On June 28, 2012, News Corporation ("Parent") announced its
intent to pursue the separation of its business into two separate
independent public companies, one of which will hold Parent's
global media and entertainment businesses and another which will
hold 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-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 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 shares of 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 News
Corporation, 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 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, Parent may 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 absolute
discretion, 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 its consolidated
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 of Parent. These statements
reflect the combined historical results of operations, financial
position and cash flows of Parent's publishing businesses, its
education division and other Australian assets in accordance with
U.S. generally accepted accounting principles ("GAAP"). For ease of
reference, these combined financial statements 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 accounts within 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 News Corporation 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 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. These expenses have been allocated to New News Corporation
on the basis of direct usage when identifiable, 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
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NOTES TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
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 not reflect our combined results of
operations, financial position and cash flows had we been a
stand-alone company during the periods presented. Actual costs that
would have been incurred if New News Corporation had been a
stand-alone company would depend on multiple factors, including
organizational structure and strategic 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 specifically identifiable or otherwise attributable
to New News Corporation. All significant intracompany transactions
and accounts within New News Corporation's combined businesses have
been eliminated. All significant intercompany transactions between
Parent and New News Corporation have been included within Parent
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 a capital transaction. When New News
Corporation ceases to have a controlling interest in a consolidated
subsidiary New News Corporation will recognize a gain or 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 the reported amounts of assets and liabilities as of
the date of the combined financial statements and the reported
amounts of revenues and expenses during the reporting period.
Because of the use of estimates inherent in the financial reporting
process, actual results could differ from those estimates. Our
critical accounting 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 September 30, 2012 and September 30, 2011 relate to
the three months ended September 30, 2012 and October 2, 2011,
respectively. For convenience purposes, New News Corporation
continues to date its financial statements as of September 30.
NOTE 2. ACQUISITIONS, DISPOSALS AND OTHER TRANSACTIONS
Acquisitions
In July 2012, New News Corporation acquired Thomas Nelson, Inc.
("Thomas Nelson"), one of the leading Christian book publishers in
the U.S., for approximately $200 million in cash. In accordance
with Accounting Standards Codification ("ASC") 350,
"Intangibles-Goodwill and Other," the purchase price has been
preliminarily allocated to intangibles. The amount allocated to
intangibles is subject to change pending the completion of final
valuations of certain assets and liabilities. A change in the
purchase price allocation and any estimates of useful lives could
result in a change in the value allocated to the intangible assets
that could impact future amortization expense.
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.
In July 2011, New News Corporation acquired Kidspot.com.au
Limited, a pregnancy and parenting website, for approximately $50
million in cash.
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(CONTINUED)
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 public officials. 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 recorded
restructuring 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 ongoing
investigations by U.K. and U.S. regulators and governmental
authorities relating to phone 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 the phone hacking allegations and has settled a
number of cases. Parent created an independently-chaired Management
& Standards Committee (the "MSC") to ensure cooperation with
all relevant investigations and inquiries into The News of the
World 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 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 independent directors of the Parent Board
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