FISCAL 2018 FOURTH QUARTER KEY
FINANCIAL HIGHLIGHTS
- Revenues of $2.69 billion, a 29%
increase compared to $2.08 billion in the prior year, reflecting
the consolidation of Foxtel and robust performance across the
Company
- Net loss of ($355) million, which
includes the non-cash impact resulting from the combination of
Foxtel and FOX SPORTS Australia of ($337) million, compared to a
net loss of ($424) million in the prior year
- Total Segment EBITDA was $312
million including the results of Foxtel, compared to $215 million
in the prior year
- Reported EPS were ($0.64) compared
to ($0.74) in the prior year – Adjusted EPS were $0.08 compared to
$0.11 in the prior year
- Digital revenues represented 30% of
News and Information Services segment revenues, compared to 26% in
the prior year, reflecting strong paid digital subscriber growth at
mastheads
- Book Publishing segment posted a
record quarter in revenues
- Digital Real Estate Services segment
revenues grew 19%, reflecting continued yield improvements at both
REA Group and realtor.com®
News Corporation (“News Corp” or the “Company”) (Nasdaq: NWS,
NWSA; ASX: NWS, NWSLV) today reported financial results for the
three months and fiscal year ended June 30, 2018.
Commenting on the results, Chief Executive Robert Thomson
said:
“Fiscal 2018 was a year of operational and transformational
success at News Corp, with robust performance across our
businesses, and positive and profound changes in the character of
our revenue flows, which were more global, digital and
subscription-based. We generated strong revenue and Segment EBITDA
growth in the Digital Real Estate Services and Book Publishing
segments, which, together with the consolidation of Foxtel, drove
over $1 billion in profitability for the year.
Digital Real Estate Services continues to flourish and we
expanded into meaningful adjacencies, broadening our audience and
our revenue sources. HarperCollins’ success underscores the
importance of intelligent editors and great writers in creating
premium content. Algorithms are, as yet, unable to write
empathetic, compelling books. We also saw meaningful operational
improvements at the News and Information Services segment led by
higher digital paid subscribers and disciplined cost initiatives,
notably in Australia. Mastheads like The Times, The Sunday Times
and The Wall Street Journal reached new heights in their digital
transformation, with digital paid subscribers now exceeding print
subscribers. The new Foxtel is focused on product innovation and
leveraging its valuable content.
News Corp is now a more substantial company after the Foxtel
transaction, with a much higher percentage of recurring,
subscription-based revenues, which should help offset a volatile
advertising environment.
We are marking five years since our Separation and are confident
News Corp has a lustrous future, built on a strong digital and
global foundation.”
FOURTH QUARTER RESULTS
The Company reported fiscal 2018 fourth quarter total revenues
of $2.69 billion, a 29% increase compared to $2.08 billion in the
prior year period, reflecting the inclusion of Foxtel’s results,
following the Transaction, as described below, continued strong
growth in the Book Publishing and Digital Real Estate Services
segments and a $29 million positive impact from foreign currency
fluctuations. The growth was partially offset by lower print
advertising revenues at the News and Information Services segment.
Adjusted Revenues (which exclude the foreign currency impact,
acquisitions and divestitures as defined in Note 1) increased
5%.
In April 2018, News Corp and Telstra combined their respective
50% interests in Foxtel and News Corp’s 100% interest in FOX SPORTS
Australia into a new company (the “Transaction”), which we refer to
as new Foxtel. Following completion of the Transaction, News Corp
owns a 65% interest in new Foxtel with Telstra owning the remaining
35%. Consequently, the Company began consolidating Foxtel in the
fourth quarter of fiscal 2018. See Note 4 for pro forma financial
information reflecting the Transaction.
Net loss for the quarter was ($355) million as compared to
($424) million in the prior year. The result is mainly due to the
loss of $337 million related to the Transaction, primarily
resulting from the write-off of the FOX SPORTS Australia channel
distribution agreement (the “FSA channel distribution agreement”)
intangible asset, which is reflected in Other, net. The results
were also impacted by higher tax expense, driven primarily by
certain one-time items related to the U.S. Tax Cuts and Jobs Act
(the “Tax Act”), tax settlements and the tax effects of the
Transaction. The prior year quarter’s results included non-cash
impairment charges of $464 million, primarily related to the
write-down of fixed assets.
Total Segment EBITDA for the quarter was $312 million, a 45%
increase compared to $215 million in the prior year, reflecting the
inclusion of Foxtel’s results and continued strength in the Book
Publishing and Digital Real Estate Services segments. Adjusted
Total Segment EBITDA (as defined in Note 1) increased 13%.
Loss per share available to News Corporation stockholders was
($0.64) as compared to ($0.74) in the prior year.
Adjusted EPS (as defined in Note 3) were $0.08 compared to $0.11
in the prior year.
FULL YEAR RESULTS
The Company reported fiscal 2018 full year total revenues of
$9.02 billion, an 11% increase compared to $8.14 billion in the
prior year period, reflecting the inclusion of Foxtel’s results,
strong growth in the Digital Real Estate Services and Book
Publishing segments and a $172 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 increased
2%.
Net loss for the full year was ($1.4) billion as compared to
($643) million in the prior year. The loss was primarily driven by
higher non-cash write-downs, mainly comprised of $998 million
related to Foxtel and FOX SPORTS Australia and the $165 million
related to News America Marketing, as well as the $337 million loss
on the Transaction referenced above and a $237 million charge
resulting from the Tax Act. The prior year’s results included
non-cash impairment charges of $1.0 billion, primarily related to
the write-down of fixed assets and Foxtel.
Total Segment EBITDA for the full year was $1.07 billion, a 21%
increase compared to $885 million in the prior year, driven by the
strength in the Digital Real Estate Services and Book Publishing
segments, as well as the inclusion of Foxtel’s results. Adjusted
Total Segment EBITDA increased 6%.
Loss per share available to News Corporation stockholders was
($2.60) as compared to ($1.27) in the prior year.
Adjusted EPS were $0.44 compared to $0.36 in the prior year.
SEGMENT REVIEW
For the three months ended For the
fiscal years ended June 30, June 30, 2018 2017 %
Change 2018 2017 % Change
(in millions)
Better/(Worse)
(in millions)
Better/(Worse)
Revenues: News and Information Services $ 1,294 $
1,281 1 % $ 5,119 $ 5,069 1 % Book Publishing 490 407 20 % 1,758
1,636 7 % Digital Real Estate Services 299 251 19 % 1,141 938 22 %
Subscription Video Services 610 140 ** 1,004 494 ** Other -
1 ** 2 2 **
Total Revenues $ 2,693 $ 2,080 29
% $ 9,024 $ 8,139 11 %
Segment EBITDA: News and Information Services (a) $ 94 $ 103
(9 ) % $ 392 $ 414 (5 ) % Book Publishing 71 39 82 % 244 199 23 %
Digital Real Estate Services 99 87 14 % 401 324 24 % Subscription
Video Services(b) 97 24 ** 173 123 41 % Other (c) (49 )
(38 ) (29 ) % (138 ) (175 ) 21 %
Total Segment EBITDA $ 312 $ 215 45 % $
1,072 $ 885 21 % ** - Not meaningful
(a) News and Information Services Segment EBITDA for
the fiscal year ended June 30, 2017 included transaction related
costs of $5 million associated with the acquisition of Wireless
Group. (b) Subscription Video Services Segment EBITDA for the three
months and fiscal year ended June 30, 2018 included transaction
related costs of $12 million and $17 million, respectively,
associated with the Transaction. (c) Other Segment EBITDA for the
fiscal year ended June 30, 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
Fourth Quarter Segment Results
Revenues in the quarter increased $13 million, or 1%, compared
to the prior year. Within the segment, News UK and Dow Jones
revenues grew 4% and 3%, respectively, while revenues at News Corp
Australia and News America Marketing declined 3% and 2%,
respectively. Adjusted Revenues for the segment were 1% lower
compared to the prior year.
Advertising revenues declined $12 million, or 2%, compared to
the prior year, reflecting a moderating decline compared to the
prior quarter rate. The decline was driven by weakness in the print
advertising market 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 growth in
digital advertising revenues at News Corp Australia and News UK,
increase in advertising revenues at Wireless Group and the positive
impact from foreign currency fluctuations.
Circulation and subscription revenues increased $26 million, or
5%, primarily due to a healthy contribution from Dow Jones, which
saw a 9% increase in its circulation revenues, reflecting continued
digital subscriber growth at The Wall Street Journal, and strong
growth in its professional information business. Cover and
subscription price increases, as well as the positive impact from
foreign currency fluctuations also contributed to the revenue
improvement. These increases were partially offset by lower print
volume.
Segment EBITDA declined $9 million in the quarter, or 9%, as
compared to the prior year, primarily due to higher costs at Dow
Jones and lower revenues at News Corp Australia, partially offset
by higher contribution from News America Marketing and cost
reduction initiatives at News Corp Australia.
Digital revenues represented 30% of News and Information
Services segment revenues in the quarter, compared to 26% 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 53% 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 June 30, 2018 were
1,590,000, compared to 1,270,000 in the prior year (Source:
Internal data)
- Closing digital subscribers at News
Corp Australia’s mastheads as of June 30, 2018 were 415,600,
compared to 363,600 in the prior year (Source: Internal data)
- The Times and Sunday Times closing
digital subscribers as of June 30, 2018 were 256,000, compared to
201,000 in the prior year (Source: Internal data)
- The Sun’s digital offering reached
approximately 85 million global monthly unique users in June 2018,
flat compared to the prior year, based on ABCe (Source:
Omniture)
Full Year Segment Results
Fiscal 2018 full year revenues increased $50 million, or 1%,
compared to the prior year, including the $119 million positive
impact from foreign currency fluctuations. Within the segment, News
UK, Dow Jones and News Corp Australia revenues grew 4%, 2% and 1%,
respectively, while revenues at News America Marketing declined 6%.
Adjusted Revenues for the segment were 3% lower compared to the
prior year.
Advertising revenues declined $76 million, or 3%, while
circulation and subscription revenues increased $105 million, or
5%, driven by the factors discussed above in the fourth quarter
segment results.
Full year Segment EBITDA declined $22 million, or 5%, as
compared to the prior year, primarily due to the $12 million impact
from the absence of the adjustment to reduce the deferred
consideration accrual related to the acquisition of Unruly in the
prior year period. Adjusted Segment EBITDA (as defined in Note 1)
decreased 9% compared to the prior year.
Book Publishing
Fourth Quarter Segment Results
Revenues in the quarter increased $83 million, or 20%, compared
to the prior year, primarily due to higher sales in general,
children’s and Christian books, including the success of frontlist
titles such as Magnolia Table by Joanna Gaines, I’ll Be Gone in the
Dark by Michelle McNamara and Girl Wash Your Face by Rachel Hollis,
as well as the continued strength of backlist titles such as The
Subtle Art of Not Giving a F*ck by Mark Manson and The Hate U Give
by Angie Thomas. Growth was also driven by $28 million of revenue
from the sublicensing agreement for J. R. R. Tolkien’s The Lord of
the Rings trilogy and the $5 million positive impact from foreign
currency fluctuations. Adjusted Revenues increased 19%. Digital
sales increased 12% compared to the prior year, driven by the
growth in downloadable audiobook sales, and represented 20% of
Consumer revenues for the quarter. Segment EBITDA for the quarter
increased $32 million, or 82%, from the prior year due to the
higher revenues noted above and the mix of titles.
Full Year Segment Results
Fiscal 2018 full year revenues increased $122 million, or 7%,
compared to the prior year, primarily due to higher sales in
general books, including the success of The Subtle Art of Not
Giving a F*ck by Mark Manson, Magnolia Table by Joanna Gaines, The
Pioneer Woman Cooks: Come and Get It! by Ree Drummond and The Woman
in the Window by A. J. Finn. The growth was also driven by $28
million of revenue from the sublicensing agreement for J. R. R.
Tolkien’s The Lord of the Rings trilogy and the $25 million
positive impact from foreign currency fluctuations. Digital sales
increased 6% compared to the prior year, driven by the growth in
downloadable audiobook sales, and represented 19% of Consumer
revenues for the year. Segment EBITDA increased $45 million, or
23%, from the prior year due to the higher revenues noted above and
the mix of titles. Adjusted Revenues increased 6% and Adjusted
Segment EBITDA increased 22%.
Digital Real Estate Services
Fourth Quarter Segment Results
Revenues in the quarter increased $48 million, or 19%, compared
to the prior year, primarily due to the continued growth at REA
Group and Move. Segment EBITDA in the quarter increased $12
million, or 14%, compared to the prior year, primarily due to the
higher revenues discussed above, partially offset by broker
commissions from the acquisition of Smartline, increased costs
associated with revenue growth and higher marketing costs,
primarily at Move. Adjusted Revenues and Adjusted Segment EBITDA
increased 12% and 10%, respectively.
In the quarter, revenues at REA Group increased 27% to $172
million from $135 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 11% to $120 million
from $108 million in the prior year, primarily due to the continued
growth in its ConnectionsSM 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 fourth
quarter grew 9% year-over-year to 63 million, with mobile
representing more than half of all unique users.
Full Year Segment Results
Fiscal 2018 full year revenues increased $203 million, or 22%,
compared to the prior year, primarily due to the continued strong
growth at REA Group and Move. Segment EBITDA increased $77 million,
or 24%, compared to the prior year, primarily due to the higher
revenues discussed above, partially offset by increased costs
associated with revenue growth, broker commissions from the
acquisition of Smartline and higher marketing costs, primarily at
Move. Adjusted Revenues and Adjusted Segment EBITDA increased 17%
and 20%, respectively.
In the fiscal year, revenues at REA Group increased 27% to $666
million from $525 million in the prior year, and Move’s revenues in
the fiscal year increased 15% to $452 million from $394 million in
the prior year, driven by the factors discussed above in the fourth
quarter segment results.
Subscription Video Services
Fourth Quarter Segment Results
Revenues and Segment EBITDA in the quarter increased $470
million and $73 million, respectively, compared to the prior year,
primarily due to the inclusion of Foxtel. Segment EBITDA also
includes $12 million of costs related to the Transaction. Adjusted
Revenues and Adjusted Segment EBITDA, which exclude the impact of
foreign currency fluctuations, acquisitions and divestitures,
increased 6% and 38%, respectively.
On a pro forma basis reflecting the Transaction, segment
revenues in the quarter decreased $33 million, or 5%, compared with
the prior year, primarily due to lower subscription revenues at new
Foxtel, due to subscriber mix, and lower advertising revenues,
partially offset by the positive impact from foreign currency
fluctuations.
As of June 30, 2018, new Foxtel’s total closing subscribers were
approximately 2.8 million, which was higher than the prior year,
primarily due to the launch of Foxtel Now. In the fourth quarter,
cable and satellite residential churn was 12.5% compared to 13.3%
in the prior year. Broadcast residential ARPU for the quarter
declined 3%.
Pro forma Segment EBITDA in the quarter decreased $69 million,
or 39%, compared with the prior year, primarily due to the lower
revenues discussed above, higher programming costs which reflect
increased National Rugby League and domestic football league rights
costs and $10 million of transition costs.
Full Year Segment Results
Revenues and Segment EBITDA for fiscal 2018 increased $510
million and $50 million, respectively, compared to the prior year,
primarily due to the inclusion of Foxtel. Segment EBITDA also
includes $17 million of costs related to the Transaction. Adjusted
Revenues and Adjusted Segment EBITDA, which exclude the impact of
foreign currency fluctuations, acquisitions and divestitures,
increased 4% and declined 5%, respectively.
On a pro forma basis, segment revenues for fiscal 2018 were flat
compared with the prior year, as the positive impact from foreign
currency fluctuations was offset by lower subscription revenues at
new Foxtel, due to subscriber mix, and lower advertising
revenues.
Pro forma Segment EBITDA for fiscal 2018 decreased $154 million,
or 22%, compared with the prior year, primarily due to $90 million
of higher sports programming costs, mainly related to the
Australian Football League and National Rugby League rights, as
well as the lower subscription revenues noted above and $10 million
of transition costs.
REVIEW OF EQUITY LOSSES OF AFFILIATES’ RESULTS
For the three months ended For the fiscal
years ended June 30, June 30, 2018 2017 2018 2017 (in
millions) Foxtel (a) $ - $ (5 ) $ (974 ) $ (265 ) Other
equity affiliates, net (4 ) (14 ) (32 )
(30 ) Total equity losses of affiliates $ (4 ) $ (19 ) $ (1,006 ) $
(295 ) (a) The Company amortized nil 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 months and fiscal year ended
June 30, 2018, respectively, and $15 million and $68 million in the
corresponding periods of fiscal 2017, respectively. Such
amortization is reflected in Equity losses of affiliates in the
Statements of Operations.
Equity losses of affiliates for the fourth quarter improved to
($4) million compared to ($19) million in the prior year, primarily
due to the absence of write-offs and impairments of $9 million on
certain other equity method investments in the prior year as well
as the absence of Foxtel’s results.
Fiscal 2018 full year equity losses of affiliates were ($1,006)
million compared to ($295) million in the prior year. During fiscal
2018, the Company recognized a $957 million non-cash write-down of
its investment in Foxtel and $13 million in non-cash write-downs of
certain equity method investments’ carrying values. During fiscal
2017, the Company recognized a $227 million non-cash write-down of
its investment in Foxtel as well as write-offs and impairments of
$9 million on certain other equity method investments.
FULL 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 fiscal years endedJune 30,
2018 2017 (in millions) Net cash provided by
continuing operating activities $ 757 $ 499 Less: Capital
expenditures (364 ) (256 ) 393 243 Less: REA Group
free cash flow (207 ) (183 ) Plus: Cash dividends received from REA
Group 63 53 Free cash flow available to
News Corporation $ 249 $ 113
Net cash provided by continuing operating activities improved
$258 million for the fiscal year ended June 30, 2018 as compared to
the prior year period, primarily due to the absence of the NAM
Group’s settlement payments of $256 million, higher Total Segment
EBITDA and lower restructuring payments of $61 million, partially
offset by increased working capital primarily related to higher
revenues and 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 $30
million.
Free cash flow available to News Corporation for the fiscal year
ended June 30, 2018 was $249 million compared to $113 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, of which
approximately $60 million was due to the consolidation of Foxtel.
Foxtel’s full year capital expenditures for fiscal 2018 were
approximately $285 million, including the capital expenditures
incurred prior to the consolidation. Foxtel’s total capital
expenditures in fiscal 2019, which will be primarily related to
subscriber-related expenditures, is expected to be higher than
fiscal 2018 by more than $50 million.
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
The Company today declared a semi-annual cash dividend of $0.10
per share for Class A Common Stock and Class B Common Stock. This
dividend is payable on October 17, 2018 to stockholders of record
as of September 12, 2018.
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
5:00 p.m. EDT on August 9, 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 Corp
News Corp (Nasdaq: NWS, NWSA; ASX: NWS, NWSLV) is a global,
diversified media and information services company focused on
creating and distributing authoritative and engaging content. The
company comprises businesses across a range of media, including:
news and information services, book publishing, digital real estate
services and subscription video services in Australia.
Headquartered in New York, News Corp operates primarily in the
United States, Australia, and the United Kingdom, and its content
is distributed and consumed worldwide. 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
For the fiscal years ended June 30, ended June 30, 2018
2017 2018 2017 Revenues: Advertising $ 740 $
737 $ 2,799 $ 2,860 Circulation and subscription 1,074 636 3,021
2,470 Consumer 444 390 1,664 1,573 Real estate 225 171 858 696
Other 210 146 682
540 Total Revenues 2,693 2,080 9,024 8,139
Operating expenses (1,464 ) (1,145 ) (4,903 ) (4,529 ) Selling,
general and administrative (917 ) (720 ) (3,049 ) (2,725 )
Depreciation and amortization (175 ) (100 ) (472 ) (449 )
Impairment and restructuring charges (78 ) (518 ) (351 ) (927 )
Equity losses of affiliates (4 ) (19 ) (1,006 ) (295 ) Interest,
net (16 ) 9 (7 ) 39 Other, net (331 ) 5
(325 ) 132 Loss before income tax expense (292 ) (408
) (1,089 ) (615 ) Income tax expense (63 ) (16 )
(355 ) (28 ) Net loss (355 ) (424 ) (1,444 ) (643 )
Less: Net income attributable to noncontrolling interests
(16 ) (5 ) (70 ) (95 ) Net loss attributable
to News Corporation stockholders (371 ) (429 ) (1,514 ) (738 )
Less: Adjustments to Net loss attributable to News Corporation
stockholders – Redeemable preferred stock dividends (1 )
(1 ) (2 ) (2 ) Net loss available to News
Corporation stockholders $ (372 ) $ (430 ) $ (1,516 ) $ (740 )
Weighted average shares outstanding: Basic 583 582 583 581
Diluted 583 582 583 581 Net loss available to News
Corporation stockholders per share - basic and diluted $ (0.64 ) $
(0.74 ) $ (2.60 ) $ (1.27 )
NEWS CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited; in millions)
As of June 30,2018
As of June 30,2017
ASSETS Current assets: Cash and cash equivalents $ 2,034 $
2,016 Receivables, net 1,612 1,276 Inventory, net 376 208 Other
current assets 372 315 Total current
assets 4,394 3,815 Non-current
assets: Investments 393 2,027 Property, plant and equipment, net
2,560 1,624 Intangible assets, net 2,671 2,281 Goodwill 5,218 3,838
Deferred income tax assets 279 525 Other non-current assets
831 442 Total assets $ 16,346 $ 14,552
LIABILITIES AND EQUITY Current liabilities:
Accounts payable $ 605 $ 222 Accrued expenses 1,340 1,204 Deferred
revenue 516 426 Current borrowings 462 103 Other current
liabilities 372 497 Total current
liabilities 3,295 2,452
Non-current liabilities: Borrowings 1,490 276 Retirement benefit
obligations 245 319 Deferred income tax liabilities 389 61 Other
non-current liabilities 430 351 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 12,322 12,395 Accumulated deficit (2,163
) (648 ) Accumulated other comprehensive loss (874 )
(964 ) Total News Corporation stockholders' equity 9,291 10,789
Noncontrolling interests 1,186 284
Total equity 10,477 11,073 Total
liabilities and equity $ 16,346 $ 14,552
NEWS CORPORATION CONSOLIDATED STATEMENTS OF CASH
FLOWS (Unaudited; in millions)
For the fiscal years ended June 30, 2018 2017
Operating activities: Net loss $ (1,444 ) $ (643 ) Less:
Income from discontinued operations - -
Loss from continuing operations (1,444 ) (643 )
Adjustments to
reconcile loss from continuing operations to cash provided by
operating activities: Depreciation and amortization 472 449
Equity losses of affiliates 1,006 295 Cash distributions received
from affiliates 5 4 Impairment charges 280 785 Other, net 325 (132
) Deferred income taxes and taxes payable 202 (95 ) Change in
operating assets and liabilities, net of acquisitions: Receivables
and other assets (128 ) (58 ) Inventories, net (14 ) 15 Accounts
payable and other liabilities 53 137 NAM Group settlement -
(258 ) Net cash provided by operating activities from
continuing operations 757 499 Net cash used in operating activities
from discontinued operations - (5 ) Net cash
provided by operating activities 757 494
Investing activities: Capital expenditures
(364 ) (256 ) Changes in restricted cash for Wireless Group
acquisition - 315 Acquisitions, net of cash acquired (77 ) (347 )
Investments in equity affiliates and other (18 ) (59 ) Other
investments (33 ) (39 ) Proceeds from business dispositions 1 162
Proceeds from property, plant and equipment and other asset
dispositions 137 109 Other 33 10 Net
cash used in investing activities from continuing operations (321 )
(105 ) Net cash used in investing activities from discontinued
operations - - Net cash used in
investing activities (321 ) (105 )
Financing activities: Borrowings 95 - Repayment of
borrowings (213 ) (23 ) Dividends paid (158 ) (152 ) Other, net
(122 ) (42 ) Net cash used in financing activities
from continuing operations (398 ) (217 ) Net cash used in financing
activities from discontinued operations - -
Net cash used in financing activities (398 )
(217 ) Net increase in cash and cash equivalents 38 172 Cash and
cash equivalents, beginning of year 2,016 1,832 Exchange movement
on opening cash balance (20 ) 12 Cash and cash
equivalents, end of year $ 2,034 $ 2,016
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 months and fiscal years ended June 30,
2018 and 2017.
Revenues Total Segment EBITDA For the three
months ended June 30, For the three months ended June 30, 2018
2017 Difference 2018 2017 Difference
(in millions) (in millions)
As reported $ 2,693 $
2,080 $ 613 $ 312 $ 215 $ 97 Impact of acquisitions (477 ) -
(477 ) (66 ) - (66 ) Impact of divestitures (2 ) (3 ) 1 - -
- Impact of foreign currency fluctuations (29 ) - (29 ) (1 )
- (1 ) Net impact of U.K. Newspaper Matters - - - 3 4 (1 )
As adjusted $ 2,185 $ 2,077
$ 108 $ 248 $ 219 $ 29 Revenues
Total Segment EBITDA For the fiscal years ended June 30, For the
fiscal years ended June 30, 2018 2017 Difference 2018 2017
Difference (in millions) (in millions)
As reported $
9,024 $ 8,139 $ 885 $ 1,072 $ 885 $ 187 Impact of
acquisitions (624 ) - (624 ) (66 ) 5 (71 ) Impact of
divestitures (8 ) (57 ) 49 1 1 - Impact of foreign currency
fluctuations (172 ) - (172 ) (16 ) - (16 ) Net impact of
U.K. Newspaper Matters - - - (35 ) 10 (45 )
As adjusted $ 8,220 $ 8,082 $ 138 $ 956
$ 901 $ 55
Adjusted Revenues and Adjusted Segment EBITDA by segment for the
three months and fiscal years ended June 30, 2018 and 2017 are as
follows:
For the three months ended June 30, 2018
2017 % Change (in millions) Better/(Worse)
Adjusted Revenues: News and Information Services $ 1,270 $
1,278 (1 ) % Book Publishing 485 407 19 % Digital Real Estate
Services 281 251 12 % Subscription Video Services 149 140 6 % Other
- 1 **
Adjusted Total
Revenues $ 2,185 $ 2,077 5 %
Adjusted Segment EBITDA: News and Information Services $ 94
$ 103 (9 ) % Book Publishing 71 39 82 % Digital Real Estate
Services 96 87 10 % Subscription Video Services 33 24 38 % Other
(46 ) (34 ) (35 ) %
Adjusted Total Segment
EBITDA $ 248 $ 219 13 %
For the fiscal years ended June 30, 2018 2017
% Change (in millions) Better/(Worse)
Adjusted
Revenues: News and Information Services $ 4,905 $ 5,036 (3 ) %
Book Publishing 1,733 1,636 6 % Digital Real Estate Services 1,066
914 17 % Subscription Video Services 514 494 4 % Other 2
2 **
Adjusted Total Revenues $
8,220 $ 8,082 2 %
Adjusted Segment
EBITDA: News and Information Services $ 383 $ 422 (9 ) % Book
Publishing 243 199 22 % Digital Real Estate Services 386 322 20 %
Subscription Video Services 117 123 (5 ) % Other (173 )
(165 ) (5 ) %
Adjusted Total Segment EBITDA $ 956
$ 901 6 % ** - Not meaningful
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 June 30, 2018 and 2017.
For the three months ended June 30, 2018
AsReported
Impact ofAcquisitions
Impact ofDivestitures
Impact ofForeignCurrencyFluctuations
Net Impactof U.K.NewspaperMatters
AsAdjusted
(in millions)
Revenues: News and Information Services
$ 1,294 $ - $ (2 ) $ (22 ) $ - $ 1,270 Book Publishing 490 - - (5 )
- 485 Digital Real Estate Services 299 (16 ) - (2 ) - 281
Subscription Video Services 610 (461 ) - - - 149 Other -
- - - -
-
Total Revenues $ 2,693 $ (477 ) $ (2
) $ (29 ) $ - $ 2,185
Segment EBITDA: News and
Information Services $ 94 $ - $ - $ - $ - $ 94 Book Publishing 71 -
- - - 71 Digital Real Estate Services 99 (2 ) - (1 ) - 96
Subscription Video Services 97 (64 ) - - - 33 Other (49 )
- - - 3 (46
)
Total Segment EBITDA $ 312 $ (66 ) $ - $ (1
) $ 3 $ 248 For the three months
ended June 30, 2017
AsReported
Impact ofDivestitures
Net Impactof U.K.NewspaperMatters
AsAdjusted
(in millions)
Revenues: News and Information Services
$ 1,281 $ (3 ) $ - $ 1,278 Book Publishing 407 - - 407 Digital Real
Estate Services 251 - - 251 Subscription Video Services 140 - - 140
Other 1 - - 1
Total Revenues $ 2,080 $ (3 ) $ - $ 2,077
Segment EBITDA: News and Information Services $ 103 $
- $ - $ 103 Book Publishing 39 - - 39 Digital Real Estate Services
87 - - 87 Subscription Video Services 24 - - 24 Other (38 )
- 4 (34 )
Total Segment EBITDA $
215 $ - $ 4 $ 219
The following tables reconcile reported revenues and Segment
EBITDA by segment to Adjusted Revenues and Adjusted Segment EBITDA
by segment for the fiscal years ended June 30, 2018 and 2017.
For the fiscal year ended June 30, 2018
AsReported
Impact ofAcquisitions
Impact ofDivestitures
Impact ofForeignCurrencyFluctuations
Net Impactof U.K.NewspaperMatters
AsAdjusted
(in millions)
Revenues: News and Information Services
$ 5,119 $ (87 ) $ (8 ) $ (119 ) $ - $ 4,905 Book Publishing 1,758 -
- (25 ) - 1,733 Digital Real Estate Services 1,141 (57 ) - (18 ) -
1,066 Subscription Video Services 1,004 (480 ) - (10 ) - 514 Other
2 - - -
- 2
Total Revenues $ 9,024
$ (624 ) $ (8 ) $ (172 ) $ - $ 8,220
Segment EBITDA: News and Information Services $ 392 $ (6 ) $
1 $ (4 ) $ - $ 383 Book Publishing 244 - - (1 ) - 243 Digital Real
Estate Services 401 (6 ) - (9 ) - 386 Subscription Video Services
173 (54 ) - (2 ) - 117 Other (138 ) - -
- (35 ) (173 )
Total Segment
EBITDA $ 1,072 $ (66 ) $ 1 $ (16 ) $ (35 ) $ 956
For the fiscal year ended June
30, 2017
AsReported
Impact ofAcquisitions
Impact ofDivestitures
Net Impactof U.K.NewspaperMatters
AsAdjusted
(in millions)
Revenues: News and Information Services
$ 5,069 $ - $ (33 ) $ - $ 5,036 Book Publishing 1,636 - - - 1,636
Digital Real Estate Services 938 - (24 ) - 914 Subscription Video
Services 494 - - - 494 Other 2 - -
- 2
Total Revenues $ 8,139
$ - $ (57 ) $ - $ 8,082
Segment EBITDA:
News and Information Services $ 414 $ 5 $ 3 $ - $ 422 Book
Publishing 199 - - - 199 Digital Real Estate Services 324 - (2 ) -
322 Subscription Video Services 123 - - - 123 Other (175 )
- - 10 (165 )
Total Segment
EBITDA $ 885 $ 5 $ 1 $ 10 $ 901
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 June 30 2018 2017
Change % Change (in millions) Net loss $ (355 ) $
(424 ) $ 69 16 % Add: Income tax expense 63 16 47 ** Other, net 331
(5 ) 336 ** Interest, net 16 (9 ) 25 ** Equity losses of affiliates
4 19 (15 ) (79 ) % Impairment and restructuring charges 78 518 (440
) (85 ) % Depreciation and amortization 175
100 75 75 % Total Segment EBITDA $ 312
$ 215 $ 97 45 % ** - Not
meaningful For the fiscal years ended June 30 2018 2017 Change %
Change (in millions) Net loss $ (1,444 ) $ (643 ) $ (801 )
** Add: Income tax expense 355 28 327 ** Other, net 325 (132 ) 457
** Interest, net 7 (39 ) 46 ** Equity losses of affiliates 1,006
295 711 ** Impairment and restructuring charges 351 927 (576 ) (62
) % Depreciation and amortization 472 449
23 5 % Total Segment EBITDA $ 1,072
$ 885 $ 187 21 % ** - Not
meaningful
NOTE 3 – ADJUSTED NET INCOME 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, as well as the
settlement of certain pre-Separation tax matters 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 months and fiscal years ended June 30, 2018 and
2017.
For the three months ended For the three months ended
June 30, 2018 June 30, 2017
Net (loss)incomeavailable
tostockholders
EPS
Net (loss)incomeavailable
tostockholders
EPS (in millions, except per share data)
Net loss $ (355 ) $ (424 ) Less: Net income
attributable to noncontrolling interests (16 ) (5 ) Less:
Redeemable preferred stock dividends (1 )
(1 )
Loss available to News
Corporation stockholders $ (372 ) $ (0.64 ) $ (430 ) $ (0.74 )
U.K. Newspaper Matters 3 0.01 4 0.01 Impairment and
restructuring charges (a) 78 0.13 518 0.88 Other, net (b)
331 0.57 (5 ) (0.01 ) Equity losses of affiliates - - 12
0.02 Tax impact on items above (c) (7 ) (0.01 ) (123 ) (0.21
) Impact of tax settlement (d) (49 ) (0.08 ) 103 0.18
Impact of Tax Act(e) 63 0.11 - - Impact of noncontrolling
interest on items included in Other, net above (2 ) (0.01 ) (14 )
(0.02 )
As adjusted $ 45 $ 0.08 $
65 $ 0.11 (a) Impairment and
restructuring charges for the three months ended June 30, 2018
included non-cash impairment charges of approximately $55 million.
Impairment and restructuring charges for the three months ended
June 30, 2017 included non-cash impairment charges of approximately
$464 million, of which approximately $360 million was related to
the write-down of fixed assets at the U.K. newspapers. (b) During
the three months ended June 30, 2018, the Company recognized a loss
of approximately $337 million related to the Transaction, primarily
related to the write-off of the FSA channel distribution agreement
intangible asset. (c) Tax impact on items above for the three
months ended June 30, 2017 included a tax benefit for the non-cash
impairment charges. (d) In the three months ended June 30, 2018,
the Company recorded a $49 million adjustment related to the
settlement of certain pre-Separation tax matters with the IRS. In
the three months ended June 30, 2017, the Company reached an
agreement with a foreign tax authority to settle certain
pre-Separation tax matters. As a result of the settlement, the
Company recorded current income tax expense of $20 million,
deferred tax expense of $43 million and a valuation allowance of
$40 million. (e) During the three months ended June 30, 2018, the
Company recorded a $63 million adjustment to its provisional charge
related to the Tax Act. For the fiscal year ended
For the fiscal year ended June 30, 2018 June 30, 2017
Net (loss)incomeavailable
tostockholders
EPS
Net (loss)incomeavailable
tostockholders
EPS (in millions, except per share data)
Net loss $ (1,444 ) $ (643 ) Less: Net income
attributable to noncontrolling interests (70 ) (95 ) Less:
Redeemable preferred stock dividends (2 )
(2 )
Loss available to News
Corporation stockholders $ (1,516 ) $ (2.60 ) $ (740 ) $ (1.27
) U.K. Newspaper Matters(a) (35 ) (0.06 ) 10 0.02
Impairment and restructuring charges (b) 351 0.60 927 1.58
Other, net (c) 325 0.56 (132 ) (0.23 ) Equity losses of
affiliates (d) 970 1.66 260 0.45 Tax impact on items above
(e) (15 ) (0.03 ) (247 ) (0.42 ) Impact of tax settlement
(f) (49 ) (0.08 ) 103 0.18 Impact of Tax Act(g) 237 0.41 - -
Impact of noncontrolling interest on items included in
Other, net above (10 ) (0.02 ) 27 0.05
As adjusted
$ 258 $ 0.44 $ 208 $ 0.36 (a)
During the fiscal year ended June 30, 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) Impairment and
restructuring charges for the fiscal year ended June 30, 2018
included non-cash impairment charges of approximately $280 million,
primarily related to the non-cash impairment charges at News
America Marketing and FOX SPORTS Australia. Impairment and
restructuring charges for the fiscal year ended June 30, 2017
included non-cash impairment charges of approximately $785 million,
of which approximately $360 million and approximately $310 million
were primarily related to the write-down of fixed assets at the
U.K. and Australian newspapers, respectively. (c) Other, net for
the fiscal year ended June 30, 2018 reflects a loss of
approximately $337 million related to the Transaction, primarily
related to the write-off of the FSA channel distribution agreement
intangible asset. Other, net for the fiscal year ended June 30,
2017 included a pre-tax gain of $107 million resulting from the
sale of REA Group’s European business. (d) During the fiscal year
ended June 30, 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 fiscal year ended June 30, 2017, the Company
recognized a $227 million non-cash write-down of the carrying value
of its investment in Foxtel. Foxtel’s net income in the fiscal year
ended June 30, 2017 included a $48 million loss resulting from
Foxtel management’s decision to cease Presto operations in January
2017. Equity losses of affiliates were negatively affected by $24
million, which represents the Company’s share of that loss. (e) Tax
impact on items above for the fiscal year ended June 30, 2017
included a tax benefit of $211 million for the non-cash impairment
charge and non-cash write-down noted above. (f) In the fiscal year
ended June 30, 2018, the Company recorded a $49 million adjustment
related to the settlement of certain pre-Separation tax matters
with the IRS. In the fiscal year ended June 30, 2017, the Company
reached an agreement with a foreign tax authority to settle certain
pre-Separation tax matters. As a result of the settlement, the
Company recorded current income tax expense of $20 million,
deferred tax expense of $43 million and a valuation allowance of
$40 million. (g) During the fiscal year ended June 30, 2018, the
Company recorded a $237 million charge as a result of the Tax Act.
NOTE 4 – PRO FORMA
The following supplemental unaudited pro forma information for
the three months and fiscal years ended June 30, 2018 and 2017
reflect the Company’s results of operations as if the Transaction
had occurred on July 1, 2016. The Company believes that the
presentation of this supplemental information enhances
comparability across the reporting periods. The information was
prepared in accordance with Article 11 of Regulation S-X and based
on historical results of operations of News Corp and Foxtel,
adjusted for the effect of any Transaction-related accounting
adjustments, as described below. Pro forma adjustments were based
on available information and assumptions regarding impacts that are
directly attributable to the Transaction, are factually
supportable, and are expected to have a continuing impact on the
combined results. However these adjustments are subject to change
as valuations are finalized. In addition, the pro forma information
is provided for supplemental and informational purposes only, and
is not necessarily indicative of what the Company’s results of
operations would have been, or the Company’s future results of
operations, had the Transaction actually occurred on the date
indicated. The unaudited pro forma information should be read in
conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” as well as “Selected
Financial Data” and our audited consolidated financial statements
and related notes included in the Company’s Annual Report on Form
10-K for the fiscal year ended June 30, 2018 that will be filed
with the Securities and Exchange Commission.
The following tables set forth the Company’s unaudited pro forma
results of operations for the three months and fiscal years ended
June 30, 2018 and 2017.
Pro Forma (unaudited) For the three months ended June
30, 2018 2017 Change % Change (in millions)
Better/(Worse) Revenues: Advertising $ 740 $ 785 $ (45 ) (6
) % Circulation and subscription 1,074 1,072 2 - Consumer 444 390
54 14 % Real estate 225 171 54 32 % Other 210 165
45 27 % Total Revenues 2,693 2,583 110
4 % Operating expenses (1,464 ) (1,389 ) (75 ) (5 ) %
Selling, general and administrative (905 ) (825 ) (80 ) (10 ) %
Depreciation and amortization (175 ) (165 ) (10 ) (6 ) % Impairment
and restructuring charges (78 ) (528 ) 450 85 % Equity losses of
affiliates (4 ) (35 ) 31 89 % Interest, net (16 ) (34 ) 18 53 %
Other, net 6 9 (3 ) (33 ) % Income
(Loss) before income tax expense 57 (384 ) 441 ** Income tax
expense (73 ) (16 ) (57 ) ** Net loss
(16 ) (400 ) 384 96 % Less: Net income attributable to
noncontrolling interests (16 ) (15 ) (1 ) (7 )
% Net loss attributable to News Corporation $ (32 ) $ (415 ) $ 383
92 % ** - Not meaningful
Pro Forma (unaudited) For the fiscal years ended June 30, 2018
2017 Change % Change (in millions)
Better/(Worse) Revenues: Advertising $ 2,940 $ 3,056 $ (116
) (4 ) % Circulation and subscription 4,381 4,267 114 3 % Consumer
1,664 1,573 91 6 % Real estate 858 696 162 23 % Other 721
599 122 20 % Total Revenues
10,564 10,191 373 4 % Operating expenses (5,748 ) (5,544 )
(204 ) (4 ) % Selling, general and administrative (3,372 ) (3,186 )
(186 ) (6 ) % Depreciation and amortization (676 ) (711 ) 35 5 %
Impairment and restructuring charges (1,313 ) (1,217 ) (96 ) (8 ) %
Equity losses of affiliates (27 ) (82 ) 55 67 % Interest, net (83 )
(122 ) 39 32 % Other, net 10 132 (122 )
(92 ) % Loss before income tax expense (645 ) (539 ) (106 ) (20 ) %
Income tax expense (373 ) (31 ) (342 ) **
Net loss (1,018 ) (570 ) (448 ) (79 ) % Less: Net income
attributable to noncontrolling interests (96 ) (125 )
29 23 % Net loss attributable to News
Corporation $ (1,114 ) $ (695 ) $ (419 ) (60 ) % ** - Not
meaningful Pro Forma (unaudited) For the three
months ended June 30, 2018
News CorpHistorical(a)
FoxtelHistorical(b)
TransactionAdjustments
Pro Forma (in millions, except per share amounts)
Revenues: Advertising $ 740 $ - $ - $ 740 Circulation and
subscription 1,074 - - 1,074 Consumer 444 - - 444 Real estate 225 -
- 225 Other 210 - - 210
Total Revenues 2,693 - - 2,693 Operating expenses
(1,464 ) - - (1,464 ) Selling, general and administrative (917 ) -
12 (f) (905 ) Depreciation and amortization (175 ) - - (175 )
Impairment and restructuring charges (78 ) - - (78 ) Equity losses
of affiliates (4 ) - - (4 ) Interest, net (16 ) - - (16 ) Other,
net (331 ) - 337 (k) 6
(Loss) Income before income tax expense (292 ) - 349 57 Income tax
expense (63 ) - (10 ) (l) (73 ) Net
loss (355 ) - 339 (16 ) Less: Net income attributable to
noncontrolling interests (16 ) - -
(16 ) Net (loss) income attributable to News Corporation $
(371 ) $ - $ 339 $ (32 ) Basic and diluted (loss)
income per share: Net loss available to News Corporation
stockholders per share $ (0.64 ) $ (0.06 ) Pro
Forma (unaudited) For the three months ended June 30, 2017
News CorpHistorical(a)
FoxtelHistorical(b)
TransactionAdjustments
Pro Forma (in millions, except per share amounts)
Revenues: Advertising $ 737 $ 48 $ - $ 785 Circulation and
subscription 636 533 (97 ) (c)(d) 1,072 Consumer 390 - - 390 Real
estate 171 - - 171 Other 146 19
- 165 Total Revenues 2,080 600 (97 ) 2,583
Operating expenses (1,145 ) (345 ) 101 (c)(e) (1,389 )
Selling, general and administrative (720 ) (105 ) - (825 )
Depreciation and amortization (100 ) (60 ) (5 )
(g)(h)(i)
(165 ) Impairment and restructuring charges (518 ) (10 ) - (528 )
Equity (losses) earnings of affiliates (19 ) (21 ) 5
(j)
(35 ) Interest, net 9 (43 ) - (34 ) Other, net 5
4 - 9 (Loss) Income
before income tax expense (408 ) 20 4 (384 ) Income tax expense
(16 ) (1 ) 1 (l) (16 ) Net
(loss) income (424 ) 19 5 (400 ) Less: Net income attributable to
noncontrolling interests (5 ) - (10 )
((m))
(15 ) Net (loss) income attributable to News Corporation $
(429 ) $ 19 $ (5 ) $ (415 ) Basic and diluted (loss)
income per share: Net (loss) income available to News Corporation
stockholders per share $ (0.74 ) $ (0.71 ) Pro
Forma (unaudited) For the fiscal year ended June 30, 2018
News CorpHistorical(a)
FoxtelHistorical(b)
TransactionAdjustments
Pro Forma (in millions, except per share amounts)
Revenues: Advertising $ 2,799 $ 141 $ - $ 2,940 Circulation
and subscription 3,021 1,638 (278 ) (c)(d) 4,381 Consumer 1,664 - -
1,664 Real estate 858 - - 858 Other 682 39
- 721 Total Revenues 9,024 1,818
(278 ) 10,564 Operating expenses (4,903 ) (1,136 ) 291
(c)(e) (5,748 ) Selling, general and administrative (3,049 ) (340 )
17 (f) (3,372 ) Depreciation and amortization (472 ) (187 ) (17 )
(g)(h)(i) (676 ) Impairment and restructuring charges (351 ) (5 )
(957 ) (j) (1,313 ) Equity (losses) earnings of affiliates (1,006 )
5 974 (j) (27 ) Interest, net (7 ) (76 ) - (83 ) Other, net
(325 ) (2 ) 337 (k) 10 (Loss)
Income before income tax expense (1,089 ) 77 367 (645 ) Income tax
expense (355 ) (13 ) (5 ) (l) (373 )
Net (loss) income (1,444 ) 64 362 (1,018 ) Less: Net income (loss)
attributable to noncontrolling interests (70 ) 1
(27 )
((m))
(96 ) Net (loss) income attributable to News Corporation $
(1,514 ) $ 65 $ 335 $ (1,114 ) Basic and
diluted (loss) income per share: Net loss available to News
Corporation stockholders per share $ (2.60 ) $ (1.92 )
Pro Forma (unaudited) For the fiscal year ended June
30, 2017
News CorpHistorical(a)
FoxtelHistorical(b)
TransactionAdjustments
Pro Forma (in millions, except per share amounts)
Revenues: Advertising $ 2,860 $ 196 $ - $ 3,056 Circulation
and subscription 2,470 2,156 (359 ) (c)(d) 4,267 Consumer 1,573 - -
1,573 Real estate 696 - - 696 Other 540 59
- 599 Total Revenues 8,139 2,411
(359 ) 10,191 Operating expenses (4,529 ) (1,382 ) 367
(c)(e) (5,544 ) Selling, general and administrative (2,725 ) (461 )
- (3,186 ) Depreciation and amortization (449 ) (215 ) (47 )
(g)(h)(i) (711 ) Impairment and restructuring charges (927 ) (63 )
(227 ) (j) (1,217 ) Equity losses of affiliates (295 ) (52 ) 265
(j) (82 ) Interest, net 39 (161 ) - (122 ) Other, net 132
- - 132 (Loss)
Income before income tax expense (615 ) 77 (1 ) (539 ) Income tax
expense (28 ) (18 ) 15 (l) (31 )
Net (loss) income (643 ) 59 14 (570 ) Less: Net income (loss)
attributable to noncontrolling interests (95 ) 1
(31 )
((m))
(125 ) Net (loss) income attributable to News Corporation $
(738 ) $ 60 $ (17 ) $ (695 ) Basic and diluted (loss)
income per share: Net loss available to News Corporation
stockholders per share $ (1.27 ) $ (1.20 ) (a)
Reflects the historical results of operations of News Corporation.
As the acquisition of a controlling interest in Foxtel was
completed on April 3, 2018, Foxtel is reflected in our historical
Statement of Operations from April 3, 2018 onwards. (b) Reflects
the historical results of operations of Foxtel to the date of the
Transaction. From April 3, 2018 onwards, Foxtel is included in the
historical results of operations of News Corporation. The
Statements of Operations of Foxtel are derived from its historical
financial statements for the nine months ended March 31, 2018 and
the three months and fiscal year ended June 30, 2017. These
Statements of Operations for the nine months ended March 31, 2018
and the three months and fiscal year ended June 30, 2017 reflect
Foxtel's Statements of Operations on a U.S. GAAP basis and
translated from Australian dollars to U.S. dollars, the reporting
currency of the combined group, using the quarterly average rates
for each period presented. Additionally, certain balances within
Foxtel’s historical financial information were reclassified to be
consistent with the Company’s presentation. (c) Represents the
impact of eliminating transactions between Foxtel and the
consolidated subsidiaries of News Corporation, which would be
eliminated upon consolidation as a result of the Transaction. (d)
Reflects the reversal of revenue recognized in Foxtel's historical
Statements of Operations resulting from the fair value adjustment
of Foxtel's historical deferred installation revenue in the
preliminary purchase price allocation for the Transaction. (e)
Reflects the adjustment to amortization of program inventory
recognized in Foxtel’s historical Statements of Operations related
to the fair value adjustment of Foxtel's historical program
inventory in the preliminary purchase price allocation. (f)
Reflects the removal of transaction expenses directly related to
the Transaction that are included in News Corp’s historical
Statements of Operations for the three months and fiscal year ended
June 30, 2018. These costs are considered to be non-recurring in
nature, and as such, have been excluded from the pro forma
Statement of Operations. (g) Reflects the adjustment to
amortization expense resulting from the recognition of amortizable
intangible assets in the preliminary purchase price allocation. (h)
Reflects the adjustment to depreciation and amortization expense
resulting from the fair value adjustment to Foxtel's historical
fixed assets in the preliminary purchase price allocation, which
resulted in a step-up in the value of such assets. (i) Reflects the
reversal of amortization expense included in News Corp’s historical
Statements of Operations from the Company's settlement of its
pre-existing contractual arrangement between Foxtel and FOX SPORTS
Australia, which resulted in a write-off of its channel
distribution agreement intangible asset at the time of the
Transaction. (j) Represents the impact to equity losses of
affiliates as a result of the Transaction, as if the Transaction
occurred on July 1, 2016. Historically News Corp accounted for its
investment in Foxtel under the equity method of accounting. As a
result of the Transaction, Foxtel became a majority-owned
subsidiary of the Company, and therefore, the impact of Foxtel on
the Company’s historical equity losses of affiliates was
eliminated. In addition, News Corp previously recorded certain
impairments to its investment in Foxtel within equity losses of
affiliates which are reflected in News Corp's historical results.
As these impairments are non-recurring in nature and are not
directly attributable to the Transaction, such amounts have not
been eliminated and have been reclassified in the pro forma
Statement of Operations from equity losses of affiliates into
impairment and restructuring charges. (k) Represents the write-off
recorded as a result of the effective settlement of the channel
distribution agreement between FOX SPORTS Australia and Foxtel as a
result of the Transaction as well as other costs directly
attributable to the Transaction. The write-off of the intangible
asset related to this agreement and other associated costs are
considered transaction costs directly attributable to the
Transaction that were incurred in the three months and fiscal year
ended June 30, 2018. (l) In determining the tax rate to apply to
our pro forma adjustments we used the Australian statutory rate of
30%, which is the jurisdiction in which the business operates.
However, in certain instances, the effective tax rate applied to
certain adjustments differs from the statutory rate primarily as a
result of certain valuation allowances on deferred tax assets,
based on the Company’s historical tax profile in Australia. (m)
Represents the adjustment, as a result of the Transaction, to
reflect the non-controlling interest of the combined company on a
pro forma basis.
Pro Forma Segment Analysis
The following table reconciles Pro Forma Net loss to Pro Forma
Total Segment EBITDA for the three months and fiscal years ended
June 30, 2018 and 2017:
Pro Forma Pro Forma For the three months ended
June 30,
For the fiscal years ended
June 30,
2018 2017 2018 2017 (in millions) Pro forma
net loss $ (16 ) $ (400 ) $ (1,018 ) $ (570 ) Add: Income tax
expense 73 16 373 31 Other, net (6 ) (9 ) (10 ) (132 ) Interest,
net 16 34 83 122 Equity losses of affiliates 4 35 27 82 Impairment
and restructuring charges 78 528 1,313 1,217 Depreciation and
amortization 175 165 676
711 Pro forma Total Segment EBITDA $ 324 $ 369
$ 1,444 $ 1,461 Pro Forma For
the three months ended June 30, 2018 2017 Segment
Segment Revenues EBITDA Revenues EBITDA (in millions)
News and Information Services $ 1,294 $ 94 $ 1,281 $ 103 Book
Publishing 490 71 407 39 Digital Real Estate Services 299 99 251 87
Subscription Video Services 610 109 643 178 Other -
(49 ) 1 (38 )
Total $ 2,693 $ 324 $
2,583 $ 369 Pro Forma For the fiscal year
ended June 30, 2018 2017 Segment Segment
Revenues EBITDA Revenues EBITDA (in millions) News and
Information Services $ 5,119 $ 392 $ 5,069 $ 414 Book Publishing
1,758 244 1,636 199 Digital Real Estate Services 1,141 401 938 324
Subscription Video Services 2,544 545 2,546 699 Other 2
(138 ) 2 (175 )
Total $ 10,564 $ 1,444
$ 10,191 $ 1,461
Subscription Video Services (Pro Forma)
Pro Forma Pro Forma For the three months ended
June 30, For the fiscal years ended June 30, 2018 2017
% Change 2018 2017 % Change (in
millions) Better/
(Worse)
(in millions) Better/
(Worse)
Revenues: Advertising $ 67 $ 76 (12 ) % $ 268 $ 282 (5 ) %
Circulation and subscription 523 547 (4 ) % 2,210 2,199 1 % Other
20 20 - % 66
65 2 %
Total Revenues 610 643 (5 ) %
2,544 2,546 - % Operating expenses (370 ) (351 ) (5 ) % (1,499 )
(1,356 ) (11 ) % Selling, general and administrative (131 )
(114 ) (15 ) % (500 ) (491 ) (2 ) %
Segment
EBITDA $ 109 $ 178 (39 ) % $ 545 $ 699
(22 ) %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180809005765/en/
News CorporationMichael Florin, 212-416-3363Investor
Relationsmflorin@newscorp.comorJim Kennedy, 212-416-4064Corporate
Communicationsjkennedy@newscorp.com
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