Fiscal 2018 Third Quarter Key Financial
Highlights
- Revenues of $2.10 billion, a 6%
increase compared to $1.98 billion in the prior year, with growth
in every segment
- Net loss was ($1.1) billion compared
to nil in the prior year. The loss includes non-cash impairment
charges and write-downs of $1.2 billion
- Total Segment EBITDA was $182
million compared to $215 million in the prior year
- Reported EPS were ($1.94) compared
to ($0.01) in the prior year – Adjusted EPS were $0.06 compared to
$0.07 in the prior year
- Digital Real Estate Services segment
revenues grew 27%, benefiting from product innovation and improved
yield at both REA Group and realtor.com®
- Digital revenues represented 29% of
News and Information Services segment revenues, compared to 24% in
the prior year, reflecting strong paid digital subscriber growth at
mastheads
- Completed the transaction to combine
Foxtel and FOX SPORTS Australia in April 2018, with the Company
holding 65% of the combined company
News Corporation (“News Corp” or the “Company”)
(NASDAQ:NWS)(NASDAQ:NWSA)(ASX:NWS)(ASX:NWSLV) today reported
financial results for the three months ended March 31, 2018.
Commenting on the results, Chief Executive Robert Thomson
said:
“We finished the fiscal third quarter with strong revenue
growth, led by outstanding performances at our Digital Real Estate
Services and Book Publishing segments. Revenues this quarter
improved by 6 percent and are up 4 percent for the first nine
months of this fiscal year.
We welcome Foxtel to our corporate family. We believe the
company is uniquely positioned, given its potential in a rapidly
expanding OTT market, with unrivaled sports offerings and premium
entertainment and news content. From the fourth quarter, the
combination of digital real estate services and pay-TV businesses
will account for more than half of our profits and significantly
increase recurring subscription-based revenues.
The third quarter once again highlighted the strength of our
global digital real estate platform. The segment posted robust 27
percent growth in revenues, as both REA Group and realtor.com®
benefited from product innovation and higher yields while becoming
more holistic sites for home buyers and sellers.
At our mastheads, digital audience expanded at a time when
premium news has become more important to readers and advertisers.
The Wall Street Journal, The Times and Sunday Times, and The
Australian reported average growth in digital subscriptions of more
than 20 percent for the quarter, a testament to the success of
their digital transformation.
Reported earnings in the third quarter were affected by a
non-cash write-down of our investment in Foxtel, as we previously
disclosed in March, and non-cash impairment charges, mostly related
to News America Marketing.
The digital eco-system is clearly evolving and regulators in
many countries are grappling with the profound impact of
unprecedently powerful digital platforms. There is no doubt that
governments should create an Algorithm Review Board to oversee
these historically influential digital platforms and ensure that
there is no algorithmic abuse or censorship, commercially or
politically.”
THIRD QUARTER RESULTS
The Company reported fiscal 2018 third quarter total revenues of
$2.10 billion, a 6% increase compared to $1.98 billion in the prior
year period, reflecting strong growth in the Digital Real Estate
Services and Book Publishing segments and a $70 million positive
impact from foreign currency fluctuations. The growth was partially
offset by lower print advertising and News America Marketing
revenues at the News and Information Services segment. Adjusted
Revenues (which exclude the foreign currency impact and
acquisitions and divestitures as defined in Note 1) increased
2%.
Net loss for the quarter was ($1.1) billion as compared to nil
in the prior year. The loss was primarily driven by non-cash
write-downs of $998 million related to Foxtel and FOX SPORTS
Australia, as well as a non-cash impairment charge of $165 million
at News America Marketing.
The Company reported third quarter Total Segment EBITDA of $182
million, a 15% decline compared to $215 million in the prior year,
driven by an increase in expenses at the Cable Network Programming
segment as a result of the timing of programming amortization
related to the launch of a dedicated National Rugby League (“NRL”)
channel and higher NRL sports programming rights costs, higher
expenses at News UK and the absence of the prior period’s
adjustment to the deferred consideration accrual related to the
Unruly acquisition. Adjusted Total Segment EBITDA (as defined in
Note 1) decreased 18%.
Loss per share available to News Corporation stockholders was
($1.94) as compared to ($0.01) in the prior year.
Adjusted EPS (as defined in Note 3) were $0.06 compared to $0.07
in the prior year.
SEGMENT REVIEW
For the three months ended For the nine months
ended March 31, March 31, 2018 2017 % Change 2018
2017 % Change (in millions) Better/
(Worse)
(in millions) Better/
(Worse)
Revenues: News and Information
Services $ 1,286 $ 1,263 2 % $ 3,825 $ 3,788 1 % Book Publishing
398 374 6 % 1,268 1,229 3 % Digital Real Estate Services 279 219 27
% 842 687 23 % Cable Network Programming 129 122 6 % 394 354 11 %
Other 1 - **
2 1 100 %
Total Revenues $ 2,093 $ 1,978 6
% $ 6,331 $ 6,059 4 %
Segment EBITDA: News and Information Services(a) $ 85
$ 123 (31 ) % $ 298 $ 311 (4 ) % Book Publishing 43 37 16 % 173 160
8 % Digital Real Estate Services 88 75 17 % 302 237 27 % Cable
Network Programming 16 34 (53 ) % 76 99 (23 ) % Other(b)
(50 ) (54 ) 7 % (89 )
(137 ) 35 %
Total Segment EBITDA $
182 $ 215 (15 ) % $ 760 $
670 13 % ** - Not meaningful (a)
News and Information Services Segment EBITDA for the nine months
ended March 31, 2017 included transaction related costs of $5
million associated with the acquisition of Wireless Group. (b)
Other Segment EBITDA for the nine months ended March 31, 2018
includes a $46 million benefit from the reversal of certain
previously accrued net liabilities for the U.K. Newspaper Matters
as a result of an agreement reached with the relevant tax authority
related to certain employment taxes.
News and Information Services
Revenues in the quarter increased $23 million, or 2%, compared
to the prior year. Within the segment, News UK and Dow Jones
revenues grew 10% and 4%, respectively, while revenues at News
America Marketing and News Corp Australia declined 5% and 3%,
respectively. Adjusted Revenues for the segment were 2% lower
compared to the prior year.
Advertising revenues declined 3% compared to the prior year. The
decline was driven by weakness in the print advertising market,
mainly in Australia and the U.S., lower revenues at News America
Marketing and the decision to cease The Wall Street Journal’s
international print editions in the second quarter of fiscal 2018.
The decline was partially offset by the positive impact from
foreign currency fluctuations, a modest increase in digital
advertising revenues at News Corp Australia and Dow Jones and a
slight increase in advertising revenues at News UK.
Circulation and subscription revenues increased 7%, primarily
due to a healthy contribution from Dow Jones, which again saw a 10%
increase in its circulation revenues, reflecting continued digital
subscriber growth at The Wall Street Journal, and strong growth in
its professional information business, as well as the positive
impact from foreign currency fluctuations. Cover and subscription
price increases also contributed to the revenue improvement. These
increases were partially offset by lower newsstand volume at News
UK.
Segment EBITDA declined $38 million in the quarter, or 31%, as
compared to the prior year, primarily due to higher expenses at
News UK, as well as the absence of the prior year period’s $12
million adjustment to the deferred consideration accrual related to
the Unruly acquisition.
Digital revenues represented 29% of News and Information
Services segment revenues in the quarter, compared to 24% in the
prior year. For the quarter, digital revenues for Dow Jones and the
newspaper mastheads represented 33% of their combined revenues, and
at Dow Jones, digital accounted for 52% of its circulation
revenues. Digital subscribers and users across key properties
within the News and Information Services segment are summarized
below:
- The Wall Street Journal average daily
digital subscribers in the three months ended March 31, 2018 were
1,490,000, compared to 1,198,000 in the prior year (Source:
Internal data)
- Closing digital subscribers at News
Corp Australia’s mastheads as of March 31, 2018 were 409,000,
compared to 333,400 in the prior year (Source: Internal data)
- The Times and Sunday Times closing
digital subscribers as of March 31, 2018 were 230,000, compared to
185,000 in the prior year (Source: Internal data)
- The Sun’s digital offering reached
approximately 84 million global monthly unique users in March 2018,
compared to more than 80 million in the prior year, based on ABCe
(Source: Omniture)
Book Publishing
Revenues in the quarter increased $24 million, or 6%, compared
to the prior year, primarily due to higher sales in general and
Christian publishing, including the success of frontlist titles
such as The Woman in the Window by A. J. Finn and The Rock, the
Road, and the Rabbi by Kathie Lee Gifford, and the continued
strength of backlist titles such as The Subtle Art of Not Giving a
F*ck by Mark Manson, as well as the $10 million positive impact
from foreign currency fluctuations. Digital sales increased 5%
compared to the prior year and represented 22% of Consumer revenues
for the quarter, driven by the growth in downloadable audiobook
sales. Segment EBITDA for the quarter increased $6 million, or 16%,
from the prior year due to the higher revenues noted above and the
mix of titles. Adjusted Revenues increased 4% and Adjusted Segment
EBITDA (as defined in Note 1) increased 16%.
Digital Real Estate Services
Revenues in the quarter increased $60 million, or 27%, compared
to the prior year, primarily due to the continued strong growth at
REA Group and Move. Segment EBITDA in the quarter increased $13
million, or 17%, compared to the prior year, primarily due to the
higher revenues discussed above, partially offset by higher costs
associated with higher revenues and higher marketing costs,
primarily at Move. Adjusted Revenues and Adjusted Segment EBITDA
increased 18% and 12%, respectively.
In the quarter, revenues at REA Group increased 35% to $158
million from $117 million in the prior year, primarily due to an
increase in Australian residential depth revenue, driven by
favorable product mix and pricing increases, as well as higher
financial services revenues driven by the acquisition of
Smartline.
Move’s revenues in the quarter increased 15% to $115 million
from $100 million in the prior year, primarily due to the continued
growth in its Connections℠ for Buyers product, driven by
improvement in yield optimization and an increase in leads and
customers. Based on Move’s internal data, average monthly unique
users of realtor.com®’s web and mobile sites for the fiscal third
quarter grew 10% year-over-year to approximately 61 million, with
mobile representing more than half of all unique users.
Cable Network Programming
Revenues in the quarter increased $7 million, or 6%, compared to
the prior year, primarily due to the positive impact from foreign
currency fluctuations and higher affiliate revenues at FOX SPORTS
Australia and Australian News Channel. Segment EBITDA in the
quarter decreased $18 million, or 53%, compared with the prior
year, primarily due to the timing of programming amortization
related to the launch of a dedicated NRL channel at FOX SPORTS
Australia and higher NRL programming rights costs. Adjusted
Revenues and Adjusted Segment EBITDA increased 2% and declined 56%,
respectively.
REVIEW OF EQUITY LOSSES OF AFFILIATES’ RESULTS
Equity losses of affiliates for the third quarter were ($974)
million compared to ($23) million in the prior year.
For the three months ended For the nine months ended
March 31, March 31, 2018 2017 2018 2017 (in millions)
(in millions) Foxtel(a) $ (970 ) $ (16
) $ (974 ) $ (260 ) Other equity affiliates, net(b)
(4 ) (7 ) (28 ) (16 )
Total equity losses of affiliates $ (974 ) $ (23 ) $
(1,002 ) $ (276 ) (a) The Company amortized
$17 million and $49 million related to excess cost over the
Company’s proportionate share of its investment’s underlying net
assets allocated to finite-lived intangible assets during the three
and nine months ended March 31, 2018, respectively, and $16 million
and $53 million in the corresponding periods of fiscal 2017. Such
amortization is reflected in Equity losses of affiliates in the
Statements of Operations. During the three months ended March 31,
2018, the Company recognized a $957 million non-cash write-down of
its investment in Foxtel. During the nine months ended March 31,
2017, the Company recognized a $227 million non-cash write-down of
its investment in Foxtel. (b) During the nine months ended March
31, 2018, the Company recognized $13 million in non-cash
write-downs of certain equity method investments’ carrying values,
which is reflected in Equity losses of affiliates in the Statements
of Operations.
On a U.S. GAAP basis, Foxtel revenues for the third quarter
declined $4 million, or 1%, to $587 million from $591 million in
the prior year period. In local currency, Foxtel revenues decreased
4% due to subscriber mix and lower advertising revenues. Foxtel’s
total closing subscribers were approximately 2.8 million as of
March 31, 2018, which was higher than the prior year, primarily due
to the launch of Foxtel Now. In the third quarter, cable and
satellite churn was 15.4% compared to 16.1% in the prior year.
Broadcast residential ARPU for the third quarter declined 1%
compared to the prior year.
Foxtel’s net income of $8 million increased from nil in the
prior year period, primarily due to the absence of the losses
associated with Foxtel management’s decision to cease Presto
operations in January 2017 and the losses resulting from the change
in the fair value of Foxtel’s investment in Ten Network Holdings,
lower interest expense, as well as lower non-programming expenses,
partially offset by planned increases in sports rights costs.
Equity losses of affiliates for Foxtel of ($970) million and ($16)
million for the three months ended March 31, 2018 and 2017,
respectively, reflect the Company's share of Foxtel's net income,
less the Company's amortization of $17 million and $16 million,
respectively, related to the Company's excess cost over its share
of Foxtel's finite-lived intangible assets, as well as the $957
million non-cash write-down of the carrying value of Foxtel in the
quarter.
During the three months ended March 31, 2018, the Company
recognized a $957 million non-cash write-down of the carrying value
of its investment in Foxtel. In the third quarter of fiscal 2018,
as part of the Company’s long range planning process and in
preparation for a potential transaction with Telstra Corporation
Limited to combine Foxtel and FOX SPORTS Australia (the
“Transaction”), the Company assessed the long-term prospects for
Foxtel, on both a stand-alone and combined basis. As a result of
lower-than-expected revenues from certain new products and
broadcast subscribers at Foxtel, the Company revised its outlook
for Foxtel, which resulted in a reduction in expected future cash
flows. Based on the revised projections, the Company concluded that
the fair value of its investment in Foxtel declined below its
carrying value.
Foxtel EBITDA declined $27 million, or 21%, to $104 million from
$131 million in the prior year. In local currency, Foxtel EBITDA
decreased 24% due to the lower revenues discussed above and planned
increases in sports programming costs of $18 million, primarily
related to the Australian Football League rights, partially offset
by lower non-programming costs. Foxtel operating income declined to
$35 million from $79 million in the prior year, primarily as a
result of the increased programming spend noted above. Operating
income includes higher depreciation and amortization of $69 million
compared to $52 million in the prior year.
CASH FLOW
The following table presents a reconciliation of net cash
provided by continuing operating activities to free cash flow
available to News Corporation:
For the nine months ended
March 31,
2018 2017 (in millions) Net cash provided by
continuing operating activities $ 465 $ 224 Less: Capital
expenditures (200 ) (168 ) 265 56 Less:
REA Group free cash flow (144 ) (128 ) Plus: Cash dividends
received from REA Group 63 53
Free cash flow available to News Corporation $ 184
$ (19 )
Net cash provided by continuing operating activities improved
$241 million for the nine months ended March 31, 2018 as compared
to the prior year period, primarily due to the absence of the NAM
Group’s settlement payments of $256 million, lower restructuring
payments of $29 million and higher Total Segment EBITDA, partially
offset by increased working capital primarily due to the reversal
of a portion of the previously accrued net liability related to the
U.K. Newspaper Matters as a result of an agreement reached with the
relevant tax authority and certain timing-related items, as well as
higher net tax payments of $22 million.
Free cash flow available to News Corporation in the nine months
ended March 31, 2018 was $184 million compared to ($19) million in
the prior year period. The improvement was primarily due to higher
net cash provided by continuing operating activities as discussed
above, partially offset by higher capital expenditures.
Free cash flow available to News Corporation is a non-GAAP
financial measure defined as net cash provided by continuing
operating activities, less capital expenditures (“free cash flow”),
less REA Group free cash flow, plus cash dividends received from
REA Group. Free cash flow available to News Corporation excludes
cash flows from discontinued operations.
The Company considers free cash flow available to News
Corporation to provide useful information to management and
investors about the amount of cash that is available to be used to
strengthen the Company’s balance sheet and for strategic
opportunities including, among others, investing in the Company’s
business, strategic acquisitions, dividend payouts and repurchasing
stock. The Company believes excluding REA Group’s free cash flow
and including dividends received from REA Group provides users of
its consolidated financial statements with a measure of the amount
of cash flow that is readily available to the Company, as REA Group
is a separately listed public company in Australia and must declare
a dividend in order for the Company to have access to its share of
REA Group’s cash balance. The Company believes free cash flow
available to News Corporation provides a more conservative view of
the Company’s free cash flow because this presentation includes
only that amount of cash the Company actually receives from REA
Group, which has generally been lower than the Company’s unadjusted
free cash flow. A limitation of free cash flow available to News
Corporation is that it does not represent the total increase or
decrease in the cash balance for the period. Management compensates
for the limitation of free cash flow available to News Corporation
by also relying on the net change in cash and cash equivalents as
presented in the Company’s consolidated statements of cash flows
prepared in accordance with GAAP which incorporates all cash
movements during the period.
OTHER ITEMS
Foxtel and FOX SPORTS Australia Combination
In March 2018, News Corp and Telstra entered into a definitive
agreement to combine their respective 50% interests in Foxtel and
News Corp's 100% interest in FOX SPORTS Australia into a new
company. Following completion of the transaction in April 2018,
News Corp owns a 65% interest in the combined company, and Telstra
owns the remaining 35%. The combination will allow Foxtel and FOX
SPORTS Australia to leverage their media platforms and content to
improve services for consumers and advertisers. The results of the
combined business will be reported within the new Subscription
Video Services segment and it will be considered a separate
reporting unit for purposes of the Company’s annual goodwill
impairment review. Foxtel’s outstanding debt of approximately $1.7
billion as of March 31, 2018 will be included in the Company’s
balance sheet beginning in the fourth quarter of fiscal 2018.
Hometrack Australia Pty Ltd
In May 2018, REA Group entered into an agreement to acquire
Hometrack Australia Pty Ltd (“Hometrack Australia”) for A$130
million (approximately $100 million) in cash, which will be funded
with a mix of cash on hand and debt of A$70 million (approximately
$55 million). The acquisition is subject to customary closing
conditions, including regulatory approval. Hometrack Australia is a
residential property data company and will allow REA Group to
deliver more property data and insights to its customers and
consumers. Hometrack Australia will be a subsidiary of REA Group
and its results will be included within the Digital Real Estate
Services segment.
COMPARISON OF ADJUSTED INFORMATION TO U.S. GAAP
INFORMATION
Adjusted Revenues, Total Segment EBITDA, Adjusted Total Segment
EBITDA, Adjusted Segment EBITDA, adjusted net income available to
News Corporation stockholders, Adjusted EPS and free cash flow
available to News Corporation are non-GAAP financial measures
contained in this earnings release. The Company believes these
measures are important tools for investors and analysts to use in
assessing the Company’s underlying business performance and to
provide for more meaningful comparisons of the Company’s operating
performance between periods. These measures also allow investors
and analysts to view the Company’s business from the same
perspective as Company management. These non-GAAP measures may be
different than similar measures used by other companies and should
be considered in addition to, not as a substitute for, measures of
financial performance calculated in accordance with GAAP.
Reconciliations for the differences between non-GAAP measures used
in this earnings release and comparable financial measures
calculated in accordance with U.S. GAAP are included in Notes 1, 2
and 3 and the reconciliation of net cash provided by continuing
operating activities to free cash flow available to News
Corporation is included above.
Conference call
News Corporation’s earnings conference call can be heard live at
5:00pm EDT on May 10, 2018. To listen to the call, please visit
http://investors.newscorp.com.
Cautionary Statement Concerning Forward-Looking
Statements
This document contains certain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management’s views and
assumptions regarding future events and business performance as of
the time the statements are made. Actual results may differ
materially from these expectations due to changes in global
economic, business, competitive market and regulatory factors. More
detailed information about these and other factors that could
affect future results is contained in our filings with the
Securities and Exchange Commission. The “forward-looking
statements” included in this document are made only as of the date
of this document and we do not have any obligation to publicly
update any “forward-looking statements” to reflect subsequent
events or circumstances, except as required by law.
About News Corporation
News
Corporation (NASDAQ:NWS)(NASDAQ:NWSA)(ASX:NWS)(ASX:NWSLV) is
a global, diversified media and information services company
focused on creating and distributing authoritative and engaging
content to consumers throughout the world. The company
comprises businesses across a range of media, including: news and
information services, book publishing, digital real estate
services, cable network programming in Australia, and pay-TV
distribution in Australia. Headquartered in New York, the
activities of News Corporation are conducted primarily in the
United States, Australia, and the United Kingdom. More information
is available at: www.newscorp.com.
NEWS CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited; in millions, except per
share amounts)
For the three months ended For the nine months
ended March 31, March 31, 2018 2017 2018 2017
Revenues: Advertising $ 687 $ 705 $ 2,059 $ 2,123 Circulation and
subscription 659 618 1,947 1,834 Consumer 381 359 1,220 1,183 Real
estate 208 168 633 525 Other 158 128
472 394 Total Revenues 2,093
1,978 6,331 6,059 Operating expenses (1,151 ) (1,101 )
(3,439 ) (3,384 ) Selling, general and administrative (760 ) (662 )
(2,132 ) (2,005 ) Depreciation and amortization (100 ) (109 ) (297
) (349 ) Impairment and restructuring charges (246 ) (33 ) (273 )
(409 ) Equity losses of affiliates (974 ) (23 ) (1,002 ) (276 )
Interest, net 2 8 9 30 Other, net 29 (13 )
6 127 (Loss) income before income tax
expense (1,107 ) 45 (797 ) (207 ) Income tax expense (3 )
(45 ) (292 ) (12 ) Net loss (1,110 ) - (1,089
) (219 ) Less: Net income attributable to noncontrolling interests
(18 ) (5 ) (54 ) (90 ) Net loss
attributable to News Corporation stockholders $ (1,128 ) $ (5 ) $
(1,143 ) $ (309 ) Less: Adjustments to Net loss attributable to
News Corporation stockholders – Redeemable preferred stock
dividends - - (1 ) (1 )
Net loss available to News Corporation stockholders $ (1,128 ) $ (5
) $ (1,144 ) $ (310 ) Weighted average shares outstanding:
Basic and diluted 583 582 583 581 Net loss available to News
Corporation stockholders per share - basic and diluted $ (1.94 ) $
(0.01 ) $ (1.96 ) $ (0.53 )
NEWS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions)
As of March 31,
As of June 30,
2018
2017
ASSETS (unaudited) (audited) Current assets: Cash and cash
equivalents $ 2,112 $ 2,016 Receivables, net 1,328 1,276 Other
current assets 546 523 Total current
assets 3,986 3,815 Non-current
assets: Investments 957 2,027 Property, plant and equipment, net
1,642 1,624 Intangible assets, net 2,226 2,281 Goodwill 3,724 3,838
Deferred income tax assets 370 525 Other non-current assets
467 442 Total assets $ 13,372 $ 14,552
LIABILITIES AND EQUITY Current liabilities:
Accounts payable $ 230 $ 222 Accrued expenses 1,223 1,204 Deferred
revenue 448 426 Other current liabilities 566
600 Total current liabilities 2,467
2,452 Non-current liabilities: Borrowings 184 276
Retirement benefit obligations 301 319 Deferred income tax
liabilities 55 61 Other non-current liabilities 354 351
Commitments and contingencies Redeemable preferred stock 20
20 Equity: Class A common stock 4 4 Class B common stock 2 2
Additional paid-in capital 12,310 12,395 Accumulated deficit (1,792
) (648 ) Accumulated other comprehensive loss (829 )
(964 ) Total News Corporation stockholders' equity 9,695 10,789
Noncontrolling interests 296 284 Total
equity 9,991 11,073 Total liabilities
and equity $ 13,372 $ 14,552
NEWS CORPORATION
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited; in millions)
For the nine months ended March 31, 2018 2017
Operating activities: Net loss $ (1,089 ) $ (219 ) Less:
Income from discontinued operations, net of tax -
- Loss from continuing operations (1,089 ) (219 )
Adjustments to reconcile loss from continuing operations to
cash provided by operating activities: Depreciation and
amortization 297 349 Equity losses of affiliates 1,002 276 Cash
distributions received from affiliates 2 1 Impairment charges 225
321 Other, net (6 ) (127 ) Deferred income taxes and taxes payable
182 (76 ) Change in operating assets and liabilities, net of
acquisitions: Receivables and other assets (86 ) (126 )
Inventories, net (14 ) (8 ) Accounts payable and other liabilities
(48 ) 89 NAM Group settlement - (256 ) Net cash
provided by operating activities from continuing operations 465 224
Net cash used in operating activities from discontinued operations
- (5 ) Net cash provided by operating
activities 465 219
Investing
activities: Capital expenditures (200 ) (168 ) Changes in
restricted cash for Wireless Group acquisition - 315 Acquisitions,
net of cash acquired (62 ) (345 ) Investments in equity affiliates
and other (42 ) (93 ) Proceeds from property, plant and equipment
and other asset dispositions 137 232 Other, net 23 ) 10
Net cash used in investing activities from continuing
operations (144 ) (49 ) Net cash used in investing activities from
discontinued operations - - Net cash
used in investing activities (144 ) (49 )
Financing activities: Repayment of borrowings (93 ) (23 )
Dividends paid (99 ) (93 ) Other, net (42 ) (36 ) Net cash
used in financing activities from continuing operations (234 ) (152
) Net cash used in financing activities from discontinued
operations - - Net cash used in
financing activities (234 ) (152 ) Net
increase in cash and cash equivalents 87 18 Cash and cash
equivalents, beginning of period 2,016 1,832 Exchange movement on
opening cash balance 9 - Cash and cash
equivalents, end of period $ 2,112 $ 1,850
NOTE 1 – ADJUSTED REVENUES, ADJUSTED TOTAL SEGMENT EBITDA AND
ADJUSTED SEGMENT EBITDA
The Company uses revenues, Total Segment EBITDA and Segment
EBITDA excluding the impact of acquisitions, divestitures, fees and
costs, net of indemnification, related to the claims and
investigations arising out of certain conduct at The News of the
World (the “U.K. Newspaper Matters”) and foreign currency
fluctuations (“Adjusted Revenues,” “Adjusted Total Segment EBITDA”
and “Adjusted Segment EBITDA,” respectively) to evaluate the
performance of the Company’s core business operations exclusive of
certain items that impact the comparability of results from period
to period such as the unpredictability and volatility of currency
fluctuations. The Company calculates the impact of foreign currency
fluctuations for businesses reporting in currencies other than the
U.S. dollar by multiplying the results for each quarter in the
current period by the difference between the average exchange rate
for that quarter and the average exchange rate in effect during the
corresponding quarter of the prior year and totaling the impact for
all quarters in the current period.
The calculation of Adjusted Revenues, Adjusted Total Segment
EBITDA and Adjusted Segment EBITDA may not be comparable to
similarly titled measures reported by other companies, since
companies and investors may differ as to what type of events
warrant adjustment. Adjusted Revenues, Adjusted Total Segment
EBITDA and Adjusted Segment EBITDA are not measures of performance
under generally accepted accounting principles and should not be
construed as substitutes for amounts determined under GAAP as
measures of performance. However, management uses these measures in
comparing the Company’s historical performance and believes that
they provide meaningful and comparable information to investors to
assist in their analysis of our performance relative to prior
periods and our competitors.
The following tables reconcile reported revenues and reported
Total Segment EBITDA to Adjusted Revenues and Adjusted Total
Segment EBITDA for the three and nine months ended March 31, 2018
and 2017.
Revenues Total Segment EBITDA For the three
months ended For the three months ended March 31, March 31, 2018
2017 Difference 2018
2017
Difference (in millions) (in millions)
As reported $ 2,093 $ 1,978 $ 115 $ 182
$ 215 $ (33 ) Impact of acquisitions (15 ) - (15 ) - - -
Impact of divestitures - (3 ) 3 - - - Impact of
foreign currency fluctuations (70 ) - (70 ) (5 ) - (5 ) Net
impact of U.K. Newspaper Matters - - - 2 2 -
As adjusted $
2,008 $ 1,975 $ 33 $
179 $ 217 $ (38 )
Revenues Total Segment EBITDA For the nine months ended March 31,
For the nine months ended March 31, 2018 2017 Difference 2018 2017
Difference (in millions) (in millions)
As reported $
6,331 $ 6,059 $ 272 $ 760 $ 670 $ 90 Impact of acquisitions
(147 ) - (147 ) - 5 (5 ) Impact of divestitures - (46 ) 46 -
1 (1 ) Impact of foreign currency fluctuations (143 ) - (143
) (15 ) - (15 ) Net impact of U.K. Newspaper Matters - - -
(38 ) 6 (44 )
As adjusted $ 6,041 $
6,013 $ 28 $ 707 $ 682
$ 25
Adjusted Revenues and Adjusted Segment EBITDA by segment for the
three and nine months ended March 31, 2018 and 2017 are as
follows:
For the three months ended March 31, 2018 2017
% Change (in millions) Better/(Worse)
Adjusted Revenues: News and Information Services $ 1,236 $
1,260 (2 ) % Book Publishing 388 374 4 % Digital Real Estate
Services 258 219 18 % Cable Network Programming 125 122 2 % Other
1 - **
Total Adjusted Revenues $ 2,008 $
1,975 2 %
Adjusted Segment
EBITDA: News and Information Services $ 85 $ 123 (31 ) % Book
Publishing 43 37 16 % Digital Real Estate Services 84 75 12 % Cable
Network Programming 15 34 (56 ) % Other (48 )
(52 ) 8 %
Total Adjusted Segment EBITDA
$ 179 $ 217 (18 ) % ** -
Not meaningful For the nine months ended March 31, 2018
2017 % Change (in millions) Better/(Worse)
Adjusted Revenues: News and Information
Services $ 3,641 $ 3,766 (3 ) % Book Publishing 1,248 1,229 2 %
Digital Real Estate Services 785 663 18 % Cable Network Programming
365 354 3 % Other 2 1
100 %
Total Adjusted Revenues $ 6,041
$ 6,013 - %
Adjusted
Segment EBITDA: News and Information Services $ 288 $ 319 (10 )
% Book Publishing 172 160 8 % Digital Real Estate Services 290 235
23 % Cable Network Programming 84 99 (15 ) % Other
(127 ) (131 ) 3 %
Total Adjusted
Segment EBITDA $ 707 $ 682 4
%
The following tables reconcile reported revenues and Segment
EBITDA by segment to Adjusted Revenues and Adjusted Segment EBITDA
by segment for the three months ended March 31, 2018 and 2017.
For the three months ended March 31, 2018
Impact of
Net Impact of
Foreign
U.K.
Impact of
Currency
Newspaper
As Reported
Acquisitions
Fluctuations
Matters
As Adjusted (in millions)
Revenues: News and
Information Services $ 1,286 $ - $ (50 ) $ - $ 1,236 Book
Publishing 398 - (10 ) - 388 Digital Real Estate Services 279 (15 )
(6 ) - 258 Cable Network Programming 129 - (4 ) - 125 Other
1 - - - 1
Total Revenues $ 2,093 $ (15 ) $ (70 ) $ -
$ 2,008
Segment EBITDA: News and
Information Services $ 85 $ - $ - $ - $ 85 Book Publishing 43 - - -
43 Digital Real Estate Services 88 (1 ) (3 ) - 84 Cable Network
Programming 16 1 (2 ) - 15 Other (50 ) -
- 2 (48 )
Total Segment
EBITDA $ 182 $ - $ (5 ) $
2
$ 179 For the three months ended March 31,
2017
Net Impact of
U.K.
Impact of
Newspaper
As Reported
Divestitures
Matters
As Adjusted (in millions)
Revenues: News and
Information Services $ 1,263 $ (3 ) $ - $ 1,260 Book Publishing 374
- - 374 Digital Real Estate Services 219 - - 219 Cable Network
Programming 122 - - 122 Other - -
- -
Total Revenues $ 1,978
$ (3 ) $ - $ 1,975
Segment
EBITDA: News and Information Services $ 123 $ - $ - $ 123 Book
Publishing 37 - - 37 Digital Real Estate Services 75 - - 75 Cable
Network Programming 34 - - 34 Other (54 ) -
2
(52 )
Total Segment EBITDA $ 215 $ - $
2 $ 217
The following tables reconcile reported revenues and Segment
EBITDA by segment to Adjusted Revenues and Adjusted Segment EBITDA
by segment for the nine months ended March 31, 2018 and 2017.
For the nine months ended March 31, 2018
Impact of
Net Impact of
Foreign
U.K.
Impact of
Currency
Newspaper
As Reported
Acquisitions
Fluctuations
Matters
As Adjusted (in millions)
Revenues: News and
Information Services $ 3,825 $ (87 ) $ (97 ) $ - $ 3,641 Book
Publishing 1,268 - (20 ) - 1,248 Digital Real Estate Services 842
(41 ) (16 ) - 785 Cable Network Programming 394 (19 ) (10 ) - 365
Other 2 - - -
2
Total Revenues $ 6,331 $ (147
) $ (143 ) $ - $ 6,041
Segment EBITDA:
News and Information Services $ 298 $ (6 ) $ (4 ) $ - $ 288 Book
Publishing 173 - (1 ) - 172 Digital Real Estate Services 302 (4 )
(8 ) - 290 Cable Network Programming 76 10 (2 ) - 84 Other
(89 ) - - (38 ) (127 )
Total Segment EBITDA $ 760 $ - $ (15 ) $ (38 )
$ 707 For the nine months ended March 31, 2017
Net Impact of
U.K.
Impact of
Impact of
Newspaper
As Reported
Acquisitions
Divestitures
Matters
As Adjusted (in millions)
Revenues: News and
Information Services $ 3,788 $ - $ (22 ) $ - $ 3,766 Book
Publishing 1,229 - - - 1,229 Digital Real Estate Services 687 - (24
) - 663 Cable Network Programming 354 - - - 354 Other 1
- - - 1
Total Revenues $ 6,059 $ - $ (46 ) $ -
$ 6,013
Segment EBITDA: News and
Information Services $ 311 $ 5 $ 3 $ - $ 319 Book Publishing 160 -
- - 160 Digital Real Estate Services 237 - (2 ) - 235 Cable Network
Programming 99 - - - 99 Other (137 ) -
- 6 (131 )
Total Segment EBITDA
$ 670 $
5
$ 1 $
6
$ 682
NOTE 2 – TOTAL SEGMENT EBITDA
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 losses of affiliates, interest, net,
other, net, income tax (expense) benefit and net income
attributable to noncontrolling interests. Management believes that
Segment EBITDA is an appropriate measure for evaluating the
operating performance of the Company’s business segments because it
is the primary measure used by the Company’s chief operating
decision maker to evaluate the performance of and allocate
resources within the Company’s businesses. Segment EBITDA provides
management, investors and equity analysts with a measure to analyze
the operating performance of each of the Company’s business
segments and its enterprise value against historical data and
competitors’ data, although historical results may not be
indicative of future results (as operating performance is highly
contingent on many factors, 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 other measures of 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 the Company’s financial performance. The Company believes
that the presentation of Total Segment EBITDA provides useful
information regarding the Company’s operations and other factors
that affect the Company’s reported results. Specifically, the
Company believes that by excluding certain one-time or non-cash
items such as impairment and restructuring charges and depreciation
and amortization, as well as potential distortions between periods
caused by factors such as financing and capital structures and
changes in tax positions or regimes, the Company provides users of
its consolidated financial statements with insight into both its
core operations as well as the factors that affect reported results
between periods but which the Company believes are not
representative of its core business. As a result, users of the
Company’s consolidated financial statements are better able to
evaluate changes in the core operating results of the Company
across different periods. The following tables reconcile net loss
to Total Segment EBITDA.
For the three months ended March 31, 2018 2017
Change % Change (in millions) Net loss $ (1,110 ) $ -
$ (1,110 ) ** Add: Income tax expense 3 45 (42 ) (93 ) % Other, net
(29 ) 13 (42 ) ** Interest, net (2 ) (8 ) 6 75 % Equity losses of
affiliates 974 23 951 ** Impairment and restructuring charges 246
33 213 ** Depreciation and amortization 100
109 (9 ) (8 ) % Total Segment EBITDA $ 182 $
215 $ (33 ) (15 ) % ** - Not meaningful For
the nine months ended March 31, 2018 2017 Change % Change (in
millions) Net loss $ (1,089 ) $ (219 ) $ (870 ) ** Add:
Income tax expense 292 12 280 ** Other, net (6 ) (127 ) 121 95 %
Interest, net (9 ) (30 ) 21 70 % Equity losses of affiliates 1,002
276 726 ** Impairment and restructuring charges 273 409 (136 ) (33
) % Depreciation and amortization 297 349
(52 ) (15 ) % Total Segment EBITDA $ 760 $ 670
$ 90 13 % ** - Not meaningful
NOTE 3 – ADJUSTED NET INCOME (LOSS) AVAILABLE TO NEWS
CORPORATION STOCKHOLDERS AND ADJUSTED EPS
The Company uses net income (loss) available to News Corporation
stockholders and diluted earnings per share (“EPS”) excluding
expenses related to U.K. Newspaper Matters, impairment and
restructuring charges and “Other, net”, net of tax, recognized by
the Company or its equity method investees and the impact of the
Tax Act (“adjusted net income (loss) available to News Corporation
stockholders” and “adjusted EPS,” respectively), to evaluate the
performance of the Company’s operations exclusive of certain items
that impact the comparability of results from period to period. The
calculation of adjusted net income (loss) available to News
Corporation stockholders and adjusted EPS may not be comparable to
similarly titled measures reported by other companies, since
companies and investors may differ as to what type of events
warrant adjustment. Adjusted net income (loss) available to News
Corporation stockholders and adjusted EPS are not measures of
performance under generally accepted accounting principles and
should not be construed as substitutes for consolidated net income
(loss) available to News Corporation stockholders and net income
(loss) per share as determined under GAAP as a measure of
performance.
However, management uses these measures in comparing the
Company’s historical performance and believes that they provide
meaningful and comparable information to investors to assist in
their analysis of our performance relative to prior periods and our
competitors.
The following tables reconcile reported net loss available to
News Corporation stockholders and reported diluted EPS to adjusted
net income available to News Corporation stockholders and adjusted
EPS for the three and nine months ended March 31, 2018 and
2017.
For the three months ended For the three months ended
March 31, 2018 March 31, 2017
Net loss
Net loss
available to
EPS
available to
EPS
stockholders
stockholders
(in millions, except per share data)
Net loss $
(1,110 ) $ $ - $ Less: Net income attributable to noncontrolling
interests (18 ) (5 )
Loss available to News
Corporation stockholders $ (1,128 ) $ (1.94 ) $ (5 ) $ (0.01 )
U.K. Newspaper Matters 2 - 2 -
Impairment and restructuring charges
(a)
246 0.42 33 0.06 Other, net (29 ) (0.05 ) 13 0.02
Equity losses of affiliates (b)
957 1.65 10 0.02 Tax impact on items above (14 ) (0.02 ) (9
) (0.01 ) Impact of noncontrolling interest on items
included above - - (5 ) (0.01 )
As adjusted $ 34 $ 0.06 $
39 $ 0.07 (a) During the three months ended
March 31, 2018, the Company recognized $165 million and $41 million
of non-cash impairment charges at News America Marketing and FOX
SPORTS Australia, respectively. (b) During the three months ended
March 31, 2018, the Company recognized a $957 million non-cash
write-down of its investment in Foxtel. Foxtel’s net income in the
three months ended March 31, 2017 included a $21 million loss
resulting from Foxtel management’s decision to cease Presto
operations in January 2017. Equity losses of affiliates were
negatively affected by $10 million, which represents the Company’s
share of that loss. For the nine months ended
For the nine months ended March 31, 2018 March 31, 2017
Net loss
Net loss
available to
EPS
available to
EPS
stockholders
stockholders
(in millions, except per share data)
Net loss $
(1,089 ) $ $ (219 ) $ Less: Net income attributable to
noncontrolling interests (54 ) (90 ) Less: Redeemable preferred
stock dividends (1 ) (1 )
Loss available to News Corporation stockholders $ (1,144 ) $
(1.96 ) $ (310 ) $ (0.53 )
U.K. Newspaper Matters (a)
(38 ) (0.07 ) 6 0.01
Impairment and restructuring charges
(b)
273 0.47 409 0.70
Other, net (c)
(6 ) (0.01 ) (127 ) (0.22 )
Equity losses of affiliates (d)
970 1.66 248 0.43
Tax impact on items above (e)
(8 ) (0.01 ) (124 ) (0.21 )
Impact of Tax Act (f)
174 0.30 - - Impact of noncontrolling interest on items
included above (8 ) (0.01 ) 41 0.07
As adjusted $ 213 $ 0.37
$ 143 $ 0.25 (a) During the nine months
ended March 31, 2018, the Company recorded a $46 million benefit
from the reversal of certain previously accrued net liabilities for
the U.K. Newspaper Matters as a result of an agreement reached with
the relevant tax authority related to certain employment taxes. (b)
During the nine months ended March 31, 2018, the Company recognized
$165 million and $41 million of non-cash impairment charges at News
America Marketing and FOX SPORTS Australia, respectively.
Impairment and restructuring charges for the nine months ended
March 31, 2017 included a non-cash impairment charge of
approximately $310 million related to the write-down of the fixed
assets at the Australian newspapers. (c) Other, net in the nine
months ended March 31, 2017 included a pre-tax gain of $107 million
resulting from the sale of REA Group’s European business. (d)
During the nine months ended March 31, 2018, the Company recognized
a $957 million non-cash write-down of its investment in Foxtel as
well as $13 million in non-cash write-downs of certain equity
method investments’ carrying values. During the nine months ended
March 31, 2017, the Company recognized a $227 million non-cash
write-down of its investment in Foxtel. Foxtel’s net income in the
nine months ended March 31, 2017 included a $42 million loss
resulting from Foxtel management’s decision to cease Presto
operations in January 2017. Equity losses of affiliates were
negatively affected by $21 million, which represents the Company’s
share of that loss. (e) The tax impact on items above for the nine
months ended March 31, 2017 includes a $121 million tax benefit
from the non-cash impairment charge and non-cash write-down noted
above. (f) During the nine months ended March 31, 2018, the Company
recorded a $174 million provisional charge as a result of the Tax
Act.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180510006211/en/
News CorporationMichael Florin, 212-416-3363Investor
Relationsmflorin@newscorp.comorJim Kennedy, 212-416-4064Corporate
Communicationsjkennedy@newscorp.com
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