FISCAL 2019 FIRST QUARTER KEY FINANCIAL
HIGHLIGHTS
- Revenues of $2.52 billion, a 23%
increase compared to $2.06 billion in the prior year, reflecting
the consolidation of Foxtel and continued strength at the Digital
Real Estate Services and Book Publishing segments
- Net income was $128 million compared
to $87 million in the prior year
- Total Segment EBITDA was $358
million compared to $248 million in the prior year
- Reported EPS were $0.17 compared to
$0.12 in the prior year – Adjusted EPS were $0.17 compared to $0.07
in the prior year
- Strong paid digital subscriber
growth at The Wall Street Journal, The Times and Sunday Times and
The Australian with digital subscribers accounting for more than
half of total subscriber base
- In October 2018, the Company
completed the acquisition of Opcity, a market-leading real estate
technology platform, which will enhance
realtor.com®’s lead generation offerings
News Corporation (“News Corp” or the “Company”)
(Nasdaq:NWS)(Nasdaq:NWSA)(ASX:NWS)(ASX:NWSLV) today reported
financial results for the three months ended September 30,
2018.
Commenting on the results, Chief Executive Robert Thomson
said:
“In the first quarter, our growth in revenue and earnings
reaffirmed our strategy to focus on digital development, and to put
particular emphasis on subscriptions as the advertising market
continues to evolve.
Reported revenues grew 23% to $2.5 billion for the quarter,
while profits rose 44% to $358 million. These numbers are
noteworthy as, even excluding the Foxtel consolidation, we achieved
tangible increases over the same period last year across many of
our segments.
Digital Real Estate Services continued to post strong
operational gains, and we took an important strategic step forward
with the acquisition of Opcity, which deepens the quality of our
engagement with realtors® and homebuyers.
Our News and Information Services segment showed progress, with
digital paid subscriptions rising at many of our mastheads. Dow
Jones is well advanced in its digital transformation, with nearly
65% of The Wall Street Journal subscribers digital-only. That
growth is complemented by the Professional Information Business,
which allows us to sell higher value-added products across the WSJ
subscriber base.
HarperCollins again demonstrated that unique, compelling content
can be monetized successfully across different platforms and
markets, posting another quarter of robust profit growth.
We are enhancing the new Foxtel, having already launched a
dedicated Fox Cricket channel, begun the rollout of 4K, and done
advanced work on a sports-only IP offering. The Foxtel leadership
team has also been transformed in recent months.”
FIRST QUARTER RESULTS
The Company reported fiscal 2019 first quarter total revenues of
$2.52 billion, a 23% increase compared to $2.06 billion in the
prior year period. The growth reflects the impact from the
consolidation of Foxtel’s results following the combination of
Foxtel and FOX SPORTS Australia (the “Transaction”) into a new
company (“new Foxtel”) and continued strong performances at the
Digital Real Estate Services and Book Publishing segments,
partially offset by lower print advertising revenues at the News
and Information Services segment. The results also include the $48
million benefit related to News UK’s exit of the gaming partnership
with Tabcorp for Sun Bets, a $49 million negative impact from
foreign currency fluctuations and $17 million of lower revenues as
a result of the adoption of the new revenue recognition standard.
Adjusted Revenues (which exclude the foreign currency impact and
acquisitions and divestitures as defined in Note 1) increased
4%.
Net income for the quarter was $128 million, a 47% increase
compared to $87 million in the prior year, reflecting higher Total
Segment EBITDA as discussed below, partially offset by higher
depreciation and amortization expense and interest expense as a
result of the Transaction.
The Company reported first quarter Total Segment EBITDA of $358
million, a 44% increase compared to $248 million in the prior year,
also reflecting the Transaction and growth in every segment.
Adjusted Total Segment EBITDA (as defined in Note 1) increased 37%,
primarily due to the benefit related to the exit of the gaming
partnership, as mentioned above, and continued strength in the Book
Publishing and Digital Real Estate Services segments.
Net income per share available to News Corporation stockholders
was $0.17 as compared to $0.12 in the prior year.
Adjusted EPS (as defined in Note 3) were $0.17 compared to $0.07
in the prior year.
SEGMENT REVIEW
For the three months ended September 30, 2018
2017
% Change (in millions)
Better/(Worse)
Revenues: News and
Information Services $ 1,248 $ 1,241 1 % Subscription Video
Services 565 145 ** Book Publishing 418 401 4 % Digital Real Estate
Services 293 271 8 % Other -
- **
Total
Revenues $ 2,524 $ 2,058
23 %
Segment EBITDA: News and
Information Services $ 116 $ 74 57 % Subscription Video Services
113 27 ** Book Publishing 68 48 42 % Digital Real Estate Services
105 95 11 % Other(a) (44 )
4 **
Total Segment EBITDA
$ 358 $ 248
44 %
** - Not meaningful
(a) Other Segment EBITDA for the three months ended
September 30, 2017 includes a $46 million benefit from the reversal
of certain previously accrued net liabilities for the U.K.
Newspaper Matters as a result of an agreement reached with the
relevant tax authority related to certain employment taxes.
News and Information Services
Revenues in the quarter increased $7 million, or 1%, as compared
to the prior year. Within the segment, News UK and Dow Jones
revenues grew 12% and 3%, respectively, while revenues at News Corp
Australia and News America Marketing declined 7% and 6%,
respectively. Segment revenues also include the benefit related to
the exit of the gaming partnership, which was partially offset by
the $28 million negative impact from foreign currency fluctuations.
Adjusted Revenues for the segment increased 3% compared to the
prior year.
Advertising revenues declined 7% compared to the prior year, of
which $15 million, or 2%, was related to the negative impact from
foreign currency fluctuations. The decline was driven by weakness
in the print advertising market, mainly in Australia and the U.K.
and lower home delivered, including free standing inserts, revenues
at News America Marketing, partially offset by a modest increase in
digital advertising revenues. Advertising revenues at Dow Jones,
excluding the impact from the cessation of The Wall Street Journal
international print editions, were relatively flat in the
quarter.
Circulation and subscription revenues increased 2%, including a
$10 million, or 1%, negative impact from foreign currency
fluctuations. The growth was primarily due to a healthy
contribution from Dow Jones, which saw a 7% increase in its
circulation revenues, reflecting continued digital subscriber
growth at The Wall Street Journal, and growth in its Risk &
Compliance products. Cover and subscription price increases also
contributed to the revenue improvement. These increases were
partially offset by lower newsstand volume at News UK.
Segment EBITDA increased $42 million in the quarter, or 57%, as
compared to the prior year, primarily due to the benefit related to
the exit of the gaming partnership, as mentioned above, and higher
contribution from Dow Jones and News Corp Australia. Adjusted
Segment EBITDA (as defined in Note 1) increased 59%.
Digital revenues represented 33% of News and Information
Services segment revenues in the quarter, compared to 27% in the
prior year. Digital revenues for the quarter include the gaming
partnership-related benefit at News UK. For the quarter, digital
revenues for Dow Jones and the newspaper mastheads represented 37%
of their combined revenues, and at Dow Jones, digital accounted for
54% of its circulation revenues. Digital subscribers and users
across key properties within the News and Information Services
segment are summarized below:
- The Wall Street Journal average daily
digital subscribers in the three months ended September 30, 2018
were 1,584,000, compared to 1,318,000 in the prior year (Source:
Internal data)
- Closing digital subscribers at News
Corp Australia’s mastheads as of September 30, 2018 were 442,400,
compared to 375,400 in the prior year (Source: Internal data)
- The Times and Sunday Times closing
digital subscribers as of September 30, 2018 were 263,000, compared
to 212,000 in the prior year (Source: Internal data)
- The Sun’s digital offering reached
approximately 74 million global monthly unique users in September
2018, compared to 84 million in the prior year, based on ABCe
(Source: Omniture)
Subscription Video Services
Revenues and Segment EBITDA in the quarter increased $420
million and $86 million, respectively, compared to the prior year,
primarily due to the inclusion of Foxtel. Adjusted Revenues and
Adjusted Segment EBITDA, which exclude the impact of foreign
currency fluctuations, acquisitions and divestitures, declined 1%
and increased 4%, respectively.
On a pro forma basis, reflecting the Transaction, segment
revenues in the quarter decreased $115 million, or 17%, compared
with the prior year, of which $45 million, or 7%, was due to the
negative impact from foreign currency fluctuations. The remainder
of the revenue decline was driven by the combination of the impact
from the changes in the subscriber package mix at new Foxtel, the
absence of a high-profile pay-per-view event compared to the prior
year, lower advertising revenues and the impact from the adoption
of the new revenue recognition standard.
As of September 30, 2018, new Foxtel’s total closing subscribers
were 2.9 million, which was higher than the prior year, primarily
due to Foxtel Now subscriber growth and the inclusion of commercial
subscribers of FOX SPORTS Australia beginning in the first quarter
of fiscal 2019, partially offset by lower broadcast subscribers.
Broadcast subscriber churn in the quarter was 12.9% compared to
12.7% in the prior year. Broadcast ARPU for the quarter declined
6%, reflecting a 2% negative impact related to the adoption of the
new revenue recognition standard. New Foxtel announced price
increases of A$2 to A$3, which took effect on October 1, 2018.
Pro forma Segment EBITDA in the quarter decreased $41 million,
or 27%, compared with the prior year, primarily due to the lower
revenues discussed above, partially offset by lower non-sports
programming and pay-per-view costs.
Book Publishing
Revenues in the quarter increased $17 million, or 4%, compared
to the prior year, primarily due to higher sales in general,
Children’s and Christian publishing, including the success of
frontlist titles such as Girl Wash Your Face by Rachel Hollis, The
Other Woman by Daniel Silva and The Russia Hoax by Gregg Jarrett,
and the continued strength of backlist titles such as The Subtle
Art of Not Giving a F*ck by Mark Manson and The Hate U Give by
Angie Thomas. Revenue growth was partially offset by $12 million of
lower revenues as a result of the adoption of the new revenue
recognition standard. Digital sales increased 12% compared to the
prior year and represented 22% of Consumer revenues for the
quarter, driven by the growth in downloadable audiobook sales.
Segment EBITDA for the quarter increased $20 million, or 42%, from
the prior year, primarily due to the higher revenues noted above
and the mix of titles.
Digital Real Estate Services
Revenues in the quarter increased $22 million, or 8%, compared
to the prior year, of which foreign currency fluctuations had a
negative impact on growth of $14 million, or 5%. The growth was
primarily due to the continued growth at REA Group and Move.
Segment EBITDA in the quarter increased $10 million, or 11%,
compared to the prior year, primarily due to the higher revenues,
partially offset by higher costs associated with higher revenues,
higher marketing costs, primarily at Move, and the $8 million
negative impact from foreign currency fluctuations. Adjusted
Revenues and Adjusted Segment EBITDA increased 12% and 16%,
respectively.
In the quarter, revenues at REA Group increased 9% to $173
million from $158 million in the prior year, primarily due to an
increase in Australian residential depth revenue, driven by
favorable product mix and pricing increases, as well as the
acquisitions of Smartline and Hometrack Australia. The growth was
partially offset by foreign currency fluctuations, as mentioned
above.
Move’s revenues in the quarter increased 10% to $118 million
from $107 million in the prior year, primarily due to 19% growth in
its real estate revenues, partially offset by planned declines in
advertising revenues. The increase in real estate revenues, which
represent 75% of total Move revenues, was driven by strong growth
in its ConnectionsSM for Buyers product revenues, which benefited
from improvement in yield optimization and an increase in leads and
customers. Based on Move’s internal data, average monthly unique
users of realtor.com®’s web and mobile sites for the fiscal first
quarter grew 9% year-over-year to 60 million, with mobile
representing more than half of all unique users.
REVIEW OF EQUITY LOSSES OF AFFILIATES’ RESULTS
For the three months ended September 30, 2018 2017
(in millions) Foxtel(a) $ - $ (5 )
Other equity affiliates, net (3 )
(5 ) Total equity losses of affiliates $
(3 ) $ (10 ) (a) The Company amortized
$17 million related to excess cost over the Company’s proportionate
share of its investment’s underlying net assets allocated to
finite-lived intangible assets during the three months ended
September 30, 2017. Such amortization is reflected in Equity losses
of affiliates in the Statement of Operations.
Equity losses of affiliates for the first quarter improved to
($3) million from ($10) million in the prior year, primarily due to
the consolidation of the results of Foxtel in the fourth quarter of
fiscal 2018.
CASH FLOW
The following table presents a reconciliation of net cash
provided by (used in) operating activities to free cash flow
available to News Corporation:
For the three months ended
September 30,
2018 2017 (in millions) Net cash
provided by (used in) operating activities $ 113 $ (4 ) Less:
Capital expenditures (133 )
(62 ) (20 ) (66 ) Less: REA Group free cash flow (38 ) (27 )
Plus: Cash dividends received from REA Group
37 33 Free cash flow available
to News Corporation $ (21 ) $ (60 )
Net cash provided by (used in) operating activities improved
$117 million for the three months ended September 30, 2018 as
compared to the prior year period, primarily due to higher Total
Segment EBITDA as noted above.
Free cash flow available to News Corporation in the three months
ended September 30, 2018 was ($21) million compared to ($60)
million in the prior year period. The improvement was primarily due
to higher cash provided by operating activities, partially offset
by higher capital expenditures, of which $69 million was related to
new Foxtel.
Free cash flow available to News Corporation is a non-GAAP
financial measure defined as net cash provided by operating
activities, less capital expenditures (“free cash flow”), less REA
Group free cash flow, plus cash dividends received from REA
Group.
The Company considers free cash flow available to News
Corporation to provide useful information to management and
investors about the amount of cash that is available to be used to
strengthen the Company’s balance sheet and for strategic
opportunities including, among others, investing in the Company’s
business, strategic acquisitions, dividend payouts and repurchasing
stock. The Company believes excluding REA Group’s free cash flow
and including dividends received from REA Group provides users of
its consolidated financial statements with a measure of the amount
of cash flow that is readily available to the Company, as REA Group
is a separately listed public company in Australia and must declare
a dividend in order for the Company to have access to its share of
REA Group’s cash balance. The Company believes free cash flow
available to News Corporation provides a more conservative view of
the Company’s free cash flow because this presentation includes
only that amount of cash the Company actually receives from REA
Group, which has generally been lower than the Company’s unadjusted
free cash flow. A limitation of free cash flow available to News
Corporation is that it does not represent the total increase or
decrease in the cash balance for the period. Management compensates
for the limitation of free cash flow available to News Corporation
by also relying on the net change in cash and cash equivalents as
presented in the Company’s consolidated statements of cash flows
prepared in accordance with GAAP which incorporates all cash
movements during the period.
SUBSEQUENT EVENTS
Opcity, Inc.
In October 2018, the Company acquired Opcity, Inc. (“Opcity”), a
market-leading real estate technology platform that matches
qualified home buyers and sellers with real estate professionals in
real time. The total transaction value was approximately $210
million, consisting of approximately $182 million in cash, net of
$7 million of cash acquired, and approximately $28 million in
deferred payments and restricted stock unit awards for Opcity’s
founders and qualifying employees, which will be recognized as
compensation expense over the three years following the closing.
The acquisition broadens realtor.com®’s lead generation product
portfolio, allowing real estate professionals to choose between
traditional lead products or a concierge-based model that provides
highly vetted, transaction-ready leads. Opcity is a subsidiary of
Move and its results will be included within the Digital Real
Estate Services segment.
COMPARISON OF NON-GAAP TO U.S. GAAP INFORMATION
Adjusted Revenues, Total Segment EBITDA, Adjusted Total Segment
EBITDA, Adjusted Segment EBITDA, adjusted net income available to
News Corporation stockholders, Adjusted EPS and free cash flow
available to News Corporation are non-GAAP financial measures
contained in this earnings release. The Company believes these
measures are important tools for investors and analysts to use in
assessing the Company’s underlying business performance and to
provide for more meaningful comparisons of the Company’s operating
performance between periods. These measures also allow investors
and analysts to view the Company’s business from the same
perspective as Company management. These non-GAAP measures may be
different than similar measures used by other companies and should
be considered in addition to, not as a substitute for, measures of
financial performance calculated in accordance with GAAP.
Reconciliations for the differences between non-GAAP measures used
in this earnings release and comparable financial measures
calculated in accordance with U.S. GAAP are included in Notes 1, 2
and 3 and the reconciliation of net cash provided by (used in)
operating activities to free cash flow available to News
Corporation is included above.
Conference call
News Corporation’s earnings conference call can be heard live at
5:30pm EST on November 7, 2018. To listen to the call, please visit
http://investors.newscorp.com.
Cautionary Statement Concerning Forward-Looking
Statements
This document contains certain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management’s views and
assumptions regarding future events and business performance as of
the time the statements are made. Actual results may differ
materially from these expectations due to changes in global
economic, business, competitive market and regulatory factors. More
detailed information about these and other factors that could
affect future results is contained in our filings with the
Securities and Exchange Commission. The “forward-looking
statements” included in this document are made only as of the date
of this document and we do not have any obligation to publicly
update any “forward-looking statements” to reflect subsequent
events or circumstances, except as required by law.
About News Corporation
News Corp (Nasdaq: NWS, NWSA; ASX: NWS, NWSLV) is a global,
diversified media and information services company focused on
creating and distributing authoritative and engaging content. The
company comprises businesses across a range of media, including:
news and information services, subscription video services in
Australia, book publishing and digital real estate services.
Headquartered in New York, News Corp operates primarily in the
United States, Australia, and the United Kingdom, and its content
is distributed and consumed worldwide. More information is
available at: www.newscorp.com.
NEWS CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited; in millions, except per
share amounts)
For the three months ended September 30, 2018
2017 Revenues: Circulation and
subscription $ 1,034 $ 651 Advertising 664 682 Consumer 400 386
Real estate 227 203 Other 199
136 Total Revenues 2,524 2,058
Operating expenses (1,340 ) (1,149 ) Selling, general and
administrative (826 ) (661 ) Depreciation and amortization (163 )
(97 ) Impairment and restructuring charges (18 ) (15 ) Equity
losses of affiliates (3 ) (10 ) Interest (expense) income, net (16
) 6 Other, net 20
9 Income before income tax expense 178 141 Income tax
expense (50 ) (54 ) Net
income 128 87 Less: Net income attributable to noncontrolling
interests (27 ) (19 ) Net
income available to News Corporation stockholders $
101 $ 68 Weighted average shares
outstanding: Basic 584 582 Diluted 586 583 Net income
available to News Corporation stockholders per share - basic and
diluted $ 0.17 $ 0.12
NEWS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions)
As of September 30,
As of June 30,
2018
2018
(unaudited)
(audited)
ASSETS Current assets: Cash and
cash equivalents $ 1,886 $ 2,034 Receivables, net 1,648 1,612
Inventory, net 388 376 Other current assets
547 372 Total current assets
4,469 4,394
Non-current assets: Investments 390 393 Property, plant and
equipment, net 2,512 2,560 Intangible assets, net 2,607 2,671
Goodwill 5,153 5,218 Deferred income tax assets 260 279 Other
non-current assets 897
831 Total assets $ 16,288 $
16,346
LIABILITIES AND EQUITY
Current liabilities: Accounts payable $ 537 $ 605 Accrued expenses
1,258 1,340 Deferred revenue 436 516 Current borrowings 671 462
Other current liabilities 643
372 Total current liabilities
3,545 3,295
Non-current liabilities: Borrowings 1,186 1,490 Retirement benefit
obligations 241 245 Deferred income tax liabilities 401 389 Other
non-current liabilities 485 430 Commitments and
contingencies Redeemable preferred stock - 20 Equity:
Class A common stock 4 4 Class B common stock 2 2 Additional
paid-in capital 12,257 12,322 Accumulated deficit (2,032 ) (2,163 )
Accumulated other comprehensive loss (970 )
(874 ) Total News Corporation stockholders'
equity 9,261 9,291 Noncontrolling interests
1,169 1,186 Total equity
10,430 10,477
Total liabilities and equity $ 16,288 $
16,346
NEWS CORPORATION
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited; in millions)
For the three months ended September 30, 2018
2017
Operating activities: Net
income $ 128 $ 87 Adjustments to reconcile net income to
cash provided by (used in) operating activities: Depreciation and
amortization 163 97 Equity losses of affiliates 3 10 Cash
distributions received from affiliates 4 - Other, net (20 ) (9 )
Deferred income taxes and taxes payable 31 6 Change in operating
assets and liabilities, net of acquisitions: Receivables and other
assets (21 ) (73 ) Inventories, net (23 ) (16 ) Accounts payable
and other liabilities (152 )
(106 ) Net cash provided by (used in) operating activities
113 (4 )
Investing activities: Capital expenditures (133 ) (62 )
Acquisitions, net of cash acquired 1 (54 ) Investments in equity
affiliates and other (10 ) (12 ) Proceeds from property, plant and
equipment and other asset dispositions 5 - Other, net
16 7 Net cash used in
investing activities (121 )
(121 )
Financing activities: Borrowings 131 -
Repayment of borrowings (192 ) - Dividends paid (23 ) (21 ) Other,
net (40 ) (10 ) Net cash
used in financing activities (124 )
(31 ) Net decrease in cash and cash
equivalents (132 ) (156 ) Cash and cash equivalents, beginning of
period 2,034 2,016 Exchange movement on opening cash balance
(16 ) 17 Cash and cash
equivalents, end of period $ 1,886 $
1,877
NOTE 1 – ADJUSTED REVENUES, ADJUSTED TOTAL SEGMENT EBITDA AND
ADJUSTED SEGMENT EBITDA
The Company uses revenues, Total Segment EBITDA and Segment
EBITDA excluding the impact of acquisitions, divestitures, fees and
costs, net of indemnification, related to the claims and
investigations arising out of certain conduct at The News of the
World (the “U.K. Newspaper Matters”) and foreign currency
fluctuations (“Adjusted Revenues,” “Adjusted Total Segment EBITDA”
and “Adjusted Segment EBITDA,” respectively) to evaluate the
performance of the Company’s core business operations exclusive of
certain items that impact the comparability of results from period
to period such as the unpredictability and volatility of currency
fluctuations. The Company calculates the impact of foreign currency
fluctuations for businesses reporting in currencies other than the
U.S. dollar by multiplying the results for each quarter in the
current period by the difference between the average exchange rate
for that quarter and the average exchange rate in effect during the
corresponding quarter of the prior year and totaling the impact for
all quarters in the current period.
The calculation of Adjusted Revenues, Adjusted Total Segment
EBITDA and Adjusted Segment EBITDA may not be comparable to
similarly titled measures reported by other companies, since
companies and investors may differ as to what type of events
warrant adjustment. Adjusted Revenues, Adjusted Total Segment
EBITDA and Adjusted Segment EBITDA are not measures of performance
under generally accepted accounting principles and should not be
construed as substitutes for amounts determined under GAAP as
measures of performance. However, management uses these measures in
comparing the Company’s historical performance and believes that
they provide meaningful and comparable information to investors to
assist in their analysis of our performance relative to prior
periods and our competitors.
The following tables reconcile reported revenues and reported
Total Segment EBITDA to Adjusted Revenues and Adjusted Total
Segment EBITDA for the three months ended September 30, 2018 and
2017.
Revenues Total Segment EBITDA For the three
months ended For the three months ended September 30, September 30,
2018 2017 Difference 2018 2017
Difference (in millions) (in millions)
As reported $ 2,524 $ 2,058 $ 466 $ 358 $ 248
$ 110 Impact of acquisitions (433 ) - (433 ) (88 ) - (88 )
Impact of divestitures (3 ) (8 ) 5 - 1 (1 ) Impact of
foreign currency fluctuations 49 - 49 11 - 11 Net impact of
U.K. Newspaper Matters - - - 2 (43 ) 45
As adjusted $
2,137 $ 2,050 $ 87 $ 283
$ 206 $ 77
Adjusted Revenues and Adjusted Segment EBITDA by segment for the
three months ended September 30, 2018 and 2017 are as follows:
For the three months ended September 30, 2018 2017
% Change (in millions) Better/(Worse)
Adjusted Revenues: News and Information
Services $ 1,275 $ 1,239 3 % Subscription Video Services 144 145 (1
) % Book Publishing 421 401 5 % Digital Real Estate Services 297
265 12 % Other - -
**
Adjusted Total
Revenues $ 2,137 $ 2,050
4 %
Adjusted Segment
EBITDA: News and Information Services $ 118 $ 74 59 %
Subscription Video Services 28 27 4 % Book Publishing 68 48 42 %
Digital Real Estate Services 111 96 16 % Other
(42 ) (39 ) (8 ) %
Adjusted
Total Segment EBITDA $ 283 $
206 37 % ** - Not meaningful
The following tables reconcile reported revenues and Segment
EBITDA by segment to Adjusted Revenues and Adjusted Segment EBITDA
by segment for the three months ended September 30, 2018 and
2017.
For the three months ended September 30, 2018
Impact of
Net Impact
Foreign
of U.K.
Impact of
Impact of
Currency
Newspaper
As Reported
Acquisitions
Divestitures
Fluctuations
Matters
As Adjusted (in millions)
Revenues: News and
Information Services $ 1,248 $ - $ (1 ) $
28
$ - $ 1,275 Subscription Video Services 565 (425 ) - 4 - 144 Book
Publishing 418 - - 3 - 421 Digital Real Estate Services 293 (8 ) (2
) 14 - 297 Other - - -
- - -
Total
Revenues $ 2,524 $ (433 ) $ (3 ) $ 49 $ -
$ 2,137
Segment EBITDA: News and Information
Services $ 116 $ - $ - $ 2 $ - $ 118 Subscription Video Services
113 (86 ) - 1 - 28 Book Publishing 68 - - - - 68 Digital Real
Estate Services 105 (2 ) - 8 - 111 Other (44 ) -
- - 2 (42 )
Total Segment EBITDA $ 358 $ (88 ) $ - $ 11
$ 2 $ 283 For the three months
ended September 30, 2017
Impact of
Net Impact
Foreign
of U.K.
Impact of
Impact of
Currency
Newspaper
As Reported
Acquisitions
Divestitures
Fluctuations
Matters
As Adjusted (in millions)
Revenues: News and
Information Services $ 1,241 $ - $ (2 ) $ - $ - $ 1,239
Subscription Video Services 145 - - - - 145 Book Publishing 401 - -
- - 401 Digital Real Estate Services 271 - (6 ) - - 265 Other
- - - -
- -
Total Revenues $ 2,058
$ - $ (8 ) $ - $ - $ 2,050
Segment EBITDA: News and Information Services $ 74 $
- $ - $ - $ - $ 74 Subscription Video Services 27 - - - - 27 Book
Publishing 48 - - - - 48 Digital Real Estate Services 95 - 1 - - 96
Other 4 - - -
(43 ) (39 )
Total Segment EBITDA $ 248
$ - $ 1 $ - $ (43 ) $ 206
NOTE 2 – TOTAL SEGMENT EBITDA
Segment EBITDA is defined as revenues less operating expenses
and selling, general and administrative expenses. Segment EBITDA
does not include: Depreciation and amortization, impairment and
restructuring charges, equity losses of affiliates, interest
(expense) income, net, other, net, income tax (expense) benefit and
net income attributable to noncontrolling interests. Management
believes that Segment EBITDA is an appropriate measure for
evaluating the operating performance of the Company’s business
segments because it is the primary measure used by the Company’s
chief operating decision maker to evaluate the performance of and
allocate resources within the Company’s businesses. Segment EBITDA
provides management, investors and equity analysts with a measure
to analyze the operating performance of each of the Company’s
business segments and its enterprise value against historical data
and competitors’ data, although historical results may not be
indicative of future results (as operating performance is highly
contingent on many factors, including customer tastes and
preferences).
Total Segment EBITDA is a non-GAAP measure and should be
considered in addition to, not as a substitute for, net income
(loss), cash flow and other measures of financial performance
reported in accordance with GAAP. In addition, this measure does
not reflect cash available to fund requirements and excludes items,
such as depreciation and amortization and impairment and
restructuring charges, which are significant components in
assessing the Company’s financial performance. The Company believes
that the presentation of Total Segment EBITDA provides useful
information regarding the Company’s operations and other factors
that affect the Company’s reported results. Specifically, the
Company believes that by excluding certain one-time or non-cash
items such as impairment and restructuring charges and depreciation
and amortization, as well as potential distortions between periods
caused by factors such as financing and capital structures and
changes in tax positions or regimes, the Company provides users of
its consolidated financial statements with insight into both its
core operations as well as the factors that affect reported results
between periods but which the Company believes are not
representative of its core business. As a result, users of the
Company’s consolidated financial statements are better able to
evaluate changes in the core operating results of the Company
across different periods. The following table reconciles net income
to Total Segment EBITDA.
For the three months ended September 30, 2018 2017
Change % Change (in millions)
Net income $ 128 $ 87 $ 41 47 %
Add: Income tax expense 50 54 (4 ) (7 ) % Other, net (20 ) (9 ) (11
) ** Interest expense (income), net 16 (6 ) 22 ** Equity losses of
affiliates 3 10 (7 ) (70 ) % Impairment and restructuring charges
18 15 3 20 % Depreciation and amortization 163
97 66
68 % Total Segment EBITDA $
358 $ 248 $ 110
44 % ** - Not meaningful
NOTE 3 – ADJUSTED NET INCOME AVAILABLE TO NEWS CORPORATION
STOCKHOLDERS AND ADJUSTED EPS
The Company uses net income (loss) available to News Corporation
stockholders and diluted earnings per share (“EPS”) excluding
expenses related to U.K. Newspaper Matters, impairment and
restructuring charges and “Other, net”, net of tax, recognized by
the Company or its equity method investees, as well as the
settlement of certain pre-Separation tax matters and the impact of
the Tax Act (“adjusted net income (loss) available to News
Corporation stockholders” and “adjusted EPS,” respectively), to
evaluate the performance of the Company’s operations exclusive of
certain items that impact the comparability of results from period
to period, as well as certain non-operational items. The
calculation of adjusted net income (loss) available to News
Corporation stockholders and adjusted EPS may not be comparable to
similarly titled measures reported by other companies, since
companies and investors may differ as to what type of events
warrant adjustment. Adjusted net income (loss) available to News
Corporation stockholders and adjusted EPS are not measures of
performance under generally accepted accounting principles and
should not be construed as substitutes for consolidated net income
(loss) available to News Corporation stockholders and net income
(loss) per share as determined under GAAP as a measure of
performance. However, management uses these measures in comparing
the Company’s historical performance and believes that they provide
meaningful and comparable information to investors to assist in
their analysis of our performance relative to prior periods and our
competitors.
The following table reconciles reported net income available to
News Corporation stockholders and reported diluted EPS to adjusted
net income available to News Corporation stockholders and adjusted
EPS for the three months ended September 30, 2018 and 2017.
For the three months ended For the three months ended
September 30, 2018 September 30, 2017 (in millions, except per
share data)
Net incomeavailable tostockholders
EPS
Net incomeavailable tostockholders
EPS
Net income $ 128 $ $
87 $ Less: Net income attributable to noncontrolling interests
(27 ) (19 )
Net income
available to News Corporation stockholders $ 101 $ 0.17 $ 68 $
0.12 U.K. Newspaper Matters (a) 2 - (43 ) (0.07 )
Impairment and restructuring charges 18 0.03 15 0.02 Other,
net (20 ) (0.03 ) (9 ) (0.01 ) Tax impact on items above (4
) - 9 0.01
As adjusted $ 97 $
0.17 $ 40 $ 0.07
(a)
In the three months ended September 30, 2017, the Company
recorded a $46 million benefit from the reversal of certain
previously accrued net liabilities for the U.K. Newspaper Matters
as a result of an agreement reached with the relevant tax authority
related to certain employment taxes.
NOTE 4 – PRO FORMA
The following supplemental unaudited pro forma information for
the three months ended September 30, 2017 reflects the Company’s
results of operations as if the Transaction had occurred on July 1,
2016. The Company believes that the presentation of this
supplemental information enhances comparability across the
reporting periods. The information was prepared in accordance with
Article 11 of Regulation S-X and is based on historical results of
operations of News Corp and Foxtel, adjusted for the effect of any
Transaction-related accounting adjustments, as described below. Pro
forma adjustments were based on available information and
assumptions regarding impacts that are directly attributable to the
Transaction, are factually supportable, and are expected to have a
continuing impact on the combined results. In addition, the pro
forma information is provided for supplemental and informational
purposes only, and is not necessarily indicative of what the
Company’s results of operations would have been, or the Company’s
future results of operations, had the Transaction actually occurred
on the date indicated. As only the financial results for the
Subscription Video Services segment were adjusted due to the
presentation of this pro forma supplemental information, the
Company is only providing pro forma supplemental information for
this segment below, under “Subscription Video Services”. The
unaudited pro forma information should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and our unaudited consolidated financial
statements and related notes included in the Company’s Quarterly
Report on Form 10-Q for the three months ended September 30, 2018
that will be filed with the Securities and Exchange Commission.
The following tables set forth the Company’s unaudited pro forma
results of operations for the three months ended September 30,
2017.
For the three months ended September 30, 2018 2017
Change % Change (in millions, except %) As reported
Pro forma Better/(Worse) Revenues:
Circulation and subscription $ 1,034 $ 1,127 $ (93 ) (8 ) %
Advertising 664 $ 731 (67 ) (9 ) % Consumer 400 386 14 4 % Real
estate 227 203 24 12 % Other 199
146 53 36 % Total
Revenues 2,524 2,593 (69 ) (3 ) % Operating expenses (1,340
) (1,441 ) 101 7 % Selling, general and administrative (826 ) (777
) (49 ) (6 ) % Depreciation and amortization (163 ) (166 ) 3 2 %
Impairment and restructuring charges (18 ) (18 ) - - Equity losses
of affiliates (3 ) (2 ) (1 ) (50 ) % Interest (expense) income, net
(16 ) (26 ) 10 38 % Other, net 20 8
12 ** Income
before income tax expense 178 171 7 4 % Income tax expense
(50 ) (57 ) 7 12
% Net income 128 114 14 12 % Less: Net income attributable
to noncontrolling interests (27 ) (33 )
6 18 % Net income attributable
to News Corporation $ 101 $ 81 $
20 25 % ** - Not meaningful
Pro Forma (unaudited) For the three months ended September
30, 2017
News CorpHistorical(a)
FoxtelHistorical(b)
TransactionAdjustments
Pro Forma (in millions, except per share amounts)
Revenues: Circulation and subscription $ 651 $
574 $ (98 ) (c)(d) $ 1,127 Advertising 682 49 - 731 Consumer 386 -
- 386 Real estate 203 - - 203 Other 136
10 - 146
Total Revenues 2,058 633 (98 ) 2,593 Operating expenses
(1,149 ) (394 ) 102 (c)(e) (1,441 ) Selling, general and
administrative (661 ) (117 ) 1 (f) (777 ) Depreciation and
amortization (97 ) (59 ) (10 ) (g)(h)(i) (166 ) Impairment and
restructuring charges (15 ) (3 ) - (18 ) Equity losses of
affiliates (10 ) 3 5 (j) (2 ) Interest income (expense), net 6 (32
) - (26 ) Other, net 9 (1 )
- 8 Income before income
tax expense 141 30 - 171 Income tax expense (54 )
(6 ) 3 (k) (57 )
Net income 87 24 3 114 Less: Net income attributable to
noncontrolling interests (19 ) -
(14 ) (l) (33 ) Net income attributable
to News Corporation $ 68 $ 24 $
(11 ) $ 81 Basic and diluted earnings per
share: Net income available to News Corporation stockholders per
share $ 0.12 $ 0.14 (a) Reflects
the historical results of operations of News Corporation. As the
acquisition of a controlling interest in Foxtel was completed on
April 3, 2018, Foxtel is reflected in our historical Statement of
Operations from April 3, 2018 onwards. (b) Reflects the historical
results of operations of Foxtel to the date of the Transaction.
From April 3, 2018 onwards, Foxtel is included in the historical
results of operations of News Corporation. The Statement of
Operations of Foxtel is derived from its historical financial
statements for the three months ended September 30, 2017. The
Statement of Operations for the three months ended September 30,
2017 reflects Foxtel's Statement of Operations on a U.S. GAAP basis
and translated from Australian dollars to U.S. dollars, the
reporting currency of the combined group, using the quarterly
average rates for each period presented. Additionally, certain
balances within Foxtel’s historical financial information were
reclassified to be consistent with the Company’s presentation. (c)
Represents the impact of eliminating transactions between Foxtel
and the consolidated subsidiaries of News Corporation, which would
be eliminated upon consolidation as a result of the Transaction.
(d) Reflects the reversal of revenue recognized in Foxtel's
historical Statement of Operations resulting from the fair value
adjustment of Foxtel's historical deferred installation revenue in
the preliminary purchase price allocation for the Transaction. (e)
Reflects the adjustment to amortization of program inventory
recognized in Foxtel’s historical Statement of Operations related
to the fair value adjustment of Foxtel's historical program
inventory in the preliminary purchase price allocation. (f)
Reflects the removal of transaction expenses directly related to
the Transaction that are included in News Corp’s historical
Statement of Operations for the three months ended September 30,
2017. These costs are considered to be non-recurring in nature, and
as such, have been excluded from the pro forma Statement of
Operations. (g) Reflects the adjustment to amortization expense
resulting from the recognition of amortizable intangible assets in
the preliminary purchase price allocation. (h) Reflects the
adjustment to depreciation and amortization expense resulting from
the fair value adjustment to Foxtel's historical fixed assets in
the preliminary purchase price allocation, which resulted in a
step-up in the value of such assets. (i) Reflects the reversal of
amortization expense included in News Corp’s historical Statement
of Operations from the Company's settlement of its pre-existing
contractual arrangement between Foxtel and FOX SPORTS Australia,
which resulted in a write-off of its channel distribution agreement
intangible asset at the time of the Transaction. (j) Represents the
impact to equity losses of affiliates as a result of the
Transaction, as if the Transaction occurred on July 1, 2016.
Historically News Corp accounted for its investment in Foxtel under
the equity method of accounting. As a result of the Transaction,
Foxtel became a majority-owned subsidiary of the Company, and
therefore, the impact of Foxtel on the Company’s historical equity
losses of affiliates was eliminated. (k) In determining the tax
rate to apply to our pro forma adjustments we used the Australian
statutory rate of 30%, which is the jurisdiction in which the
business operates. However, in certain instances, the effective tax
rate applied to certain adjustments differs from the statutory rate
primarily as a result of certain valuation allowances on deferred
tax assets, based on the Company’s historical tax profile in
Australia. (l) Represents the adjustment, as a result of the
Transaction, to reflect the non-controlling interest of the
combined company on a pro forma basis.
Pro Forma Segment Analysis
The following table reconciles unaudited reported and pro forma
Net income to unaudited reported and pro forma Total Segment EBITDA
for the three months ended September 30, 2018 and 2017,
respectively:
For the three months ended
September 30,
2018 2017 As reported Pro forma (in millions) Net
income $ 128 $ 114 Add: Income tax
expense 50 57 Other, net (20 ) (8 ) Interest expense (income), net
16 26 Equity losses of affiliates 3 2 Impairment and restructuring
charges 18 18 Depreciation and amortization
163 166 Total Segment EBITDA $
358 $ 375
For the three months ended September 30, 2018 2017
Segment Segment Revenues EBITDA Revenues EBITDA (in
millions) As reported Pro forma News
and Information Services $
1,248
$ 116 $
1,241
$
74
Subscription Video Services 565 113 680 154 Book Publishing 418 68
401 48 Digital Real Estate Services 293 105 271 95 Other
- (44 ) -
4
Total $ 2,524 $ 358
$ 2,593 $ 375
Subscription Video Services
For the three months ended September 30, 2018
2017 % Change (in millions, except %) As reported Pro forma
Better/(Worse) Revenues:
Circulation and subscription $ 491 $ 592 (17 ) % Advertising 57 75
(24 ) % Other 17
13 31 %
Total Revenues 565 680
(17 ) % Operating expenses (324 ) (399 ) 19 % Selling, general and
administrative (128 )
(127 ) (1 ) %
Segment EBITDA $
113 $ 154 (27 ) %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181107005938/en/
Investor RelationsMichael
Florin212-416-3363mflorin@newscorp.comorLeslie
Kim212-416-4529lkim@newscorp.comorCorporate
CommunicationsJim
Kennedy212-416-4064jkennedy@newscorp.comorIlana
Ozernoy212-416-3364iozernoy@newscorp.com
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