Receivables are presented net of
an allowance for returns and doubtful accounts, which is an estimate of amounts that may not be collectible. In determining the allowance for returns, management analyzes historical returns, current economic trends and changes in customer demand and
acceptance of the Companys products. Based on this information, management reserves a certain portion of revenues that provide the customer with the right of return. The allowance for doubtful accounts is estimated based on historical
experience, receivable aging, current economic trends and specific identification of certain receivables that are at risk of not being collected.
The Companys receivables did not contain significant concentrations of credit risk as of December 31, 2016 or June 30, 2016 due to the wide
variety of customers, markets and geographic areas to which the Companys products and services are sold.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This document, including the following discussion and analysis, contains statements that constitute forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of
historical fact are forward-looking statements. The words expect, estimate, anticipate, predict, believe and similar expressions and variations thereof are intended to identify
forward-looking statements. These statements appear in a number of places in this discussion and analysis and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to,
among other things, trends affecting the Companys financial condition or results of operations and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees
of future performance and involve risks and uncertainties. More information regarding these risks, uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set
forth under the heading Risk Factors in Part I, Item 1A in News Corporations Annual Report on Form
10-K
for the fiscal year ended June 30, 2016 as filed with the Securities and Exchange
Commission (the SEC) on August 12, 2016 (the 2016 Form
10-K),
and as may be updated in this and other subsequent Quarterly Reports on Form
10-Q.
The Company does not ordinarily make projections of its future operating results and undertakes no obligation (and expressly disclaims any obligation) to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by law. Readers should carefully review this document and the other documents filed by the Company with the SEC. This section should be read together
with the unaudited consolidated financial statements of News Corporation and related notes set forth elsewhere herein and the audited consolidated financial statements of News Corporation and related notes set forth in the 2016 Form
10-K.
INTRODUCTION
News Corporation (together with its subsidiaries, News Corporation, News Corp, the Company, we, or
us) is a global diversified media and information services company comprised of 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.
During the first quarter of fiscal 2016, management approved a
plan to dispose of the Companys digital education business. As a result of the plan and the discontinuation of further significant business activities in the Digital Education segment, the assets and liabilities of this segment were
classified as held for sale and the results of operations have been classified as discontinued operations for all periods presented. Unless indicated otherwise, the information in the notes to the Consolidated Financial Statements relates to the
Companys continuing operations. (See Note 3Discontinued Operations in the accompanying Consolidated Financial Statements).
For the three and
six months ended December 31, 2016, the Company reclassified its listing revenues generated primarily from agents, brokers and developers from advertising revenue to real estate revenue to better reflect the Companys revenue mix and how
management reviews the performance of the Digital Real Estate Services segment.
The unaudited consolidated financial statements are referred to herein as
the Consolidated Financial Statements. The consolidated statements of operations are referred to herein as the Statements of Operations. The consolidated balance sheets are referred to herein as the Balance
Sheets. The consolidated statements of cash flows are referred to herein as the Statements of Cash Flows. The Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States
of America (GAAP).
32
Managements discussion and analysis of financial condition and results of operations is intended to help
provide an understanding of the Companys financial condition, changes in financial condition and results of operations. This discussion is organized as follows:
|
|
|
Overview of the Companys Business
This section provides a general description of the Companys businesses, as well as developments that occurred to date during fiscal 2017 and in the six
months ended December 31, 2015 that the Company believes are important in understanding its financial condition and results of operations or to disclose known trends.
|
|
|
|
Results of Operations
This section provides an analysis of the Companys results of operations for the three and six months ended December 31, 2016 and 2015. This analysis is presented on
both a consolidated basis and a segment basis. In addition, a brief description is provided of significant transactions and events that have an impact on the comparability of the results being analyzed.
|
|
|
|
Liquidity and Capital Resources
This section provides an analysis of the Companys cash flows for the six months ended December 31, 2016 and 2015 as well as a discussion of the
Companys financial arrangements and outstanding commitments, both firm and contingent, that existed during fiscal 2017.
|
OVERVIEW
OF THE COMPANYS BUSINESSES
The Company manages and reports its businesses in the following five segments:
|
|
|
News and Information Services
The News and Information Services segment includes the Companys global print, digital and broadcast radio media platforms. These product offerings include the
global print and digital versions of
The Wall Street Journal
and the Dow Jones Media Group, which includes
Barrons
and MarketWatch, as well as the Companys suite of professional information products, including Factiva, Dow
Jones Risk & Compliance, Dow Jones Newswires, Dow Jones PEVC and DJX. The Company also owns, among other publications,
The Australian, The Daily Telegraph, Herald Sun
and
The Courier-Mail
in
Australia
, The Times, The Sunday Times, The Sun
and
The Sun on Sunday
in the U.K. and the
New York Post
in the U.S. This segment also includes News America Marketing, a leading provider of
home-delivered shopper media,
in-store
marketing products and services and digital marketing solutions, including Checkout 51s mobile application, as well as Unruly, a leading global video
advertising distribution platform, Wireless Group, operator of talkSPORT, the leading sports radio network in the U.K. and Storyful, a social media news agency.
|
|
|
|
Book Publishing
The Book Publishing segment consists of HarperCollins, the second largest consumer book publisher in the world, with operations in 18 countries and particular strengths in general
fiction, nonfiction, childrens and religious publishing. HarperCollins owns more than 120 branded publishing imprints, including Avon, Harper, HarperCollins Childrens Books, William Morrow, Harlequin and Christian publishers Zondervan
and Thomas Nelson, and publishes works by well-known authors such as Harper Lee, Patricia Cornwell, Veronica Roth, Rick Warren, Sarah Young and Agatha Christie and popular titles such as
The Hobbit
,
Goodnight
Moon
,
To Kill a Mockingbird, Jesus Calling
and the
Divergent
series.
|
|
|
|
Digital Real Estate Services
The Digital Real Estate Services segment consists of the Companys interests in REA Group Limited (REA Group), Move, Inc. (Move) and DIAKRIT
International Limited (DIAKRIT). REA Group is a publicly traded company listed on the Australian Securities Exchange (ASX: REA) that advertises property and property-related services on websites and mobile applications across Australia
and Asia, including iProperty.com. REA Group operates Australias leading residential and commercial property websites, realestate.com.au and realcommercial.com.au. The Company holds a 61.6% interest in REA Group.
|
Move is a leading provider of online real estate services in the U.S. and primarily operates realtor.com
®
, a premier real estate information and services marketplace. Move offers real estate advertising solutions to agents and brokers, including its Connection for
Co-brokerage
SM
and
33
Advantage products. Move also offers a number of professional software and services products, including Top Producer
®
and ListHub
TM
. The Company owns an 80% interest in Move, with the remaining 20% being held by REA Group.
|
|
|
Cable Network Programming
The Cable Network Programming segment consists primarily of FOX SPORTS Australia, the leading sports programming provider in Australia, with seven high definition television
channels distributed via cable, satellite and IP, several interactive viewing applications and broadcast rights to live sporting events in Australia including: National Rugby League, the domestic football league, international cricket, Australian
Rugby Union and various motorsports programming.
|
|
|
|
Other
The Other segment consists primarily of general corporate overhead expenses, the corporate Strategy and Creative Group and costs related to the U.K. Newspaper Matters (as defined in Note 10 to
the Consolidated Financial Statements). The Companys corporate Strategy and Creative Group was formed to identify new products and services across its businesses to increase revenues and profitability and to target and assess potential
acquisitions, investments and dispositions.
|
News and Information Services
Revenue at the News and Information Services segment is derived from the sale of advertising, circulation and subscriptions, as well as licensing. Adverse
changes in general market conditions for advertising continue to affect revenues. Advertising revenues at the News and Information Services segment are also subject to seasonality, with revenues typically being highest in the Companys second
fiscal quarter due to the
end-of-year
holiday season in its main operating geographies. Circulation and subscription revenues can be greatly affected by changes in the
prices of the Companys and/or competitors products, as well as by promotional activities.
Operating expenses include costs related to paper,
production, distribution, third party printing, editorial, commissions and radio sports rights. Selling, general and administrative expenses include promotional expenses, salaries, employee benefits, rent and other routine overhead.
The News and Information Services segments advertising volume and rates, circulation and the price of paper are the key variables whose fluctuations can
have a material effect on the Companys operating results and cash flow. The Company has to anticipate the level of advertising volume and rates, circulation and paper prices in managing its businesses to maximize operating profit during
expanding and contracting economic cycles. The Company continues to be exposed to risks associated with paper used for printing. Paper is a basic commodity and its price is sensitive to the balance of supply and demand. The Companys expenses
are affected by the cyclical increases and decreases in the price of paper. The News and Information Services segments products compete for readership and advertising with local and national competitors and also compete with other media
alternatives in their respective markets. Competition for circulation and subscriptions is based on the content of the products provided, pricing and, from time to time, various promotions. The success of these products also depends upon
advertisers judgments as to the most effective use of their advertising budgets. Competition for advertising is based upon the reach of the products, advertising rates and advertiser results. Such judgments are based on factors such as cost,
availability of alternative media, distribution and quality of readership demographics.
The Companys traditional print business faces challenges
from alternative media formats and shifting consumer preferences. The Company is also exposed to the impact of long-term structural movements in advertising spending, in particular, the move in advertising from print to digital. These alternative
media formats could impact the Companys overall performance, positively or negatively. In addition, technologies have been and will continue to be developed that allow users to block advertising on websites and mobile devices, which may impact
advertising rates or revenues.
As a multi-platform news provider, the Company recognizes the importance of maximizing revenues from a variety of media
formats and platforms, both in terms of
paid-for
content and in new advertising models, and
34
continues to invest in its digital products. Technologies such as smartphones, tablets and similar devices and their related applications provide continued opportunities for the Company to make
its journalism available to a new audience of readers, introduce new or different pricing schemes, and develop its products to continue to attract advertisers and/or affect the relationship between publisher and consumer. The Company continues to
develop and implement strategies to exploit its content across a variety of media channels and platforms.
Book Publishing
The Book Publishing segment derives revenues from the sale of general fiction, nonfiction, childrens and religious books in the U.S. and internationally.
The revenues and operating results of the Book Publishing segment are significantly affected by the timing of releases and the number of its books in the marketplace. The book publishing marketplace is subject to increased periods of demand during
the
end-of-year
holiday season in its main operating geographies. This marketplace is highly competitive and continues to change due to technological developments and
other factors. Each book is a separate and distinct product, and its financial success depends upon many factors, including public acceptance.
Major new
title releases represent a significant portion of the Book Publishing segments sales throughout the fiscal year. Print-based consumer books are generally sold on a fully returnable basis, resulting in the return of unsold books. In the
domestic and international markets, the Book Publishing segment is subject to global trends and local economic conditions. Operating expenses for the Book Publishing segment include costs related to paper, printing, authors royalties,
editorial, promotional, art and design expenses. Selling, general and administrative expenses include salaries, employee benefits, rent and other routine overhead.
Digital Real Estate Services
The Digital Real Estate
Services segment generates revenue through the sale of real estate listing products to agents, brokers and developers and display advertising on its residential real estate and commercial property sites and also licenses certain professional
software products on a subscription basis. Significant expenses associated with these sites and software solutions include development costs, advertising and promotional expenses, hosting and support services, salaries, employee benefits and other
routine overhead expenses.
Consumers are increasingly turning to the Internet and mobile devices for real estate information. The Digital Real Estate
Services segments success depends on its continued innovation to provide products and services that make its websites and mobile applications useful for consumers and real estate and mortgage professionals and attractive to its advertisers.
Cable Network Programming
The Cable Network
Programming segment consists primarily of FOX SPORTS Australia, which offers the following seven channels in high definition: FOX SPORTS 1, FOX SPORTS 2, FOX SPORTS 3, FOX SPORTS 4, FOX SPORTS 5, FOX FOOTY and FOX SPORTS NEWS. Revenue is primarily
derived from monthly affiliate fees received from
pay-tv
providers (mainly Foxtel) based on the number of subscribers.
FOX SPORTS Australia competes primarily with ESPN, beIN SPORTS, the
Free-To-Air
(FTA) channels and certain telecommunications companies in Australia.
The most significant operating expenses of the Cable Network Programming segment are the acquisition and production expenses related to programming and the
expenses related to operating the technical facilities of the broadcast operations. The expenses associated with licensing programming rights are recognized during the applicable season or event, which can cause results at the Cable Network
Programming segment to fluctuate based on the timing and mix of the Companys local and international sports programming. Other expenses include marketing and promotional expenses related to improving the market visibility and awareness of the
channels and their programming. Additional expenses include salaries, employee benefits, rent and other routine overhead expenses.
35
Other
The
Other segment primarily consists of general corporate overhead expenses, the corporate Strategy and Creative Group and costs related to the U.K. Newspaper Matters. The Companys corporate Strategy and Creative Group was formed to identify new
products and services across the Companys businesses to increase revenues and profitability and to target and assess potential acquisitions, investments and dispositions.
OTHER BUSINESS DEVELOPMENTS
In January 2017, REA Group
acquired an approximately 15% interest in Elara Technologies Pte. Ltd., a leading online real estate services provider in India (Elara), for $50 million. Elara operates PropTiger.com, Makaan.com and the recently acquired
Housing.com, and the investment further strengthens REA Groups presence in Asia. Following the completion of the investment and certain related transactions, including Elaras acquisition of Housing.com, News Corporations
pre-existing
interest in Elara decreased to approximately 23%.
In December 2016, REA Group sold its European business
for approximately $140 million (approximately 133 million) in cash which resulted in a
pre-tax
gain of $120 million. The sale allows REA Group to focus on its core businesses in Australia
and Asia. The cash from the sale was received in February 2017.
In December 2016, the Company acquired Australian Regional Media (ARM) from
APN News and Media Limited (APN) for approximately $30 million. ARM operates a portfolio of regional print assets and websites and extends the reach of the Australian newspaper business to new customers in new geographic regions.
ARM is a subsidiary of News Corp Australia, and its results are included within the News and Information Services segment.
In September 2016, the Company
completed its acquisition of Wireless Group plc (Wireless Group) for a purchase price of 315 pence per share in cash, or approximately £220 million (approximately $285 million) in the aggregate, plus $23 million of
assumed debt which was repaid subsequent to closing. Wireless Group operates talkSPORT, the leading sports radio network in the U.K., and a portfolio of radio stations in the U.K. and Ireland. The acquisition broadens the Companys range
of services in the U.K., Ireland and internationally and the Company expects to closely align Wireless Groups operations with those of
The Sun
and
The Times
.
Wireless Groups results are included within the News and
Information Services segment, and it is considered a separate reporting unit for purposes of the Companys annual goodwill impairment review.
In May
2016, REA Group acquired Flatmates.com.au Pty Ltd
(Flatmates) for $19 million in cash at closing and up to $15 million in future cash consideration related to payments contingent upon the achievement of certain
performance objectives. Flatmates operates the Flatmates.com.au website, which is a market leading share accommodation site in Australia. The acquisition enhances REA Groups Australian product offering by extending its reach into the quickly
growing share accommodation business. Flatmates is a subsidiary of REA Group, and its results are included within the Digital Real Estate Services segment.
In February 2016, the Company acquired a 92% interest in DIAKRIT for approximately $40 million in cash. The Company has the option to purchase, and the
minority shareholders also have the option to sell to the Company, the remaining 8% in two tranches over the next six years at fair value. DIAKRIT is a digital visualization solutions company that helps homeowners see the potential in their future
living environment with digital visualization solutions that enable them to plan, furnish and decorate their dream home, while also helping agents and developers generate more buyer inquiries and accelerate their property sale processes.
DIAKRITs results are included within the Digital Real Estate Services segment, and it is considered a separate reporting unit for purposes of the Companys annual goodwill impairment review.
In February 2016, REA Group increased its investment in iProperty Group Limited (iProperty) from 22.7% to approximately 86.9% for
A$482 million in cash (approximately $340 million). The remaining 13.1% not
36
currently owned will become mandatorily redeemable during fiscal 2018, and as a result, the Company recognized a liability of approximately $76 million. The acquisition was funded primarily
with the proceeds from borrowings under an unsecured syndicated revolving loan facility (the REA Facility). (See Note 6 to the Consolidated Financial Statements). The acquisition of iProperty extends REA Groups market leading
business in Australia to attractive markets throughout Southeast Asia. iProperty is a subsidiary of REA Group, and its results are included within the Digital Real Estate Services segment. During the fiscal year ended June 30, 2016, REA Group
recognized a gain of $29 million related to the revaluation of its previously held equity interest in iProperty in Other, net in the Statements of Operations.
The total fair value of iProperty at the acquisition date is set forth below (in millions):
|
|
|
|
|
Cash paid for iProperty equity
|
|
$
|
340
|
|
Deferred consideration
|
|
|
76
|
|
|
|
|
|
|
Total consideration
|
|
|
416
|
|
|
|
|
|
|
Fair value of previously held iProperty investment
|
|
|
120
|
|
|
|
|
|
|
Total fair value
|
|
$
|
536
|
|
|
|
|
|
|
On September 30, 2015, the Company acquired Unruly Holdings Limited (Unruly) for approximately
£60 million (approximately $90 million) in cash and up to £56 million (approximately $86 million) in future cash consideration related to payments primarily contingent upon the achievement of certain performance objectives.
Unruly is a leading global video distribution platform that is focused on delivering branded video advertising across websites and mobile devices. Unrulys results of operations are included within the News and Information Services segment, and
it is considered a separate reporting unit for purposes of the Companys annual goodwill impairment review.
In July 2015, the Company acquired
Checkout 51 Mobile Apps ULC (Checkout 51) for approximately $13 million in cash at closing and approximately $10 million in deferred cash consideration which was paid during fiscal 2016. Checkout 51 is a data-driven digital
incentives company that provides News America Marketing with a leading receipt recognition mobile app which enables packaged goods companies and brands to reach consumers with highly personalized marketing campaigns. Checkout 51s results are
included within the News and Information Services segment.
37
RESULTS OF OPERATIONS
Results of OperationsFor the three and six months ended December 31, 2016 versus the three and six months ended December 31, 2015
The following table sets forth the Companys operating results for the three and six months ended December 31, 2016 as compared to the
three and six months ended December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
748
|
|
|
$
|
816
|
|
|
$
|
(68
|
)
|
|
|
(8
|
)%
|
|
$
|
1,418
|
|
|
$
|
1,551
|
|
|
$
|
(133
|
)
|
|
|
(9
|
)%
|
Circulation and subscription
|
|
|
595
|
|
|
|
621
|
|
|
|
(26
|
)
|
|
|
(4
|
)%
|
|
|
1,216
|
|
|
|
1,260
|
|
|
|
(44
|
)
|
|
|
(3
|
)%
|
Consumer
|
|
|
450
|
|
|
|
429
|
|
|
|
21
|
|
|
|
5
|
%
|
|
|
824
|
|
|
|
821
|
|
|
|
3
|
|
|
|
|
|
Real estate
|
|
|
185
|
|
|
|
160
|
|
|
|
25
|
|
|
|
16
|
%
|
|
|
357
|
|
|
|
305
|
|
|
|
52
|
|
|
|
17
|
%
|
Other
|
|
|
138
|
|
|
|
135
|
|
|
|
3
|
|
|
|
2
|
%
|
|
|
266
|
|
|
|
238
|
|
|
|
28
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
2,116
|
|
|
|
2,161
|
|
|
|
(45
|
)
|
|
|
(2
|
)%
|
|
|
4,081
|
|
|
|
4,175
|
|
|
|
(94
|
)
|
|
|
(2
|
)%
|
Operating expenses
|
|
|
(1,126
|
)
|
|
|
(1,193
|
)
|
|
|
67
|
|
|
|
6
|
%
|
|
|
(2,283
|
)
|
|
|
(2,392
|
)
|
|
|
109
|
|
|
|
5
|
%
|
Selling, general and administrative
|
|
|
(665
|
)
|
|
|
(688
|
)
|
|
|
23
|
|
|
|
3
|
%
|
|
|
(1,343
|
)
|
|
|
(1,338
|
)
|
|
|
(5
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(120
|
)
|
|
|
(123
|
)
|
|
|
3
|
|
|
|
2
|
%
|
|
|
(240
|
)
|
|
|
(244
|
)
|
|
|
4
|
|
|
|
2
|
%
|
Impairment and restructuring charges
|
|
|
(356
|
)
|
|
|
(22
|
)
|
|
|
(334
|
)
|
|
|
**
|
|
|
|
(376
|
)
|
|
|
(39
|
)
|
|
|
(337
|
)
|
|
|
*
|
*
|
Equity (losses) earnings of affiliates
|
|
|
(238
|
)
|
|
|
15
|
|
|
|
(253
|
)
|
|
|
**
|
|
|
|
(253
|
)
|
|
|
23
|
|
|
|
(276
|
)
|
|
|
*
|
*
|
Interest, net
|
|
|
15
|
|
|
|
11
|
|
|
|
4
|
|
|
|
36
|
%
|
|
|
22
|
|
|
|
23
|
|
|
|
(1
|
)
|
|
|
(4
|
)%
|
Other, net
|
|
|
123
|
|
|
|
(6
|
)
|
|
|
129
|
|
|
|
**
|
|
|
|
140
|
|
|
|
(1
|
)
|
|
|
141
|
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax benefit (expense)
|
|
|
(251
|
)
|
|
|
155
|
|
|
|
(406
|
)
|
|
|
**
|
|
|
|
(252
|
)
|
|
|
207
|
|
|
|
(459
|
)
|
|
|
*
|
*
|
Income tax benefit (expense)
|
|
|
32
|
|
|
|
(49
|
)
|
|
|
81
|
|
|
|
**
|
|
|
|
33
|
|
|
|
42
|
|
|
|
(9
|
)
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(219
|
)
|
|
|
106
|
|
|
|
(325
|
)
|
|
|
**
|
|
|
|
(219
|
)
|
|
|
249
|
|
|
|
(468
|
)
|
|
|
*
|
*
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
(24
|
)
|
|
|
24
|
|
|
|
**
|
|
|
|
|
|
|
|
22
|
|
|
|
(22
|
)
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(219
|
)
|
|
|
82
|
|
|
|
(301
|
)
|
|
|
**
|
|
|
|
(219
|
)
|
|
|
271
|
|
|
|
(490
|
)
|
|
|
*
|
*
|
Less: Net income attributable to noncontrolling interests
|
|
|
(70
|
)
|
|
|
(19
|
)
|
|
|
(51
|
)
|
|
|
**
|
|
|
|
(85
|
)
|
|
|
(33
|
)
|
|
|
(52
|
)
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to News Corporation
|
|
$
|
(289
|
)
|
|
$
|
63
|
|
|
$
|
(352
|
)
|
|
|
**
|
|
|
$
|
(304
|
)
|
|
$
|
238
|
|
|
$
|
(542
|
)
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues decreased $45 million, or 2%, and $94 million,
or 2%, for the three and six months ended December 31, 2016, respectively, as compared to the corresponding periods of fiscal 2016.
38
The revenue decrease for the three months ended December 31, 2016 was mainly due to a decrease in revenues
at the News and Information Services segment of $97 million, primarily resulting from weakness in the print advertising market and the negative impact of foreign currency fluctuations. This decrease was partially offset by increased revenues at
the Digital Real Estate Services segment of $34 million due to higher Real estate revenues at both REA Group and Move and at the Book Publishing segment of $20 million due to strong frontlist and backlist sales. The impact of foreign
currency fluctuations of the U.S. dollar against local currencies resulted in a Revenue decrease of $53 million for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016. 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
revenue decrease for the six months ended December 31, 2016 was primarily due to a decrease in revenues at the News and Information Services segment of $165 million, primarily resulting from weakness in the print advertising market and the
negative impact of foreign currency fluctuations. The revenue decrease was partially offset by an increase in revenues at the Digital Real Estate Services segment of $69 million, primarily as a result of higher Real estate revenues at both REA
Group and Move. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $89 million for the six months ended December 31, 2016 as compared to the corresponding period of
fiscal 2016.
Operating Expenses
Operating expenses decreased $67 million, or 6%, and $109 million, or 5%, for the three and
six months ended December 31, 2016, respectively, as compared to the corresponding periods of fiscal 2016.
The decrease in Operating expenses for
the three months ended December 31, 2016 was mainly due to a decrease in operating expenses at the News and Information Services segment of $60 million, primarily as a result of the positive impact of foreign currency fluctuations, lower
newsprint, production and distribution costs and the impact of cost savings initiatives, and at the Cable Network Programming segment resulting from lower sports programming rights costs. The impact of foreign currency fluctuations of the U.S.
dollar against local currencies resulted in an Operating expense decrease of $25 million for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016.
The decrease in Operating expenses for the six months ended December 31, 2016 was mainly due to a decrease in operating expenses at the News and
Information Services segment of $101 million, primarily as a result of the positive impact of foreign currency fluctuations, lower newsprint, production and distribution costs and the impact of cost savings initiatives. The impact of foreign
currency fluctuations of the U.S. dollar against local currencies resulted in an Operating expense decrease of $36 million for the six months ended December 31, 2016 as compared to the corresponding period of fiscal 2016.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased $23 million, or 3%, for the three
months ended December 31, 2016 and increased $5 million for the six months ended December 31, 2016 as compared to the corresponding periods of fiscal 2016.
The decrease in Selling, general and administrative expenses for the three months ended December 31, 2016 was primarily due to a decrease at the News and
Information Services segment resulting from lower marketing costs, the impact of cost savings initiatives and the positive impact of foreign currency fluctuations. The decrease was partially offset by higher costs associated with the acquisition of
Wireless Group in September 2016 of $9 million and higher selling, general and administrative costs at the Digital Real Estate Services segment, mainly due to higher costs at REA Group associated with increased revenues. The impact of foreign
currency fluctuations of the U.S. dollar against local currencies resulted in a Selling, general and administrative expense decrease of $31 million for the three months ended December 31, 2016 as compared to the corresponding period of
fiscal 2016.
39
The increase in Selling, general and administrative expenses for the six months ended December 31, 2016 was
primarily due to an increase at the Digital Real Estate Services segment, primarily related to higher costs at REA Group associated with revenue growth and higher marketing costs at both REA Group and Move, and the acquisition of iProperty. This
increase was partially offset by lower selling, general and administrative costs at the News and Information Services segment, mainly related to lower marketing costs, the impact of cost savings initiatives and the positive impact of foreign
currency fluctuations. The decreases in the News and Information Services segment were partially offset by higher costs related to the acquisition of Unruly and Wireless Group in September 2015 and 2016, respectively. The impact of foreign currency
fluctuations of the U.S. dollar against local currencies resulted in a Selling, general and administrative expense decrease of $51 million for the six months ended December 31, 2016 as compared to the corresponding period of fiscal 2016.
Depreciation and amortization
Depreciation and amortization expense decreased 2% for the three and six months ended December 31,
2016 as compared to the corresponding periods of fiscal 2016 due to the positive impact of foreign currency fluctuations. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Depreciation and
amortization expense decrease of $3 million and $5 million for the three and six months ended December 31, 2016, respectively, as compared to the corresponding periods of fiscal 2016.
Impairment and restructuring charges
During the three and six months ended December 31, 2016, the Company recorded restructuring
charges of $47 million and $67 million, respectively, of which $47 million and $66 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in the three and six months ended
December 31, 2016 were for employee termination benefits.
Additionally, in connection with a reorganization at Dow Jones, the Company expects to
incur approximately $30 to $40 million in restructuring charges during the remainder of fiscal 2017. The reorganization is expected to reduce the Companys costs by approximately $100 million on an annualized basis by the end of
fiscal 2018.
During the three months ended December 31, 2016, the Company recognized a
non-cash
impairment charge of approximately $310 million primarily related to the write-down of fixed assets at the Australian newspapers. The write-down was a result of the impact of adverse trends on the future expected performance of the Australian
newspapers, where revenue declines from continued weakness in the print advertising market accelerated during the quarter. The write-down is comprised of approximately $149 million related to printing presses and print related equipment,
$77 million related to facilities, $66 million related to capitalized software and $18 million related to tradenames. The remaining carrying value of the News Corp Australia long-lived assets is approximately $420 million, which
consists primarily of approximately $375 million of fixed assets and $30 million of intangible assets. Significant unobservable inputs utilized in the income approach valuation method were a discount rate of 11.5% and assumed no long-term
growth rate.
The Company continually evaluates whether current factors or indicators require the performance of an interim impairment assessment of
goodwill, long-lived assets and investments. The valuation of goodwill and long-lived assets requires assumptions and estimates of many factors, including revenue and market growth, operating cash flows, market multiples and discount rates. In the
quarter ended December 31, 2016, the Company revised its future outlook for a reporting unit within the News and Information Services segment due to the acceleration of declines in the global print advertising markets during the first half of
fiscal 2017. As a result, the Company determined that this reporting unit has goodwill and indefinite-lived intangible assets that are considered to be at risk for future impairment because the fair value of the reporting unit
exceeded its carrying value by less than 5% as of December 31, 2016. Significant unobservable inputs utilized in the income approach valuation method for this reporting unit were discount rates (ranging from
9.0%-10.0%),
long-term growth rates (ranging from
1.6%-3.0%)
and royalty rates (ranging from
1.5%-2.5%).
Significant unobservable
inputs utilized in the market approach valuation method were EBITDA multiples from guideline public companies operating in similar industries and a control premium of 10%. Any decrease in the discount rate or projected cash flows terminal growth
rate would have resulted in this reporting unit failing step one of the goodwill impairment
40
analysis, and would have required the completion of step two of the goodwill impairment analysis. Including those reporting units disclosed in the 2016 Form
10-K,
the News and Information Services and Cable Network Programming segments have reporting units with goodwill and indefinite-lived intangible assets of approximately $2.4 billion at December 31, 2016
that are at risk for future impairment, of which $1.9 billion related to the News and Information Services segment and $0.5 billion related to the Cable Network Programming segment.
During the three and six months ended December 31, 2015, the Company recorded restructuring charges of $22 million and $39 million,
respectively, of which $20 million and $32 million, respectively, related to the News and Information Services segment. The restructuring charges recorded in the three and six months ended December 31, 2015 were primarily for employee
termination benefits.
Equity (losses) earnings of affiliates
Equity earnings of affiliates decreased $253 million and
$276 million for the three and six months ended December 31, 2016, respectively, as compared to the corresponding periods of fiscal 2016. The decrease was primarily a result of the $227 million
non-cash
write-down of the carrying value of its investment in Foxtel to fair value, lower net income at Foxtel due to losses of $5 million and $26 million, respectively, primarily resulting from
Foxtel managements decision to cease Presto operations in January 2017 and losses of $17 million and $22 million, respectively, in the three and six months ended December 31, 2016 associated with the change in the fair value of
Foxtels investment in Ten Network Holdings. See Note 5Investments in the accompanying Consolidated Financial Statements.
During the first
quarter of fiscal 2017, Foxtel was deemed to have significant influence over its investment in Ten Network Holdings. As a result, Foxtel is required to treat this as an equity method investment. Foxtel has elected the fair value option
under ASC 825, Financial Instruments, and will adjust the carrying value of the Ten Network Holdings investment to fair value each reporting period. This adjustment will be recorded as a component of Foxtels net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
December 31,
|
|
|
For the six months ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Foxtel
(a)
|
|
$
|
(233
|
)
|
|
$
|
13
|
|
|
$
|
(246
|
)
|
|
|
**
|
|
|
$
|
(244
|
)
|
|
$
|
22
|
|
|
$
|
(266
|
)
|
|
|
**
|
|
Other equity affiliates, net
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
(7
|
)
|
|
|
**
|
|
|
|
(9
|
)
|
|
|
1
|
|
|
|
(10
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity (losses) earnings of affiliates
|
|
$
|
(238
|
)
|
|
$
|
15
|
|
|
$
|
(253
|
)
|
|
|
**
|
|
|
$
|
(253
|
)
|
|
$
|
23
|
|
|
$
|
(276
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During the three months ended December 31, 2016, the Company recognized a $227 million non-cash write-down of the carrying value of its investment in Foxtel to fair value. The write-down is reflected in Equity
(losses) earnings of affiliates in the Statements of Operations for the three and six months ended December 31, 2016. (See Note 5 Investments in the accompanying Consolidated Financial Statements).
|
|
Additionally, in accordance with ASC 350, the Company amortized $18 million and $37 million, respectively, related to excess cost over the Companys proportionate share of its investments underlying net
assets allocated to finite-lived intangible assets during the three and six months ended December 31, 2016, respectively, as compared to $13 million and $25 million in the three and six months ended December 31, 2015, respectively. Such
amortization is reflected in Equity (losses) earnings of affiliates in the Statements of Operations. The increase in amortization expense recognized by the Company in the current year period was offset by a corresponding decrease in amortization
expense recognized by Foxtel as certain intangible assets were fully amortized in fiscal 2016.
|
Interest, net
Interest,
net increased $4 million and decreased $1 million for the three and six months ended December 31, 2016, respectively, as compared to the corresponding periods of fiscal 2016, primarily due to an adjustment of the deferred
consideration related to REA Groups acquisition of iProperty, offset by the interest expense associated with the REA Facility.
41
Other, net
The following table sets forth the components of Other, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
December 31,
|
|
|
For the six months ended
December 31,
|
|
(in millions)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Gain on sale of REA Groups European
business
(a)
|
|
$
|
120
|
|
|
$
|
|
|
|
$
|
120
|
|
|
$
|
|
|
Write-down of marketable securities
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
Gain on sale of other businesses
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
Gain on sale of equity method investments
|
|
|
11
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
Other, net
|
|
|
2
|
|
|
|
(6
|
)
|
|
|
13
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other, net
|
|
$
|
123
|
|
|
$
|
(6
|
)
|
|
$
|
140
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
During the three months ended December 31, 2016, REA Group sold its European business for approximately $140 million (approximately 133 million) in
cash which resulted in a
pre-tax
gain of $120 million. The sale allows REA Group to focus on its core businesses in Australia and Asia. The cash from the sale was received in February 2017.
|
Income tax benefit (expense)
For the three months ended December 31, 2016, the Company recorded a tax benefit of
$32 million on a
pre-tax
loss of $251 million resulting in an effective tax rate that was lower than the U.S. statutory tax rate. The lower tax rate was primarily due to a net tax benefit of
$121 million on the non-cash write-down of assets and investments in Australia and a full valuation allowance recorded on losses incurred in Australia and other certain foreign jurisdictions, offset by lower taxes on the sale of REA
Groups European operations.
For the six months ended December 31, 2016, the Company recorded a tax benefit of $33 million on a
pre-tax
loss of $252 million resulting in an effective tax rate that was lower than the U.S. statutory tax rate. The lower tax rate was primarily due to a net tax benefit of $121 million on the non-cash
write-down of assets and investments in Australia and a full valuation allowance recorded on losses incurred in Australia and other certain foreign jurisdictions, offset by lower taxes on the sale of REA Groups European operations.
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of
existing deferred tax assets. Due to adverse trends in future expected performance of the Australian newspapers and the downward revision of Foxtels future outlook, management determined it was more likely than not that certain deferred tax
assets in Australia would not be realized.
The Companys effective tax rate for the three months ended December 31, 2015 was lower than the
U.S. statutory tax rate of 35% primarily due to the impact from foreign operations which are subject to lower tax rates, partially offset by the impact of nondeductible items. The Companys effective tax rate for the six months ended
December 31, 2015 was lower than the U.S. statutory tax rate primarily due to a tax benefit of approximately $106 million related to the release of previously established valuation allowances related to certain U.S.
federal net operating losses and state deferred tax assets. This benefit was recognized in conjunction with managements plan to dispose of the Companys digital education business in the first quarter of fiscal 2016, as the
Company now expects to generate sufficient U.S. taxable income to utilize these deferred tax assets prior to expiration.
(Loss) income from
discontinued operations, net of tax
For the three and six months ended December 31, 2016, the Company did not recognize any income from discontinued operations as the operations of the digital education business were discontinued
during fiscal 2016.
For the three months ended December 31, 2015, the Company recorded a loss from discontinued operations, net of tax, of
$24 million, primarily related to severance and lease termination costs of $17 million which were
42
incurred in conjunction with the sale of the Companys Amplify Insight and Amplify Learning businesses. For the six months ended December 31, 2015, the Company recorded income from
discontinued operations, net of tax, of $22 million, which included the impact of a $144 million tax benefit recognized upon reclassification of the Digital Education segment to discontinued operations, partially offset by the
pre-tax
non-cash
impairment charge recognized in the first quarter of fiscal 2016 of $76 million and the severance and lease termination charges discussed above. (See
Note 3Discontinued Operations in the accompanying Consolidated Financial Statements).
Net (loss) income
Net (loss) income
decreased $301 million for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016 due to the non-cash impairment charge of approximately $310 million primarily related to the write-down of fixed
assets at the Australian newspapers and lower equity earnings primarily due to the $227 million non-cash write-down of the carrying value of the Companys investment in Foxtel to fair value, partially offset by the tax benefit related
to the write-downs discussed above, higher Total Segment EBITDA and higher Other, net.
Net (loss) income for the six months ended December 31, 2016
decreased $490 million as compared to the corresponding period of fiscal 2016 due to the non-cash impairment charge of approximately $310 million primarily related to the write-down of fixed assets at the Australian newspapers,
lower equity earnings primarily due to the $227 million non-cash write-down of the carrying value of the Companys investment in Foxtel to fair value and the tax benefit and income from discontinued operations recognized in fiscal
2016 which did not recur in fiscal 2017, partially offset by the tax benefit related to the write-downs discussed above and higher Other, net.
Net income attributable to noncontrolling interests
Net income attributable to noncontrolling interests increased by $51 million and
$52 million for the three and six months ended December 31, 2016, respectively, as compared to the corresponding period of fiscal 2016 primarily due to the gain on the sale of REA Groups European business.
Segment Analysis
Segment EBITDA is defined as
revenues less operating expenses and selling, general and administrative expenses. Segment EBITDA does not include: depreciation and amortization, impairment and restructuring charges, equity (losses) earnings of affiliates, interest, net, other,
net, income tax benefit (expense) and net income attributable to noncontrolling interests. Segment EBITDA may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items
should be included in the calculation of Segment EBITDA.
Segment EBITDA is the primary measure used by the Companys chief operating decision
maker to evaluate the performance of and allocate resources within the Companys businesses. Segment EBITDA provides management, investors and equity analysts with a measure to analyze the operating performance of each of the
Companys 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).
43
Total Segment EBITDA is a
non-GAAP
measure and should be considered in
addition to, not as a substitute for, net (loss) income, cash flow and other 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 Companys financial performance. The Company believes that information about Total Segment EBITDA allows users of its
Consolidated Financial Statements to evaluate changes in the operating results of the Company separate from
non-operational
factors that affect net (loss) income, thus providing insight into both operations
and the other factors that affect reported results. The following table reconciles Total Segment EBITDA to (Loss) Income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues
|
|
$
|
2,116
|
|
|
$
|
2,161
|
|
|
$
|
(45
|
)
|
|
|
(2
|
)%
|
|
$
|
4,081
|
|
|
$
|
4,175
|
|
|
$
|
(94
|
)
|
|
|
(2
|
)%
|
Operating expenses
|
|
|
(1,126
|
)
|
|
|
(1,193
|
)
|
|
|
67
|
|
|
|
6
|
%
|
|
|
(2,283
|
)
|
|
|
(2,392
|
)
|
|
|
109
|
|
|
|
5
|
%
|
Selling, general and administrative
|
|
|
(665
|
)
|
|
|
(688
|
)
|
|
|
23
|
|
|
|
3
|
%
|
|
|
(1,343
|
)
|
|
|
(1,338
|
)
|
|
|
(5
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segment EBITDA
|
|
|
325
|
|
|
|
280
|
|
|
|
45
|
|
|
|
16
|
%
|
|
|
455
|
|
|
|
445
|
|
|
|
10
|
|
|
|
2
|
%
|
Depreciation and amortization
|
|
|
(120
|
)
|
|
|
(123
|
)
|
|
|
3
|
|
|
|
2
|
%
|
|
|
(240
|
)
|
|
|
(244
|
)
|
|
|
4
|
|
|
|
2
|
%
|
Impairment and restructuring charges
|
|
|
(356
|
)
|
|
|
(22
|
)
|
|
|
(334
|
)
|
|
|
**
|
|
|
|
(376
|
)
|
|
|
(39
|
)
|
|
|
(337
|
)
|
|
|
**
|
|
Equity (losses) earnings of affiliates
|
|
|
(238
|
)
|
|
|
15
|
|
|
|
(253
|
)
|
|
|
**
|
|
|
|
(253
|
)
|
|
|
23
|
|
|
|
(276
|
)
|
|
|
**
|
|
Interest, net
|
|
|
15
|
|
|
|
11
|
|
|
|
4
|
|
|
|
36
|
%
|
|
|
22
|
|
|
|
23
|
|
|
|
(1
|
)
|
|
|
(4
|
)%
|
Other, net
|
|
|
123
|
|
|
|
(6
|
)
|
|
|
129
|
|
|
|
**
|
|
|
|
140
|
|
|
|
(1
|
)
|
|
|
141
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before income tax benefit (expense)
|
|
|
(251
|
)
|
|
|
155
|
|
|
|
(406
|
)
|
|
|
**
|
|
|
|
(252
|
)
|
|
|
207
|
|
|
|
(459
|
)
|
|
|
**
|
|
Income tax benefit (expense)
|
|
|
32
|
|
|
|
(49
|
)
|
|
|
81
|
|
|
|
**
|
|
|
|
33
|
|
|
|
42
|
|
|
|
(9
|
)
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from continuing operations
|
|
$
|
(219
|
)
|
|
$
|
106
|
|
|
$
|
(325
|
)
|
|
|
**
|
|
|
$
|
(219
|
)
|
|
$
|
249
|
|
|
$
|
(468
|
)
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
(in millions)
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
News and Information Services
|
|
$
|
1,303
|
|
|
$
|
142
|
|
|
$
|
1,400
|
|
|
$
|
158
|
|
Book Publishing
|
|
|
466
|
|
|
|
75
|
|
|
|
446
|
|
|
|
57
|
|
Digital Real Estate Services
|
|
|
242
|
|
|
|
95
|
|
|
|
208
|
|
|
|
73
|
|
Cable Network Programming
|
|
|
104
|
|
|
|
51
|
|
|
|
106
|
|
|
|
39
|
|
Other
|
|
|
1
|
|
|
|
(38
|
)
|
|
|
1
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,116
|
|
|
$
|
325
|
|
|
$
|
2,161
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
(in millions)
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
|
Revenues
|
|
|
Segment
EBITDA
|
|
News and Information Services
|
|
$
|
2,525
|
|
|
$
|
188
|
|
|
$
|
2,690
|
|
|
$
|
241
|
|
Book Publishing
|
|
|
855
|
|
|
|
123
|
|
|
|
855
|
|
|
|
99
|
|
Digital Real Estate Services
|
|
|
468
|
|
|
|
162
|
|
|
|
399
|
|
|
|
130
|
|
Cable Network Programming
|
|
|
232
|
|
|
|
65
|
|
|
|
230
|
|
|
|
67
|
|
Other
|
|
|
1
|
|
|
|
(83
|
)
|
|
|
1
|
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,081
|
|
|
$
|
455
|
|
|
$
|
4,175
|
|
|
$
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
News and Information Services
(62% and 64% of the Companys consolidated revenues in the six months ended
December 31, 2016 and 2015, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
697
|
|
|
$
|
769
|
|
|
$
|
(72
|
)
|
|
|
(9
|
)%
|
|
$
|
1,306
|
|
|
$
|
1,450
|
|
|
$
|
(144
|
)
|
|
|
(10
|
)%
|
Circulation and subscription
|
|
|
491
|
|
|
|
515
|
|
|
|
(24
|
)
|
|
|
(5
|
)%
|
|
|
996
|
|
|
|
1,039
|
|
|
|
(43
|
)
|
|
|
(4
|
)%
|
Other
|
|
|
115
|
|
|
|
116
|
|
|
|
(1
|
)
|
|
|
(1
|
)%
|
|
|
223
|
|
|
|
201
|
|
|
|
22
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,303
|
|
|
|
1,400
|
|
|
|
(97
|
)
|
|
|
(7
|
)%
|
|
|
2,525
|
|
|
|
2,690
|
|
|
|
(165
|
)
|
|
|
(6
|
)%
|
Operating expenses
|
|
|
(739
|
)
|
|
|
(799
|
)
|
|
|
60
|
|
|
|
8
|
%
|
|
|
(1,493
|
)
|
|
|
(1,594
|
)
|
|
|
101
|
|
|
|
6
|
%
|
Selling, general and administrative
|
|
|
(422
|
)
|
|
|
(443
|
)
|
|
|
21
|
|
|
|
5
|
%
|
|
|
(844
|
)
|
|
|
(855
|
)
|
|
|
11
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
142
|
|
|
$
|
158
|
|
|
$
|
(16
|
)
|
|
|
(10
|
)%
|
|
$
|
188
|
|
|
$
|
241
|
|
|
$
|
(53
|
)
|
|
|
(22
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues at the News and Information Services segment decreased $97 million, or 7%, for the three months ended
December 31, 2016 as compared to the corresponding period of fiscal 2016. The revenue decrease was mainly due to lower advertising revenues of $72 million as compared to the corresponding period of fiscal 2016, primarily resulting from
weakness in the print advertising market and a $12 million negative impact from foreign currency fluctuations, partially offset by the acquisition of Wireless Group which contributed $22 million of revenue in the quarter. Circulation and
subscription revenues for the three months ended December 31, 2016 decreased $24 million as compared to the corresponding period of fiscal 2016 as a result of a $28 million negative impact from foreign currency fluctuations, which
more than offset a modest increase in circulation revenues at Dow Jones.
Segment EBITDA at the News and Information Services segment decreased
$16 million, or 10%, for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016. The decrease was primarily due to the lower advertising revenues noted above, and increased investment spending at
Checkout 51 of $8 million. The decrease was partially offset by lower newsprint, production and distribution costs and the impact of cost savings initiatives.
Revenues at the News and Information Services segment decreased $165 million, or 6%, for the six months ended December 31, 2016 as compared to the
corresponding period of fiscal 2016. The revenue decrease was mainly due to lower advertising revenues of $144 million as compared to the corresponding period of fiscal 2016, primarily resulting from weakness in the print advertising market and
an $18 million negative impact from foreign currency fluctuations, partially offset by the acquisition of Wireless Group which contributed $22 million of revenue in the period. Circulation and subscription revenues for the six months ended
December 31, 2016 decreased $43 million as compared to the corresponding period of fiscal 2016, primarily as a result of the $52 million negative impact of foreign currency fluctuations, which more than offset higher circulation and
45
subscription revenues at Dow Jones. Other revenues for the six months ended December 31, 2016 increased $22 million, primarily due to the acquisition of Unruly and Wireless Group, which
contributed $13 million and $5 million, respectively, to the increase.
Segment EBITDA at the News and Information Services segment decreased
$53 million, or 22%, for the six months ended December 31, 2016 as compared to the corresponding period of fiscal 2016. The decrease was primarily due to the lower advertising revenues noted above, increased investment spending at Checkout
51 of $20 million and $5 million of transaction related costs associated with the acquisition of Wireless Group in September 2016. The decrease was partially offset by lower newsprint, production and distribution costs and the impact of
cost savings initiatives.
News Corp Australia
Revenues at the Australian newspapers for the three months ended December 31, 2016 decreased 6% as compared to the corresponding period of fiscal 2016.
The impact of foreign currency fluctuations of the U.S. dollar against the Australian dollar resulted in a revenue increase of $12 million, or 4%. Advertising revenues decreased $25 million due to weakness in the print advertising market
in Australia, partially offset by the positive impact of foreign currency fluctuations. Circulation and subscription revenues were flat primarily due to the positive impact of foreign currency fluctuations, as price increases and digital subscriber
growth were more than offset by print volume declines.
Revenues at the Australian newspapers for the six months ended December 31, 2016 decreased 3%
as compared to the corresponding period of fiscal 2016, with the impact of foreign currency fluctuations of the U.S. dollar against the Australian dollar resulting in a revenue increase of $25 million, or 4%. Advertising revenues declined
$38 million, primarily as a result of weakness in the print advertising market in Australia, partially offset by the positive impact of foreign currency fluctuations. Circulation and subscription revenues increased $6 million due to the
positive impact of foreign currency fluctuations, as price increases and digital subscriber growth were more than offset by print volume declines.
News UK
For the three months ended December 31,
2016, revenues at the U.K. newspapers decreased 22% as compared to the corresponding period of fiscal 2016. Advertising revenues decreased $35 million, primarily due to the negative impact of foreign currency fluctuations and weakness in the
print advertising market, partially offset by digital advertising growth. Circulation and subscription revenues decreased $31 million due to the negative impact of foreign currency fluctuations, as single-copy volume declines, primarily at
The Sun,
were offset by the impact of cover price increases. The impact of foreign currency fluctuations of the U.S. dollar against the British pound resulted in a revenue decrease of $58 million, or 17%, for the three months ended
December 31, 2016 as compared to the corresponding period of fiscal 2016.
For the six months ended December 31, 2016, revenues at the U.K.
newspapers decreased 20% as compared to the corresponding period of fiscal 2016. Advertising revenues decreased $65 million, primarily due to the negative impact of foreign currency fluctuations and weakness in the print advertising
market, partially offset by digital advertising growth. Circulation and subscription revenues decreased $59 million due to the negative impact of foreign currency fluctuations, as single-copy volume declines, primarily at
The Sun,
were
offset by the impact of cover price increases. The impact of foreign currency fluctuations of the U.S. dollar against the British pound resulted in a revenue decrease of $107 million, or 16%, for the six months ended December 31, 2016 as
compared to the corresponding period of fiscal 2016.
Dow Jones
Revenues at Dow Jones decreased 8% for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016. Advertising
revenues decreased $39 million due to weakness in the print
46
advertising market. Circulation and subscription revenues increased $5 million as a result of growth in circulation revenues at
The Wall Street Journal
due to price increases and
higher subscription volume. Professional information business revenues were relatively flat as compared to the corresponding period of fiscal 2016. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a
revenue decrease of $2 million, or 1%, for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016.
Revenues at Dow Jones decreased 7% for the six months ended December 31, 2016 as compared to the corresponding period of fiscal 2016. Advertising
revenues decreased $64 million, primarily due to weakness in the print advertising market. Circulation and subscription revenues increased $9 million primarily due to price increases and volume growth at
The Wall Street Journal
, as
professional information business revenues were relatively flat. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $3 million, or 1%, for the six months ended
December 31, 2016 as compared to the corresponding period of fiscal 2016.
News America Marketing
Revenues at News America Marketing increased 3% and 1% for the three and six months ended December 31, 2016, respectively, as compared to the
corresponding periods of fiscal 2016, primarily due to an increase in
in-store
and digital product revenues, largely offset by lower revenues for free-standing insert products.
Book Publishing
(21% and 20% of the Companys consolidated revenues in the six months ended December 31, 2016 and 2015, respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
450
|
|
|
$
|
429
|
|
|
$
|
21
|
|
|
|
5 %
|
|
|
$
|
824
|
|
|
$
|
821
|
|
|
$
|
3
|
|
|
|
|
|
Other
|
|
|
16
|
|
|
|
17
|
|
|
|
(1
|
)
|
|
|
(6)%
|
|
|
|
31
|
|
|
|
34
|
|
|
|
(3
|
)
|
|
|
(9)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
466
|
|
|
|
446
|
|
|
|
20
|
|
|
|
4 %
|
|
|
|
855
|
|
|
|
855
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
(311
|
)
|
|
|
(307
|
)
|
|
|
(4
|
)
|
|
|
(1)%
|
|
|
|
(578
|
)
|
|
|
(597
|
)
|
|
|
19
|
|
|
|
3 %
|
|
Selling, general and administrative
|
|
|
(80
|
)
|
|
|
(82
|
)
|
|
|
2
|
|
|
|
2 %
|
|
|
|
(154
|
)
|
|
|
(159
|
)
|
|
|
5
|
|
|
|
3 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
75
|
|
|
$
|
57
|
|
|
$
|
18
|
|
|
|
32 %
|
|
|
$
|
123
|
|
|
$
|
99
|
|
|
$
|
24
|
|
|
|
24 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues at the Book Publishing segment increased $20 million, or 4%, for the three months ended December 31, 2016
as compared to the corresponding period of fiscal 2016. The increase was mainly due to strong sales in the Christian publishing category, primarily
The Magnolia Story
by Chip and Joanna Gaines and the continued success of
Jesus Calling
and
Jesus Always
by Sarah Young, as well as sales of
Hillbilly Elegy
by J.D. Vance and
Settle for More
by Megyn Kelly in the general books category and foreign language publishing. These increases were partially offset by
the negative impact of foreign currency fluctuations. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $13 million, or 3%, for the three months ended December 31,
2016 as compared to the corresponding period of fiscal 2016. Digital sales, which consist of revenues generated through the sale of
e-books
and digital audio books, represented 16% of Consumer revenues during
the three months ended December 31, 2016. Digital sales increased 3% as compared to the corresponding period of fiscal 2016 due to the mix of titles as compared to the prior year quarter.
Segment EBITDA at the Book Publishing segment increased $18 million, or 32%, for the three months ended December 31, 2016 as compared to the
corresponding period of fiscal 2016, primarily due to the higher revenues noted above.
47
Revenues at the Book Publishing segment were flat for the six months ended December 31, 2016 as compared to
the corresponding period of fiscal 2016, as higher revenues from strong frontlist and backlist sales and foreign language publishing were offset by the absence of revenues associated with sales of
Go Set a Watchman
by Harper Lee in the prior
year and the negative impact of foreign currency fluctuations. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue decrease of $20 million, or 2%, for the six months ended
December 31, 2016 as compared to the corresponding period of fiscal 2016. Digital sales represented 18% of Consumer revenues during the six months ended December 31, 2016. Digital sales decreased 2% as compared to the corresponding period
of fiscal 2016 due to the mix of titles as compared to the prior year period.
Segment EBITDA at the Book Publishing segment increased $24 million,
or 24%, for the six months ended December 31, 2016 as compared to the corresponding period of fiscal 2016. The increase was primarily due to the mix of titles as compared to the prior year quarter.
Digital Real Estate Services
(11% and 10% of the Companys consolidated revenues in the six months ended December 31, 2016 and 2015,
respectively)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
37
|
|
|
$
|
32
|
|
|
$
|
5
|
|
|
|
16
|
%
|
|
$
|
71
|
|
|
$
|
63
|
|
|
$
|
8
|
|
|
|
13
|
%
|
Circulation and subscription
|
|
|
15
|
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
(6
|
)%
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
Real estate
|
|
|
185
|
|
|
|
160
|
|
|
|
25
|
|
|
|
16
|
%
|
|
|
357
|
|
|
|
305
|
|
|
|
52
|
|
|
|
17
|
%
|
Other
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
*
|
*
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
|
|
*
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
242
|
|
|
|
208
|
|
|
|
34
|
|
|
|
16
|
%
|
|
|
468
|
|
|
|
399
|
|
|
|
69
|
|
|
|
17
|
%
|
Operating expenses
|
|
|
(28
|
)
|
|
|
(24
|
)
|
|
|
(4
|
)
|
|
|
(17
|
)%
|
|
|
(58
|
)
|
|
|
(47
|
)
|
|
|
(11
|
)
|
|
|
(23
|
)%
|
Selling, general and administrative
|
|
|
(119
|
)
|
|
|
(111
|
)
|
|
|
(8
|
)
|
|
|
(7
|
)%
|
|
|
(248
|
)
|
|
|
(222
|
)
|
|
|
(26
|
)
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
95
|
|
|
$
|
73
|
|
|
$
|
22
|
|
|
|
30
|
%
|
|
$
|
162
|
|
|
$
|
130
|
|
|
$
|
32
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues at the Digital Real Estate Services segment increased $34 million, or 16%, for
the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016. At REA Group, revenues increased 19%, primarily due to an increase in Australian residential depth revenue, as a favorable product mix and pricing
increase offset lower listing volumes, the positive impact of foreign currency fluctuations and higher revenues due to the acquisition of iProperty. Revenues at Move increased 7%, primarily due to an increase in Connection
for
Co-brokerage
SM
product revenues and
non-listing
media revenues,
partially offset by lower revenues from TigerLead, which was sold in November 2016. Revenues from DIAKRIT contributed $5 million to the increase in revenues for the three months ended December 31, 2016. The impact of foreign currency
fluctuations of the U.S. dollar against local currencies resulted in a revenue increase of $6 million, or 3%, for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016.
Segment EBITDA at the Digital Real Estate Services segment increased $22 million, or 30%, for the three months ended December 31, 2016 as compared
to the corresponding period of fiscal 2016. REA Group and Move contributed $12 million and $10 million to the increase in Segment EBITDA, respectively, primarily due to the higher revenues noted above, the positive impact of foreign
currency fluctuations at REA Group and lower legal costs at Move, partially offset by increased costs at REA Group and Move associated with higher revenues. The impact of foreign currency fluctuations of the U.S. dollar against local currencies
resulted in a Segment EBITDA increase of $4 million, or 5%, for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016.
48
Revenues at the Digital Real Estate Services segment increased $69 million, or 17%, for the six months ended
December 31, 2016 as compared to the corresponding period of fiscal 2016. At REA Group, revenues increased 20% due to an increase in Australian residential depth revenue, the positive impact of foreign currency fluctuations and higher revenues
due to the acquisition of iProperty. Revenues at Move increased 8%, primarily due to an increase in Connection
for
Co-brokerage
SM
product revenues and
non-listing
media revenues. Revenues from DIAKRIT contributed $9 million to the increase in revenues for the six months ended
December 31, 2016. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a revenue increase of $11 million, or 2%, for the six months ended December 31, 2016 as compared to the
corresponding period of fiscal 2016.
Segment EBITDA at the Digital Real Estate Services segment increased $32 million, or 25%, for the six months
ended December 31, 2016 as compared to the corresponding period of fiscal 2016. REA Group and Move contributed $19 million and $14 million to the increase in Segment EBITDA, respectively, primarily due to the higher revenues noted
above, the positive impact of foreign currency fluctuations at REA Group and lower legal costs at Move, partially offset by increased costs at REA Group associated with higher revenues, increased marketing costs at both REA Group and Move to drive
traffic growth and brand awareness and the acquisition of iProperty. The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in a Segment EBITDA increase of $7 million, or 6%, for the six months ended
December 31, 2016 as compared to the corresponding period of fiscal 2016.
Cable Network Programming
(6% of the Companys
consolidated revenues in the six months ended December 31, 2016 and 2015)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31,
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
% Change
|
|
(in millions, except %)
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
|
|
|
|
|
|
|
Better/(Worse)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
14
|
|
|
$
|
15
|
|
|
$
|
(1
|
)
|
|
|
(7)%
|
|
|
$
|
41
|
|
|
$
|
38
|
|
|
$
|
3
|
|
|
|
8 %
|
|
Circulation and subscription
|
|
|
89
|
|
|
|
90
|
|
|
|
(1
|
)
|
|
|
(1)%
|
|
|
|
189
|
|
|
|
190
|
|
|
|
(1
|
)
|
|
|
(1)%
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
104
|
|
|
|
106
|
|
|
|
(2
|
)
|
|
|
(2)%
|
|
|
|
232
|
|
|
|
230
|
|
|
|
2
|
|
|
|
1 %
|
|
Operating expenses
|
|
|
(48
|
)
|
|
|
(62
|
)
|
|
|
14
|
|
|
|
23 %
|
|
|
|
(154
|
)
|
|
|
(152
|
)
|
|
|
(2
|
)
|
|
|
(1)%
|
|
Selling, general and administrative
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(11
|
)
|
|
|
(2
|
)
|
|
|
(18)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
$
|
51
|
|
|
$
|
39
|
|
|
$
|
12
|
|
|
|
31 %
|
|
|
$
|
65
|
|
|
$
|
67
|
|
|
$
|
(2
|
)
|
|
|
(3)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2016, revenues at the Cable Network Programming
segment decreased $2 million, or 2%, and Segment EBITDA increased $12 million, or 31%, as compared to the corresponding period of fiscal 2016. The revenue decrease was due to lower affiliate and advertising revenues, partially offset by
the positive impact of foreign currency fluctuations. The increase in Segment EBITDA was mainly due to the absence of sports programming rights costs associated with the Rugby World Cup and the English Premier League which did not recur in the
current year quarter and the positive impact of foreign currency fluctuations. The impact of foreign currency fluctuations of the U.S. dollar against the Australian dollar resulted in a revenue increase of $3 million, or 3%, and a Segment
EBITDA increase of $3 million, or 8%, for the three months ended December 31, 2016 as compared to the corresponding period of fiscal 2016.
For
the six months ended December 31, 2016, revenues at the Cable Network Programming segment increased $2 million, or 1%, and Segment EBITDA decreased $2 million, or 3%, as compared to the corresponding period of fiscal 2016. The revenue
increase was primarily due to the positive impact of foreign currency fluctuations, which more than offset lower affiliate revenues. The decrease in Segment EBITDA was due to the negative impact of foreign currency fluctuations as sports programming
rights costs primarily related to the NRL
49
simulcast and certain
one-time
cricket rights costs were offset by the absence of costs associated with the Rugby World Cup and the English Premier League
rights. The impact of foreign currency fluctuations of the U.S. dollar against the Australian dollar resulted in a revenue increase of $6 million, or 3%, and a Segment EBITDA decrease of $3 million, or 4%, for the six months ended
December 31, 2016 as compared to the corresponding period of fiscal 2016.
LIQUIDITY AND CAPITAL RESOURCES
Current Financial Condition
The Companys
principal source of liquidity is internally generated funds and cash and cash equivalents on hand. As of December 31, 2016, the Companys cash and cash equivalents were $1,564 million. The Company expects these elements of liquidity
will enable it to meet its liquidity needs in the foreseeable future. As described in greater detail below, in October 2013, the Company established a revolving credit facility of $650 million, which terminates on October 23, 2020. The
Company may request that the commitments be extended under certain circumstances as set forth in the credit agreement and may also request increases in the amount of the facility up to a maximum amount of $900 million. In addition, the Company
expects to have access to the worldwide capital markets, subject to market conditions, in order to issue debt if needed or desired. Although the Company believes that its cash on hand and future cash from operations, together with its access to the
capital markets, will provide adequate resources to fund its operating and financing needs, its access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including: (i) the Companys
performance, (ii) its credit rating or absence of a credit rating, (iii) the liquidity of the overall capital markets and (iv) the current state of the economy. There can be no assurances that the Company will continue to have access
to the capital markets on acceptable terms. See Part II, Item 1A. Risk Factors for further discussion.
As of December 31, 2016, the
Companys consolidated assets included $726 million in cash and cash equivalents that was held by its foreign subsidiaries. $120 million of this amount is cash not readily accessible by the Company as it is held by REA Group, a
majority owned but separately listed public company. REA Group must declare a dividend in order for the Company to have access to its share of REA Groups cash balance. The Company earns income outside the U.S., which is deemed to be
permanently reinvested in certain foreign jurisdictions. The Company does not currently intend to repatriate these earnings. Should the Company require more capital in the U.S. than is generated by and/or available to its domestic operations, the
Company could elect to transfer funds held in foreign jurisdictions. The transfer of funds from foreign jurisdictions may be cumbersome due to local regulations, foreign exchange controls and taxes. Additionally, the transfer of funds from foreign
jurisdictions may result in higher effective tax rates and higher cash paid for income taxes for the Company.
The principal uses of cash that affect the
Companys liquidity position include the following: operational expenditures including employee costs and paper purchases; capital expenditures; income tax payments; investments in associated entities and acquisitions. In addition to the
acquisitions and dispositions disclosed elsewhere, the Company has evaluated, and expects to continue to evaluate, possible future acquisitions and dispositions of certain businesses. Such transactions may be material and may involve cash, the
issuance of the Companys securities or the assumption of indebtedness.
Issuer Purchases of Equity Securities
In May 2013, the Companys Board of Directors (the Board of Directors) authorized the Company to repurchase up to an aggregate of
$500 million of its Class A Common Stock. On May 10, 2015, the Company announced it had begun repurchasing shares of Class A Common Stock under the stock repurchase program. No stock repurchases were made during the six months
ended December 31, 2016. Through February 3, 2017, the Company repurchased approximately 5.2 million shares of Class A Common Stock for an aggregate cost of approximately $71 million. The remaining authorized amount under
the stock repurchase program as of February 3, 2017 was approximately $429 million. All decisions regarding any future stock repurchases are at the
50
sole discretion of a duly appointed committee of the Board of Directors and management. The committees decisions regarding future stock repurchases will be evaluated from time to time in
light of many factors, including the Companys financial condition, earnings, capital requirements and debt facility covenants, other contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market
volatility and other factors that the committee may deem relevant. The stock repurchase authorization may be modified, extended, suspended or discontinued at any time by the Board of Directors and the Board of Directors cannot provide any assurances
that any additional shares will be repurchased.
Dividends
In August 2016, the Board of Directors declared a semi-annual cash dividend of $0.10 per share for Class A Common Stock and Class B Common Stock.
This dividend was paid on October 19, 2016 to stockholders of record at the close of business on September 14, 2016. The timing, declaration, amount and payment of future dividends to stockholders, if any, is within the discretion of the
Board of Directors. The Board of Directors decisions regarding the payment of future dividends will depend on many factors, including the Companys financial condition, earnings, capital requirements and debt facility covenants, other
contractual restrictions, as well as legal requirements, regulatory constraints, industry practice, market volatility and other factors that the Board of Directors deems relevant.
Sources and Uses of CashFor the six months ended December 31, 2016 versus the six months ended December 31, 2015
Net cash provided by operating activities for the six months ended December 31, 2016 and 2015 was as follows (in millions):
|
|
|
|
|
|
|
|
|
For the six months ended December 31,
|
|
2016
|
|
|
2015
|
|
Net cash provided by operating activities from continuing operations
|
|
$
|
4
|
|
|
$
|
346
|
|
Net cash provided by operating activities decreased by $342 million for the six months ended December 31, 2016 as
compared to the six months ended December 31, 2015. The decrease was primarily due to the NAM Groups settlement payments of $250 million during the six months ended December 31, 2016, lower dividends received of $30 million
as well as higher working capital due to timing.
Net cash used in investing activities for the six months ended December 31, 2016 and 2015 was as
follows (in millions):
|
|
|
|
|
|
|
|
|
For the six months ended December 31,
|
|
2016
|
|
|
2015
|
|
Net cash used in investing activities from continuing operations
|
|
$
|
(118
|
)
|
|
$
|
(250
|
)
|
The Company had net cash used in investing activities of $118 million for the six months ended December 31, 2016 as
compared to net cash used in investing activities of $250 million for the corresponding period of fiscal 2016. During the six months ended December 31, 2016, the Company used $342 million of cash for acquisitions, primarily for the
acquisitions of Wireless Group and ARM. The Company also had capital expenditures of $108 million. The net cash used in investing activities for the six months ended December 31, 2016 was partially offset by the utilization of restricted
cash for the Wireless Group acquisition of $315 million.
During the six months ended December 31, 2015, the Company had capital expenditures of
$120 million and used $101 million of cash for acquisitions, primarily for the acquisition of Unruly and Checkout 51.
51
Net cash used in financing activities for the six months ended December 31, 2016 and 2015 was as follows (in
millions):
|
|
|
|
|
|
|
|
|
For the six months ended December 31,
|
|
2016
|
|
|
2015
|
|
Net cash used in financing activities from continuing operations
|
|
$
|
(121
|
)
|
|
$
|
(99
|
)
|
The Company had net cash used in financing activities of $121 million for the six months ended December 31, 2016 as
compared to net cash used in financing activities of $99 million for the corresponding period of fiscal 2016. During the six months ended December 31, 2016, the Company paid dividends of $58 million to News Corporation stockholders
and repaid the debt assumed in the acquisition of Wireless Group of $23 million.
During the six months ended December 31, 2015, the Company
paid dividends of $58 million to News Corporation stockholders and repurchased News Corp shares for $18 million.
Reconciliation of Free
Cash Flow Available to News Corporation
Free cash flow available to News Corporation is a
non-GAAP
financial measure defined as net cash provided by operating activities from continuing operations, 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. Free cash flow available to News Corporation should be considered in addition to, not as a substitute for, cash flows from continuing operations and other measures of
financial performance reported in accordance with GAAP. Free cash flow available to News Corporation may not be comparable to similarly titled measures reported by other companies, since companies and investors may differ as to what items should be
included in the calculation of free cash flow.
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 Companys balance sheet and for strategic opportunities including, among others, investing in the Companys business, strategic acquisitions,
dividend payouts and repurchasing stock. 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 Statements of Cash Flows prepared in accordance with GAAP which incorporate all cash movements during the period.
The following table presents a reconciliation of net cash provided by continuing operating activities to free cash flow available to News Corporation:
|
|
|
|
|
|
|
|
|
|
|
For the six months ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in millions)
|
|
Net cash provided by continuing operating activities
|
|
$
|
4
|
|
|
$
|
346
|
|
Less: Capital expenditures
|
|
|
(108
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(104
|
)
|
|
|
226
|
|
Less: REA Group free cash flow
|
|
|
(84
|
)
|
|
|
(72
|
)
|
Plus: Cash dividends received from REA Group
|
|
|
28
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Free cash flow available to News Corporation
|
|
$
|
(160
|
)
|
|
$
|
178
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Free cash flow available to News Corporation decreased $338 million in the six months ended December 31, 2016 to
($160) million from $178 million in the corresponding period of fiscal 2016, primarily due to lower cash provided by operating activities as discussed above, partially offset by lower capital expenditures.
The impact of foreign currency fluctuations of the U.S. dollar against local currencies resulted in an increase of free cash flow available to News
Corporation of approximately $6 million, or 3%, for the six months ended December 31, 2016.
52
Revolving Credit Agreement
The Companys Credit Agreement (as amended, the Credit Agreement) provides for an unsecured $650 million revolving credit facility (the
Facility) that can be used for general corporate purposes. The Facility has a sublimit of $100 million available for issuances of letters of credit. Under the Credit Agreement, the Company may request increases in the amount of the
Facility up to a maximum amount of $900 million.
In October 2015, the Company entered into an amendment to the Credit Agreement (the
Amendment) which, among other things, extended the original term of the Facility by two years and lowered the commitment fee payable by the Company. As a result of the Amendment, the lenders commitments now terminate on
October 23, 2020, and any borrowings will be due at that time. The Company may request that the commitments be extended under certain circumstances as set forth in the Credit Agreement for up to two additional
one-year
periods.
The Credit Agreement contains customary affirmative and negative covenants and events of
default, with customary exceptions, including limitations on the ability of the Company and its subsidiaries to engage in transactions with affiliates, incur liens, merge into or consolidate with any other entity, incur subsidiary debt or dispose of
all or substantially all of its assets or all or substantially all of the stock of its subsidiaries. In addition, the Credit Agreement requires the Company to maintain an adjusted operating income leverage ratio of not more than 3.0 to 1.0 and
an interest coverage ratio of not less than 3.0 to 1.0. If any of the events of default occur and are not cured within applicable grace periods or waived, any unpaid amounts under the Credit Agreement may be declared immediately due and payable. As
of December 31, 2016, the Company was in compliance with all of the applicable debt covenants.
Interest on borrowings under the Facility is based on
either (a) a Eurodollar Rate formula or (b) the Base Rate formula, each as set forth in the Credit Agreement. The applicable margin and the commitment fee are based on the pricing grid in the Credit Agreement, which varies based on the
Companys adjusted operating income leverage ratio. As of December 31, 2016, the Company was paying a commitment fee of 0.225% on any undrawn balance and an applicable margin of 0.50% for a Base Rate borrowing and 1.50% for a Eurodollar
Rate borrowing.
As of the date of this filing, the Company has not borrowed any funds under the Facility.
REA Group Unsecured Revolving Loan Facility
REA
Group entered into a A$480 million unsecured syndicated revolving loan facility agreement in connection with the acquisition of iProperty (the REA Facility). The REA Facility consists of three sub facilities of A$120 million,
A$120 million and A$240 million which become due in December 2017, December 2018 and December 2019, respectively. In February 2016, REA Group drew down the full A$480 million (approximately $340 million as of such date) available
under the REA Facility, and the proceeds, less lenders fees of $1 million, were used to fund the iProperty acquisition. Borrowings under the REA Facility bear interest at a floating rate of the Australian BBSY plus a margin in the range
of 0.85% and 1.45% depending on REA Groups net leverage ratio. As of December 31, 2016, REA Group was paying a margin of between 0.90% and 1.10%. REA Group paid approximately $2 million and $5 million in interest for the three
and six months ended December 31, 2016, respectively, at a weighted average interest rate of 2.7% and 2.8%, respectively. The REA Facility requires REA Group to maintain a net leverage ratio of not more than 3.25 to 1.0 and an interest coverage
ratio of not less than 3.0 to 1.0. As of December 31, 2016, REA Group was in compliance with all of the applicable debt covenants.
Commitments
The Company has commitments under certain firm contractual arrangements (firm commitments) to make future payments. These firm
commitments secure the future rights to various assets and services to be used in the normal course of operations. The Companys commitments as of December 31, 2016 have not changed significantly from the disclosures included in the 2016
Form
10-K.
53
Contingencies
The Company routinely is involved in various legal proceedings, claims and governmental inspections or investigations, including those discussed in Note 10 to
the Consolidated Financial Statements. The outcome of these matters and claims is subject to significant uncertainty, and the Company often cannot predict what the eventual outcome of pending matters will be or the timing of the ultimate resolution
of these matters. Fees, expenses, fines, penalties, judgments or settlement costs which might be incurred by the Company in connection with the various proceedings could adversely affect its results of operations and financial condition.
The Company establishes an accrued liability for legal claims when it determines that a loss is both probable and the amount of the loss can be reasonably
estimated. Once established, accruals are adjusted from time to time, as appropriate, in light of additional information. The amount of any loss ultimately incurred in relation to matters for which an accrual has been established may be higher or
lower than the amounts accrued for such matters. Legal fees associated with litigation and similar proceedings are expensed as incurred. The Company recognizes gain contingencies when the gain becomes realized or realizable. (For additional
details see Note 10 to the Consolidated Financial Statements).
The Companys tax returns are subject to on-going review and examination by various
tax authorities. Tax authorities may not agree with the treatment of items reported in the Companys tax returns, and therefore the outcome of tax reviews and examinations can be unpredictable. The Company believes it has appropriately accrued
for the expected outcome of uncertain tax matters and believes such liabilities represent a reasonable provision for taxes ultimately expected to be paid, however, these liabilities may need to be adjusted as new information becomes known and as tax
examinations continue to progress. As subsidiaries of 21st Century Fox prior to the Separation, the Company and each of its domestic subsidiaries have joint and several liability with 21st Century Fox for the consolidated U.S. federal income taxes
of the 21st Century Fox consolidated group relating to any taxable periods during which the Company or any of the Companys domestic subsidiaries were a member of the 21st Century Fox consolidated group. Consequently, the Company could be
liable in the event any such liability is incurred, and not discharged, by any other member of the 21st Century Fox consolidated group. In conjunction with the Separation, the Company entered into the Tax Sharing and Indemnification Agreement
with 21st Century Fox, which requires 21st Century Fox to indemnify the Company for any such liability. Disputes or assessments could arise during future audits by the Internal Revenue Service or other taxing authorities in amounts that the Company
cannot quantify.