issuedan order providing that an amended consolidated complaint was to be filed by July 31, 2012. Avon filed an amended consolidated complaint on July 31, 2012,which among other things, added as defendants New News Corporation’s subsidiary, NI Group Limited, and Les Hinton, and expanded the class period to includeFebruary 15, 2011 to July 18, 2011. Defendants filed their motion to dismiss on September 25, 2012, and the parties have completed briefing on the motion. Themotion is pending.
Parent and New News Corporation’s management believe these Parent stockholder claims are entirely without merit and intend to vigorously defend thisaction.
In addition, U.K. and U.S. regulators and governmental authorities continue to conduct investigations initiated in 2011 with respect to the U.K. NewspaperMatters. New News Corporation, together with Parent, is cooperating with these investigations.
New News Corporation has admitted liability in many civil cases related to the phone hacking allegations and has settled many cases. While additionalcivil lawsuits may be filed, New News Corporation has also announced a private compensation scheme under which parties can pursue claims against it, and untilApril 8, 2013, additional civil claims may be brought under the compensation scheme.
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New News Corporation is not able to predict the ultimate outcome or cost of the civil claims or criminal matters. New News Corporation has incurred legaland professional fees related to the U.K. Newspaper Matters and costs for civil settlements totaling approximately $110 million and $90 million during the sixmonths ended December 31, 2012 and 2011, respectively. These costs are included in Selling, general and administrative expenses in New News Corporation’sunaudited consolidated statements of operations. As of December 31, 2012, New News Corporation has provided for its best estimate of the liability for theclaims that have been filed and costs incurred and has accrued approximately $70 million. It is not possible to estimate the liability for any additional claims thatmay be filed given the information that is currently available to New News Corporation. If more claims are filed and additional information becomes available,New News Corporation will update the liability provision for such matters.
New News Corporation and Parent will agree in the separation and distribution agreement that Parent will indemnify New News Corporation for paymentsmade after the distribution date arising out of civil claims and investigations relating to the U.K. Newspaper Matters, subject to New News Corporation’scompliance with certain agreements regarding Parent’s control over the civil U.K. Newspaper Matters and its consenting to settlements proposed by Parent, aswell as legal and professional fees and expenses paid in connection with the criminal matters. The legal and professional fees and expenses and payments forsettlements that New News Corporation has incurred to date were in connection with the civil claims and investigations and criminal matters, and New NewsCorporation generally will be indemnified by Parent for such costs that are paid after the distribution date. However, violations of law may result in criminal finesor penalties for which New News Corporation will not be indemnified by Parent. It is possible that these proceedings and any adverse resolution thereof,including any fines or other penalties associated with any plea, judgment or similar result for which New News Corporation will not be indemnified, coulddamage its reputation, impair its ability to conduct its business and adversely affect its results of operations and financial condition.
HarperCollins
Commencing on August 9, 2011, twenty-nine purported consumer class actions have been filed in the U.S. District Courts for the Southern District of NewYork and for the Northern District of California, which relate to the decisions by certain publishers, including HarperCollins Publishers L.L.C. (“HarperCollins”),to begin selling their eBooks pursuant to an agency relationship. The Judicial Panel on Multidistrict Litigation has transferred the various class actions to theHonorable Denise L. Cote in the Southern District of New York. On January 20, 2012, plaintiffs filed a consolidated amended complaint, again alleging thatcertain named defendants, including HarperCollins, violated the antitrust and unfair competition laws by virtue of the switch to the agency model for eBooks. Theactions seek as relief treble damages, injunctive relief and attorneys’ fees. On June 25, 2012, Judge Cote issued a scheduling order for the multi-district litigationgoing forward. Additional information about In re MDL Electronic Books Antitrust Litigation, Civil Action No. 11-md-02293 (DLC), can be found on PublicAccess to Court Electronic Records (PACER). While it is not possible to predict with any degree of certainty the ultimate outcome of these class actions,HarperCollins believes it was compliant with applicable antitrust and competition laws.
Following an investigation, on April 11, 2012, the Department of Justice (the “DOJ”) filed an action in the U.S. District Court for the Southern District ofNew York against certain publishers, including HarperCollins, and Apple, Inc. The DOJ’s complaint alleges antitrust violations relating to defendants’ decisionsto begin selling eBooks pursuant to an agency relationship. This case was assigned to Judge Cote. Simultaneously, the DOJ announced that it had reached aproposed settlement with three publishers, including HarperCollins, and filed a Proposed Final Judgment and related materials detailing that agreement. Amongother things, the Proposed Final Judgment requires that HarperCollins terminate its agreements with certain eBook retailers and places certain restrictions on anyagreements subsequently entered into with such retailers. On September 5, 2012, Judge Cote entered the Final Judgment. A third party has filed a motion tointervene in the case for the purpose of appealing
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Following an investigation, on April 11, 2012, 16 state Attorneys General led by Texas and Connecticut (the “AGs”) filed a similar action against certainpublishers and Apple, Inc. in the Western District of Texas. On April 26, 2012, the AGs’ action was transferred to Judge Cote. On May 17, 2012, 33 AGs filed asecond amended complaint. As a result of a memorandum of understanding agreed upon with the AGs for Texas and Connecticut, HarperCollins was not namedas a defendant in this action. Pursuant to the terms of the memorandum of understanding, HarperCollins entered into a settlement agreement with the AGs forTexas, Connecticut and Ohio on June 11, 2012. By August 28, 2012, forty-nine states (all but Minnesota) and five U.S. territories had signed on to that settlementagreement. On August 29, 2012, the AGs simultaneously filed a complaint against HarperCollins and two other publishers, a motion for preliminary approval ofthat settlement agreement and a proposed distribution plan. On September 14, 2012, Judge Cote granted the AGs’ motion for preliminary approval of thesettlement agreement and approved the AGs’ proposed distribution plan. Notice was subsequently sent to potential class members, and a fairness hearing tookplace on February 8, 2013 at which Judge Cote gave final approval to the settlement. The settlement will become effective once the March 11, 2013 deadline toappeal has passed and any potential appeal has been finally resolved. Once the settlement becomes effective, the final judgment will bar consumers from statesand territories covered by the settlement from participating in the class actions.
While the settlement agreement with the AGs is still subject to final approval by the court, New News Corporation believes that the proposed settlement, ascurrently drafted, will not have a material impact on the results of operations or the financial position of New News Corporation. However, New NewsCorporation can make no assurances that the proposed settlement will receive final approval.
On October 12, 2012, HarperCollins received a Civil Investigative Demand from the Attorney General from the State of Minnesota. HarperCollinscomplied with the Demand on November 16, 2012 and is cooperating with that investigation. While it is not possible to predict with any degree of certainty theultimate outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust laws.
The European Commission conducted an investigation into whether certain companies in the book publishing and distribution industry, includingHarperCollins, violated the antitrust laws by virtue of the switch to the agency model for eBooks. HarperCollins settled the matter with the European Commissionon terms substantially similar to the settlement with the DOJ. On December 13, 2012, the European Commission formally adopted the settlement.
Commencing on February 24, 2012, five purported consumer class actions were filed in the Canadian provinces of British Columbia, Quebec and Ontario,which relate to the decisions by certain publishers, including HarperCollins, to begin selling their eBooks in Canada pursuant to an agency relationship. Theactions seek as relief special, general and punitive damages, injunctive relief and the costs of the litigations. While it is not possible to predict with any degree ofcertainty the ultimate outcome of these class actions, especially given their early stages, HarperCollins believes it was compliant with applicable antitrust andcompetition laws and intends to defend itself vigorously.
In July 2012, HarperCollins Canada, a wholly-owned subsidiary of HarperCollins, learned that the Canadian Competition Bureau (“CCB”) had commencedan inquiry regarding the sale of eBooks in Canada. HarperCollins currently is cooperating with the CCB with respect to its inquiry. While it is not possible topredict with any degree of certainty the ultimate outcome of the inquiry, HarperCollins believes it was compliant with applicable antitrust and competition laws.
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On February 15, 2013, a purported class of independent bricks-and-mortar bookstores filed an action in the U.S. District Court for the Southern District ofNew York entitled The Book House of Stuyvesant Plaza, Inc, et. al. v. Amazon.com, Inc., et. al, which relates to the digital rights management protection(“DRM”) of certain publishers’, including HarperCollins’, e-books being sold by Amazon.com Inc. The case involves allegations that certain named defendantsin the book publishing and distribution industry, including HarperCollins, violated the antitrust laws by virtue of requiring DRM protection. The action seeksdeclaratory and injunctive relief, reasonable costs and attorneys’ fees. While it is not possible to predict with any degree of certainty the ultimate outcome of thisclass action, HarperCollins believes it was compliant with applicable antitrust laws.
New News Corporation is not able to predict the ultimate outcome or cost of the HarperCollins matters described above. During the six months endedDecember 31, 2012 and 2011, the legal and professional fees and settlement costs incurred in connection with these matters were not material, and as ofDecember 31, 2012, New News Corporation did not have a material accrual related to these matters.
Other
New News Corporation’s operations are subject to tax in various domestic and international jurisdictions and as a matter of course, New News Corporationis regularly audited by federal, state and foreign tax authorities. New News Corporation believes it has appropriately accrued for the expected outcome of allpending tax matters and does not currently anticipate that the ultimate resolution of pending tax matters will have a material adverse effect on its combinedfinancial condition, future results of operations or liquidity. Each member of the Parent consolidated group, which includes Parent, New News Corporation andParent’s other subsidiaries, is jointly and severally liable for the U.S. federal income tax liability of each other member of the consolidated group. Consequently,New News Corporation could be liable in the event any such liability is incurred, and not discharged, by any other member of the Parent consolidated group. Thetax sharing and indemnification agreement will require Parent to indemnify New News Corporation for any such liability. Disputes or assessments could ariseduring future audits by the taxing authorities.
New News Corporation establishes an accrued liability for legal claims when it determines that a loss is both probable and the amount of the loss can bereasonably estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any lossultimately incurred in relation to matters for which an accrual has been established may be higher or lower than the amounts accrued for such matters. Legal feesassociated with litigation and similar proceedings that are not expected to provide a benefit in future periods are expensed as incurred. Any fees, expenses, fines,penalties, judgments or settlements which might be incurred by New News Corporation in connection with the various proceedings could affect New NewsCorporation’s results of operations and financial condition. For the contingencies disclosed above for which there is at least a reasonable possibility that a lossmay be incurred, New News Corporation was unable to estimate the amount of loss or range of loss.
NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFITS
Plans in the U.S., U.K. and Australia that are sponsored by entities included in New News Corporation (“Direct Plans”) are accounted for as defined benefitpension plans and these costs are included in the net periodic benefit costs—Direct below. Certain of our U.S. employees participate in defined benefit pensionplans (“Shared Plans”) sponsored by Parent, which include participants of other Parent subsidiaries and these costs are included in the net periodic benefit costs—Employees participation in Parent plans below. In addition, a portion of the remaining Shared Plans expense was allocated to New News Corporation and thesecosts are included in net periodic benefit costs—Corporate allocations.
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The components of net periodic benefits costs were as follows: Pension benefits Postretirement benefits For the six months ended December 31, 2012 2011 2012 2011 (in millions) Service cost benefits earned during the period $ 10 $ 9 $ 1 $ 1 Interest costs on projected benefit obligations 31 37 4 5 Expected return on plan assets (38) (41) — — Amortization of deferred losses 10 8 — — Other 5 — (4) (8)
Net periodic benefits costs—Direct 18 13 1 (2) Employees participation in Parent plans 9 5 N/A N/A Corporate allocations 2 2 N/A N/A
Net periodic benefits costs—Total $ 29 $ 20 $ 1 $ (2)
Cash contributions $ 20 $ 17 $ 6 $ 6
N/A—not applicable
NOTE 11. SEGMENT INFORMATION
New News Corporation manages and reports its businesses in the following five segments:
• News and Information Services—The News and Information Services segment includes the global product offerings of The Wall Street Journal andBarron’s publications, The Wall Street Journal Digital Network (“WSJDN”) and New News Corporation’s suite of information services including DowJones Newswires and Factiva. In addition to WSJ.com and Barrons.com, WSJDN includes MarketWatch, AllThingsD and related services. New NewsCorporation also owns, among other publications, The Australian, Herald Sun, The Daily Telegraph and The Courier Mail in Australia, The Times, TheSunday Times and The Sun in the U.K. and The New York Post in the U.S. This segment also includes the integrated marketing services business, NewsAmerica Marketing Group (“NAMG”), a leading provider of free-standing coupon inserts, in-store marketing products and digital-savings marketingsolutions. NAMG’s customers include many of the largest consumer packaged goods advertisers in the U.S. and Canada.
• Cable Network Programming—The Cable Network Programming segment consists of FOX SPORTS Australia, the leading sports programmingprovider in Australia with seven standard definition television channels, high definition versions of five of these channels, an interactive viewingapplication and one IPTV channel and rights to live sporting events in Australia including: National Rugby League, the domestic football league,English Premier League, Australian and international cricket as well as the NFL. Prior to the November 2012 acquisition of the portion of FOXSPORTS Australia that it did not own, New News Corporation accounted for its investment in FOX SPORTS Australia under the equity method ofaccounting. New News Corporation now owns 100% of FOX SPORTS Australia and its results are included within this new segment.
• Digital Real Estate Services—New News Corporation owns 61.6% of REA Group Limited (“REA”), a publicly traded company listed on the
Australian Securities Exchange (ASX: REA) that is a leading digital advertising business specializing in real estate services. REA operates Australia’slargest residential property website, realestate.com.au, as well as Australia’s leading commercial property
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website, realcommercial.com.au. REA also operates a market-leading Italian property site, casa.it, and other property sites and apps across Europe andHong Kong.
• Book Publishing —The HarperCollins book publishing segment is one of the largest English-language consumer publishers in the world, withparticular strengths in general fiction, nonfiction, children’s and religious publishing, and an industry leader in digital publishing. HarperCollinsincludes over 60 branded publishing imprints including Avon, Harper, HarperCollins Children’s Publishers, William Morrow and Christian publishersZondervan and Thomas Nelson, and publishes works by well-known authors such as J.R.R. Tolkien, Paulo Coelho, Rick Warren and Agatha Christieand popular titles such as The Hobbit, Goodnight Moon and To Kill a Mockingbird.
• Other—The Other segment primarily consists of Amplify, New News Corporation’s digital education business focused on the K-12 learning market,and general corporate overhead expenses. Amplify focuses on three areas of business: assessment and analytics; digital content and curriculum; andmobile distribution systems designed for education. Amplify Insight, Amplify’s assessment and analytics division, operates as Wireless Generation,Inc. (“Wireless Generation”), which commenced operations in 2000 and was acquired by Parent in fiscal 2011. Wireless Generation provides premiumassessment and analytics services to enable real-time personalization of educational content. Through its Amplify Learning division, Amplify iscreating innovative digital curricula for K-12 education designed to enhance teaching and learning in English Language Arts, Science and Math.Through its Amplify Access division, Amplify is developing an open, tablet-based education platform that integrates its existing assessment andanalytics tools and services with its digital curricula as well as third-party content and interactive applications.
New News Corporation’s operating segments have been determined in accordance with its internal management structure, which is organized based onoperating activities and has aggregated its newspaper and information services business with its integrated marketing services business into one reportablesegment due to their similarities. New News Corporation evaluates performance based upon several factors, of which the primary financial measure is SegmentEBITDA.
Segment EBITDA is defined as revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include:Depreciation and amortization, impairment and restructuring charges, equity earnings of affiliates, interest, net, other, net, income tax expense and net incomeattributable to noncontrolling interests. New News Corporation believes that information about Segment EBITDA assists all users of its combined financialstatements by allowing them to evaluate changes in the operating results of New News Corporation’s portfolio of businesses separate from non-operationalfactors that affect net (loss) income, thus providing insight into both operations and the other factors that affect reported results.
Segment EBITDA is a non-GAAP measure and should be considered in addition to, not as a substitute for, net (loss) income, cash flow and other measuresof financial performance reported in accordance with GAAP. In addition, this measure does not reflect cash available to fund requirements and excludes items,such as depreciation and amortization and impairment and restructuring charges, which are significant components in assessing New News Corporation’sfinancial performance.
Management believes that Segment EBITDA is an appropriate measure for evaluating the operating performance of New News Corporation’s business.Segment EBITDA provides management, investors and equity analysts measures to analyze operating performance of the New News Corporation’s business andits enterprise value against historical data and competitors’ data, although historical results, including Segment EBITDA, may not be indicative of future results(as operating performance is highly contingent on many factors, including customer tastes and preferences).
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For the six months ended
December 31, 2012 2011 (in millions) Revenues:
News and Information Services $ 3,438 $ 3,579 Cable Network Programming 53 — Digital Real Estate Services 168 139 Book Publishing 729 620 Other 66 52
Total Revenues 4,454 4,390
Segment EBITDA: News and Information Services $ 418 $ 471 Cable Network Programming 19 — Digital Real Estate Services 81 61 Book Publishing 91 72 Other (220) (165)
Total Segment EBITDA 389 439
Depreciation and amortization (254) (239) Impairment and restructuring charges (177) (97) Equity earnings of affiliates 54 58 Interest, net 29 30 Other, net 1,255 (1)
Income before income tax benefit (expense) 1,296 190 Income tax benefit (expense) 32 (62)
Net income 1,328 128 Less: Net income attributable to noncontrolling interests (21) (17)
Net income attributable to New News Corporation $ 1,307 $ 111
As of December 31,
2012 As of June 30,
2012 (in millions) Total assets:
News and Information Services $ 9,224 $ 9,662 Cable Network Programming 1,488 — Digital Real Estate Services 382 346 Book Publishing 1,624 1,290 Other 671 666 Investments 3,172 1,126
Total assets $ 16,561 $ 13,090
Goodwill and intangible assets, net: News and Information Services $ 4,086 $ 4,060 Cable Network Programming 1,157 — Digital Real Estate Services 86 85 Book Publishing 607 454 Other 411 450
Total goodwill and intangible assets, net $ 6,347 $ 5,049
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NEW NEWS CORPORATION
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
Revenues by Component
For the six months ended
December 31, 2012 2011 (in millions) Revenues:
Advertising $ 2,204 $ 2,380 Circulation and Subscription 1,262 1,189 Consumer 672 584 Other 316 237
Total Revenues $ 4,454 $ 4,390
NOTE 12. ADDITIONAL FINANCIAL INFORMATION
Income Taxes
New News Corporation’s effective income tax rate for the six months ended December 31, 2012 was lower than the statutory rate of 35%, primarily due toa 39% rate reduction due to the non-taxable gain and reversal of the historic deferred tax liability related to the consolidation of FOX SPORTS Australia, a 1%rate reduction due to our foreign operations which are subject to lower tax rates partially offset by a 1% rate increase due to permanent differences.
The effective income tax rate for the six months ended December 31, 2011 was lower than the statutory rate of 35%, primarily due to a 12% rate reductiondue to our foreign operations which are subject to lower tax rates and a 9% rate reduction due to permanent differences.
At the end of each interim period, New News Corporation estimates the annual effective tax rate and applies that rate to its ordinary quarterly earnings. Thetax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, and areindividually computed, are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax statusis recognized in the interim period in which the change occurs.
New News Corporation paid $50 million and $75 million for income taxes during the six months ended December 31, 2012 and 2011, respectively.
Receivables, net
Receivables are presented net of an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be collectible. Indetermining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and acceptance of NewNews Corporation’s products. Based on this information, management reserves a percentage of each dollar of product sales that provide the customer with theright of return. The allowance for doubtful accounts is estimated based on historical experience, receivable aging, current economic trends and specificidentification of certain receivables that are at risk of not being paid.
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NEW NEWS CORPORATION
NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS (CONTINUED)
Receivables, net consist of:
As of
December 31, 2012 As of
June 30, 2012 (in millions) Receivables $ 1,849 $ 1,555 Allowances for returns and doubtful accounts (193) (186)
Receivables, net $ 1,656 $ 1,369
Other, net
The following table sets forth the components of Other, net included in the unaudited combined statements of operations:
For the six months ended
December 31, 2012 2011 (in millions) Gain on CMH transaction $ 1,258 $ — Other (3) (1)
Total Other, net $ 1,255 $ (1)
See Note 2—Acquisitions, Disposals and Other Transactions
NOTE 13. SUBSEQUENT EVENTS
In March 2013, New News Corporation sold its 44% equity interest in SKY Network Television Ltd. for approximately $675 million and expects to recorda gain on this transaction in the third quarter of fiscal 2013.
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